Presidential
Advisory Committee of Michigan Technological
University
PROPOSAL 8-05
(Voting Units: Full Senate)
Reinvestment of the R&I Account Reserve Funds in
a Balanced Portfolio of Stocks and Bonds
Background
The R&I Account holds reserves to balance certain
liabilities of MTU, and these reserves are to be used only in the event that MTU
became insolvent. The current amount of these reserves is about $7,000,000. The
two primary items the reserves cover are accrued vacation and health care
expenditures that have been provided but not yet paid for. There is no intention
to ever spend these reserves; other accounts pay the expenses as they occur
during normal business.
These funds were invested in
a balanced portfolio between 1994 and 2003, when the funds were transferred to
entirely short-term bonds. During this period a total of $3,900,000 of
investment gains was transferred to the General Fund. The tenured faculty
members of the Investments Committee, Jim Gale, Dean Johnson, and Jim Pickens,
have since worked with the Board of Control Finance Subcommittee with the goal
of reinvesting these funds in a balanced portfolio of stocks, bonds, and cash.
This past summer the BOC Finance Committee tentatively agreed to reinvest the
funds, but asked that the Senate be given an opportunity to speak on the issue
before the decision becomes final.
Proposal
The Senate supports the reinvestment of reserve funds
in the Reserves and Insurance Account in a balanced portfolio of stocks, bonds,
and cash. The stock and bond holdings should be invested in mutual funds.
The asset allocation and mutual fund selection should be decided by the Investment
Committee, a group of faculty, staff, and administrators appointed by the
Chief Financial Officer. The portfolio’s asset allocation should generally
be adjusted only once each year, and this adjustment should be on the last
business day of January. The stock portion of this portfolio should not exceed
80% of the total value after the annual asset allocation adjustment. Investment
returns should generally be retained in the portfolio until the portfolio
balance is 120% of the liabilities that these funds were set aside to cover.
If the amount in the fund exceeds 120% on July 15, then the surplus above
120% is to be transferred to the General Fund and treated as one-time revenue
to be allocated through the normal budget allocation process. The faculty
representatives on the Investment Committee should report annually to the
Senate on the investment portfolio performance.
Approved by Senate: 10 Nov 2004