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.