Adopt a new investment objective for the FRS investment portfolio based on achieving an inflation-adjusted target rate of return of at least 4.3 percent. The Board's consulting actuary has estimated that attaining this real rate of return (compounded and net of investment expenses) should ensure the timely payment of promised benefits to current and future participants, keep plan cost at a reasonable level and avoid excessive volatility in short-term plan cost levels. This item was reviewed and approved by the Investment Advisory Council (IAC) at their meeting on March 29, 2000.

The current FRS investment objective is to maximize the probability of achieving the actuarial rate of return (8 percent). However, future FRS benefit payments are very sensitive to inflation and real economic growth. Therefore, investment returns should keep pace with the drivers of expected benefit payments. If inflation were 6 percent, the Board's consulting actuary has estimated that investments should return over 10 percent to be able pay future benefits-well in excess of 8 percent. In addition, the return objective determines the level of investment risk in the Trust Fund, and this decision should be made by the Trustees. (Att. #2)

In keeping with the SBA's practice to maintain a fund balance in the Administrative Expense Trust Fund equal to approximately one year's operating expense, the SBA is proposing a payment holiday for investment management services for the last two months of fiscal year 1999-2000. This payment holiday will provide an estimated savings of $3.6 million to our trust fund clients. Implementation of this payment holiday is contingent upon the effect of legislation assigning additional responsibilities to the SBA. (Att. #3)

This discussion will center around the current legislative efforts to reform the Florida Retirement System to include a discussion of rate stabilization mechanisms.

5.1 The Florida Hurricane Catastrophe Fund requests that, pursuant to Section 215.555(5)(b), Florida Statutes, the Trustees approve the premium formula for the 2000-2001 contract year without a stabilization fund charge. The Advisory Council reviewed the premium formula on March 2, 2000 and approved it on March 30, 2000.

5.2 The Florida Hurricane Catastrophe Fund requests that the Trustees approve filing the following rules for adoption to implement the 2000-2001 contract year: the amendment of Rule 19-8.010 to adopt the reimbursement contract for the 2000-2001 contract year and of Rule 19-8.029 to adopt the 2000 insurer reporting requirements. The proposed amended rules were the subject of a rule development workshop on February 3, 2000, were approved by the Advisory Council for filing for notice on March 2, 2000, were the subject of a rule hearing on April 17, 2000 and were approved by the Advisory Council for adoption that same day. The Joint Administrative Procedures Committee had some substantive changes which will be handled with a notice of change.

5.3 The Florida Hurricane Catastrophe Fund requests that the Trustees approve filing Rule 19-8.011, the loss reimbursement rule, for repeal. The proposed repealed rule was the subject of a rule development workshop on February 3, 2000, was approved by the Advisory Council for filing for notice on March 2, 2000, was the subject of a rule hearing on April 17, 2000, and was approved by the Advisory Council for adoption that same day. The Joint Administrative Procedures Committee had no objections.

5.4 The Florida Hurricane Catastrophe Fund requests that the Trustees approve filing Rule 19-8.028, to implement the premium formula for the 2000-2001 contract year, for notice. The proposed amended rule was the subject of a rule development workshop on February 3, 2000, was reviewed by the Advisory Council on March 2, 2000, and was approved for filing for notice by the Advisory Council on March 30, 2000.

5.5A The Florida Hurricane Catastrophe Fund informs the Trustees of the selection of Paragon Reinsurance Risk Management Services, Inc. as administrator for the Florida Hurricane Catastrophe Fund. A request for information regarding SBA administrative services capabilities was issued on February 1, 2000. An evaluation team appointed by the SBA's executive director unanimously selected Paragon as the provider of administrative services for the Florida Hurricane Catastrophe Fund.

5.5B The Florida Hurricane Catastrophe Fund informs the Trustees that it is in the process of evaluating various risk management approaches in order to enhance the loss reimbursement process. A request for information is being developed in order to solicit information regarding the availability of reinsurance and other financial arrangements. The goal will be to make a recommendation to the Trustees at the June 26, 2000, SBA/Cabinet meeting in order to be able to gain approval to put a program in place on July 1, 2000, or shortly thereafter. The costs of financing such a program are expected to require a budget amendment and may entail an adjustment in the Florida Hurricane Catastrophe Fund premium formula. The 1% stabilization fund charge, which is not included in the 2000 premium formula, may be required to fund the cost of such a program.

Submitted for information and review is the fund activity analysis for the month of February 2000. (Att. #6)