February 2021 MET Board Docket

187 (Rev. 01-19)

STATE OF MICHIGAN GRETCHEN WHITMER DEPARTMENT OF TREASURY RACHAEL EUBANKS GOVERNOR LANSING STATE TREASURER

MICHIGAN EDUCATION TRUST BOARD MEETING February 4, 2021 1:00 p.m. Microsoft Virtual Teams Meeting

AGENDA TAB

I. Approval of Minutes of December 8, 2020 Board Meeting A

II. Public Comment

III. Executive Director’s Report B Diane Brewer

IV. Financial Issues A. Investment Report by Woodrow Tyler & Nicholas Whitman, C Bureau of Investments B. Actuary Review by Paul Wood & Ken Alberts, GRS D

V. Policy and Program Issues A. MET Bylaws – Resolution 2021-1 E

VI. Marketing and Public Relations Update F A. Marketing Report by Molly Tipton & Jill Holden of Gud Marketing

VII. Next Scheduled Meeting Date – May 13, 2021

Updated: 1/27/2021 Filename: V:\SFSB\MET\Sheri\Board\2021 Board\February 2021\Agenda February 2021.doc

P.O. BOX 30198 • LANSING, MICHIGAN 48909 www.setwithmet.com • 517-335-4767 or 800-MET-4-KID Tab A

187 (Rev. 01-19)

STATE OF MICHIGAN GRETCHEN WHITMER DEPARTMENT OF TREASURY RACHAEL EUBANKS GOVERNOR LANSING STATE TREASURER

MICHIGAN EDUCATION TRUST MINUTES

The Michigan Education Trust Board held a regular meeting on December 8, 2020 at 2:00 p.m. as a Virtual Microsoft Teams Meeting.

Treasurer Rachael Eubanks called the meeting to order at 2:02 p.m.

Members Present:

Treasurer Rachael Eubanks, Present, Clinton County, East Lansing, Michigan Robert Bowman, Present, Fairfield County, Fairfield, Connecticut Virinder Moudgil, Present, Oakland County, Southfield, Michigan Cheryl Bartholic, Present, Clinton County, East Lansing, Michigan Ronald Wiser, Present, Kalamazoo County, Kalamazoo, Michigan Dr. Dale Nesbary, Present, Muskegon County, Muskegon, Michigan Ms. Marlin Williams, Present, Wayne County, Detroit, Michigan

Members Not Present:

Michael Flynn Philomena Mantella

I. Approval of Minutes of Wednesday, November 18, 2020 Meeting

Treasurer Eubanks presented the minutes of the November 18, 2020 meeting to the Board for approval. Mr. Ronald Wiser, made a motion to approve the minutes, supported by Dr. Virinder Moudgil. The minutes were approved unanimously (7-0).

II. Public Comment

None

III. Financial Issues

A. Contract for Marketing and Advertising Services – Resolution 2020-13

Ms. Brewer presented the Resolution for Marketing and Advertising Services. Ms. Brewer stated that a Request for Proposal (RFP) for MET Marketing and Advertising Services was issued by the Department of Technology, Management and Budget (DTMB) on September 21, 2020. Four (4) firms submitted proposals in response to the RFP.

P.O. BOX 30198 • LANSING, MICHIGAN 48909 www.setwithmet.com • 517-335-4767 or 800-MET-4-KID Page 2

The Joint Evaluation Committee (JEC) met on November 24, 2020 to review the proposals and make a recommendation to the MET Board. Based on the proposals received, the JEC recommends Gud Marketing to provide marketing and advertising services for MET. The JEC recommends a contract term of three years with two, one- year renewal options at a total cost of $4,275,000 ($1,425,000 annually).

The MET Board’s approval of the resolution would authorize DTMB to enter into a three (3) year contract with two, one-year renewal options on behalf of MET with Gud Marketing at a total cost for a three year term of $4,275,000 ($1,425,000 annually).

Ms. Brewer recommended that the Board adopt Resolution 2020-13. Dr. Dale Nesbary motioned to approve Resolution 2020-13 and was supported by Dr. Moudgil. The resolution was approved unanimously by a roll call vote, 7-0.

IV. Marketing and Public Relations

A. Presentation by Jill Holden of Gud Marketing

Ms. Jill Holden, Strategic Planning Director at Gud Marketing presented on the activities and results of the 2019-2020 marketing campaign with the overall goal to establish year- round brand awareness and deepen engagement to move people to action during high- enrollment periods.

Ms. Holden also provided a brief status of the year-end holiday campaign with a goal to increase awareness leading up to the holidays and promote a year-end tax deduction deadline. Strategies include statewide coverage, reaching families when they are together and targeting online behavior when shopping for gifts.

Ms. Holden gave a brief overview of the 2020-2021 communications strategy for the MET program. Ms. Holden stated that they will continue to elevate brand awareness of MET to new and prospective contract holders and leverage high-enrollment periods to drive consideration into action.

V. Other Business

Treasurer Eubanks asked for a motion to create a Marketing Committee and an Investment/Contract Pricing Committee to discuss and come back to the next Board meeting with their thoughts and recommendations. Mr. Wiser motioned to approve the creation of the committees and was supported by Ms. Cheryl Bartholic. The recommendation was approved unanimously by a roll call vote, 7-0.

Treasurer Eubanks discussed updating the MET Bylaws. Ms. Eubanks will be meeting with the staff and the Attorney General to begin the process. Ms. Eubanks mentioned that she will include the committee structures in the process. These updates will be discussed at an upcoming MET Board Meeting.

Page 3

Treasurer Eubanks suggested adjournment of the December 8, 2020 MET Board Meeting. Mr. Wiser made a motion to adjourn the December 8, 2020 MET Board Meeting, supported by Dr. Nesbary. The meeting adjourned at 2:46 p.m.

Minutes were approved on: ______

______Chairman Executive Director

Updated: 1/27/2021 Printed: 1/27/2021 Filename: V:\SFSB\MET\Sheri\Board\2021 Board\February 2021\Final\2 December 8 2020 Board Minutes.doc

Tab B MICHIGAN EDUCATION TRUST EXECUTIVE DIRECTOR’S REPORT February 2021

CONTRACT ENROLLMENT

• At 1/27/21 – 352 contracts, at 1/27/20 – 322 Contracts (up 9.3%). • At 12/31/20 – 272 Contracts representing $2,770,113 in prepaid tuition (up 15%). • At 12/31/19 226 Contracts, representing $2,406,789 in prepaid tuition. • Additional PAYG Contributions (10/1/2020- 12/31/2020) - $776,557.35.

PROGRAM ADMINISTRATION

• All MET staff are working remotely. • Telephone answer rates were 98% for November and December.

FINANCIAL ISSUES

• MET Audit completed with pending review of “significant deficiency.” • MESP and MAP Audits completed with no deficiencies.

PUBLIC RELATIONS ACTIVITIES & EVENTS

• Staff conducted 21 MET presentations/events October 1, 2020 through December 31, 2020. • Continued Facebook posts had 3,886 followers. • We have about 335 followers on Twitter and 442 followers on Instagram. • Executive Director conducted six radio, television and online news interviews promoting MET among viewers, listeners, and readers across the state. A series of press releases detailed the opening of the new enrollment period, special $100 match offers, virtual enrollment sessions and tax deadline.

JOINT MARKETING WITH MICHIGAN EDUCATION SAVINGS PROGRAM (MESP)

• IHeart MEDIA/WNIC Radio and digital campaign “Jay’s Holiday Shopping Guide” Holiday gifting focus 11/12/20-12/25/20 • Three consumer webinars

FOSTERING FUTURES SCHOLARSHIP TRUST FUND (FFS)

• Facebook page for Fostering Futures Scholarship has 319 followers. • Friday, September 17th, 2021 set for the Detroit dinner event at Roostertail. • Staff worked with Gud Marketing staff to hold virtual trivia night December 17, 2020, resulting in $1,075. • Bureau director, Treasury Legislative liaison working on legislative priorities to secure sponsor and renew efforts to expand scholarships to students attending Michigan trade and technical schools as well as renew Fostering Futures Scholarship on the Michigan income tax check off.

MICHIGAN EDUCATION SAVINGS PROGRAM (MESP)

• As of December 31, MESP had 8,869 new accounts for a total of 278,229 accounts (up 3.3% YOY) representing $6,809,600,761 in assets (up 11.9%). Average account size was $24,659.

MI 529 ADVISOR PLAN (MAP)

• As of December 31, MAP had 1,797 new accounts for a total of 50,531 accounts (up 3.5% YOY) representing $884,279,067 in assets (up 17.3%). Average account size was $17,500.

COLLEGE SAVINGS PLANS NETWORK (CSPN) UPDATE

• On December 28, 2020, the Michigan Supreme Court issued its decision affirming the Michigan Court of Appeals decision in Council of Organizations and Others for Education about Parochiad et al v State of Michigan et al. (MSC Docket No. 158751, holding that the state’s appropriations of funds to nonpublic schools to comply with the costs of state mandates relating to health, safety and welfare measures did not violate the Michigan Constitution. In reaching this conclusion, the Michigan Supreme Court considered recent U.S. Supreme Court cases as well as a precedent Michigan Supreme Court case that was decided soon after the voter initiated Proposal C passed, amending Article 8 Section 2 of the Michigan Constitution to prohibit appropriations for nonpublic school educational services (i.e., to support the attendance of any student or the employment of any person at any such nonpublic school. In July 2017, the Legislature amended MCL 388.1752b to appropriate approximately $2.5 million in general funds for the 2017–2018 school year and appropriated funds for subsequent year(s) to reimburse private schools for their compliance with State mandated requirements . During this lawsuit disbursement of the funds was enjoined. Some reports indicate the funds now total approximately $5 million in general funds. The court remanded the case to the court of claims for a determination of the distribution of the funds. In writing for affirmation, the Court noted that MCL 388.1752b allowing reimbursements to nonpublic schools in the State School Aid Act is in accordance with both the religion clauses of the First Amendment of the U.S. Constitution and Article 8 Section 2 as amended by Proposal C in the Michigan Constitution.

"Consequently, because Proposal C was only understood to prohibit appropriations for nonpublic school educational services, such health and welfare measures as auxiliary services fell outside the scope of Proposal C," …. "Regarding MCL 388.1752b, there is no language in the statute to suggest that public funds are to be appropriated for nonpublic school educational services; rather, MCL 388.1752b provides that public funds are to be appropriated only for 'police power' public services to which all educational institutions and all students are generally entitled."

This case was reported in the past in the event it would have an impact on the use of 529 accounts for K-12 tuition without state tax penalty. Please note the facts for this case were limited to the use of public funds to reimburse nonpublic schools for actual costs incurred for complying with state mandated health, safety, and welfare requirements.

EARLY TERMINATION REPORT

• Three requests for early termination due to financial hardship were received and approved (October 1,2020 – December 31, 2020).

TERMINATION REPORT

• Two requests for termination due to death or disability were received and approved • (October 1,2020 – December 31, 2020).

SUBCOMMITTE REPORTS

• Marketing: Cheryl Bartholic, Dr. Dale Nesbary, Marlin Williams. First meeting held January 26, included GUD staff Jill Holden, Molly Tipton and Brook Gieber, MET staff Diane Brewer and Heather Barthelmes and Robin Lott. Topics covered how purchaser data is collected and ways to improve; increasing use of surveys and other methods of tracking; resistance to purchasing including life stages, complexity of the contract language and concept that there is plenty of time. Suggested investigating survey/focus group options, costs and timelines; increasing virtual interaction with MET staff; microtargeting new area(s) of the state. Next steps include advanced exploration and timeline, getting to a place where MET is understandable, starting with a language perspective, rebranding and/or simplifying messaging.

• Finance/Investment: Bob Bowman, Ron Wiser, Michael Flynn. First meeting January 28, including Paul Wood, Woody Tyler, Joe Asghodom, Diane Brewer, Sheri Kapalczynski and Robin Lott.

This page intentionally left blank DECEMBER CONTRACT PURCHASES WEB CONTRACTS

PAPER CONTRACTS

TOTALS TOTALS W/OUT WITH PAYG .5 Years 1.0 Years 1.5 Years 2 Years 2.5 Years 3 Years 3.5 Years 4 Years 4.5 Years 5 Years PAYG PAYG Full Benefits 0 0 0 0 0 0 0 0 0 0 0 0 0 Limited Benefits 0 0 0 0 0 0 0 0 0 0 0 0 0 Community College 0 0 0 0 0 0 0 Full Benefits Monthly Purchase 0 0 0 0 0 0 0 0 0 0 0 0 Limited Benefits Monthly Purchase 0 0 0 0 0 0 0 0 0 0 0 0 Community College Monthly Purchase 0 0 0 0 0 0 Totals 0 0 0 0 0 0 0 0 0 0 0 0 0

CUMULATIVE FOR CURRENT MONTH

TOTALS TOTALS W/OUT WITH PAYG .5 Years 1.0 Years 1.5 Years 2 Years 2.5 Years 3 Years 3.5 Years 4 Years 4.5 Years 5 Years PAYG PAYG Full Benefits 91 32 13 5 4 0 0 1 11 0 0 66 157 Limited Benefits 41 7 10 1 0 0 1 0 1 0 0 20 61 Community College 24 4 4 1 4 13 37 Full Benefits Monthly Purchase 0 2 0 1 0 2 0 3 0 0 8 8 Limited Benefits Monthly Purchase 1 1 0 3 0 0 0 0 0 0 5 5 Community College Monthly Purchase 1 0 0 3 4 4 Full Benefits - Charitable 0 0 Community College - Charitable 0 0 Totals 156 45 30 7 15 0 3 1 15 0 0 116 272 2020-21 MET STAFF ACTIVITIES (Approx. Total Attendees: 254) October (Approx. Total Attendees: 73) November (Approx. Total Attendees: 129) December (Approx. Total Attendees: 52) • Webinars • FFS Virtual Trivia Night • Webinars • FFS Virtual Trivia Night • Lansing Board of Water and Light • Grand Rapids Chamber Events* • Greater Lansing Baby Fair Benefits Fair* • Lansing Chamber Events* • Lansing Board of Water and Light • Lansing Chamber Event* • FFS Virtual Trivia Night Benefits Fair* • Webinar • Oakland Schools Benefits Fair* • Fiat Chrysler Working Parents Group Presentation* • Berkley Library Presentation • Harrison Township Library Presentation January (Approx. Total Attendees:) February (Approx. Total Attendees:) March (Approx. Total Attendees:) • • April (Approx. Total Attendees:) May (Approx. Total Attendees:) June (Approx. Total Attendees:)

July (Approx. Total Attendees:) August (Approx. Total Attendees:) September (Approx. Total Attendees:) • • * Employer Outreach Events

FOR IMMEDIATE RELEASE Contact: Beth McKenna Nov. 19, 2020 989-225-0341

Michigan Education Trust holds contract prices steady amid COVID-19 pandemic; will reopen enrollment Dec. 1 State’s 529 prepaid tuition purchasers eligible to meet year-end tax deduction deadline

LANSING – The Michigan Education Trust (MET) Board of Directors announced Wednesday that the 529 prepaid tuition program’s contract purchase prices will remain unchanged in order to help families strained financially by the COVID-19 pandemic.

“Saving for college is extremely challenging during these extraordinary times. Holding contract prices steady through at least next September will, we hope, be a big help to Michigan families,” said Diane Brewer, MET’s new executive director.

That means, for example, that until Sept. 30, 2021, purchasers of Pay-As-You-Go contracts will continue to pay $612 for a credit hour of tuition under a full-benefits contract for tuition and mandatory fees at any Michigan public university; $508 per credit hour under a limited-benefits contract, which covers up to 105 percent of the weighted average tuition of Michigan’s public four-year universities; and $125 per credit hour for a community college contract. Additionally, MET is offering a $100 matching grant on contracts purchased for new beneficiaries during December. Eligibility and rules are posted at SETwithMET.com.

MET also sells contracts through lump-sum and monthly purchase plans that require minimum purchases of a semester’s worth of tuition.

The MET board also announced it will reopen enrollment on Dec. 1. As it does every year, MET closed enrollment on Sept. 30 in order to review and adjust pricing.

The Dec. 1 reopening allows those who buy or contribute to a contract by the end of the year to qualify for a deduction on their Michigan tax return. MET contract holders are eligible for a state deduction for purchases or contributions made by Dec. 31 each year.

MET, which is administered by the Michigan Department of Treasury, is a Section 529 prepaid college tuition programs that locks future tuition at any of the state’s public universities and colleges at today’s rates. Additionally, funds can be directed to out-of-state colleges as well as Michigan private colleges and universities. MET benefits are used to pay tuition and mandatory fees.

More information about MET is available at SETwithMET.com or 800-MET-4-KID.

FOR IMMEDIATE RELEASE Contact: Beth McKenna Nov. 30, 2020 989-225-0341

Tired of toys? Give the gift of college tuition this holiday season with Michigan Education Trust First 300 families who sign up in December for state’s 529 prepaid tuition plan will receive $100 match

As the holiday season approaches, the Michigan Education Trust (MET) encourages families to give the gift of college credits this year.

“Toys and video games are fleeting. But for as little as $125, you could buy your child one hour of college credit and start building a college savings plan for their future,” said Diane Brewer, executive director of MET, the 529 prepaid tuition program administered by the Michigan Department of Treasury.

“You don't have to be the parent of a child to start saving for their college education. Aunts, uncles, grandparents and friends of the family are all welcome to open or contribute to a MET plan.”

Brewer said more and more often, grandparents are stepping in to ease the financial burden of college for their children – and lessen the crushing weight of future student debt for their grandchildren. According to a 2018 AARP survey, 21% of grandparents today assist with college costs.

MET, the nation’s first 529 prepaid tuition plan, has helped tens of thousands of families since 1988 with an affordable way to save for college by pre-purchasing tomorrow's tuition at today's rates.

To encourage families to give the gift of college, MET is offering a $100 matching grant on contracts purchased for new beneficiaries during December. The incentive is available to purchasers who enroll online at SETwithMET.com before Dec. 31 using coupon code HOLIDAY20. MET will also waive its $25 enrollment fee in December.

Families are urged to act quickly not only to take advantage of the match, but also to qualify for a deduction on their Michigan tax return for purchases or contributions made by Dec. 31.

In order to help Michigan families strained financially by the COVID-19 pandemic, MET’s Board of Directors announced earlier this month that contract purchase prices will remain unchanged. The new contract year opens Dec. 1.

That means the prices of MET’s popular Pay-As-You-Go contracts will continue to range from $125 per credit hour for a community college contract to $612 for one credit hour to cover tuition and mandatory fees at any Michigan public university. Or you could pay $508 for a credit hour under a limited-benefits contract, which covers up to 105% of the weighted average tuition of Michigan’s public four-year universities.

“By saving a little each month early on, family members can all pitch in and prepare financially for the growing expense of college,” Brewer said. MET also sells contracts through lump-sum and monthly purchase plans that require minimum purchases of a semester’s worth of tuition.

Only one account per beneficiary qualifies for the match and fee waiver, and MET will make the match after account holders complete their purchase of at least one credit hour of prepaid tuition.

More information about MET and match eligibility and rules is available at SETwithMET.com or 800-MET-4-KID.

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MICHIGAN EDUCATION TRUST

REQUESTS TO RECEIVE A REFUND OR TERMINATE CONTRACT OCTOBER 1, 2020 – DECEBMER 31, 2020

Reason for Contract Number of Request(s) Request(s) Request(s) Termination Request(s) Granted Denied Pending Request(s)

Death of Beneficiary 0 0 0 0

Disability of Beneficiary 4 2 2 0

Financial Hardship 4 4 0 0

Request Contract Received Number Reason

08/13/2020 08-0002279 Disability of Beneficiary 09/24/2020 16-C000001 Disability of Beneficiary 10/07/2020 07-0P03430 Financial Hardship 10/06/2020 14-LP51517 Financial Hardship 14-LP51511 10/20/2020 05-0002009 Disability of Beneficiary 10/13/2020 09-0002241 Disability of Beneficiary 11/09/2020 12-0P51052 Financial Hardship

Updated: 1/27/2021 Printed: 1/27/2021 Filesname:V:\SFSB\MET\Sheri\Board\2021 Board\February 2021\Termination.report.doc Tab C

Michigan Education Trust Fund Investment Report February 4, 2021

Prepared By Bureau of Investments Michigan Department of Treasury MET I Agenda

➢ MET I Portfolio Review ➢ Snapshot of MET I Valuation ➢ Estimated Income ➢ Next Steps

1 MET I Market Value

The MET I portfolio market value was $115.0 million as of December 31, 2020. MET I is closed to new contract receipts.

Total Market Value (in millions)

$116 $115.6 $115.3 $115.2 $115.0

$113.8

$112 9/30/2019 12/31/2019 6/30/2020 9/30/2020 12/31/2020

2 Capital Preservation

The fund was 99.9% invested in cash and bonds with 0.1% in alternative investments as of December 31, 2020. This allocation reflects the fund’s closed and overfunded status with the portfolio’s purpose of meeting tuition redemptions. The bonds are scheduled to mature to match and meet future projected tuition payments.

Asset Allocation Market Values 12/31/20 Corp. Bonds Dec 31 Dec 31 53.4% Alternatives 0.1% ($ in millions) 2019 2020 Cash Equivalents 23.4 39.4 U.S. Government Bonds 18.7 14.2 U.S. Gov't Cash Corporate Bonds 62.9 61.3 Bonds 34.2% 12.3% Alternatives 10.4 0.1 Total 115.2 115.0

3 12 Month Estimated Income

The MET I portfolio is expected to earn investment income of approximately $2.4 million over the next twelve months.

Estimated Income For Investment Holdings Over the Next Twelve Months

Investments ($ in millions) Return Rate Amount

Bonds 3.2% $2.3

Alternative Investments 6.0 0.0

Cash / Commercial Paper 0.3 0.1

Total Estimated Income & Dividends Over the Next Twelve Months $2.4

4 Investments Update

4th Quarter 2020 Investments • Cerberus mortgage • Sixth Street European direct lending

5 MET II Agenda

➢ MET II Portfolio Review ➢ Market Outlook ➢ Investment Allocation Overview ➢ Bonds ➢ Stocks ➢ Alternatives

6 MET II Market Value

An increase in overall fund valuation more than offset tuition outflows of $31.7 million in the 4th quarter, resulting in total ending portfolio market value of $988.1 million as of December 31, 2020.

Total Market Value (in Millions) $975.8 $979.3 $988.1 $1,000 $911.6 $958.1

$800

$600

$400

$200

$0 12/31/18 9/30/19 12/31/19 9/30/20 12/31/20

* Does not include Present Value of Future Contract Receivables. 7 Aug. 6th Meeting- New Allocation

8% Current Proposed Difference Target Target

7% Cash 5.0% 5.0% 0% Proposed Target Equities 30.0% 27.0% -3.0% 6% Current Target Bonds 26.0% 28.0% +2.0% MET II 5% Alternatives 15.0% 18.0% +3.0%

4% Hedge Funds 7.0% 5.0% -2.0% Return Expectations Return

3% Private Equity 7.0% 7.0% +0% Real Estate 10.0% 10.0% 0% 2% Total 100% 100% 1% Est. Return 5.9% 6.0% 2% 4% 6% 8% 10% 12% Risk Expectations Est. Risk 8.7% 8.6%

8 Current Asset Allocation

Cash levels are elevated as the MET II is underweight bonds and continues to rebuild alternatives which is below targeted allocation due to 3 fund redemptions in late 2019 and early 2020. Asset Allocation 40% 35.6%

28.0% 27.0% Current Target

20% 17.8% 18.0%

9.9% 9.6% 8.8% 9.4% 10.0% 9.0% 7.0% 5.0% 5.0%

0% Equities Bonds* Alternatives Hedge Funds Private Equity Real Estate Cash

*includes 5% High Yield Target Portfolio: 6.0% Expected Return with 8.6% Standard Deviation • 68% probability: -2.6% < returns < 14.6% • 95% probability: -11.2% < returns < 23.2% 9 Recent Market Performance

2020 was a volatile year which ended the 4th quarter with a continued recovery in equity markets while interest rates rose on the prospects of vaccinations bringing and end to the virus and along with it strong economic growth.

Asset Class Qtr. 1-Year 3-Years 5-Years 10-Years as of 12/31/2020 90-Day T-Bills 0.02% 0.6% 1.6% 1.2% 0.6%

Bloom. Gov't Long Bond -2.9% 17.5% 9.8% 7.8% 7.7%

Bloom. Agg. Bond Index 0.7% 7.5% 5.3% 4.4% 3.8%

Bloom Corp High Yield 6.4% 7.1% 6.2% 8.6% 6.8%

S&P 500 Stock Index 12.1% 18.4% 14.2% 15.2% 13.9%

MSCI EAFE 16.0% 7.8% 4.3% 7.4% 5.5% 8

MSCI EM 19.7% 18.3% 6.2% 12.8% 3.6%

10 12 Month Estimated Income

The MET II portfolio is expected to earn investment income of approximately $27.4 million over the next twelve months. However, this is may move lower due to lower re-investment rates and potential for some forbearance in the alternative investment areas of real estate and direct lending

Estimated Income For Investment Holdings Over the Next Twelve Months

Investments ($ in millions) Return Rate Amount

Bonds 3.8% $5.3

Cash / Commercial Paper 0.3 0.2

Equity Dividends 1.8 7.1

Alternative Investments 4.0 14.8

Total Estimated Income & Dividends Over the Next Twelve Months $27.4

11 Vaccinations & Recovery

Estimate herd immunity (>70% of population immune) could be reached in the US by mid summer

12 Rapid Economic Growth should follow

• Jan. - Feb. expected to remain weak, with ramp up in growth beginning Mar./April and a full recovery expected by mid summer, early fall • Unprecedented fiscal and monetary stimulus will act as a significant tailwind • ~$3 Trillion in consumer savings have been built up the past 12 months, and much of this is expected to be unleased beginning in the second half of the year

13 Along with Inflation

• Morgan Stanley sees 2021 GDP growth of 5.9% vs. consensus of 3.9%, with inflation rising to 2% and rising into 2022 • Unlike 2008, household and corporate balance sheets have seen limited stress • Unemployment rates will decline faster than consensus expectations

14 Bond Yields- should continue to rise

• Nominal yields have increased ~60 bps since August, 2020 • Morgan Stanley estimates rates could rise to ~1.40% • Into 2022, MS expects rates will mover closer to their 2019 levels of ~2.00%

15 Bonds

Bonds – while offering lower returns, bonds offer income, stability and low correlation relative to higher returning equities and other assets. However, this may not be the case over the next year or two. Recommendation- • Rebuild allocation, but maintain underweight by ~5% (23% vs. target of 28%) • Allocate underweight of 5% to hedge funds, which is expected to generate returns of 4-5% while maintaining low correlations with equites • Lower overall duration of the bond portfolio • Build back high yield and corporates when spreads widen

16 Equities

Equities – while equities have performed extremely well, this performance has been concentrated in the US, specifically US growth, and even more specifically large cap FAANG + Microsoft and Tesla Recommendation- • Current allocation is 77% U.S./23% International. Recommend re-allocation to 65% U.S./35% Intl. • Overweight private equity for higher expected returns • Research income equities as a potential substitute for low yielding bonds • Review Dodge & Cox for transition to either a new active manager of index

17 Alternatives

Alternatives – below allocation as 3 funds redeemed (for lower cost funding). Recommendation- this will take time to build, reviewing holding committed capital in Bloom. Intermediate Agg while waiting to fund • Nuveen TALF- ended without funding • Fortress Distressed- ramping up • Cerberus mortgage, SJC direct lending, Sixth Street European direct lending also ramping up • Continue to review other opportunities with focus on income generating investments

18 Tab D

Michigan Education Trust I & II

December 31, 2020 Interim Update

February 4, 2021

MET I MET II 9/30/2020 12/31/2020 9/30/2020 12/31/2020 Actuarial Present Value of Future Tuition Payments, Fees and $49.8 $48.5 $727.4 $717.4 Expenses Market Value of Assets $113.1 $115.0 $959.0 $988.1 Present Value of Future Contract $0.0 $0.0 $29.6 $27.9 Receivables Total Valuation Assets $113.1 $115.0 $988.6 $1,016.0 Surplus (Deficit) $63.3 $66.5 $261.2 $298.6 Funded Ratio 227.0% 237.0% 135.9% 141.6%

2 December 31, 2020, Interim Results

• Actual Investment Return – On a preliminary basis, the asset returns for the first quarter of the year have been favorable, meaning they are currently above the assumed annualized return • Liability Growth – Liabilities are rolled forward and new liability is estimated from limited contract sales data • Key Takeaway – The two Trusts continue to be well funded

3 December 31, 2020, Interim Results

Michigan Education Trust I ($ in Millions) $200 $180 $160 $140 $120 $100 $80 $60 $40

Liabilities Assets

4 December 31, 2020, Interim Results

Michigan Education Trust II ($ in Millions) $1,050 $1,000 $950 $900 $850 $800 $750 $700

Liabilities Assets

5 Disclosures

• This analysis shall not be construed to provide tax advice, legal advice, or investment advice. • The actuary submitting this analysis (Paul Wood, ASA, FCA, MAAA) is a Member of the American Academy of Actuaries and meets the Qualification Standards of the American Academy of Actuaries to render the actuarial opinion contained herein. • The projections do not consider the likelihood of decreasing future contract sales due to price increases, or margins in excess of the WAT. The projections assume MET will assess the reasonableness among future contract sales, price increases, and margins in excess of the WAT. • The primary purpose of the actuarial soundness valuation is to measure the financial position of MET. • The valuation results summarized in this report involve actuarial calculations that require assumptions about future events. The major actuarial assumptions used in this analysis were provided by and are the responsibility of MET. We are unable to judge the reasonableness of some of these assumptions without performing a substantial amount of additional work beyond the scope of the assignment.

6 Disclosures

• Future actuarial measurements may differ significantly from the current measurements presented in this report due to such factors as the following: plan experience differing from that anticipated by the economic or demographic assumptions; changes in economic or demographic assumptions; and changes in plan provisions or applicable law. We have performed an analysis of the sensitivity of certain changes in future assumptions. • This is one of multiple documents comprising the actuarial report for the MET actuarial soundness valuation. Additional information regarding actuarial assumptions and methods, and important additional disclosures are provided in the full actuarial soundness valuation report as of September 30, 2020. • If you need additional information to make an informed decision about the contents of this presentation, or if anything appears to be missing or incomplete, please contact us before relying on this presentation. • The valuation results set forth in this analysis are based upon data and information, furnished by MET, concerning program benefits, financial transactions, and beneficiaries of MET. We reviewed this information for internal and year-to-year consistency, but did not audit the data. We are not responsible for the accuracy or completeness of the information provided by MET. Further, the asset data and information provided is through December 31, 2020, and does not reflect subsequent market volatility.

7 Tab E

187 (Rev. 01-19)

STATE OF MICHIGAN GRETCHEN WHITMER DEPARTMENT OF TREASURY RACHAEL EUBANKS GOVERNOR LANSING STATE TREASURER

DATE: February 4, 2021

TO: MET Board of Directors

FROM: Diane Brewer, Executive Director

SUBJECT: Updates to MET Bylaws – Resolution 2021-1

Background

At the Board meeting held 12/8/2020 Treasurer Eubanks recommended that MET update the Bylaws of 9/18/1987 to incorporate amendments approved to transfer or clarify delegation of authority. They include:

Resolution 1987-1 – the Board delegates to its president and chief executive officer the authority to oversee the operations of the Michigan Education Trust (the “Trust”) and the supervision of its employees.

Resolution 1989-5 – the Board delegates to its president and the Chairman in the Presidents absence the authority to oversee the operations of the Trust and to hire and supervise employees.

Resolution 1990-3 – the authority to oversee the operations of the trust, hire and supervise employees in accordance with the resolution.

Resolution 1993-11 – the Board wishes to amend resolutions 1990-3, 1990-5, 1990-36, 1991-19 and 1992-14 changing the delegation of authority from the Executive Director to the Executive Director or the Assistant Director.

Resolution 1993-25 – the Board amends Resolution 1993-11 amending the delegation of authority to include the Deputy State Treasurer, Bureau of Management Services.

Resolution 2008-4 – the authority to consider, approve, or deny requests to transfer benefits to the spouse of the beneficiary.

Treasurer Eubanks also recommended that the Bylaws include reference to Board Subcommittees.

The MET Board’s approval of the attached resolution would serve to update the MET Bylaws regarding delegation of authority resolutions previously approved and include a reference to Board Subcommittees.

P.O. BOX 30198 • LANSING, MICHIGAN 48909 www.setwithmet.com • 517-335-4767 or 800-MET-4-KID Page 2

Action of the MET Board

The Board is requested to approve or deny Resolution 2021-1.

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2/4/2021 Deleted: 9/18/87 MICHIGAN EDUCATION TRUST Bylaws

ARTICLE I

Name The name of this organization shall be the "Michigan Education Trust". The acceptable acronym shall be "MET".

ARTICLE II Type of Organization The Michigan Education Trust is a public body corporate and politic within the Michigan Department of Treasury.

ARTICLE III Members - Term of Office

The members of the Board of the Michigan Education Trust and their terms of office together with the method of selecting the same shall be as set forth in Section 10 of Act No. 316 of the Michigan Public Acts of 1986.

ARTICLE IV Michigan Education Trust

Section 1. Seal of Trust. The Board of the Michigan Education Trust may adopt an official seal for the Michigan Education Trust. The seal of the Michigan Education Trust shall bear the name of the Michigan Education Trust and be in substantially the form as presented to the Board on the date of adoption of these Bylaws.

The seal shall appear on such documents of the Michigan Education Trust as shall be provided for by Resolution of I the Board of Michigan Education Trust. The Board of the Michigan Education Trust may provide by Resolution, for the use of a facsimile seal in place of the seal.

Section 2. Office of Michigan Education Trust. The Gene ra l Offices of the Trust shall be at Lansing, Michigan or at such other pl ace as the Board may, from time to time, designate by Resolution.

ARTICLE V Officers and Employees Section 1. Officers. The officers of the Michigan Education Trust shall be the Chairperson, the President, the Vice President, and such other officers as may be designated from time to time by Resolution of the Board of the Michigan Education Trust. Section 2. Chairperson. The Chairperson shall be selected as set forth in Section 10 of Act - 316 of the Michigan Public Acts of 1986. The Chairperson shall preside at all meetings of the Board of the Michigan Education Trust. Section 3. President. The President shall be selected as set forth in Section 10 of Act No. 316 of the Michigan Public Acts of 1986. The Deleted: The President shall be the chief President shall have the duties and responsibilities as expressly executive officer of the Michigan provided for in Act No . 316 or as otherwise determined by resolution of the Education Trust and shall be responsible Board of the Michigan Education Trust. for the general supervision over staff and has administrative responsibility for the business and affairs of the Section 4. Vice President. The Vice President shall be selected as set Michigan Education Trust. forth in Section 10 of Act No. 316 of the Michigan Public Acts of 1986. The Vice President shall have such other duties and responsibilities as determined by Resolution of the Board of the Michigan Education Trust. Section 5. Absence of Chairperson. Whenever the Chairperson is unable to attend a meeting of the Board of the Michigan Education Trust, the members present at such meeting shall designate a temporary presiding officer from among the members present, who shall preside at such meeting. If present in person at the meeting, the president then the vice president should first be considered. Section 6. Staff Officers. The Board of the Michigan Education Trust may by Resolution designate one or more employees of the Michigan Education Trust as authorized officers of the Michigan Education Trust with such duties and responsibilities as may be determined by Resolution of the Board of the Michigan Education Trust. By Resolutions 1987-1, 1989-5, 1990-3,1990-36,1993-11,1993-25 the Board determined within Deleted: and designated criteria that the executive director of the Michigan Education Trust shall be responsible for the general supervision over staff and shall have administrative responsibility for the business and affairs of the Michigan Education Trust. Section 7. Compensation. Members of the Board of the Michigan Education Trust ( other than the President) sha 11 serve without compensation for such membership but shall receive reasonable reimbursement for necessary travel and expenses, subject to the laws and Constitution of the State of Michigan, and the requirements of the Civil Service Commission.

The compensation for the President and any other officers and employees of the Michigan Education Trust shall be determined by the Board in accordance with applicable law.

ARTICLE VI Meetings

Section 1. Quorum. A majority of the members of the Board of the Michigan Education Trust serving shall constitute a quorum for the transaction of the business at a meeting, or the exercise of a power or function of the Michigan Education Trust, notwithstanding the existence of one or more vacancies. Only members who are physically present at a meeting may be counted for purposes -· ------. of determining if a quorum exists. Section 2. Order of Business . By vote of a majority of the members participating at any regular or special meeting of the Board of the Michigan Education Trust, any matter may be placed on the agenda at such meeting. In his/her discretion, the Chairperson may place on the agenda any matter which he/she deems of sufficient or pressing importance.

Section 3. Manner of Voting. The vote on all questions except resolutions at a meeting of the Board of the Michigan Education Trust shall be by a voice vote, unless a member requests a roll call, in which case the yeas and nays shall be entered upon the minutes of such meeting. When a quorum is present in person at the meeting, any member of the Board of the Michigan Education Trust who is not physically present at a meeting of the Board may participate in such meeting and vote on such matters as sha11 come before the Board of the Michigan Education Trust if amplified telephonic equipment is used at such meeting which allows each member of the Board of the Michigan Education Trust participating in the meeting and all other persons attending the meeting to hear comments of, and votes of, the member of the Board who is not physically present.

Section 4. Regular Meetings. Regular meetings of the Michigan Education Trust shall be held at such times and places as the Board deems appropriate. A11 meetings of the Michigan Education Trust sha 11 comply with the provisions of the "Open Meetings Act" (Act 267 of the Public Acts of 1976, as amended).

Section 5. Special Meetings. The Chairperson or the President or, upon petition, any five Board members may call special meetings of the Michigan Education Trust when, in their judgement, events have occurred that warrant the consideration and prompt attention of the Board. A quorum of the membership shall be required for any action to be taken at special meetings. Meetings of the Michigan Education Trust may be held anywhere in the State of Michigan.

Section 6. Minutes. Minutes of all the Board meetings of the Michigan Education Trust, including all votes, shall be kept and shall be corrected and approved at a succeeding meeting. The minutes for each meeting of the Board of the Michigan Education Trust shall be open and available to the

public in compliance with the Open Meetings Act, Act No. 267, Michigan Public Acts of 1976, as amended, and the Freedom of Information Act, Act No. 442, Michigan Public Acts of 1976, as amended.

Section 7. Procedures. The rules contained in the current edition of Robert's Rules of Order shall be followed in all applicable cases not inconsistent with these Bylaws and/or any special rules which may, from time to time, be adopted by the Board of the Michigan Education Trust.

Section 8. Resolutions and Effective Date. All Resolutions shall be in writing and shall be contained in the minute book of the Michigan Education Trust. Resolutions shall become effective on the day of passage, upon adjournment of the meeting , unless otherwise se stated in the Resolution.

Section 9. Advisory Subcommittees. The Board may establish Formatted: Font: Bold advisory subcommittees as needed. Subcommittee membership is limited to less than a majority of the appointed members. Formatted: Underline Formatted: Font: Bold Formatted: Font: Bold Formatted: Underline ARTICLE VII Formatted: Font: Bold Liability of Members, Officers, Employees and Agents Section 1. Liability. No member of the Board of the Michigan Education Trust or any officer, employee, or agent for the Michigan Education Trust, including any person executing any documents or certificates on behalf of the Michigan Education Trust shall be liable personally for any action taken by the Michigan Education Trust or any document or certificate executed on behalf of the Michigan Education Trust.

Section 2. Indemnification. The Michigan Education Trust may purchase and maintain insurance on behalf of any person who is or was a member of the Board of the Michigan Education Trust and on behalf of any officer, employee, or agent of the Michigan Education Trust against any liability asserted against any member, officer, employee, or agent and incurred by such person in any capacity.

ARTICLE VIII Procedures for Members of the Public to Address the Board Section 1. Notification. Any member of the public wishing to speak on a specific agenda item or on any other Board related subject at a Regular Meeting of the Board shall give one (1) week notice of this intent. Any member of the public wishing to speak on a specific agenda item at a Special Meeting of the Board for which an agenda has been prepared and distributed at least ten (10) days in advance of the Meeting shall give five (5) days’ notice of this intent . Any member of the public wishing to speak on a

specific agenda item at a Special Meeting of the Board for which an agenda has not been prepared and distributed at least ten (10) days in advance of the Meeting shall notify the Executive Director prior to the start· of the Deleted: President of the Board Meeting of his or her intent. In all cases, a person wishing to speak shall provide at the time of notification his or her name and the topic to be addressed. Any group larger than 20 persons planning to attend a Meeting of the Board shall, when possible, notify the Executive Director of the Deleted: ChairpersonPresident and Board at least 18 hours prior to the time for commencement of the Meeting.

Section 2. Limitations as to Length and Number of Presentations. The Chairperson of the Board may limit in a reasonable fashion the length of a presentation or the number of speakers on any issue, in order to facilitate the orderly conduct of the Meeting. Section 3. Special Hearings. The Board will entertain and, when possible, honor requests for special hearings related to special issues of concern. Section 4. Waivers of Notification. The Chairperson or President or Vice President may, in the interest of encouraging public participation, waive Deleted: or Vice President any of the above notification requirements. Section 5. Person to Notify. All notifications required by this article, except where otherwise stated, shall be made to the Executive Director. The Deleted: Executive DirectorPresident of the Executive Director sha11 notify the Chairperson prior to the Meeting of Boa rd. any notifications received. Deleted: President

ARTICLE IX Miscellaneous Provisions

Section 1. Fiscal Year. The fiscal year of the Michigan Education Trust shall extend from October 1 of each calendar year to the ensuing September 30 of the following calendar year. Section 2. Execution of Documents. The Board may authorize by Resolution the execution of documents or certificates on beha1f of the Trust by the members of the Board and officers and employees of the Trust as it considers appropriate.

ARTICLE X Amendment and Suspension of Bylaws Section 1. Amendment. These Bylaws may be amended by Resolution adopted by the affirmative vote of a majority of the members of the Board of the Michigan Education Trust at any meeting, provided that notice of intention to present such Resolution shall be given at least four (4) days in advance of the meeting at which the motion to adopt such Resolution is made. Such notice may be given in writing and mailed or delivered to

the business or home address of each member or, in the alternative, such notice may be given orally at any meeting, in which event such notice shall be noted in the Minutes of the meeting at which it is given. Advance notice of motions to amend the proposed amendments to the Bylaws need not be given.

Section 2. Suspension. Any and all of the provisions of the Bylaws, except those required by state law, may be suspended by unanimous consent of the members constituting a quorum present at any meeting of the Board.

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MICHIGAN EDUCATION TRUST

RESOLUTION

2021-1

MET BYLAWS UPDATE

At a meeting of the Michigan Education Trust (MET) Board held on February 4, 2021, in Lansing, Michigan, the following resolution was offered by Member ______who moved its adoption, and seconded by Member ______.

WHEREAS, the Michigan Education Trust Board of Directors (the “Board”) has been established pursuant to 1986 PA 316 (the “Act”) and possesses the powers and authorizations therein set forth;

WHEREAS, section 10(3) of the Act authorizes the Board to delegate to its president, vice president, or others the functions and authority as the Board considers necessary or appropriate;

WHEREAS, the Board previously delegated to the Executive Director, the Assistant Director or the Deputy State Treasurer the authority for certain functions through the following resolutions:

Resolution 1989-5 – the Board delegates to its president and the Chairman in the Presidents absence the authority to oversee the operations of the Trust and to hire and supervise employees.

Resolution 1990-3 – the authority to oversee the operations of the trust, hire and supervise employees in accordance with the resolution.

Resolution 1993-25 – the Board amends Resolution 1993-11 amending the delegation of authority to include the Deputy State Treasurer, Bureau of Management Services.

Resolution 2008-4 – the authority to consider, approve, or deny requests to transfer benefits to the spouse of the beneficiary;

WHEREAS, the Board wishes to update the Bylaws of September 18, 1987 to encompass all previously approved resolutions relating to the delegation of authority.

WHEREAS, the Board further wishes to update the Bylaws of September 18, 1987 to be consistent with Board practice.

NOW, THEREFORE, BE IT RESOLVED, that the Board hereby amends the Bylaws of September 18, 1987.

BE IT FURTHER RESOLVED, if there are any other resolutions inadvertently omitted from those listed above in which the Board had delegated authority to the Executive Director or Assistant Director, those resolutions are also included in the amended Bylaws.

YEAS:

NAYS:

Tab F MET Marketing Committee Feb. 4, 2021

• Year-End Campaign Results • MET Marketing Committee Update • Next Steps Year-End Campaign

Goal: Increase awareness of MET leading up to holiday season (Nov. 26-Dec. 24)

Strategy: • Statewide coverage • Reaching families when they are together • Target online behavior when shopping for gifts for child, family, friends • TV, radio, streaming audio (Pandora, podcasts), streaming video, digital display ads, paid content video and content stories Year-End Campaign

Outcomes & Outputs • December MET contracts – 272 (vs. 226 YA) ⁃ 2nd-largest enrollment month in 2020 (September: 317 contracts; largest marketing investment in August/September) • Website traffic • Traffic +60% YOY – 375 users Thanksgiving Day, 537 users Black Friday • Offline media drove website traffic in 3 weeks leading up to Thanksgiving, averaging 140 users per day • Online media drove highest engagement on site. Paid search, high-impact partner display ads, content marketing drove highest engagement • Media coverage • 11 news stories: Detroit Free Press, Grand Rapids Business Journal, 9&10 News, WBKB-TV, WKZO-AM, WHTC-AM ⁃ Estimated 12.7 million reach ($118,000 adv. value) Year-End Campaign MET Marketing Committee

Update • Thank you to the Marketing Committee: Nesbary, Bartholic, Williams • First meeting: Monday, Jan. 25 • Topics of discussion ⁃ Historical research/learning – barriers to enrollment, enrollment strategies ⁃ Tracking and following customer journey through contract purchase ⁃ 2021 opportunities ⁃ Simplifying language, branding clarity • Next steps ⁃ Research recommendations – simplify brand, language ⁃ Scope of work – options for research/marketing ⁃ Timeline of activities