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HomeMy WebLinkAbout11-12-2003 Minutes General Employees Pension Board Board Meeting—November 12,2003 Page 1 Minutes of the Quarterly Meeting of the CITY OF OCOEE GENERAL EMPLOYEES PENSION BOARD Held on November 12,2003 At 150 N.Lakeview Drive Ocoee,FL 34761 Chairperson Tom Ison called the meeting to order at 10:07 a.m. He then called the roll. Trustees Patricia Cornell,Ed Bishop,Jerry Sauerwein and new Trustee Jean Grafton were all present,therefore it was determined a quorum was present. Attending the meeting by invitation were Ward Foster representing Foster&Foster,Inc.,Attorney H.Lee Dehner,Tim Nash and Diane Garcia representing TRUSCO Capital Management,Larry Cole representing Merrill Lynch,Fran Diedrich HR Director,and Jo Ann Lacey,Recording Secretary of the Meeting. Chairperson Ison called for review of the Minutes of the Meeting held on August 13,2003. Copies of those Minutes had been previously circulated to the Trustees. The Trustees were asked if there were any corrections or additions to the Minutes. There being none,it was on motion made by Trustee Cornell and seconded by Trustee Bishop,unanimously RESOLVED that the Minutes of the Quarterly Meeting of the Board of Trustees of the General Employees Pension Board of August 13,2003,be and they are hereby approved. Chairperson Ison called upon Mr.Ward Foster for the report of the annual actuarial valuation of the Fund. Mr.Foster advised the Board that the news with this report was a lot better than the previous year. He advised this report was a snapshot of what the Fund looked like on October 1,2003 and the funding requirements developed in the valuation were projected into the City's fiscal year that ends r September 30,2005. He said that this process gives hard numbers for budgeting purposes well before the budgeting process for the year gets underway and that is the advantage of using this particular projection technique. He reported that the total required contribution from City and member sources is$1,128,310, which represents 18.3%of the payroll of active members covered under the Plan which is down from the 18.7%funding rate developed in the 2002 valuation and,of the required contributions,after subtracting out expected member contributions,the City's bottom line funding requirement for the year is$672,189,about $22,000 less than the previous year. He called the Board's attention to page 14 of his report. This page shows the technique used to develop assets for funding purposes and shows the last four returns. He explained that these were market value returns net of investment related expenses. He reported that in 2003,the Fund had a good return at a little over 10%,which met the 8%assumption. He said that last year's four year average was 1.8%and with this report it was 1.6%so they compared this 1.6%return with the 8%assumption to determine whether or not there were gains or losses from the investment experience. He said there were some losses yet the funding rate still went down which indicates there were offsetting gains from other experiences. He said one reason was that the average salary increases for the year were less than expected and the other component of favorable experience was relatively high employee turnover. He also pointed out that there were a number of vested people who could have left their contributions in and receive their monthly benefit at the otherwise normal retirement date who elected to receive a refund of their contributions. This generated enough gains to offset the effects of the investment experience. He reported that the Fund is getting some serious progress on the investment side even though it is a slow recovery. He called attention to page 3 of his report and explained that the actuarial value is the smoothing value and the market value reported is what is really in the Fund. He pointed out than in the 10/01/02 column,the actuarial value was$8.7 million and the market value was$7.4 million so there was a gap between the smoothing value and market value of$1.4 million. He then stated that for 10/01/03,the difference was closer to$700,000. He said that the Plan is very well funded with$8.9 million of market value as of October 1,2003. He said that the value of benefits that members had earned for the service under the Plan up to October 1,2003, including all of the liability being held for inactive members,retirees, etc.,is about$7.2 million so there is a$1.6 million cushion between the value of the assets in the Fund and the value of the earned benefits,which is good. General Employees Pension Board Board Meeting—November 12,2003 Page 2 co, Chairperson Ison thanked Mr.Foster for the good report and asked the Board if they had any questions or comments. Trustee Cornell asked Attorney Delmer about the requirements for sending the report to the State of Florida. Attorney Dehner advised that,once approved by the Board,Mr.Foster would submit the report to the Division of Retirement and the Board would need to send a letter regarding the expected annual rate of return. After a brief discussion,it was on motion made by Trustee Sauerwein and seconded by Trustee Cornell,unanimously RESOLVED,that the City of Ocoee Municipal General Employees'Retirement Trust Fund Actuarial Valuation Report as of October 1,2003,reporting Contributions Applicable To The City's Fiscal Year Ending September 30,2005,as presented by Foster& Foster,Inc.,be and is hereby approved as presented. Chairperson Ison,following direction from Attorney Dehner,asked Mr.Foster for his recommendation on what the expected annual rate of return will be. Mr.Foster answered that would be 8%. Following a brief discussion,it was on motion made by Trustee Grafton and seconded by Trustee Bishop,unanimously RESOLVED,that the Board has determined,based on the recommendations of its consultants,that the total expected annual rate of return for the current year and each of the next several years and the long term thereafter will be 8%net of investment related expenses. Chairperson Ison,called on Mr.Tim Nash for the Money Manager's Report. Mr.Nash greeted the Board and said it had been nice to hear the Foster&Foster report. He then advised that there had been double digit gains for the fiscal year for above 10%and that it had been a while since positive gains out of the portfolio had been seen so that was encouraging. He said his firm believes that trend will continue in 2004. He called attention to Tab I of the TRUSCO report for the market snapshot and pointed out the fiscal year to date,one year column,in which the S&P was up 24%,Dow up 25%,and International stocks up 32%. He advised that most of the gains were from the June and September quarter,and reminded that at the end of March,the U.S.was in the initial conflict with Iraq and the S&P for the year at that time was down 3%. He reported that the market is doing extremely well although there is some concern about potential inflationary pressure looking forward,but it is doing well now and the major reason is that the GDP growth has been very strong. He said that consumer spending has been good and that has much to do with the tax cuts and tax rebates that have been in place over the past couple of years making disposable income greater. He added that the housing market is very strong with a lot of refmancing activity still going on which is putting money in the consumer's pockets. One area which has improved only slightly is the job outlook and this is one of the last indicators needed to improve as the economy moves forward. He said that because we would be moving into a presidential election year, there would be significant pressure on the current administration and the Federal Reserve to make sure the economy is going to move along strongly and it was expected that the job number would improve. He reported that capital spending by business has started to pick up,that there has not been a large expansion of manufacturing facilities and plants,though that is beginning to be seen,but a lot of companies are updating computer software systems and servers and equipment of that nature. All of these factors indicate the economy is set for good strong growth and there is a very low inflationary environment. He said our dollar is very low which has helped on international stocks because,when our dollar is low relative to other countries,it makes our goods a bit cheaper in the global marketplace and that helps to sell our goods overseas. Calling the Board's attention back to the TRUSCO report,Mr.Nash stated that some of the better performers for the year were technology stocks and financial stocks,that healthcare,which has been very good over the last couple of years, is still posting gains but the gains are not as great as they have been. He said that the growth portfolio had good weighting in technology stocks which helped during the quarter. He said they have been adding to the financial sector in the growth fund and that there is a decent weighting in the value fund. He reported that there is still no exposure in the growth fund to the telecom General Employees Pension Board Board Meeting—November 12,2003 Page 3 sector and utilities sector. He said that one important thing to note was that the average price to earnings ratios which are currently a little over 20,are back to the levels they were in 1996 which is a much more reasonable level than was seen over the past few years,reminding that in 1999 the price to earnings level was 32. He continued with a brief explanation of stocks in general. Mr.Nash then discussed the actual returns for the quarter,an increase of almost$120 thousand, and earnings for the fiscal year of$837,807. At the end of September,the value of the Plan was $8,883,712. He said that the market continued to be strong and that as of November 11,2003,the portfolio value was$9,244,841. He reported on each of the funds,indicating all were up for the quarter,but that the mid-cap fund was a little behind the Russell index and international was up slightly more than the index. Trustee Bishop asked why international stocks were doing so well. Mr.Nash answered that our lower dollar was helping and most foreign economies were starting to improve. He then reported that the bonds were down 41 basis points for the quarter. Chairperson Ison asked about the bonds,whether something should be done about those investments since they had been in a downward spiral for a while. Mr.Nash answered that in anticipation of the economy growing strongly with the potential for inflation and interest rates rising,they have been working toward making the average maturity of the bonds in the one to five year range,and now have approximately 60%of the bonds in that range. He said they were also trying to get maximum policy weight on the equity side for all of the accounts,thinking that stocks are the best place to be. He reported that over the past twelve-month period the combination of returns for the four different stock funds was up 15.7%and the growth fund,year to date,was up 13.9%. He said that the S&P 500 was up 24 and the Russell 3000 was up 25 for that time period. He explained that the difference was because purchases for the portfolio were of A or better ratings and they had not performed over the short term as well as the C and D rated stocks. Mr.Nash reported that the mid-cap fund comparison figures over the last nine months were not really valid because of the change of the fund manager and the resulting change of style that the fund invests in. He reminded the Board that change had taken place at the end of February and that prior to (16, February the fund had the ability to buy both small-cap and mid-cap stocks and now is only buying mid- cap stocks. Mr.Nash stated that having a diversified portfolio has benefited the Plan significantly and that trend was expected to continue. He called attention to page 25 of his report for the asset allocation. He reminded the Board that they had given TRUSCO a target to beat the Russell 3000 and beat the Merrill Lynch government credit within some parameters,the 60/40 range,and then they have left it up to TRUSCO to manage the asset allocation. He reported that the portfolio has three large-cap funds[a large- cap growth and two large-cap value],the Russell mid-cap fund which is now just buying mid-caps,and some international. He said that one thing missing in the overall asset allocation target was the small-cap stocks. He said there is a small cap growth mutual fund that will have its five-year track record at the end of November. He said the manager's name is Mark Garfinkel and one of the things they have done is open a small-cap common trust fund. He said it would use the same investment process that the small-cap growth mutual fund uses with the exception that it will not buy any ADR's or any international stocks. He said that was added at the end of October and about 7.9%of the overall portfolio is now in that small-cap growth fund. He said that has reduced the exposure in the mid-cap fund down to about the 5%range. Trustee Bishop asked Mr.Nash why the cash,at 3.7%,is almost double the report for 6/30. Mr.Nash said they were getting ready for the small-cap transition and were taking a bit of cash from all of the portfolios to be able to buy the small-cap fund when it opened in October. Mr.Nash continued with a general discussion and reported that there had been some Putnam Investments stock in the portfolio,however,there had been some allegations regarding late-day trading and market timing and the stock was immediately sold. He added more information to the comments he had made earlier regarding Chairperson Ison's question about the bonds. He called attention to page 36 of the report to the hi-grade bond portfolio. He said that if interest rates rise over the next 12 to 18 months as anticipated and the bonds owned are in the shorter maturity range,the Fund will not be hurt as much as if there was a lot invested in 10-year or 30-year bonds. He said to shorten up the portfolio,they buy cevcorporate bonds with the one to five year maturity. He said that corporate bonds usually pay 1%to 1-1/2% more interest or coupon rate over treasury bonds. He said the current average coupon is 5.2%. Attorney General Employees Pension Board Board Meeting—November 12,2003 Page 4 Dehner asked if there is any consideration being given to shortening the fund any further as the durations reported were longer that he was seeing in a lot of funds. Mr.Nash answered that TRUSCO tends to be+/- 15%of the duration of the index and now they were just slightly over that. He said they were actually neutral on duration and were staying almost on line with the index. Attorney Dehner asked if they would shorten up on that if Merrill Lynch recommended a shorter index? Mr.Nash said they would. Attorney Dehner asked Mr.Nash and Mr.Larry Cole,of Merrill Lynch,if they had any recommendations for the Board in that respect. Mr.Cole responded that is a policy decision of TRUSCO,it was not a directive from the Board or Merrill Lynch for them to stay within 15%or 20%of that index. He said for the Board or Merrill Lynch to make a call in this regard was something he would hesitate to do because they have been given that leeway. Mr.Cole stated that Mr.Nash's report seemed a little inconsistent in that he said the bond managers expect to see rates higher in the next 12 to 18 months,which was somewhat significant,yet the duration is pretty neutral to the index. Mr.Nash responded that the index is actually much shorter than it was a couple of years ago and that he was answering relative to the actual fund. He said that,in addition to the small-cap fund that they have opened up,they also have a shorter duration or maturity bond fund,that they have added about 10%of a bond fund that has a maturity of about 3 years into the bond fund mix to help shorten up the overall duration of the portfolio. Mr.Cole asked if that was in the fund now. Mr.Nash said it was not. Chairperson Ison asked if that was going to start? Mr.Nash said yes,that was a change they have been doing across the board. He said he did not recommend changing the long-term index objective. Attorney Dehner asked Mr.Nash if the significance of the duration number is how much the principal value of the assets is going to fluctuate depending upon what the percentage of interest rates is so that if the interest rates go up a percent,with a duration of 5.9,there would be a loss of 5%of the value of the bonds,a duration of 2,with rates going up a percent,would result in a 2%loss? Mr.Nash said that was right. Attorney Dehner said that was why it becomes an issue when there is an anticipation of rates drifting up. tiw Mr.Cole said the pressure was to protect the principal in the bond portfolio over the next couple of years and they way to do that would not just be to look at duration but at the structure of the portfolio as that could have a big impact also. He said this was not an exact science,just a guideline. He said that, generally speaking,the longer the duration,the more volatility in the portfolio. Chairperson Ison asked Mr.Nash if,moving forward to January 2005 and there is a Presidential election taking place,interest rates go up and inflation goes up for a short term and then flattens out again,the Fund would be able to dump some of the bonds at that time? Mr.Nash said that was part of the reason that they have moved to the shorter end of the maturity spectrum as it provides better protection on the down side so if there is a spike in interest rates,there will be less of a loss. He said they try to have the coupon income make up any losses that there may be in principal. He said these variances are the reason why they would not want to get out of bonds altogether or make a significant call to move all of the money to a three-year duration. He said this is something that TRUSCO was constantly watching. Mr.Cole reminded the Board that this is why the Fund pays the fees to TRUSCO,that their bond guys spend their whole life trying to time the market and structure their portfolios to take advantage of different environments. He said there are a lot of variables that go into their decisions,that it was a very complex process. Chairperson Ison said that,historically,bonds have been safe and have given good returns. He said there are regulations that say how much money can be put where and wondered if the environment stays like it is now,that would need to be addressed. Mr.Cole answered that he felt that would be all the more reason to stay the course with the long term investment policy that makes sense,tied in with what Foster&Foster does,to try to make the 8%actuarial assumption rate. He said that the bottom line is that,even the worst three years in the stock market we have seen,the long term averages 30 years out still say that stocks should still be between 10-12%whether in large cap stock or small cap stock,so the blend should be somewhere between 10-12% and bonds should be between 5-7%and,if you do the math on the 60/40 stock,you come up with a very reasonable long term expectation of the actuarial assumption of 8%. He said to go in and try to micro-manage would not be prudent and he did not recommend it. He said you put the burden of this on the investment managers to make the asset allocation call and that is what they get paid to do. Chairperson Ison thanked Mr.Cole for his comments because this was a long-term situation and he was reassured about the market over the long term. General Employees Pension Board Board Meeting—November 12,2003 Page 5 („ Attorney Dehner asked Mr.Nash when the Board would be receiving the corporate governance statement. Mr.Nash said they were signed up but he was not sure when they would get the ratings of stocks [i.e.,if the 9/30 ratings would be available at 9/30],that they may run a quarter behind. He said he would have an answer about this at the next meeting. Chairperson Ison asked Mr.Nash about the proxy policy guidelines. Mr.Nash said the Board should have received a summary stating that is was their summary of proxy guidelines with a phone number and email address. He said the SEC requires that all inquiries for all of the proxy issues be recorded and they monitor to see that there is a 72-hour turnaround time. Trustee Cornell said there was nothing in the correspondence. Mr.Nash said he would find out about the status. Trustee Cornell then asked Mr.Foster about the cost of an individual actuarial report as a follow up to a telephone conversation they had had recently. She said she had been under the assumption that the cost was$50.00,but Mr.Foster had indicated it was$75.00 and would be going up to$100.00. Mr.Foster said he had looked over the actuarial services agreements back to September 14, 1995,updated March 10, 1999 and March 12,2001,and in all of those agreements there was a$75.00 charge for benefit calculations. He said the current contract goes through the work done as of 10/01/2003. He said they would be sending a letter to the Board that outlines the new fee structure and it would go into effect with the work beginning 10/01/2004 and they would be charging$100 for all benefit calculations. Chairperson Ison asked how long it takes to turn around a report. Mr.Foster said that once all of the information is received,it is supposed to be out of their office within five working days. Chairperson Ison asked if those were sent to the member or to Ms.Diedrich. HR Director Diedrich responded that they go to her. Mr.Foster said the he had brought with him the individual statements for all of the members that show precise,accrued and projected benefits based on the average salary on September 30,2003. Trustee Cornell asked Mr.Foster if she understood correctly that the annual actuarial summary for everybody was provided at no charge to the employee but if the employee wants to retire and requests a calculation,then there would be a fee for that? Mr.Foster said she was correct. He went on to say that to have a benefit calculation done there would be additional salary information and service time to consider and to do the six optional forms of payment and calculations taking into account the beneficiary's relative age and all of that, is a much more involved undertaking than just looking at the formula benefit which is what the annual statements provide.Chairperson Ison asked if there were any other questions for Mr.Foster. Ms. Diedrich asked if the charges for the benefit calculations would be billed to the Board. Mr.Foster said that was correct. He added that it was a different issue for formal benefit calculation for people going on retirement with the buy-back calculation. The charge for that calculation would be billed to the member. He said that the buy-back ordinance was adopted November 19,2002 and their contract,which did not address buy-back calculation costs was adopted March 12,2001. He said they had consistently charged the same fee for a buy-back calculation as a formal benefit calculation. He added that their new contract would add a section about administering the drop program as well as the buy-back calculation,but that fee would be the same. Chairperson Ison asked when those new contracts would be received? Mr.Foster said they would first send a letter to the Board outlining all of the updated fee schedules and the services and costs and,in a meeting,the Board would approve the new fee schedule and Attorney Dehner would then update the contract to reflect that. Attorney Dehner pointed out that,by rule,the Board has adopted a policy that two studies will be performed at the expense of the Fund during the period of employment. Any additional studies would be at the expense of the employee. Chairperson Ison then called on Larry Cole for the monitor's report. Mr.Cole said he would make his comments brief as much of his report had already been covered by Mr.Nash's thorough report. He said he felt the news would continue to be good and the Fund should be up to$10 million very soon. He said the assets on 9/30/03 were at 59%in stock,which is slightly more than the average public pension fund. He said that is a bit more aggressive but was okay because of the diversification. He reminded the Board that at the last meeting they had discussed the portfolio manager change for the mid-cap fund and that they were to look at the situation more thoroughly at this meeting. He said that Merrill Lynch has not been impressed with the results and,had TRUSCO not done what they have,he would have been suggesting that they look around at some other options. He said TRUSCO did General Employees Pension Board Board Meeting—November 12,2003 Page 6 move into a small-cap growth fund,and after running some analysis of the small-cap growth fund against some other small and mid-cap options,it looks like it concurs favorably. He suggested that at the February, 2004 meeting,they look again at what TRUSCO has put together. He said most of the changes were made after the end of the quarter so the results were not yet apparent. He said the reason he is not being aggressive on that at present is that it is to the Plan's advantage for TRUSCO to figure out a way to fix that portion of the assets. He said that represents 11%of the stocks,about$600,000 of the portfolio which is a large enough number that it is considered important and they would like to see it run by the best options that they can find. He said if TRUSCO can solve the problem themselves and have something internal to fix it, it would be a much lower expense ratio because it would fall under their fee. If it were necessary to go outside,the fees would be considerably higher. He stated that fees were not the only reason. He said that,as it is structured right now,TRUSCO has the asset allocation call within the framework that has been set and they make those decisions. He explained that TRUSCO is judged on two things,the stocks and bonds they pick and their asset allocation call. He said that once any piece of the portfolio is broken out, the asset allocation call then falls on the Board because they would be the one actually transferring money from pot A to pot B. He said Merrill Lynch would work with them and make recommendations but it would change the structure of the way things have been done for years. He said that once the Plan gets to be over$10 million,there are a lot more options because there would be million dollar pieces in many of the fund groups that could be used for some of the other investment alternatives. He said that at present the small-cap growth fund that has been put it appears to be working fairly well so he thinks it is a good alternative. He added that he hoped the mid-cap fund would work out well but the portfolio manager does not have an extensive background or track records and Merrill Lynch had not be comfortable with all of the money being in there but TRUSCO has addressed that and it would definitely be monitored. Attorney Dehner stated that some of Mr.Nash's colleagues have reported at other meeting that they were keeping a real close watch on Kevin Shea. He asked if either Mr.Nash or Mr.Cole would address that. Mr.Nash said he would respond. He said that there are internal policies in place,not just that they must beat the Russell 3000 index which is a Fund policy,but each of the managers have an individual cowindex that they need to beat. He explained that,in the case of mid-cap funds,they must beat the Russell mid-cap index and,in addition to that,they have to support various things and have peer group rankings and rankings of all of the managers in the mid-cap universe and they must be in the top third of all of those managers in order to be eligible for a bonus and their bonus income is a significant portion of their total compensation. So,they lose a lot of money if they don't perform in a consistent manner by industry standards and if they continue to underperform there will be a change of managers. He said TRUSCO management is intolerant of managers not producing. Attorney Dehner said the reason he raised the issue is that they have discussed the fact that this limited cap fund being a combination of small and mid-cap before and now it is a mid-cap fund. He said the one issue regarding the small-cap was being addressed and the other issue was the performance of that fund. He said managers had been changed because of the underperformance of the previous manager and the new manager has yet to meet the index,including the last quarter when the index was over 6 and he was over 4. He said his question has been and still is,when we can expect reasonably for him to hit the index. He reminded the Board that Mr.Nash had told them at the last quarterly meeting that there was a transition of assets going on and Mr. Shea was getting his portfolio in place. He said that now the report is through September and that it has been agreed it is a reasonable expectation that it should happen soon because the transition is over. Mr.Nash said that the transition is over,the stocks are now truly Mr.Shea's and their performance for September was behind the index. He said all of their funds were behind their respective indices for the year and that was largely due to transition. He said this is being monitored with Mr. Shea and if the situation doesn't approve,there will be changes accordingly. Chairperson Ison read from the minutes of the August 13 meeting where it is recorded that Mr. Nash said,"you will get a true picture of the new manager's ability by September 30." He said that he had run into Mr.Cole a couple of times in the last 60 days and each time they had discussed that particular segment because it was of concern. Mr.Cole stated again that had TRUSCO not made the changes they had recently,the recommendation would have been to make a change,but he said the combination looks good from a historical basis. He said that,if it would be okay with the Board,what he would plan to do at the next meeting is take a hard look at that portion of the assets. He said the Plan had a lousy year,relative to the rest of the world,it should have been better,TRUSCO should have done better. He stated that the General Employees Pension Board Board Meeting—November 12,2003 Page 7 quality issues regarding stock which Mr.Nash had explained were very real. He said TRUSCO does buy higher quality,bigger named stocks with predictable earnings and low debt which,over the long term,is usually rewarded,but in this particular market that has just not worked out very well. He said he would keep an eye on the fund over the next quarter. He informed the Board that if they felt they should move faster, if they were uncomfortable with the approach that TRUSCO has taken,he would come back for a special meeting before the next scheduled quarterly meeting and bring with him a list of other alternatives. He said that he did not think the portfolio was being hurt at the moment,but would do whatever the Board determined to be their pleasure. Attorney Dehner asked Mr.Cole for his suggestion. Mr.Cole said he would suggest waiting to see if the changes that had been initiated at TRUSCO would correct the problem stating they had moved away from Manager Shea quite a bit to a fund that has a proven track record and were trying a blend of the two so there is access to the different asset classes. He said he was inclined to be a bit more patient. He reminded the Board that one of the biggest mistakes Boards can make is to make changes at the wrong time. He agreed that this is a bit of an issue which should not be allowed to be drawn out too long but TRUSCO,Merrill Lynch and the Board were all aware of the issue and were watching it carefully. He asked the Board if they were comfortable with the way TRUSCO had addressed the issue? Chairperson Ison said since this was looking at a trend,not just one quarter,he thought they should give time for the results to be reviewed. Mr.Cole reminded the Board that his firm had questioned the contracting of Mr. Shea in the beginning as his track record was not what they would like to have seen,and they were a bit confused as to why they had removed Mr.Hamlin so quickly to go with Mr. Shea. Trustee Cornell asked Attorney Dehner if it would be to the Board's advantage to make a motion to addressing this particular issue or at least get a consensus of the Board that it be agreed to give it more time just as a matter of record. Attorney Dehner said that these minutes would reflect that Mr.Cole would be bringing information to the Board at the next quarterly meeting for discussion and that he does not recommend doing anything before that,therefore,no other Board action would be necessary. (hieMr.Cole returned to his report and called the Board's attention to the other issue on which he had concerns—international. He said that international remains particularly low relative to the target index and, as he has reported in the last several meetings,he feels that more exposure to international would have been helpful. He said this is the determination of the TRUSCO asset allocation committee and,even though they had increased international exposure considerably,he indicated that even more exposure would be good for the Fund. Mr.Cole reminded the Board that,even in light of the current issues now being watched, TRUSCO has done a great job of protecting assets in the bear[down]market but they are struggling to keep up in the bull market but as there is some rotation from the lower quality stocks over the quality issues,he said they expected to see TRUSCO's performance improve in that kind of environment so they would never make a recommendation based on just one year unless there were some other factors out there like on the mid-cap fund. He said the story of TRUSCO is that they protect the assets well in bad markets but struggle to keep up in bull markets and that trend was continuing. Chairperson Ison said he felt comfortable with being protected in the down markets. Mr.Cole commented on the Putnam Fund. He said Putnam was having quite a run on it but it was still a very large fund. He said Putnam's portfolio manager on the international fund had been fired just in the last week so Merrill Lynch was advising all of their clients that had any investments in the Putnam International Funds to get out. He added that Putnam was still a great group but people were running scared with Putnam right now. He said they have a lot of debt but they have a lot of talent and he felt it would all shake out good. He said the same thing just popped up with Alliance with their CEO. Attorney Dehner asked if,as result of all of that, if Mr.Cole agreed with him that corporate governance was important. Mr.Cole stated that he did not necessarily disagree,but he was anxious to see how it would impact the portfolios. He added,however,that if he were a Trustee,he would agree that that would be the way to go. Chairperson Ison mentioned that he had just seen where some stockholders of Disney were suing because they thought one of the key executives had been overpaid. He said if the stockholders start voicing some of their opinions to the weak boards that are appointed, it will probably change over time. General Employees Pension Board Board Meeting—November 12,2003 Page 8 Attorney Dehner said that was part of the SEC strategy,to see the shareholders be more proactive to achieve that end and there are three services now. He said he knows that TRUSCO is using ISS. He said it had been brought up in several meetings lately and he did not want there to be any misunderstanding with respect to the managers,that he is interested on behalf of the Board that the managers render an opinion as to the quality of corporate governance. He added that what they choose to base their opinions on is up to them,it is just something that they have to be comfortable with. Mr.Cole said he did not disagree with that,he was concerned only with whether it would cause boards to micromanage portfolios and they try to protect their Boards from doing that. Mr.Cole called the Board's attention to the checklist page of the report and said that everything was in compliance. He said the Fund right now was approximately 62%in stocks and they can go up as high as 70%so there is some room. He called attention to the right side of the page for the performance objectives and whether they were being met. He told the Board that this is one of the reasons why they could be patient with the manager issue because there were a lot of yes's marked on the page with a few no's and some question marks but the bottom line was that the 3 to 5 year numbers are still good. He said this was not a list that indicated the manager needed to be fired. He then called attention to the Florida Funds list. He said he hated to leave this on such a sour note but for the for the one year numbers for the 89 funds for which they do work in Florida,this Fund did not do too well.Chairperson Ison asked when they could expect to see a trend in the other direction? Would six months be sufficient? Mr.Cole answered that this is a one-year ranking,influenced totally by asset allocation. He said,for example,the number two fund was the last fund on the list the previous quarter but they had wanted to be more aggressive and have 70%in equities with an 80%target and in one quarter they had gone from 89 to 2,so he said you do not just look at the one quarter,you look at the trailing 12 months but you also take the 3 and 5 year numbers into account to see where you are. Chairperson Ison asked how many of the 89 funds represented were in the$8.8 million range. Mr.Cole answered that of the 89,ten to fifteen plans were smaller than this one. He said that the range was everywhere from$3 million to$1.5-2 billion. Chairperson Ison said he would like to see the ranking with the$10 million funds. Mr.Cole said that one of the biggest advantages TRUSCO has is that you get exposure to the kind of professional management that only bigger funds can usually get. He said they have multiple managers and have exposure to the assets classes. He told Chairperson Ison that typically the size does not have an impact on where the fund ranks,it is asset allocation and occasionally managers. Chairperson Ison thanked Mr.Cole for his report. Moving on to new business,Chairperson Ison recognized the newly appointed Trustee Jean Grafton and thanked her for volunteering. Trustee Grafton thanked the Board for having her join them. Attorney Dehner asked Trustee Grafton if she had filed the required Form indicating her position. She said she had filed because she is City Clerk and asked if it was necessary to file another. Attorney Denner said she would need to because she had only indicated the one position on the Form and advised that,for the future,she would need to indicate each position and on next year's filing both positions could be indicated on just one Form. Chairperson Ison then moved on to setting the quarterly meetings for 2004. He called attention to a letter from Attorney Dehner suggesting dates of February 11,May 12,August 11,and November 10, all of which are Wednesdays. He asked the Trustees if they had any comments regarding these dates. Trustee Grafton asked if anyone had contacted Police&Fire to see if those were the same dates they had set? Attorney Dehner stated that the same list had been sent to them so he could continue to meet on the same days with both Boards. After a brief discussion,it was on motion by Trustee Cornell and seconded by Trustee Bishop,unanimously RESOLVED that the Quarterly Meetings of the City of Ocoee General Employees Pension Board for 2004 will be held at 10:00 a.m.on February 11,May 12,August 11,and November 10. Chairperson Ison called upon Trustee Cornell for a report on the Sunshine Public Records and Voting Conflicts Law Seminar. Trustee Cornell advised that she had been unable to attend the Seminar but had put together some information for the Board. She informed the Board that the outline of the information provided for the seminar was in their meeting packets. She referred any questions to Attorney General Employees Pension Board Board Meeting—November 12,2003 Page 9 Dehner and asked him for clarification of the most commonly asked question which was regarding whether there was a violation of the Sunshine Law if two people got together for lunch who happened to be on the same Board. Attorney Dehner advised that they could get together for lunch but should not discuss specific pension issues that might come up for a vote. Trustee Grafton mentioned that there is a tape available if anybody would be interested in listening to it. Chairperson Ison asked if the Board could decide to meet as a group for lunch and put up the proper notice and then go ahead with that. Attorney Dehner said that would be fine so long as there would be reasonable access for the public to attend. Trustee Bishop pointed out that one of the handouts from the Seminar,which was in the meeting packets, was called Frequently Asked Questions. This handout was from the Attorney General's office and was a particularly informative. Chairperson Ison reminded the Board that the Sunshine Law makes each Board member held individually accountable. Attorney Delmer added that some pension trustees in Florida have been prosecuted and fined personally for violation. Chairperson Ison called the Board's attention to Old Business on the Agenda and asked Attorney Dehner about the employee memorandum. Attorney Dehner advised the Board that he had provided information to use as a basis for discussion on what will result in a memorandum he would prepare for distribution to the members. He reminded the Board that this idea had come from the last education conference and was thought to be important. He said the information was important enough to be provided directly individually as a separate handout to the Plan members. He said the first of the items was regarding the forfeiture of pension benefits. He explained that this was a forfeiture provision for a situation where a member attempts to obtain a pension benefit through fraud,misrepresentation,or concealment of facts to the Board. He said the provision was required to be in the Police Officers and Firefighters Plans under chapters 175 and 185. He said this provision was not in the General Employees Ordinance and he was putting this forth for consideration and to ask whether this Board would like to make a recommendation with the next Ordinance proposal to the City that there be a similar section in this Plan. Chairperson Ison asked if this was something that needed to be acted on immediately. Attorney Dehner said it was just something he would encourage the Board to think about. He said it would not be included (sir in any employee memos since it was not presently in the Plan. He said the second item for the employee memo was the Forfeiture for Commission of Specified Offenses,which is a part of the Plan. He said this was required under Chapter 112,Section 3173 of the Statutes and he said it would be important for the Members to be aware of. He said it would make the Members aware of under what circumstances they could forfeit their pension that might dissuade some behavior that might otherwise occur and be a deterrent. He said there had also been discussion of providing information on the difference between public sector and private sector plans which it comes to divorces and provisions for Federal law that don't apply that are significant both for the Board's administration as well as for Plan Members rights in their divorce. Attorney Dehner explained that what he had included in the package for the basis of discussion was a memorandum that,when notified of a Plan Member getting a divorce,could be provided,along with the identified enclosures,to the Plan Member's attorneys so they could be aware of what the Board can and cannot do and also the provisions of Federal Law that do not apply to the Members. He said that making this information available may benefit the Member in the proceeding but also,from an administration standpoint,it could keep the Board from receiving a court order ordering them to do something which they cannot do. He said his suggestion for the Plan Members' distribution is to take the portions of this that notify them there is a difference between public and private sector plans that it would be important for their attorney to know about and to tell them,if they are getting a divorce,to notify one of the Trustees with their attorney's name and address and then,upon notification,he would advise the attorney specifically with the information. After a brief discussion and assurance from Attorney Dehner that this was strictly Plan administration and would not have to be brought before the City Commission,it was on motion made by Trustee Sauerwein and seconded by Trustee Cornell, RESOLVED the Attorney H.Lee Dehner be directed to prepare the necessary documents to inform Plan Members of their responsibilities and the Board's obligations specifically referencing forfeiture provisions and rights with respect to dissolution of marriage. C General Employees Pension Board Board Meeting—November 12,2003 Page 10 Lof Chairperson Ison then asked Attorney Dehner to address the Agenda Item regarding the Review of the Rehire and Separate Ordinance. Attorney Denner advised that he had prepared a sample ordinance regarding reemployment after retirement which had been generally discussed at the last meeting. He said this would ensure,in the case of a situation where a retiree wanted to return to employment with the City and the City wanted to rehire the individual,that it be done in compliance with both the State and Federal laws. He explained that the memorandum sets forth the requirements for Federal and State Law and how to handle someone in this situation. He said the first thing that should happen is that he should be contacted so the Board can be sure it is not done in violation of Federal or State Law. He said that,specifically with respect to the Federal Law,this is an IRS tax qualification so it is very important that it not be violated and put the Plan in the situation of losing tax benefits. He went on to say that,under Federal Law,if a person has retired with a normal retirement benefit that person could be reemployed with no suspension of the benefit. He added that whether or not the terms of the reemployment would require suspension or not is an issue that would need to be decided by the City and the Pension Board,but Federal Law does not require suspension so the in-service distributions do not violate. He said that,under Federal Law,a person who is out on early retirement and returns to employment in any capacity with the City,be it general employee, firefighter,police officer,early retirement benefit has to be suspended as of the date of reemployment. He said that included any capacity in which they may return,as full-time,part-time,or as a contract employee. Attorney Dehner advised the Board that they needed to amend the Plan to provide specific provisions stating how accruals are going to occur for the second period of employment or even if the person is going to be added if a general employee is going to be reemployed. He said that current employees are in the Plan as a condition of employment. He said several issues need to be addressed such as if the benefit rate is improved during a second period of employment,would they want to be sure it is clear that benefit rate could not apply to the prior period of employment. He said that increased benefit rate would be a part of the second piece of the benefit so there is an issue as to whether benefits would be suspended. He said that if there is a consideration of rehiring a retired individual,the Plan would need to be amended for that first. There was a lengthy discussion of possibilities regarding this issue. Chairperson Ison asked if there were any conflicts between Federal and State and would it be necessary to define both in any Ordinance? Attorney Dehner said there were not conflicts,there were some provisions exclusive to one or the other but they work together. Chairperson Ison asked if it would be proper to approach this situation by adopting,conceptually,a plan that was most beneficial to the employee being rehired? Attorney Dehner said the first thing to do would be to determine if the Board would be interested in encouraging or discouraging rehire. Chairperson Ison asked the Board for their comments. Responses from the Board members indicated a positive response to rehire particularly because people are living longer and changes to the Social Security rules and benefits appear eminent. Trustee Sauerwein asked Attorney Dehner if there was any negative to this option? Attorney Dehner directed the question to Ward Foster. Mr.Foster said that,generally speaking,people being hired back would be comparatively older and high cost people to the Fund but they would probably not be 20-year career people,so in relation to the liabilities in the plan,it wouldn't be significant. He said that if they were going to come back and be a valuable employee they should be accruing benefits at the same rate that is in effect when they are terminating employment the second time. Attorney Dehner suggested that the most prevalent provision would be to treat the person for the second period of employment,as they are obviously vested,as vested from the beginning of the second period of employment and provide for them the benefit rate at that time but just for that service time. Following additional discussion,Chairperson Ison thanked everyone for their input and said that this issue would be addressed much more specifically at the February meeting. Chairperson Ison returned to the Agenda,Item C.,Virtual Combination of the General Employees and Police Officers&Firefighters Funds. He asked Attorney Dehner if the Police Officers& Firefighters Board were going to need to agree to this virtual combination. Attorney Dehner stated that they were already in agreement. Chairperson Ison then called upon Ms.Diane Garcia for her comments in this regard. Ms.Garcia said that,following a request made by Attorney Dehner at the previous quarterly meeting,management had been contacted about the possibility of combining the market values of the two funds for fee purposes. That combination has now been approved and the funds would be combined and fees pro-rated. She explained that this was considered a fee concession on SunTrust's part and she was pleased to report that it could be done. Beginning January 1,2004,the first quarterly billing where this particular calculation of fees would be realized would as of the quarter ending 3/31/2004. She asked General Employees Pension Board Board Meeting—November 12,2003 Page 11 Attorney Dehner if he would revise the investment management agreements to reflect that. Attorney Denner responded that he would. There was a brief discussion of the benefits of this combination and the considerable savings for each of the funds.Trustee Bishop offered,on behalf of the Board,their appreciation to both Attorney Dehner and Ms.Garcia for recognizing the possibility of this combination and following through to see that it was done. It was then,on motion made by Trustee Cornell and seconded by Trustee Bishop,unanimously RESOLVED to give Attorney Lee Dehner the authority to prepare documents necessary to make a virtual combination of the Police Officers and Firefighters Fund and the General Employees Pension Fund for the purpose of taking advantage of reduced fees assessed for Money Management by TRUSCO. Chairperson Ison returned to the Agenda and began discussion of the tiered plan as had been brought up for consideration by Commissioner Howell. Trustee Cornell commented that the consideration would be for a multi-tiered plan,not a cafeteria type plan as the cafeteria type plan could not be a part of this particular pension program. Chairperson Ison indicated that his concern was the administrative cost of this,whether there would be more paperwork for HR,the Board and Foster&Foster. Mr.Foster said that his firm does not charge any more to do the evaluation work,however,the problem is in the initial design. He cited some examples and stated the difficulty of determining which members would respond favorably and how to let them know the costs because those could not be determined until it was decided how many at what levels would be interested. Trustee Grafton asked if this would increase the price to the City? Mr.Foster said that it would be neutral for the City and the way to protect the integrity of the Plan long term is that,in connection with active members making an irrevocable election to contribute more to get a higher benefit rate,in the same Ordinance you specify that all new hires have to be effected and have to pay at the higher rate to get the higher benefit. Trustee Grafton mentioned that the last time there had been a survey with a suggestion of higher benefits for higher costs,the response had been that no one wanted to pay any more than the current rate. A general discussion ensued. Attorney Dehner then advised that there are not many tiered plans around. When asked why,he said it was generally because of the nature of the Fund being a defined benefit Plan and the feeling,often,on the part of the City or Plan sponsor that everyone should enjoy the same benefits based on years of salary and service. Additional discussion continued and consideration was given to the current economic situation for the members and for the City. Chairperson Ison suggested that he would like to have a meeting in the future, perhaps in the May,2004 meeting,where the room could be filled with Members and they could be asked what they were interested in and bring this up before them as one of the options and see if they would be interested in having the Board pursue the possibility of the multi-tiered plan. He said that by that time the City would be working on a new budget and there would be more facts available so everyone would be more aware of what possibilities there may be available. Trustee Cornell asked Chairperson Ison about responding to Commissioner Howell. Following additional discussion,it was one motion by Trustee Sauerwein,seconded by Trustee Bishop,unaminously RESOLVED that Vice Chairman Cornell be instructed to prepare a letter for Commission Howell,advising that the issue of a multi-tiered plan would be addressed at the May 12,2004 meeting,to which all of the employees would be invited,to look at a range of improvements to the Plan including those that may cause the employees to increase their contributions and perhaps the City. Chairperson Ison continued on with the Agenda and called upon Trustee Bishop for comments regarding paying the bills. Trustee Bishop called attention to a report he had prepared to close the books for the fiscal year which had a market value of$218 less than the report from Mr.Nash. He explained that was because of some accrued interest. He then discussed the bills included with the package and indicated there was nothing out of the ordinary. Following a brief discussion,it was on motion by Trustee Cornell, seconded by Trustee Sauerwein,unanimously RESOLVED that all invoices be approved and paid as presented. General Employees Pension Board Board Meeting—November 12,2003 Page 12 Chairperson Ison then called on Secretary Cornell for presentation of any correspondence. Secretary Cornell indicated that there were only a couple of items including a copy of the certificate of insurance which she has put into the master book and a copy of a Resolution signed by Trustee Sauerwein,the original given to the City Clerk. She indicated the only other mention was an invitation from Opel Financial Group to any of the Board members to attend a public funds summit in Arizona in January,2004. Chairperson Ison then called upon Attorney Dehner for his comments. Attorney Dehner stated that he had already discussed all except one item which was an update on State legislation that was pending through regular session and three of the four special sessions since which indirectly impacts this Fund by specifically amending Sections 175 and 185. He reminded that this was a two-part bill with only the second part possibly effecting general employees. He said that was the portion that adopted the Department of Retirement position on the minimum requirement to spend additional monies over the 97 year amounts for benefits for police officers and firefighters. He reported that the legislation is done for this year but there is also litigation on the issue of the proper use of State money between the Division of Retirement and the League of Cities and the administrative law judge ruled on September 23 in favor of the Division of Retirement,affirming their rule that provided that any additional dollars would be spent for benefit improvements. He said that decision has been appealed by a notice of appeal which was filed on October 22 by the League of Cities with the First District Court of Appeal. He said he did not think anything would come on that for the first several months of the next calendar year but he would keep the Board posted. Chairperson Ison asked if there were any questions or comments for Attorney Dehner. There being none,he proceeded to setting the Agenda for the next meeting. The items to be included would be a follow up with Mr.Nash presenting the Proxy guideline information,Mr.Cole reporting on investment policy consideration and Attorney Denner the rehire policy ordinance. Chairperson Ison called for any other new business or comments from the Board. There being none,the meeting was adjourned at 12:50 p.m. Respectfully submitted, Jo Ann Lacey Record Secretary of the Meeting Approved by: Tom Ison,Chairperson L