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HomeMy WebLinkAbout02-09-2000 Minutes -THE CITY OF OCOEE GENERAL RETIREMENT TRUST FUND (PENSION BOARD )MEETING FEBRUARY 9, 2000 CALL TO ORDER Member Ison called the meeting of the City of Ocoee General Trust Fund to order at 8:36 a.m. in the Commission Chambers of City Hall. The roll was called and a quorum declared. PRESENT: Members Tom Ison, Pat Cornell and Joyce Oliver. ABSENT: Chairman Lester Dabbs Jr. and Member Donald Carter. ACCEPTANCE AND APPROVAL OF GENERAL EMPLOYEES RETIREMENT TRUST FUND (PENSION BOARD) MEETING MINUTES OF NOVEMBER 18, 1999 Acting Chairman Ison presented the General Employees Retirement Trust Fund (Pension Board) Meeting Minutes of November 18, 1999. Member Cornell, seconded by Member Ison,moved to approve the November 18, 1999, General Retirement Trust Fund meetings as presented. Motion carried 3-0. WELCOME TO MEMBERS—QUESTIONS AND COMMENTS Bob Smith, Director of Public Works, asked about an early retirement program that would allow employees to retire earlier than age 60 without being severely penalized. Mr. Ison referred to the agenda item regarding early buyout for later discussion. Ken Bruce, Stormwater Department, asked for information regarding the early buyout. Mr. Ison said this was the beginning point of looking at an early buyout. He said he would like to see this pension plan be better than at least 2/3 of the other pension plans and be competitive with other pension plans throughout the state of Florida, including the State's plan. He said he was familiar with buyouts in the private sector, which means that the sooner you leave, the more of your long-range retirement you get. The second part of that is the drop plan. After a specific number of years, you can retire and continue working without making contributions to the plan. Your funds continue to grow. Ricky Waldrop, Utility Department, asked about sending a survey to the employees asking their opinions of the present pension plan versus an individual account such as a 401K. Mr. Ison asked if he had any other suggestions, and Ricky mentioned insurance and early retirement. Bob Smith, Director of Public Works, said he understood retirement is two and a half percent for each year of service, and police and fire is three percent for each year of service. General Employees Retirement Trust Fund February 9, 2000 Ward Foster, actuary, said the general plan has a two and half percent benefit rate, and police and firefighters have a three percent benefit rate. He said it is a typical difference because the police officers and firefighters program has an additional funding source from state contributions through two statutes. An amendment to both those statutes was passed in March 1999 that requires that the state money be used to fund additional benefits for police officers and firefighters. Bob Smith said employees presently contribute seven and a half percent of their paychecks for retirement, and the City contributes. He said he would like to see employee's being able to contribute more. Member Cornell said a number of employees had asked about an increase of the multiplier. Member Ison said the Board and City Commission would have to act on a change in the multiplier, and he did not know the legal requirements. Bob Smith said he would like to know how much more he would have to contribute to raise the multiplier to three percent or if the City could contribute more to raise the multiplier to three percent. Member Ison said he would like to make the plan more harmonious with the private sector. Mr. Foster said other boards are working on post-retirement medical insurance premiums. Some plans are providing a benefit supplement in addition to the formula benefit of two and a half percent. Regarding the 30 years and out, many general employee plans are considering this, and it is not an expensive provision. He said a 30-year retirement might be an option. The benefit improvement he likes best of all is an increase in the benefit rate because it benefits every type of retirement benefit received from the plan—the death benefit, early retirement, normal retirement, etc. Now if an employee retires under the normal provisions at age 60, he receives a flat benefit for life. Some plans are considering some type of inflation protection between the retirement age and the date social security kicks in. For example you could have a three percent per year post-retirement cost of living adjustment between age 60 and age 65 so that the benefit would be flat after that. When social security began, there would be additional inflation protection for that benefit, which would be tied to the cost of living. It would keep the benefit from eroding between the time payments began and social security began. That temporary cost of living adjustment is not terribly expensive. An automatic post-retirement cost of living adjustment beginning at retirement age and continuing for life is very expensive. It does not take long for that three percent compounding to increase the benefit significantly. Mr. Foster said when he determines the cost of providing an automatic post-retirement cost of living adjustment at three percent, it typically increases the total cost of funding (16.0, the plan by about 35 percent. It is usually the last benefit that boards consider because of such a large price tag associated with it. General Employees Retirement Trust Fund February 9, 2000 (kw He said this plan has gone a long way in a short period of time. The Board has chosen some good investment advisors, and they have been able to generate investment returns far above expectations. Those gains have been reinvested to benefit improvements. Mr. Foster explained his role as the actuary. He said under the applied benefit plan, the funding requirements are based upon the individual characteristics of the membership. Every year they look individually at everyone's birth date, hire date and salary and project the benefits each person will receive by retirement. They also look at death benefits and vested benefits and make assumptions about who will terminate employment along the way. Every year a report is prepared to the Board that tells the Board and the City how much they need to contribute to maintain actuarial soundness. In addition to that, they calculate the benefits when someone retires. The City provides them with salary information and all the other information they need about the plan members when they terminate employment or retire. For example, if someone age 60 retires after 20 years of service, they look at two and half percent times 20 years, which is 50 percent, times the salary average, which is defined as the best five years of the last ten averaged. When that benefit is computed, it is paid for life. The first 120 payments are guaranteed. If an employee selects the normal form of payment under the formula benefit and dies five years after retirement, his beneficiary gets five more years of payments. If the (kw beneficiary dies, any remaining benefits are paid to the estate. Not everyone wants that form of payment. Some elect a benefit that is paid as long as they live. Under that alternative, there is no ten-year guarantee, so an equivalent benefit is determined, which is a higher benefit because there is no guarantee. Another option is the joint survivor option. One of the most popular is the 100 percent option. That pays a benefit until death. If the retiree dies before the beneficiary, that beneficiary receives the same monthly amount, but that amount is less than the guaranteed amount. If the beneficiary is very young, the amount will be reduced more. Married retirees typically pick a life time payment. There are 75 percent, 66 2/3 percent and 50 percent joint survivor benefits. For 50 percent, a little better benefit is provided than 100 percent. On the death of the retiree, the beneficiary receives 50 percent of what the retiree was receiving. Another option is the social security option. That pays a larger benefit between the retirement and the commencement of social security and then drops. The idea is that social security will fill the gap. The actuary makes very conservative assumptions about what benefit will be paid so that there will not be a gap when social security starts. Attorney Dehner arrived at 9:07 a.m. C General Employees Retirement Trust Fund February 9, 2000 (hor Regarding the drop plan, with a 30 and out plan, an employee is eligible to retire and stop contributing to the pension plan. Typically an employee can stay in the drop plan three to five years. The benefit is computed when the employee enters the drop plan. The employee makes an option selection just as if he were retiring. He continues to work, but instead of receiving a retirement check, the check is deposited into a trust fund every month. The accounts are typically credited with whatever the earnings are of the trust fund. Because the employee is no longer contributing to the plan, he gets what amounts to a seven and a half percent increase in pay. After the specified period of time—and employment may be terminated at any time during that three- to five-year period—the employee is required to terminate employment. At that time, the employee starts to draw his retirement and receives a lump sum payment of all the deposits and investment earnings. Members of these plans can sometimes get a couple of hundred thousand dollars depending on the size of the monthly payment and the investment earnings. It is a program that provides a mechanism for receiving a large cash payment. Jean Grafton, City Clerk, asked if options have to be chosen at the time of exercising the drop plan. Mr. Foster said those options must be made because the employee is considered a retiree as far as the plan is concerned. The advantages of the drop plan are that when one terminates employment, he receives a lump sum payment and continues to draw the benefit. Some disadvantages could be: (1) If the plan is improved during that three- to five-year period, benefit improvements typically are not extended to retirees, (2)no additional service credits are applied for the three- to five-year period, (3) if the retiree's salary increases during that time, it does not affect the compensation, and (4) there is a risk assuming the good investment years will continue, but there is no guarantee. Some drop plans have an option of making an election to go with the trust fund return or of making an election of receiving a fixed percentage return each year, typically six and a half percent. Mr. Ison asked for a show of hands for those interested in pursuing a drop plan. The majority present were interested. Judy Henry, Public Works, asked about the tax consequences. Mr. Foster said there are different options, and there is a mechanism for a rollover so immediate tax consequences would not be faced. Marian Green, Deputy City Clerk, asked about the designation of a beneficiary. Mr. Foster said there is no restriction other than that the beneficiary has to be human. Mr. Ison said when new business came up, he was going to suggest that a discussion be had among the trustees of putting the drop plan on a future agenda until they could come up with an option to present. Marian Green said she believed those ordinances had been approved. Lee Dehner, attorney, said the drop ordinance was adopted by the City in General Employees Retirement Trust Fund February 9, 2000 October 1999. The applications have been prepared and are available from the Cityfor PP anyone who has attained normal retirement age. It is a five-year drop plan. Mr. Ison said for the record, "Our attorney is present. He wasn't here for roll call, and he arrived at 9:07." Bob Smith said he would like to see more options available. He said everyone does not fit in the same niche. He would like to increase his percentage benefit. Mr. Ison asked what a theoretical amount would be as an option increase, and Mr. Smith said as a minimum whatever it would take to get the multiplier to three percent. NEW BUSINESS Mr. Ison said he had a letter from Member Cornell indicating she would like to remain a member of the board but not as secretary. He said on the next agenda there would need to be an appointment of a new secretary. REPORTS There were no reports. OTHER BUSINESS (w EARLY"BUY OUT" OPTION This was discussed under"Questions and Comments." EARLY RETIREMENT CALCULATIONS This was discussed under"Questions and Comments." SECRETARIAL ASSISTANCE Mr. Ison said someone had been found to fill this position and that this would be moved to the next meeting. ATTORNEY COMMENTS There were none. Mr. Ison presented three bills from the professional/legal advisors, one dated October 31, 1999, one dated November 30, 1999, and one dated December 31, 1999, in the amounts $1,499.10, $1,254.65, $1,620.95 respectively. Member Oliver, seconded by Member Cornell, moved to pay the bills. Motion carried unanimously. SET AGENDA FOR NEXT MEETING (or Mr. Ison suggested two items be carried forward to the next meeting—the discussion of planned benefits for the members and the discussion of overall City General Employees Retirement Trust Fund February 9, 2000 contributions/improvements to theplan and appointment of a recordingsecretary. The Pp �'Y next meeting is set for 10 a.m. on May 10, 2000. REPORTS (This item was not on the agenda.) Diane Garcia, SunTrust, advised she is responsible for getting monthly transaction statements, making sure retirees receive their benefits on a monthly basis, and running the account from day to day. She introduced Carin Anderson, who is from the investment side of SunTrust and was filling in for Tim Nash, who was unable to be present. Mr. Phil Senderowitz, the prior investment manager on the account, moved to the SunTrust personal trust area, and Mr. Nash will be assuming his responsibilities. Ms. Anderson advised from a retirement and fiduciary standpoint, the market has been tough. Technology has been dominating the market. Because of policies SunTrust must follow, they have to buy in companies that have a reasonable price to earnings ratio,around 30 instead of 300. Therefore, they have not been able to capitalize on some of the technology stocks that have been doing so well. The Fund owns some technology stocks, but they are the ones that are considered to have reasonable earnings. About 60 percent of the retirement plan is in stocks and about 40 percent is in bonds. There are about four different options in the retirement fund. The first one is high grade growth, companies which are growing very rapidly in the marketplace. That common trust fund as compared to the S&P 500 index has been close for the last 12 months but has not been exactly where the S&P 500 has been. Over the 16 months the Fund has been with SunTrust, the earnings have been about even with the S&P 500. The high grade equity fund has severely under-performed over the past three months and over the past 12 months. This common trust fund has a value orientation, which means those companies have been in the background over the past year or two years. Mr. Dehner said it has not only under-performed the S&P 500 but of concern is that it has under-performed the value index significantly. He said the whole explanation for it is not just that value is out of favor. He said that has been a concern of many funds. Ms. Anderson said the philosophy of SunTrust has not changed, but requirements in that fund have changed recently. Formerly, all companies had to pay a dividend. Now in that fund are those companies that have paid dividends at least once in five times what the S&P 500 is doing. The managers and team have stuck by the true value companies. She said if they were to look at some of the peers, they are holding a lot of value, but they are putting in some of the ones that SunTrust would not consider value because of the dividend requirements. She said she thought at some point technology will have to break and that the value funds will come back. Mr. Dehner asked Ms. Anderson which of the value indexes listed in the Market Overview of the report were the fairest proxy for their fund. She said the closest one is General Employees Retirement Trust Fund February 9, 2000 ribir the 600 because it holds the most stocks and has a tendency to hold the most "value oriented" stocks. Mr. Ison left at 9:31 a.m. Mr. Dehner asked about international stocks, and Ms. Anderson said they have under- performed because they have a "value flavor," and the Japan market has not turned around much. Ms. Anderson indicated US Ltd., saying it has been the best fund. It has beaten all the indexes and a lot of the peers. High grade bonds have not done well because interest rates have been rising. Versus the index, they have kept pace and have done a little better than the index. Referring back to US Ltd., she said the Fund only has a five percent exposure. If she were making a recommendation, it might be to increase the allocation a little in US Ltd. to help the Fund returns. Mr. Dehner said a presentation was made by John Hamlin, who does the limited cap fund for SunTrust, to a board, and US Food Service was highly thought of, but it took a big hit in January. He asked if Mr. Hamlin still likes it. Ms. Anderson said he sold out of it. Mr. Dehner said he was told the trustees would be interested in the listing of all the stocks and each of the funds and asked Ms. Anderson to add that to their books. Jeff Swanson, Merrill Lynch, introduced Craig Hamilton from their group in Jacksonville. Mr. Swanson said his job was to review performance and investment policies but thought it would be better to hold that to the next meeting. Therefore, he gave an abbreviated review of performance. September losses were reversed nicely in the last quarter of 1999. The market continued to advance, mostly due to technology. Positive investment earnings for the quarter were $256,000. Regarding the investment programs, the largest portion is the equity fund, about 60 percent, which is carved up among four funds. In the last year, the return for the total account was 5.4 percent. The rank of the Fund compared to public funds across the country is 66 for the year, with one being the best. The reason for the low returns was stocks in the account, which returned 10.6 percent. The primary reason for the under-performance was the value fund lost almost three percent, and the growth index was up over 12 percent. The growth fund returned 17 percent, and the growth index was up 28 percent. The international component under- performed at 9.5 percent relative to a 27 percent EAFE index. The bright spot was the small sliver in the US Limited Cap fund, which was up 55 percent. Three of the four components under-performed in the last year and resulted in under-performance. General Employees Retirement Trust Fund February 9, 2000 L He said the one spot of good new is that if the past year were averaged into the long term number, the five-year return to stocks is a little above average. The asset allocation was a plus in general. The Fund is in line with the median with about 60 percent in stocks. Looking at the five-year numbers on the value fund, Mr. Dehner asked if there is concern about the under-performance for that long a period of time for that fund. Mr. Swanson said they are concerned about that component of the portfolio as well as the international fund. Mr. Dehner asked him to be prepared to address that at the next meeting. Ward Foster, actuary, had no report to present. ADJOURN The meeting was adjourned at 9:43 a.m. Brenda King, Recording Secretary