HomeMy WebLinkAbout05-08-2002 Minutes •
Minutes of the Quarterly Meeting of the
CITY OF OCOEE GENERAL EMPLOYEES PENSION BOARD
Held on May 8,2002
At 150 N.Lakeshore Drive
Ocoee,FL 34761
Chairperson Ison called the meeting to order at 10:08 a.m. Present were Trustees Smith,
Cornell,Miller and Vogt. Present by invitation were Tim Nash representing TRUSCO Capital
Management,Larry Cole representing Merrill Lynch,and Jo Ann Lacey,Recording Secretary of the
Meeting. Seventeen general employees,members of the Plan,were also in attendance.
Chairperson Ison directed the attention of the Trustees to the Agenda for the meeting in order to
add two items under Item IV,Other Business. One item was in regard to a letter from Trustee Bob Smith,
which will result in a Special Election. The second was in regard to the$100 Supplement Ordinance to be
funded by the City Commission. Authorization from the Board of Trustees will be needed to withdraw that
Ordinance.
Chairperson Ison advised that the minutes of the meeting of the Board of Trustees held February
13,2002,had been circulated to all Trustees for review. The Trustees were asked if there were any
corrections or additions to the minutes. Trustee Vogt answered those corrections had been made prior to
the meeting and were incorporated into the final minutes which had been presented. After a brief
discussion,there being no corrections or additions,it was,on motion made by Trustee Cornell and
seconded by Trustee Smith,unanimously
RESOLVED,that the minutes of the meeting of the Board of Trustees of the
General Employees Pension Board,be and they are hereby approved.
The Trustees were thanked by Chairperson Ison for showing up for educational training. He said
it was a good session and having attended would make everyone better equipped to do the business of the
Trustees. He addressed the members in attendance and let them know that these Trustees had attended a
training session at which they had explained to them the rules and the investment portfolio and the legal
responsibilities they had as Trustees. It made each Trustee more aware of the fact that serving on this
Board is indeed serious business.
Chairperson Ison then called for the Money Manager's Report.
Mr.Tim Nash,representing TRUSCO Capital Management,addressed the Board and other
members in attendance. Mr.Nash directed attention to Page 6 of their report entitled"Market Snapshot."
He reported that during the past quarter there was not a lot to report. Both the stock and bond market were
essentially flat. S&P 500 was up about 3/10's of a percent. International stocks were up about one-half
percent. Technology names as represented by NASDAQ,down 5%for the quarter. Some of the best
performers were those old blue chip type names,some of the companies that pay dividends. The high-
grade equity income fund was up almost 5%for the quarter. The Dow was up 4.3%for the quarter. He
called attention to the small cap value names which were up 10%for the quarter. The small cap growth
names were up 3.6%. This indicates that the limited cap fund has done extremely well in both the short and
long term. This Pension Plan has a growth orientation which is overweighted in growth names,in
healthcare companies and technology names. TRUSCO believes that is a great position to be in for the
next two or three quarters,but for this past quarter,it was down slightly. He continued on to explain the
bonds. He explained that over the last two years,calendar year 2000 and 2001,bonds were the best
performing asset class. Equities have given up a lot of gains and it is good that the bonds have been in this
portfolio,but for the past quarter,the Lehman aggregate bond index,which has Treasury bonds,corporate
bonds,government agency bonds,and mortgage backed bonds,was up 0.9%for the quarter. He stated that
the reason the bond fund has done very well is because it has about a third of the portfolio in mortgage-
backed bonds.
Mr.Nash went on to discuss interest rates as they were something that had impacted the markets
during the past quarter. The Federal Open Market Committee ["FOMC"]met on May 7,2002 and left
rates unchanged. One of the things that happened during the past quarter was that the Federal Reserve went
from a policy of easing to a neutral bias and Chairman Greenspan and the Committee made several
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comments that they think the U.S.economy is improving and that we will see much improvement in the
last quarter of 2002 or the first quarter of 2003. However,even though the economy is improving,there
are fears of inflation. As inflation rises,one of the things that the Federal Reserve does to keep inflation in
check is that they start raising interest rates. The futures market is showing an anticipation of interest rates
increasing over the next couple of quarters and the Fed will probably increase those short-term rates before
the end of the year. One of the things TRUSCO has been doing to position the portfolio has been to start
on the bond side. If interest rates go up,bond prices come down so it erodes the value of the bond
portfolio. In order to keep having decent returns in a rising interest rate environment,TRUSCO is now
buying more corporate bonds and mortgage backed bonds. They give a higher coupon or interest rate. He
offered the example that currently a Treasury bond has a yield of about 4.5%, a high quality corporate bond
yields around 6.5%,and some of the mortgage backed bonds yield 8-3/4%. In the interest of trying to
make more income,changes have been made in the bond portfolio as indicated by one-third of the fund
now being invested in mortgage-backed bonds.
He continued on to say that on the equity side,looking at the industry concentration,it again
appears that the economy is improving. Therefore there is an increase in exposure to some technology
names in the Plan. For the quarter previous to this one,there was about an 18%exposure to technology
stocks and in this past quarter it was increased to a little over 21%. There has also been an increase in
exposure to the healthcare side in an attempt to get ready for the economy to improve in the future.
Mr.Nash called attention to page 12 of the report to the section where it says"Selected concerns
mask broad market rise." This section provides a look at how the sectors of the S&P 500 did during the
past quarter. He called attention to the"DISC"column,which are the consumer discretionary stocks.
These consist of consumer staples such as energy stocks,financial stocks,healthcare and utility stocks.
The past quarter has been a huge quarter in this category,led by technology and healthcare names. They
have given back gains during the quarter. It was probably the worst quarter for telecom stocks continuing
the trend of the last eighteen months. There are concerns that Worldcom could potentially go bankrupt.
There was no Worldcom owned in this portfolio. The one name that is owned is Verizon Communications.
TRUSCO feels they have a very strong balance sheet and though it was down a little because the whole
telecom sector was down for the quarter,it is still believed to be a good investment. The consumer
discretionary names were one of the best places to be for the past quarter.
Mr.Nash next referred to page 13. He said that TRUSCO is always being asked what stocks they
like,what the investment committee things about different names,so for the past quarter they decided to
show the sectors that the investment committee and research like and some of the names that they are
bullish on or which are already in this portfolio. He stated as he had just reported that they have liked the
consumer discretionary names. They have been one of the best performing sectors over the last eighteen
months. Some of the names that have been owned are Harley Davidson,Home Depot,and Best Buy. For
an example,Best Buy was up 63%for the last quarter. One thing to note is that Home Depot and Lowe's
are always looked at and it is considered at one particular point which one is the better investment
opportunity. Home Depot had been held in this Plan for a while. Its price went up rather dramatically. It
was sold and Lowe's was purchased in the last quarter. Advertising revenues are starting to improve so
there is interest in Omnicom and Gannett. Clorox and Cisco are some of the same that are being
considered. Healthcare is also a favorite and a review will show an overweight in the growth portfilio for
healthcare stocks. Pfizer and Johnson&Johnson are some other favorites. He stated that energy names
were where this Plan had been overweighted in the last couple of quarters. That has been reduced. The
industrial sector is another one being reviewed because of the increased government spending on defense.
Lockheed Martin is one of the names invested in. MASCO is a company that is also liked and it is in both
the growth and value funds. It is a conglomerate that owns several different names such as KraftMaid
Cabinetry and Thermador. These are of interest in order to take advantage of the home building and all of
the refinancing that has been going on. TRUSCO also believes that technology is going to improve,that
companies are going to start having a lot of capital to spend on the technology side. Some of the names
already owned are Microsoft,EBS,Texas Instruments,Nokia,Intel and Adobe.
He directed attention to Tab III for the investment performance for the quarter. Page 17 shows the
cash flow for the general Plan. The earnings for the quarter were about$53 thousand and the Plan closes
out with$8,051,953.00 as of March 31. [Applause from the Trustees and the general employees in
attendance in recognition of this milestone.] The$53 thousand represented a return of 68 basis points,just
a little more than half a percent. He reported that even though that is not as exciting as double-digit returns,
it is great to see positive numbers. To put things into perspective,the S&P was up one quarter of a percent
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during that same time period. The five different stock funds in the Plan in combination were up about 1-
1/2%. The growth fund was up 2.39%. The Russell 1000 growth index was actually down 1-1/2%,so the
Plan's growth fund outperformed the Russell index and also outperformed the S&P 500 which was up only
'/<percent. This is very meaningful since the actuarial assumption was not met last year. For the past six
months the Plan has already earned 7.3%which is very close to the actuarial assumption.He stated that
there are no guarantees that this trend will continue through September,but that it is encouraging to have
had some very strong gains in the portfolio in a market environment that has not been very friendly.
Mr.Nash pointed out that this has been a very diversified portfolio and that has been very helpful
to the Plan over the last two-and-a-half years. One of the best performers for the quarter was the high-
grade equity income fund. That is a deep value fund. The stocks in the portfolio have to pay a dividend. It
was up 4.7%for the quarter. The large cap value growth and income fund that doesn't have the dividend
requirement was up 1.9%. It does have some technology names and they did not do so well during the
quarter. The limited cap fund was down about 5%for the quarter. That was a function of overweight in
technology names and healthcare. That is a growth fund and it has had a very strong performance earning
20.8%on average each year over the past five years. It just has a growth tilt. Small cap growth stocks
were not the best performers for the quarter. International stocks were in positive territory for the quarter.
The index fund was up 85 basis points and the international fund was up 1.1%. One thing to note for the
quarter was that this Plan had the actively managed fund and the index fund. The actively managed fund
was sold out and moved into the index fund so there is now only an international index fund in the Plan.
The bonds were down one-half percent for the quarter. Over the last three years,the Plan has earned an
average 4.2%and over the last five years,about 9.8%on average each year.
Trustee Vogt asked if these percentages are absolute or annualized. Mr.Nash responded that
there are actually both. Anything twelve months or less is an absolute percentage,anything twelve months
or greater is annualized.
Mr.Nash then called attention to the Asset Allocation. He stated that the allocation is at a mix of
61%stocks,39%bonds. This is in line with the guidelines. About a third of the portfolio is in large cap
growth stocks,21%is large cap value stocks,and then 7%in small and mid-cap funds in the limited cap
fund and about 2%in international names. There are no recommendations for changes to the Asset
Allocation at this point. There have been questions about the philosophy on adding to international since it
is down so much. TRUSCO's investment committee met recently and are not increasing exposure to
international at this point as they would like to see more improvement in the U.S.economy before doing so.
Chairperson Ison thanked Mr.Nash for his report. He addressed the Trustees and the general
employees in attendance to point out the significance of the Plan now being over$8 million. He stated that
is definitely a milestone and he is now looking forward to the Plan reaching$10 million. He said he hoped
that would happen very soon because of the general turn around of the economy turning around and with
the contributions of the members. He mentioned that he would like to have a reception for the members
and the Trustees who have been working so hard to get to the$10 million.Mr.Nash responded that he
thought that was a great idea and that TRUSCO would be pleased to sponsor that reception. He and
Chairperson Ison agreed to have a planning session on that very soon.
Chairperson Ison asked if there were any questions for Mr.Nash. There being none,he
accepted the report from Mr.Nash and called upon Mr. Larry Cole from Merrill Lynch for his report.
Mr.Cole greeted the Trustees and members and called attention to Page 2 of his report. He
confirmed the review that Mr.Nash had just completed and the fact that the market value of the Fund is
indeed over$8 million. He stated that the quarterly earnings were nice,however,he indicated that for the
fiscal year to date there had been earned well over a half million dollars,just in the first six months of the
year. He said it was nice to see positive numbers like that. He went on to offer some explanation for the
new Trustees and the members on how to read the chart as it is a little confusing. The bars on the bottom
represent the net contributions into the Fund. The dark line above that represents the market value of the
Fund. The difference between the bar and the market value represents investment earnings over the period
of time from January 1999 to date. The total increase represented is$826,000 since January 1999.
He then referred to Page 3 for the Asset Allocation. He reminded the Board that,at the last
meeting,Merrill Lynch had questioned the international commitment and whether that is an asset class that
could use more exposure. He stated that Mr.Nash had addressed that in the final comments of his report
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and that under the arrangement the Plan has with TRUSCO,the decision of how much and when they
invest in that particular asset class is up to them. It is,however,an asset class that Merrill Lynch thinks the
Plan should be exposed to for a lot of reasons,not the least of which is that,if there is no exposure to that
asset class,two-thirds of the world's investable companies are excluded from the Fund. That includes a lot
f of companies that should be excluded,but it also includes a lot of great companies that should not be
(fir► overlooked.
He directed attention to Page 5,which represents the asset allocation of this Fund to other public
pension funds across the country.This is not just a Florida sample. It is a much broader sample. It shows
the equity allocation for this fund of about 60.6%which is slightly more aggressive than the median fund.
The median fund is about 56.4%invested is stocks,however,with the type of manager and diversification
that this Fund has,that doesn't necessarily translate into more risk because,although you have only one
manager,that manager has several different disciplines. They have a large cap value manager team,a large
cap growth manager team,international group,etc.,and they are separate people. This means that you do
not have one person trying to make all those decisions. Having separate teams allows for very good
diversification in the Plan,particularly for a plan of this size. This allows for the same type of
diversification that multi-billion dollar plans get so there are a lot of advantages to go with this style of
manager. A lot of plans are not as diversified as this one.
Mr. Cole asked the Board and members to turn to Page 6. That page shows the returns and how
the Plan did. He advised that Mr.Nash had given absolute numbers and this report will show how that
compares to other public pension funds. He said that it had been a very strange quarter. There was a.7%
return which was ahead of the target index. The target index is spelled out in the investment policy of the
Plan. The target index was only up.3%for the quarter. Since the Plan was up .7%,the target was beaten,
however,against other pension funds,it was still a little below average. He went on to explain that the
numbers shown in parentheses on the report represents how the Plan did against the public fund universe
across the country. With 1 being the best and 99 being the worst,this Plan was in the 615`percentile for the
quarter,just slightly below average. He said there was not a lot of disparity in the ranges this quarter,so
going from.7 to 1%could have moved the Plan up dramatically. The equity portfolio was up 1.4%. This
combines everything including small cap,limited cap,growth and equities. That ranks a little above
average in the 415`percentile for the quarter,beating all of the targets,so this was a good quarter in equities.
The bonds were down.5%but this was actually a 75`h percentile number. It didn't meet the short-term,the
one to ten year,but it did beat the Merrill Lynch Government—Corporate. He assured the Board and
members that the loss was nothing to be concerned about because the Plan had good quality securities and
they didn't perform particularly well in this past quarter-the lower the quality,the better performance. So
pension funds across the country may have had more exposure to bond but they were much shorter in
security than this fund. He said this is nothing to be alarmed about.
Continuing on Page 6,the fiscal year to date return is 7.3%. That is an actual number. That ranks
above average in the 46th percentile,well ahead of the target index of 5.6%. He indicated that they would
like to see better absolute numbers but they are just not out there. It is not TRUSCO's fault. It has been a
rough market. The report shows that this Fund is well ahead of the target index for all periods and well
above average,almost in the top third for all time periods,relative to other public pension funds. This
Fund has weathered a storm over the last couple of years. It has been rocky and the environment makes for
different news from day to day. One day it appears that everything in the market is rosy and it is ready to
rocket off and a day or two later the headlines are dismal. When new reports or some new statistic comes
out that is dismal or somebody comes out with an earnings problem that wasn't expected in the earnings-
reporting season,it makes the market as volatile as has ever been seen. The general consensus is that there
is a recovery underway,but it is not a solid one yet. There are some signs of recovery but then you see an
earnings report,especially from those tech companies,that businesses just aren't ordering right now.
Consumers still seem to be spending but businesses are not. Things will continue to be rocky until
businesses start spending a little. Regarding this Fund,the good news is that it is ahead of target for the
long periods and up in the top one-third. As an example he referred to the three-year number of 4.1%
versus the target of 2.2%. That difference translates into about$160 thousand a year on an$8 million
portfolio. Multiplied by three years,in terms of dollars,that would add almost a half million dollars to the
Plan by being that much above the target index. There is one item here to watch as the fixed income
portion even for the one,two,or three year period is not ranking very well. Going out for a longer period,
it looks okay. This is still suffering a little from a couple of bond situations from a year or two ago,which
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really hurt the performance. It is still in that three-year number but is starting to wash out a little in the
longer-term numbers.
Mr.Cole then moved on to Page 11 for a look at the holdings. He advised what Merrill Lynch
wants to see when they talk about diversification. They want to see that each of the fund managers is doing
what they say. Merrill Lynch looks at the industry weightings,the sector weightings,and holdings. This
Fund is extremely well diversified. There is only one name that is common to two portfolios of the Fund.
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That is Exxon Mobil. Other than that,there is very little overlap,which is what Merrill Lynch likes to see.
He referred to Page 12 and the limited cap fund. He said this is an asset class which you should have
exposure to but it is always a wild ride. He advised the Board not to be surprised if one quarter it is down a
lot and the next up a lot. Referring to Page 15,he discussed the bond performance and why the short-term
performance is not necessarily a concern. This shows the different sectors of the bond market and how
they have performed for the quarter. The government corporate master index was actually down.6%. That
is the total bonds in the marketplace. Mortgages were up a little. Treasury bonds,three to five years,were
only down .4%. Anything longer than that were down rather significantly. The best performing sector of
the bond market was the high yield bond sector. Most pension funds don't want a lot of exposure to that.
This Fund had a little more exposure into the corporate world to do well in the last quarter.
Mr. Cole moved on to Page 17 to review the checklist and whether everything is in compliance
according to the investment policy. It is reviewed every quarter. This report pulls out the bullet points for
review. The answer to the compliance is yes—across the board. When this is broken down,the equities
are close. They are not quite in the top third but show reasonable numbers under the current market
environments. In the fixed income portfolio there are mixed results. For the total portfolio,which is
obviously the most important,the goals are being met. This Fund has a fiscal year to date number of 7.3%.
According to the actuary,the Fund needs to make 8%every year. The actuary smoothes this over a four
year period. Mr. Cole stated that they would really like to see a good year this year to help prop up that
average a little bit. He said that the Fund has done as good as it could have under the circumstances,as the
market has just not been very kind. He advised that out of the 86 Florida Funds Merrill Lynch oversees,
this Fund was in 56th place so it was a little below average. That rates the Fund over the last year relative to
other funds. The main reason for 56th is that this Fund has a bit more stocks than the average plan and
stocks for the year were not a great place to be. He stated that is not necessarily a reflection of how the
manager has done. It is more of an asset allocation call and long term the Fund is where it should be.
Chairperson Ison asked the Board and members for any questions or comments.
Trustee Vogt asked for an explanation of"EAAF"which was shown on Page 6. Mr.Cole
responded that is the international index—European,Australia,Asia,and the Far East. He stated that is the
most common barometer for international investors.
Chairperson Ison asked the Board and members if there were any additional questions or
comments. There being none,he thanked Mr. Cole for his report and directed attention to the Item III,New
Business on the Agenda,Transfer Pension Employee Closing Documents to Human Resources. He then
asked Trustee Cornell for a report as she had been working on that transfer. Trustee Cornell reported
that the transfer had been completed in the week prior to this meeting and that all documents and
information are now in Human Resources. Trustee Smith stated that he had personal knowledge that the
process was going well except for one thing. He said there needs to be a little more coordination because
some of the documents require two signatures of Trustees of this Board. He mentioned that Trustee Vogt
is available in the building and Trustee Cornell is the next closest. Other than that,he indicated that he
felt it would go very well because there would be a common unchanging place to process the paperwork.
Chairperson Ison addressed the members to let them know that in previous meetings this Board
had discussions about exit interviews when it was time for retirement. It was decided to turn this over to
Human Resources where all of the employee's other paperwork has to be to eliminate the confusion that
had come from previously having to find someone on the Board to complete the work necessary for the
retirement. From now on,Human Resources would be the place to go to take care of everything regarding
retirement. He asked for any questions or comments regarding this change. There being none,
Chairperson Ison moved to Item B, Records storage discussion,moving files from Public Works to
assigned area.
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Trustee Cornell started the discussion by stating that this topic had been discussed for about two
years. She advised there is a two-drawer lateral file cabinet,which has been moved from the City Clerk's
office to Utilities to Public Works and would now need to be moved again. She stated that there needs to
be a permanent place for this file. She reminded the Board that they had approved the purchase of a
fireproof cabinet,but depending on where the records may be kept,the determination will be made as to
whether or not this file cabinet is needed.
Trustee Smith offered a suggestion. He said that some of the people in the City Hall building
would be relocating to the new modular building and that would free up some space in the building. He
suggested that it might be the appropriate time to reapproach the City Manager about one permanent place
where these records could be stored. He stated that the records need to be available to Human Resources
also.
Chairperson Ison reminded the Board that he had previously met with the City Manager and the
City Manager had suggested that since a new fire station building was to be built,perhaps there could be a
storage addition added onto the new fire station to store the permanent records. He said he had been told
that addition had been added to the plan. He said he had not seen the drawings yet but the person doing it
said it was a good place to store records because it was the fire station. He then said he would meet with
the City Manager and with the HR Director to get their suggestions regarding the transfer.
Trustee Cornell stated that the benefit of HR having access to these records brings up the
question of when it comes time for retirement,will it mean the combination of the files with HR files or
will they be kept separate from the Pension Board files?
Trustee Smith suggested that keeping all of the information in one file seemed to be appropriate.
He said he had seen an attitudinal change in the City management with the City's day-to-day relationship
with this Pension Board and felt this could probably be done. He said he liked the idea that everything
would be in one location and felt that something could be worked out with the City HR Director. He stated
that he knew this would increase their storage load but maybe that is something this Board could consider,
to purchase a couple more cabinets which would allow everything to be in one location.
Trustee Cornell stated that the convenience would be nice,however,she expressed her concern
about the security of the information such as addresses,bank account numbers,and Social Security
numbers.
Chairperson Ison said that,if it were the pleasure of the Board,he would meet with Human
Resources and let them know the Board would like to have everything stored in their area for security and
get some direction as to where everything might be placed in their area.
Trustee Vogt asked what would happen if it was found that this would exceed the storage
facilities of Human Resources.
Chairperson Ison said he would meet with Fran Diedrich,determine what kind of cabinets she
needs,and approve the purchase of whatever is needed if this is okay with the Board. There being no
further discussion,Chairperson Ison moved on to the next Agenda Item,Other Business Item A—
Payment of Bills.Trustee Smith advised that there was one more on his desk that had just come in. He
said everything had been forwarded to SunTrust and he would get copies to the Trustees. Chairperson
Ison asked for any additions or comments about the bills presented in the package. Trustee Cornell asked
that it be noted for the record that future bills should be directed to her attention to ensure payment. There
being no further discussion,it was,on motion made by trustee Smith and seconded by Trustee Cornell,
unanimously
RESOLVED that the bills be approved and paid as presented and that future bills
should be directed to the attention of Trustee Patricia Cornell.
Chairperson Ison called attention to the next Agenda Item—Correspondence. The
correspondence consisted of a letter from SunTrust and a Certificate of Insurance indicating insurance
coverage of$100-$200 million. He indicated there was also a letter from Trustee Bob Smith advising of
his retirement from the City of Ocoee. He called on Trustee Smith for comments.
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Trustee Smith addressed the Board and members. He stated that he had thoroughly enjoyed the
opportunity to serve on this Board. He said it had been quite an educational process and that he had learned
more then he thought was possible about pensions and retirement. He informed the members in attendance
that he had always encouraged them to become actively involved with their Pension Board and reminded
them that this is their Fund and he encouraged them to think about running for the seat he would be
vacating. He told them that they could do the job even though they might think they do not know enough
about the job,they would learn just by being in the seat. He thanked everyone for placing their trust in him
and allowing him to serve on this Board.
Chairperson Ison told Trustee Smith,on behalf of the Board,that he would be missed and
thanked him for handling all of the duties he had done while serving on the Board.
Trustee Smith stated that he would like to mention for the record,that Ms.Judy Henry,had
assisted him in his duties while on the Board and he wanted to thank her personally and publicly for her
assistance. He mentioned that it would have been impossible for him to do the job without her help. He
encouraged everyone in attendance to take the time to thank her for the work she has done.
Chairperson Ison then addressed the Board and members about the requirements for filling the
position vacated by Trustee Smith according to the Rules and Procedures. He stated that Section 1.7
explains that there will need to be a special election to elect a new Board Member to serve the term until it
is set to expire in October,2002.There are also time frames mentioned. It states that the nominations
should be open for about two weeks. Allow for a time of about two weeks before voting. Leave the voting
procedure open for about a week before it is closed and then have a special session where the results of the
vote are counted and the next person can be brought in. He went on to say that this all needed to be
completed before the next regular meeting and with that in mind,he proposed some dates for the
procedures beginning with the opening of nominations on May 31. This would give plenty of time for the
word to get out that there is a vacancy. He reminded the members that self-nomination would be allowed
and assured them that it would be highly appropriate to do that as it would show their interest. He proposed
closing the nominations on June 14,then call for a vote commencing on July 8. He explained that he
thought that would be good because so many people would be away on vacation since July 4 falls in the
middle of the week. That would leave the week July 8 through July 15 for voting and then he would
(sie, suggest the special session be called for Wednesday,July 17 at 10:00 a.m. He reminded everyone that even
if there was only one candidate and it would not be necessary to have an election,the special session would
still be needed to bring the new person in.
Chairperson Ison noted for the record that Attorney Lee Dehner had just arrived to the meeting at
11:05 a.m. He had been caught in traffic and had been unable to arrive any earlier.
Chairperson Ison returned to the topic of the election. He stated that the ballots would be
distributed with paychecks. He also said that it would be necessary for the votes to be turned in in sealed
envelopes. He addressed Trustee Smith to say once again that he would be missed and he hoped there
would be a good replacement. He told the members that the term would be for only six months,so he
encouraged them to give it a try. He encouraged them to get out and fmd someone for the Board as it is
their pension and in their best interest to get a good replacement. He asked for any discussion or
comments. There being none, it was on motion made by Trustee Cornell,seconded by Trustee Vogt,
unanimously
RESOLVED that there would be a special election to fill the vacancy being left by
Trustee Smith for the remainder of his term which would be completed in October 2002.
Nominations will be opened on May 31 and closed on June 14. Ballots will be distributed for
voting the week of July 8 through July 15 with voting by sealed ballot being completed by
5:00 p.m.on July 15. The Board will then hold a Special Session on Wednesday,July 17,at
10:00 a.m.for the purpose of counting the ballots and bringing in the new Trustee.
Trustee Vogt asked if it would now be the appropriate time to name one of the present Trustees to
take over the positions of Vice Chairman and Secretary which were those held by Trustee Smith.
Chairperson Ison answered that there will be an election for those positions at the Special Session on July
17,that it would be best to bring the new member in first.
(we
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The next Agenda Item was the$100 Supplement Ordinance. Chairperson Ison stated he had
been advised by the City Clerk that because the Ordinance had a public reading once,she would need
something in writing from the Board that they choose to withdraw the Ordinance. Otherwise,it will have
to be continued on the City Commission Agenda. He said this had been considered at the last meeting but
it would be necessary to have a written withdrawal. He asked Trustee Cornell to prepare the written
communication. He called for any further discussion. There being none,on motion by Trustee Vogt,
seconded by Trustee Smith,it was unanimously
RESOLVED that Trustee Cornell would prepare written communication to the City
Clerk for the purpose of withdrawing the$100 Supplement Ordinance in order to remove
the Ordinance from consideration by the City Commission.
Chairperson Ison then called on the HR Director,Fran Diedrich,for a report on pension benefits.
Ms.Diedrich had just entered the Chambers for the meeting. She reported that she had been asked at the
last meeting to come back with some language on issues that had been discussed regarding revisions to the
Plan for the general employees. There had been discussion of a 30-and-out and as shown in Section 6.1,
this would expand the member's actual retirement date to be either the completion of five years of
creditable service and age 60 or 30 years of creditable service,regardless of age.
Ms.Diedrich said another change would be a Cost of Living Adjustment(COLA). The current
Plan has nothing in it to deal with COLA increases that pensioners will face over time and this could be
catastrophic. She suggested four different options for the Board to consider and make a determination of
which should be submitted to the actuary for costing before it is taken to the employees for consideration.
The first option would be an annual flat rate increase of 2%. The second option would be an annual
increase of 3%. The third option would be a bi-annual increase of 3%. The final option would be an
increase of 5%every five years. She stated that each of the options would cost a different amount and she
encouraged the Board to think about which would be the best in the long run because pensioners could
receive their pension amounts for fifteen to twenty years or more and without any provision for a COLA
they would receive exactly the same from the time they retire through that entire period.
Ms.Diedrich then addressed the two other options that had been discussed,the purchase of
military service and the purchase of prior government service. She advised that the Police&Fire Pension
Board has just adopted items similar to these and she said that a letter received from Foster&Foster,Inc.,
indicated this would not adversely effect the fund actuarially because the employee has to purchase the
time back. Her suggestions in this regard were to give times that this purchase had to be specifically
requested by the employee and giving them times that they had to come up with the money required to
purchase the time back,allowing a maximum time under the government service of five years to be
purchased from another fund. Also,if the time is to be purchased,the employee cannot have that time
purchased from another pension plan where they will receive a pension. She said that prior military service
would be the same sort of thing,a provision for parameters for when the employee has to provide the
contributions. It would have to be done within eighteen months of adopting the Ordinance if they are
already in this Plan. It has to be done in a lump sum at a certain time. The maximum credit would also be
five years and it would count for all purposes except vesting.
All of these options would enhance this Plan and Ms.Diedrich reminded that the last two would
not have an actuarial effect but the first two would. She suggested getting the actuarial cost on what the
Board decides is the best of the options.Once it is determined what it will require for both the City and the
employees to pay in,a survey would be sent out stating the proposals,advising the exact cost to the
employee if enacted,and requesting a"Yes"or"No"answer and then the employee would be able to have
input as to what they want to do and then this would be something that could be approached in the coming
years. She reminded the Board that this is going to be a very serious year for increases. There are serious
budgetary limitations and she said that she did not know if some of these things would be feasibly possible
in 2002,that they may have to be looked at in 2003.
Chairperson Ison asked Ms.Diedrich if she had received any correspondence from Ward Foster
relative to these costs. Ms.Diedrich said she had not,that it would be up to the Board to first decide on
which options they want to have costed. She said that most of the options are standard in retirement plans
across the state. Chairperson Ison then asked,on the COLA options,if there is a national figure,an index
Nee figure,about cost of living. Ms.Diedrich answered that there is the Consumer Price Index(CPI)but she
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warned that it should not be used because it is up and down and the politicians tweak it to their own means.
She said that FRS uses a 3%annually,but added that this Plan may not be able to afford that.
Trustee Vogt stated that from the soundness perspective it seemed that it would be better to go
with a fixed percentage rather than an actuarial assumption of what the CPI or index should be.
(800
Attorney Dehner advised that up until ten years ago it was not unusual to fmd an adjustment with
the index mentioned with a maximum cap. Now there are very few of those and there is just one stated
rate.
Chairperson Ison asked Ms.Diedrich if she would like to express her professional opinion of the
four options. Ms.Diedrich answered that she would probably go with the 2%across the board. She said it
would not be quite as expensive. She went on to say that the Board may want to look at 2%and 3%then
present it to the actuary and see what the difference in cost is.
Trustee Vogt said that when presenting the survey to the employees it would be good to be able
to say that 2%would cost"x"number of dollars,3%would cost"x"number of dollars more and ask what
they think of the choices. Chairperson Ison agreed saying that was a good observation,between 2%and
3%,to let the members decide. He asked Ms.Diedrich if he was correct in understanding that the thing to
be done here would be to require an Ordinance and the City Commissioners would have the option of
passing this in October,but making it effective next year. Ms.Diedrich answered that the military leave
and prior government service could be done currently but the other two would have to be worked within the
budgetary limitations.
Trustee Vogt said he did not understand how an actuary can cost a benefit that has a variable
starting date,that it seemed the actuary would need to know what target the start date is in order to
accurately calculate how much it would cost. Chairperson Ison said that the actuary would be looking at
the total members and their ages and that is what would be taken into consideration,not necessarily the
start date. He pointed out that this Board would order 2%and 3%,though he recalled back in the 1980s
when there were 5%,7%,and 8%inflation increases. He said there is nothing to prevent the employees to
come to this Board later and request a change to a higher rate sometime in the future. This would be a first
step in getting started with a COLA and it would only be effective until changed at some later date. He
reminded that this Board recommends to the Commission and they consider the recommendation,that it is
a two-fold process.
Trustee Vogt asked if he was correct in understanding that this benefit is not retroactive-people
who retire before the effective date would not get the COLA—and that,if in the future the COLA rate is
adjusted,it would mean that adjustment would not be retroactive? Chairperson Ison answered that he was
correct.
Trustee Smith asked if the Police&Fire Board were asking for a COLA. Ms.Diedrich answered
that she was not aware of it if they were. Trustee Vogt said that this Board has the benefit of the
experience of the Police&Fire Board with the military and prior government service. Ms Diedrich added
that they had implemented a disability situation in their pension,which is not being implemented in this
Plan. She reminded that this Board could create the benefits any way they want as long as it is not
inequitable among the employees.
Trustee Miller asked what Foster&Foster would charge to research the numbers. Ms Diedrich
answered that she did not know what the cost would be.
Attorney Delmer commented about several things that had been said. He said that for Ward Foster
to do the studies,once the computer is programmed and all of the numbers are plugged in,it is viable to
have many combinations costed at one time instead of having them done on several different occasions. He
said he agreed with Chairperson Ison that it is very important to get this type of adjustment(COLA),into
the Plan. If the ideal of 3%,with the first adjustment being made one year after retirement,is not
affordable,then other percentages and time frames should be considered. He stated if that the first COLA
adjustment could be slated to be paid three or five years out, for example. Another thing to consider is to
stop the COLA adjustments at age 65 or Social Security retirement age.He added that,without exception,
when any of these plans are implemented,it is for future retirees from the date of implementation. He
suggested consideration of an ad hoc adjustment from time to time. He also noted that,with respect to
9
benefit improvements,if they should become effective after the next fiscal year(after October 1,2002),
they do not have to be funded until 2003. Another item he brought to the Board and members' attentions
was regarding the prior service buy-backs. He said there is currently an Ocoee service buy-back in the
Plan,so Ocoee and non-Ocoee buy backs need to be included in the Ordinance so there is not a
redundancy.
thie
Fran Diedrich asked Attorney Dehner about the point he had made of the possibility of stopping
the COLA adjustments at Social Security retirement age. She stated concern that perhaps Social Security
would not be there when most of these employees reached the current Social Security retirement age(s),
and if this Plan included the provision to cut the COLA adjustment at the time that Social Security would
have been available,it would cut the COLA out of perhaps the only pension that the Plan members would
be receiving. Attorney Dehner responded that the intent of stopping the COLA adjustment at the Social
Security retirement age would be a method to make it affordable initially. If the Plan put the age of 65,for
example,into the Plan,it would be the intent to raise that age as improvements are made. Trustee Vogt
asked how old the retiree must be to retire from the City if they do not opt out through 30-and-out. Ms
Diedrich responded with 60 or 5 years.
Chairperson Ison said he was aware that the Social Security age and benefits fluctuate as some
retire at 62 and some at 69. He also said if all of this was put out for the members,it would be very
complicated for them to decipher all of the options. He stated that his main concern was to get this done
and get this into the Plan with the idea of adjustments in the future to make the Plan and benefits even
better. Trustee Vogt said the he thought it would be good to get Ward Foster to generate a lot of options
and then the Board could select the best ones.
Trustee Smith acknowledged understanding Ms.Diedrich's comments about the fmancial state of
the City and,even though he also had concerns about that,he felt that his charge as a Trustee is the concern
of the members and he knew that there was a substantial amount of interest among those members in all of
the programs,including the 30-and-out,and his main interest was to represent them.
Chairperson Ison agreed with Trustee Smith and would encourage having the actuary deal with
all of these options. Trustee Smith made a motion that Attorney Dehner be directed to draft a letter to
Foster&Foster to address all of the items which had been discussed in this meeting: the 30-and-out,2%,
3%,and all of the options,with no age limit or deferral. Trustee Vogt amended the motion asking for the
costs to include each of the percentage options suggested and the savings in deferring the first COLA by a
period of three years. Chairperson Ison asked if it should also include the stop at Social Security age,to
which Trustee Vogt answered that he would include that. Prior to calling for a vote,Chairperson Ison
addressed the members in attendance and asked if they had any comments or questions. Member Robert
Howell,an employee of the Utilities Department,indicated that had something to say and was called upon
by Chairperson Ison for his comments. Mr.Howell said he was wondering about early retirement,that
the proposed 30-and-out would be a full retirement,and he wanted to know about a possible 25-and-out,
with penalty.
Trustee Smith addressed Mr.Howell and said that this might be something to be looked at in the
future,but these things have to be done one step at a time. He said that to bring all of the items already
under consideration before the City Commission would be hitting them with quite a bit at one time. These
items will cost not only the employees,but also the City,and realistically,with the current budgetary
restrictions,it may be too much to add another item at this time. He did add,however,that if there is an
interest in the 25-and-out program with some sort of associated penalty,it could be looked at next year.
Trustee Cornell added that,on the survey done a year or so ago,there was a section for 30-and out and the
$100 supplement. The survey came back with a very expressed interest in a 30-and-out. There was a
section on the survey for additional comments or suggestions and nothing came back about a 25-and-out.
This Board took the information on the survey and from that put together a series of benefits that they
would attempt to put together before the members and the City Commission.
Trustee Miller commented that this Board has taken the position that it will look at those things
that are in the best interest of the members for the long-term and that is what is being researched. He stated
his agreement that it would be nice to be able to retire earlier and that once these current items were
handled,that could also be looked at,the main concern being to enhance the overall package of retirement.
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Chairperson Ison next recognized Member Buddy Elmore. Mr.Elmore is an employee at Public
Works. He asked if the 30-and-out is passed and goes in effect October 1 and he already has 30-years,
what would happen to the drop program at that time? Chairperson Ison responded that there would be no
changes in the drop program,retirement could be with one or the other. Attorney Dehner stated that an
employee would normally go into the drop program when normal retirement age is attained. If not retiring
at a normal age,for example,30-and-out,the employee could go in the 30-and-out with no penalty. Fran
Diedrich suggested that the employees could be given a specific time period. Trustee Smith said there is a
window in the Ordinance concerning the drop plan that the employee is eligible to fall into and that same
time frame should apply if there is a 30-and-out. Attorney Dehner stated there is no mention of a specific
retirement age on 30-and-out. Trustee Smith used Mr. Elmore's case as an example and said that when
the drop program was implemented,there were people who had already passed that and were grandfathered
in and he believed that Mr. Elmore wanted to know if the 30-and-out program would have that same
grandfathering. He said that if the 30-and-out doesn't happen for 3 to 4 more years,Mr. Elmore has 30
years in this year,would he then be grandfathered in to be eligible for the drop program like the 30 years
olds were? Attorney Dehner answered that would be done.
Chairperson Ison asked for any other questions or comments. There being none,on motion made
by Trustee Smith,amended and seconded by Trustee Vogt,it was unanimously
RESOLVED,that Attorney Dehner will draft a letter to Ward Foster,Foster&
Foster,Inc.requesting actuarial costing of the proposed benefits for a 30-and-out program,
a Cost Of Living Adjustment,using 2% and 3% adjustments,beginning the first year after
retirement. Mr.Foster will be directed to use several variables to these options,including
deferring the first COLA adjustment until the third year after retirement. He will also be
directed to cost these items allowing for consideration of termination of the benefit at the
different recognized Social Security retirement ages. These costs should be completed and
presented at the Special Session of this Board scheduled for July 17,2002.
Trustee Vogt indicated concern that the motion did not specifically address military service
purchase or prior government service. Trustee Cornell stated that should be handled under a separate
Ordinance. Trustee Vogt said he understood that there was a verbal from the actuary that there would be
no actuarial impact. Chairperson Ison said that this would need to be handled under a separate motion
and then called for any additional discussion. There being none,on motion made by Trustee Vogt and
seconded by Trustee Smith,it was
RESOLVED,that Attorney Dehner will be directed to draft an Ordinance to
present to the City Commission for the purchase of prior military service or prior
government service.
Chairperson Ison addressed Fran Diedrich and advised her that,prior to her entering the meeting,
there had been a discussion of the storage of the Pension Board records. He advised her that Trustee Smith
would be leaving and those records which were stored at Public Works would need to be stored somewhere
else for an interim period until permanent storage arrangements could be made and that Trustee Smith had
suggested they go to Human Resources for security reasons. Trustee Vogt told Ms.Diedrich that there
was sound reasoning behind that suggestion because of her expertise in security of personnel records.
Chairperson Ison went on to advise Ms.Diedrich that this Board had already approved the purchase of
fireproof cabinets necessary to keep the documents.
Ms.Diedrich acknowledged that would be okay. She advised that she had already purchased a
cabinet for the documents which she had received from Trustee Cornell. Chairperson Ison told her the
Board had not yet purchased any cabinets,they had just approved the expenditure. He then suggested that
Ms.Diedrich and Trustee Cornell meet to determine what is needed and then purchase whatever is
appropriate. He stated that since the fireproof cabinets,which were the most expensive,had already been
approved,any amount less than that would be covered without additional approval being necessary.
Trustee Smith recommended that since Ms.Diedrich had already purchased one cabinet for the storage of
employee records of this Board,that the City submit a bill to the Board to cover the cost of that cabinet as
well as any others which would ultimately be purchased.
Trustee Cornell asked Ms.Diedrich if it would be possible to combine the pension paperwork
with the personnel files. Ms Diedrich answered that it would be possible but she would definitely need
11
assistance because her storage area is quite limited since they have not gone to the optimal situation yet and
that she already has a rented space where they could be put temporarily until space becomes available from
the Fire Department. Following further discussion,Chairperson Ison directed Ms.Diedrich and Trustee
Cornell to get together to handle whatever details and/or file cabinet purchases are necessary to bring this
matter to a close.
Chairperson Ison then called on Attorney Dehner for his comments. Attorney Denner asked the
Board if they had a chance to review the new Rules and Procedures,which he had given them previously
for review,and whether they should be considered for adoption at this meeting. Chairperson Ison called
for any discussion regarding these Rules and Regulations. There being none,on motion by Trustee
Smith,seconded by Trustee Vogt,it was unanimously
RESOLVED that the Rules and Regulations would be adopted as written and
presented by Attorney H.Lee Dehner.
Chairperson Ison advised for the record that Trustee Miller left the meeting at 11:47 a.m. due to
a prior commitment.
Attorney Dehner advised he would prepare the final and send it to Trustee Cornell for distribution.
He then indicated he had two other items to discuss. One was that he had prepared,on the Board's
direction,an Ordinance with the mandatory requirements of the Federal legislation for Economic Growth
and Tax Relief Reconciliation Act. He said that all of the provisions in that Ordinance are mandatory.
With the action by the Board to recommend expanding the prior service buy-back provisions,he said that
he would recommend including the buy-back provisions with that Ordinance as well as including accepting
rollovers into the Plan to fmance those buy-backs. Trustee Vogt asked if it was true that most all of these
Ordinances are standard and already drafted. Attorney Dehner answered that was true. He said that
according to the procedure of this Board,the Ordinances come first to the Board for review before being
presented to the City. He stated that,in this case however,the mandatory Ordinance is all legal. There is
nothing to do with changes for the language shown in the Board package for this meeting on prior military
and prior government service buy-back. He said the only item he would add is the provision that rollovers
will be accepted into this Plan from other qualified vehicles to help fund the buy-back. Ms.Diedrich
mentioned that this language could be found in the Ordinance for Police&Fire which already had it
included. She advised that was available in her office for Trustee Vogt or any others to review if they were
interested. Attorney Dehner when on to say that he would roll all of these items into one Ordinance and
present it to the City.
Attorney Denner then reminded Trustee Smith of the requirement for filing his fmancial disclosure
since he would be leaving the Board. He advised him that he was in the window period where he would
have to file one prior to July 1 and one within sixty days of departure. Trustee Vogt asked if the Board
Members were supposed to submit the forms again. Attorney Dehner answered that they are actually due
prior to July 1. If not filed by July 1,the Supervisor will send a notice that there is a grace period to file by
September 1. If not filed by September 1,then on that date the fine begins at$250 a day to a maximum of
$1,500. He said that they are really serious about the filing requirements so he suggested the Trustees file
immediately if they had not already done so.
Chairperson Ison asked the Board if there were any other questions for the attorney. There being
none,he went on to set an Agenda for the next meeting. He said that the Special Session to be held on July
17,2002 at 10:00 a.m.would be for two things,the results of the election for a new Board Member to
replace Trustee Smith and to receive the information from Foster&Foster,Inc. He requested Attorney
Dehner be at the meeting so that perhaps this could be moved into an Ordinance as soon as possible. He
then asked Attorney Dehner if it would be possible for the Chairperson to meet with Trustee Cornell to set
up an Agenda for the next regular meeting,to be held on August 8,without violating any codes. Attorney
Delmer advised that they could meet,place the items on the Agenda in the order they felt necessary,but
they should have no discussion about the item. Chairperson Ison then advised Trustee Cornell he would
meet with her sometime prior to the meetings to set the Agendas.
Chairperson Ison addressed Trustee Smith and said that the Board would miss him. He went on
to say that he had been outstanding on this Board and the hope would be to get someone equal to him to
serve. He asked Trustee Smith to see if he could generate some interest among the employees. Trustee
12
Smith said he had already been doing that and that there are several employees he thought would make
good trustees. Trustee Smith thanked everyone and said that serving on this Board had been a pleasure.
There being no other business,the meeting was adjourned at 12:04 p.m.
Respectfully submitted,
Jo Ann Lacey
Recording Secretary of the Meeting
Accepted:
Tom Ison,Chairperson
L
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