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HomeMy WebLinkAbout08-08-2002 Minutes Minutes of the Quarterly Meeting of the CITY OF OCOEE GENERAL EMPLOYEES PENSION BOARD Held on August 8,2002 At 150 N.Lakeshore Drive Ocoee,FL 34761 Chairperson Ison called the meeting to order at 10:00 a.m. Present were Trustees Bishop,Vogt, Cornell. Trustee Miller was absent. It was determined that a quorum was present. Present by invitation were Attorney Lee Denner,Diane Garcia representing TRUSCO Capital Management,Larry Cole representing Merrill Lynch,Doug Lozen,representing Foster&Foster,Jo Ann Lacey,Recording Secretary of the Meeting,and three General Employees. Chairperson Ison advised that the minutes of the meeting of the Board of Trustees held on May 8,2002 had been circulated to all Trustees for review. The Trustees were asked if there were any corrections or additions to the minutes. Trustee Vogt responded that there were two corrections to be made. On the bottom of Page 10,second to last paragraph,on the last line,it read"Ms.Diedrich responded with 60 or five years." For purposes of clarification,it was suggested that the line should read,"Ms Diedrich responded with 60 years of age or five years of service." The second correction would be on Page 13,third paragraph,second to last line. It read,"Attorney Dehner when on to say..." which should be changed to read,"Attorney Dehner went on to say..." After a brief discussion,there being no other corrections or additions,it was,on motion made by Trustee Vogt and seconded by Trustee Cornell, unanimously RESOLVED,that the minutes of the meeting of the Board of Trustees of the General Employees Pension Board of May 8,2002,be and they are hereby approved as amended. (iiry Chairperson Ison then called attention to the minutes of the Special Session of the Board of Trustees which was held on July 17,2002 for the purpose of welcoming the newly elected Trustee,Ed Bishop,to the Board. Stating that these minutes had also been circulated to all Trustees for review,he asked if there were any corrections or additions. Trustee Cornell responded that there should be a correction to the spelling of one of the candidates in the election. Mr. Waldrop was incorrectly named as Mr.Waltrip in two places in the minutes. That correction being noted,following a brief discussion,there being no other corrections or additions,it was,on motion made by Trustee Cornell and seconded by Trustee Vogt,unanimously RESOLVED,that the minutes of the Special Session of the Board of Trustees of the General Employees Pension Board on July 17,2002,be and they are hereby approved as amended. Chairperson Ison then called on Ms.Garcia for the money manager's report from TRUSCO Capital Management. Ms.Garcia advised that she was not prepared to make the report and that Mr.Tim Nash was on his way to the meeting. She requested the Board to allow Mr.Larry Cole from Merrill Lynch to make his presentation first,which would allow time for Mr.Nash to arrive. Chairperson Ison asked the Trustees if there would be any objection to changing the order in which the reports were made,there being none,he asked Mr.Cole to present his report. Mr.Cole began by saying that the news on a relative basis was pretty good. He introduced himself to Trustee Bishop and explained that his firm does the consulting work for the pension fund,helps set guidelines,monitors TRUSCO's performance,and makes recommendations for changes. He called the Board's attention to the Merrill Lynch report. He stated that the real theme for the quarter was"thank goodness for bonds because the stock market has been a pretty ugly place to be." He reminded the Board that the fund portfolio has had about 40%in bonds for quite some time and that has really been a help in (ow the last several quarters but it still does not hide the fact that the news is not good,the market has not gotten much better. He went on to say that it was still a wild ride,on any given day the market could be down General Employee Pension Board Meeting Minutes August 8,2002 Page 2 of 17 quite a bit for most of the day and then in the last hour there could be a rally and it would end up for the day. He said that indicates there is a lot of opportunity and a lot of people looking for opportunities,that by a buyer's standard this market is cheap relative to current interest rates and inflation. He said people are not too interested in buying 3%or 4%bonds so there is a lot of cash sitting out there. He went on to say that a lot of investment firms that Merrill Lynch is working with are holding a bit more cash than typical and they don't like to do that. They will try to put that money to work as quickly as possible and he said he thinks they will be looking for some stocks at this level of the market.He said it is a nervous market,that there are a lot of factors affecting it,including the anniversary of September 11. He said he was not sure if there is enough calmness to see a sustained rally before then but if there were no major problems associated with that anniversary,there might be see some improvement in the market. Chairperson Ison stated that in the past the turn around time for this type of wild ride has been seven to fifteen months. He asked Mr.Cole what the general feeling was for this time. Mr.Cole responded that the average time to get back after the bear market[there have been four of them in the last fifty years] is 16 to 18 months. He went on to say that the market,when it turns, typically turns very quickly,and what is also seen is a pattern at the bottom of these markets and that pattern is the kind of volatility being seen right now. He said there are a lot of indications that this could be a bottom. He said there are currently two wild cards. One is what the next corporate scandal will be and the other is the concern about any kind of terrorism act in relation to the anniversary of September 11. He stated that with the wild cards it is impossible to predict what will happen but he reminded that there are always wild cards. He said that the statement that"this is a different time"has been said too often,that in the history of the market,it has always been said,"it is different this time." In the recent market,stocks were selling at outrageous prices,stocks were being purchased that had no earnings,and Greenspan had called the trend"irrational exuberance." He said there were a lot of garage companies doing stock splits, that it was crazy and it couldn't support that. So,there is now that correction and there are some other L,„ variables that have added to the steepness of this decline,but the bottom line is,with every major bear market,there is something different at that time that causes a bear market. He went on to say that corporate scandals aren't even that new,that they are getting a lot more press because of the communications available now,but corporate scandals have always had an impact,or have made an impact on a bear market,so it does seem a little worse this time. Referring back to the report,Mr.Cole stated that the news of the quarter ended June 30 was that the fund lost$389,000 as indicated on Page 2. He pointed out that the fiscal year to date is still positive. So,for the nine months ended June 30 the fund is in positive territory by$145,000. This is a growing fund, as there are contributions going up each quarter. The market value of the portfolio as of June 30 was $7,817,000. He referred to Page 3 for the asset allocation. He pointed out on the charts that 57%is in stocks and the rest in bonds and cash. He added that the bond and cash portfolio has been the saving grace, particularly for the past quarter. Chairperson Ison stated that he knows there are legal reasons why we have had to have so much in the portfolio and then asked if there is a minimum of equity stocks that the fund has to have? Attorney Dehner responded with a no. He that that is determined by the proving investor standard,that there is a number on the max that you can go but there is not a minimum. Chairperson Ison then asked if this Board could go all the way out of the market if they so decided? Attorney Dehner said he did not think the consultants would advise that but it could be done. Mr.Cole added that the consultants would not advise that but it could be done. He went on to say that there is a maximum,but no minimum. He cautioned that the Board should not overreact to this market,that if anything at all should change it would probably be time to load up,not bail out. Trustee Vogt asked Mr.Cole what minimum amount the consultants would consider prudent? General Employee Pension Board Meeting Minutes August 8,2002 Page 3 of 17 Cr' Mr.Cole answered that where the fund is right now is where it should be. He said they are not recommending major asset swings. He reiterated his earlier statement that when these markets move,they move quickly. He reminded that the focus for this plan is the long term as this is a long-term plan,that,in effect,it has no maturity date,it is perpetual. He said that even with the market's decline of the last couple of years,the four and five year numbers will be coming down rather dramatically,but looking at any long term studies,a 60%equity allocation and a 40%bond allocation,is what is needed to get an expected 8% annualized return over any long time period,ten years or more. He said that even with the stock decline over the last two years,stocks have still given between 10 and 12%per year for the last fifty years,so he advised not to bet against this market because of two years of a down market,just as there was no recommendation to go up to 80%in stocks when tech was running like it was for a few years. He said that those calls are almost impossible to make. He said TRUSCO has the authority to make major changes, they can move however they see fit within the guidelines that are established. They have the call of how much cash,how many bonds and how much stock they put in the portfolio. They also have the call as to how they break those stocks up. He again stressed the long-term focus. He said that calling bottoms of the market and calling tops is very difficult to do and most who try to do that actually end up getting hurt more than getting helped,particularly in a pension fund. Chairperson Ison asked about the risk factor and if there was currently a greater risk now? Mr.Cole answered that he would argue that there is less risk now.He said the fund has market- selling multiples in this interest rate environment that are extremely cheap.There has been an aberration in earnings in the market in the last twelve months with the major impact of September 11 and a slowing economy as a result. He reminded that the economy was already slowing before September 11 but obviously that had a major impact. He said, looking forward at projected twelve months earnings,and also looking at in the context of the current inflationary environment,he would be comfortable if TRUSCO decided they wanted to take the equities up,probably more comfortable than if they were backing off at this particular time. Chairperson Ison asked if the Board were to take the opposite of what he had just discussed and advised them to go more into bonds,would there be a probability of recouping the losses? Mr.Cole said it would be much more difficult,that the only way to get appreciation in the value of the bonds is to have interest rates come down,that makes the bonds currently held worth more. But,he reminded,interest rates have come down in the last one and a half to two years rather dramatically. The Fed has been extremely aggressive with 13 rate cuts and there has been talk that they may cut them again, and they can only go so much lower. He went on to say that if interest rates go up,and you are already holding bonds,that eats the coupon return.For an example,he said that if you get a 4%return on the interest that you are getting and interest rates go up,you are going to get something less than 4%because the market value of your bond will go down. He added that the good news is if you had short-term bonds you could turn around and reinvest that money in a rising interest rate environment and buy higher yielding bonds. He said he believes if that happens there will be an improving economy overall and the stock market and earnings picture should start to look a lot better. He said that he feels the best way for recouping some of the losses is stay the course,not bail out of stocks and go heavy into bonds because bonds are pretty much done. Chairperson Ison mentioned that he saw Jacksonville Electric Authority and the City of West Palm Beach issue some AAA bonds that are low rate and that he also sees information about 2%C.D.'s from local banks. He stated that,being on the conservative side,he wanted to discuss and see if the Trustees were comfortable with staying the course. He asked the Trustees for their thoughts or comments. Trustee Vogt addressed a question to Attorney Dehner. He asked if there is any legal barrier that prevents the City's pension fund from investing in bonds that the City has? Can the Pension Fund buy the City's own bonds? General Employee Pension Board Meeting Minutes August 8,2002 Page 4 of 17 (11000 Attorney Denner responded that that is an economically targeted investment and to do that the record would have to clearly establish that under a risk and return basis it would able to do that. There is not a concern about the tax predicament of municipal bonds because the fund is already tax-free. Mr.Cole added that there is a real important consideration there because the entity itself is tax exempt so you typically will not see tax exempt bonds purchased into tax exempt portfolios unless there is some extreme aberration out there. He reminded again that is a call that the investment manager has the freedom to do in the guidelines,not necessarily to buy Ocoee bonds,but there is no restriction on municipal securities in the guidelines. Attorney Dehner addressed the Board and advised that they have the legal authority to take all of the assets out of equity that they choose to from a fiduciary standpoint but it is not suggested as the Trustees are not investment professionals in that area. There would need to be a basis of record to do that and that basis of record would have to be provided by the recommendations of the investment consultants who are professional money managers so it wouldn't be prudent from a fiduciary standpoint for the Board to deviate from the recommendations of the financial advisors. He added that if there were reason to question the propriety or the wisdom of the recommendations being received from the consultants,the action would be to consult with others. Trustee Cornell said that with that explanation,her decision would be to stay the course. Larry Cole agreed. He told the Trustees that he could understand the concern about the liability as a Board and as an individual and taking the liability of telling the manager at this point that you only want 30%in stocks,you don't want this risk level, in terms of recouping what you've got going forward in the next ten years is definitely greater than the liability of staying with a proven investment strategy based on the last 50-60 years market history. He said that Merrill Lynch recommends diversification. He said TRUSCO has multiple managers under one umbrella. He said that what there is in an equity component is exposure to several different styles of equity investments and that has made a big difference in the last several years in terms of volatility of the fund portfolio. He stated that this fund has had a smoother ride than most,so that diversification is very prudent also and has proven,long term history to back up that recommendation. He said that nobody's crystal ball is very clear,including Merrill Lynch or TRUSCO's, that is why it is important to rely on what history has told us in the past. He said that he believes very strongly in staying the course and not bailing out of stocks at this particular point. He reminded the Board that they and their predecessors,as Trustees,have given the investment authority to TRUSCO,and he suggested they let TRUSCO make the decision. Attorney Dehner commented that TRUSCO is the one to make that judgement and they have the authority under the current policy to cut back in their discretion if they think that is best for the fund. Trustee Vogt asked if he understood,in summary,that if the Board goes with the advice of the professionals and the fund deteriorates as a result of that,the Board is at less liability than if it goes against them,even if it works out to be better? Chairperson Ison answered that that summary was correct. He went on to say that he had wanted to bring up conceptually what the Board options were,however,he also wanted to point out that on the comforting side is that the fund has two numbers in the report that say the fund is in the top 27th and 33rd in its peer group and is ahead of the S&P by a few points. Mr.Cole called the attention of the Board back to the return for the quarter of—4.8%. He said that is almost in the top third,that's 37 percentile. He reminded that the numbers in parenthesis rank this fund against other public pension funds across the country,not just in Florida. He said that the stock portfolio was down 10.5%but diversification helped. The S&P 500 for the period was down 13.4. The growth and the value indices and then the Russell 3000,which takes into account smaller company stocks,was also down 13%for the quarter. He went on to say that the good news was international actually contributed in a positive way relative to domestic stocks for the quarter. He added that the bad news was the fund only had General Employee Pension Board Meeting Minutes August 8,2002 Page 5 of 17 about 3.5%of the portfolio in international securities. He said the overall equity portfolio at-10-1/2%was in the top 39%relative to other public pension funds. He said that was a horrible number but better than the average fund out there. He went on to the bond portfolio and said bonds were up 4.2%for the quarter. He added that,in addition to being a good absolute number,that was not an annualized number,so it was up 4%just for the three months. That was in the top 16%of bond funds across the country.For the fiscal year to date,the fund was still positive. Trusee Bishop asked if this is on an October fiscal year? Mr.Cole answered that September 30 is the fiscal year end. He went on to say that,up 2.2%, which is almost in the top quartile,the top 27%,this fund has stacked up against other public pension funds very well. He pointed out that looking out six years at the annualized number,the fund is still above the actuarial assumption rate. The fund has had a good equity number for the last five years with bonds up 7.7%. That has all been really due to the last two years. Looking at the two-year number of 9.9%,this indicates that the Fund has almost made 10%per year on 40%of the portfolio for the last two years. He said that,as bad as the equity markets have been,there has still been a little cushion there and recommends keeping that cushion. Continuing on with his report,Mr.Cole directed the Board's attention to Page 8 for the risk return analysis. He reported that Merrill Lynch does take a look to see whether there is too much risk to get the relative returns,recognizing the absolutes will come down because of the markets,but on the bottom line, risk measured by standard deviation and total return. He said that this looks at the last six years data and that this fund is all over than target index in terms of about the same amount of risk and just slightly above return. He pointed out the good news here is that the fund's equities actually are a bit below in terms of tir risk and volatility and a bit above for the last six years. He explained that is because of the diversification with the different management styles under the one portfolio with TRUSCO and said that has actually helped provide a bit less volatility. Mr.Cole asked the Trustees to turn to Page 18. He indicated that as a Trustee and the responsibility that goes to the Trustee,this was probably the most important page where it reviews to see that the investment policy is in place. This is reviewed each quarter. Merrill Lynch takes a look at the guidelines and makes sure that the fund portfolio is in compliance as they oversee the manager. They also check to see that the performance objectives spelled out in the investment guidelines are being met. He said the answer to this was yes,even though the absolute numbers were not great,the fund had done well against its goals and against other funds. He then referred to the ranking of this fund against other Florida funds handled by Merrill Lynch.He explained that they do work for 88 municipalities in the State of Florida and this ranks the fund against those other municipalities over the last year. The fund this quarter was ranked 36,last quarter it was 30. Trustee Cornell asked Mr.Cole for some explanation regarding this report. She said she noticed in the number 4 spot that there is an entity that was at one time in the 55`h percentile and they have the same split of 60-40. She asked how they made that significant jump? Mr.Cole advised that they had made a management change during the quarter. He explained that this tells they were ranked 55th out 88 last quarter on the trailing twelve months. He called attention to the fact that their target is indeed 60/40,but at this quarter end they had only 42%of their money in stock. They had made a manager change and they had not put a lot of money to work yet so it worked out good for them this particular quarter and it moved them up dramatically. Chairperson Ison asked Mr.Cole if it would be possible to get a list of names of the entities and who their money managers are from the 35th percentile up? Mr.Cole advised that he would be pleased to see if that could be provided but stated that,typically,it is going to be the asset allocation,not the managers where there are problems. He mentioned that there are a couple of these funds that do not do what Merrill Lynch says to do. He said they take a lot of liability themselves and they have done some things against 5 General Employee Pension Board Meeting Minutes August 8,2002 Page 6 of 17 recommendations. For an example,he pointed out that one of the funds with 90%stocks is ranked down at 85th. Chairperson Ison mentioned that there are a couple of things he has been interested in regarding this ranking,such as finding out which funds these are and if they are in the$8 million range or the$100 million range. Mr.Cole said that the clients on the list rank everywhere from$2 million all of the way up to$1-1/2 billion. He said the median fund is around$30 million. Chairperson Ison asked how this fund is doing compared to the State of Florida's pension fund? Mr.Cole responded that he did not know for the State of Florida. He said,however,that against the large funds,this fund has done very well. He pointed out that one of the advantages of this fund is that TRUSCO is the manager. He said that TRUSCO also manages money for billion dollar funds and this fund gets the diversification and,because they have co-mingled fund options,they can put this fund in in smaller amounts. Without this advantage,if the Board were to go out and hire managers,there would have to be a growth manager,a value manager and a small-cap manager. This would present many problems. The fund would probably have to go the mutual fund route and the Board would not see the managers and there would be much higher fees. He added that the fund is very well diversified and the report compares this fund against a national public fund universe that has multi-billion dollar pension funds in it. That is one of the goals of Merrill Lynch— to take care of the smaller plans to make sure that they are getting competitive returns with the large national plans that go out and hire 50 managers. He said the ranking among the peers of the fund is not affected at all by the stock market. Chairperson Ison said that is what he would be interested in,not necessarily the entire list of 88. He said he would like to get some idea where this fund is money wise compared with some of these other funds so this Board could know more specifically where the fund peer group is. He said that as a small fund,ranking in the 33—27 percentile,that meets his goals. Mr.Cole said that asset allocation is the major determinant of performance over the long term,that with market swings such as recently seen,asset allocation is a huge determinant of ranking on this list. Chairperson Ison asked if there would be a better way to go,or should this Board just stay the course? Mr.Cole said to stay the course,that he had no idea what TRUSCO had in mind but said he would be very comfortable with any manager who said they would be taking the equity position up a little. Trustee Vogt asked Mr.Cole for clarification to one of Chairperson Ison's questions. He asked if Mr.Cole had said he would be able to provide the name of the money managers for the top 35 accounts? Mr.Cole said he would try. He then asked Attorney Dehner if there would be any confidentiality issue in providing this information? Attorney Dehner said the municipal market is all public record. Mr.Cole then said he would try to come up with the names and managers. Chairperson Ison indicated that the only ones he would be interested in would be those around$10 million which is near the range of this fund. Mr. Cole said he would look at the top 35,list who they are and they have as managers. Chairperson Ison thanked Mr.Cole for his report and the calmness of his report. He then called on Mr.Tim Nash from TRUSCO,who had recently arrived at the meeting. Mr.Nash greeted the Board and then stated that the markets had been extremely volatile.He told the Board he would like to talk about a few reasons why it has been so volatile,what changes that TRUSCO had implemented in the portfolios during this time period and touch on why TRUSCO thinks we are at or near the bottom. He said that,essentially,the process TRUSCO utilized to value stocks, looking at the PE and looking at their earnings characteristics going forward,those indicators showed it was time to take some money off the table. He said they did not capture the market high as it ended up being in the month of March,but those indicators really protected the portfolio on the down side over the last few years. He said it was a great time to get into the market. General Employee Pension Board Meeting Minutes August 8,2002 Page 7 of 17 He said that the fund had a little higher than normal cash position during the quarter with managers taking some gains off some stocks and holding that money in cash waiting for more attractive buy options. Subsequently that money was put to work. He offered an illustration that in the month of July alone,$60 billion dollars came out of the equity market. Putting that in perspective he said the month of September 11,which was probably one of the worst months seen in our nation's history,clearly scooped the markets. There was an immediate 20%drop within a week of that event. Only$29 billion dollars came out of the market during that period of time. So in the month of July 2002,two times the amount of money as in the month of September 11,came out of the equity markets. He explained that money had come from one of two places:the U.S.dollar has fallen relative to some other currencies and foreign investors have pulled out of the U.S.markets which has caused some money to come out of the marketplace;and, individual investors. He said that we generally think of institutions as having the largest buying power but actually there are$4 trillion dollars in defined contribution or 401(k)assets that individuals have access to and they can essentially call up their 800 number or click on the Internet and say to sell their equity mutual funds. He said there was a huge rise in that activity going on during the quarter,that individual investors usually tend to react at the worst times to the market place. He said they flood tons of money in when there is a momentum market,near the market high,and exit as a market low is approached. Mr.Nash said he would like to draw the Board's attention to more concrete information about why it appears the market is at a bottom and improving. He referred to Tab I[the Investment Overview, page 11]. He told the Board to remember that three years out of every rolling ten-year time period since 1926,equities have lost money or been negative. He went on to say that even with that in place,looking at the stock market trend since 1926,stocks have had an upward sloping trend and even with three out of every ten year time period stocks being negative,they have earned,on average, 11%a year. He said that this fund is long term and that the stock market over the long term gives higher rates of return but we do have to expect volatility and,coming off the decade of the 90's,we really hadn't seen any downside volatility and are now experiencing that. He repeated the return of 11%on average each year but said that if you missed the best 30 days since 1926 out of that time period,the return would drop to about 7%from 11%and if you missed the best 4 days,the return drops to 1.8%. He said TRUSCO takes that to mean you can not successfully time the market,so that is not a strategy recommended for long term investors. He said he was very comfortable with the fund's diversified asset allocation and thinks it will be well-rewarded long term. He said he knows these are some tough times and it probably is a bit unnerving to the Trustees to see huge drops in the pension plan. He said TRUSCO is very mindful of the markets at this point and wants to reassure the Trustees that they are doing the right thing and that the strategy which has been employed is a good one. He went on to give a couple of reasons why TRUSCO thinks the market is very attractive at this time.Referring to the chart on the bottom of the page,he pointed out the very simple model that Alan Greenspan and the Federal Reserve use to determine whether stocks or bonds are over or under valued. He said that what they do is take a look at,for bonds,what the yield of a ten year treasury is,how much income are we getting off a ten year treasury? He said that was illustrated on the top of the chart and at the time this particular report was printed,it was about 4.7%that you get out of the fixed income markets. To look at the equity market and figure out if the equity market is over or under valued it is necessary to come up with that same yield or percentage that the equity markets are earning. What the Fed looks at is that price earnings ratio to value stocks where we look at the price of the stock compared to its earnings and they use the S&P 500 as a benchmark. When you do that the yield on the stock market currently is about 5.8%. So,comparing the yield to the stock market, if you were to buy shares of the S&P 500 today,that yield would give 5.8%where,if we were buying bonds,they would be getting only 4.7%. He said that this last quarter was really the first time we have seen that flip flop so that tells the Federal Reserve that the US equity market is cheap and that is part of the reason that they did not raise interest rates at their last meeting and continue their negative bias. He said this level of a relationship between stocks and bonds has not been seen since 1996,so stocks are looking very attractive at this time. He continued on to say that another measure,inflation,is very low which is a plus for stocks,and another market index is the market value of the Wilshire 5000,that is basically the market value of the 5000 stocks that represent the US market place. That is compared to our country's GDP,basically General Employee Pension Board Meeting Minutes August 8,2002 Page 8 of 17 dividend GDP into the market value of those stocks. That relationship,as of the market high in March of 2000 is about 147%. That was basically saying the market value of the stocks in our country were 140% above what our nation's output was. To put it in context and to explain why that number is important,he said,looking back to where we were as of the end of July,the market has changed and now the market value of stocks compared to our nation's output is about 75%of what our nation puts out. So the market value of those stocks is now cheaper than our overall national output. He said that is another trigger that says that stocks are extremely undervalued at this point in time and that it would be a time to add to equity positions. Chairperson Ison asked if there is a sector of the market that the money managers will be adding to? Mr.Nash replied that there are a couple of sectors. He said they could really add across the board because they were all down significantly,but in this portfolio they have been adding technology and also to the industrial sector position,with companies like Lockheed Martin and General Dynamics. He said the main reason for that is that defense spending has been rising rather dramatically and is going to continue to rise as we go forward. He added that the decade of the 90's saw almost a 30%decrease in defense spending compared to where we were back in 1990,so clearly there is room for the government to spend some money on defense and those types of companies,and industrial names like Norfolk Southern and Union Pacific,are added to those positions as well and should prove to be a benefit. Chairperson Ison asked about Brown&Root,citing the interesting contract they got. Mr.Nash said that was one that was not in the portfolio at this time,but added that those are the kind that would be added. He said that the key driver for stocks,the reason stocks are bought is we pay money today to capture earnings out in the future.He noted that the June quarter recently ended and companies were announcing what their earnings were for the June quarter. Of the companies that announced through July 23,which was a significant number of them,58%of those companies met analyst's expectations or beat them. Only 14%of the companies announcing missed those expectations. He said that is the first time that large a number of companies met expectations or beat them in the last five quarters.He said they do not have the ability to call the bottom but the trend looks like it is cheap. It is a good time to be buying stocks and,you would want to hold stocks through this more rocky time period because the trend is improving and the stock prices rising,looking out over the next six to twelve months. He referred the Board to the report. He advised that Tab I is typically the economic overview and there will be quite a bit of data about the equity and bond markets. He said that Tab II shows the individual performance. He asked the Board to go to Tab II to see the Cash Flow page. He advised that the fund closed out the June quarter with about$7.8 million currently managed on behalf of the plan. He stated that there was a loss of about$389,000 for the June quarter and added that the Cash Flows for the last nine months,fiscal year to date,show the fund is up just about$150,000. He indicated these are the actual cash flows,contributions and withdrawals,any pension payments,fees that came out of the account and City contributions. He referred to the page underneath that which puts the dollar numbers into percentages which shows for the quarter to be down about 4-3/4%. He called attention to the Growth Fund for the quarter,the combination of the stock fund was down about 10.4%. The growth fund was down 10.8 and the S&P 500 was down 13%during that same time period. He indicated that the Russell 1000 growth fund, which is clearly more aggressive than the fund's portfolio,was down 18%during that same time period. He explained that,as part of the diversification process,the fund has two large cap value funds. The first one is the high grade equity income fund which during the quarter was down about 8%and also the STI Growth and Income Fund which is a bit more broad based value fund,the first one has a requirement that the stocks in the portfolio get a dividend yield greater than or equal to that of the S&P 500. The second value fund does not have that dividend requirement so it has a bigger pool of value stocks to go into. He said that when markets are down people are paying attention to dividends,they want that dividend income to help counteract the falling stock price and that dividend component is the reason that the fund's High Grade Equity fund has performed a bit better. He said that in the second value fund,some of the names added during the quarter have some hefty dividends when looking at the portfolio characteristics,it can be u General Employee Pension Board Meeting Minutes August 8,2002 Page 9 of 17 (1110, seen that the dividend yield has come up on both portfolios during the quarter so there is a focus from the value managers on looking at dividend during this time period. He said that the US Limited Cap Fund now has a significant overweight to healthcare names and pharmaceutical names. It also has an overweight to consumer discretionary stocks and technology. He advised there is an international index fund in the portfolio to take advantage of international markets and at this time,international stocks are looking cheap with the U.S.dollar coming down. TRUSCO thinks international companies are going to do better over the next 12 to 24 months but their investment committee would like to see the U.S.economy improve a little more before adding to the international funds. He then reported that the bonds were up about 4.2%for the quarter. Fiscal Year to Date,that$150 thousand ends up being 2.2%rate of return for the fiscal year and looking over the past five years,the fund is a little behind the actuarial assumption,earning 6.68%on average each year and those are all annualized numbers. To draw attention to a fact that he felt would reinforce the committee's decision to utilize diversification,he asked the Board to look at the five year column on which it showed that the S&P 500 during that same time period had a return of only 3.6%.He said that indicates that this portfolio with a combination of stocks and bonds and a variety of equity mutual funds,has earned almost twice as much as the market itself and taken significantly less risk on the down side. Mr.Cole continued by referring to the asset allocation on the third page,which indicates close to a 60/40 mix,about 58%in the stock funds and about a 42%in bonds. He said that in November 2001 bond funds were doing extremely well and they took about 5%off the top of the bond funds and redeplored it back into the equity fund. Trustee Vogt asked if the fund is near the target percentages? Mr.Nash answered that the fund is very near the target of 60/40. Trustee Vogt asked Mr.Nash if he felt,as Larry Cole had mentioned,that the indications are that this is very close to the bottom? Mr.Nash answered, absolutely. He said the feeling is that the equity markets are very near the bottom if not at it,or we have already seen the bottom and as we look out over the next 6 to 12 months we really think stocks are going to do a lot better. r Trustee Vogt said that Mr.Cole had mentioned he thought this was a possible good time to increase the equity allocation percentage. He asked Mr.Nash if that would also be his recommendation? Mr.Nash answered that if the Board is looking at their equity target and increasing their equity allocation, this certainly would be a time that we could take advantage of some very inexpensive stock prices in the market. Trustee Vogt asked if that would be professionally prudent? Mr.Nash responded that it would be professionally prudent. Mr.Cole also responded to Trustee Vogt by saying that the Board doesn't even have to do that. He said that the policy allows,although the target is 60/40,for them to go up to 70%at market,60%at cost and at the end of the quarter it was about 52%at cost so that gives about 8%from the cost standpoint and maybe a little over 10%for the market value. He said that was as of June 30 and he did not know what TRUSCO had particularly done since June 30th,but that the Board does not need to take any action for that if they feel comfortable letting TRUSCO have that discretion. Mr.Nash advised the Board that they would not see the money managers make any radical shifts. He referred to the illustration he talked about back in November when they took 5%of the bonds and shifted them into stocks,those are the types of moves that would be made. They do not make a 10 or 20% shift. He said the portfolio is positioned is fairly well and it can be tweaked from time to time.He added that the cash positions of the funds were a higher during the June quarter than normal and that money is also being put to work,so in addition to asset allocation strategies,each one of the fund managers is going ahead and putting additional dollars to work and taking advantage of some of the more undervalued stock prices that are out there. Continuing on with his report,Mr.Nash referred the Board to Tab III which shows the individual fund fact sheets.He pointed out that the stocks being bought by the fund are growing at the rate of 16.3% which is faster than the market which is growing at about 13.8%. He also called attention to the increase in exposure to technology stocks and that there is now an overweight at about 20%and stressed that the fund has not had an overweight in technology stocks since the beginning of 1998. He said that confirms 0 General Employee Pension Board Meeting Minutes August 8,2002 Page 10 of 17 that TRUSCO is fairly encouraged and fairly bullish on the market improving and technology stocks improving. He indicated that there is also an overweight to industrials and a bit of an underweight in financials and consumer staple needs have been pared back. He said that those types of stocks were good for a defensive market but this portfolio is being positioned for an improving economy,an improving outlook and that is where each one of the sectors fall at this time. He went on to report on the second page,which is the high-grade equity income fund. He pointed out that the dividend yield is 2.2%,up from the last quarter of 1.9%,so the portfolio dividend yield has been coming up. Moving on to Page 3 which is the U.S.Limited cap fund,the small more growth-oriented fund,Mr.Nash stated that this indicated 18%in technology stocks and overweight to industrials as well and also an overweight in healthcare and an overweight in consumer discretionary type names. The next page reports on the International Index Fund. He reminded that this fund is designed to mirror Morgan Stanley's EAFE index and that gives international exposure to some oil and gas companies,industrial type names and some financials. He referred to the last page of this section which relates to the high-grade bond fund. He said it has clearly been a very difficult market for corporate bonds with the Enron debacle, Worldcom blow up,and trouble at Qwest. He advised the Board that none of those bonds were in the fund's high-grade bond fund. He said that investors are painting the whole corporate bond market with the same brush and,therefore,corporate bonds are having a really difficult time. He continued on to say that there is an improving economy and a bond market that has been extremely good for the last three years, which makes the chance that interest rates are going to go down,pretty slim,so interest rates will probably go up and that will erode bond prices. He said the money managers have been adding to the corporate bond sector over the last couple of quarters which they think is the prudent thing to do going forward,thought it has hurt a bit in the near term. He said the other thing they have been doing is almost double the exposure to mortgage-backed bonds,looking for a higher yield. He stated that the increase in mortgage exposure and the overweight to corporate bonds are the main changes within the bond fund. (11,' Chairperson Ison asked the Trustees if there were any questions or comments. There being none, he thanked Mr.Nash for his good report and said he was very confident that this fund would regain the lost 10%and perhaps add 10%. He then called on Attorney Denner for comments. Attorney Delmer said that in light of the corporate fraud and conflicts of interest that have been seen in the headlines in the last several months with increasing frequency and the impact that that is going to have on the administration of this Plan,there are some additional things now to be done. He then asked Tim Nash from TRUSCO to provide to the Board for discussion at the next meeting the proxy policy guidelines under which they are voting the stocks of the Plan. He said there is now new Federal legislation that President Bush had just signed into law addressing these issues and the Board will want to look with an eye towards adopting them as their own and agreeing with them as part of their fiduciary responsibility. He then asked Mr.Nash along with Mr.Cole from Merrill Lynch to report to the Board when and if there are any companies in either the equity or fixed income portfolio that have been the subject of "fraud",which is the word that has been used. If that occurs the Board will need to consider two things. First,there would need to be an analysis in each individual case to determine whether it would be prudent to participate in a class action against the corporation or not. Secondly a report or recommendation from Mr.Cole would be needed to address whether our manager handled such an issue with respect to additional purchase, retention,and disposition in a prudent manner. Chairperson Ison stated he was making notes on those requests so they could be set up as a sub- item on the Agenda for the next meeting. Attorney Dehner addressed Mr.Nash and said it was his understanding from being involved in meetings prior to this with other representatives from TRUSCO,that the limited cap fund did have Adelphia in it. He asked if that was correct? Mr.Nash responded that it did have Adelphia in it. Attorney Dehner then asked if that had been disposed of? Mr.Nash responded that it had been. Attorney Dehner then asked,in compliance,that Mr.Cole take a look at the manner in which that was handled and mail a Cor report to the Board confirming it was handled in a prudent manner. in General Employee Pension Board Meeting Minutes August 8,2002 Page 11 of 17 Trustee Vogt asked Attorney Denner if he had understood that Mr.Nash was also to present a report? Attorney Dehner said he had asked Mr.Nash to provide to the Board their written proxy policy guidelines within which they vote the proxies on the stocks owned by the Plan and with that,any amendments they are considering in light of the new Federal legislation and what has occurred so it could be discussed at the next meeting. Mr.Nash commented that their attorneys were currently revising their written procedures so they should be available for the next quarter as requested. Chairperson Ison said that would be put on the Agenda right after the Money Manager's report for the next meeting. Trustee Vogt added that Mr.Cole's report would then come right after the Monitor's report on that Agenda. Mr.Cole asked Attorney Dehner what would qualify as a reportable event? He said that every stock is in the news but obviously some more drastic than others. He asked if there is something specific? He said the reason he was asking was because TRUSCO invests in co-mingled funds so there are literally hundreds of stocks that they are going to be invested in following different disciplines. He went on to say that from the investment manager's standpoint,that was always the responsibility of the investment manager in terms of voting the proxy and part of the manager's responsibility there is also on the behalf of the client,the Board,to determine when and if to get involved in class action suits. He asked Attorney Denner if that responsibility is now being taken away from the manager and the Board will now make the decision whether or not to get involved in class action suits? Attorney Denner said no. He went on to say he would actually prefer to see the manager do it on the Board's behalf,but he wants the Board to be apprized of that so it and the monitor can determine if there is possibly a company that the manager is not moving on. He said that,initially,it is just having the information available for the Board. Mr.Cole responded that he wanted to be clear that the responsibility was not being taken away from the investment manager. He said it has been and still is their job and he wanted to make sure that Mr. Nash was aware that it is still their job to determine if they are going to participate in a class action suit, that they are not waiting for the Board to give them the green light. Mr.Nash said they have to do what is in the best interest of the shareholders of their funds and their mutual funds,that they are always acting on behalf of the holders of their funds,including looking after the holders of the funds interests and voting accordingly whether doing proxy voting or by taking part in a class action law suit. Chairperson Ison asked if there were any other comments. There being none,he moved on to setting a meeting date for February 2003. He called on Trustee Cornell for suggestions. Trustee Cornell stated that the first Wednesday,February 5,2003,had been suggested and asked if that was acceptable? Mr.Nash advised that he would have a conflict with that as he already has another municipal meeting scheduled for the first Wednesday of each quarter and although he could see that someone else covers this meeting,he would like to attend if possible.Trustee Cornell addressed the other Trustees for suggestions. Trustee Vogt indicated that he would like to flexible in this scheduling. Trustee Cornell then suggested the second Wednesday,February 12,2003. Chairperson Ison asked Mr.Nash if he could make the meeting on that date,to which he responded yes. Chairperson Ison asked if that met with everyone's concurrence? The date of February 12,2003 was set for the February meeting. He then reminded everyone that the next meeting was scheduled for Tuesday,November 19,2002. Trustee Vogt addressed Chairperson Ison to say that he had one preliminary question for the actuarial firm prior to the departure of the economic advisors which might be related to what kind of work they would be doing. Chairperson Ison advised Trustee Vogt to go ahead with his question. Trustee Vogt asked if the numbers which had been presented were showing they are falling under the actuarial expectations over the long term,how long would it be before a cash contribution would have to be made to the fund to make up for that because they are showing that the 5 year percentage figure is below the 8% actuarial assumption? He stated that his fear would be having to go to the Commission to ask for them to 11 General Employee Pension Board Meeting Minutes August 8,2002 Page 12 of 17 make up the difference and that was something he would like to avoid. He asked how long the Board could wait for the market to turn around? Doug Lozen from Foster&Foster,Inc.responded that the fund would be under the 8%for a while. He said he heard the fund was currently at 2.2%for the last quarter and if that was maintained,the four-year average would come in at about 4%. He said last year's valuation for the four year average was at 5%so it is not going to be matched and that probably wouldn't happen for a couple of years. Trustee Vogt asked if this Board should then start planning for having to request a cash contribution from the City in order to make the fund sound? Mr.Lozen advised that the funding requirement that ends with this September 30 was determined with the October 1,2000 actuarial evaluation. The latest valuation of October 1,2001,indicated funding requirements for next year. That means there is a little time bought with the projection. Chairperson Ison asked if the bottom line was that this fund does not have to have input from City funds? Mr.Lozen said his firm is sending out letters right now and they can do one for this Fund indicating what the final obligation is. Trustee Vogt asked when that would be available? Chairperson Ison added that they are going through the budget process presently. Mr.Lozen said that he would be sure this Board would be added to the list of pension boards that wants to receive this final notice. Trustee Bishop confirmed to Trustee Vogt that,with the crisis in the budget situation,the City portion that is going into it had to be increased substantially this past year for the budget starting October. 1. Trustee Vogt asked if they already had the figure for this budget hearing that they need in order to ensure that we are in compliance for the coming fiscal year of the city and the fund? Trustee Bishop answered yes,because in the year 2000,in October is when there was a substantial salary increase which took effect and that was a major factor in the contribution going up at that point. cy, Chairperson Ison asked for any other questions,comments,or discussion. There being none,he went on to Item C,under New Business,with the scheduling of meetings for the coming year. He said the February meeting was already scheduled for the second Wednesday,February 12,2003. Following on with the second Wednesday,the remaining meetings would therefore be scheduled for May 14,2003,August 13,2003,and November 12,2003,all beginning at 10:00 a.m. Trustee Cornell reminded the Board that in November,her position as Trustee would be up as well as that of Trustee Bishop,both of whom were completing the term of those Trustees who previously vacated their positions. She stated that an election,if there were going to be one,would need to have the paperwork put in motion. Chairperson Ison acknowledged the reminder and then called upon Doug Lozen for his official report. Mr.Lozen greeted the Board and advised that Foster&Foster had presented an actuarial analysis of benefit improvements. He advised that this analysis was directed in correspondence provided and that it deals primarily with the Cost of Living Adjustment and the provision for normal retirement upon the attainment of thirty years of credited service,regardless of age and there is one item that looks at a disability benefit according to the same provisions as chapter plans for police and fire for municipalities throughout the state. He went on to say this study was done with consideration that member contributions would pay for the improvements and to the nearest one-hundredth of a percent or so,the City's contributions remains constant,right around 10%. He explained that the last column of the document, indicates the effect on bi-weekly paychecks and making an assumption that the gross weekly salary is$400 and there is 25%income tax withholding and that anyone who makes different than$400 can do a proportion to figure out the effect on their individual bi-weekly take home. He then asked for any questions. Trustee Vogt said he must have misunderstood the questions he asked at the last meeting when this was requested because in the minutes it indicated that he asked if he was correct in understanding that this benefit is not retroactive,that people who retire before the effective date would not get the COLA and General Employee Pension Board Meeting Minutes August 8,2002 Page 13 of 17 the minutes reflect that Chairperson Ison said at the time that this was correct. He continued to say that on the cover letter for this it says"It is important to point out that each of the Cost of Living Adjustments study would apply to both current and future retirees and their beneficiaries." He asked if he was understanding by that statement on the cover letter that these cost factors were done based on also providing COLA's to people who have already retired? Mr.Lozen responded that it was just for active members as of October 1,2002. Trustee Vogt said that was okay, it was just not what he thought was going to be created. He said the thing that he was worried about was if somebody were to say,"Why are we providing COLA to people who didn't contribute to the cost of that COLA in the first place?" Chairperson Ison responded that this was for information only so if it is opted to change that when Attorney Dehner does his Ordinance,it could be changed,this was just to throw some costs out. Mr. Lozen explained that it was not unusual that something like this would have an effective date,that those retired as of a certain date get the improvements. Trustee Vogt said that it answered the question and that it is possible that these costs would be larger than what would happen if the COLA only applied to the people who retired after the effective date of implementation of the COLA. Chairperson Ison responded that this would then give the maximum cost,not the minimum. Trustee Vogt said that he did not know what the feeling of the Board was but he was okay with letting the COLA apply to people who have already retired. He went on to say that this was saying the COLA adjustment study would apply to both current and future retirees,which would mean that those who had already retired would be getting what amounts to a windfall because the current pension members would wind up bearing the costs of that benefit for people who have already retired. He said he was not totally against that as he did not think the difference in cost would be so great. Trustee Cornell said she would be totally against that but this was only an information gathering process. Chairperson Ison said he agreed with Trustee Cornell,that the obligation of this Board was to those present members and their future,not going backwards. Trustee Bishop said he felt uncomfortable with regards to the people that are already out there and taking advantage of and getting a benefit.Chairperson Ison said this could be made effective November 2002,or whatever date was decided upon. Trustee Vogt then suggested that, if the feeling of the Board is that,then that would invalidate this study because this study doesn't have the accurate figures for what it is actually going to cost?Chairperson Ison asked Mr.Lozen to have another column added for existing employees,and not include current retirees and have it at the next meeting. He then asked Mr. Lozen if he had any other questions. Mr.Lozen said he did not,he had given the details,that it was really up to the Board to digest the numbers. He mentioned that the most expensive item would require a member contribution increase of 7.6%,a little more than double of what is coming out of the checks right now and that would provide an immediate 3%COLA adjustment at normal retirement which is age 60. Chairperson Ison asked the Board if they had any other questions or comments? Trustee Vogt asked Mr.Lozen if he could give a rough estimate of how much lower these percentages would be as a result of excluding COLA's from the current retiree base? Mr.Lozen responded that would be difficult to say as he had not done this particular study and he had learned in the past not to guess at anything like that. He did however,state that he would have the results back to the Board to look at in a short period of time, perhaps in the next week. Chairperson Ison called on Attorney Dehner for comments. Attorney Dehner said that just from the time frame standpoint this probably could be recommended and put forth for consideration by the City but that probably wouldn't be until the next budget year,after October 1. He said that the first thing would be to have a new valuation because of the recent investment experience and that it would be likely that the cost of this would increase. He also said that if the member contributions were fixed,it would be logical that the City would be paying the additional. L iZ General Employee Pension Board Meeting Minutes August 8,2002 Page 14 of 17 Mr.Lozen responded that the relative costs should be roughly the same even though they would be looking at a new membership. He said that bottom line right now City is 10,that it could go up to 11 or 12 with the next valuation.He added that to study the same improvements and to make members cover it, would not effect them so much,but the City's bottom line would increase,no matter what. Attorney Dehner said that is the importance to the City. He said the Board should be as accurate as possible when presenting this to the City and that it would probably be based on the October 1,2002 valuation,with benefit improvements,the City's contributions based on the actuarial experience will be greater than it is under the current plan. Mr.Lozen said that was right,but that by itself doesn't mean that each one of these items becomes that much more expensive relative to each other. He added that bottom line City is,the valuation is going to cause the cost to increase. He said that if they wanted to look at the City perhaps paying for some of these improvements,that funding,if done based on the 10/1/02 valuation, would not have to be taken care of until 9/30/04. Attorney Dehner asked Mr.Lozen if these would be valid numbers to move forward and use for the purpose of discussion with the membership? Mr.Lozen said yes. Chairperson Ison asked the Trustees if,at the meeting scheduled for November 19,they thought this could be made an item in a workshop session and let the employees who are participants know by email or some other type of invitation,about the workshop and get their feeling for it? He suggested that this could be done early,before the regular Agenda so the employees would not have to stay through the entire meeting. All of the Trustees responded affirmatively. Trustee Vogt commented that the updated numbers would be available by then also. Chairperson Ison agreed and said that there would be actual numbers to work on. He asked if$400 was a fair figure to be using? Trustee Vogt said yes,because no matter what number is used it can always be proportioned. Chairperson Ison stated that was biggest problem last time because the employees didn't know how to calculate their impact. Trustee Vogt said that,if this were to be presented to the employees,he would favor,instead of taking a fixed gross weekly salary,doing it as the exact percentage that is the factor to keep from alarming the employees with a dollar amount. Buddy Elmore,one of the members,asked Chairperson Ison when this would take effect? Chairperson Ison said that if it is done on November 19 and recommended that Attorney Dehner draw the Ordinance,then it would probably be in February of 2003. He added that if the Board were to so choose,they could ask the Commission in Ordinance to make it effective November,2002. Trustee Vogt asked if it would be possible to add a Plan alternative because he noticed one missing. For consideration this study shows the cost factor for out at no COLA and the cost for out factor at 5%,and 3%,but there is no out at 2%COLA. Mr.Lozen said that could be added. Trustee Vogt then asked what frequency everyone was leaning toward so it could be put in the 30-and-out for 2%? His suggestion was immediately. Chairperson Ison said he was looking for immediately. Trustee Vogt went on to ask about every year,every two years,or every five years? Trustee Cornell said she felt this was something that needed to be discussed with the people in the workshop to see what the feeling is or the mood is of the people before this Board does too much work on it. Chairperson Ison said that if he had to use an arbitrary figure,he would rather use the rate of inflation expected. He said that way they would not be backing up and the Ordinance could be changed as needed. It could be set for so many years and then changed again. Trustee Vogt said that at the last meeting it was said that it was actuarially more difficult to try to link the COLA rate with an index of any kind because they would then be assuming an index rate that we may or may not experience,thereby decreasing the soundness of the fund. (IlorChairperson Ison reminded that this would not be a figure that would have to be lived with for twelve years or ten years,but it also could not be made so it would be cost prohibitive to the members. He 14 General Employee Pension Board Meeting Minutes August 8,2002 Page 15 of 17 suggested that the lower it is made the better it would be and if it is kept where the COLA has been the past three years and where it may be going,that would be a figure the employees could see so they would know they are not going to back up five years from now. Trustee Vogt said he would like to get back to the line item that would be added,the 30-and-out, based on the probably less than real 2%inflation rate,and asked if that line item should have a COLA start immediately and then a frequency of every year,every two years or every five years for discussion for the workshop of November 19,not necessarily saying that any one of those items is favored over the other. Chairperson Ison said that three years would be in the middle. Trustee Vogt said that was one of the COLA frequencies that did not appear on this list anywhere,but agreed with every third year,2%with 30- and-out,starting immediately. Chairperson Ison asked for any other comments. Trustee Vogt asked if Mr.Lozen would be at the workshop on November 19?Chairperson Ison asked Mr.Lozen if he or someone from his firm could come over so they could be here for the discussion. Mr.Lozen responded that the firm could have someone in attendance at the Board's pleasure. Chairperson Ison said that would be good,that the meeting would be at 10:00 a.m.and it would be handled first so it would not be necessary to stay through the entire meeting. Returning to Agenda Items,Chairperson Ison called on Attorney Dehner. Attorney Denner said that before drafting the Ordinance which was discussed at the prior meeting, there were several things to do to in compliance with the Economic Growth and Tax Relief Reconciliation Act. He said that is in Section 3 and Section 4 of the Ordinance and also as previously discussed,one of the opportunities the plan now has is to provide in the Plan that rollovers or transfers will be accepted into the plan. He added that,in conjunction with that there are the prior service buy back provisions for prior military service as well as prior governmental service as discussed. He said with all of that,the Ordinance was ready for the Board to review and to recommend this adoption by the City. Chairperson Ison explained to Trustee Bishop that this is an Ordinance in which this Board requests the City Commission to adopt,and there have been several of these in the course of day to day business of the Board,or sometimes they are done when making improvements. He explained that this Board approving it does not mean that it is approved,it just gets put forth on the City Commission Agenda and Attorney Dehner generally sends a letter accompanying to explain it and the City Manager or anyone else can ask him questions on it. He then asked if there was any discussion on this Ordinance? There being none, it was on motion made by Trustee Cornell and seconded by Trustee Bishop,unanimously RESOLVED,that the Ordinance as presented by Attorney H.Lee Dehner,be approved for presentation to the City Commission for approval. Attorney Dehner thanked the Board. He said he would complete the Ordinance and he felt that the Board could anticipate favorable consideration because a very similar recommendation from Police and Fire had recently been accepted. Chairperson Ison returned to the Agenda and stated that the next Item was to set the February meeting which had already been done and suggested that perhaps the work session for that meeting would not be needed since there would be one in November. Attorney Dehner commented about the February work session. He reminded the Board that was started several years ago,originally for the purpose of answering any questions or general explanation of the Plan,but for legal aspects and actuarial aspects,that is the meeting when valuation report is received from Foster&Foster,the one that is as of October 1,2002, in this case and,in conjunction with that valuation,they prepare certificates for each member of the Plan, explaining where they are in terms of their progress. He said that is the purpose of that meeting as well so they can be distributed to the members and receive explanation on the way those certificates work. He then said that if the Board was still interested in doing that aspect of it,that would require a workshop in February. tS General Employee Pension Board Meeting Minutes August 8,2002 Page 16 of 17 L Chairperson Ison said the work session could be kept in for the February meeting. Trustee Vogt asked if a separate session would be needed? Chairperson Ison said yes,that it would just be at the front side of the regular session. The meeting will start at 10:00 a.m.as usual,the work session will just be the first item on the Agenda. Chairperson Ison then asked Attorney Dehner if he had any comments regarding Rules and Procedures? Attorney Dehner said yes. He reminded the Board that at the May meeting the rules as they were before the Board were adopted. He advised that a final copy without the draft stamp on it was on its way to Trustee Cornell for copying and distribution to the Trustees. Chairperson Ison then moved on to Other Business,the first part of which was for the Payment of Bills which were included in the Trustees packets. He asked if there were any questions or comments. There being none,it was,on motion made by Trustee Cornell and seconded by Trustee Bishop, unanimously RESOLVED that the list of bills be approved and paid as presented. Chairperson Ison then asked Trustee Cornell if there was any additional correspondence to discuss? Trustee Cornell said there was none,but that she wanted to bring to the attention of Trustee Bishop,in particular,the training session for him and that she did have some information sent from FTPTA for him if he would like. She said the training session was a requirement during the term of his appointment. Chairperson Ison reminded that Trustee Miller had missed the last training session,so he would need to be included in that. Attorney Dehner asked Chairperson Ison if that was to be in-house? Chairperson Ison responded (110 yes and asked if could arrange it with Trustees Miller and Bishop. Trustee Cornell asked,if she should be reappointed in October for a new term,would she need to go through the training again? Attorney Dehner replied that the requirement was for one training session each time.Trustee Cornell said that,in that case, she would also need to be a part of the training session. Attorney Dehner asked if Trustee Bishop had received the copy of the administrative responsibility outline that he had distributed. Trustee Cornell said that he had not yet received it,that she would be giving it to him. Attorney Dehner then asked Trustee Bishop if he had filed his financial disclosure. Trustee Bishop said he had just received the form from the City Clerk yesterday and that he would complete it. Attorney Dehner then asked if anyone knew of former Trustee Bob Smith had filed his final disclosure. Trustee Cornell said she had provided it to him with instructions to file it,but did not know if it had been done. Chairperson Ison said he would contact Mr.Smith by telephone prior to the next meeting to determine the status of the filing. Chairperson Ison then asked Trustee Cornell about the election she had mentioned earlier. Trustee Cornell responded that she had just learned that her appointment had been to complete the term which was previously being served by Joyce Oliver and that term would end in October,even though she had thought it was a two-year term. Chairperson Ison said he had also thought it was a two-year term. He then asked Trustee Cornell if her position was appointed at will. She responded that was correct. Chairperson Ison made a motion that Trustee Cornell be reappointed,the motion was seconded by Trustee Vogt and it was,unanimously RESOLVED that Trustee Patricia Cornell be appointed to a full two-year term, such term beginning October 1,2002 and expiring September 30,2004. Attorney Denner reminded that Trustee Cornell's name would have to be submitted to the Commission for confirmation and she would then be official by the next meeting. He added that,with respect to the issue about the term,when it would begin and when it would end,if a new Trustee is taking General Employee Pension Board Meeting Minutes August 8,2002 Page 17 of 17 the place of a prior Trustee who left mid-term for whatever reason,that person fulfills the remainder of that term. Trustee Bishop said that was his situation. Attorney Dehner agreed. Chairperson Ison then asked Attorney Dehner if there would have to be another election? Attorney Dehner said yes,at the expiration of that seat. Chairperson Ison said that would be September 30,2002,which would not allow for much time. Trustee Cornell asked Trustee Vogt if he would help get that together and do another election. Trustee Vogt asked about the dates. Trustee Cornell said that the next quarterly meeting would be in November so whoever will be serving in that position will need to be in place before the next quarterly meeting. Chairperson Ison said that the Board should set the date for the election and suggested September 12,2002. Trustee Cornell said they would do the balloting with that paycheck,providing that that pay period corresponds. Chairperson Ison advised that the date could be changed if it did not correspond. He went on to say that if the results of the election are as anticipated and if Trustee Bishop is the only person on the ballot, it could be put on the November Agenda to recognize his reappointment. In the case that someone else would be elected,then a special session would be called. Attorney Dehner pointed out that this procedure is covered in the Rules in Section 1.7. It does provide for nominations between August 1 and August 15,so those dates would need to be changed. He reminded that someone could nominate himself or herself. The election will be in September and the term will begin October 1. Trustee Vogt asked how long the nomination period is according to the regulations.Chairperson Ison said it was a two-week period and it would be done in September. Trustee Cornell said it could be done between September 1 and 15 and then still do the election. Trustee Vogt suggested targeting August 15—29. Trustee Cornell and Trustee Vogt agreed to work together on this and then they would contact Jean Grafton to set it up. Attorney Dehner recommended that they refer to Rule 1.7,sub-paragraph A. He reminded that the rule is very specific and that the rule can be followed with the exception of the August 1-15 dates. He said that with the rules being so specific,they must be followed closely. Chairperson Ison said he had made notes on the Agenda for the next meeting and would get together with Trustees Cornell and Vogt to set that Agenda. He asked for any other comments. There being none,the meeting was adjourned at 12:10 p.m. Respectfully submitted Jo Ann Lacey, Recording Secretary of the Meeting Approved by: Tom Ison,Chairperson L 17