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HomeMy WebLinkAbout08-10-2005 Minutes V (awMinutes of the Regular Session of the CITY OF OCOEE GENERAL EMPLOYEES PENSION BOARD Held on August 10, 2005 At 150 N. Lakeshore Drive Ocoee, FL 34761 AGENDA ITEM I. CALL TO ORDER—Vice Chair Wagner A. Vice Chairman Russ Wagner called the meeting to order at 10:10 a.m. in the Commission Chambers in City Hall. He called on Secretary Jean Grafton to call the roll. Present were Vice Chairman Wagner, Trustees Tom Hendrix, Terry Reed, and Jean Grafton. Absent was Chairman Mary Anne Swickerath for medical reasons. It was declared that a quorum was present. Also present were Attorney H. Lee Dehner, Recording Secretary of the Meeting Jo Ann Lacey, Human Resources Director Jim Carnicella, Mike CallawaySebesta representing Trusco Capital Management, and Mike Callaway representing Merrill Lynch. B. Approval of Minutes from Special Session dated June 8,2005. Vice Chairman Wagner called for review of the Minutes of the Special Session of June 8, 2005. Copies of the Minutes had been previously circulated to the Trustees. It was, on motion made by Trustee Grafton, seconded by Trustee Hendrix, RESOLVED that the Minutes of the Special Session of the Board of Trustees of the General Employees Pension Board of June 8,2005, be and they are hereby approved as presented. AGENDA ITEM II. NEW BUSINESS A. Money Manager's Report—Michael Sebesta,Managing Director,Trusco Capital Mr. Sebesta's report was for the Quarter Ended June 30, 2005 which is the third quarter of the fiscal year. An Investment Review booklet was provided to the Trustees by Trusco Capital Management. Mr. Sebesta reported that, continuing a trend that has been seen over the last number of years, smaller and mid-cap stocks have actually driven the overall market with the large cap lagging behind. He stated that Trusco had anticipated that it was time for the large cap stocks to begin to reaccelerate and perform better; however, their call on that had been too early as they were once again outperformed. He said that they continue to believe that the large cap growth stocks will begin to show more market dominance going forward although that has not yet been the case. He reminded that there is a broad asset allocation in this plan with small cap, mid-cap, international, and large cap growth and value. He said that it had been a good quarter for bonds. He advised that the Federal Reserve continues to raise short term interest rates and those rates were up from 1%in June, 2004 to 3-1/2% as of August 9, 2005 and that it was expected that the rate would get to 4% or 4-1/2% early next year. General Employees Pension Board Quarterly Meeting,August 10,2005 Page 2 of 9 Mr. Sebesta reported that the US dollar had rebounded in the international market in the quarter. He said that the Euro as compared to the US Dollar fell 5.6%during the period and that the Dollar has appreciated over 10%vs the European currency so far this year; however,the belief is that the long term trend of the US Dollar is lower vs international currencies. He said that a weaker dollar would help the export market and help shrink the trade deficit. He then reported that oil futures were up over 50% as of June 30. He said this is believed to be a temporary phenomenon driven primarily by risk factors and that the long term trend will be oil at$30-$40 a barrel. He stated that the economic outlook has not changed much in the last couple of quarters and that Trusco is optimistic on the economy, as it is growing at a very moderate but sustainable pace. He reported that job growth remains steady on a national basis. He called the Trustees' attention to the two items that are risks to the forecast of a growing economy—the price of oil, which had climbed up to $70/barrel --and higher interest rates. He reported that the oil crisis is a price issue, not a supply issue, and it is not as much a drag on the economy as it has been in the 1970's. He also said that a lot of consumer rates are tied to the Fed funds rate so as those rates continue to move higher, consumer interest payments rise and that is a drag on consumer spending. He stated that the economy is now growing fast enough to compensate for that,but at some point if the Federal Reserve rate is raised too sharply, that could have a negative impact on the economy. Mr. Sebesta reported that the ending market value for the quarter ended June 30, 2005 was $11,627,164 and that the markets have continued to move higher from the end of June. He stated that at the end of July, the market value was $11,948,806 and he hoped to report that the value was above $12 million at the end of the next quarter. He again indicated disappointment in the performance of the high grade growth fund, which has been up only 5% in the last 9 months. He admitted that it is one of the core funds which has underperformed to date but indicated that it is expected to rotate back into favor very quickly. He reported that the current asset allocation was just shy of 63% in equities, 35% fixed income, and some cash. When asked if there were any real estate investment in this portfolio, Mr. Sebesta said no. He explained that that is generally seen as more of a risky asset class, not necessarily appropriate for a pension plan. Attorney Dehner commented that currently there was no legal authority in the ordinance to do real estate investments and that if the Board wanted to consider that,they would have to request that the Commission amend the Ordinance. Following a brief discussion, by general consensus of the Board, it was determined that this would not be the time to get into that particular market. Vice Chairman Wagner asked how this fund does as compared with the other funds managed by Trusco. Mr. Sebesta advised that this fund was in the average of all of the funds. He stated that this fund is very consistent with the other plans as far as the various sectors. He reminded the Board that Trusco has an investment policy group which gives information about the sectors which they feel are going to do well and those not likely to do well. He said that,based on their recommendations, changes are continually being made within the portfolio across the board for all of their funds and because of that,there should be very little difference of returns within plans that have the same guidelines, benchmarks and expectations. B. Monitor's Report—Mike Callaway,Merrill Lynch Mr. Callaway greeted the Board and advised that on May 12, 2005, he had written a letter with some recommendations relative to the asset allocation changes which would be needed for an General Employees Pension Board Quarterly Meeting,August 10,2005 Page 3 of 9 Ordinance change. He asked if the policy changes had been adopted. Attorney Dehner advised that the Ordinance is pending to increase the equity from 60% at cost to 70%market and increasing international from 10%to 20%. Mr. Callaway asked that Merrill Lynch be provided with a signed copy of the Ordinance and he would make sure that all of the policy changes are made so that everything reads the same way. There was a brief review of those proposed changes as had been determined at the previous quarterly meeting of this Board. Attorney Denner suggested that once the Ordinance is passed, that there be an Agenda item for investment policy review, with input from both Mike Sebesta and Mike Callaway on possible changes to the policy. He said that if that is done, it would have to be done by motion and then reduced to writing and it would need to be filed with the City and the Division of Retirement and the Actuary for the fund. Trustee Grafton explained that she had not distributed the current investment policy to the seated members because she had thought it would be changed at this meeting. Attorney Dehner recommended that she distribute the existing policy and it could be used as a reference point at the next meeting. Mr. Callaway called attention to the report provided by Merrill Lynch. He stated that, according to their data,the portfolio value was $11,632,190 as of June 30. He explained that there was a difference in their number and the number provided by Trusco because, even though they are using the same data,the systems used are different and therefore can produce differences in the market value results. He reported that for the quarter the plan was up $175,000, with a Fiscal Year To Date increase of$743,000 and that neither of those numbers was above average. He said that the performance was because of the asset allocations, which were at the discretion of Trusco. He stated that Trusco had not shown bad judgment with their allocations but the over allocation to the core growth fund relative to the ones that were going up was based on their forecast of what would happen next. He indicated their supposition was that the large quality growth stock, which had not been a good performer for several years, would be coming back into favor and this fund would then be invested in the right place. He stated that, should that large quality growth stock not come back into favor, he would be reminding the Board that this is where there are problems. He stated that the allocation between the different types of stocks has a significant impact on the portfolio. Continuing on with his report, Mr. Callaway reported that for the Fiscal Year To Date,the fund was up 7%and that, if everything continues on as well for the next quarter,the fund should at least receive the actuarial assumption rate of 8%. He reported that in the percentile rank against other public pension forms nationwide that Merrill Lynch evaluates,this fund is a little below the median. He stated that one of the goals is to be above the median, above average all of the time. He said that another policy criteria or target for long term success is to exceed the return of the target index, and that target index has somewhat of an impact on how the funds money is allocated. He reported that for the last couple of years the fund has been trailing, but going out to the 5-year period,the results are that the fund is still slightly ahead of the target index. He reminded the Board that there had been some bad years and that when things"went south", Trusco"went south"less because when things were not going well,the conservatively structured portfolio did better than the less conservatively structured, but when things"go north", Trusco does not"go north" as quickly. Mr. Callaway explained that other managers had done better because they were buying more aggressive stocks and this is a very conservative portfolio. He stated that for the last couple of years in particular, conservative type stock has not done very well and that choosing stocks is an issue of style and that in which this portfolio is managed is conservative. He said that as an asset General Employees Pension Board Quarterly Meeting,August 10,2005 Page 4 of 9 class itself, the large cap growth sector was the least performing, poorest performing sector of stocks,but that was where most of the money of the fund was invested so the allocation decision to be in this sector on a bigger basis impact was wrong. He added again that, if Trusco's prediction is correct, this portfolio will gain more relative to the others. There was a general discussion of whether the numbers reported were net or gross of fees. Mr. Callaway stated that these were all gross of fees and are reported that way for the ease of comparing manager's results. Attorney Dehner reminded that to consider the differential, there would need to be a reduction of fees to determine the true differential. When asked by Vice Chairman Wagner if Merrill Lynch looks at the stocks that are actually picked by Trusco,Mr. Wagner answered that that is Trusco's job. He reminded that the job of Merrill Lynch is to look at the results of Trusco's decisions and report to the Board what they are. He reiterated the fact that Trusco's decisions had not been good lately but his sense is that they will be right very soon. He reminded that this type of activity was cyclical. He also informed the Board that for the size of this fund, Trusco can give a diversified portfolio and that is a benefit. He stated that the diversification within each of the portfolios is fine. He said that the bond results for the last year were below the index, about average. He reasoned that the index has about an 18%participation in B-AA, or less than A quality bonds which,under the current policy of this fund, are not allowed; and over the last year some of those lower quality bonds have seen the highest gains. Mr. Callaway called attention to the section regarding the guidelines under Tab V and stated that the guidelines are being followed but as far as whether targets were being exceeded, his answer was different. He explained that for the nearer term period the answer would have to be"no" because of the reasons he has explained,however, going on out to the 5 year column,that answer changes to "yes." He then called attention to the analysis that is done for every single trade in the portfolios. This analysis summarizes what commissions were paid, the average cost per share and where that was traded. He advised that there is a modest amount which goes through Citation, a recapture firm of Merrill Lynch, which allows a credit for whatever goes there towards his fee. He said that one of the reasons Trusco went to this separate account initially was to pay the Merrill Lynch fee with commission dollars,but not much of it is going there now. He then called attention to the ranking of this fund relative to the other public pension funds in Florida that they deal with. He advised that this plan is actually below the average,positioned at 58, which is up one from the previous quarter and the reasons, again, are those that have already been enumerated. Mr. Callaway advised that in addition to the report provided, Merrill Lynch had also included a handout regarding the SEC investigation of the investment consulting business to see what conflicts of interest were there. He reported that their investigation was inconclusive, saying only that plan sponsors should ask more questions of investment consultants and that the consultants should answer those questions and provide more disclosure. He stated that his firm delivers the necessary disclosures and has been doing so for some time. He said that the SEC, in conjunction with the Department of Labor, had constructed 10 suggested questions and had published that list of questions. Merrill Lynch,to hopefully be up front with that issue,produced a 27-page response to the questions and that is what is included in the handout. Attorney Delmer advised that he does have a list of the questions and answers and will be reviewing them and will be preparing questions to go to the custodian as well as the manager. He also advised that the further inquiry into this and the questions mentioned were probably several months off. He told the Board that this SEC and Department of Labor investigation had been going on for General Employees Pension Board Quarterly Meeting,August 10,2005 Page 5 of 9 approximately 18 months; however, the guidance and questions weren't issued until May 25, 2005. He added that he was pleased that Merrill Lynch was proactive in getting the answers out and they were the only consultants to date who had done so. AGENDA ITEM III. OLD BUSINESS A. Review Ordinance amending Plan to include City Manager and others and revising the titles of some Directors—H. Lee Dehner,Esq. Attorney Dehner advised that specifically, the current Ordinance provisions with respect to participation in the plan are actually for all actively employed persons who are employed full time by the City who are in the plan as a condition of employment,with two exceptions. One of those exceptions is that the City Manager, the Assistant City Manager and the City Attorney are not eligible for participation in the system. The second exception is that there is an opt-out of designated employees, department directors, who have the opportunity to opt-out within 90 days of employment. He reported that those titles in this category [titles may have been changed slightly] are Finance Director, Public Works Director, City Engineer, Personnel and Human Relations Director, Planning Director, City Clerk, Chief Building Official and Administrative Services Director. He said that the issue brought up is whether or not the Board wanted to recommend any amendments to the plan which would, with respect to the City Manager and Assistant City Manager, allow them to participate and changing the list of officers who can opt out, either add to it or correct titles to the extent they are changed. He added that the City tir Attorney does not fit the definition of a full time employee, so he would not be eligible to participate. There was a general discussion among the Board members regarding these issues, and Vice Chairman Wagner then called upon the new HR Director, Jim Carnicella, for his comments. Mr. Carnicella introduced himself to the Board and advised of his prior experience and qualifications to assist them, including working as a Plan Administrator and/or secretary for a County in Pennsylvania for 8 years and in the City of Hollywood,Florida for 3 years. He added that he had,prior to that,worked as a parole officer and had also been licensed as a SEC broker and had all of the insurance licenses to sell all of those types of products including stocks, life, health, accident and disability insurance. Returning to the discussion at hand, he indicated that one of the determining factors of whether the City Manager or the department directors and assistant directors were in the pension plan or not usually has to do with whether or not they are completely at will or whether they have some property right as those employees of the City of Ocoee have. He advised that he and the City Manager have been discussing as part of their changing the Rules and Regulations for the City, many of the different ways that entitlements can be provided to the employees who may or may not in the future have employment rights. He said it would be an issue at the department and assistant directors' level as to whether or not they will continue to have property rights in the future; and this pension, along with other benefits that employees have at different levels,will become another key factor for recruitment purposes. He added that his recommendation would be regarding specific titles,that it may be better to designate in the amendment that it is that class of employees that are considered directors or assistant department directors, instead of listing the individual titles which are always subject to change,that would allow for it to continue to be consistent as the years go on. He also advised that he had been asked by the City Manager to help write the rules that would include new directors and possible assistant directors giving him the authority to approve a contract with them. He said that he thinks the City Manager wants to have the ability to develop those kinds of General Employees Pension Board Quarterly Meeting,August 10,2005 Page 6 of 9 contracts, and in those contracts the ability to add different entitlements and that all of that is in lieu of giving up or removing the present property rights the department directors currently enjoy. Attorney Dehner stated that, based on Mr. Carnicella's comments describing the projects that he is currently working on which are all interconnected with the pension,that it would seem there is not enough information yet to do an Ordinance amendment unless the City Manager were anxious to get it. Following a discussion about how this particular issue could best be handled, Attorney Dehner stated that the next step in the process would be to have a cost impact prepared by Foster& Foster. Further discussion indicated that for the size of this plan, and the requirement that contributions would be similar, adding one person to the plan was not expected to have an impact and that the actuary may write a letter of no impact. Following additional comments, it was on motion made by Trustee Grafton, seconded by Trustee Hendrix, unanimously RESOLVED,that Attorney H. Lee Dehner and Human Resources Director Jim Carnicella be directed to craft an Ordinance change to permit the City Manager and a prospective Assistant City Manager to have the option to be a participant in the General Employees' Pension Fund and to further investigate any actuarial impact it might have on the system and if there is none,to move ahead with the Ordinance; and to authorize Attorney H.Lee Dehner to rewrite the section in the Ordinance pertaining to the Directors being able to opt out of the system to make it more generic as far as titles and/or classes of employees are concerned. There was further discussion about the rules and regulations and HR Director Carnicella said that he and Attorney Dehner, in consultation with each other, would be on top of any kind of plan document changes that need to be presented to the Board at the next meeting. B. Discussion with Human Resources Director and City Manager re Plan Administration C. Discussion re Contractual Pension Administrator—H. Lee Dehner, Esq. Vice Chairman Wagner asked HR Director Carnicella about whether he would be willing to partially or fully help this Board with Plan Administration. HR Director Carnicella said yes,that he could help with every one of the issues that had been discussed. He stated that one of the reasons the City Manager convinced him to come to work with the City of Ocoee is that he asked if he could take on responsibilities that either were part of the HR function and/or whether those could be expanded in the future. Mr. Carnicella assured the City Manager that his commitment to public service is such that he believes that his role is to help the City and especially the employees and that he did not think there was any benefit more important than their pension. He said he has had a passion for administering the pension plans over the last several years. He recommended that the Board not hire a contractual plan administrator but allow him and his staff, as they progress with time, to find out exactly what needed to be done. In that regard, he indicated he would like to help with things such as preparing the Agenda and giving reports to the Board. He indicated that all of the activity that is generated either in HR or Finance will soon be connected electronically so that getting information to the Board and working with the actuary will be easily handled. General Employees Pension Board Quarterly Meeting,August 10,2005 Page 7 of 9 HR Director Carnicella indicated that he had noticed in the minutes of the previous meeting that there were some questions about the fiduciary liability coverage, and that he would like to look at that and make sure that the City has the protection that is required and is also up to date. He also recommended that anybody who works for the Board in the official capacity of handling plan administration duties be covered under the same fiduciary liability coverage. He added that he would also have other recommendations and ways to assist the Board in making the decisions they are responsible for making. He assured the Board that he felt the pension administration is directly linked to HR functions and is the responsibility of the HR Department. He stated that he is currently in the process of making assessments and observations of what is being done today, what can be done tomorrow for the City and how things can be done more efficiently,more effectively, and more cost effectively. He said his hope would be that in taking more of the responsibility back for the City to actually administer the programs,the cost savings might eke out enough money to pay for another staff member. Vice Chairman Wagner asked if the HR Director should be designated as the Plan Administrator and if there would be any Ordinance changes. Attorney Denner stated that an Ordinance would not be needed but that to implement what HR Director Carnicella had suggested, since it is much more comprehensive that what has occurred previously, a letter agreement between the Board and the City for his services,very specifically identifying what his responsibilities will be, similar to what would be needed if contracting with an outside firm, would need to be drafted and then it would also need to be incorporated into the Rules. He stated that the Board is actually designated by statute and Ordinance to be the Plan Administrator which means the Board has the final authority of administration within its sole and exclusive authority and that the Board would actually be delegating certain of the responsibilities to the HR Director as Plan Administrator. It was decided that this item would be on the Agenda at the next meeting for discussion which could lead to the development of the necessary document. Trustee Grafton mentioned to the Board that HR Director Carnicella would like to have the training that the Trustees have access to, and asked if there would need to be a change of policy to cover his expenses of training. Attorney Denner advised that the Board can authorize the Plan Administrator to attend the educational conferences at the pension fund expense. There was a brief discussion regarding travel expenses. Trustee Grafton advised that the Board is currently following the city rules but the expenses are paid by the pension fund. HR Director Carnicella offered to have his department assist the Board at any time with travel, bids, and all of these kinds of things. AGENDA ITEM IV. OTHER BUSINESS A. Payment of Invoices Secretary Grafton indicated that she had two invoices for payment,one from West Orange Secretarial Services,Inc. and one from Attorney H. Lee Denner. Following a brief discussion, it was on motion by Trustee Grafton, seconded by Trustee Hendrix,unanimously RESOLVED that the invoices be approved for payment as presented and forwarded to the custodian for payment. B. Reports General Employees Pension Board Quarterly Meeting,August 10,2005 Page 8 of 9 (1110 Secretary Grafton stated that she had promised to go through all the files and bring a report showing who had left since 1999 which was when the report had last been presented. She advised that report was not yet finished. She indicated that the report was informational in nature and included the names, dates of hire and termination, contributions returned and whether it was rolled over or not into another kind of IRA. She said she would complete the report and circulate it. AGENDA ITEM V. ATTORNEY COMMENTS Attorney Denner advised the Board that at the prior two quarterly meetings they had discussed State legislation pending in session and the only one that pertained possibly to this fund and the City was the proposed amendments to increase the limits on 112.061 which is the statutory travel reimbursement and that it did not pass. He then mentioned the tax notice issued by the IRS earlier in the year, 2005-5, which addressed the situation where there is a mandatory lump sum plan distribution, in most instances between $1,000 and $5,000 and what has to be done if there is no direction received from the Plan members as to what to do with the money, whether to pay it directly to the member or roll it over into another qualifying vehicle. He stated that the direction of the IRS was for the Pension Board to open an IRP, Individual Retirement Program, with a bank and do a roll over. He said this is something that should be avoided for many reasons, one of which is that he has not heard of any bank that is even doing them. He said this is not effective for the public pension fund until the adjournment of the first legislative session of the City that convenes after January 1, 2006. He stated he would have to do two things in this regard. He would have to amend mandatory distributions out of the plan and put the required Federal language in the Ordinance, the Summary Plan Description and the tax notice, so that is just to follow up and that will be taken care of for full compliance. Attorney Dehner then reminded everyone that they needed to file their Form 1 Financial Disclosures if that had not already been done. AGENDA ITEM VI. COMMENTS FROM TRUSTEES Vice Chairman Wagner asked what would need to be done for the next meeting regarding new trustees. He advised that he had put his name in for reelection and was not certain if anyone else would be running against him or not. Attorney Dehner stated that if Trustee Wagner were to be the only nominee, he would be in by acclamation so long as that is shown in the records. There was a discussion about the need to have a meeting to certify the position prior to the next scheduled quarterly meeting for certification of Trustee Wagner's and Trustee Grafton's positions. Trustee Grafton explained that she would be appointed by the City Commission and that her appointment was scheduled to be addressed on their next Agenda. Attorney Dehner advised that in the case of Trustee Wagner, if he was the only nominee and it is brought to the meeting in November and certified at the beginning of the meeting,then it would be alright to do it then. He said that there is a legal principal that has been around for many years in Florida called the `hold-over' principle and that is, if your term expires,you can continue to serve until you are replaced pursuant to that appointment or election procedure. General Employees Pension Board Quarterly Meeting,August 10,2005 Page 9 of 9 Trustee Hendrix advised that there was a Trustee school scheduled in St. Augustine for October 2-5 and he asked if HR Director Carnicella would be interested in attending that school. Mr. Carnicella said he would. After a brief discussion, HR Director Carnicella was invited to attend with expenses paid by the pension fund. Following advice by Attorney Dehner, it was on motion made by Trustee Hendrix, seconded by Trustee Grafton, unanimously RESOLVED,that first,Attorney H. Lee Dehner be directed to amend the Rules to provide for education for the Plan Administrator and second,HR Director Jim Carnicella as Plan Administrator, be authorized to attend the Trustee School in St. Augustine,Florida, October 2-5,2005,with expenses to be paid by the Ocoee General Employees' Pension Fund. Vice Chairman Wagner asked the Trustees if there were any other comments. Secretary Grafton stated that, in going through the records, she had discovered that there were several accounts which had been in the pending file or filed in the regular file which had not been addressed for two years and that she was in the process of getting those accounts cleared up. AGENDA ITEM VII. NEXT MEETING The Trustees were advised that the next scheduled quarterly meeting would be held November 9, 2005, at 10:00 a.m. There was a discussion about the meetings for 2006. The schedule of those meetings was listed for the benefit of the Trustees marking their calendars. Those dates are as follows: February 8, May 10, August 9, and November 8, 2006. AGENDA ITEM VIII. ADJOURN There being no other business, on motion made by Trustee Grafton and seconded by Trustee Hendrix,the meeting was adjourned. Respectfully submitted, Jo Ann Lacey, Recording Secretary of the Meeting Approved By: Ocoee General Employees' Retiremen/Trust Fund ' Mary •1 e Swickerath, Chairman L