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HomeMy WebLinkAbout06-05-07 Joint Session Pension Workshop MINUTES CITY COMMISSION / GENERAL EMPLOYEES PENSION BOARD JOINT SESSION WORKSHOP JUNE 5, 2007, at 6:00 p.m. I I. CALL TO ORDER Mayor Vandergrift called the Joint Session Workshop to order at 6:09 p.m. in the Commission Chambers of City Hall. City Clerk Eikenberry called roll and declared a quorum present. Roll Call: Commissioner Hood (absent), Commissioner Anderson, Mayor Vandergrift, Commissioner Keller (arrived at 6:49 p.m.), and Commissioner Johnson, Trustee Grafton, Trustee Hendrix (absent),Trustee West, Trustee Wagner, Trustee Reed, Also present: City Manager Frank, Human Resources Director Camicella, and City Clerk Eikenberry II. DISCUSSION WITH GENERAL EMPLOYEES' PENSION BOARD REGARDING THE PERFORMANCE OF THE GENERAL EMPLOYEES' PENSION FUND AND FUTURE RETIREE BENEFITS, i.e. COLA, etc. Human Resources Director Carnicella said we are having this meeting to discuss issues regarding additional benefits for the retirees such as COLA, increase in Health Care benefits, or additional income. He said the only way to provide more benefits is to increase the contributions from the City or the Employee, or to try to get the fund to perform better than it has been. The fund has earned approximately 8% on average for the last several years, which is the benchmark. If were are going to look at increasing the benefits, it is necessary to review the fund performance. Mayor Vandergrift said the City will lose approximately $3 million from the General Fund due to the changes in property tax laws. He said he discussed with the City Manager and Human Resources Director ways to get the fund to perform better, and how to share the money that is made above the benchmark. Human Resources Director Carnicella said they have been discussion the possibility of a 13th check for retirees as a one-time lump sum distribution in years where the fund performs at a certain designated level (perhaps 10% or 11 %). Commissioner Anderson said in previous years the fund hit 15%, so it is important that the ordinance would include specific language for what the benchmark will be before we share money with the retirees. Commissioner Johnson asked why our fund has performed lower than other pension funds. Trustee Grafton said that they have been making changes; in the last year the large cap investments were taken from Trustco and given to American Alliance, several months ago the mid cap and small cap investments were taken from Trustco and given to Algier and Transeastern; it is still too soon to see how this will benefit the plan. She added that they have made as many changes as she is comfortable making in one year. City Commission Workshop June 5, 2007 2 Mayor V ander~rift said that the Board should recommend an ordinance to the Commission to consider the 13t check which would specify at what point the fund could share some of the profit and how much or what percentage should be split among retirees. City Manager Frank said that there is money manager and an investment advisor. The investment advisor has been told in the past that the benchmark is 8%. There needs to be a benchmark that is agreed upon through the investment policy. Human Resources Director Carnicella said many years ago Merrill Lynch helped to develop the investment policy, which is the philosophy behind what the money managers should do with the money. He said he believes that Investment Consultant and Trustco have been around since the inception of this program. Trustee Grafton said that Trustco has been with them since 1994, and Merrill Lynch came on board when Tom Ison was Chair and invited them to come onboard. There was no RFQ done, Merrill Lynch was asked to take the job. The pension was started in 1991; it was originally a plan that was city-only contribution until 1991 when the employees started to contribute. She advised Merrill Lynch came shortly after that when former Chair Ison asked them to; there was no RFQ or decision by the board on who to hire as Investment Consultant. The fund has been operating well, one year they had 25%. Mayor Vandergrift asked if the Board hires the Money Managers and Investment Advisors. Ms. Grafton said yes. The Mayor said the Board needs to work out a policy on how the money will be handled below the 8% benchmark, and how it will be shared with retirees when it is above the benchmark. Commissioner Anderson asked if we are looking at raIsmg the baseline of 8%. Human Resources Director Carnicella said they are not going to raise the baseline because that would raise the city's contribution and the 8% is the accepted norm throughout the state. He also asked is there was a percentage that they could be self-invested. Trustee Grafton said not with a municipal pension, we have to follow the state guidelines. Commissioner Anderson said he thinks we should invest in properties in Ocoee, isn't there a specific amount that we are allowed to use for those types of investments? Human Resources Director Carnicella said the main function of the Investment Consultant is to help the board create an investment policy within those guidelines and our current consultant has taken a more conservative approach. He also said that Trustee Grafton is correct in saying that the changes they have taken recently may work. He said he agrees with what the Mayor stated in that the Pension Board should come back to the Commission with a proposal for a 13th check. He said that Commissioner Anderson's point is well taken in that the investment policy needs to be evaluated. He said the pension board is responsible to hire the Investment Consultant, the Money Managers, and the board Attorney. He said Commissioner Keller advised him that what he hoped would come out of this meeting is that this board would continue to make changes to so that the fund would produce at a higher rate that is more in line with what other funds across the state are producing. The report that the Board gets every month shows our pension performing lower than many across the State of Florida. The last report showed that other clients using Merrill Lynch are making 10% compared to our 8%. That does not include what other municipal pensions that do not have Merrill Lynch are earnmg. City Commission Workshop June 5, 2007 3 Trustee Wagner said the board has made a lot of changes in the time he has been on the board; they have been after Trustco because they, truthfully, have not a good job. They have some funds that they were in for years that were making 5% - 6% while everyone else was making 10%- 15%. We have moved a lot of money into some other mutual funds that are doing much better and increasing our overall yield. We could not move a lot of money into the more lucrative mutual funds. We pushed them to put money into International, which is an area that they completely missed for years while other funds were making a lot of money on that segment of their portfolio. He said Trustco has made a lot of mistakes, but they have been receptive to making changes. The board is also looking at changing the investment policy, in order to change the percentages that they are allowed to invest in specific funds. He said they have been working very hard at improving the overall performance of the fund. Mr. Wagner further stated they are partially limited by state law which mandates that approx 40% must be in fixed income investments, but they have to do a better job with the other 60%. He said the board has had an investment consultant (Merrill Lynch) for many years that is doing an adequate job, but even some of their other clients are doing better than us. He hopes the board will agree to put out an RFQ, and Merrill Lynch can present their qualifications, but we need to look at others to ensure we are getting the best investment consultant and money managers for the job. Commissioner Johnson said he doesn't understand why the board would not change the money managers after many years of average earnings. Mayor Vandergrift said it is up to the Board to keep their eye on the investment policy and come up with answers. If you are going to create an ordinance for sharing some of the money over a benchmark you need to decide what the benchmark will be, who gets what, and how long should the fund perform over the benchmark before you share it with retirees. Trustee Grafton said this fund has gained one million dollars each year for sixteen years and she does not see much fault with that. Human Resources Director Carnicella said she is correct that the fund is very solvent, but we are talking about how we can do better so that we can increase benefits for the retirees on a fixed income. There are two ways to add benefits to the retirees and that is for the city to pay more or for the fund to perform better. Mayor Vandergrift said one of the benefits we are struggling right now for everyone is health care. Human Resources Director Carnicella said, hopefully by October, we can continue to offer heath care at the same rate as the employees to those retirees that are not Medicare eligible, and come up with a different program for those that are Medicare eligible to we may be able to put some money back in the pockets of those retirees over 65 years old. We are optimistic that we can maintain the affordability of health care for them until they reach age 65, and then they can get on the new supplemental programs where instead of sending the City 300+ dollars each month, the City would give them some money to help pay for these new supplement plans that would take care of other medical issues not covered by Medicare. These supplement plans are now paying for Part B and Part D coverage. Doing it this way would help our Health Care Plan by having the retirees off of our Plan, and it would help the retirees to have better coverage that is more affordable. Trustee Wagner asked if the Board voted to do an RFQ for the Financial Consultant/Advisor, what would be the procedure for that. Would we do that in house through our own purchasing system, rather than the Board Attorney? City Manager Frank said we can use the in-house resources that we have; however, the board should have the scope of the RFQ reviewed by the Attorney. Trustee Grafton said that is the Plan Administrator's job. Human Resources Director Carnicella said as long as he is involved with the Plan, he would be happy to assist Purchasing Agent Tolbert put an RFQ together. City Commission Workshop June 5, 2007 4 Mayor Vandergrift said the fund is in the hands of the General Employees' Pension Board of Trustees, and we are counting on them to make sound decisions. Trustee Grafton said the state laws only allow municipal pensions to place 10% in International, and the board authorized it, Merrill Lynch put 3% carried our fund the entire next year, and when he tried to place a larger percent into International, the Board that governs him reduced the amount. She said she is bothered that the Consultant, who works for us, is stymied by a board of his organization. Human Resources Director Carnicella said the Board has been working really hard on this over the last few years. He said he still thinks going out for an RFQ would be a good thing for this Board to see if there are other Investment Consultants that could convince them that there are different ways to create policy that would allow for better performance. Trustee Wagner said if we can start putting together an RFQ, we can call a special meeting to review the RFQ and then direct staff whether or not to move forward with it. Human Resources Director Carnicella said the City of Hollywood goes through the RFQ process on a regular basis, and we can look at theirs and put one together very quickly. He said they have been making 15-16% over the last couple of years but they are fortunate to have 200+ million dollars in the pension fund and they can afford seven Investment Consultants and two Money Managers and get a better fund performance. If we increased our performance we could take better care of former employees such as Jean Grafton. Mayor Vandergrift asked if the new Trustees are getting appropriate training. Human Resources Director Carnicella said that Trustee Grafton is a certified Pension Trustee, and he will be getting recertified in June. He said that Trustee Wagner and Trustee Hendrix have gone to some of the seminars and Trustees Read and West have training scheduled in the near future. Trustee Grafton noted that the letter from Peggy Psalidakis mentioned that the Police and Fire employees have better pension plans than the general employees. She mentioned the $200 that they get to put toward health benefits. Human Resources Director Carnicella said it is not classified as a Health Care Supplement; the Police and Fire receive Chapter 175/185 contributions from premiums that people in the community pay for insurance. The state skims of part of that money and, using a formula, they send it back to the Police/Fire Pension. That Pension is not allowed to do anything with those funds except buy new benefits. What they decided to do is split that money up and send a $200 supplement to each retiree from now on. There are a number of different benefits in that plan because of the nature of the work. Commissioner Keller apologized for being late. I III. ADJOURNMENT The meeting was adjourned at 6:53 p.m. Attest: APPROVED: City of Ocoee ,/- "t-