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HomeMy WebLinkAbout10-03-2007 Special Session Minutes Minutes of the Special Session of the CITY OF OCOEE GENERAL EMPLOYEES’ PENSION BOARD Held on October 3, 2007 At 150 N. Lakeshore Drive Ocoee, FL 34761 AGENDA ITEM I. CALL TO ORDER – Vice Chairman Reed A.Vice Chairman Terry Reed called the meeting to order at 10:17 a.m. in the Commission Chambers in City Hall. The roll was called and a quorum declared present. Present were Trustees Jean Grafton, Terry Reed, Tom Hendrix and Wendy West. Trustee/Chairman Russ Wagner arrived at 10:29 a.m. Also present were H. Lee Dehner, Attorney; Jim Carnicella, Human Resources Director/Plan Administrator; Doug Lozen, Foster & Foster; Joe Bogdahn, Mike Welker, Bryan Bakardjiev and Audrey Chamberland, Bogdahn Consulting, LLC. AGENDA ITEM II. NEW BUSINESS A.Investment Consultant Agreement – H. Lee Dehner, Esq. Attorney Lee Dehner stated that the Investment Consultant Agreement with Bogdahn Consulting, LLC had been signed and was now ready for the Board’s signature. B.Investment Consultant Report & Future Strategy – Bogdahn Consultant, LLC Joe Bogdahn introduced Mike Welker, Audrey Chamberland and Brain Bakardjiev. Mr. Bogdahn stated Audrey and Brian were here primarily to facilitate the administrative transfer of information and will be more involved working with the Plan Administrator after the meetings. Joe Bogdahn stated they had a check list of items they needed but most of the items they could obtain directly from Merrill Lynch. Mr. Bogdahn stated Mike Welker and he reviewed the investment portions of the Ordinances the Attorney sent over and said the first thing they would like to do is to walk through an Investment Policy Statement, which covers the parameters that have been outlined in the Ordinances. He said after that Mike Welker will go through the difference in the approach and will look at some of our particular investment options and then talk about where the Board would like to proceed from there. Joe Bogdahn then began going over our Plan’s current Investment Policy Statement. He pointed out that the Policy Statement said the Board will employ a professional Investment Management Firm and explained why it was important to do so. Mr. Bogdahn said by outlining that the Investment Consultant shall coordinate the overall asset allocation, in effect rebalancing, they can contact the Custodian directly and one of the things Bryan handed out has a notification to the Custodian, which states they (being Bogdahn Consulting) do not have any investment discretion nor withdraw authority, they can not tell them to buy or sell anything and is specific to what they can do, which our current Policy Statement didn’t have. Mike Welker went on to explain. Joe Bogdahn continued, moving on to the investment objectives and said 45% is outlined to go to the Russell 3000, which General Employees Pension Board Special Session Meeting, October 3, 2007 Page 2 of 7 is a broad market index, instead of the S&P 500 Market, with 15% to the International Index and 35% to the Aggregate Bond Index and also adding a little bit of a TIPS Portfolio (Treasury Inflation Protected Securities) and he went on to explain the reason for adding TIPS. Mr. th Bogdahn said he wants to see our Plan perform in the 40 percentile or better than our peers, the average is about 50, and on an absolute basis wants to do at least our 8% assumed rate of return or to exceed the CPI plus three. He then moved on to the guidelines and said this is where they start to tell the Money Managers what they can and can not invest in. Joe Bogdahn said the current Ordinance states that investments in all the part of the Fund shall be limited to, which means if it is not listed specifically in the Ordinance they can not invest in it. He said they would like to broaden the Ordinance a little more because the Investment Policy may make sense but if it isn’t specifically outlined in the Ordinance they would have to go to the City Commission and make an Ordinance change every time. (Chairman Russ Wagner arrived at 10:29 a.m.) Joe Bogdahn continued with the presentation. Attorney Dehner addressed Mr. Bogdahn and wanted to note that, with respect to International Securities, our investment section was amended October 2005. Lee Dehner then spoke about specifics. Joe Bogdahn acknowledged and said it also stated the Board needed to report back to the Commission in 2010 on how the International Securities had done and said they would make a tickler on the calendar so they would be prepared when the time comes. Mr. Bogdahn continued spoke about what they expect from the Money Managers. He stated that if the Managers don’t meet expectations they will recommend the Board terminate them and spoke briefly about some of the things they would be concerned about. Joe Bogdahn said the Investment Policy changes would become effective 31 days after the adoption by the Board and delivery of the policy to the City. He said they would also have a place for all the different Managers to sign it as well. Plan Administrator Jim Carnicella asked, if the Board agrees to the new Investment Policy would it require an ordinance change, to which Joe Bogdahn said this policy would not require an ordinance change but he would recommend a change be done in the future to further broaden the parameters. Attorney Dehner confirmed with Joe Bogdahn that this Investment Policy would be within our current Ordinance parameters. Chairman Wagner asked why the Board would have to do an Ordinance change. Mike Welker replied a change was needed in order to really get some expansion in the return and get some alternative type investments into the Portfolio. Joe Bogdahn spoke briefly about co-mingled funds. Mike Welker then continued with the presentation. Mr. Welker spoke about an ordinance change to allow them to broaden out the investment allocation and said this would allow the Fund to perform better over time. Chairman Wagner asked if the Board would need to make a decision today, to which Mike Welker said they would like the Board to vote to put the language in the Ordinance. Joe Bogdahn stated they would also like to see an action today on the Investment Policy, which complies with the current Ordinance. Jim Carnicella spoke about the Ordinance changes already being made and said they should add this item to those changes. Chairman Wagner said the Board would like to expand their investment options but wanted to know what the parameters would be and stated the Board would like to be informed of everything being recommended as they do it because the Commission is going to want to know they have a good handle on it. Attorney Lee Dehner said the Consultants should be present at the Commission Meeting when the Ordinance change is being presented and talked about the 31 day period. Attorney Dehner said the Board could give him direction on the investment section later in the meeting since there were other Agenda items being discussed concerning purposed changes in the Ordinance that will be going to the Commission. Mr. Welker continued and spoke about reviewing the custodial relationship. He went on to explain why going the independent custodial route was the way to go. He said they would bring out five to six custodians, show what the costs would be, and could email the Board their information and fees General Employees Pension Board Special Session Meeting, October 3, 2007 Page 3 of 7 by the end of the week. Mike Welker said he will include SunTrust too but said they are usually through the roof with their fees to go the independent route. Mr. Welker said he will give Jim Carnicella the packets of information from the different groups, along with a little bit about who they are and the services they provide, and will include a spreadsheet that shows their services and what those services cost and then what the ultimate basis point fee would be. Chairman Wagner asked if they could recommend three, to which Mike Welker said yes he could do that. Mr. Welker stated the last component of the presentation was the actual management of the current assets but stated it was a little premature at this point. He then continued with the presentation. He spoke about the concerns of having Mutual Funds and said they would like to come back out to show the Board how the Portfolio is set up and how returns have been. They will then discuss the philosophy of how they want to change the management of the traditional asset classes. Joe Bogdahn spoke about Small & Mid Cap and how they would structure our Portfolio. Mr. Welker then spoke briefly about why letting the Managers be a little more flexible was a good way to go in order to help the returns. Joe Bogdahn said they will bring in alternatives to the next Meeting for the Board to look at concerning Managers. Mike Welker asked when the next Board Meeting was and said they would have the custody information and some data ready to go over regarding the Portfolio. After brief discussion regarding the date and th time (November 7 at 10:00 a.m.), Joe Bogdahn asked if a motion had been made to approve the On motion made by Trustee Grafton, seconded by Trustee Investment Policy Statement. Reed, unanimously RESOLVED to approve the Investment Policy Statement as presented to the Board by the Investment Consultant, Bogdahn Consulting, LLC. Attorney Dehner asked Joe Bogdahn and Mike Welker if they would take care of having the policy signed and then filing it as soon as possible. Joe Bogdahn stated yes and said the Board could sign the document today, without Schedule A, so they could go ahead and distribute it and then as new Managers come on board they will plug them in. Mike Welker said Trusco was the only one to sign it right now as the others were Mutual Funds. Attorney Dehner asked if there were any substantive changes in the Policy from what we currently have, to which Joe Bogdahn said it was done in accordance to the current Ordinance. Attorney Dehner reiterated the effective date of the change being 31 days and Mr. Bogdahn said it won’t affect this as it remains status quo. Plan Administrator Carnicella asked Attorney Dehner, as a result of what the Board had done so far today who should provide notice to the previous Consultant, Merrill Lynch, and the Custodian, SunTrust, that Bogdahn was our new Investment Consultant. Joe Bogdahn answered and said he would forward the letters to Jim for the Board to sign. Mike Welker explained further. Attorney Dehner asked if the Board wanted him to incorporate broader investments in the Ordinance, to which Trustee Wagner stated, without objection, he believed that was the direction of the Board. Trustee Russ Wagner asked if there were any further questions. There being none, the Board moved on to Item C. C.Changes to the Pension Plan (i.e., Mayor & Commissioner’s pension, Buy Back of Airtime, DROP window, PLOP, and dropping/continued contributions after 27 years of service) – Jim Carnicella, Plan Administrator Plan Administrator Jim Carnicella spoke briefly about the items Attorney Dehner had been working on and advised those items were in the packet for the Board to review. Jim Carnicella th questioned whether they needed language concerning a 13 check and asked Attorney Dehner if General Employees Pension Board Special Session Meeting, October 3, 2007 Page 4 of 7 th the Board could just recommend a 13 check for the Retirees and then propose that to the Commission or if language needed to be put in the new Ordinance for it. Attorney Dehner said if th a 13 check is being considered then we would need to get the cost from the actuary, Foster & Foster, and then it would take an Ordinance amendment to incorporate it in the Plan. Attorney Dehner stated he had done a draft of the Ordinance, pursuant to the direction at the last meeting, covering the items they had discussed through that point. Mr. Carnicella said another item that wasn’t listed was the issue of including the Mayor and Commissioners in the Plan. Attorney th Dehner confirmed that the Mayor and Commissioners’ pension and the 13 check was not part of the Ordinance he drafted. Trustee Jean Grafton said the Mayor and Commissioners’ pension wasn’t something the Board had talked about at the prior Board Meetings. Jim Carnicella stated he believed that was correct but said that during the discussion, which he thinks Lee was present, they believed that asking the actuary, Foster & Foster, to perform the actuarial analysis was something the rest of the Board Members wouldn’t have objected to. Chairman Wagner said he first heard about this issue a few days ago and said his first question would be, was it a common thing to do in this type of pension program and asked how this would fit in with our parameters. Attorney Dehner stated no, it isn’t a common thing. He went on to say there are several plans that have Elected Officials participating but they are a minority. Chairman Wagner asked if Foster & Foster would be discussing the parameters, to which Jim Carnicella stated yes. Doug Lozen with Foster & Foster went over the list being discussed for Ordinance changes (the PLOP, Purchase of Airtime, allowing DROP entry for early retirement and freezing benefits after the 81% Cap was obtained). Mr. Lozen asked the Board if there was any particular item they wanted to go over first, to which Chairman Wagner said the DROP and the PLOP. Attorney Dehner asked Doug Lozen if the information being provided was in accordance with the draft Ordinance, to which Doug stated yes. Doug Lozen explained the DROP, as it exists now, is at no cost to the plan since it is fully funded. However the proposal to the Board is to allow early retirees to take advantage of the DROP (those who have obtained age 50 and 5 years of service). Mr. Lozen explained there is a cost to the plan but the assumption is that only 2% of early retirees would take advantage of the DROP. He said the assumption may or may not be valid over the long run but their guess is that the rate may go up as more employees may elect to take the early retirement DROP because they can continue to work for the City and still walk away with cash in hand. He said a survey could be done asking who is considering early retirement and if there was a DROP how many might take advantage of it. Doug Lozen said then based on that information they would introduce a new assumption for the plan, which he doesn’t believe would be a big difference in cost. Jim Carnicella stated he liked the idea of doing a survey and could get this out to employees with Doug’s help. Further discussion ensued. Trustee Russ Wagner asked if this early retirement DROP was something that was initiated by the Board and asked if it was common for someone to take that option. Mr. Carnicella said the Board talked about allowing the employees a choice to decide when to enter the DROP as the one currently th has a window and referred to Attorney Dehner. Lee Dehner said that during the May 9 Meeting the Board gave him direction to include eligibility to enter into the DROP at early retirement for th draft purposes of the Ordinance. He said then during the August 8 Meeting it was determined to eliminate the window for entering the DROP. Jim Carnicella said he liked the idea of providing employees a number of different options. After speaking briefly, Jim said if there was a serious cost to the Plan to allow the DROP at early retirement the Board could eliminate it. Russ asked again how common this provision was in other plans. Attorney Dehner said a minority of plans allow the DROP at early retirement. Chairman Wagner asked if this would encourage employees to leave and would end up costing the Plan more money for just a few General Employees Pension Board Special Session Meeting, October 3, 2007 Page 5 of 7 employees that would take advantage of it. He also asked if we send the survey out to employees how many would really understand it. Jim Carnicella said he would like to see the Board move forward with taking the other changes to the Commission in November and suggested if this issue concerning the DROP at early retirement was going to hold the others up the Board could put it on the back burner. Chairman Wagner asked the Board if they wished to hold off on this issue and the Board agreed not to go forward at this time with the early retirement DROP. Attorney Dehner said he included in the draft Ordinance to eliminate the window for the DROP, to which Chairman Wagner confirmed they had agreed to earlier. Attorney Dehner said he also amended it to extend the maximum DROP participation period from 60 (five years) to 84 (7 years) months. Trustee Grafton asked if that meant someone could elect to enter the DROP at age 61. Attorney Dehner stated yes, with this change the employee is eligible to elect DROP at any time on or after obtaining normal retirement age. Doug Lozen spoke about the PLOP as an alternative cash option and said it was available to even early retirees. He went on to explain. Mr. Lozen stated the retiree could elect to do up to 20% of the pot and take that as cash in hand, which would reduce their monthly benefit. He said there is no cost to the Plan as it comes out of the same pot of money and said the PLOP limits the amount to 20%. Chairman Wagner asked if the difference in the PLOP was taking money that was already there or already in the pot verses the DROP where you are saving money for a future disbursement. Doug Lozen stated yes. Chairman Wagner asked if this was available only once, to which Attorney Dehner sated yes and said it is simply adding another optional form of benefit to the Plan which is chosen at the time of retirement. Further discussion ensued. Attorney Dehner said the employee can not receive the lump sum until they retire and chose that as the optional form of benefit, which is simply an option along with all the other options they have to choose from. Attorney Dehner said the next issue is, whether an employee retiring under the DROP Plan can also choose the PLOP or not and said if it is allowed the first credit to the DROP account was going to be the lump sum value as well. He stated the current draft is allowing the combination of the two. Chairman Wagner asked if there was any financial difference, to which Doug Lozen stated no. Plan Administrator Carnicella said it would be his recommendation, based on there being no cost factor to the Plan, to allow someone once they decide to retire and go into the DROP to also take advantage of the PLOP at the same time, which means their DROP benefit would be reduced by whatever amount they take under the PLOP and would be able to use that small amount of money to do what ever they wanted to. Further discussion ensued. Jim Carnicella said it’s nice to give someone the options and if the changes go through there will be a lot of education that needs to be done for employees who are thinking about retiring soon so they understand all their options. Attorney Dehner said if they combine the two (DROP and PLOP) when first going into the DROP and electing the PLOP, their lump sum value would be credited to their DROP account at that time, so it wouldn’t be paid to them at that time. Chairman Wagner asked if it meant someone had the option of taking some kind of cash at retirement or early retirement but it would reduce their future monthly benefit. Attorney Dehner stated yes and said the other issue the Board discussed was the amount of the PLOP. He stated he put in the draft Ordinance, based on discussions, the ability to choose a lump sum between 5% and 20%, in increments of 5%. Trustee Grafton asked Doug Lozen if the actuary would be giving the retirees the options and showing them what it would do to their benefit amount. Mr. Lozen said yes they would generate up to 5 forms with all the options laid out. Doug Lozen then spoke about Airtime, which means a member could purchase time but said it would not cost the Plan as the member would have to pay the full actuarial value of increasing their monthly benefit including the actuary’s fee for doing the calculation. Trustee Jean Grafton asked if the calculation included the interest that the money would have earned in the Plan, to which Doug General Employees Pension Board Special Session Meeting, October 3, 2007 Page 6 of 7 Lozen said they only consider the 8% assumption along with all the other assumptions that are put into the mix in order to make sure they put the exact dollar amount into the pot. Trustee Wagner asked what the advantage would be for an employee to take advantage of purchasing Airtime. Doug Lozen said it is simply another way to put money into the plan and went on to explain. Trustee Grafton asked if buying Airtime meant they would have years of service added to their calculation. Doug Lozen answered yes. Jim Carnicella spoke briefly about employees having money in their 457 Plan that may want to transfer their money to pay for this Airtime. Attorney Dehner said you could not fund the prior service buyback with the transfer from a 457 until 2001. Further discussion ensued. Attorney Dehner said he wanted to mention the minimum legal requirements to do the purchase of Airtime and said the Member can’t do it until they have been here for 5 years and said there is a limitation to the amount of Airtime they can purchase, which is 5 years. Attorney Dehner stated that there is an exception to both those limitations if you finance the purchase by transferring money in from a 457 Deferred Comp or rolling over from a 403 B Plan and went on to explain but said not too many Plans have done it. He said the draft he provided did not include the exceptions. Attorney Dehner said one other thing that was touched on is what the time was going to count for. He said this would not count in its current form for vesting purposes since the time was not actually served with the City of Ocoee but have provided that it would count for eligibility for retirement and for benefit purposes. Attorney Dehner said he also provided in the draft that a Member can make multiple requests to buy the time which enables them to save up rather than buy it all at once. Chairman Wagner asked if it mattered where the money came from, to which Attorney Dehner said no, unless the Board goes with the exception to the 5 year periods. After further discussion, Doug Lozen went on and spoke about freezing the benefit at 81%. He said that when the multiplier went up, there was a Cap imposed that after 27 years the 81% is frozen but what doesn’t freeze is the five year pay average as it will continue to grow as long as the employee receives salary increases. Chairman Wagner asked if the employee quits contributing to the Plan at that point, to which Mr. Lozen said no and went on to explain. He said what is being proposed here is that the Member can freeze their 5 year average and stop contributing their 7.4% but the City continues to contribute. He went on to explain in further detail and said that unless the person receives virtually no salary increases it would not be a smart move to stop contributing. Chairman Wagner said he has an employee that will reach 27 years of service at age 46 and asked if they could show an employee why it would be beneficial to stay in the Plan instead of quitting and going into another retirement plan. Doug Lozen explained in some detail and said that unless salary increases are consistently less than 1% the smart financial move would be to keep their 7.4% contribution in and let their 5 year average grow. Trustee Grafton asked if it would require a motion to take action to stop the contribution, to which Attorney Dehner said no he was just taking direction from the Board today for the draft and will try to have it ready for the next Meeting. After further discussion, Trustee Wagner asked if the Board wanted to put in the piece to stop contributing to the Plan when the employee reaches the 81% Cap, discussion ensued. Attorney Dehner stated the Board didn’t need to make a final decision today as the final decision could be made when they had the document in front of them and are making a motion to recommend it for adoption. Attorney Dehner said he would put together the revised draft and it will come back to the Board. Chairman Wagner stated another item that needed to be discussed was the Mayor and Commissioner’s pension. Doug Lozen explained they did an analysis and the consideration was for the Mayor and two Commissioners to become Members of the Plan with past service credit of 9 years and would not contribute the 7.4%. Jim Carnicella said the parameters were that any Elected Official who had at least 9 consecutive years would add up all their years of elected service and would use their salary and stipend for the compensation piece. General Employees Pension Board Special Session Meeting, October 3, 2007 Page 7 of 7 Discussion ensued. Chairman Wagner asked about the impact to the Fund, to which Jim Carnicella stated the City would fund it. Jim Carnicella explained further and said the Board would only need to decide if the Elected Officials should receive some type of benefit from the retirement system. Trustee West asked Attorney Dehner if it was unusual to have Commissioners in the Plan, to which he stated most Cities do not. Further discussion ensued. Doug Lozen said if the Board wanted to go forward with this he would need exact dates of service for the Mayor and Commissioners. Attorney Dehner advised that if the Board was moving forward with this issue he would ask that Doug be very specific as to what the terms were going to be but stated they didn’t have enough to draft an Ordinance provision yet. (Trustee Tom Hendrix and Wendy West left the meeting around 12:35 p.m.) Chairman Wagner said Jim Carnicella would need to work with Doug Lozen on the specifics so that Attorney Dehner could move forward with the Ordinance. After a brief discussion Chairman Wagner asked the Board if there was anything th further to discuss. Mr. Carnicella said just the 13 check language but it was agreed they would come back to that item once the 8% assumption had been exceeded. AGENDA ITEM III. ADJOURN There being no other business, the meeting was adjourned at 12:39 p.m. Respectfully submitted by Approved by: Debbie Bertling ______________________________ HR Analyst Russell Wagner, Chairman