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HomeMy WebLinkAbout02-03-2010 MinutesMinutes of the Regular Meeting of the CITY OF OCOEE GENERAL EMPLOYEES' PENSION BOARD Held on February 3, 2010 At 150 N. Lakeshore Drive Ocoee, FL 34761 AGENDA ITEM I. CALL TO ORDER -Chairman Wagner A. Chairman Russ Wagner called the meeting to order at 10:09 a.m. in the Commission Chambers in City Hall. The roll was called (by the chairman) and a quorum was declared present. Present were Chairman Russ Wagner, Trustees David Wheeler, Jean Grafton, and Pat Gleason. Also present were H. Lee Dehner, Pension Board Attorney, Tim Nash and Mike Welker, both of Bogdahn Consulting, ICC Capital Management Representative Steve Sach, and Recording Secretary Stella McLeod. Absent was Trustee Wendy West, excused for medical reasons. Chairman Wagner welcomed the newest trustee, Ms. Pat Gleason. B. Approval of Minutes from Regular Meeting Held on November 4, 2009 Chairman Wagner brought the board's attention to the minutes and asked for the board's pleasure. Upon a motion being made by Trustee Grafton, seconded by Trustee Wheeler, which passed unanimously, the board RESOLVED to approve the minutes for the November 4, 2009 regular meeting. AGENDA ITEM II. NEW BUSINESS Chairman Wagner planned to address the board about a personal pension matter. He planned to pass the gavel to Trustee Grafton since she was the board's secretary. He asked the board's attorney how he might do that. Attorney Dehner replied that it could be done by making a motion. Upon a motion being made by Trustee Wheeler to appoint Trustee Grafton the General Employees Pension Board February 3, 2010 Page 2 of 12 chairperson during Chairman Wagner's discussion with the board, with a second by Chairman Wagner, the motion having passed unanimously, the board RESOLVED to approve Trustee Jean Grafton as meeting chairperson. Mr. Wagner passed the gavel to Chairman Grafton. Mr. Wagner announced that he has plans to go on the DROP program. He would like the board to authorize an hour or two of time with Doug Lozen (the pension board's actuarial consultant) to determine the best point to enter the program. Because granting the request would call for the board to pay for Mr. Lozen's time, Mr. Wagner thought it appropriate to request the board's approval. Attorney Delmer said that the board rules allow for the service that Mr. Wagner is requesting. He continued that Rule 11.5 says that pension members can receive two studies at the fund's expense. Chairperson Grafton said that the reason that the number of studies was set at two was due to pension members seeking too many studies. She continued that one study is to provide information for the pension member to think about what course of action to take, and the other to activate the action once it is determined. Trustee Wheeler concluded that since the studies are already allowed in the pension plan, it does not require any action from the board. Attorney Delmer confirmed Trustee Wheeler's conclusion. Mr. Wagner concluded his address, and resumed his seat, taking back the gavel as board chairman. At the point on the agenda whereby the investment consultant normally would give his report, Mr. Nash (Bogdahn) suggested that ICC CAP representative, Mr. Steve Sach, give his report first. Attorney Delmer notified the board of the fact that a motion would be needed to amend the agenda. Upon a motion being made by Trustee Grafton, seconded by Trustee Wheeler (to amend the agenda), which passed unanimously, the board RESOLVED to amend the agenda to allow ICC Capital Mgt. representative Steve Sach to speak first. A. Money Manager Report -Steve Sach, ICC CAP Mr. Sach said that things have been pretty good; he has been pleasantly surprised with the portfolio in the last 18-24 months. Continually buying into Ford has been good for the General Employees Pension Board February 3, 2010 Page 3 of 12 portfolio. In `99 - 2000 Ford went through a tough restructuring; so the money manager kept buying into it. Ford `got beat up' during this recession, but they did not declare bankruptcy like Chrysler. Gold prices figured into the performance of the plan which is sustainable; hence, the weighting of gold will stay the same. With the amount of liquidity, there is so much money out there, Mr. Sach said, that it is hard to believe that the dollar will stay strong, thus the reason to invest in things like gold and materials. The government put a lot of money in the market, and it has really helped the market over the past year. When the market loosened up, Standard & Poor got really low which means there is a great opportunity to buy security. There will be a bit of continuation. Mr. Sach thinks that sustainability will be seen going forward. Chairman Wagner asked the board if there were questions. Mr. Welker asked what would happen that could make the plan struggle. Mr. Sach answered that by adding more securities to the plan, it will not be as concentrated going forward. Twenty percent of the securities in the Dow rallied. They try to narrow the amount of securities in the plan, and pick the ones that they think have the best chance of success; but, if the dollar rallies, that might have a negative effect, Mr. Sach said. Chairman Wagner thanked Mr. Sach for the report. B. Investment Consultant Report -Tim Nash, Bogdahn Consulting, LLC Mr. Nash greeted the board and explained to the newest trustee, Ms. Pat Gleason, that his firm, the pension board's investment consultant, monitors all managers for Ocoee's pension plan. He reported that for the first fiscal quarter, the pension is off to a good start. He referred the board members to page four of the report, which shows the quarter and one- year performance. He reported for the quarter that international stocks did well, up 2.2%; S & P was up 6%, the same as the Russell 3000. The Russell 2000 was positive at 3.9%. On page six at the top of the page is shown the large cap stocks represented by the Russell 1000, and small mid caps, represented by the Russell 2000. All sectors of Russell 1000 did well except financials. They were down a little this quarter. On page nine of the report, Mr. Nash pointed out the international markets and made mention of the updated investment policy statement. He recapitulated for the board that they looked at the index and changed to Morgan Stanley all Cap World Index. He pointed out that the new index now captures Canada. Countries in EAFA were up by 2.2%.; those using the new index were up 3.8% for the quarter. The new index provides a better opportunity for Ocoee's pension opportunity set. Bonds were positive for the quarter. Mr. Nash directed the board's attention to page 12 to the top chart, S&P 500 bonds and cash. The years since 2000's are considered the lost decade for bonds. With respect to the 8% General Employees Pension Board February 3, 2010 Page 4 of 12 actuarial assumption: is it still reasonable? Mr. Nash answered that it is still earning 9.5% from S&P and 3.0% out of cash. He answered that his firm does think that it is still reasonable. He directed the board's attention to page 15 which shows previous quarter's resulting gain in market value from $15,695,000 to $16,649,275 by the end of the quarter. Asset allocation is 40% in bonds and the remainder in cash in domestic and international investments in keeping with the fund's investment policy. On page 17, Mr. Nash pointed out the cash flows for the quarter and fiscal year to date down below. Any transfers among funds are really key when the market is down. He said that they followed the investment policies which is part of the reason why overall performance is good. At the far right of the same page, he pointed out the third column from the right dividend from stocks and bonds. The total dollar gain was $681,912 for the quarter. See page 18 for the percentages. The $681,912 equals 4.19% rate of return. The benchmark was 3.37%. Mr. Nash added that the City beat it by almost 82 basis points. The number in parenthesis just to the right puts the City in the 16th percentile with one being the best and 100 being the worst. The City's goal is to be in the top 40th percentile. The City was up 21.49% for all of 2009, and hit the top 39% category. Rockwood &ICC together earned 7.25%. ICC did extremely well, up 45% for the year, 8.83% for the quarter. Rockwood had a much better quarter - 5.43, putting them in the 56~' percentile. On page 20 -International fund -stocks were up 5.25%, the benchmark 2.2%. The City beat it by almost 300 basis pts. Baring International was in the top 17~' percentile. Agincourt up 83 basis points put them in the 34th percentile. The City's fund had a very good start for 2010, Mr. Nash said. Moving to page 32 - Mr. Nash pointed out that the blue dot represents Ocoee's portfolio and the red dot represents the benchmark. It illustrates the wild ride of last year. He said that page 36 summarized key components of investment policy statement which is the road map for managers to follow. Mr. Nash said that there were two components that the City's fund did not meet; the City did not meet the 8% assumption nor the fixed income: with the City being in top 40th percentile. The fund is close, and the trend is improving -but not quite there. Mr. Nash asked for board comments. Trustee Wheeler asked a question regarding page 20. The trustee did not see the time period that Mr. Nash had quoted. Mr. Welk said that it would start showing up on the report next quarter. He continued the report saying that the fiscal year ending September 2009 was positive 5.33%, and the benchmark 1.8% which last year put the City in top 12th percentile. Chairman Wagner congratulated the consultant for guiding Ocoee in the right direction as reflected by the report of previous quarters. The chairman asked how the City is doing so far this year. Mr. Nash answered that he thinks that General Employees Pension Board February 3, 2010 Page 5 of 12 the City had such strong, positive growth out of the market that it is no surprise that one would see a bit of a pullback. Russell seeks to find money managers expectation for where they think the money will go. In December, the market was up substantially, and 80% of the managers surveyed said they thought the market would be positive again in ' 10. Seventy percent of those managers that thought the market would be positive felt that the US market will be one of the best places for gains in '10. Of those in the 80% group, almost 45% of them think the market will go up 10% or greater. This is a very good sign, Mr. Nash concluded. Unemployment is still extremely high, Mr. Nash continued, but hopefully that will get better in a couple of quarters. Rockwood Status Report Mr. Welker asked if the chairman was talking about Rockwell. Chairman Wagner asked what exactly Bogdahn recommended regarding Rockwell. Mr. Nash explained to Trustee Gleason what had been going on with Rockwood. Mr. Nash said that their process is all quantitative. It is like a computer model, they (Rockwood) do not put their personal thoughts into things. They run into difficulty (using a quantitative process) when there are huge spikes in the market. It is difficult for them to notice these metrics (contra indicators) because it takes a few months for patterns to emerge. Instead, they tend to lag. Bogdahn looked at their stocks. Mr. Nash said that they found that the names in the portfolio that did come to the top were not the names that were rallying during the quarter. They have used that process for a long time. He said that Bogdahn did verify that their numbers (Bogdahn got a proof statement from them) and they have gotten much better (December quarter). Mr. Nash said that his firm would continue to monitor Rockwood. Rockwood's method is good for looking back, not forward. Mr. Nash said that his firm thinks that Ocoee should remain in the portfolio. Replacement Recommendations Chairman Wagner said based upon what Mr. Nash said, it sounded like big spikes are not expected this year, so they should do better. The chairman said that when the City went into this, they were looking for that balance, and it sounds like the fund is headed in that direction. Mr. Nash agreed and said those two (Rockwood and ICC) paired together are great how the pension plan benefited by the two strategies: ICC bought Ford stock which earned the fund a 300% plus rate of return [ROR]. It is important to keep in mind that their strategy is different from Rockwood's quantitative method. Ford is now beginning to have huge gains. The City got the benefit of the one strategy, but in the future Rockwood's strategy could give the gains. The two strategies together are intended to give the portfolio more stability and less volatility. Mr. Welker said if Rockwood starts showing numbers that do not prove what they [Rockwood] are telling us, the consultant would have to start looking General Employees Pension Board February 3, 2010 Page 6 of 12 for alternatives. Trustee Wheeler said that he received the email, and that it was interesting that Rockwood was evaluated by a company that is a part of Rockwood. Mr. Nash replied that Contra Advisory Partners is the company. The real evaluation is of Contra, of which Rockwood is a part. Trustee Wheeler said that he did not get that report. Chairman Wagner agreed. Mr. Nash brought extras (he handed out a memo and a research report, an investment manager review). The report shows all the managers in the sample including Rockwood. The best return for least amount of risk is Rockwood. Chairman Wagner said that it sounds like the board should not make any changes now unless he hears any different from the board. There were no dissenting views expressed from the board. C. Actuary Report -Doug Lozen, Foster & Foster, Inc. 1. City Actuarial Report Mr. Lozen addressed the board (the recording secretary asked for a copy of the report for the record). Directing the board to page one of the reports, Mr. Lozen said that the City's fund had a number of new entrants. As of September, there are 194 members; payroll is $8,500,000 ($8.SM). The dollars that need to flow into the fund is 22.73% of that $8.SM. On average, the members put in 7.4%. For every dollar of payroll, the City puts in 15 cents (15.36%). That was approved with City's amendments to the plan, Mr. Lozen said. The right hand column is what is recommended for the next fiscal year of 2010. The members' contribution will not change unless the ordinance changes. Mr. Lozen said that his firm is recommending that the City put in 17.15% of payroll. The reason for the increase: 1) the fund fell short of the target of 8% primarily due to investment returns which yield 5.6% ROR; most plans were one, two or 3% returns. Mr. Lozen said that the board is aware the firm does smoothing; 5.6% replaced something that was better four years ago; hence, the 4-year average went down compared to the year before; and 2) the number of participants that left the plan, was smaller than anticipated. Folks are holding on to their jobs, which leads to a short-term loss for the fund. Mr. Lozen summarized that reasons for the increase are employee turnover and investment returns, both of which fell short of the target. Mr. Lozen continued that this leads to 1) employee turnover falling short and 2) a recommendation of a change in mortality basis. Mr. Lozen said an additional component is the mortality basis whereby he recommends using a year 2000 basis rather than year 1983. Not only are more folks living to get retirement, he said, but when they get it, they keep it longer (due to longer lifespan). Directing the board's attention to the Trust Fund Section on page 14 of the report (which will give the board some idea of where contribution rates are going), Mr. Lozen said the question that the board and the City's executive management will ask is `will the General Employees Pension Board February 3, 2010 Page 7 of 12 increases continue (the increases)?' He answered that the increases will continue for a couple of years because his firm does afour-year average. It is pay now or pay later. The investment return assumption in the plan causes a targeted amount of contributions to come in from year to year. When the City does not make its targets, Foster & Foster says the fund will need more money, not overall, but up front. When the City beats the targeted contributions, the consultant says that the City can put money in the fund later. Right now, Mr. Lozen said, the fund is in a position where more money is needed up front to pay for benefits that are currently being paid and that will be paid in the future. Mr. Lozen explained where the four-year average comes in. The investment average return is 2.44%. Chairman Wagner stated that when one looks at the numbers in the report, the rate is not a true average. Mr. Lozen confirmed the statement adding that the average is a geometric average. Mr. Lozen said each year affects the prior year. It is a compounded average. If the City hits its targets from this point forward, the City's contributions will still go up for a couple of years, and then stay there for 10 years (the amount of time for those losses to be paid off) and then the contribution rate will come back down. The City has a fluctuating contribution rate depending on whether City makes targets or not. The alternative to doing afour-year average is having an immediate spike in contributions. The four-year averaging allows more stability and less volatility in contributions that would be required, which helps when budgeting for the pension. Mr. Lozen continued that if the City hits its target for next year, the City will go from 17% to around 20% of payroll (ball park figure for contributions), and then stay there. Then as those losses fall off (because they are paid after 10 years), the City comes back down to the 15% to 16% level. Eventually the unfunded liability is completely paid off in absence of any gains or losses or further improvements. The city will be down in the 10% range (10% of payroll) when the liability goes away. Historically, the City's plan has not been far off its target. To have 17% contribution rate fora 3% multiplier is very good. Many Police & Fire plans have just a 3% multiplier with a retirement age that is not a lot younger than the City's. The City could easily be in the 20s and 30s (20% and 30%) according to Mr. Lozen. Chairman Wagner said that he has seen charts that showed Ocoee compared to other Cities. He said he appreciates the consultant's comments that put all of this information in context, and that Ocoee is not doing bad at all. Mr. Lozen said it is not unusual to see plans go up five, six, seven, 10% and sometimes higher. Historically Ocoee's plan has been very stable. To have less than a 2% increase with the same four-year average is pretty good. Chairman Wagner had a question about page 23 regarding the funded ratio, and what it really means. He said that the City keeps putting in 100% of what is required, yet funded ratio shows we only have 70% of what is needed to fund the program. Is that General Employees Pension Board February 3, 2010 Page 8 of 12 what it means? Mr. Lozen answered that it basically shows the progress of the assets to the unfunded liability. When unfunded liability is growing faster than the assets, the funded ratio is going to take a hit, Mr. Lozen said. He warned that the ratio is going to go down in the 60's before it is done. It (unfunded liability) will eventually get paid down, but assets will continue to grow. Every single year the assets are continuing to grow, but the unfunded liability is growing faster than assets. In the public sector, there is no trigger if the funding ratio falls below a certain level except that the City's insurer might cancel coverage. Mr. Lozen said the 70% is at least as good as the average plan's ratio (he is seen some in the 40% range). If the City wants to front load the plan (put additional money into the plan) which would reduce costs further down the road that would stabilize the ratio now. It goes back to the `pay now, or pay later' concept. Chairman Wagner asked the board if they had any other questions for Mr. Lozen. There was no response from the board. The chairman continued that normally the board would adopt the report. The city manager may have some questions for the actuary as he reviews this information. Chairman Wagner said the he and the city manager have recently instituted regular meetings between the two of them. After this meeting, the chairman will take the minutes to the city manager. Chairman Wagner is going to recommend that the adoption of this report be deferred until later, perhaps during a special meeting. He recommends that the board take the information under advisement and let the city manager review it. The chairman asked Mr. Lozen if there any assumptions in that could be modified. The consultant answered that any assumption could be modified. Mr. Lozen did not see any that looked askew. Chairman Wagner said that the one he sees is the salary history; how it was arrived at, and how it is computed. The chairman suggested calling a special meeting. Attorney Delmer confirmed that the report does not have to be approved the present meeting. It could be approved at the next board meeting. Chairman Wagner asked if, upon approval of the report by the board, the City would be obligated to follow the funding requirements contained in the report. Attorney Delmer answered that according to the Florida Statute Chapter 112, part 7, the answer is yes. Chairman Wagner discussed the idea that the City might consider making a different contribution to the plan if the report were adopted. Mr. Lozen replied that they could make any contribution they like as long as it is 17.14 or more. [Laughter] When the chairman asked if anyone had any other questions for Mr. Lozen, Trustee Wheeler asked if the report was not making a recommendation of any lump sum payment as was done last year. Mr. Lozen answered `that is correct'. Trustee Wheeler suggested that pay increases and promotions be reported separately. Mr. Lozen suggested looking at page 7, at least athree-year trend. The consultant assumed 6%. The averages of the last three years have exceeded 6%. This year it finally tapered off. This is a standard assumption. It has served the plan well. If we want to look General Employees Pension Board February 3, 2010 Page 9 of 12 at this assumption going forward, we would need input from the City. Where would the City expect an employee making $40,000 to be in 20 or 25 years? Mr. Lozen said that this is a standard assumption for a general employee's payment plan. If the City comes back and says that they will never pay over 5% anymore, the consultant would give the City the pros and cons of lowering that assumption. Mr. Lozen said that to initially lower the city's funding requirement by assuming 5% would increased the City's exposure to losses in the future because the City pays more than 5%. The City might not know now that they will negotiate a step increase. The City could have greater losses down the road. Mr. Lozen said that he would like to hear the City's input about the 6% assumption. Trustee Wheeler said the COLA and merit equaled 4%. There was no turnover. He continued that he found it interesting that the consultant assumes 6 percent which is higher than what employees were paid. Mr. Lozen answered that he looked at the average increase of members at the beginning of the year and at the end, not just overall payroll. Chairman Wagner said that if there were no objection, that matter would be placed on the next meeting's agenda. 2. Revision of Employee Report Format -Examples The chairman reported that he, along with Doug (Lozen) and HR had spent some time rewording employee statement. One is for people who are vested and the other for those who are not. Chairman Wagner said they handed the revised forms out to employees and he had only one question from an employee. They can still tweak this some more. He asked the board to look at it and if, at a future meeting, members have suggestions about changes they can be brought to the next meeting. D. Auditor RFQ - H. Lee Delmer, Esq. Pension Board Attorney Dehner said that 16 requests for qualifications (RFQ's) were sent out and two responses were received. One from the Hurt Hawkins Firm and the other from Davidson, Jamison and Cristini. Attorney Delmer recommended that the board interview a representative from each of the two firms. There was not enough difference between the firms to make a decision based on what is written. Trustee Gleason said that she thought the response from Jamison was very complete, thorough, and detailed. She continued that she thought the lack of experience was more evident in the Hurt Hawkins report. Trustee Wheeler asked why the board should bother to shortlist them when there are only two respondents. He agreed with Trustee Gleason, that one respondent gave a lot more detailed information. Trustee Wheeler said that the board should probably go with the one that is least expensive. The attorney said that there is a difference in the fees. He said that the General Employees Pension Board February 3, 2010 Page 10 of 12 board should consider three things: competence, communication with the board, and fees. Attorney Dehner continued that the reason that he recommends that the board talk to them is because doing. so would give the board an opportunity to evaluate that second item - communication. Chairman Wagner said that he agreed with the attorney. He observed that the Davidson group obviously went to a little more trouble to make their report professional looking. The chairman said he was not concerned about the fees for the two respondents. Chairman Wagner asked if the firms mostly use existing reports from Ocoee's records people and how far this kind of an audit would go. Attorney Dehner answered that they would look at records from the board's consultants so that they could perform a clean audit. Chairman Wagner said that he did not know how much record keeping they actually do, and that the firms should know what they're getting into. The attorney said that would be another advantage of having them come in so that such questions could be posed to them. Trustee Grafton said that both respondents quoted a price for 2010, 2011, not for 1995. Chairman Wagner asked the board's pleasure. Trustee Gleason asked if that was part of the expense. The chairman deferred to the attorney who responded `yes'. Upon a motion being made by Trustee Grafton to invite both RFQ respondents for an interview with the board, seconded by Trustee Gleason, and the motion being carried by unanimous vote, the board RESOLVED to invite both respondents to an interview with the board. The chairman will notify the respondents and the interviews will be held at the next meeting. AGENDA ITEM III. OTHER BUSINESS A. Payment of Invoices 1. Invoices a. Unpaid invoices -One invoice from the board's recording secretary, one from the board's money manager, Rockwood, and one from Fifth Third Bank. Upon a motion being made by Trustee Wheeler, and seconded by Trustee Gleason to approve payment of the unpaid invoices submitted by the recording secretary and money manager Rockwood, and the motion being carried by unanimous vote, the board RESOLVED to approve the payment of the unpaid invoices. General Employees Pension Board February 3, 2010 Page 11 of 12 b. Paid invoices Upon a motion being made by Trustee Grafton, seconded by Trustee Gleason, to affirm the paid invoices with the motion carrying unanimously, the board RESOLVED to affirm the payment of the paid invoices. 2. Pension Board Records Subcommittee a. The chairman opened the discussion. He invited board members to volunteer to serve on the subcommittee to deal with the matter of the board's records. The subcommittee will include: Chairman Wagner, Trustee Grafton and Trustee Gleason. AGENDA ITEM IV. DISCUSSION ITEMS 1. Chairman Wagner told the board that there is still time to attend functions. 2. State Legislature Bills -Chairman Wagner said that he had heard about a state bill that would force municipal pensions to change from defined benefits to defined contributions. He asked the attorney if he had heard anything on the matter. Attorney Delmer replied that most of the bills do not have numbers yet; nevertheless he will monitor the state's activities. Chairman Wagner thought it might be wise to bring the matter up at the upcoming FTPPA training session and get the City's lobbyist working on the matter at the grassroots level. AGENDA ITEM V. ATTORNEY COMMENTS Attorney Delmer reported no change in Helps2 ($3000 tax exclusion for healthcare with long-term care premiums). The same is true for Amendment 162 dealing with actuarial practices. There has been no change. Attorney Delmer said the proposed amendment should be more pension friendly than it was under the previous state actuary. He cautioned the board to continue to be on the lookout for an IRS survey. They said they would have them out before the end of last year. If the City gets one, Attorney Delmer asked that he be notified right away. Financial Disclosures: Attorney Delmer asked if Trustee Gleason had filed a disclosure form. She said she filed one. He asked if former Trustee Hendrix had filed one. The chairman asked the recording secretary to check with the city clerk as to whether or not one has been sent Mr. Hendrix. General Employees Pension Board February 3, 2010 Page 12 of 12 AGENDA ITEM VI. COMMENTS FROM TRUSTEES None. AGENDA ITEM VII. SET AGENDA FOR NEXT MEETING Actuarial report RFQ interviews Subcommittee to review recordkeeping AGENDA ITEM VIII. COMMENTS FROM PUBLIC None. AGENDA ITEM IX. ADJOURN There being no other business, the meeting was adjourned at 12:19 p.m. spe tfully submitt by: Approved by: Stella McLeod, Municipa Rec. ator Russell B. Wagner, hairman