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HomeMy WebLinkAbout02-13-1995 Minutes THE CITY OF OCOEE POLICE OFFICERS' /FIREFIGHTERS' 1•11w RETIREMENT TRUST FUND (PENSION MEETING) - February 13, 1995 The City of Ocoee Police Officers' /Firefighters' Pension Board meeting was called to order by Chairman Reed at 1:05 p.m. in the training room of the Community Center, and a quorum was declared present. PRESENT: Chairman Reed, Members Gledich, Strosnider and Williams. Also present were Actuary Foster, Attorney Christiansen, Money Managers Garcia and Roberts, and Clerk/Stenographer Lewis. ABSENT: Member Wilson. APPROVAL OF MINUTES Member Strosnider. seconded by Member Williams. moved to approve the minutes of the Police Officers /Firefighters' Retirement Trust Fund of November 21. 1994 as presented. Motion carried 4 -0. QUESTIONS /COMMENTS FROM AUDIENCE None REPORTS — ATTORNEY Attorney Christiansen announced the following: 1) INVESTMENT POLICY STATEMENT - The Statement was being changed to include a paragraph in the Proxy Voting Policy and a manager report on proxy voting. SunBank must sign the Statement, as opposed to ICC, acknowledging that they understand 1) what the Board expects of them, and 2) the parameters of their investment. Member Williams. seconded by Member Gledich, moved to accept the Investment Policy Statement as presented. Motion carried 4 -0. In response to Actuary Foster's request, Attorney Definer said that he would facsimile a copy of the signed Investment Policy Statement to him. 2) EMPLOYEES' ACKNOWLEDGMENT OF PLAN MEMBERSHIP FORM - Attorney Christiansen said that during the last meeting the Board had requested a change in the form used by new employees to acknowledge that they are in the Plan, and that they have received the Summary Plan Description, a Designation of Beneficiary form, and the Selected Provisions of the Operating Rules and Procedures of the Board. Chairman Reed said that the form will be distributed by the Personnel Department to each new employee going through indoctrination. Member Strosnider. seconded by Member Gledich. moved to accept the new Employees' Acknowledgment of Plan Membership form. as revised. Motion carried 4 -0. Attorney Christiansen will facsimile Actuary Foster a copy Now of the revised form. Police Officers' /Firefighters' Retirement Trust Fund tow 13, 1995 3) PROVISIONS OF CHAPTERS 175 AND 185 - Attorney Christiansen had received a draft with re- writes of Chapter 175 that will eventually change Chapter 185. Clarification was needed on the minimum requirement for a local law plan in order to comply with Chapters 175 and 185. The attorneys wanted to prepare for involvement in the process for the session that begins in March. He requested approval to use the Board's name, officially as their client, in connection with those changes. Tax qualification and clarification should be the result of the changes but benefit improvements were not a part of the process. Chairman Reed questioned the costs for the Board and Attorney Christiansen said that the statement to their clients would be broken down by the number of clients and hours spent in representation. Member Williams, seconded by Member Strosnider, moved to . eV t . hri • , • ; 1 • hn • . - h le. .l r- , resentative for the Cit of • e - - Police Officers' /Firefighters' Pension Plan. with respect to changes in Chapters 175 and 185 in Tallahassee over the next few months. Motion carried 4 -0. Attorney Christiansen said that the first draft had a provision allowing Cities, by local ordinance, to authorize Pension Boards to invest on a more diversified range, and he thought local Boards, rather than Tallahassee, should be making those decisions. In response to Chairman Reed's question, both Attorney Christiansen and Actuary Foster said the problem of the Orange County, California Pension Fund had nothing to do with this legislative session. Attorney Christiansen said that he would report any changes to the Board. Chairman Reed said that the Plan did not include a hardship clause and asked if a member could withdraw a part of their retirement fund for a catastrophic medical emergency. Attorney Christiansen said that was not in the Plan. ACTUARY Actuary Foster said that he had met with Administrative Services Director Beamer on February 1, 1995, and she expressed the City's concern about the actuarial information that they were getting from the Board. An October 1, 1994 valuation had been done to determine the cost for the year ending September 30, 1995, and by the time that the report is prepared the City will already be part way into the year. Extensive time is required to do the valuation as the census and financial information must be updated. Unexpected surprises, such an increase in contribution as a result Nor 2 Police Officers' /Firefighters' Retirement Trust Fund February 13, 1995 of unfavorable investment experience or other plan experience, would cause the contribution amount to be larger than the amount that was budgeted by the City for that year. The City, already being into that year, must make adjustments for the increase in the contribution amount. Actuary Foster said that this is a problem in every City and had been for the number of years that Foster and Foster, Inc. had been doing actuarial work. The Division of Retirement had finally changed their position to permit the Actuary to project the assumption in advance. It had been that the City could not project as a dollar amount the contributions developed in an valuation more than 12 months following the valuation date. The actuary could not historically look at an October 1, 1994 valuation and project a dollar contribution amount for the '95 -96 year. The Division of Retirement directs the actuary that the dollar amount developed in the valuation applies to the year following the valuation date. Any future year could be budgeted for by applying the funding rate and the percentage, by the projected payroll. Actuary Foster also explained the method used in determining the City's contributions. The Actuary will develop the valuation for the October 1, 1995 valuation that will determine the '96-97 contribution, assuming there will not be increases in State money above the amount received in 1994. Member Strosnider asked what happened when adding personnel and Actuary Foster said that those adjustments will be made in the '95 valuation and will be funding at a higher rate in the '96- 97 year. The Fund will always be a year behind, depending on the experience. Pension funding is an extremely long term proposition and the methods used have built in controls to spread gains or losses. This will not be disruptive or cause the plan to be unsound but if there is adverse experience, it will be picked up by the City who is heavily involved in the funding. The City had initiated the change and will be contributing, more or less over time, as the experience dictates. In response to Attorney Christiansen's question, Actuary Foster said that the City must make up the difference if the State money is less and offset it the following year. Actuary Foster said if there is a decrease in the State money the dollar amounts would increase. The City must fund anything that represents a difference between the total required contribution, and the member and State amount. The only variable is the State amount. If the City added a lot of people to the fund and more member contributions are received in the '95 or the '96 year, the City cannot use the additional member contributions from those additional people to reduce their funding requirement. The member contribution anticipated in developing these amounts was based on the people that were there on October 1, 1994. The protections were there for the membership and the Fund. The City is required by Florida Statutes Chapter 112 to make up any differences. This is only a mechanism to give the City plenty of lead time to budget the contribution amount. These changes were being made in several Cities that were caught off guard by the effect of bad "`.• 3 Police Officers' /Firefighters' Retirement Trust Fund Nivi►- February 13, 1995 investment experience. The costs in this Plan had been very stable when expressed as a percentage of payroll. The 1994 report had been not been good, and Actuary Foster thought that this would make very clear to everyone involved that these amounts were needed. It is a fairly modest increase in dollar amount to everyone involved. The Board needed to approve the change in the cost method as the Actuary was changing the method used to develop costs for the '96 year to the projection method that will be in effect in future years. The October 1, 1994 valuation is a phase -in valuation where they were changing the method in connection with this valuation. The liabilities and costs apply to two years, and was different only in the projection of one year with the salaries. The Actuary knew that payrolls will increase so the increase in the dollar amount is not due to adverse experience. It is due to an increase in payroll. The City needed to realize was that whenever payroll increases, the costs of funding those pension benefits for new personnel also increases. The costs should be anticipated. Mr. Foster said that, for every dollar the City pays in salary, 17.5 cents is paid into the fund. This technique will eliminate surprises as they will have the hard dollar number three months before the budgeting process even begins. Actuary Foster recommended that the Board approve the change in method as presented in a letter from Foster & Foster, Inc. dated February 10, 1995. Member Williams, seconded by Member Gledich. moved to adopt the new valuation procedure for projecting the City's cost. as presented. Motion carried 4 -0. The Board gave Actuary Foster permission to communicate these numbers to the City and a copy of the letter will be sent to them indicating that the cost methodology had been approved at this Board meeting. THE INVESTMENT COUNCIL COMPANY (ICC) - Actuary Foster gave the final quarter Performance Monitor Report as of December 31, 1994 of the Plan's previous Investment Manager. In looking at the two years, eight months, that the ICC had acted as Investment Manager, the average annual rate of return for the Fund was 4.3%. The return for the Custom Index, which is the market performance, based upon this allocation, was 6.1% and under performed over the time period at about two- thirds of the rate of the market. Last year they were down .8 %. The market was down 1.3% so our relative performance basis did a little better than the market. The quarter was up .6% versus .2 for the index. The performance for the stock portion of the Fund which average 3.8% per year, the S &P 500 was 6.9% so there had been about half the return of the market. ICC had struggled with the small portfolio. The principal problem had been a lack of diversification. For the year, ICC had a +.2% return, compared with the 1.3% for the S &P. For the quarter they were down almost a percent, and the market was flat. The performance, the fixed income, shows that over the two years and eight months, the return was 4.4% per year compared with 5.6% for the bond market so they were under performing in both the equity and the fixed income categories 4 Police Officers' /Firefighters' Retirement Trust Fund ,, February 13, 1995 over this time period. There had been a little bit of an improvement here. They lost 2.3%, which is -2.8 %, for the market. The last year was better but long term it had been bad news. At the end of their tenure, they had not violated any of the Investment Policy Guidelines. The Fund had a fairly high cash position, about 81 % cash, about 19% stocks. Actuary Foster said that about the first week in December 6, 1994, ICC began transferring assets, liquidating the fund and transferring assets to SunBank. In January, SunBank started investing in the co- mingled funds, the co- mingled equity and the fixed income funds. At this particular time, SunBank was getting the liquidated assets along with transfers in kind of the common stocks that were not sold in the last quarter. It is high cash only because of the transfer period being in effect there. The Actuary was looking forward to good performance into the future. Actuary Foster believed that the Board had made a positive move. The Board had been concerned about transaction charges and the Fund should now begin seeing lower charges as a result of the move. The reports in the future will be separated to show the time period that SunBank had been acting as Manager, and to also show the longer historical numbers. ANNUAL ACTUARIAL VALUATION REPORT Actuary Foster reported and presented the results of the regular annual actuarial valuation of the City of Ocoee Municipal Police Officers' and Firefighters' Retirement Trust Fund, performed as of October 1, 1993. The contribution amount developed in the valuation is applicable to the N'' City's fiscal year ending September 30, 1994. The contribution requirements compared with those developed in the October 1, 1992 actuarial valuation are as follows: 10/1/92 10/1/93 Total Required Contribution $ 388,083 $ 421,202 % of Total Annual Payroll 23.0% 23.9 % Member Contributions (Est.) 79,606 87,990 State Contribution (Est.) 24,029 35,984 Balance From City 284,448 297,228 % of Total Annual Payroll 16.9% 16.9% As could be seen, the Total Required Contribution had increased in dollar amount and when expressed as a percentage of Total Annual Payroll. Approximately one -half of the dollar increase had been attributable to the 4.4% increase in Total Annual Payroll ($1,759,798 this year compared with $1,685,492 in the October 1, 1992 valuation). The balance of the dollar increase and the increase in the cost when expressed as a percentage of payroll is due to the methodology changes described in the balance of this Summary. *41.." 5 Police Officers' /Firefighters' Retirement Trust Fund Now February 13, 1995 In connection with this year's valuation of the Plan, several methodology changes were made. The use of a single assumed retirement age had been replaced with a method which determined the actual retirement age of each member and develops plan liabilities from that specific age. Also, those active members who are eligible to retire on the valuation date are assumed to retire one year following the valuation date rather than on the valuation date. The effects of these assumption changes are set forth in the Comparative Summary. The balance of the Report presented additional details of the actuarial valuation and the general operation of the Fund. MONEY MANAGER Philip Robert said that he was responsible for the investment side of the portfolio in keeping the asset allocation with a course of the Board guidelines. He was also keeping an eye on the individual securities still held by the Fund in the portfolio. Mr. Robert introduced Diane Garcia, the Administrative Officer over the maintenance of all the administration details, and said that the first month had been a very good month for the co- mingled funds. SunBank had all of the assets in their possession and held both, the common stock and all the cash. In January, the Money Manager had invested a bulk of the money in co- mingled funds which were up about 3.5%. The market, stock market, value oriented fund, growth oriented fund were up and bonds were finally having a good year. The Fund, doing well on the equity side, could see anywhere from 6 to 9% in fixed income this year. `\r Nineteen ninety -four had been a difficult year for all investment managers. Better returns were expected that will meet the actuarial assumptions. The markets are up this year, and in going through the portfolio, Mr. Roberts had told the prior money manager to liquidate some holdings and keep others. A tremendous amount of industry consolidation was taking place in the health care field, and the Money Manager had selectively kept some of the energy and drug stocks. To be out of the individual securities between the next six to 12 months was the overall goal, coinciding with the valuation dates with the co- mingled funds. All of the assets should be converted into SunBank's co- mingled funds by the end of the year. It was a transition process, and barring any major disasters, Mr. Robert believed that 1995 would be a good year in the financial markets. A full report on the first quarter, in conjunction with the Actuary, will be presented to the Board at the next meeting. In response to Chairman Reed's question, Mr. Robert said that it was their philosophy that the Money Managers generally will not go over the 5% in the Fund limit. Attorney Christiansen said that is a Chapter requirement. Member Strosnider left the meeting at 1:55 p.m. 6 Police Officers' /Firefighters' Retirement Trust Fund February 13, 1995 Mr. Robert said that SunBank will change its name to SunTrust by the end of the year, but there will be no change in the name of SunBank Capital Management who is responsible for managing the Fund. At Ms. Garcia's request, she was provided a copy of the names of those receiving the monthly and annual statements. Mr. Robert said that the monthly statements tracking the investments, etc. will soon be sent to the Board members. OTHER BUSINESS The Board selected the following meeting dates: Monday, May 8; Wednesday, August 9, and Wednesday, November 1, 1995. The Joint Board will meet at 11:00 a.m., and the Police /Fire Board will meet at 1:00 p.m. in the City Commission Conference Chamber of City Hall. ADJOURNMENT m� Ai - .n.-• . • In) •r •si h mov-dto .d'.urn h- - 't. . •03 . m Motion carried 3 -0. Respectfully submitted, Ju 'e Lewis, Clerk/Stenographer v 7 •