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HomeMy WebLinkAbout08-13-1998 Minutes THE CITY OF OCOEE POLICE OFFICERS' /FIREFIGHTERS' RETIREMENT BOARD MEETING) - August 13, 1998 Chairman REED called the meeting of the City of Ocoee Police Officers'/Firefighters' Retirement Trust Fund to order at 1:25 p.m. in the Commission Chambers Conference Room of City Hall. The roll was called and a quorum declared present. PRESENT: Chairman Reed, Secretary Strosnider, Members Gledich, and Wilson. Also present were Actuary Foster, Attorney Delmer, Money Manager Senderowitz, Administrative Officer Garcia, and Recording Secretary Lewis. ABSENT: Member Williams (excused). APPROVAL OF MINUTES Member GLEDICH, seconded by Secretary STROSNIDER, moved to approve the Minutes of the May 12, 1998 Police Officers'/Firefighters Retirement Trust Fund as presented. Motion carried 4 -0. QUESTIONS /COMMENTS FROM AUDIENCE None RESOLUTION RE: SIGNATURE AUTHORIZING DISBURSEMENT Administrative Officer GARCIA explained that at the last Board meeting that they had discussed having all the board members sign this because two signatures were needed for authorizing disbursements. Discussion ensued, and the Resolution for the Signature Authorizing Disbursement was signed by those Members present. Secretary STROSNIDER will hold the form for the signature of Member Williams. Two originals on bond (one for SunTrust and one for the Board secretary) were signed. CONSIDERATION OF THE PROPOSED ORDINANCE Attorney DEHNER informed the Board that the ability for these funds to go into International Security of a particular investment value was a part of House Bill 3075 and Senate Bill 270 that the Governor had vetoed. It was also the subject of a stand alone Bill, Senate Bill 1462, that had become law without his signature. It would become effective October 1. The effect of this ordinance, if the Board recommends it for adoption to the City, would be to enable the Board to amend its policy to go into International Securities up to 10 percent value of the Fund after October 1. Attorney DEHNER advised them that they should ask their investment advisor about it Money Manager SENDEROWITZ distributed material about International investing, and pointed out how International investing differed now than 15 -20 years ago when the U.S. was over half the World's equity market capitalization. Now it was about the same percentage but you could see the huge number of issues out there. There were not a lot of choices when looking for stocks to invest in abroad, and there had not been very much information about these stocks. The game was completely different now. There was a lot more information out there now that provides an excellent opportunity to diversify investments into another asset class to 3' Police Officers' /Firefighters' Retirement Trust Fund August 13, 1998 help spread out the risks that you have for the pension plan. He also explained about the different returns that different areas had from 1970 - 1997 which was almost a 30 year period, the high and low return. The average return was very close for all of the different markets or areas of the World. What they were really gaining wasn't necessarily going to hugely increase the returns but they would be getting a decrease in the volatility of the returns. It was something that they might like to consider. It was somewhat counter intuitive which he would address later in the meeting. An example was that the Pacific Brim had a high return of 107% and a low of 34.3% which had been very volatile. Traditionally most overseas markets were more volatile than U.S. markets but when combined with investment in domestic equities they would actually get a lower standard deviation or a lower variety of returns for the overall portfolio by adding the International stocks. In response to Chairman REED inquiry about investing in one, more or all foreign stocks, Money Manager SENDEROWITZ. explained that the International would be a composite of the International returns. Europe had that, Pacific Reidicule combined. An example was the EP index which was Europe, Australia, and Far East index which would have had a spread of 69.9, spreading down to 23.2 %, those included International. Money Manager SENDEROWITZ explained that there were some risks. He recommended allowing investment in International stocks but wanted the Board to realize that it would be a more volatile component of its portfolio. It was limited with good reason to a maximum of 10% by the Legislature. In response to Chairman REED, Actuary FOSTER said that the General Employees' had voted at their meeting to go with 50% of their Fund in Stocks, and to go up to 10% of that 50% with 10 %percent of that total fund or 20% of the Stock fund in either International stocks or small mid -cap. It was at the discretion of the Manager. They could not do more than 10% of the total portfolio of those two. The General Plan had decided to stay at the 50% in their guidelines and to not increase that allocation now. Attorney DEHNER said that the Police/Fire Board had the authority in the ordinance but had not amended the policy to allow smaller mid -caps. Also, Equity limitation was 60% of cost in the ordinance but 50% in the policy. It was time to review the policy as it had been two years since the last review. Currently they had the ability to amend the policy to go with small or mid - cap based upon what they heard from the Money Manager. The ordinance must be amended if they decided to go with International. This ordinance would also remove the rating criteria. The policy could be amended today to allow small mid -cap or they could also go with the International issues and amend it on International but it would not become effective until the October 1 or until passing of the ordinance. 2 Police Officers'/Firefighters' Retirement Trust Fund August 13, 1998 Actuary FOSTER recommended that the Board consider going forward with it for adoption so that they would at least have the flexibility. They did not necessarily need to direct the manager to get in to it. Chairman REED recommended that they adopt the ordinance, and as it would not be effective until October 1, they could discuss changing the Investment Policy in a later meeting. Attorney DEHNER said that the policy could be amended during this meeting to allow limited cap investment. They already had that authority. He supported Actuary Foster's suggestion to consider amending the policy today to the extent that permitted limited caps with a 10% cap of the Equity portfolio of costs. The policy could be amended today on that, and once the ordinance had passed, to revisit at the first Board meeting afterwards the International issue, and possibly amend the policy again. Unlike the General Plan to go with 20% between the two combined, Actuary FOSTER said that he didn't think that they should go with that as it would allow the Plan to go to 20% in limited caps alone. If the policy was amended that way, we should look at 10% limit now on limited and then when we went to International the Board might like to do something similar to the 20% combined like the General Plan. Money Manager SENDEROWITZ said that it would probably be a very wise move. We could theoretically have 20% in the smaller limited cap. He wouldn't put it there so how you word it doesn't really matter to him personally, right now because he thinks that 10% of the Equity portion right now is probably a prudent allocation for the way the Plan is set up right now. In talking about the other part of his presentation, he thinks that small caps and mid -caps, while they have had a very poor performance for the year, were poised to make somewhat of a come -back. In the long term, you will get some out performance in the small to mid -cap area relative to large cap. Using that logic, we should have all our money in small cap. He didn't follow the logic to that degree. He believed that we should have a significantly larger portion of the money in a larger capitalization stocks, more for the liquidity reasons than anything else. The additional benefits received from small caps as well as the International adds a lot of balance to the portfolio. Member GLEDICH, seconded by Member WILSON, moved that we recommend that the City adopt the ordinance to invest in International and to remove the performance ratings on Bonds. Motion carried 4 - 0. OTHER BUSINESS DISCUSSION /ACTTION RE: INTERNATIONAL AND MID -CAP INVESTMENTS International and Mid -Cap Investments had been discussed earlier during the meeting. Member WILSON, seconded by Secretary Strosnider, moved to change the Police Officers'/Firefighters' Pension Trust Investment Policy to allow 10% in limited caps effective August 13, 1998. Motion carried 4 -0. Administrative Officer GARCIA announced that as the Board had approved that motion, Mr. Senderowitz would probably use some of the STI capital mutual funds in order to get the Fund 3 Police Officers' /Firefighters' Retirement Trust Fund August 13, 1998 into an International. It was not necessarily a limited cap but should he want to diversify out of the fund called the limited cap which encompasses both styles, small and mid, he could use the mid -cap mutual fund or the small -cap mutual fund. When using a mutual fund, it was governed by the SEC as opposed to being a Trust document. Therefore the Bank requires that the Board consent to use of these Mutual Funds. A limited consent form requiring two signatures (Chairman and Secretary of the Board) will be prepared by Ms. Garcia. By signing the form it would give Mr. Senderowitz the freedom to do it when he is able to do it. DISCUSSION RE: AGREEMENT FOR SECRETARIAL SERVICES Chairman REED explained that Judie Lewis had signed the Recording Secretary Contract with an two original copies to (1) Christiansen & Dehner, and the (2) the Board file. ELECTION Chairman REED announced that the Police Officers' seat currently held by Member Wilson was up for election. The term would end September 30, 1998. He said that Tony Wilson of the Police Department had submitted a letter of nomination for the seat. The Notice of the Election was reviewed. Member GLEDICH said that if approved by the City Commission, she would accept re- appointment to the Board. err AUTHORIZE /RATIFY PAYMENT OF BILLS Chairman REED said that there had been a changed in the statement from Christmas & Dehner for $670.00 and they had actually received 680.00 which left a $10 credit. Chairman REED asked for ratification of payment, and requested approval of the Board to present to SunTrust for payment, the following bills: 1. FPPTA Conference 250.00 2. Marriott Harbor Beach Motel 500.00 3. Bob Williams 148.95 4. Christiansen & Dehner, P.A. 680.11 5. City of Ocoee 45.43 6. Judie Lewis $68.75 7. SunTrust (quarterly invoice) 10,288.35 Secretary STROSNIDER, seconded by Member GLEDICH, moved to authorize and ratify % 4 Police Officers' /Firefighters' Retirement Trust Fund 10 August 13, 1998 payment of the bills. Motion carried 4 -0. Chairman REED explained that there had been some confusion about costs expended by Member WILLIAMS upon attending the recent FPPTA Conference. Discussion ensued about the differences paid by the General Employees Board as opposed to what is paid by the Police Officers'/Firefighters' Board. Secretary STROSNIDER informed Board members that they should retain for reimbursement all tickets, tolls, valet receipts, etc. when attending such events. Administrative Officer GARCIA said that Mr. Williams may want to look at the room bill for those valet charges. Secretary STROSNIDER, seconded by Member GLEDICH, moved to reimburse Member WILLIAMS the balance of his expenses for the FPPTA Conference in Ft. Lauderdale. Motion carried 4 -0. FIVE - YEAR DROP PLAN Chairman REED said that it had been brought to their attention that the Apopka Fire Department was using a Drop Plan which would result in no impact to the Plan. In response to Chairman REED, Attorney DEHNER said that it would require a change in the ordinance. A person with 25 years, age 52 or 55 and 10. Whenever an employee retires, the retirement check goes into a separate account on a bookkeeping basis. Whatever return is generated by the investment is credited to the account. There was a five years maximum. However, an employee could leave sooner. Attorney DEHNER said that there was an agreement that signed at time of election. In response to Member WILSON concerning costs to the Plan, Attorney DEHNER said that there was an administrative charge built into it to the extent that it was extra it is deducted from the account. Discussion ensued about the pros and cons of such a plan. Attorney DEHNER said that he would need direction, and then the Board must adopt a recommendation to the City for adoption by motion. Chairman REED directed Attorney DEHNER to get the Drop Plan material to them for their review. Secretary STROSNIDER, seconded by Member GLEDICH, to draft an ordinance to pursue the Drop Plan. Motion carried 4 -0. Attorney DEHNER advised the Board to take it to membership because the City Commission would want to know how the membership felt about it. Attorney DEHNER said that there would be a few decisions to make: 1) For example, whether you wanted to credit the account what's earned in the Plan or debit what's lost in the Plan or (2) whether you want to credit a States rate of interest. Most Plans were doing earnings. DISABILITY REVIEW PROCEDURE Attorney DEHNER recommended that since it did affect membership is that we go ahead and make this a specific agenda item since it was a consideration for the amendment to the Rule for adoption. 5 Police Officers' /Firefighters' Retirement Trust Fund August 13, 1998 REPORTS ACTUARY There was no Actuarial Report. MONEY MANAGER Money Manager SENDEROWITZ presented the report and explained that unfortunately that he was not able to bring the same kind of news that he had brought the first quarter. The markets had not performed or behaved nearly as well as they did in the first quarter during second quarter. He said that a common theme that had really come to the forefront in second quarter was that out performance of the large cap growth names over virtually everything else. A common theme had come to the forefront in the second quarter was the out performance of the large cap growth names, virtually over everything else. For the quarter, the S & P 500 was up 3.3% and it sounds like the market as a whole did really well but it was a narrow based contingent of stocks that provided that performance. In fact, 18 stocks accounted for one -half of the gain of the S & P 500 so you have 18 of one -half and the other 382 accounting for the rest of the performance so you can see that it was a very narrow gain for the quarter. If you look at the basically lage cap growth stocks did well and everything did worse. Basically the smaller in capitalization you got or the more values to oriented as opposed to growth oriented the stocks was the worse it thoo performed. International markets didn't really provide you much of a safety, although they were positive for the quarter up about 1.06% per quarter. Far East is still weighing both, Internationally and Domestically. That is one of the things that is one of the main things that is $' making the market very difficult environment to invest in so what does that mean to your Plan? For three months, the Plan gained 1.83% and for the nine months about 13.44 %. The really important number is that over three and one -half years, the Plan had been averaging over 19.55% a phenomenal rate of returns especially given that we had Bonds and Equities not just a straight £; equity return. The High Grade Equity Fund which is the growth oriented fund out performed the S & P 500. It was up 5.73 %. The value oriented fund, the Equity Income, did poorly as did all value stocks, down 3.79 %. The Bonds had a very good quarter, up 2.7 %. Year to date, the Plan had 8% returns for the Bonds which is a really phenomenal rate of return when it was getting close to double digit annualized returns on the Bonds part of the portfolio. The cash that was added to the account ended up being almost $96,000 was added into the account through investment gains, 1.15% returns from the Equity portion of the portfolio, 2.74% from the Fixed Income part of the portfolio9. Year to date adds almost $600,000 to the Pension Plan and to its participants in the nine months in the fiscal year, a little over 17.5% from Equities and a little over 8% from fixed income portion. Money Manager SENDEROWITZ provided details about the split of the assets in the high grade bond side, approximately a 60 -40 split at market value from these assets, pre - equally split 6 Police Officers' /Firefighters' Retirement Trust Fund Ihrol August 13, 1998 between the high grade equity, equity income, and the remainder being in the high grade bond fund. Information about the individual funds that the Pension Plan was invested in was high grade funds that did very strong returns. On the downside, the high grade equity income fund, the value oriented portfolio had not performed as well. Typically some of these investments were utilities, basic materials, and energy stocks. Mr. SENDEROWITZ gave an example by saying that if we had followed the price of oil in the second quarter which had dropped from about $20 a barrel to under $13. With that type of a performance in oil, the energy stocks were going to have a very poor performance. On the bright side, it was not likely that they were going to see the same type of decline going forward. A very large part of economies of Middle Eastern Countries, and he could not afford to have the price of oil drop to that level. They were working to restrict their production and raise the price of oil. With that they should see the recovery in some of these energy stocks so that in combination with the dividend yield that you will typically find in a lot of the stocks in this portfolio should allow it to perform better moving forward than it has for the past quarter. High Grade Bond Fund was where we had been invested more in the treasury securities and corporate bonds. Very little invested in mortgage backed securities, and that was a result of the low interest rate environment. This had allowed people to re- finance mortgages and it had been very bad for the performance of that aspect of the portfolios as we had very little invested there. Most of it in the immediate range of four to seven years. The yield on a 30 year treasury and a 10 year treasury, 5.5% for 10 years and 5.6% for 30 years would not benefit much as the yield curve was very flat. In looking forward to the rest of the year, Money Manager SENDEROWITZ said that he believed that it was going to be a rocky ride. The bottom had not been hit yet. We were more likely to see 8,000 than 10,000 in the shorter term. Eight - thousand would be nearer the bottom and will have cleared out a lot of the sellers. Fundamentally there was a lot of buyers coming into the market. Mutual funds or retirements plans are constantly putting money into markets. He said that he believed long term, by the end of the year, that we would see the market higher than it was July 17 which had been the market high. They were looking forward as that would help (the Plan). Small caps had really under performed. The Russell 2000, the measure of the small cap fund, was down about 20% from its high as opposed to the S & P 500 only being down about 10 %. Small stocks have done relatively much poorer than the capitalization stocks. These stocks typically have a higher growth rate and were not as exposed to the Far Eastern Asian flu. There was a divergence now in valuation between values of large cap stock and small cap stocks. Small cap stocks being relatively under valued because of the recent sell out. There was more likely a chance of small cap stocks out performing relative to larger cap stocks between now and the end as well. 7 Police Officers' /Firefighters' Retirement Trust Fund August 13, 1998 Money Manager SENDEROWITZ said that it was a good time to get into small cap which had been discussed earlier. Secretary STROSNIDER asked that Mr. Senderowitz send the reports to him for distribution to Board Members. Chairman REED left the meeting at 2:40 p.m., and Secretary STROSNIDER accepted the chair. PERFORMANCE MONITOR Performance Monitor FOSTER presented an analysis of the investment performance of the Trust Fund for the period from January 1, 1995, through June 30, 1998. The average annual rate of return for this period was 19.6 %. This rate of return failed to outperform the composite index of market indicators (50% S &P 500 Composite Stock Index, 45% Lehman Brothers Government/ Corporate Bond Index, and 5% U.S. Treasury Bills) which averaged annually a return of 20.3 %. The rate of return of the Total Fund outperformed the composite index (20.1% vs. 20.0 %) and ranked in the 11 percentile of the Cadence Universe of investment managers for the one year period ended June 30, 1998. The equity portion of the Fund failed to outperform the S &P 500 over the trailing one year period (27.3% vs. 30.2 %). This return ranked in the 29 percentile of the Cadence Universe of investment managers. Performance Monitor FOSTER reported that the Plan had 1.2M more in the Fund over the three and one -half year period that was needed to maintain actuarial soundness. In their actuarial process they had not recognized all of the 20% per year returns that we had gotten. Some of the money was being set aside. Even in these rocky times, and assuming for example that we didn't come out of this fiscal year as well as we have historically we still have plenty of money set aside to pump up the returns to the implications of a negative market affecting the contribution rate was probably not anything to worry about right now A correction on the Investment performance Report was made by Mr. Foster to reflect that page 16, item 2, showed the legal limit in the new ordinance which is 50% rather than 60% as shown of the Fund on a cost basis. Mr. FOSTER said that one of their jobs was to make sure the numbers of STI were consistent with those they independently generated, and they had always been consistent. He commended SunTrust on doing a great job. ATTORNEY COMMENTS Attorney DEHNER had nothing additional to report. 8 Police Officers' /Firefighters' Retirement Trust Fund August 13, 1998 SET NEXT MEETING AGENDA The next meeting, November 17, 1998, 1:00 p.m. agenda was set, as follows: 1. Discussion /Adoption of Disability Review Procedures and Surveillance. 2. Actuarial Report (Meeting With Membership Certificates. ADJOURNMENT Member GLEDICH, seconded by Member WILSON, moved to adjourn the meeting at 2:50 p.m.. Motion carried 3 -0. Respectfully submitted, Judie Lewis, Recording Secretary a:\MS Word \PF081398.M \jl ‘1.." 9