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HomeMy WebLinkAbout02-09-2000 Minutes THE CITY OF OCOEE POLICE OFFICERS' /FIREFIGHTERS' 460 RETIREMENT BOARD MEETING — FEBRUARY 9, 2000 Chairman WILSON called the meeting of the City of Ocoee Police Officers'/Firefighters' Trust Fund to order at 1:04 p.m. in the Commission Chambers Conference Room of City Hall. The roll was called and a quorum declared. PRESENT: Chairman Wilson, Members Gledich, Coschignano and Firstner. Also present were Attorney Dehner, Actuary Foster, Carin Anderson for Money Manager Tim Nash, Performance Monitor Craig Hamilton for Jeff Swanson from Merrill Lynch, and Recording Secretary Brenda King. ABSENT: Member Williams (excused). APPROVAL OF MINUTES Chairman WILSON presented the Police Officers/Firefighters' Retirement Trust Fund Minutes of November 18, 1999. Member GLEDICH, seconded by Member COSCHIGNANO, moved to approve the Minutes of the November 18, 1999, Police Officers'/Firefighters' Retirement Trust Fund meetings as presented. Motion carried 4 -0. QUESTIONS /COMMENTS FROM AUDIENCE Bill Simon, Ocoee Police Department, asked what the negatives are in the drop program. Attorney Dehner said someone going into the drop program does not know if it is in his best financial interest until the end of the five -year period. There could be salary increases or improvements in the plan during the five years that would be unavailable to someone who was in the drop program because benefits are calculated from the date elected for the drop based on salary average, the benefit rate in effect and years of credited service. The person in the drop plan elects either to receive the rate the plan is getting during the five years or a fixed rate. One positive is that no contributions have to be made during that five -year period. Also during the five years, there is no entitlement to disability or pre- retirement death benefits. If the retiree becomes disabled during the drop participation, he can stop working and begin to receive his monthly benefit and the lump sum that has accumulated to that point. Mr. Simon asked what happened to his pay if he elected to take the drop. Mr. Dehner said he would be an employee and would be entitled to salary increases as a City employee. Mr. Simon then asked about vacation, and Mr. Dehner said how that is handled is a matter of personnel policy. Mr. Dehner said another potential negative to the drop is that if an employee elected to take the drop and then wanted to stay longer than five years, he could not do it. Mr. Simon asked how he could begin the process, and Mr. Dehner said Chairman Wilson had applications. Mr. Simon asked how long it would take for the process to take effect, and Mr. Dehner estimated it would take about a month. Actuary Foster advised he would apply for retirement as he would if he were going to terminate employment. He would tell the Board his retirement date, and the checks would start going into the account the first day of the month following the date of retirement. If he wanted it to be effective March 1, he would tell the Board that at the end of February, contributions would stop. His benefit would be calculated based on service credits Police Officers' /Firefighters' Retirement Trust Fund r February 9, 2000 and salary up to the end of his regular employment. Mr. Foster said he would receive a Notification of Benefits form that has seven optional forms of payment. Mr. Simon would select a beneficiary and the amount he wanted to receive monthly to go into the account during the drop period and then the amount he would receive monthly during and after the five -year period. Mr. Simon asked what if he elected not to take the full amount at the end of the five -year period but wanted his beneficiary to receive some. Mr. Foster said usually someone takes a distribution of the entire account balance at the end of the drop plan and have that transferred without immediate tax implications to an IRA. Then withdrawals can be made as desired. That balance in the IRA becomes a death benefit to the beneficiary if death occurs before the account is exhausted. All those decisions and elections would be made outside the purview of the pension board. Mr. Foster said Mr. Simon would need to write a letter to the Board indicating when he wanted to begin the drop plan so that the actuary could be notified to do the calculation for • benefits. Mr. Simon asked if he would have to wait until the next time the Board met for it to take effect if he wrote the letter in the near future, and Mr. Foster advised that administrative work is ongoing, and at the next Board meeting, there would be an acknowledgement that he had retired and selected this option. It would be made part of the record and ratified in arrears, but that would not hold up his retirement. Chief Strosnider asked how Florida House Bill 161 would affect this pension plan if the calculation went from five years to three years. Mr. Definer said it would not affect this Board. Officer Vance, Ocoee Police Department, said the pension does not have a COLA. He asked the City Manager about it and was told it had never been brought up to him or the City Commission before. He asked how it could be added to the pension. Attorney Dehner said periodically the Board looks at benefits. The process involves asking Actuary Foster to provide the cost of various benefit improvements. The problem with a COLA is the expense. Actuary Foster advised it adds about 40 percent to the cost of the plan, which is about nine to ten percent of payroll. He said it is usually the last benefit improvement that boards investigate. The typical approach when it is time to consider a COLA is to start with something modest like one percent a year or a temporary COLA that starts at retirement and increases and then levels off at age 62 or 65 when the retiree gets some help from social security. As good investment experience is realized, it chips away at the COLA adjustment. He said some clients have started out with a ten -year deferred COLA. The benefit would be flat for ten years and then start going up. It is a huge liability if done all at once, but if it is done as a step -by -step process, it can be implemented, especially with the type of investment experience that has been realized for this Plan. That experience has paid for a lot of benefits in the last five to ten years. Mr. Definer said there was an increase to a three percent benefit a little over two years ago. Typically a plan would not look at a COLA until there is at least a three percent benefit rate and often a 25 and out as well as a normal retirement age. The thing to look at at that point would be a COLA or a supplemental benefit. Pending for discussion is the 25 and out option. 2 Police Officers' /Firefighters' Retirement Trust Fund February 9, 2000 Officer Vance asked if a COLA were put in place if it would be retroactive. Mr. Definer said generally once you retire, legally you are only entitled to the benefits that are in the plan at the time of your retirement. It would be very unusual to provide an automatic COLA to current retirees. Current retirees from time to time get an adjustment on an ad hoc basis. Generally the implementation of an automatic COLA or the improvement on one would only apply to current employees. There is nothing in the Plan that says anything about adjustments, but there does not need to be a provision in the Plan for the Board to consider an adjustment for current retirees. The Board has the authority to consider it and make a recommendation and present an ordinance to the City to do an adjustment for current retirees. Bill Simon asked if the funds would come from the Board or from the City, and Mr. Dehner said they would come from either the City or increased member contributions, but current employees would not want to contribute to fund additional benefits for current retirees. Chief Strosnider commented that the employee contribution could be increased for a COLA in the future. Mr. Definer said sometimes for a benefit improvement, the City will share part of the additional expense if the members agree to additional member contributions. Chief Strosnider asked that Actuary Foster present a breakdown of the cost of a COLA. Member Firstner asked with the pursuit of 25 and out at this time if there were a need to moderate the Board's approach with the City so that they are not overwhelmed. Officer Vance asked if the same calculation will be used to determine retirement for 25 and out. The answer was yes. Actuary Foster said the 25 and out represents reinvesting the good experience the Plan has had in the last year to buy the benefit. As a matter of presentation, they would say the City is funding it at the same rate it was funding two years ago, and basically the benefit is being bought from the good work that STI did. He said this is a provision the Florida Retirement System High Risk plan has that this Plan does not have -25 and out —and one of the competitors is the Sheriff's Office. Mr. Dehner said if 25 and out is realized, the membership might prefer to put any additional funding into a COLA instead of a 20 and out because of the benefit rate. Member Gledich asked what the cost of a COLA would be. Chief Strosnider said Orlando firefighters contribute about ten percent for their Plan and have a COLA and medical benefits. The Board directed Actuary Foster to present the cost to the Board. Mr. Definer met with the City Manager before the meeting regarding the disability issue raised at the November meeting. The issues are (1) the Plan is not providing for temporary and partial disability and (2) having to work ten years before any disability benefit under the Plan. The temporary and partial is probably not very significant because during a short period of time there might be a light duty situation or leave with pay. That is not really the deficiency. The deficiency is a disabled person's having to wait ten years before getting any Plan disability benefit. The City Manager said he would like for the Board to direct Actuary Foster to do a study on what it would take to reduce the ten -year vesting requirement for entitlement to the not 3 Police Officers' /Firefighters' Retirement Trust Fund February 9, 2000 in line disability benefit to a 90 -day waiting period. For in -line, it is day one. Discussion ensued. Mr. Dehner said a member of this Plan is better off to establish total and permanent to the Board and take the benefit from the Plan and get another job outside the realm of police /firefighter because there is no set -off for income. Discussion ensued. Mr. Dehner said a comment to the City Manager was that a general employee can derive a disability benefit from the insurance product and not draw from any of his retirement. There is a feeling that because there were funds being drawn from insurance and not from the retirement plan that somehow that would provide better retirement for those in the general plan. That is not the case. If a general employee becomes disabled, he does not draw from the general plan until he reaches the age of service requirement. He would get the insurance benefit but would not draw from the insurance plan until entitled to draw. Under this Plan, an employee draws his full benefit unreduced sooner than a general employee. AGREEMENT FOR SECRETARIAL SERVICES Attorney Dehner was directed to draw up the contract for secretarial services with Brenda King. OTHER BUSINESS AUTHORIZE /RATIFY PAYMENT OF BILLS Secretary Firstner presented the bills that had been paid, noting there was one outstanding bill from Attorney Dehner's firm. Christiansen and Dehner, P.A. Voucher 99 -12 -31 $ 725.45 Sawgrass Marriott Resort Voucher 99- 12 -20A $ 333.54 Christiansen and Dehner, P.A. Voucher 99 -11 -30 $ 725.45 Judie Lewis Voucher 99 -11 -18 $ 237.50 Foster & Foster Voucher 99 -11 -17 $ 6,250.00 SunTrust Voucher 99 -11 -06 $12,795.87 Christiansen and Dehner, P.A. Voucher 99 -10 -31 $ 494.99 Brenda King $ 125.00. Member FIRSTNER, seconded by Member GLEDICH, moved to ratify the bills as submitted. Motion carried 4 -0. Secretary Firstner presented the renewal of the bond for the Trustee and Fiduciary Liability Policy due on March 30, 2000, from Burkey, Cooksey & Associates. He was directed to complete the questionnaire and return it. He also mentioned unsolicited information from a realty investment firm that would be available for anyone interested and passed out copies of House Bill 191 for information. 4 Police Officers' /Firefighters' Retirement Trust Fund %r. February 9, 2000 Member GLEDICH, seconded by Member Firstner, moved to renew the liability insurance as long as it within 20 percent of the last premium . Motion carried 4 -0. REPORTS ACTUARY Actuary Foster advised that for the City to increase its contribution from 14.3 percent to 15 percent would require an additional $26,000 or seven - tenths of a percent of payroll annually. He recommended that instead of considering funding from additional member contributions that they try to make the case for the fact that it has been a good investment experience that is allowing the Board to consider the improvement. It is a competitive provision and is something many plans have. Twenty -five and out is a very popular retirement age, and there are more high risk employees in the Florida retirement system than all the municipal plans in the state put together, and they have a 25 and out provision. He said at least 75 percent of the police officers and firefighters in the state already have this benefit. The one thing that is important to point out is that one thing that helped the seven - tenths of a percent become affordable is that they are changing the way they determine when vested benefits are payable. Someone with five or more years of service who terminates and leaves his money in the plan is entitled to the formula benefit paid at the otherwise normal retirement age. Right now that is 52 with 25 years of service or 55 with ten years of service. The 55 with ten years of service as one retirement would be one alternative, and the 25 and out the other. If someone who is 35 with 15 years of service kept working, he would have 25 years of service at 45 and could retire with the benefit that is unreduced, 75 percent of AFC. If he terminates employment with 15 years of service and is 35, under this proposal he would not draw his unreduced benefit attributable to the 15 years of service until age 55, not at 45 when he would have had 25 years of service. The idea is the person has to work 25 years to get the retirement paid at that earlier date. If he leaves with 15 years and would have had 25 years at age 45, he does not get the 15 -year pension at 45. That is providing someone who quits with a vested benefit with the privileges of someone who works all the way to 25 years, and that is the way most boards feel about it. The age and service have to be attained. Currently if someone has 23 years of service and is 50 and terminates employment, he would get his unreduced benefit attributable to the 23 years of service at age 52 when he would have had 25 years of service. This will no longer be an issue since the age will be removed. This is called not imputing. They are not pretending that you keep working and then draw at your pretend retirement age. The money saved from the vesting significantly reduced that down to seven - tenths of one percent. Much of it is being funded by the way payable vested benefits are determined. To clarify, the draft of the ordinance Attorney Dehner was to talk about does not have the three percent per year reduction for early retirement because it costs about $10,000 to fund that. That klime is the only provision in the amendments to 175 and 185 regarding the minimums this Plan does 5 Police Officers' /Firefighters' Retirement Trust Fund February 9, 2000 not have, but it only has to be implemented when additional state money is available. Only $2,000 is available, and it costs $9,000 to fund it. Therefore, that is not in the proposal. The Board can proceed with other things that they want without doing the minimum benefits first. The fact that there is a minimum benefit in the statute that is not in the Plan does not mean that the Board cannot go after the 25 year retirement. Attorney Dehner referred to Ordinance 99 -1 which was set to go to the City at the direction of the Board. The Board could also take action on the 25 and out as described by Mr. Foster. He recommended that two separate ordinances be done in case there is delay on the 25 and out since Ordinance 99 -1 needed to be adopted before July 1, 2000. Member CASHIGNANO, seconded by Member GLEDICH, moved to present Ordinance 99 -1 to the City. Motion carried 4 -0. Discussion ensued regarding the drafting of an ordinance for the 25 and out retirement program. Actuary Foster said when Attorney Dehner sends a document to the City, he typically copies Foster & Foster and asks them to prepare a letter showing what the cost is. Attorney Dehner said if the Board directs him to proceed with the 25 and out, he would send two separate letters so there is not ambiguity about their being tied together for any %iv Member GLEDICH, seconded by Member FIRSTNER, moved adoption of the 25 and out retirement program without imputing to be funded by the City. Motion carried 4 -0. Member Gledich asked when the last member benefit improvement was approved, and Mr. Dehner said September 1997 when the Plan went to three percent. At that time, member contribution went from five percent to seven and six - tenths percent. The last time the City paid for a benefit was September 1997 when the calculation for benefits went from two and a half to three percent. Actuary Foster reported he received a copy of Randy Conyers' certificate stating that his birth date and hire date were wrong. His hire date is correct because he has an adjusted hire date. He was hired April 25, 1985, worked until May 27, 1996, became a general employee and went back to this Plan on April 9, 1997. For that period of time, little less than a year, he cannot get benefit credit under this Plan. His hire date was adjusted from April 25, 1985, to March 8, 1986, which is just a date that represents stripping out that period of time when he was not in the Plan. His birthday was listed as July 31, 1960, and his birthday is July 16, 1960. Mr. Foster had his corrected statement. MONEY MANAGER Diane Garcia, SunTrust, advised that Phil Senderowitz has started investing for personal trusts, so Tim Nash has been assigned to this account. He was unavailable for this meeting, and Carin Anderson, STI Investment Management Group, made the presentation. 6 Police Officers' /Firefighters' Retirement Trust Fund kliof February 9, 2000 Ms. Anderson advised the high grade growth fund did not exceed the S &P 500 index but was close. The reason is that STI does not invest in the "high flyer" technologies but rather in technologies that are more solid and have been in business a long time. The feeling is that those are reasonably priced. A small number of stocks are propelling the market, and out of all the stocks traded on the NYSE, 60 percent of them were down, which shows the narrowness of the market. High grade equity income has been down almost negative three percent in the last 12 months. In this type of market, growth stocks and technology stocks have done well. Equity income stocks, by nature, are considered value, and these have been out of favor for some time. She said STI buys truly value stocks, and there is a requirement that the companies have to pay dividends. The total dividend of the mutual fund has to be one and a half times what the S &P 500 is doing. The dividend yield of their fund is two and eight- tenths, and the S &P 500 yield is one and one- tenth. The advice is to stay with this fund because it is the most disciplined fund they have. The feeling is that over the long term it will bounce back. Over a ten -year period, their value fund and growth fund are about even. The U.S. Limited Capitalization Equity Fund has had outstanding performance. This is a common trust fund that gives a nice diversification. It invests in small and middle -sized companies. This fund has a growth flavor to it, and by its nature, it is buying companies that are growing very rapidly in the marketplace, which is why it has performed as well as it has. The high grade bond fund is the "anchor" fund. When markets are unusual, this keeps the investment stable. Over the last year it was down one percent, but the good news is that it probably will not go down further. It will average five to six percent a year. Interest rates were raised three times in 1999, have been raised once in 2000 and will probably be raised one or two times more before June 2000. That affects bonds, so the bonds have not done as well. Compared to the indexes, the performance has been better, but this common trust fund buys a lot of corporate bonds and a lot of mortgages. Purchases of mortgages have increased. Regarding asset allocation, the U.S. Limited Capitalization Equity Fund is the best, and four and seven - tenths of a percent of the Common Trust Fund is invested there. She said the Board might want to consider increasing that allocation slightly. She said she would not change the mix of 60 percent stocks and 40 percent bonds but possibly change within the equities. Member Cashignano asked where the increase would originate, and Ms. Anderson suggested a a small portion from growth and a small portion from value. Mr. Foster asked if new cash flow could be allocated, and she said new contributions could be directed there to a certain percent. She said it not something that had to be decided that day. She said this fund has the potential of being a little more volatile because of the small to middle -sized companies which, by nature, 7 Police Officers' /Firefighters' Retirement Trust Fund February 9, 2000 tend to be a little more volatile. She said she would not suggest putting more than ten percent in that fund. She said never in the history of the market has it been seen for the dynamics to continue the way they are with one sector completely dominating. They believe, based on history, that there will be a change and that value stocks will come back into favor. The managers for these funds are motivated to earn money for the funds because their bonuses are tied into their performance. She announced STI Capital Management had merged with two other money managers at SunTrust. Two weeks ago, there were three people who did the same thing, and the merger has taken them from $13 billion to $50 billion in assets. As a result of that, there is a new president and CEO. He is very motivated to get performance back on track. Mr. Dehner said at the next meeting Craig Hamilton would be discussing with the Board all the personnel changes at SunTrust and asked Carin to be prepared to discuss it as well. PERFORMANCE MONITOR Craig Hamilton, sitting in for Jeff Swanson from Merrill Lynch, advised the S &P 500 was up 21 percent, which is the fifth year in a row it has been over 20 percent. The technology sector of the S &P 500 was up 70 percent for the year. The companies that are doing well are more concentrated than one might think. Looking at the performance for 1999, it can be seen that half of the S &P 500 stocks were down, and 20 percent fell more than 25 percent. Looking at the good performance, half of the S &P 500 return of 21 percent came from seven stocks. If you took the top 30 performing stocks, they explained all the return. Four hundred seventy others had a tough year. In 1994 assets for the Plan were about $1.5 million, which had grown through December 31, 1999, to $7.3 million. Investment earnings for the quarter were $303,000, but in terms of percentage returns, it was not good. Bonds comprise 40 percent and stocks comprise 60 percent of the portfolio. The diversity has not helped much in terms of returns over the last quarter and year. Compared to the other plans Merrill Lynch works with around the country, this Plan is close to the median on allocations. For the quarter, the total fund was up four and four - tenths percent, stocks were up eight and two - tenths percent. The S &P 500 was up 14.9 percent. The High Grade Equity Fund was up 14.8 %, but the S &P 500BARRA Growth was 19.7 percent. The High Grade Equity Income Fund was down two and three- tenths percent, and the S &P 00/BARRA Value was up nine percent. The US Limited Cap was up 35.8 percent, and the Russell 2000 was up 18.5 percent. Bonds have been a bad place to be, not so much because the manager is doing something wrong, Ohre 8 Police Officers' /Firefighters' Retirement Trust Fund 40 February 9, 2000 but because the Federal Reserve is working against bonds. Four straight rate increases equate to losses but not much. For one year, the total Fund was up only five and seven - tenths percent, the High Grade Equity Funds were up ten percent, and the High Growth Equity Income Fund was down two and eight - tenths percent. For the entire 12 months, bonds lost one percent. T- Bills, which are 90 -day securities, was one of the top returning areas of fixed income because anyone with a long -term bond portfolio lost ground. Mr. Foster said in the five -year period, T -Bills were in the 99 percentile. Over five years, the Fund has averaged 16.2 percent, which is two times what the actuary would like to see. Compared to all the other public Merrill Lynch funds, ranking 1 to 99, this Plan ranks 47. Merrill Lynch, as the monitor, wants to make sure the investment manager does not have more than five percent in any company. The Merrill Lynch compliance checklist indicated STI is in compliance managing the Plan's money. Regarding three- to five -year objectives Merrill Lynch would like STI to meet, in the total portfolio and equity portfolio, none has been met. Fixed income portfolio objectives have been met and have done well. To summarize for the last quarter and last year, it has been a very difficult time for STIs. Merrill Lynch has been watching it closely, and he and Jeff would like to review how the investment manager is doing and look at the investment policy, the written documents given to the manager, at the next meeting to see if they can come up with some ideas that might help in future performance. One idea they are very positive about is the international arena. For the last year, the international EP index was up 27 percent. Some of their clients who decided to go into some international mutual funds had returns of 50 to 60 percent. They might also want to address adding a little to the limited cap fund as well. Member Cashignano said he understood at the November 1999 meeting that Mike Callaway was to make some recommendations at this meeting. Mr. Hamilton said he reviewed the notes and did not see that Mike was to make any specific recommendations. Mr. Dehner advised that was scheduled for the May meeting. Member Gledich advised Mr. Swanson was supposed to come with recommendations. Mr. Hamilton said he came with drafts of the investment policy for some recommendations. He said that could be gone through at that time, but he hoped it could be done at the next meeting to enable him to be more comprehensive. Mr. Dehner said he would like to see the report where he makes a case for international investing, which he felt would be helpful for the Board. Member Gledich said at the November 1999 meeting, STI Investment felt good about its performance. Mr. Hamilton said the long -term health of the Plan is evident, but it was a bad quarter and a bad year for STI equity -wise. Mr. Foster said you look at managers over a three -to five -year period, not what they did in the last year. 9 Police Officers' /Firefighters' Retirement Trust Fund February 9, 2000 ATTORNEY COMMENTS None. SET NEXT MEETING AGENDA The next meeting is scheduled for Wednesday, May 10, 2000, at 1 p.m. There will be a presentation by Merrill Lynch regarding international investing and recommendations. Ms. Garcia said they would advise Mr. Nash of the type of discussion slated for the next meeting so he can get recommendations together because of the new merger. ADJOURNMENT Member FIRSTNER, seconded by Member COSCHIGNANO, moved to adjourn the meeting at 2:51 p.m. Motion carried 4 -0. Brenda King Recording Secretary 10