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HomeMy WebLinkAbout05-10-2000 Minutes THE CITY OF OCOEE POLICE OFFICERS' /FIREFIGHTERS' RETIREMENT BOARD MEETING - May 10, 2000 Chairman WILSON called the meeting of the City of Ocoee Police Officers'/Firefighters' Retirement Trust Fund to order at 1:10 p.m. in the Commission Chambers of City Hall. The roll was called and a quorum declared present. PRESENT: Chairman Wilson, Secretary Firstner, Members Coschignano, and Williams. Also present were Actuary Foster, Attorney Dehner, Money Manager Tim Nash, Performance Monitor Craig Hamilton, and Sue Mela for Recording Secretary Lewis. ABSENT: Member Gledich. APPROVAL OF MINUTES Secretar FIRSTNER seconded b Member WILLIAMS moved to as 'rove the Minutes of the Februa 9 2000 Police Officers'/Firefighters Retirement Trust Fund as .resented. Motion carried 5 -0. QUESTIONS /COMMENTS FROM AUDIENCE There were no questions or comments from the audience at this time. DISCUSSION /APPROVAL RE: AGREEMENT FOR SECRETARIAL SERVICES Chairman WILSON explained that at its last meeting, the Board had discussed the matter. Attorney DEHNER said that they had prepared a contract with Brenda King and they were subsequently notified that she will not be performing the duties of that position. Discussion ensued about a method of search and the hourly rate for such a service. Secretary FIRSTNER. seconded by Member COSCHIGNANO, moved to authorize the chairman to canvas for a willing party in an Agreement for Secretarial Services for $15.00 but not to exceed a $20.00 hourly rate. Motion carried 4 -0. OTHER BUSINESS AUTHORIZE /RATIFY PAYMENT OF BILLS Chairman WILSON asked for ratification of payment, and requested approval of the Board to present to SunTrust for payment, the following bills: 1. Merrill Lynch $ 2,323.50 2. Christiansen & Dehner, P.A. 1,769.95 3. F.P.P.T.A. 200.00 4. Foster & Foster, Inc. 750.00 5. Brenda King 125.00 6. SunTrust 13,688.65 7. Christiansen & Dehner, P.A. 181.68 8. Burkey, Cooksey & Associates 2,468.00 9. Brenda King 112.50 10. SunTrust (STI) $14,026.78 Police Officers' /Firefighters' Retirement Trust Fund May 10, 2000 Secretary FIRSTNER explained that they had secured the insurance from (Burkey) Cooksey & Associates for another year (2000 -2001) at the same rate ($2,486.00) as paid in 1999 -2000. Member WILLIAMS, seconded by Member COSCHIGNANO, moved to authorize and ratify payment of the bills. Motion carried 4 -0. UPDATE RE: DROP PLAN FOR WILLIAM SIMON Chairman WILSON reported that Bill Simon had officially retired and asserted the Drop Plan on March 1, 2000. Member COSCHIGNANO asked for a copy of the Drop Plan and the ordinance with the next meeting packet. Actuary Foster arrived at 1:20 p.m. to the meeting. REPORT RE: ORDINANCE NO. 99-01 Attorney DEHNER explained that Ordinance No. 99 -01 had been mailed to the City Manager. He had met with Mr. Shapiro that morning and Actuary Foster was preparing a No Impact letter on that to send to the City Manager. It will then be advertised for the First and Second Reading. He had reiterated with agreement by Mr. Shapiro as to the importance of this being adopted and filed with the Division of Retirement before July 1, 2000 so that we receive our State monies on time. Attorney DEHNER said that he saw nothing controversial about it since it was with compliance. He reminded everyone that the three percent (3 %) on the early retirement reduction was not needed now as the Plan only had about a $2300 increase in State money over the '97 amount. It was not enough to put the minimum in the Plan and had not been included at this time. They must continue to monitor the increases in the State money and maybe add to the bank. The $2300 could not be used to enhance funding now but next year we may add to it. It was enough to put the 3% capital. In response to Chairman WILSON, Attorney DEHNER said that what it meant to an early retiree was that the early retirement reduction was currently an actuarial reduction which was around 6 2 /3r percent for each year that you retire before your normal retirement eligibility. Instead of putting a 3% on the reduction, you were essentially reducing it by less than half of what you would with an actuarial reduction. It gives the member who retires early more monthly benefits. It would cost $9600 per year to implement that 3% for the reduction. Currently, there was only $2200 in additional State money so it may be three or four years before enough State money would be accumulated to implement it. Once there is enough money it will be required to be implemented. Right now if someone goes out five years early, their formula benefit is reduced by a third. Under the Statutory reduction someone going out five years early gets 85% (that is only a 15% reduction) so it is approximately one -half as much penalty. It was actually a subsidized benefit and was more valuable than an equivalent benefit. It could only be supplemented with State monies. The City, not the Plan, could decide to fund it. The Plan could not implement it. In response to Chairman WILSON, Attorney DEHNER said that there was no legislation this year that benefited the Plan. 2 Police Officers' /Firefighters' Retirement Trust Fund May 10, 2000 DISCUSSION RE: TWENTY -FIVE AND OUT OPTION Attorney DEHNER announced that he had sent the Ordinance that had been prepared at the direction of the Board to add a normal retirement date of twenty -five years of service, regardless of age. Actuary Foster was preparing an impact statement. This one did not have the funding requirement in terms of State monies. It had been provided to the City Manager who will also receive the impact letter. The Board must decide whether or not to move forward with this in this rather than the next budget year. Actuary FOSTER said that it would eliminate the current age 52 requirement of a Firefighter or Police Officer. Right now one could retire at 55 with 10 years of service or 52 and 25 years of service. This would eliminate the requirement to the age 52 so someone who is employed and are 25, they go out at 50 after 25 years, and get an unreduced benefit. There was no change in the early retirement. Mr. FOSTER said that they had costs the benefit in November, 1999. The Actuarial Impact Statement was not prepared until it looks as if it will move forward because there was a cost associated with the preparation of a formal impact statement. An employee with five or more years of service, to terminate employment and leave their money in the Fund, then the benefit is paid at 55 even though they might have had 25 years of service when they were 45. The only people benefiting from the 25 /out provision are people that actually worked 25 years. A few sections would be added to the 25 and Out Ordinance but Attorney DEHNER said that it does not need to hold up the process. He suggested drafting an amendment to the early section, and asked Chairman WILSON to hand deliver Ward Foster's November 17, 1999 letter. The cost to develop was $26,000. It was obvious to see that if the Board went with the 20 and out, the cost would be $191,000. Since it was not affordable Attorney DEHNER said that he had gone with the $26,000 item. The revisions will be made to the Twenty -five and Out Ordinance. Member COSCHIGNANO seconded by Secretary FIRSTNER, moved to approve the Twenty -five and Out Ordinance. Motion carried 4 -0. Actuary Foster and Attorney Dehner left the meeting at 1:35 p.m. PRESENTATION BY MERRILL LYNCH RE: INTERNATIONAL INVESTING AND RECOMMENDATIONS Performance Monitor HAMILTON introduced associate Jeff SWANSON to the Board, and announced that they worked the account as a "team account" so that they were both familiar with it. Mr. HAMILTON provided members with a handout, and gave a report on International Investment. The policy on file was old and indicated "no foreign" was allowed. Attorney DEHNER said that the Board could vote 10 percent value of the Fund in International. Performance Monitor HAMILTON said that at the last meeting, the Board had discussed possible changes: • Increasing allocation to International of 10 %, and 3 Police Officers' /Firefighters' Retirement Trust Fund May 10, 2000 • Increase the Total Equity Allocation from 50% to 60 %. A graphic indicated that in 1970, the U.S. made up 2 /3' of the whole capitalization of the Stocks trading around the Globe. That had changed a good deal in 29 or so years. Now, the U.S. was approximately one -half. This more or less limited the Money Manager because he could not buy (or invest in) some of the best foreign companies. There were some large foreign companies and a lot of different industries that were domicile outside the borders of the United States. There were a lot of huge fine companies outside the borders so there were a lot of blue chip companies out there that your manager could currently buy. Performance Monitor HAMILTON said that the past performance showed that the United States had really had a hot five (5) year run. There had been returns to the order of 20 -30% but in charting the top five (5) countries in all these different time period, the U. S. had only made the top five (5) in one time period in 1995. Some of those countries had seen fantastic returns. A lot of the foreign companies and countries were not collating very well with the U. S. When we were doing well, they were not doing so well. After the great run that we have had over the last five (5) years, at some point there was going to be a turn around. It was where you hope that the 10% can add value to the Fund. Last year some of their public funds who had gone with International Managers had returns of 55 — 60 %. Carving 10% out of that, add it in, and that put a lot of those people on top of the Florida Funds List with small exposure to International. Actuary Foster and Attorney Dehner returned to the meeting at 1:55 p.m. Performance Monitor HAMILTON provided a brief history of Stocks, and said that the Total Funds with Stocks and Bonds had averaged about 15% over five (5) years with the Stock portion of that averaging 22 percent over the five (5) years. He explained about how they had come up with the list of candidates; they were buying conservative, large cap companies that were concentrating on the developed markets, were not looking at emerging markets like Latin America or some of the smaller things in Asia, wanted them to have a very global focus, and to not just look at one region like Europe or just Latin America. They had wanted to make sure that the candidate has had 10 years of International experience with substantial assets. The bottom line in assets had been set as 10 billion dollars with good returns, and foreign offices in order to get the pulse of what was going on in different markets with the currencies. They also insisted upon very diversified portfolios and did not concentrate on too few number of names. A list of candidates had been provided in the handout: • Burger Funds of United States had teamed up the Bank of Ireland. They have been doing asset management for some 12 years. The Bank of Ireland had been established in 1783. • Euro- Pacific Fund, a part of the Americans Fund family. It was one of the largest and had 51 billion dollars in International assets. • Invesco. This was their Global asset management company that was headquartered in 4 Police Officers' /Firefighters' Retirement Trust Fund May 10, 2000 Nillor Atlanta. They have some 14 offices around the World. • Lisard Asset Management, a part of Lisard Ferrare that is a bank in Paris which had been established 150 years ago. • Putnam Investments, one of the smallest other than STI that had 10 billion dollars in International Investments, and, • Templeton out of Ft. Lauderdale with 11 offices around the World. Templeton had the most in total International assets at 75 billion. Information about Equity style had been included in the report. At the Board's request, they had also included STI Capital Management. In response to Member COSCHIGNANO, Mr. HAMILTON said that STI had a unique way to try to match the EP Index which was called the GDP or Gross Domestic Products Weighting. STI dealt with some people that were large enough to have separate managers who came in to do five or ten million assignment. Based upon the Fund's size which was 7.5 million, ten percent would be approximately $750,000. Mr. HAMILTON said that he believed that a Mutual Fund would be the best way to get diversity with some of the specialized managers in International Investments. However, all of these would be buying a Mutual Fund. Statistics were provided about some of the EP companies. Some of the companies required a one -time up front charge (i.e., approximately 1.5% of $750,000 would be $11,000 charge). Discussion ensued about a 12 -B1 fee that was 25 basis points for one - quarter of 1% to brokers who basically distribute their Mutual Funds. Again, in response to Member COSCHIGNANO, Mr. HAMILTON said that they had screened over a thousand International Fund Managers and had narrowed it down to six candidates plus STI. These candidates would do a good job of managing public pension funds International settings. He recommended that the Board pick just one manager or company and put their money with it. Mr. HAMILTON said that he recommended that the Board add to the State ceiling of allowing up to 10 %. The local ordinance seemed to be in place so the Board must decide if they wanted to utilize the current manager or consider using another spectra. In response to Chairman WILSON, Mr. HAMILTON said that the Plan had a very small rating, about 100 ($50,000's worth) in our STI International Equity Fund that is their Large Cap Value Oriented Fund. The Plan did not yet have any of the Index. He believed that we were slowly moving into the International arena. We still have the Limited Cap but our Small and Mid Cap left it with some dollars before filling out the International piece. Attorney DEHNER said that the most recent Policy was dated February 18, 1999, and that he believed that this was the one in effect that provides for no foreign investments. The (Policy) had been signed by Mr Mrt-Hemiltort-at-that4inae. He expressed concern about whether or not we supersede (he did not think that it had complied) with that or amended it to come in (to) compliance. Notes from the August, 1998 meeting as far as an amendment was concerned included Small and Mid Caps p to 10% and Equity at costs. But, in any event, his concern was 714 I19s'( ,)5 and approcicl i k 23944D• Police Officers' /Firefighters' Retirement Trust Fund May 10, 2000 that we change the Policy today. Mr. HAMILTON said that if this was the most recent then we have no foreign alive. There was a little but we had $6,000 in the International Fund which they could sell. There was a gain unless the Board wanted to change the Policy. He said that both your consultant and manager would recommend that you add up to 10% foreign to your Portfolio. The General Employees Fund had been in the International Value Fund but it had not done very well in the last two or three years. In fact, it had done poorly. They had made a recommendation in addition to the managed Fund that they add to the Index Fund. It was a sort of in a 50 -50 weighting. He had agreed that it was a good idea to add to that Fund because of their clients who had actively managed them. Member WILLIAMS expressed concern about the risks involved in going to foreign and discussion ensued about the ranking of the Countries. The managers right now would be putting the big weighting in Malaysia, Finland or India. It went to show that a lot of individual countries on their own had done a lot better than the United States. At the recommendation of Mr. HAMILTON, Secretary FIRSTNER, seconded by Member COSCHIGNANO, moved to 1) increase the allocation in Equities to 60% at costs, and the Bond portion at 40% at costs, to include in the Equity allocation up to 10% as mandated by the State in foreign companies at costs. Motion carried 4 -0. Currently, the Index was now 50% of the S &P500, 45% of the Long Term Bond Index/Corporate Index, and 5% T- bills. Basically we were still 50 -50. In response to Attorney DEHNER, Mr. HAMILTON said that we could move in the direction of recommending to drop the quality restrictions on the Domestic Stocks so that it would be completely up to the discretion of the Manager about Small or Mid Caps Stocks. Secretary FIRSTNER said that he moved to drop the current language for the quality restrictions that is held on companies, and include under Equities Securities a sentence that would say "Securities whose capitalization limit to a billion dollars we would limit to 20% in Total Equities portfolio." The motion died from a lack of a second. Member WILLIAMS said that the Board would be monitoring closely the results to see how this will effect our portfolio within a specific amount of time. Mr. HAMILTON said that it was incumbent upon the manager to follow the policies as well as the monitors to make sure that they don't get too many of these Small Cap companies in there. Lengthy discussion ensued. Secretary FIRSTNER, seconded by Member WILLIAMS, moved in the new version of the Investment Policy to drop the current wording of the Quality Restrictions, and add a caveat under the E• uities Securities that for those com anies with a Market Ca. less than three billion dollars the Fund would limit that to 20% at Market of the Total Equity portfolio. Motion carried 4 -0. This would give the Manager more flexibility. The report corning up shows that STI had been the most successful in the last twelve month period. In response to Attorney DEHNER, Mr. HAMILTON recommended that the Policy retain the Quality Ratings for Bonds of the top three. 6 Police Officers' /Firefighters' Retirement Trust tkow May 10, 2000 Secretary FIRSTNER, seconded by Member COSCHIGNANO, moved to include in the Policy to retain the quality ratings to the top three for Bond. Motion carried 4 -0. Secretar FIRSTNER seconded b Member COSCHIGNANO moved that the Polic changes become effective today, May 10, 2000. Motion carried 4 -0. Member WILLIAMS seconded by Secretary FIRSTNER, moved to stay with STI for the Index Fund. Motion carried 4 -0. In following up on some of the motions that had been made, Mr. HAMILTON asked permission to send another draft for review (when appropriate or prior to the next meeting) to incorporate these for signatures and distribution. REPORT ON PERSONNEL CHANGES AT SUNTRUST Craig HAMILTON announced that STI's many banks had been merging and growing in terms of the banking side. This conglomerate had investment headquarters in Atlanta, Orlando, and Virginia with the Crest Guard Group. The only changes that the Board might see were the people coming to the meetings. Tim NASH reported that there were three (3) CEO's or three (3) Presidents in each one of their Capital Management firms. They have had a very thick layer of management in the past and it had been very expensive. They were now doing some consolidation costs. The firm's headquarters is officially located in Atlanta, Georgia and Doug Phillips had been running the Atlanta office for 18 years. Their client services teams will stay in their regional areas due to their commitment to the Municipalities in the Florida marketplace, Virginia and mid - Atlantic marketplaces. There was really no need with all the technology of today for the Fund managers to be located in one place. Any one of the Client Services people know what the firm's objectives are and can assist them. Hopefully the turnover from the CSO side will slow down as we move forward. He will work his schedule so that he is available for our Board meetings. REPORTS ACTUARIAL Actuary FOSTER said that at the last meeting they had attended, February 9 Foster & Foster had been asked to provide the Board with some information about the cost associated with providing retirees with some sort of automatic cost -of- living adjustment (COLA). There were probably an infinite variety of alternatives. These were to be funded with an increase in member contributions. The magnitude of the cost for different types of automatic adjustments had been reviewed for an automatic 1% per year increase. Currently the members are contributing 7.6% salary. • If they went to a 1% increase automatic adjustment beginning at age 65, that would be payable for life. In other words, when someone retires, until they reach 65, they will receive a flat monthly benefit amount. At 65 and every year thereafter for as long as thre retiree is living, the monthly benefit would increase 1% per year compounded. You 7 Police Officers' /Firefighters' Retirement Trust Fund May 10, 2000 would have a flat benefit and then when we hit 65, it would start going up. That would require an increase in the member contribution rate of 7.6% to 8% if the impact was funded through member contributions increases. • The next one was 1% per year beginning at age 62, and that costs an extra .6% so that would take the member contribution rate up to 8.2 %. • Another one was a temporary COLA that begins with retirement, increases 1% per year to age 62, and then it's flat from 62 on. This type of COLA is pretty popular because it allows you to have some inflation protection between the time you retire and when you get help from Social Security. That would require member contributions to go to 9.2 %. • A 1% per year COLA would increase the member contribution rate up to 9.4 %. It was a pretty significant member contribution here. • The final one was just a 1% per year compounded adjustment beginning at retirement and payable for life. That would take the member contribution rate up to almost 10% (actual 9.9 %). This would apply only to future retirees. It would not apply to current retirees, just anyone who retires after any of these changes were implemented. The way most plans get to the point where they have a full retirement system type of COLA is with a flat 3% per year beginning on the July 1s` following retirement, and every year that goes up 3 %. That type of adjustment would increase the Plan's cost probably 35 -40 %. It was a huge bite because of the effect of compounding. The way most Boards get to that point is sort of step by step chipping away at it by starting out with a modest temporary COLA, and then adding on to it by going from 1% to 2 %. The process was kind of argueous and they wouldn't really recommend trying to get a 3% COLA by increasing member contributions. They recommended that you get there through the re- investment of favorable investment and actuarial experiences. Funding it with member contributions would become very, very expensive. You could look at a 15 -20 % membership contribution to get a 3% COLA and it was not where you wanted to spend your money. It gave the members an idea of which of these types of COLA's are the most expensive. On the other hand, if the Plan was funding these improvements with City contributions than the numbers represented the proposed additional amount totaling the payroll that it would require to fund the improvements from that source. Funding benefit improvements with member contributions was kind of a last resort. If they got the 25 and out, you really had an FRS high risk clone as far as the benefits reasons went, except that you would have the cost of living adjustments once the 25 and out was in place. The Board might want to consider in turning the attention to some sort of post retirement inflation protection to the fund. It was the approach that a lot of the other Boards were taking. They usually wait to get the cost of living adjustment after they have all the other desirable benefit provisions in place because it was the big ticket. The 8 Police Officers' /Firefighters' Retirement Trust Fund May 10, 2000 longer the Board waited to implement any improvement that affects all users past service, and this was one of them, even the past service piece would be subjected to the COLA. Actuary FOSTER said that they will do the formal actuarial impact statement on the 25 and out, and get that to them tomorrow. They will write and fax to the City Manager the No Impact letter on the 99 -01 amendment. In response to Chairman WILSON's inquiry that this was something that we could look at again next year, Actuary FOSTER said that if we had a good year and costs went down, we might revisit this issue with an eye toward funding it with some of the gains experiences. They were using a smoothing technique here and even though the markets were a little rough right now, he felt confident that we were going to end up with some gains at the end of the year. It was because they had so much money set aside from the last four years worth of good experiences. Discussion ensued about future goals for the Plan. He recommended that you do everything you can to try to get the City to participate in funding these improvements because he did not think members would be willing to pay 10% of their salary for a 1% COLA. Actuary Foster left the meeting at 2:45 p.m. MONEY MANAGER Money Manager NASH reported that basically it was a tough quarter. The S &P was up about 2.2% but that wasn't a smooth ride. The first two (2) months of the year, January and February, was down 8 %. It came back up 9% in the month of April and year to date from January through yesterday (May 9, 2000), the NASDAQ was down 10 %, the S &P was down 3 %, Dow down 7 %, so it had been kind of an ugly market place. Mr. NASH said that our funds were doing fairly well in that market place because it was not as reflected in the quarter as it will be as we move forward if things continue. Basically at the end of February, they saw a big shift out of Tech Stocks moving back into a variety of other sectors in the marketplace, and that was where we had been invested. It had been a benefit to us. Monthly performances for the month of March had been included for that reason because it kind of peaked in about a year and one -half where they had seen a big shift out of TAFT into the other sectors. The total return for the month had been up 7.2 %. The actively managed funds, both the growth and value, outperformed the S &P, finally for the month of March and again in the month of April, up 10% and up 13% of the S &P for about 9 %. For the quarter, we were up 95 basis points shy of 1%. The fiscal year to date, up 5.4% and that puts us into historical returns for the rolling 12 months where the number was about 5.5 %. They expected that to improve as we got closer to our fiscal year end. For the last three years on average, we have earned 14.5% each year. Last five years for about 14.75% on average each year. The cash flow showed the total returns had shot up about 1%. Equities were barely up to 4 basis points. The combination of our Equities were high grade growth that was up 22 basis points, a quarter of a percent. Again, that looks kind of low because the technology stocks were still doing real well. They had been light in technology stocks since June, 1999. It had been a good place to be over the last couple of months. High -grade Equity income, our value as most value managers still were not doing real kose well. We were down 3.6% for the quarter. The limited cap fund was the bright spot in our 9 Police Officers' /Firefighters' Retirement Trust Fund y May 10, 2000 portfolio up 21.5% for the quarter. It was doing extremely well. Bonds had kind of come back a bit. They had been negative —1.5% for 1999. They were up 2.26% in line for the quarter. Fixed income was looking a little bit better even though we have had two (2) FED rate increases, and they thought that we were going to have another one on May 16 It will be anywhere from 25 basis points to 50 basis points. Asset allocations showed about 60% of the portfolio in Stocks and 40% in Bonds. He said that the one thing that they would note was the STI International fund was $6,000 at cost, and that should not have been there. Foreign was not in the Policy at the time. Mr. NASH said that he will look at where it would have been to see if we would have had more of a gain by being mixed among limited caps, high grade Equity and Equity Income, then STI will cut the Fund a check for the difference. Also, they will make that change going forward into the International Index Fund. There was not a whole lot of difference but they were under weight in technology, about 20% Growth portfolio, compared to the Index that is at 33 %. The reason that we are under weight was they had felt since June, 1999 that Tech Stocks had been under valued, and the NASDAQ charts had gone up and down, and come back. Apparently the marketplace was demonstrating that Tech Stocks were over valued as well. They had been comfortable with the valuations of Technology Stocks up to about the middle of June. From that point forward when there had been Technology Stocks trading at 100 plus Time Earnings, they had not been comfortable in that range and began tearing back. The Technology Stocks continued to do well from June, 1999 to February, 2000, and were under performing compared to other managers because we were under weight in Tech. Then again in February and March, they had shifted and brought back out, and he said that he thought that we looked pretty good among other managers. He explained about what had caused them to lighten up on Technology Stocks. Mr. NASH said that Mr. Hamilton would talk about where we were, percentile rankings, comparison to our bench mark and the other funds that we were compared to, and presented a chart showing rates of return for quarter one, three, and five year as of June 30, 2000. In looking at the High Grade Growth Bond, we were in the 12 percentile. We were in line with our Policy, and were doing o.k. The sectors showing for the S &P was shown for June, 1999 to February, 2000. It noted that most of the sectors such as the Financial Stock held. We were a diversified Money Manager and we had a lot of assets invested there, but they were pretty much flat. Technology had taken off for the year, and we had been light on that, therefore, a lot of the other managers who stayed more heavily into Tech had better returns than our Plan in that one year time frame. The percentile rankings were shown for July to February where we would have fallen based upon the returns each month. However, we could see that in most of those instances we were down toward the bottom because we had been very light in Technology Stocks. The market has sort of broadened out, and in March and April we were back in the top third since this is where we want to be in the money managers in a more diversified market place. We want to continue to think that this is the right thing to do. We missed out on a little bit of the gain for 1999, and it has pulled down our three and five year numbers a little bit. We think going forward that we are going to see a lot more benefits in seeing a more diversified portfolio. 10 Police Officers' /Firefighters' Retirement Trust Fund May 10, 2000 On the International Funds, Mr. HAMILTON said that two additions will be made to the portfolio as we move forward which will occur based on how our Investment Committee views the market. Our Large Cap Value Fund was in our High Grade Equity Income Fund. Had the dividends been strained, it was there in sort of a defensive mood so that Fund was not as volatile. However, we also have a Large Cap Value Fund called the Growth and Income Fund that was managed by one of our Fund Managers out of our Crest Star Division. The only difference between our current Fund was that we were using and this one was that there was no dividends strain on the Growth and Income Fund. They were going to manage both of our funds in the Value piece of monies. This one did not have a dividend constraint. Technology holdings were actually allowed to hold 14 %. It had bought those Tech Stocks that were sold in the quarter of 1999. That had given us a little more flexibility on the Value side. On the International, the Fund has been around since 1994, and Chad Jenkins was the Fund Manager. Bob Rhodes was the head of their Equity Division which was run much like the Morgan Stanley. However, it was a GDP weighted index, instead of market capitalization weighted. Morgan Stanley had two different International funds to bench mark. One is Cap weighted, that is saying that the countries that has the biggest Stock markets are going to get more of a weighting over a country that has smaller Stock markets. The way this fund is being run, it is not based on market caps but is based on GEP so the crunch was the countries that had the highest gross domestic products will be the developed countries like the United States, Japan, England. Those countries were going to have a higher weighting than the market Cap weighting Stocks. They were not buying every single International Stock in the Index. What they were doing to their Small stocks would incur heavy trading costs to get into, they are very illiquid. They were taking almost all of the Stocks in the Index but the smallest ones that are illiquid are being cut out. That was why they weren't in line with the Morgan Stanley. They were pretty close to seeing all time frames, and that would be their International option. Mr. HAMILTON said that to recap the Value, they were going to have the two valued products, roughly 50 -50 balance. It could change from time to time based upon their Committee's analysis. Sometime they would see the Growth and Income that is 75% of the Value piece depending upon what the companies with dividends or without them are undervalued or valued. In going forth with the International piece, based upon the conversation that they had with the Board today, they will select the International Equity Index fund. Mr. NASH said that he would tell them that on most of their Municipalities funds, they are costing out the Index Fund in their International Equity Value Fund that they currently had out there. They were mixing those two together and their Investment Committee was deciding whether to overweight one or the other at different periods and products. It was the best place to be based upon the returns over the last five year. Money Manager NASH left the meeting at 3:00 p.m. PERFORMANCE MONITOR Performance Monitor HAMILTON provided the Board with a written Performance Monitor Summary report for the period ending March 31, 2000. The Fund had $7,480,947 in assets 11 Police Officers' /Firefighters' Retirement Trust Fund May 10, 2000 which was split in terms of market at about 59% Stocks, 40% Bonds, and a little bit in Cash. He asked that they keep in mind that the Investment Policy at that time was 50% at costs, and we had actually only had about 39% invested. The Executive Summary revealed the returns and compared them to other public Funds that Merrill Lynch tracks around the Country. For the quarter, STI had a bad quarter, up only 1 %. The Target Index which was one -half Stocks, one - half Bonds was up 2.5 %. The 70 percentile ranking showed that Equities were flat and made no money for the quarter. The S &P 500 was up only 2.3 %. In comparing the Equity Fund to the Growth Index, and the Income Fund and compare it to a Value Index, and the Limited Cap compared to the Russell 2000, and the two big pieces which was the Growth and Value had poorly under performed those targeted embassies. The Limited Cap that Mr. Nash had mentioned had had a stellar quarter and its the last year had done very well. Bonds were a little bit behind the Target Index and had earned 2.3 %. The fiscal year to date was up about 5% for a six year period but not annually. For one year of the last twelve months, the return had been only 5.7 %, and the Target Index would have brought in 10 %, and the reason for the under performance once again was the line for the Equity Funds was up only 8 %, less than one -half of the S &P 500. It was seen in how their Growth and Managers did compared to these embassies. The Value has had a terrible time. The Limited Cap earned 90% and was a big help to the Fund, and had salvaged other problems in the Stock management. The Bond Fund for the year up 1.6 %. The good news is that a quarter will go to the negative territory so they had made up a lot there in the face of the Federal Reserve continuing to raise interest rates. For the long term look at the Plan, we have averaged 15% year in, year out for the mix of Stocks and Bond that we had, however, they have been somewhat conservative. It was close to not quite two (2) times the Actuarial Assumption. He referred to the Plan having placed money in the bank for smoothing. It should take care of some bad years should we have any of those in the future. The percentile ranking for STI as of this last quarter was 57, a little above average. If they rolled this back to three months ago, that percentile ranking was 47 and they were doing better than average. This one three month period had hurt them so much. The long term numbers still looked o.k. He was hoping that some of the changes that they were talking about such as adding the new value thing and the move to get into International will do a little better for the Fund. What they had done since March 31S had done a lot better than everyone else. Part of that was due to the market getting back to the old economy types of Stocks, things that they have owned in their Value Income Fund, and the Growth Fund. Maybe those things will perform better as we move forward. Mr. HAMILTON provided the Board with a compliance check list. STI was not meeting the targets for 3 -5 years in the Total Portfolio and Equity Portfolio but were meeting some in the Fixed Income Portfolio. They were not happy with their performance and if they had to put a letter grade on it, they might say that it was a "D." A year ago they had been more in the "C" category because they were almost even. He wanted to make the option known to the Board that they could obtain another Money Manager. The General Employees Board had not directed them to do so at this time but they did want Merrill Lynch to watch it very closely. He was hoping that some of the changes that they were making might come out better within the next 12 Police Officers' /Firefighters' Retirement Trust Fund May 10, 2000 twelve months. The Board was informed that they had the same option and could notify them to put together a list of candidates. They were currently doing that for some of their clients. Member COSCHIGNANO said that in reviewing notes from past minutes Merrill Lynch had not been happy with STI's performance. He wanted to give STI additional time to do better but will check it again in the Fall. In response to Secretary FIRSTNER, Mr. HAMILTON said that changes to the Investment Policy might improve the Fund in some areas, and that maybe it was not completely the fault of STI. Stocks that did not have a dividend had hurt the Fund. He did not have a crystal ball and it had been a narrow market. Some of their clients around the State had been unhappy, and had directed Merrill Lynch to direct a search to look at some alternatives. Performance Monitor HAMILTON left the meeting at 3:15 p.m. Attorney DEHNER said if they had recalled back in 1993, they had the Unemployment type Federal Legislation that imposed the 20% withholding on taxable portions was well as some distributions. For example, in our Plan if a member terminates, they request their contributions back and they are pre - taxed. There was a package that needs to be given to someone who asks for the lump sum to explain what their options are, what happens with the 20% if they take it themselves, what happens if they take it and they don't roll it over themselves within 60 days, there was an additional 10% penalty or what happens if they roll it over into an IRA in another Plan, then they avoid 20% withholding, and the 10% penalty. At the time of the Legislation, the IRS set forth model tax notices that they were required to give out. Those had been re -done and they had been given new guidance on that. A new package had been prepared and this was what should now be given. It was much like the other in most respects. They had noticed that it tends to be a little more user friendly so this new package under letter dated May 1, 2000 should be substituted for the old one in its entirety. Mr. REED said that Mr. Hamilton should go through the forms and update some of them (to get the correct percentages, etc.). The packet was given to Secretary FIRSTNER. Mr. REED addressed the Board about whether or not the City Manager had spoken to Attorney Dehner about a letter Mr. Reed had written in January. It dealt with employees who had reached 10 years and were dropped from the City's disability insurance policy because they were under a better plan under the Pension Board. He had met with the City Manager about this matter. They had no disability policy. He explained that after a Police Officer or Firefighter reaches 10 years unless you provide coverage for yourself, the City has restricted to the amount of hours they could keep on the books in case they are hurt. Mr. REED provided the example of an employee with no way to collect on disability plus all the hours had been used. He had tried to muster some support, and said that he had not gotten an answer from the City Manager who had said that he would speak to Attorney Dehner about it. He expressed his frustration at not getting a response to his inquiry, and shared possible steps on how he might proceed regarding this issue. 13 fr Police Officers' /Firefighters' Retirement Trust Fund May 10, 2000 Attorney DEHNER said that he had spoken with the City Manager quite some time ago and the only discussion had not been in depth on what the Pension Plan covers. He was not acquainted with the insurance policy but he said that he believed that the provisions were different. In some respects each was better than the other. The Board had previously considered asking Foster & Foster to cost out the lower vesting period toward disability entitlement that was not in line of duty. That was something that the Board could consider. It was discussed but he did not think that the Board had done anything with it. It was the only thing that the Actuary could get involved in. The Board could direct doing a study on reducing that 10 year vested, not in line or not. Former Secretary Ron STROSNIDER said that when they reached 10 years they have no temporary disability at all. If he broke his leg and he was out for six months, he had nothing. Mr. REED said that there was only two options: 1) go to the City and try to get them to re- instate this short term disability or 2) come back to the Pension Board and have that permanent disability percentage raised. In response to Member WILLIAMS, Mr. REED said that a sanitation driver could receive the disability after 31 days. SET NEXT MEETING AGENDA The next meeting date is Wednesday, August 9, 1:00 p.m. ATTORNEY COMMENTS Attorney DEHNER had no additional comments. ADJOURNMENT The meeting was adjourned at 3:30 p.m. Respectfully submitted, Judie Lewis, Recording Secretary 14