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HomeMy WebLinkAbout02-06-2013 Minutes Minutes of the Regular Meeting of the CITY OF OCOEE GENERAL EMPLOYEES' RETIREMENT TRUST FUND BOARD OF TRUSTEES (GERB) Held on February 6, 2013 At 150 N. Lakeshore Drive Ocoee, FL 34761 CALL TO ORDER — Chairman Wagner Chairman Russ Wagner called the meeting to order at 10: 05 a.m. in the Commission Chambers at City Hall. A. Roll Call Chairman Wagner called the roll. In addition to the chairman, present were Vice - Chairman David Wheeler, Secretary Jean Grafton, and Trustees, Gleason and Godek. The recording clerk declared that a quorum was present. Also present was Mr. Doug Lozen of Foster and Foster, the pension fund's actuary, Mr. Tim Nash of Bogdahn Consulting, LLC, Senior Administrative Assistant Sharon Zink, and GERB Recording Clerk Stella M B. Approval of Minutes Chairman Wagner directed the board's attention to the minutes for the December 17, 2012 special meeting (Exhibit #1). A motion having been made by Trustee Grafton and seconded by Trustee Wheeler, and that motion having carried unanimously, the board RESOLVED to approve the December 17, 2012 special meeting minutes. CONSENT AGENDA A. Invoices Ratification (Exhibit #2) B. Retiree List from Fifth Third Bank (Exhibit #3) Chairman Wagner directed the board's attention to the consent agenda. Regarding Item B, the Retiree List Review (Exhibit #3), the chairman reminded the board that the item will be an exhibit in the minutes according to directions of the auditor. The list itself will be stored in the pension office, available for review upon the public's request. Chairman Wagner reviewed the list with the board. The trustees had no questions regarding the information, and the board General Employees Retirement Board February 6, 2013 Page 2 of 11 attorney said that there was no further action that needed to be taken on the matter when the chairman asked. NEW BUSINESS A. Quarterly Retiree Activity Report Pursuant to the auditor's instructions, Chairman Wagner directed the board trustees to review the activity report. Chairman Wagner further directed that the minutes will reflect the fact that report was reviewed, but the report itself will not be published within the minutes. The report will be filed and will be available for public review upon request as are all of the exhibits, Chairman Wagner declared. Further discussion ensued. No further action was needed regarding the report, the chairman stated, and Board Attorney Dehner confirmed. B. Annual Valuation Report — Mr. Doug Lozen, Foster & Foster, Actuary Mr. Lozen greeted the board. Before the meeting began, he handed out iPads for the trustees to use while he reviews with the board the actuarial report (Exhibit #4). The actuary expressed regret that the report could not be distributed sooner. Meeting the new actuarial standards makes it challenging to have the report ready earlier. He said that if he distributes the report on the day of the meeting, the report is a good report to give. Mr. Lozen explained the use of the iPad. Mr. Lozen also passed out a sheet of paper which showed the order in which he would be reviewing the report with the board. He told the board that he wanted to direct them to two places on the iPad. First, the City's contribution rate to the fund is expected to go down in 2014 if the actuarial report is approved today. Mr. Lozen said that the left-hand column is the plan's valuation as of Oct 1, 2011. The plan was modified in September and was passed by the city commission. By law the actuary is required to make an estimate of the impact by showing the changes in funding and plan liability which produced a relatively lower valuation. The approved changes to the fund yielded a reduction in benefits. The left-hand column is an update from the impact statement for the City's current funding. For current fiscal year, the City should be budgeting 22.53% of payroll which is lower than what was previously reported. Secondly, (in the right -hand column) is the estimate of the City's funding for the plan which is estimated to be 20.4% of payroll as of October 1, 2013. This contribution will make the City compliant with the State's requirements. General Employees Retirement Board February 6, 2013 Page 3 of 11 The primary source of the reduction in benefits is the fact that the employees got no pay increase for the previous year which means that projected benefits are lower since it was assumed that there would be pay increases. The four -year average is just above 8 %. The unfunded liability came down a lot more than expected. He solicited questions from the board at this point. Chairman Wagner introduced Mr. Bob Briggs from the finance department who was in the audience. The chairman then asked if what Mr. Lozen had reported thus far meant that the City could adjust the contribution in the current year budget. Mr. Lozen answered that the City can budget 22.53% for this year's budget if they have been putting in more than 22.5% this year so far. Further discussion ensued. Vice - Chairman Wheeler asked what the change in the contribution was. Mr. Lozen said that the City's contribution went from 22.91% to 22.53 %. He added that new hires will be cheaper than current employees due to the benefit reduction, thus they expect that the City's contribution will continue coming down over the years if they meet their assumptions going forward. Page 14 — Mr. Lozen said this is where the unfunded liability is reconciled. He gave the board the beginning and the ending amounts. Part of the City's funding is for things that happened in the past which includes changes in assumptions, actuarial gains and losses, and benefit changes. Part of the City's 20% of payroll (22% this year and 20% next year) includes a portion of liabilities from the past, in other words, debt. The faster the debt gets paid down, the more the City's contribution is reduced. The portion of the City's contribution attributable to debt is 9% of payroll. The debt got paid down faster than anticipated. Item 7 showed past debt was expected to go from $8.2M to $8.3M. In reality it went down below the $7 million dollar amount which brings the City's contribution requirement down faster than anticipated. The City beat its assumptions in total. This all has to do primarily with the fact that employees got no pay increases. Item 9 — The actuaries have to introduce a new mortality requirement into the plan as a matter of standards of practice. Right now the consensus is that life expectancy is increasing. This means that there is a greater chance that folks will draw a benefit and when they do, they will draw it for longer, so they must reflect funding for this — see item 9. What they are going to start doing is projecting mortality improvements to the valuation date. Every year they are going to slightly increase life expectancy as an assumption. They did it this year with this plan which reflects not quite 1% of payroll. The 20% (on the previous page) actually reflects the mortality assumption. In summary, not only is the City's contribution going down, there's more conservatism built into the plan with future life expectancy. If the assumption is wrong (in other words, life expectancy is no better than in the past), the City will get the gains back in the future (due to the additional 1%). If the life expectancy assumption is correct, then the calculation is exactly right, and the funding is dead on. General Employees Retirement Board February 6, 2013 Page 4 of 11 Trustee Gleason asked about the difference in male /female mortality. Mr. Lozen answered that the table they use still expects females to live longer than males by about two to three years. Mr. Lozen directed the board to the paper he distributed. The left -hand side shows the plan last year at this time and the right -hand column shows this year. Return of Market Value of Assets - last year the plan had a loss of 1 %, this year they have a 14% gain. Return of Actuarial Value of Assets (the four -year smoothed average) - Last year it was a loss of .2. This year it is a gain of 7.4 %. Four -Year Smoothed Asset Average (see the very bottom row) - If the plan gets an 8% this year, it will be reported that the four -year average is 8% next year. The year after that, it will drop to 7.1% which reflects the fact that the plan had a very good average in 2009 or '10. When that falls off, the rate drops to 7.1%. Then it jumps to 9.5% and 8% going forward. By and large the fund will be done with prior investment year's losses. Market Value of Assets — last year the amount was $19.3M; this year it is $22.8M, a $3.5M increase in hard dollars from one year to the next. Actuarial Value of Assets (4 -year smooth) — last year $20.1M, $20.4M this year, a $300,000.00 increase. These are actual hard dollars in the fund. The following two funded ratios are heavily scrutinized now, Mr. Lozen stated. FASB 35- (current funded ratio) - last year it was 92 %; this year it is 93.8 %. GASB 25- (long term funded ratio) - last year 70.3 %, this year 76.3 %. Mr. Lozen reported that proposed pension legislation has some reference to the long -term funded ratio being 80 %. The plan went from 70% to 76% in one year. At this rate the City should meet the proposed 80% requirement by next year this time. Average Increase in Pensionable Pay — last year's average salary increase was 3.1%; this year it is 0. It was assumed 6% for both years. Net Actuarial Gain/Loss — last year there was a $1.4M loss, this year there is a $1.9M gain. This year's gain more than offset last year's loss. Estimated City Contribution Requirement — This year 22.5 %; next FY 20.4 %. General Employees Retirement Board February 6, 2013 Page 5 of 11 Vice - Chairman Wheeler asked about changes to investment rate of returns, and what if the board chose to lower it from 8% to 7.5 %. Mr. Lozen answered that if that happened, the City's contribution might be about 23% of payroll. It would go up because the guess is that assets grow more slowly, but benefits do not. Chairman Wagner asked how Ocoee compares to other clients, Mr. Lozen answered that Ocoee compares favorably. The funding requirements reflect a 3% multiplier effect at age 60 at 20% of payroll. This is quite a bit above average, Mr. Lozen concluded. He continued that in about 12 years, after the unfunded liability is paid off, the City's contribution will be around 11%. Once the plan only contains new hires, he would not be surprised if the City's contribution is 5 to 7 %. He cautioned that this will take around 20 years to happen. This is how tier systems work — they build on future savings. Chairman Wagner asked about the GASB requirements and their reflection in the City's financial statements and the effect on the pension fund, if any. Mr. Lozen answered that the City will have to book the unfunded liability rather than report it as a footnote. He continued that his hunch is that a $7M unfunded liability is not that big of a deal for a city of Ocoee's size and financial health. Mayor Vandergrift asked to have the pension as a stand -alone fund whereby it would require no contribution from the City nor the employees; similar to the pension plan offered by AT &T. He asked to see a report describing how this could be done. The mayor went on to explain his position for how he'd like to see the plan in twenty years. He declared that he was one of those who spearheaded the creation of the pension board. Chairman Wagner said that all of the facts and figures reported will be on the pension funds website which he attributed to the stock market as well as employees' contributions. He added that he believes that all can feel comfortable with how well the fund is doing. He said that he did not fully understand what the mayor was asking for. The chairman said that the changes made recently will ultimately reduce the City's contribution to the plan. He continued that the plan is heading in the direction that the mayor described, and it is happening faster than they had expected. The mayor said that the plan could stand by itself without contribution from the City nor employees. He'd like to see the matter investigated. He asked if what he described was possible. Mr. Lozen answered that the only way this could happen is the City would have to earn on investments more than the assumptions. He said they could have a low assumption, but invest in a way to beat the assumption. Further discussion ensued. Mr. Lozen continued by adding that the only way to achieve what was suggested is to reduce future benefits. Further discussion ensued. The mayor said that one thing that could be done General Employees Retirement Board February 6, 2013 Page 6 of 11 would be to encourage employees to stay employed with the City longer. He said that he was looking forward to the board's report in front of the commission. Further discussion ensued. A motion having been made by Trustee Grafton, seconded by Vice - Chairman Wheeler, and that motion having passed unanimously, the board RESOLVED that the report from the actuary be accepted as presented. The board has accepted, based upon the recommendation of its consultant, that the rate of return shall be eight percent, and a motion having been made by Trustee Grafton, and seconded by Vice- Chairman Wheeler to accept that recommendation, and that motion having passed unanimously, the board RESOLVED to approve the rate of return to be eight percent. The chairman announced that the pension fund's files are now all electronic. Trustee Grafton said that a potential retiree said that they have no idea what his/her pension will be. Trustee Grafton said that she was under the impression that this was being done. She suggested that this be done. Chairman Wagner said that such information will vary based upon the employee's age and other factors. Further discussion ensued regarding this matter. The chairman said that to do this for all employees would be very expensive. He also added that estimates are giving to employees each year, and that no one had asked him for such information. Trustee Grafton answered that the estimates are wrong. Vice - Chairman Wheeler, who invited the HR director to join the conversation, said that the person should come in if they have questions. Chairman Wagner echoed the same sentiments. Trustee Grafton said that she understood that there was some software that employees could use which could be provided through Foster & Foster. The chairman responded that the board decided that it was not cost effective to provide the software given the small number of people that would use it. He continued by saying that the board has developed its own spreadsheets for the different variables. C. Performance Monitor Report — Timothy J. Nash, The Bogdahn Group Mr. Nash reported that the bulk of the plan's managers have been in such transition that there is not much to comment on from the investment standpoint. He said that there was a General Employees Retirement Board February 6, 2013 Page 7 of 11 benefit to the plan for timing of money moving around. He referred the board to page 2. International stocks had a big rally. The EAFE index was up 6.6 %, emerging markets were up 5.6 %, for the quarter, the S &P was actually negative, and the plan's managers were positive. Chairman Wagner asked why Barings' performance was so bad and should they be looking harder at them. Mr. Nash responded that while Bogdahn does not believe that the board should be looking to replace the manager, the money manager did have the worst quarter ever. There were three contributors to that: 1) they own a lot of goldmining stocks which comprises 7.5% of the portfolio and gold was down; 2) Japan's yen declined during the quarter, 19% of the portfolio is invested with Japan. Chairman Wagner asked why the board should keep the manager. Mr. Nash responded that the consultant doesn't fundamentally believe that there is anything wrong with Baring's research process: they haven't changed any of their staff, they've been money managing for 50 years, and the gold market will rebound, they believe. Barings is very concerned about overall global inflation, and the gold is a hedge against that. Chairman Wagner said that he was seeing shades of the same situation the plan had with ICC. He said that the money manager should be monitored very closely. Just to demonstrate to the board how high this matter is on the consultant's and the money manager's radar, Mr. Nash said that Bogdahn received a phone call from Barings before the information about the manager was even released. Barings talked to Bogdahn's research staff to tell them what was going to be coming. Bogdahn has reviewed the information and believes that Barings has determined what the problem is. Bogdahn believes that the problems will correct themselves. Mr. Nash acknowledged that the board is not seeking this type of volatility. He pointed out, however, that the plan handily beat its benchmark. The third item affecting Barings is that it did not have exposure to financials. Financials got clobbered last quarter, but rebounded this quarter. They were not in Barings' portfolio however. Further discussion ensued. Mr. Nash said if Bogdahn thought that there had been any change to Baring's process, or staff, they would have supported making a change. Vice - Chairman Wheeler asked if Barings told them what they would do to have a better quarter. Mr. Nash said that they said there is global inflation and they want gold as an inflation hedge. Bogdahn supports Barings' thesis. The only thing that Barings changed was the Egyptian gold company due to heightened political risk in the region. Page 12 — On far left hand side all the managers are listed which have been in the plan for the last 5 quarters. The plan got a good pop out of ICC before the money manager was General Employees Retirement Board February 6, 2013 Page 8of11 terminated. From September quarter to December quarter, '/2 the assets were removed in September and the rest in January. The plan has now completely moved out of ICC and Rockwood. GAMCO (the new value manager) and Brown (the new growth manager) are fully funded as of the end of December. American Realty at the end of September needed extra cash since as of October 2, 2012 the American Realty asked / pulled about $1M in capital to invest in the real estate fund. So from the September quarter there was $1.2 M in real estate. The plan now has $2,243,136 in the manager. As fantastic a job as the core bond manager has done, more than doubling the index, they just cannot do as good a job as the real estate manager. Page 13 — The transactions that moved the dollars can be seen. As of close of business yesterday, the fund has $24,084,695.00. Mr. Nash solicited questions. Chairman Wagner asked if Mr. Nash's report of the contributions of the City were more accurate than the City's report. Mr. Nash answered that all of the data comes from the plan's custodian, Fifth Third Bank. Bogdahn can change no dates, times, or money moving around. He continued that they use trade -day accounting. If Fifth Third posted the contribution within the quarter 9/30/2012 to 12/31/2012, it will be reported as such. The chairman asked how does that jive with what the actuary is going to do or Bogdahn or the State's requirements at the end of the fiscal year. He questioned what report should accurately reflect that all transactions are accounted for. Chairman Wagner recounted that several weeks ago, Ms. Zink was trying to pay for something and the custodian said they'd need to wait until there was available cash. This surprised the chairman. Mr. Nash says they tend to stay fully invested, but each money manager keeps 1 to 3% cash. There might not have been any case in the R & D account, the payment account, but they can certainly transfer cash. The managers have a standing letter about when to buy and when to sell, and they do not need to call Bogdahn as long as they do not cross the threshold in the letter. The board should not be getting such responses. He directed the chairman to contact Bogdahn if that happens again. The standing letter may still say Rockwood or ICC; hence,. Mr. Nash said he will have to draft a new letter. Page 14 — The fund was up 1.57 %; as of last night the fund was 4.8 %, more than half way there for the benchmark of 8 %. The benchmark was 1.08; net of fees the plan was 1.42, so the plan was ahead of its benchmark. The equity portfolio was the driver of returns along with real estate; it was up 2.3 %. ICC gave the plan almost 2 %. Domestic equities were in the top 28 %. Agincourt doubled the benchmark. Chairman Wagner noticed that fixed income made almost as much as all of the equity. Mr. Nash responded that core realty did fine as well. General Employees Retirement Board February 6, 2013 Page 9 of 11 Page 16 shows historic fiscal year numbers. Vice - Chairman Wheeler asked why the report does not contain October 2011 to September 2012 in the report. Mr. Nash said that it should have been in there. He will get the board an updated report. The compliance checklist is on page 35. He went over the list with the board. Further discussion ensued. Mr. Nash concluded that the portfolio is positioned as the board determined to position it at the end of February 2013. Mr. Nash listed his action items for the next board meeting: the cash request letter for Fifth Third Bank, update the report to include the December 31, 2012 missing fiscal year, the 8% letter and the IPS for the managers. D. Summary Plan Description Vice - Chairman Wheeler requested a copy of the changes to the Summary Plan Description. Chairman Wagner did not have it. Further discussion ensued. Trustee Grafton said that she thought the multiplier was changed from 3% to 2.5 %. Chairman Wagner said that it was changed to 2.25% for new employees. Vice - Chairman Wheeler reiterated that he would like to have a strike - through copy of the plan descripting reflecting the changes. The vice - chairman said not to expect him to make any motions or to vote for the plan description without the strike - through copy. The chairman said that he has gone over the changes several times and he thinks they have it right in the plan description. After additional discussion, the chairman concluded with the attorney that if changes are made to a board document, the board will see the changes / strike - throughs beforehand. A motion was made by Trustee Gleason, seconded by Trustee Godek, and that motion having carried by majority vote of 4 to I (with Vice - Chairman Wheeler dissenting), the board RESOLVED to accept the changes to the Summary Plan Description. Trustee Grafton notified the board of her new address. DISCUSSION ITEMS Florida Public Pension Trustees Association (FPPTA) — Upcoming events. Chairman Wagner directed the board's attention to the upcoming association events. The annual conference is in June. Trustee Grafton plans to attend. Further discussion ensued. Trustee Godek reported that he passed his first association test. General Employees Retirement Board February 6, 2013 Page l0 of 11 ATTORNEY COMMENTS Attorney Dehner reported that it is required for compliance purposes that internal revenue language be added to the plan's ordinance, and he is working on that. With respect to the State legislature, two bills are pending: SB 458 deals with firefighters and police officers regarding use of state money; the bill is sponsored by Senator Ring who has sponsored bills before; Senate Bill 534 has additional administrative filing requirements for plans. Chairman Wagner reported that they have not been able to track anything down about the check from Merrill Lynch. Attorney Dehner replied that no one has receive a check due to Hurricane Sandy interruption. Vice - Chairman Wheeler said that he heard that the Florida governor will start an action to change the Florida Retirement System (FRS) pension to a 401(k) plan. Further discussion ensued. Chairman Wagner told the board about a website that will track the legislation so that folks can follow the progress of the proposed pension - related bills. COMMENTS FROM TRUSTEES / CITY LIAISON Trustee Gleason, an FRS retiree, received a letter in the mail from AFCME saying that retirement benefits will be taken away, so retirees should join. Further discussion ensued AGENDA FOR NEXT MEETING Baring's Status COMMENTS FROM PUBLIC Bob Briggs commended the board. ADJOURNMENT There being no other business, the meeting was adjourned at 12:18 P.m. Respectfully submitted by: Approved by: General Employees Retirement Board February 6, 2013 Page 11 of 11 411 r tella McLeod, Municip. rdinator Russell B. Wagner, ERB Chairman GERB Recording Clerk