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HomeMy WebLinkAbout11-07-2012 Minutes Minutes of the Regular Meeting of the CITY OF OCOEE GENERAL EMPLOYEES' RETIREMENT TRUST FUND BOARD OF TRUSTEES (GERB) Held on November 7, 2012 At 150 N. Lakeshore Drive Ocoee, FL 34761 CALL TO ORDER — Chairman Wagner Chairman Russ Wagner called the meeting to order at 10:12 a.m. in the Commission Chambers at City Hall. A. Roll Call Chairman Wagner called the roll. Present were Chairman Russ Wagner, Trustees Grafton, Wheeler, and Godek. Chairman Wagner said that Trustee Gleason was on her way. The recording clerk declared that a quorum was present. Also present were Pension Board Attorney Lee Definer, Mr. Tim Nash of Bogdahn Consulting, LLC, Mr. Richard Cristini and Ms. Jeanine Bittinger, representing the pension plan's auditor Davidson, Jamieson and Cristini, Human Resources Director Gene Williford, 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 August 1, 2012 meeting (Exhibit #1). Trustee Grafton remarked that it was erroneously stated that annual attendance of the FPPTA conference alone was sufficient to meet certification requirements. In actuality, one must obtain 30 points in three years, 10 points each year. Attending only the conference in a year will not meet that requirement. The conference is worth only five points, while attending one of the three schools or the New York [Stock Exchange] trip is worth ten points each. The recording clerk agreed to make the correction to the minutes. A motion having been made by Trustee Grafton and seconded by Trustee Godek, that the minutes be approved with the correction, and that motion having carried unanimously, the board RESOLVED to approve the August 1, 2012 meeting minutes with the correction presented. (Trustee Gleason arrived @10:12 a.m.) General Employees Retirement Board November 7, 2012 Page 2 of 12 CONSENT AGENDA A. Invoices Ratification (Exhibit #2) B. Quarterly Report Review (Exhibit #3) C. Retiree List Review (Exhibit #4) The chairman pointed the board's attention to invoices as well as the quarterly report and the retiree list, all of which were included in the agenda packets for review prior to the meeting. A motion having been made by Trustee Wheeler, seconded by Trustee Grafton, to approve the consent agenda, and that motion having been approved unanimously by the board, the board RESOLVED to approve the consent agenda. NEW BUSINESS A. Nomination and Election of Board Officers The chairman announced the election of officers. Officers serve for two -year terms. Trustee Wheeler, seconded by Trustee Grafton, having moved to nominate Chairman Russ Wagner to continue as chairman, and the board, having unanimously approved the nomination, the board RESOLVED to approve Chairman Russ Wagner as the chairman of the board. Chairman Wagner, seconded by Trustee Grafton, having nominated Trustee Wheeler as vice chairman of the board, and the board having approved the nomination unanimously, the board RESOLVED to approve Trustee David Wheeler as the vice chairman of the board. Trustee Wheeler, seconded by Trustee Pat Gleason, having moved to nominate Trustee Jean Grafton to continue as secretary, and the board having approved the nomination unanimously, the board RESOLVED to approve Secretary Grafton as the secretary of the board. General Employees Retirement Board November 7, 2012 Page 3of12 B. Performance Monitor Report — Mr. Tim Nash of Bogdahn Consulting, LLC Mr. Nash greeted the board. There were good fiscal year -end results. He said that it is amazing what a difference one year makes in a rolling four -year average. The report is a good one, in general, with a 15% return. Mr. Nash will also bring the board up to date on the transition to the new money managers. The chairman asked where the money actually is right now. Mr. Nash answered said that the actual dollars still remain with the plan's custodian, Fifth Third Bank. They simply moved from one legal custodial account to another. A transition manager was used to sell the stocks at the best price, and bought the picks of the new manager in the most efficient manner, Mr. Nash explained. The transition manager is 100% independent. Rockwood was terminated and GAMCO (a value manager) and Brown (a growth manager.) were hired. Brown required that the fund have $4 million to open the account. When the funds were moved from Rockwood, there was about $8 million dollars there. A full $4 million of that money was moved to Brown, and $3.8 or .9 million to GAMCO. Over time, the GAMCO investment will be brought up to $4 million, Mr. Nash said. Both managers out - performed their respective benchmarks for the year. The pension plan's transition took place in mid - October which is why the managers do not appear in the current report, but the board is now fully invested in GAMCO and Brown. As part of the transition, half of the dollars from ICC were removed and given to GAMCO and Brown, Mr. Nash continued. This should reduce the volatility seen in the past. The pension plan now has a higher number of holdings. Rockwood had sixty holdings, where GAMCO has one hundred. Portfolios with more holdings tend to have less volatility over time, Mr. Nash explained. Chairman Wagner asked if the money was switched at an opportune time since it seems as though the market went down a bit in October. Mr. Nash explained that any time a transition is in progress, Bogdahn's goal is to have in place immediately the strategy that is right for the plan. This is particularly important if one is a taxable investor and there are tax consequences, Mr. Nash explained. He continued that ICC had been struggling, but they have a lot of mining stocks which are a hedge against inflation in the long term. Bogdahn would like to explore other options with the board, Mr. Nash added, perhaps at a special meeting with the board or at the next regular meeting. He thinks there might be lower volatility options that would meet the board's long term goals. Chairman Wagner said, looking at a scattergram further on in the report, ICC is still plummeting. After watching this trend for a year, the chairman said that he would like to see other options. Trustee Wheeler said that he would rather not wait until the next quarterly meeting, but would prefer a special meeting take place. Mr. Nash said that the ICC piece of the portfolio was to get the plan some higher octane returns. Bogdahn would probably want to replace it with small and mid -cap managers. General Employees Retirement Board November 7, 2012 Page 4 of 12 Those options will be presented for the board to review at a special meeting. Chairman Wagner asked when it could be done, Mr. Nash answered within the next thirty days. Trustee Wheeler suggested the first week in December. Mr. Nash said that they received information yesterday that ICC is in talks with another manager (Munder Capital) to be acquired by that manager. His recommendation to change from the multi -cap strategy had nothing to do with that development. Chairman Wagner said that it is clear to him that the reason the plan is below the benchmark is ICC. Mr. Nash concurred. The chairman continued that the money manager was off the benchmark by three percentage points. Mr. Nash agreed that this was significant. GERB Attorney Dehner commented on the ICC situation given that the matter emanated from a meeting he attended yesterday. Mr. Grant McMurray, the chief officer of the firm, informed Attorney Dehner about the matter prior to the meeting, and asked if the board should be informed. Attorney Dehner answered `absolutely'. Mr. McMurray said to Attorney Dehner that there is a 95% chance that the deal is going to go through by the end of the year. Mr. Nash said that given that due diligence has not been done yet by ICC or Munders, Bogdahn cannot make a recommendation to the board regarding the overall status of the firm. Mr. Nash began his presentation of the report. On page 2 — is a description of international activity. EAFA Index countries (developed countries such as France and Spain) were up by 14 points for the year. Emerging market countries did even better by being up by 17 points for the year. Both types of countries are in Ocoee's plan. The S &P was up 32 %. The Russell 2000 was up almost 32 percentage points. Bonds had another good year, surprisingly, and were up by 5.2 points. Corporate bonds were up 10.8 %. On page 11 — Bogdahn does an annual survey each year which is conducted by Survey Monkey. It asks clients to rate the Bogdahn firm. He encouraged the board to respond to the survey. Last year Bogdahn rated an overall 8 out of 10 points in terms of customer satisfaction. Trustee Grafton asked if this was something the chairman should handle. Mr. Nash replied that Bogdahn was randomly sending out the survey, but if trustees would like to respond, they certainly can. General Employees Retirement Board November 7, 2012 Page 5 of 12 On page 14 — The investment managers are listed. Real estate helped out a lot during the fiscal year. Total assets in the fund were $19.2 million at the end of last September. By the end of September 2012, the assets had grown to $22,837,256.00. Rockwood Capital was 22% of the portfolio which was sold, with 2.5 million dollars taken from ICC to fund GAMCO and Brown investments. Cash flows are shown at the bottom of the page. There was a significant amount of distributions in the plan. The plan's contributions were at $2.1 million. Distributions paid out totaled $1,237,292 for the year. Investment fees to money managers were about $103,000 for the year. Gains from interest from money market funds plus $2,235,000 (the value of the plan's stocks going up), totaled just shy of $2.9 million in gains for the fiscal year. On page 16, the $2.9 million gain is equal to a 14.9% rate of return for the year gross of fees; the rate of return is 14.3% net of fees (such as Bogdahn's fees). Trustee Wheeler asked what the `other expenses' were on page 15. Mr. Nash explained these are broad categories that would include fees paid to Bogdahn, the board's attorney fees, FPPTA fees, etc. The plan for the year was beyond the 8% target at 14.3% net of fees. On page 18, the plan is compared to other pension plans across the country of which there are 436. Some plans did better than Ocoee's plan, some did worse. Most plans did better than the 8 %. Over three years Ocoee has an 8.75% rate of return on average each year for the last three years which is ahead of the target of 8 %. Over five years, the plan has a 3.46 %. No plans approached 8 %. When that number is compared to other plans across the country, the plan is in the top 23` percentile. Chairman Wagner remarked that few people thought it was possible that the plan could have a rate of return in the double digits, yet the plan has proven them wrong. The chairman felt vindicated. Mr. Nash said that he feels the growth of the rate of the City's contribution to the plan should slow dramatically. The real estate fund was up 2.58 %; for the year the number would have been 13 %, almost double what bonds would have done. The yield to the fund by real estate is 6% for the year. Mr. Nash said that Federal Reserve Chairman Ben Bernanke is considering retiring; hence, there is likely to be a new Fed chairman in 2013. His likely successor is supportive of the bond market as is Mr. Bernanke, and this is good for Ocoee's plan. Chairman Wagner asked if the rolling scattergram chart was a new element of the report. Mr. Nash said they are a regular part of the report, and he went on to make additional remarks about the plotting of the chart. Ocoee is near the top of the pack, as represented by the chart. General Employees Retirement Board November 7, 2012 Page 6 of 12 The investment policy statement will need to be updated with the introduction of GAMCO and Brown. He will bring the matter to the special meeting in December. Chairman Wagner asked if there were questions. Trustee Wheeler asked about projections for the future. Mr. Nash said they are projecting that December will be a troublesome month. The uncertainty surrounding the Bush tax cuts are problematic. He continued by saying it will not be good if the matter is not resolved, and the country goes up to the edge of the fiscal cliff again. When that happened recently, the nation's credit rating was downgraded making interest rates higher. Mr. Nash summarized by saying that he believes the first quarter of this new fiscal year will be challenging. Chairman Wagner said that perhaps now that the election is out of the way, everyone will be pounding on the Congress to give them direction as to what they want done. Mr. Nash said that with the Congress in the lame duck session, there really is no down side to working out a plan. He added that the Aetna CEO said that he, like other CEOs, has to plan what to do in case they go over the fiscal cliff. Chairman Wagner thanked Mr. Nash for his report. C. Annual Audit Report — Richard Cristini and Jeanine Bittinger of Davidson, Jamieson and Cristini Chairman Wagner welcomed the auditors. Ms. Bittinger shared that her firm is a strong proponent of public pension plans. They are auditors for the FPPTA. Ms. Bittinger reviewed the audit report with the board. Page 1- shows the report letter which is an unqualified or `clean' opinion which is the highest report that can be given. Page 3 — shows the comparison between 2010 and 2011. Growth can be seen in the investments over the two years. Investments in 2011 amounted to $19,173,425 compared to $18,368,534 for the year 2010. The planned net assets held in trust for the pension benefits after payables in 2011 (in transit items) equaled $19,319,741 as compared to $18,645,514 for 2010. Page 4 — shows the statement of changes in planned net assets. The employer contribution has increased over the two years. Employee contributions have decreased slightly. There were some buybacks in the amount of $114,868. Net depreciation declined overall with $708,597 for 2011, whereas 2010 was stronger as demonstrated by an appreciation at $1,458,548. Everything else was pretty much comparable. General Employees Retirement Board November 7, 2012 Page 7 of 12 Deductions showed age in service retirements. The numbers for 2011 were higher than for 2010. There were more PLOPs disbursed at $125,758. DROP payments were $22,763.00. Refunds were $38,000 less than the prior year. Net increase (income) for 2011 was $671,227. The prior year's income was $2,906,000, significantly better than 2011. The difference was affected by the point in time and the investment income for the two years. Page 19 - towards the back of the report there is the list of investments for both years side - by -side. The report shows the cost and the fair values. When the board makes changes to the portfolio, the auditors always audit those changes. Mr. Cristini asked Mr. Nash if there was a separate custodial account established for the transition manager or was it done by the transition manager on a spreadsheet. Mr. Nash said he would have to check. Mr. Cristini said the auditors would need a copy of it in either case. He said as the auditor, while not a watchdog for the price of the sale, the auditor is responsible for verifying that 100 shares, for example, were not lost during the transition process. Page 20 shows that part of the $708,597 was just a point in time. The realized appreciation $756,652 was actually money that the plan made. The unrealized just happened to be a bad quarter. It was not a great quarter, the market declined, but there is a chance to recover. Page 21 — the board does hold the line with respect to its expenses. The percentage of net assets (the number by which expense control can be assessed) is way under 1% for each category which is outstanding - .6% for investment and .2% for administrative. Two percent is considered reasonable. Page 23 — DROP accounts held as of September 30, 2011 of $102,266. This money has been designated but not yet distributed. Page 24 - Schedule for funding process — the report is one year back. The funding ratio has gone up, but it is still in line with plans across the state. Page 25 gives history of the contributions from the City. The last three years have had much larger contributions. They started out at a slower rate. This is in line with other pensions in the state. Chairman Wagner asked if the format of the report was the same. Mr. Cristini answered that the report will be changing due to GASB finally passing of two standards, but for now it is like last year's report. There will be no more smoothing — only a pure market value will be reported. The board will end up with two sets of data - one for how the board runs the plan and the other which demonstrates that the board is meeting the GASB requirements. General Employees Retirement Board November 7, 2012 Page 8 of 12 Mr. Cristini added that his firm has spoken to the City's actuary, and the actuary is not happy with it. The actuary has not gotten very far in the conversion since they will be doing recalculations for every plan they have in order to meet the required standards. Chairman Wagner asked if smoothing will be allowed any longer. Mr. Cristini responded that the board can continue to do smoothing until the State Division of Retirement says otherwise. Chairman Wagner asked if eliminating smoothing would make the City's contribution rate more volatile. Mr. Cristini confirmed that it would do just that. Trustee Wheeler asked how this would protect the pension. Mr. Cristini said that there will be two sets of numbers for two different purposes. Further discussion ensued. Trustee Wheeler concluded that this will make the funding ratio look worse. Mr. Cristini agreed. The change happened because the people lending money to cities (banks) said that they did not understand the government -based fund balance reporting. Reporting this way will reduce the fund balance, yet not offer any additional clarity to the reader, Mr. Cristini concluded. Further discussion ensued. Trustee Wheeler asked if there were any additional changes the City should be preparing for. Mr. Cristini answered `No'. The City's balance sheet will be different, but not the balance sheet of the pension plan. The Management Memorandum — has gotten smaller due to the board's compliance. Minutes — the minutes look excellent. Ms. Bittinger asked that PLOP payments be entered into the minutes with approved amounts and payees' names as well. Rollovers into DROP must be included in the minutes as well. Summary of Invoices — Ms. Bittinger commended Ms. Zink and Chairman Wagner on the handling of board invoices. The auditors recommend that a `date paid column' be added so that auditors can trace payments back to Fifth Third Bank, the pension plan's custodian. Authorization — a letter of authorization should be dated as well as signed. Filing — Ms. Bittinger asked that files be maintained by fiscal year. Chairman Wagner stated that Ms. Zink has done a great job picking up the pension activities from Ms. Maher (the former pension tech). Trustee Grafton agreed. The chairman continued that they have office space in Finance where they will stay in the short term. The retirement records are secure and encrypted electronically. Discussions are still taking place about where the retirement office will ultimately be. General Employees Retirement Board November 7, 2012 Page 9 of 12 Auditor's Engagement Letter (Exhibit 5) Chairman Wagner said that this year the board paid the auditor $8700. The reason the fees will increase is because of the additional time necessary to comply with the new GASB regulations. Ms. Bittinger explained that they did try to smooth the additional cost over the three -year period. Trustee Wheeler asked about the cost for the audit last year. Ms. Bittinger explained that the timing of the invoices made the difference as to when the City was billed for the cost of the audit. Further discussion ensued. Chairman Wagner said that according to the board's attorney, it is essentially the same agreement as before. Attorney Dehner confirmed that this was true. Further discussion ensued. A motion having been made by Trustee Wheeler, seconded by Trustee Grafton, and that motion having passed unanimously, the board RESOLVED to approve the three -year contract with Davidson, Jamieson, and Cristini. D. Early Incentive Analysis by Foster & Foster Chairman Wagner referred to the report done by the City's actuary, Foster & Foster, which proposes certain incentive programs for employees that have a number of years of service in the pension program. The attorney has not evaluated everything yet that is in the report. Foster & Foster has looked at several different scenarios which have resulted in the report that has been placed before the board. While the ultimate selection of a program may be different from what is in the report, the chairman is letting the board know that the board is spending money on the investigation of implementing the program. Anything that is adopted, the City would have to pay for. Trustee Wheeler asked who is paying for the actuarial report, and did the board receive a proposal from the actuary to do the work. The chairman replied `no'. Trustee Wheeler said that it would have been nice to know ahead of time about the report rather than after the fact. Human Resources Director Williford said that the chairman was trying to accommodate the city manager. Trustee Wheeler said that he understood that, but the board could have gotten previous notification. Chairman Wagner acknowledged the validity of the comment but that as chairman, he has broad discretion on administrative matters. The chairman said that the matter will be back on the agenda for further review. Trustee Wheeler asked how many employees potentially would qualify for the program. Chairman Wagner answered that six or eight employees at the most would be affected. The chairman explained that there are employees who have been working for the City since they were very young. This can be a problem given that the retirement age under the plan is sixty. Some of those employees are quite a ways off from reaching that retirement age. The incentive program could be an option for those employees. HR Director Williford added that after reaching so many years of service, the retirement benefit to the employee is reduced General Employees Retirement Board November 7, 2012 Page l0 of 12 to the percentage of salary increases over time. The chairman said that he would bring up the matter to the city manager about paying for the actuarial work. Further discussion ensued regarding notification to the retirement board about such work. It was concluded that the board in the future would either have to call a meeting to disseminate the information or the board could authorize the chairman to make such agreement in the absence of the board. The chairman continued that many issues arise that the chairman has to make decisions about the day to day work of the plan. He thinks that the board needs to be responsive to the City as the sponsors of the plan. Chairman Wagner said that they had been talking about the incentive program for some time before any action was taken. He said that he will use his best judgment in deciding such matters in the future. There chairman discussed the requirements for acquiring and maintaining certification. Trustee Godek asked about the March event. Trustee Wheeler answered that the March event is the trip to the New York Stock Exchange. Further discussion ensued as to the schedule of training classes for the year. DISCUSSION ITEMS A. Florida Public Pension Trustees Association (FPPTA) — Upcoming events. January 27 is the next meeting. The chairman encouraged board members to let Ms. Zink know if they plan to attend. Chairman Wagner will be attending the school in January. Trustee Wheeler said that he will be attending the school in January, as will the chairman and Trustee Godek. Trustee Grafton said that she does not know yet whether or not she will be attending the school in January. Trustee Gleason just recently attended a school. The chairman asked what Trustee Gleason learned at the school. B. Summary Plan Description Attorney Dehner said that he usually prepares the changes to the Summary Plan Description. The last changes were approved by the board in February 2012. Typically, changes are made to the plan every two years. Attorney Dehner explained that current plan changes are significant enough that the board should proceed with updating the plan even though it has not been two years since the last update. ATTORNEY COMMENTS Attorney Dehner reported that there will be some bills to talk about at the next meeting with respect to legislation regarding pensions, particular as it relates to police and firefighter pensions. The chairman asked what kinds of legislation the board should anticipate. Not wanting to General Employees Retirement Board November 7, 2012 Page 11 of 12 speculate, Attorney Dehner reminded the board about legislation 1128 which dealt with lump - sum payment limits to overtime and legislation about having cities approve the funds' budget. The chairman asked about the court case regarding state employees' pension. Attorney Dehner replied that briefs have been filed with the state supreme court; everyone is awaiting the court's decision. The imposition of the 3% member contribution rate is being challenged. Since the FRS (Florida Retirement System) has not had a member contribution before, they do not have as strong a contract argument to make. One of the elements of a contract is consideration on both sides. In most police and firefighter pension there has always been an employee contribution; hence, those plans would have a stronger argument to make. Fortunately, retirees are protected better in Florida than in most states. There are some cities around the country, however, that have reduced benefits for retirees such as the elimination of the cost of living adjustment which took place in Colorado. He concluded that it is hard to speculate at this point what the state will do. Attorney Dehner addressed the quarterly meetings for 2013. He said that he responded to the board's email notice about the dates. The board's attorney stated for the record that the meetings scheduled for next year will be: February 6th, May 1st, July 31st, and November 6th. The meetings are scheduled for 10:00 a.m. There were no requests by anyone present at the meeting to alter the meeting dates for next year. COMMENTS FROM TRUSTEES / CITY LIAISON Trustee Gleason made notes about the October FPPTA school she attended. She brought back the disc that they were encouraged to share with the commissioners which will explain FPPTA's role and the learning opportunities they make available to trustees. There was a discussion about FPPTA's `Day on the Hill' to educate state elected officials about defined benefits plans and to introduce new educational information website which discusses legislative issues that might apply to pension issues. She signed a form that said the board would be interested in attending such an event. She did not commit the pension plan to anything. There were great topics to choose from. Participants were asked to select the courses they would like to see offered again. One of the courses was entitled The Economic Outlook of Global Markets. The European problems are much like those in the U.S., Dr. Jim Key said. Dr. Key predicted that if Obama wins, dividends will go up, and the reverse will happen if Romney wins. There was a good program about finding alpha. They were encouraged to ask the investment consultant (Bogdahn) about this. Dr. Key said there were only three managers out of 150 that were dedicated to finding alpha (she was unsure of whether he was speaking about Florida or the nation). Mr. Nash said that he would need to see the context of the remarks to understand the instructor's statements. General Employees Retirement Board November 7, 2012 Page 12 of 12 With respect to legal issues, Trustee Gleason continued, they said that there would be a ruling this in November or December this year. There was talk about FRS going from defined benefit to defined contribution; lots of ideas to increase reporting from local boards; suggestion that boards should submit budgets for approval to sponsors; they said that the cities would like to do away with boards of trustees and regain administration of pension plans themselves. In the investment class she learned that half the people in emerging countries are middle class; the two leading phone companies in the world are Apple and Samsung (a Korean company). In the real estate course, they said that real estate is the way to go now, even as much as putting 40% of a portfolio into real estate. They recommended a mix of 40% stock, 40% bonds and 20% real estate. The leadership program, led by Don Trone, Coast Guard Academy graduate with 25 years of experience developing standards of training programs for investment decision makers. It included fiduciary standards for investment committees. He was a part of the Coast Guard rescue effort after Katrina. The class was enthralled during the presentation. The class took a vote and said that everyone would like to have that sort of leadership training as a part of the FPPTA school. With that, Trustee Gleason concluded her report. The chairman thanked her for her report. Further discussion ensued about the FPPTA schools. AGENDA FOR NEXT MEETING Auditor's Report — Foster & Foster Early Incentive Analysis Consideration of Change in Money Managers COMMENTS FROM PUBLIC None. ADJOURNMENT There being no other business, the meeting was adjourned at 12:19 pm. Re: s ectfully submitted by: App o ed by: ( A ) Stella McLeod, Municip Re . . .rdinator Russell B. Wagner, G RB Chairman GERB Recording Clerk