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HomeMy WebLinkAbout01-29-2014 Minutes Minutes of the Regular Meeting of the CITY OF OCOEE GENERAL EMPLOYEES' RETIREMENT TRUST FUND BOARD OF TRUSTEES (GERB) Held on January 29, 2014 At 150 N. Lakeshore Drive Ocoee, FL 34761 CALL TO ORDER — Chairman Wagner Chairman Russ Wagner called the meeting to order at 10:00 a.m. in the Commission Chamber at City Hall, at 150 N. Lakeshore Drive, Ocoee, FL 34761. A. Roll Call Chairman Wagner directed the clerk to call the roll. In addition to the chairman, present were Vice - Chairman David Wheeler, Trustees Gleason, Godek and Grafton. The recording clerk declared that a quorum was present. Also present was Board Attorney Lee Dehner, Board Actuary Douglas Lozen of Foster & Foster, Mr. Tim Nash of Bogdahn Consulting, LLC, 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 regular meeting held on November 6, 2013 (Exhibit #1). Trustee Grafton asked that her name be added back to the 'present' section of the minutes. Although the trustee entered the meeting very shortly after the meeting began, she stated that for the purpose of establishing the record, her name should appear as one that was present at the meeting. Chairman Wagner agreed. The recording clerk will see to it that the change to the minutes is made. A motion having been made by Trustee Grafton, and seconded by Vice - Chairman Wheeler, and that motion having passed unanimously, the board RESOLVED to approve the November 6, 2013 minutes with the correction noted above. COMMENTS FROM PUBLIC None. General Employees Retirement Board January 29, 2014 Page 2 of 11 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. Trustee Grafton said that she noticed that the record shows that there were checks that paid for her school, but not for the chairman or the other trustee. Senior Administrative Assistant Zink explained that the other two board trustees preferred to put the expense on their credit card and submit receipts to the City for reimbursement. Trustee Wheeler said that the hotel could not figure out how to handle the City's tax exempt status. He added that this is why each member needs a copy of the City's tax exempt notice. A motion having been made by Trustee Grafton, and seconded by Vice - Chairman Wheeler, and that motion having passed unanimously, the board RESOLVED to approve the consent agenda. NEW BUSINESS A. Quarterly Retiree Report Chairman Wagner called the board's attention to the specific quarterly administrative actions taken on behalf of the pension members. Chairman Wagner stated that pursuant to direction from the auditors, the board must speak about activities since the last meeting. The chairman stated that former employee Elliott Yorke removed his contribution which was a fairly sizeable check. B. Actuarial Valuation Report — Mr. Douglas H., Lozen, EA, MAAA, Foster & Foster Chairman Wagner introduced the actuary, Mr. Douglas Lozen who would be giving the annual actuarial report. (Gene Williford arrived at 10:14 AM) Mr. Lozen directed the board's attention to the written report that he drafted. He was pleased to present good news on all fronts. He hopes that the good news will continue for several more years. Page 5 - Summary of Recommendations: a reduction in City's funding requirement for the plan. This is because the City has beaten nearly all of its assumptions: the four -year • General Employees Retirement Board January 29, 2014 Page 3 of 11 investment average is above the long -term assumption of 8 %, members continue to get low salary increases (for at least 3 years now, pay increases have been below the projected 6 %); there has been high member turnover which is a savings to the plan because they will not be taking retirement; and new members coming into the plan are cheaper than old members because the plan is now a tiered one with higher contributions, longer vesting time, etc.). All of the cylinders are firing to make the plan less expensive to the City going forward. If the 2013 valuation is approved today, the City's funding will drop to 18.9% beginning October 2014. Here is why this is recommended: Page 13 (which will show improvement to the funding status of plan) This is where the unfunded liability was reconciled. The year started with debt (unfunded liability) at $7M. Debt was expected to go down to $6.6M. Given that the plan beat assumptions, however, there was a credit (number 8 - $844,000) for the fund's favorable experience, which brought debt down to $5.8M [$6.6M - $844,0001. The net unfunded liability started out at $7M, but is now $5.8M, Mr. Lozen summarized. Page 14 Mr. Lozen pointed out the Breakdown of Experience (a new page that will be included in the report from now on). He directed the trustees to look at the bottom of the page. It was labeled Increase in UAAL Due to Gain/Loss. He pointed to the $844,000 - the amount by which the plan beat the assumptions. The biggest piece of gains were the salary increases which were lower than projected, 2.6% rather than 6% pay increases. Measured actuarially, it is a credit of about $533,000. The other largest piece was the investment return. On a four -year average, the plan beat the 8% assumption (the plan achieved 9.1% for the fiscal year). On an actuarial basis, the plan got a $262,000 investment credit. Mr. Lozen expressed belief that going forward, the plan will continue to earn additional investment gains. If the plan gets its 8% for the next three years, the four -year average will remain above 8% for the next three years. Other credits Active Decrements (turnover) resulted because more members left the plan than projected (which is a positive for the plan). There was lower than expected mortality for the plan. There was also the `other component,' called actuarial noise which amounted to $23,000. Adding all of the gains together equals $844,000. Vice - Chairman Wheeler said he liked the fact that Mr. Lozen said that employees got a 2.6% increase in payroll, while in reality they got a 1% increase for six months. Mr. Lozen said that they also included promotions, which are pensionable, in the calculation. Mr. Lozen directed the board's attention to the Trust Fund Section - page 20. This is where they came up with the 9.1% that was used for the actuarial assets. It was the four years for General Employees Retirement Board January 29, 2014 Page 4 of 11 '10, 11, 12 and 13. Excluding `11, the other 3 years were double -digit positive. It was assumed 8% for each of those years. Next year the calculation will lose an 11.6 %. If it is replaced with an 8, the four year average will still be about 8.2% because years 12 and 13 were so good. The following year, when the -1 drops off, the four -year average will be over 10% if the fund just achieves 8% for the next two years. When the 14% of fiscal year `12 drops off, if it is replaced with an 8 %, the four -year average will be 9 %. If the fund can achieve 8, it will experience investment gains. Update on the funded ratio: the plan has now exceeded 80 %; it is at 81%. This is the last time this section will be seen pursuant to the new GASB requirements ( #67 and #68). Mr. Lozen explained how new reporting requirements will change how the unfunded liability is reported. There will components transferred onto the City's explicit financial statements as opposed to the current footnote in the CAFR. When GASB 68 comes out, there is going to be a completely different way of reporting the unfunded liability. It will show on the City's financial statements. Mr. Lozen's hope, he said, is that in two years the unfunded liability will be well under $5M. Longer Term Cost to the Plan - Page 10. The board actuary directed the trustees to go to the Normal Cost and see the decrease from 17.9 to 17.4 %. The normal cost is the percentage of pay that the City needs to put in as members accrue benefits. Last year it was 17.9% of members' pay. It has now dropped to 17.38 %. When the entire membership is replaced, and there are all 62 members with the 2.25% multiplier, that 17% will be more like 13% to 14 %. That is a built -in savings of about 4% of payroll long term. See down two rows to unfunded liability: it goes from 9% to just over 8% when all current members are replaced. Eventually the City's cost to the plan will be 8% once all of the current members of the plan have been replaced. Chairman Wagner said it was gratifying to know that the cost will go below where it was when he was looking at it prior to the Great Recession. Over time it will not cost the City any more money to stay in its defined benefit plan than it does a private employer to contribute to the 401K plan. This is a good thing for the commission to know about. Mr. Lozen said that he would like to see it become more common to see senior management become part of the plan. This will make them great defenders of the plan. Trustee Gleason recalled that turnover was a huge negative when she was working. She wanted to know how it was a negative based on what had been discussed previously. HR Director Williford answered that for the pension plan, it is a plus because it is less of a liability for the pension plan despite how it affects the City from an HR perspective. " • General Employees Retirement Board January 29, 2014 Page 5of11 Mr. Nash said that he saw a report that said that the average cost associated with replacing employees was $23,800. Further discussion ensued. Vice- Chairman Wheeler said that it will be interesting to see what the State has to say about the actuarial report considering the unfavorable rating the plan got last year. Mr. Lozen said that the State is claiming that the 8% assumption is not reasonable. He continued that he has reviewed Ocoee's plan, and it has become clear that a full -blown experience study has not been done in quite some time, if ever. He said that he would like the trustees to consider authorizing Foster & Foster to do an experience study for the plan before the 2014 evaluation. In May or August, he would be able to present to the board a history of its plan with experience versus assumptions for each category, e.g., investment returns, salaries, turnovers, and so on, then review the plan to decide if any tweeks should be made to assumptions going forward that could be implemented with the next report. Mr. Lozen said that he does not believe that the plan has had such a study and he thinks it is time that one was done. Chairman Wagner asked if Mr. Lozen had any idea of what the board could expect with respect to cost? Mr. Lozen answered that it would not exceed $7500. Trustee Gleason asked how this would benefit the pension fund. Mr. Lozen answered that, actuarially, it benefits the plan because the trustees need to pick assumptions that are best estimates of future experience. The actuary would particularly target assumptions that seem to have skewed away from reality based on the fund's history. The actuary would tweek those assumptions to bring them in line. Chairman Wagner commented that he remembered that this has come up before; it might be beneficial to do this [have the experience study done] during good times. Mr. Lozen answered that there is really no better time than any other time. The study could be done now or later. The State, however, is becoming more and more critical of the 8% assumption. Trustee Gleason asked what the State looks at as an acceptable number. Mr. Lozen answered that the State will not say. He continued that as long as the plan's funded ratios are good, and the plan looks very good, 8% is fine for Ocoee's plan. Chairman Wagner asked if that was the case, then why the study needed to be done. Mr. Lozen answered that the board is not necessarily obligated to do the study. The actuary just needs to get an idea if he is off in certain areas. When the assumptions are adjusted for (like for turnover, lower salary increases, etc.), the plan is truer to reality. The data received from the study will be for discussion purposes only; not for the actuary to tell the board that it has to adopt changes. General Employees Retirement Board January 29, 2014 Page 6 of 11 Chairman Wagner said that he thinks this would bring the board back to reality. Further discussion ensued regarding whether or not to do the study. A motion having been made by Trustee Grafton, and seconded by Trustee Godek, and that motion having passed unanimously, the board RESOLVED to have the experience study performed for a cost not to exceed $7,500. Vice - Chairman Wheeler asked how long it will take to do the study. Mr. Lozen answered that they should plan on having it by the next regular meeting. Chairman Wagner asked about page 29. He spoke of changes made to the pension program, particularly changes to the DROP program. He said that they dropped the 12 -month requirement for eligibility. If one goes on at age 61, one will get a reduced number of months in the program. Mr. Lozen said that he would make that adjustment. Chairman Wagner said that for every one who enters into DROP, it is 3% compounded; they no longer have a choice. If the actuary could make that change, and get it back to chairman so that the chairman could have it when he makes a presentation to the city manager, that would be great. Chairman Wagner asked if anyone had any questions regarding the report. Board Attorney Dehner advised that the board could move to accept the report with changes. A motion having been made by Trustee Godek, and seconded by Trustee Gleason to accept the amended report, and that motion having passed unanimously, the board RESOLVED to accept the actuarial report as amended. Vice - Chairman Wheeler asked if next year the board could receive the report more than two days prior to the meeting. Mr. Lozen replied that he would try; however, three things prevented him: 1) most of Foster & Foster's clients are going through audits and they want reports at the same time; 2) reports are getting more complex; 3) (did not list the third thing that prevented a more timely report. Chairman Wagner asked the actuary if he had the `green sheets'. Mr. Lozen said that he did have them. The green sheets show each employee an estimation of what their retirement would be if they retired today or waited till later. Chairman Wagner said that the sheets are sent to each employee in an addressed envelope. This is an important way for the board to connect to the folks the board serves. Trusted Grafton said that it was important that it was noted that this was an estimate. Mr. Lozen noted that there is a statement to that affect in bold on the sheet. Chairman General Employees Retirement Board January 29, 2014 Page 7 of 11 Wagner said that he usually includes a sheet with the green sheet telling employees what the board is doing for their pension. Chairman Wagner asked, regarding the letter from the State, if there was anything the board needed to do with that letter. Mr. Lozen answered that as long as the plan is accepted by the State, "that's what you've got." The chairman continued that the letter had alluded that there needed to be changes made. Vice - Chairman Wheeler noted that the State recommended that the board lower the rate of return. Board Attorney Dehner said that the letter has gone out to all the plans in Florida, and that he recommended that the board file this report, and see if they get anything back. Trustee Wheeler said it would be good if they'd tell how they arrived at their numbers. Mr. Lozen answered that the good news is that they look at plans no more frequently than once every three years. Chairman Wagner asked about the extra actuarial report that ends at June 30th. Board Attorney Dehner said that he thinks the chairman is referring to SB 534 from last year. The report is not due until October 2014. There are a couple of things that may happen, the board attorney stated, and hopefully they will. One of those is there has been a lot of talk about there being a judicial challenge which may succeed. Also, there may be some bills directed at undoing SB 534 at the session (March & April). At this point the board does not have to do anything, the attorney said, and what the bill does is impose additional filing requirements that basically result as an unfunded mandate. He recommended that the board wait to see what happens during this session. The attorney asked the actuary if he agreed. Mr. Lozen agreed. Chairman Wagner said that the State requested an additional actuary report with lower assumption rates which would have meant the board would have had to pay for an additional audit. Board Attorney Dehner said that the State wants to use the information to further argue against defined benefit plans. The chairman agreed. There being no further questions, a motion having been made by Trustee Grafton, and seconded by Trustee Godek, that based upon the recommendation of the boards consultant (the investment consultant Bogdahn), the board has determined that the total expected annual rate of return for the current year, the next several years, and the years thereafter will be 8 %, and the motion having passed unanimously, the board RESOLVED to accept the annual rate of return at 8 percent. General Employees Retirement Board January 29, 2014 Page 8 of 11 The board attorney said the annual rate of return statement shall be sent to the State of Florida, the City of Ocoee and the plan's actuary, Foster & Foster. Mr. Tim Nash will supply that letter. C. Performance Monitor Report — Timothy J. Nash, The Bogdahn Group Mr. Nash presented his report. The plan's money managers were fairly strong in US markets. The S &P 500 was in the low double digits. That is pretty strong. Chairman Wagner asked what about today with the index going backwards. They said that tapering would end. He asked if that was the normal fluctuation; and if the consultant saw a trend there. Mr. Nash responded that Bogdahn does not see a trend. It is highly likely that their (S &P 500's) bond - buying program will slow down again. There will be no changes to short-term interest rates. They are just buying less of the mortgage- backed bonds and treasury bonds. The plus side is that there's concern, but they are only going to do that if they believe that the economic metrics for the economy are much stronger. If the economic fundamentals are stronger, then a company is going to do better; hopefully, improvement will be seen in the unemployment rate. The concern is that if they pull the plug on the current strategy, that will affect interest rates. Buying mortgage- backed bonds helps keep interest rates artificially low. The concern is if the program is slowed down, interest rates will go up and housing sales will slow along with construction. Mr. Nash said that the plan's numbers look good and there is the opportunity to lower investment fees without making changes to the portfolio. Page 2 Upper right -hand corner: international equities (EAFE index) were up just shy of 6% for the quarter. Despite the fact that the board terminated Barings in the first two weeks of January, the money manager did give the plan a parting gift by being almost 200 basis points ahead of the benchmark. International equities and Barings also did well. S &P 500 was up by 10, and Managers across the board, GAMCO and Brown, were very close to their benchmarks. Small and midcap managers outperformed for the quarter as well. On the bond side, the plan's money managers did extremely well despite the miserable bond market. On page 8, the junk bonds did the best. Even the triple A bonds were down '/2 a percent for the quarter as well as US Treasury bonds and mortgage bonds. Both of Ocoee's money managers were positive with Templeton up 2.7% and Agincourt up by 25 basis points. Page 13 Investment Program There were many changes made to the program over the last year and a half. Rockwood and ICC were terminated. Added were dedicated growth and value managers, Brown and General Employees Retirement Board January 29, 2014 Page 9 of 11 GAMCO respectively. Also dedicated small and midcap stocks were added to lower costs and add some alpha. As of last December there was $23.3M in the plan, and as of the end of December there was $28.6M. These are very strong gains for the year. Page 14 shows quarterly cash flows. Appreciation was $178,000 in income, $1.3M in value of stocks & bonds going up. At one quarter investment gains equaled $1.5M. As a percentage it is a 5.66% rate of return as shown on page 16. The index was 5.5 %. Net of fees the plan had a 5.53% rate of return. This is good, solid performance. The other public funds were in the middle of the pack for the quarter. The low for the plans in the sample was 4.25% and the high was about 7 %. Various managers had very strong performance. Brown is the only manager a little behind its benchmark. Longer term, however, Brown has done a very nice job. Barings was up 6.98, well above its benchmark. Dodge & Cox was up 7.8 %. Longer term, for the one -year term, Barings was up 15.89% and Dodge & Cox was up 26.3% and the fees were lowered. Agincourt and Templeton did a nice job for the plan by beating their benchmarks. American Realty was up 2.5 %. Chairman Wagner remarked that this is what the board wanted for the plan — to make money. Templeton has opened a lower share class that is just open to institutions and the fee is going to drop to 50 basis points, saving Ocoee 11 basis points equaling $1500 per year. Mr. Nash will draw up the paperwork for the board chairman to sign if the trustees agree. There's no cost to do that. A motion having been made by Vice- Chairman Wheeler, and seconded by Trustee Grafton, to move from the current Templeton global bond share class which is TGBAX to the new lower fee share class FBNRX which is 54 basis points per year rather than 65, and that motion having passed unanimously, the board RESOLVED to move to the lower fee share class of Templeton (FBNRX). On page 20 is the 4 -year smooth. The target was 8.5 %, but on average the plan achieved 10.2 %, a great return. DISCUSSION ITEMS A. FPPTA Events Schedule Chairman Wagner said that the FPPTA School will begin this Sunday afternoon. Chairman Wagner confirmed with Trustee Gleason that she will not be attending. Trustee Godek asked why had to pay more the last time he attended. Senior Administrative Assistant Zink replied that his costs included a one -time fee. Chairman Wagner asked about a couple of items on the agenda regarding DROP plans. He asked if anyone was aware of any changes. He asked the board attorney if he knew of any changes. General Employees Retirement Board January 29, 2014 Page 10 of 11 The board attorney answered affirmatively, that he was aware of a change. One of the IRS requirements is that a plan has to have a determinable benefit, and on some plans that have applied for favorable determinations, plans that have what Ocoee's plan used to have which is choice between plan earnings and a fixed interest rate, the IRS has taken the position that for some plans that does not meet that test, but for other plans, it does. The bottom line is that the IRS is not consistent in the position that they've taken, the attorney concluded. Chairman Wagner asked if there had been any actual changes to the law; if there was anything the board needed to do. The board attorney replied that there was nothing the board needed to do at this point. Chairman Wagner asked if there was anything happening yet with the State. Board Attorney Dehner answered that there was nothing to do yet, but he will keep the board apprised of any changes. Chairman Wagner added that the general employees plan only has three people on DROP. Board Attorney Dehner summarized that the bottom line is that way, Ocoee's general employee's DROP is in good shape. ATTORNEY COMMENTS Board Attorney Dehner, having discussed his list of information for the board earlier in the meeting, reminded the board trustees to turn in their financial disclosure forms in a timely fashion. COMMENTS FROM TRUSTEES / CITY LIAISON HR Director Williford complemented the board on the great progress the plan was making. AGENDA FOR NEXT MEETING Bogdahn & Bogdahn (Tim Nash) Foster & Foster General Employees Retirement Board January 29, 2014 Page 11 of 11 ADJOURNMENT There being no other business, the meeting was adjourned at 11:29 a.m. es)ectfully submitt d by: Ap o ed by: /1 j I I (4, L., A N 11a McLeod, Municipal R-c. oordinator Russell B. Wagner, GE' B Chairman GERB Recording Clerk