Loading...
HomeMy WebLinkAboutDocumentation_Pension General_Tab 02_02/02/2009SYNOPSIS OF JOINT MEETING OF PUBLIC SAFETY OFFICERS PENSION BOARD; GENERAL EMPLOYEES PENSION BOARD, AND VILLAGE MANAGER ON 12/10/08: Village Manager Couzzo presented the Village Council's concern regarding long-term viability of the plan and request that the Boards authorize an impact study by the actuary to look at different forecast models. 2. The Manager advised that the actuary was ready to proceed; the cost would be $7,000 for each plan. 3. Manager Couzzo suggested doing one study for the Public Safety Officers' plan and correlating some of the assumptions to apply to the General Employees' plan so that both boards would not need to spend $7,000. 4. Manager Couzzo suggested both boards meet with Mr. Palmquist to discuss six items: • Plan Assumptions vs. Actual Returns • Mortality tables Utilized for Actuarial Reports vs. Current Trends • Future Plan Contributions Based on Market Conditions and Economic Trends • Actuarial Considerations of all Income Affecting Pension Payouts and Liabilities • Revising Actuarial Assumptions Based Upon Modified Forecasts and Models 5. The Manager indicated Mr. Palmquist could run 2-3 scenarios -changing the assumption on returns from 8% and using current mortality tables. He also needed to look at where people fit into the plan as far as retirement time frames. 6. Another item that could be looked at was whether to stay with a defined benefit plan or go to a defined contribution plan, and the Boards should make a recommendation to the Village Council on that. The Boards felt they could provide input but it was a Village Council decision, and HR should advise the impact on recruitment and retention. 7. Manager Couzzo advised staff could compare with other plans of similar size in this geographic area. He would also provide data to the boards received by Chief Weinand and Chief McCollom at a recent pension conference. SYNOPSIS OF JOINT MEETING OF PUBLIC SAFETY OFFICERS PENSION BOARD; GENERAL EMPLOYEES PENSION BOARD, AND VILLAGE MANAGER ON 12/10!08: 2 8. The Village's contribution was discussed. The Village's goal was to have a viable pension plan for the employees. 9. Board Member Mangum indicated he would like Mr. Palmquist to use a 2% assumption in 2008, 3% in 2009, and continue up to come up with an assumption number, also come up with an optimistic level and a pessimistic level. 10. There was discussion on the market and how long it would take to make up losses. 11. When discussing asset smoothing, the Boards indicated they felt this was a Council decision. 12. The Boards decided to meet with Mr. Palmquist on the date of their quarterly meetings on February 2 at 10 a.m. The Public Safety Officers' Board would meet at 8 a.m., the joint meeting with Mr. Palmquist would be at 10 a.m., and the General Employees' Board would meet following the joint meeting. 13 The Boards wanted to get Mr. Palmquist's thoughts based on what other plans were doing. END OF SYNOPSIS JOINT TEQUESTA PENSION BOARD OF TRUSTEES MEETING GENERAL EMPLOYEES PENSION TRUST FUND TEQUESTA PUBLIC SAFETY OFFICERS PENSIONTRUST FUND WITH THE VILLAGE MANAGER MINUTES December 10, 2008 I. Call To Order And Roll Call A joint meeting of the Tequesta General Employees' Pension Trust Fund Board of Trustees and the Tequesta Public Safety Officers' Pension Trust Fund Board of Trustees was held with the Village Manager at the Tequesta Village Hall, 345 Tequesta Drive, Tequesta, Florida, on Wednesday, December 10, 2008. The meeting was called to order at 8:00 a.m.. A roll call was taken by Betty Laur, Recording Secretary. In attendance at the meeting were: Village Manager Michael R. Couzzo, Jr.; General Employees' Pension Board Members: Chair Michael Rhodes, Secretary Carl Hansen, Board Member Archie C. Mangum, Jr., Board Member Deanna Mayo, who arrived at 8:03 a.m., and Board Member Michelle Gload. Public Safety Officers' Pension Board Members: Chair Ed Sabin, Secretary David Cooper, and Board Member Ray Giblin. Board Members absent were Ken Nielson and Robert Young. Also in attendance were Pension Coordinator Lori McWilliams, Senior Accountant Monica Rahim, Finance Director JoAnn Forsythe representing Village Management, who arrived at 8:03 a.m., and Department Heads. II. Approval of Agenda MOTION: Board Member Giblin made a motion to approve the agenda. Secretary Cooper seconded, motion carried by unanimous vote. III. Discussion by Village Manager on Council direction to Pension Boards to authorize an impact study of the following conditions and their financial ramifications (short and long term): • Plan Assumptions vs. Actual Returns • Mortality tables Utilized for Actuarial Reports vs. Current Trends • Future Plan Contributions Based on Market Conditions and Economic Trends • Actuarial Considerations of all Income Affecting Pension Payouts and Liabilities • Revising Actuarial Assumptions Based Upon Modified Forecasts and Models Joint Meeting Minutes of Board of Trustees of Public Safety Officers' Pension Trust Fund and General Employees' Pension Trust Fund December 10, 2008 2 Village Manager Couzzo reported the Village Council had discussed the implications of the stock market and the potential long-term implications of returns on the pension investments, and their concern regarding the pension plans' annualized return of 8% based on mortality tables that went back to the 1970's. Manager Couzzo advised if the market did not recover quickly there would be implications to the Village to make up the shortfall, which could be significant, and the Village Council would like the pension boards to authorize various forecasts based on different types of assumptions, to be done by the actuary. The actuary had proposed to provide this forecasting at a cost of $7,000 for each fund. General Employees' Pension Board Chair Rhodes reported on their last investment report the return had been -10.1 %; the Public Safety Officers' investment return had been similar. The Manager advised those were significant figures, and they included all contributions made by the Village and the employees, making the loss greater than it appeared on the surface. The goal was to protect and preserve the capital so there was an opportunity for employees to have a pension. That was also the Village's financial goal, and they were looking for the first time to invest in certificates of deposit that were 100% guaranteed and other types of investments, moving their money out of the State fund because it was not guaranteed. Manager Couzzo commented that hopefully, the pension boards would engage the actuary to look at different forecast models to determine the most reasonable assumptions; an assumption of 8% return and outdated mortality tables were not the assumptions he would use, and it was expected the Village would have to make up the shortfall very soon. The actuarial firm had invested heavily in new software to allow them to plug in different criteria to come up with various forecasts. The Village Council relied on the pension boards to advise them the best direction to take that would be in the best interests of the employees in the plans as well as the Village's interests in meeting those needs. Chair Sabin commented what would come out of this was some credible information regarding the impact of the present rate of return-the Village's contribution might have to double to make up the shortfall. The pension boards would have comments on the actuarial forecasts, but the Village Council would make the decisions on what to do next. Manager Couzzo agreed, and commented it was unrealistic to keep going forward assuming there would be no impact. Broward County pensions were 2.1 billion under funded; Broward School system was asking the government for $500 million to bail them out of their debts. The Village was trying to preserve the integrity of the funds so that pensions would be there for the employees; many plans were not going to make it. Secretary Hansen asked if doing nothing was not an option, which the Manager confirmed. Manager Couzzo advised his philosophy was to be proactive; if the market got better that was great, but that was not what was expected. Chair Rhodes commented that due to the current economic times, he believed that from a fiduciary standpoint the study should be done, and pointed Joint Meeting Minutes of Board of Trustees of Public Safety Officers' Pension Trust Fund and General Employees' Pension Trust Fund December 10, 2008 3 out that if the actuarial assumption went down it would cause an automatic increase to the funding requirement of the Village. Chair Rhodes noted the last actuarial evaluation report for the General Employees' fund had been done in October 2007, and looking at October 2008 one could see approximately a 40% increase in the annual funding requirement. Manager Couzzo commented it was an advantage tong-term that this was a young plan with not many people retiring soon. It was noted that the 8% assumption had held true historically; Manager Couzzo explained that the plans worked by the employees making a contribution of 5%, the market did what it did, and the Village provided the difference to make the plans actuarially sound. From the 1930's to today, returns had averaged roughly 9-1/2-10%, so an 8% assumption was conservative based on that criteria. Now, in the course of a year the market had dropped 40%, and he was trying to get ahead of the curve so that the Village would not have to make up $1 or $2 million in the plans. Coral Gables, with a police force of about 225, had a $25 million contribution annually, and he did not know how they could make it. Manager Couzzo commented he felt the Village's pensions were in good shape but now was the time to get proactive and not use 36-year-old mortality tables, and 8% was probably aggressive at this point. The Manager advised that he, Finance Director Forsythe, and the Mayor had met with Mr. Palmquist, and he was ready to proceed; the Village Council wanted the boards to look at engaging him. The Manager suggested doing one study for the Public Safety Officers' plan, taking some of the assumptions from that study to draw correlations to apply to the General Employees' plan, so that both boards would not need to spend $7,000. Village Manager Couzzo suggested the boards meet with Mr. Palmquist to discuss the six items the Manager had listed on the agenda. Mr. Palmquist would run 2-3 scenarios, one of which would be to change the assumption on the returns from 8% to 6%; change the mortality tables from 1972 to current. That would do nothing to help the employees-they would still pay 5%, but it would be significant to the Village. Fortunately, the Village was in a very strong financial position; they might want to look at possibly using $1 million of the reserves to set aside as a hedge against future costs of returns not being what had been expected. He believed the Village Council would like the reports in six months, then they would review the options presented. Maybe they would want the assumption to be 4% but the cost of that might be so high they would want to look at 6%. Mr. Palmquist also needed to look at where people fit into the plan as far as retirement time frames, to catch up. The meeting with Mr. Palmquist could be done at the next quarterly meeting date on February 2, 2009. Chair Rhodes commented it would be good to compare other plans to the Village's plans that had the same size funds. The Village Manager commented another thing that could be looked at was whether to go from a defined benefit plan to a defined contribution plan, and he Joint Meeting Minutes of Board of Trustees of Public Safety Officers' Pension Trust Fund and General Employees' Pension Trust Fund December 10, 2008 4 thought the Council would look for a recommendation from the boards on that. Current employees would have their defined benefit plan but a decision could be made whether to continue that for future employees. Chair Sabin expressed his opinion that the boards could provide comments regarding pros and cons, but as far as giving an opinion whether to go with a defined contribution plan, that was the Village Council's decision. Manager Couzzo responded it was up to the boards to be the pension experts and the advisors to Village Council, but they would have to make a decision. He felt it was not an issue for the General Employees, but it became a much different issue as far as attracting and retaining public safety employees with a history of having a defined benefit plan; not to have that defined benefit plan would create issues for the Village, but there was the question of whether a defined benefit could continue to be sustained in today's market. The Village Manager explained these plans were never designed for an employee to work 20 years retire with 80% and then live another 50 years, and the plans could not sustain that. They were meant to provide income in retirement to allow the retirees to live comfortably-not as had happened to some people who retired and got 100% of their salary with a COLA every year. Chair Sabin asked about comparing with other plans of similar size in this geographic area; Manager Couzzo advised that staff could do that, and he wanted to avail the board members of data received by Chief Weinand and Chief McCollom at a recent public safety pension conference and data that Human Resources had. His staff was going to get more involved in looking at this from the Village's standpoint because the cost was significant. The Village's contribution was discussed. The Village Manager commented he wanted to come up with a number to assure the plans' viability in the future. Six months ago the State had $120 billion in their plan, now it was down to about $90 billion. Their shortfall to be made up was huge at 25%. That plan was different than the Village's-the State plan was fully funded by the employees. Village Manager Couzzo advised he had suggested to the Village Council to hedge some of the reserves and put that aside, then if the market recovered the money was there and earning interest or could be utilized if needed. Secretary Hansen asked if a plan could be visualized with the help of Mr. Palmquist to look into the future 3-4 years depending on whether or not the market went down. The Manager responded certainly, but he would advise to take a conservative rather than an optimistic view of the market recovering. With a too optimistic approach, the shortfall would still come back to the Village with the realization suddenly that an influx of cash was needed to offset the shortfall, and he would prefer a conservative approach. Secretary Hansen commented what the Village was doing was really no different than what the federal government was doing with bailing out businesses. The Manager expressed his opinion that the difference was this wasn't bailing out the plan, it was the Village's responsibility Joint Meeting Minutes of Board of Trustees of Public Safety Ofi'Icers' Pension Trust Fund and General Employees' Pension Trust Fund December 10, 2008 5 within the plan as it currently existed. That was a negotiable item; the Village might not want to ride with the markets but provide a guaranteed contribution for the employees, or the employee contribution might have to go up a little. The Village Manager commented everything was on the table-the goal was to assure that the plan was viable. Chair Rhodes commented it was great to have comparable data from the conference, but he thought it important that Mr. Palmquist as a third party provide information that included what other plans were doing at the current time, and also, with the General Employees plan being 134% funded he thought they could take a longer approach. Village Manager Couzzo agreed, commenting he did not believe they needed to worry about the short side. The market was predicted to recover in 10-15 years-if it got back to 14,000 points in 15 years you were even to where you were last year and lost all the appreciation over that time when it wasn't back to 14,000 points. Chair Sabin commented at the last actuarial evaluation presentation, Mr. Palmquist had already been talking about moving from 8% assumption to possibly 7%, even before the current financial crisis performance was below 8%. It was a question of, in being conservative how drastic to be, because you had to look at it over the life of the plan. Perhaps Mr. Palmquist could run a couple of benchmarks using a couple of different assumptions. Board Member Mangum commented they did not have to stay with 7°1o for the next 30 years, but could go to 2% in 2008 and 3% in 2009, and continue up to come up with something; he would like to see Mr. Palmquist take that route, and also come up with an optimistic level and a pessimistic level. Manager Couzzo advised that the Boards would tell Mr. Palmquist what they wanted and he would run it, he was not going to tell them the expectations of the market. Board Member Mangum commented he could assume there would be a 1 % increase a year, or 2%, which was not too difficult, and he did his own investments that way. The Village Manager responded that was a great way to do it, then what happened was the Council would look at 2% and say that's a big number for us to make up next year and go a different way, but they would have all the data in front of them and be able to make that decision. Secretary Hansen questioned when the market got to 12,000 or 14,000 again if the value of what the fund had would be the same as when the market was at 12,000 or 14,000 before. Village Manager Couzzo responded assuming the market was at 14,000 with an assumption of 8% return annually compounded out over the next 10 years, that would mean 14,000 was now 28,000 because it would have doubled easily at 8%. The other question was what were the investments in, because although people said the market would come back, if you had had investments in Lehman, it was never coming back. The other thing Joint Meeting Minutes of Board of Trustees of Public Safety Officers' Pension Trust Fund and General Employees' Pension Trust Fund December 10, 2008 6 to consider was that every two weeks the funds were being reinvested, so now you were investing in equities that were in some people's opinion way undervalued. An example was used of Citigroup, which last year traded at 50+, now was at 8, and had dropped all the way to 3. If the Village was buying at Citigroup at 3, then it went to 8, you had a 100% return on your money in a short period of time. That was why some people said keep investing because now you could buy cheap. There were so many variables, and Mr. Palmquist was not going to talk to the boards about the investment side, he would be discussing the actuarial side--he would want to know from the board how they wanted the assumptions. The Manager suggested if he used 8% as an assumption the boards could interpolate from 8% what 4% would do, and cautioned the boards to use their funds wisely when they directed Mr. Palmquist what to do, and have the money managers present at the meeting. Secretary Hansen asked what conclusions should be reached today. The Village Manager commented if the boards could meet before February that would be fine; if not, then meet with Mr. Palmquist and the money managers in February and tell them what they wanted, and engage Mr. Palmquist at this point. Chair Sabin asked for clarification on when to meet with Mr. Palmquist; Manager Couzzo indicated it did not need to be rushed. Finance Director Forsythe advised the actuary was now working with old assumptions and percentages of contributions and those would have to be revisited before a new actuarial report was done. It was clarified that the General Employees had voted at their last meeting to have an actuarial report done each year. Discussion ensued regarding meeting times on February 2. Pension Coordinator McWilliams suggested the Public Safety Officers' Board meeting at 8 a.m., both boards meet jointly with Mr. Palmquist at 10 a.m., and after that the General Employees Board meet. The Village Manager advised that the Boards should come up with the list of assumptions for Mr. Palmquist. Chair Sabin suggested getting his thoughts first based on what other plans were doing; he might say he was seeing more other plans go to 6-1/2%, etc. Chief McCollom commented that from the conference most boards were using the same assumptions FRS was using. The Manager noted staff would obtain the most recent FRS assumptions for the Boards. Chief Weinand commented the plans in trouble were those using 11 % assumptions. The State was at 8%, and even with their $30 billion loss they were still over funded. That was a key aspect, this plan was still 134% funded, and that was something that should be paid attention to in the actuarial report. The out-of- date mortality tables were discussed. The huge percentage taken out by the Joint Meeting Minutes of Board of Trustees of Public Safety Officers' Pension Trust Fund and General Employees' Pension Trust Fund December 10, 2008 7 tough month of October would be in the report presented at the February meeting. Board Member Giblin noted the plan was up 21 % since the last low. The Village Manager commented that Citigroup went from $50 to $6; even though they were up 100%, that was not great for the people who bought at $50. Discussion ensued regarding that the investment managers thought they were where they should be and would say this plan did better than most, so they wouldn't make a recommendation for change; the monitoring firm was the one that would have the historical data from several agencies. The Manager noted a different strategy was needed, which was a prudent move. Chief Weinand asked if the boards used smoothing. Chair Sabin advised it was discussed in a joint meeting with the Village Council, and he felt Council should make that decision in how they wanted to fund the plans. Other plans had gone to smoothing to avoid a big hit in a single year. Chair Rhodes commented on the issue of whether the plans should be defined benefit or defined contribution, that was more a strategic issue not just a dollar issue, and there must be an HR driven decision of the impact to the team from a recruitment and a retention standpoint; the Village Council would have to make that decision. The Manager commented it might save some dollars, but cost considerably from an HR perspective. Chair Rhodes commented Mr. Palmquist would need anticipated payroll for the next 2-3 years. Manager Couzzo responded that could be done very easily, since union contracts were already in place; the unknown was what the market would do. For a number of years when the market did well, the Village made no contribution and the employees still made a contribution. Everyone was looking for less uncertainty. The Village had moved 90% of their funds from the State, which were not guaranteed. The message to the Board was how business could be done a little differently in the current environment. Village Manager Couzzo thanked everyone for coming, commenting the challenges were not insurmountable. IV. Communications from Citizens Russell Von Frank commented his son had done research on defined benefit plans and found the same information discussed here. V. Adjournment There being no further business, the meeting was adjourned at 8:56 a.m. Joint Meeting Minutes of Board of Trustees of Public Safety Officers' Pension Trust Fund and General Employees' Pension Trust Fund December 10, 2008 g Respectfully submitted, Betty Laur Recording Secretary