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HomeMy WebLinkAboutDocumentation_Pension Public Safety_Tab 01_02/01/2010SYNOPSIS OF PUBLIC SAFETY OFFICERS' PENSION BOARD QUARTERLY MEETING HELD 11/02/09 Ed Sabin was elected Chair and Frank D'Ambra was elected Secretary for the coming year. 2. Minutes of the August 3, 2009 quarterly meeting and the October 7, 2009 special meeting were approved as submitted. 3. Dan Johnson of Bogdahn Consulting, LLC provided a presentation. Mr. Johnson was to provide a missing page, correct an error on page 16. and ask Rockwood to change the format of their chart on page 3. The Board approved the report. 4. Mr. Johnson was to ask Rockwood to change the format of their chart on page 3 and ask them to discuss at the next meeting how adjustable rate mortgages resetting in 2010 would affect the economy. Rockwood's poor performance was discussed. 5. Mr. Johnson reviewed a draft of the proposed investment policy statement. This would be brought back to the board for approval after the Village Council had approved the ordinance. 6. Mr. Johnson explained what drove their choice of choosing Rockwood and Dana as investment managers for most of their clients. 7. Pension Coordinator McWilliams advised the Village Council had approved placing $340,000 in the 2009-2010 budget for the Public Safety Officers' Pension Plan with adjustments to be made as necessary. 8. Attorney Jensen provided an update on the IRS determination letter that it was still in process. 9. The following payments made since the last meeting were ratified: Business Services Connection, fnc. Office Work for weeks ended 7/10/09 through 10/09/09 $ 1,656.53 Hanson, Perry & Jensen, P.A. Services through 8/15/09 1,224.53 Business Services Connection, Inc. Preparation of 8/3/09 quarterly meeting minutes 390.77 Scripps Treasure Coast Newspapers SYNOPSIS OF REGULAR QUARTERLY MEETING OF PUBLIC SAFETY OFFICERS PENSION BOARD HELD ON 2/2/09 Ad for new board member Radisson Resort Orlando Hotel for Frank D'Ambra (attendance at 41St Police & Firefighters Pension Conference) Gehring Group Pro-rated portion of fiduciary liability premium 10 The following payments were approved: 2 168.00 417.00 3,261.90 $ 35.68 1,270.07 3,750.00 6,101.24 Business Services Connection, Inc. Prepare Minutes of Special Meeting held 10/7/09 Perry & Jensen, LLC. Services through 10/15/09 Bogdahn Consulting, LLC Fee for Quarter ending 9/30/09 Rockwood Capital Advisors, LLC Fee for Quarter ending 9/30/09 11 Attorney Jensen reviewed changes in the law regarding use of social security numbers. 12. Attorney Jensen explained the new special tax notice, effective for distributions made after December 31, 2009, and advised that it was not the responsibility of the Pension Coordinator to answer financial questions. 13. The DROP program procedure was reviewed Attorney Jensen advised adding "these amounts can be rolled over" to the page titled "DROP Process" 14. The Board approved the DROP procedure with annual statements. 15. Attorney Jensen reviewed the restated plan documents including the HEART amendment. The Board approved that the cost of any recalculation of benefits post retirement required as a result of an individual electing to change their beneficiary be borne by the individual. 16. The Board approved extending the trustee terms from 2 to 4 years. SYNOPSIS OF REGULAR QUARTERLY MEETING OF PUBLIC SAFETY OFFICERS PENSION BOARD HELD ON 2/2/09 3 17. The Board approved forwarding the plan document, as amended, to the Village Council. 18. Board Member D'Ambra provided a summary from the Trustee's meeting he had attended, as well as handouts regarding investments. 19. Attorney Jensen will provide a presentation on the Sunshine Law at the next meeting. END OF SYNOPSIS ~_ TEQUESTA PUBLIC SAFETY OFFICERS' PENSION TRUST FUND REGULAR QUARTERLY MEETING MINUTES November 2, 2009 I. Call To Order and Roll Call A regular quarterly meeting of the Tequesta Public Safety Officers' Pension Trust Fund Board of Trustees was held at the Tequesta Village Hall, 345 Tequesta Drive, Tequesta, Florida, on November 2, 2009. The meeting was called to order at 1:04 p.m. A roll call was taken by Recording Secretary Betty Laur. In attendance at the meeting were: Secretary David Cooper, Board Member Ray Giblin, Board Member Robert Young, and Board Member Frank D'Ambra. Also in attendance were Attorney Bonni Jensen, Pension Coordinator Lori McWilliams, Recording Secretary Betty Laur, and Dan Johnson with Bogdahn Consulting, LLC. Chair Ed Sabin and Senior Accountant Monica Rahim were absent from the meeting. Secretary Cooper chaired the meeting. 11. Reappointment of Ed Sabin As 5t" Member Of The Public Safety Pension Board MOTION: Board Member Young made a motion to reappoint Ed Sabin as the Stn member of the Public Safety Officers' Pension Board. Motion was seconded by Board Member D'Ambra, and carried by unanimous 4-0 vote. III. Swearing In of Member Ed Sabin Since Chair Sabin was absent, this item was delayed to the next meeting. IV. Annual Election of Officers a. Annual Election of Chair MOTION: Board Member Young made a motion to elect Ed Sabin as Chair for next year. Secretary Cooper seconded the motion, which carried by unanimous 4-0 vote. b. Annual Election of Secretary MOTION: Board Member Young made a motion to elect Frank D'Ambra as Secretary for next year. Board Member Cooper seconded the motion, which carried by unanimous 4-0 vote. Regular Quarterly Meeting Minutes Board of Trustees of Public Safety Officers' Pension Trust Fund November 2, 2009 2 V. Approval of Agenda MOTION: Board Member Giblin made a motion to accept the agenda as submitted. Board Member Young seconded the motion, which carried by unanimous 4- 0vote. VI. APPROVAL OF MINUTES 1. Tequesta Public Safety Officers' Pension Trust Fund Board of Trustees Quarterly Meeting Minutes -August 3, 2009 2. Tequesta Public Safety Officers' Pension Trust Fund Board of Trustees Special Meeting Minutes -October 7, 2009 MOTION: Board Member Young made a motion to accept the minutes of August 3, 2009 and October 7, 2009 as submitted. Board Member Giblin seconded the motion, which carried by unanimous 4-0 vote. VII. PRESENTATIONS 3. Presentation by Monitor Dan Johnson, Bogdahn Consulting, LLC, explained that his company did not receive all of the information for the quarterly report by the date the report was needed for the agenda packets; therefore, he had provided a preliminary report for the packets and distributed the final quarterly report at the meeting, and would follow this procedure in the future. The main difference in the reports was the plan's comparison to the peer groups. Mr. Johnson presented highlights of the report, and advised that this quarter had continued the strong positive momentum from the previous quarter; and oversold assets had experienced the most growth, thus rewarding riskier investments. One-year return for international stocks had been up 3.8; there had been a big disparity between international and domestic stacks, which were still down 6.9 over that time frame. The top performing sector for the quarter was financials; low quality stocks led the rally. GDP had been negative for four quarters, but has been positive the last quarter. Mr. Johnson reported the portfolio had been 2-1/2% behind the index, a good absolute number, and significantly behind the peer group, which said this fund was not taking as much risk as the rest of the world, and looking at the fiscal year-to-date was negative 1.3%. Responding to questions from Board Member D'Ambra, Mr. Johnson advised stock selections Rockwood had picked Regular Quarterly Meeting Minutes Board of Trustees of Public Safety Officers' Pension Trust Fund November 2, 2009 had not performed well, and described them as an opportunistic manager who moved into different sectors and overvveighted them. Board Member D'Ambra commented he knew Mr. Johnson was familiar with Rockwood, but might not be equipped to answer questions regarding their strategies as fully as they would if they were present. Board Member D'Ambra commented Rockwood had some significant overweighting in consumer discretionary, which surprised him given the state of the economy even a year ago, and he would like to understand what their thought process had been in having that significant overweight. He questioned what specific disciplines they used both in acquisition and disposal of stocks, and expressed his concern that if Rockwood was a fundamental value manager he would expect that to drive their sector weights. if they were top down first and then looking for value, he would like to understand that, and in this downturn when theoretically they should have been more defensive, it looked like they really had not performed that well, and if one looked at their performance over the last 5-8 years they had consistently out- pertormed up until about 2005-but since then the tide had shifted. It seemed they had been hired at a point when they had a good track record for the prior 5 years, but since then their record had not been so good. His understanding was the Board was looking for a manager who could dampen volatility and out perform in a down market and maybe not perform quite so well in an up market. But he did not see evidence that was what was happening. Mr. Johnson responded he would describe Rockwood as an opportunistic core manager, with the ability to outpace the core index with the entire market over-weighting value or growth or sectors as they see fit. Being a momentum based manager, they might be a little late to move, being conscientious about sorting everything out before moving. Mr. Johnson advised there were 12 standards the manager must follow; if they violated 4 they were placed on a recommended termination/ watch list. Rockwood was not there yet, but was close, and he had talked to them advising they were being paid to out pace the index. Mr. Johnson reviewed Rockwood's history, noting how they had rallied in the past. Even after quarters of significant misses, over a 3-year period they were providing a premium to the index. Hopefully history would repeat itself. Mr. Johnson reviewed the bond portion of the portfolio; Rockwood had avoided owning those bonds which had problems. Board Member D'Ambra commented he thought they had done a good job there, using shortened durations. Board Member Giblin pointed out an error in the intermediate bond index on page 16 of the Rockwood report, which Mr. Johnson indicated he would change. , Board Member D'Ambra asked if Rockwood provided any information on impaired securities--bond investments which were not doing well compared to the acquisition price. Mr. Johnson referred to pages 17 and 18, a list of the investments, ratings, and pricing, and explained if an A-rated security dropped below investment policy limitations, the manager would be forced to sell it at the Regular Quarterly Meeting Minutes Board of Trustees of Public Safety Officers' Pension Trust Fund November 2, 2009 4 first economically feasible time. Also, under the investment policy they must buy and sell readily marketable securities. Mr. Johnson recommended adding treasury inflation protected securities to the bond portfolio. Although there were negative returns, the quarter had been better than the previous quarter. Board Member D'Ambra requested Mr. Johnson ask Rockwood to change their format on page 3 of their report by moving the "Fiscal Year Summary" under "Total $ Change this quarter", and on the right-hand side where it said "Fiscal Year Summary" show the total and fund change for whatever period it was in the fiscal year; first quarter, second quarter, third, quarter cumulatively until the end of the fiscal year. Mr. Johnson indicated he would ask Rockwood to make that change, and referred to page 17 of his report which showed that information. Board Member D'Ambra noted there were many adjustable rate mortgages which would re-set during 2010, and asked that be addressed at the next meeting. Mr. Johnson commented this would put a serious strain on the banking system; and he would ask Rockwood to discuss this at the next meeting. Board Member D'Ambra expressed his opinion that unemployment, the housing issue with tax cuts expiring, potential increases in taxes, and potentially health care would all suck buying power of the economy possibly leading to another recession, which were all pertinent issues to the investment discussion. Mr. Johnson noted Rockwood had sold Walmart and other lower-quality stocks this quarter. MOTION: Board Member D'Ambra made a motion to accept the report from Bogdahn Consulting, LLC. Board Member Young seconded the motion, which carried by unanimous 4-0 vote. VIII. UNFINISHED BUSINESS 4. Draft of Proposed Investment Policy Statement Dan Johnson pointed out areas of fundamental change in the proposed investment policy statement. On page 2 a chart had been added, the index Lehman Brothers had been changed to Barclay, in accordance with Senate Bill 538 25% investment in international would be allowed, investments in scrutinized companies would not be allowed. Attorney Jensen noted there were scrutinized companies in the Rockwood report; Mr. Johnson indicated he would get that taken care of with Rockwood. Changes on page 2 showed the target of 50% domestic equity measured by the benchmark of the S&P 500, 10% international equity with MSCI EAFE benchmark index, and broad market fixed Regular Quarterly Meeting Minutes Board of Trustees of Public Safety Officers' Pension Trust Fund November 2, 2009 5 income at 40% measured by Barclays Intermediate U.S. Govt/Credit. Aline for TIPS had been included in the chart. Mr. Johnson confirmed the target rate of return was still 8%. On page 4 pooled funds had been added. Prohibited investments were addressed on page 5. Letter G on page 6 addressed the procedure to follow for pooled funds which might own scrutinized investments. Board Member D'Ambra asked if under Letter C on page 4 that included convertibles as well as preferred stocks. Mr. Johnson responded preferred stocks fell under the fixed income category, which he would clarify in the investment policy statement. Board Member D'Ambra also questioned repurchase agreements under Letter B on page 6, to which Attorney Jensen responded this plan chose the overnight vehicle used by the custodian, and Mr. Johnson clarified that repurchase agreements transactions must adhere to the Master Repurchase Agreement. Attorney Jensen verified this would require a change in the ordinance. Mr. Johnson indicated he would bring an original of the investment policy guidelines ready for signature to the next meeting if the ordinance had been adopted by that time. Board Member Young asked if Rockwood would be held responsible for implementing changes. Mr. Johnson advised Rockwood would be held responsible to follow the scrutinized investment constraint, and he would bring some solutions to the next meeting for getting international exposure. Board Member D'Ambra commented when he had gone over information from the October pension trustees' meeting which listed all municipal plans and their consultants, he noticed for Bogdahn's firm, the vast majority of investment managers were either Dana or Rockwood and he would like to discuss at the next meeting from Bogdahn's perspective what drove that decision. Mr. Johnson commented when dealing with plans under $5 million Bogdahn's policy was to give managers flexibility, and those two managers offered that flexibility. Discussion ensued regarding pooled funds, smaller plans not being able to invest with larger managers because of the transaction size, using the consumer price index + 3% as another measure of the target rate of return. Attorney Jensen advised the investment policy would be presented for approval after the Village Council had approved the ordinance, so no action was required today. Mr. Johnson requested the Board study it and pass along any suggestions or questions to him before the next meeting. 5. Update on Village Council consideraffon of funding $340,000 into the Public Safety Officers' Pension Fund Regular Quarterly Meeting Minutes Board of Trustees of Public Safety Officers' Pension Trust Fund November 2, 2009 6 Lori McWilliams, Pension Coordinator, advised the resolution had been withdrawn, and the Village Council had approved placing $340,000 in the 2009- 2010 budget with adjustments to be made as necessary. The minutes of the Village Council meeting had been provided in the meeting packet 6. Status on amendments to pension plan Attorney Bonni Jensen indicated she would discuss this under item 19. 7. Update regarding IRS Determination Letter Attorney Bonni Jensen advised the letter was still in process; she had spoken with the IRS representative, who had shared that the IRS had been woefully unprepared for the number of governmental plans that would file and also woefully unprepared for the lack of knowledge they had about governmental plans, so needed a lot of learning time. Pension Coordinator McWilliams praised Attorney Jensen and her staff for their work on this matter. IX. STANDING REPORTS (INFORMATION ITEMS) 8. New applicants for participation in Pension Plan None 9. Request for withdrawal of contributions (employees terminating employment with Village of Tequesta) -Ratification of withdrawals made since the last meeting on 2 signature basis: None 10. Terminated Employees who have not taken their contributions None 11. Revenue and Expenditure Report There were no questions from the Board regarding the informational items. X. PAYMENTS TO BE RATIFIED (PAYMENTS MADE SINCE LAST MEETING) Pension Coordinator McWilliams announced the $876.07 shown for the Gehring Group was the figure for the General Employees' Pension; the correct figure for Regular Quarterly Meeting Minutes Board of Trustees of Public Safety Officers' Pension Trust Fund November 2, 2009 7 the Public Safety Officers' Pension was $3,261.90, which was figured on a percentage basis between the three units, based on their portfolio assets. MOTION: Board Member Giblin moved to ratify the following payments as presented. Board Member D'Ambra seconded the motion, which carried by unanimous 4-0 vote. 12. Business Services Connection, Inc. Office Work far weeks ended 7/10/09 through 10/09/09 $1,656.53 Hanson, Peny 8 Jensen, P.A. Services through 8/15/09 1,224.53 Business Services Connection, Inc. Preparation of 8/3/09 quarterly meeting minutes 390.77 Scripps Treasure Coast Newspapers Ad for new board member 168.00 Radisson Resort Orlando Hotel for Frank D'Ambra (attendance at 41~ Police 8< Firefighters Pension Conference) 417.00 Gehring Group Pro-rated portion of fiduciary liability premium 3,261.90 XI. PAYMENTS TO BE REVIEWED AND APPROVED MOTION: Board Member D'Ambra made a motion to approve the following payments as presented. Board Member Giblin seconded the motion, which carried by unanimous 4-0 vote. 13. Business Services Connection, Inc. Prepare Minus of Special Meeting Held 10/7/09 $ 35.68 Perry 8 Jensen, LLC. Services through 10/15/09 1,270.07 Bogdahn Consulting, LLC Fee for Quarter ending 9/30109 3,750.00 Regular Quarterly Meeting Minutes Board of Trustees of Public Safety Officers' Pension Trust Fund November 2, 2009 8 Rockwood Capital Advisors, LLC Fee for Quarter ending 9/30109 6,101.24 XII. BUDGET REPORT 14. Quarterly Budget Report Expenditures There were no questions from the Board; therefore, the quarterly budget report expenditures were received and filed. XIII. NEW BUSINESS 15. Approval of Investment Manager's Quarterly Report MOTION: Board Member Giblin made a motion to approve the third quarter report from Rockwood Capital Advisors. Board Member D'Ambra seconded the motion, which carried by unanimous 4-0 vote. 16. State Law Update Attorney Bonni Jensen explained changes in the law regarding the use of social security numbers. The law had repealed the requirement for annual reporting to the Governor, President of the Senate, and Speaker of the House as to whether a pension board had provided social security numbers to any commercial entity during the year. New language had been added to clarify the conditions under which social security numbers held by an agency may be disclosed, i.e., for the purpose of the administration of a pension fund administered for the agency employee's retirement fund, deferred compensation plan, or a defined benefit plan. The law also required that the collection of social security number policy be amended to refer to Florida Statutes §119.071(5)(a)6g. Attorney Jensen advised all forms should include the citation to Florida Statutes and she would work with staff to update our forms. 17. New Special Tax Notice Attorney Bonni Jensen explained the tRS had developed this explanation of what happens to people's benefits and how that is treated on a tax basis when they take dollars from the plan, and for this plan that would be refunds of contributions and any lump sum payments from the DROP program would be subject to this special tax notice. This new Special Tax Notice would be effective for distributions made after December 31, 2009. Attorney Jensen advised she would provide the notice to staff; but she had unanswered questions regarding Regular Quarterly Meeting Minutes Board of Trustees of Public Safety Officers' Pension Trust Fund November 2, 2009 9 the explanation that if someone rolled DROP money into an IRA, they lost the ability to take it out without penalty up through age 59-1/2. In our plan, police and firefighters had the ability to take a lump sum without penalty up through age 50. Discussion ensued. Pension Coordinator McWilliams noted in the tax notice at the bottom of page one it said, if you have additional questions regarding this notice to contact the Plan Coordinator and gave her contact information. Ms. McWilliams asked if she was really the best person to contact, because she might not be able to answer financial questions. Attorney Jensen responded that Coordinator McWilliams would not answer any financial questions; that would not be her responsibility. She would only answer questions about the process of taking their dollars out of the plan. 18. DROP Program Procedure Pension Coordinator Lori McWilliams reported there had been an inquiry about entering the DROP program in the future and that would be the first person entering the DROP out of this plan. A simple process had been created that she and the Finance Department would follow, and she had worked with Attorney Jensen to create necessary forms that would need to be completed and filed, when it would need to be brought before the Board for approval, what items would need to be brought forth for approval, and had provided an outline for the Board so they would know what the process would be. Board Member Giblin asked if it were an option to roll money from DROP into an IRA; Attorney Jensen stated she did not believe this plan had that option. Pension Coordinator McWilliams commented she believed the three options were an annuity, 3-year installments, or a lump sum. Board Member Giblin clarified he was asking if a lump sum received from the DROP program could be rolled over into another tax deferred shelter, which Attomey Jensen confirmed that could be done. Attorney Jensen advised "these amounts can be rolled over" should be added. Board Member D'Ambra asked if the only option was to have interest credited on an annual basis or if there was a possibility of allowing someone using the DROP program to specifically allocate that money; Attorney Jensen advised there was no self-directed option available under the plan. Salem Trust would not separately account for those dollars; the Village would do that as an accounting measure and no dollars would leave the pension plan. Attorney Jensen asked the Board to decide on the frequency of providing DROP members with statements; there were third party providers who provided these services and Gabriel Roeder Smith and Company could also handle that. Attorney Jensen advised this would be processed like a normal retirement but one would not stop working. Notice could be given 30-60 days ahead tha# one intended to go into the DROP program. Pension Coordinator McWilliams indicated she and Finance Director Forsythe had discussed putting together an information packet that could be picked up at the customer service window. During ensuing Regular Quarterly Meeting Minutes Board of Trustees of Public Safety Officers' Pension Trust Fund November 2, 2009 10 discussion, annual statements were indicated to be the most reasonable option. Attorney Jensen was asked about the possibility of accessing one's account on- line. She responded it was all just accounting, and until a person actually separated from service the only DROP account there would be was a general ledger listing that there was $1,000. Service providers could be hired to do that but it would cost money and updates to the website would need to be done monthly. MOTION: Board Member Giblin made a motion to accept the DROP procedure with annual statements. Board Member D'Ambra seconded the motion, which carried by unanimous 4-0 vote. 19. Plan Restated with HEART Amendment Attorney Bonni Jensen announced changes to the plan which incorporated changes to the HEART Act, (Heroes Earnings Assistance and Relief Tax Act), and changes to Chapter 2009.97 of the Florida Statutes. The first change was on page 2, effective January 1, 2007 any employee on active duty who could not return to work because of actively serving in the military were still entitled to the benefits they would have been entitled to had they come back to employment. The definition of firefighter had been updated in the State Statute to include certified supervisory and command personnel. On page 3, the definition of salary had been updated to include, for payments made after December 31, 2008, any differential wages paid to employees on active military duty. Page 4 under Change in Designation of Beneficiary, retired members who desire to change his or her joint annuitant or beneficiary up to twice after they had retired, but would pay for the full cost of the benefit and the full adjustment in their pension benefit. They would be presented with the impact before making such a change. Who would pay for the cost of this would need to be decided. MOTION: Board Member D'Ambra made a motion that the cost of any recalculation of benefits post retirement required as a result of an individual electing to change the beneficiary be borne by the individual. Board Member Giblin seconded the motion, which carried by unanimous 4-0 vote. Attorney Jensen noted on page 5 it was suggested to change from 2-year to 4- year terms. She recommended increasing terms to 4 years. In truth, it only impacted the 5t" trustee position and the employee positions, because the municipal appointees served at the pleasure of the Council. During discussion of the motion, it was brought up that other members were willing to go with the union representative's feelings. Regular Quarterly Meeting Minutes Board of Trustees of Public Safety Officers' Pension Trust Fund November 2, 2009 11 MOTION: Board Member Young made a motion to extend the trustee terms from two to four years. Board Member D'Ambra seconded the motion, which carried by unanimous 4-0 vote. Attorney Jensen advised that the Village Council was looking at setting specific term expiration dates for the trustees, which she would bring before the Board. This would make the elections and making sure positions were filled a much easier and smoother process. The next change on pages 7 and 8, recognized the new Florida Statute's authority to allow other board-authorized fiduciaries to sign checks; an administrator could be added to sign checks on behalf of the board. On page 10 the increase in allowable investments in foreign securities up to 25% of the plan assets. On page 12 -recognizing there could be no investments in scrutinized companies, and if any were held they must be divested by September 10, 2010. On page 17, an exclusion from disability benefits for anyone who has had an injury or disease while serving in the armed forces; however, because of the HEART Act this exclusion was removed. Page 31 -State Statutes had been amended to incorporate the provisions of the case of Lake Park. Page 34 -this plan is not subject to legal process but pursuant to an income deduction order it could pay alimony and child support from a retiree's benefit. The plan could also pay for anything being provided by the Village post retirement, such as health insurance, and to the certified bargaining agent dues and other benefits they paid. Anew benefit would pay for accident, health, and long term care insurance for the retiree, their spouse and their dependents. Salem Trust would take a deduction from the retiree's check. The last item was forfeiture of the benefit if someone was convicted of a felony in the Florida Statutes. MOTION: Board Member Giblin made a motion to forward the Plan document, as amended, to the Village Council. Board Member D'Ambra seconded the motion, which carried by unanimous 4-0 vote. XIV. ANY OTHER MATTERS Board Member D'Ambra provided a summary from the Trustees' meeting he had attended, and commented Attorney Jensen had done a good job of keeping the Board informed from a legal perspective. Board Member D'Ambra reviewed the summary and also distributed handouts of articles regarding investments. Board Member Cooper asked what the Board could do to recognize Ken Nielson's service on the Board. Pension Coordinator McWilliams responded that had been done at the last Village Council meeting. Regular Quarterly Meeting Minutes Board of Trustees of Public Safety Officers' Pension Trust Fund November 2, 2009 12 Pension Coordinator McWilliams noted during the February pension board meeting, Attorney Jensen would give a presentation on the Sunshine Law to both boards. XV. COMMUNICATIONS FROM CITIZENS There was no communication from citizens. XVI. ADJOURNMENT There being no further business, upon motion by Board Member Giblin, seconded by Board Member D'Ambra, the meeting was adjourned at 3:19 p.m. Respectfully submitted, Betty Laur Recording Secretary DRAFT TEQUESTA PUBLIC SAFETY OFFICERS' PENSION TRUST FUND WORKSHOP MEETING MINUTES January 22, 2009 Call To Order and Roll Call A workshop meeting of the Tequesta Public Safety Officers' Pension Trust Fund Board of Trustees was held in the Manager's conference room at the Tequesta Village Hall, 345 Tequesta Drive, Tequesta, Florida, on January 22, 2010. The meeting was called to order at 9:00 a.m. A roll call was taken by Recording Secretary Betty Laur. In attendance at the meeting were: Chair Ed Sabin, Secretary Frank D'Ambra, Board Member Ray Giblin, and Board Member Robert Young. Board Member David Cooper was absent from the meeting. Also in attendance were Mayor Pat Watkins, Vice Mayor Tom Paterno, Council Member Calvin Turnquest, Council Member Vince Arena, Village Manager Michael R. Couzzo, Jr., Attorney Bonni Jensen, Pension Coordinator Lori McWilliams, and Recording Secretary Betty Laur. Duane Howison of Gabriel Roeder and Smith Company was present via telephone. Fire Chief James Weinand joined the meeting at 9:04 a.m.; Finance Director JoAnn Forsythe arrived at 9:09 a.m. Human Resources Director Merlene Reid arrived later in the meeting. Review and Discussion of Public Safety Pension Actuarial Valuation Report dated 10/1/09 Mr. Howison provided an overview of the actuarial valuation report dated 10/1/09, which determined the funding requirements for fiscal years beginning 10/1/09 and 10/1/10. The schedule of funding requirements showed a net funding requirement for the fiscal year ending 9/30/09 of $196,642. The total had jumped 16.93% of payroll since the last valuation two years ago. The estimated required contribution for fiscal year ending 9/30/11 was $102,950 for police and $285,745 for fire fighters, and the total required Village contribution was $388,695. Mr. Howison explained the fire fighters' contribution rate had been decreased from 6.1 % to 5%, and the actuary had issued an actuarial impact statement on August 1, 2008 which showed that the effect of this amendment was cost neutral to the plan because State funds were used to pay for it. The following changes had been made in actuarial assumptions and methods: 1) assumed mortality rates had been changed from the 1983 Group Annuity Mortality Table to the RP-2000 Generational Mortality Table. The RP-2000 table assumed that mortality would improve in the future. Mr. Howison referred to page 22 of the report which contained a table of life expectancy and probability of dying in the next year for different age groups. The RP-2000 table was more reflective of what was expected in the future. Because this plan had a small number of participants, only one or two outliers could cause deviations from the assumptions, no matter Workshop Meeting Minutes Board of Trustees of Public Safety Officers' Pension Trust Fund January 22, 2010 2 which table was used. The mortality change had increased the funding requirement by approximately 2-1/2% of payroll. 2) 5-year asset smoothing had been adopted to determine the actuarial value of assets. In the past, market value had been used to determine funding requirements. The smoothing method was designed not to overstate or understate the asset value, but rather to smooth out volatility. Last year, the expected return on assets had not been met, so it was being smoothed out and they were not recognizing all of that loss this year. Secretary D'Ambra expressed concern that if the methodology were changed to smoothing during a downturn and then the markets rebounded, that was deferring putting money into the plan at a time when it would have been advantageous to do so from an investment perspective, and the cost of plan funding was increased over a period of time; therefore, from an accounting standpoint it might look a little better, but the impact was it would increase the cost to the plan because of losing out on the investment opportunities that would have been available if that money had gone in sooner. Mr. Howison acknowledged it was atrade-off between the asset performance issue and better visibility for funding requirements so that you were not faced with as steep an increase. The Board had felt it was more advantageous to have a smoother funding rise, and you were not prevented from putting in more than required in a down market. Mr. Howison agreed it was a matter of paying sooner or later. Chair Sabin commented when the decision was made to go to the smoothing method, the Board had been advised that most plans followed the smoothing method. Discussion ensued. Secretary D'Ambra commented he did not disagree with using the smoothing method, but if it were possible to contribute at a higher level to take advantage of market opportunity, he believed it would be in everybody's best long-term interest to do so. Chair Sabin advised the Board could consider recommending to the Village Council that the Village consider go higher than the minimum contribution, and the investment manager could provide advice on that based on the markets. Secretary D'Ambra did not agree with going with smoothing just because other plans. did it. Vice Mayor Paterno asked if smoothing would mask investment returns in bad times, making it hard to evaluate the investment manger's performance. Chair Sabin responded that the investment monitor measured the plan against peer groups. Attorney Jensen advised there was a report that gave that analysis. Vice Mayor Paterno commented the Village Council did not always realize the concerns, they just saw the amount of cash they needed to put in. Attorney Jensen suggested sending the Council the executive summary page, and Chair Sabin advised the Board was happy to work with Pension Coordinator McWilliams to give the Council that snapshot of investment performance as well as contributions. Council Member Arena noted the losses were not earth-shattering figures, and must be weighed against taking it easy on your budget and going over five years-which one really Workshop Meeting Minutes Board of Trustees of Public Safety Officers' Pension Trust Fund January 22, 2010 3 helped the Village more. Attorney Jensen noted the actuary had calculated the contribution that would have been needed if smoothing not been used, 21.14%, and it was possible to convert that to a dollar figure. Vice Mayor Paterno commented by changing the methodology during a down time it made a big difference because under the old method it would have been 80% funded and under the new method it was 97% funded. Discussion ensued regarding the Council meeting when this was decided, whether advice had been to hold back. Secretary D'Ambra commented the plan was now underfunded by a million dollars, which was masked by the smoothing. Chair Sabin expressed his opinion that the million dollar shortfall could not be contributed solely to the smoothing, but primarily to the decline in market values. Discussion ensued. Chair Sabin requested clarification from Mr. Howison, who referred to the bottom of page 2 of the actuarial valuation report which discussed the difference in the funding using the old and new methods. Chair Sabin clarified that there was no question that smoothing had an impact, but it should be made clear there were different methods that could be used to determine funding position, and if you changed your method of calculation to a market value of assets calculation you were 80% funded, but if you used the various rules promulgated by government accounting, and financial accounting boards relative to actuarial valuation, which could be argued were not as meaningful, that was where one got to the 97%. Mr. Howison agreed that to jump to the conclusion that the plan was 80% funded because of a change in methodology for the assumptions was not accurate; the funding requirement would have been a little over 4% of payroll higher, or approximately $100,000, if market value were still being used. Secretary D'Ambra questioned the length of amortization of the investment loss; Mr. Howison responded it was now 20 years. 3) The funding method had been changed from the Aggregate Funding Method to the Entry Age Normal Funding method. Mr. Howison explained the entry age normal method was more commonly used by municipal plans. The net effect of this change brought the funding requirement down a little. If two plans were identical from their inception, with one using the aggregate funding method and the other using entry age normal funding method, there would not be much difference in the funding patterns between the two methods. Under the aggregate method losses would be amortized over a shorter period; most plans under entry age normal funding amortized over 30 years and paid it off like a mortgage. In this plan the unfunded amount amortization was as a level dollar amount over 20 years, so the payment would be level in the future, but as payroll went up this would go down. Discussion of IRS amortization times ensued. Mr. Howison explained there was not much difference for this plan between the two methods. Attorney Jensen explained State law provisions would apply to the pension fund. Secretary D'Ambra asked if the Board should move in the direction of the IRS amortization period of 7 years. Attorney Jensen explained she did not know if that would be best practice since this had been developed for Workshop Meeting Minutes Board of Trustees of Public Safety Officers' Pension Trust Fund January 22, 2010 4 private plans-the Village was always meeting its funding requirements as required under Florida law, which was different for many private plans. Chair Sabin confirmed with Mr. Howison the Village's investment gains and losses were amortized over 20 years at a level dollar amount. Chair Sabin expressed his understanding the effect of investment gains or losses in any one year was spread over a 10-year period, and now that smoothing had been introduced, in the first year 20% went in, in the second year 40%, etc., so in effect it took a little longer than 10 years to get the full effect in the calculation. Mr. Howison responded that was mixing two components-one was the investment loss, and that was recognized over 5 years, but the other piece was the smoothing method which extended 20 years. Chair Sabin called attention to prior minutes with an example presented by Mr. Palmquist of an $80,000 loss before smoothing and then with the smoothing method. Since Mr. Palmquist had used the terminology "future working lifetime", Mr. Howison advised that referred to the aggregate funding method. Secretary D'Ambra asked the contribution range-Mr. Howison advised there was no maximum, but there were different ways to increase the funding requirement, such as shortening the amortization period; however, since the debt payment was only about $33,000, it would not make a huge difference. Attorney Jensen advised private sector plans had a range, in governmental plans the loss could be fully funded. Village Manager Couzzo and Council Member Arena discussed what had happened at the Council meeting when there had been an opportunity to invest, but that opportunity had not lasted. Chair Sabin noted no one had a crystal ball, and when the Board had made these decisions, they were trying to adjust to more up-to-date assumptions. Mr. Palmquist had advised at the time that in good times was when the assumptions should be dealt with, and the Board would continue to evaluate these items going forward. Mr. Howison talked about the investment return assumption-it was now 8% and the actuary would like it to go down to 7-1/2%. They had done a study last spring and recommended lowering the rate to 7-1/2% or 7%. Chair Sabin advised that would be taken up with the investment manager. Mr. Howison advised a reduction of '/z% would result in approximately 4% percent of payroll increase in funding requirement. Discussion ensued. Village Manager Couzzo indicated all of the assumptions decreased the expectation and increased the contribution, and reduced the risk because the assumptions were not as great. Mr. Howison confirmed the investment return was a net percentage. Expenses were running 1-1/2%. Workshop Meeting Minutes Board of Trustees of Public Safety Officers' Pension Trust Fund January 22, 2010 5 Mr. Howison cautioned to keep in mind the plan was young, so a 20-year amortization made sense, since those people should still be in the plan receiving benefits for several years. Mr. Howison reviewed the chapter revenue chart on page 3 of the actuarial valuation, which was actuarial confirmation of the use of State Chapter money. Secretary D'Ambra asked if as salaries went up, the base amount changed. Mr. Howison advised that amount was static unless some type of plan improvement was implemented. Secretary D'Ambra commented Florida League of Cities was trying to get the State to make a change so that if the plan met State requirements these dollars might be released for funding purposes. Attorney Jensen advised it could be proposed for this legislative session but she had not seen anything yet. Council Member Arena asked if the firefighters' contribution had been reduced from 6.1 % to 5% because State funds were being received on fire insurance, if it went down why would the Village have to suffer? Would the fire contribution then go back to 6.1 %? Attorney Jensen advised the State had taken the position that in order to increase employee contributions there had to be some corresponding benefit-it did not have to equal the cost of the increase in the contribution. There was no clear definition of a benefit-it would have to be something better than they had. This was only for 175 and 185 money. Mr. Howison confirmed when returns did not meet the assumption the Village was responsible to make up the difference. Vice Mayor Paterno asked if going forward returns were not meeting the assumption, could the additional State funds be used to pay that, to which the response was no. It was con#irmed that the employee contribution could be raised by negotiation. Further discussion ensued regarding the 6.1 % contribution versus 5%. Mr. Howison advised that comparable plans around the state were paying much higher contributions, such as 30% of payroll, and this plan had been well-funded in the past, which helped with the present contribution rate. The FRS rate was currently 20.92%. Mr. Howison left the meeting at this point. Discussion of Alternative Investment Strategies and Investment Manager Performance Secretary D'Ambra expressed his concerns. He stated he had asked Dan Johnson of Bogdahn if he could succinctly describe the investment process utilized by Rockwood, and did not get an answer he was comfortable with-he talked about being opportunistic, about black box quantitative methodology, and if the manager could not explain to him how they made money, he had a concern. He recognized that was not the manager, it was the monitor, but the monitor made a recommendation, and the response did not make him Workshop Meeting Minutes Board of Trustees of Public Safety Officers' Pension Trust Fund January 22, 2010 6 comfortable. As a consequence of that, he did not have a clear expectation of how they should be performing in relation to the market cycle. He would like to see that addressed. Chair Sabin responded that twice a year, the investment manager met with the Board and there was a lengthy discussion, and the investment manager would be able to answer his questions specifically. Attorney Jensen expressed her opinion the investment manager should be notified the Board wanted that information so they could bring their materials, and when they were hired they had pretty substantial discussion about their methodology. Secretary D'Ambra commented before they were hired the investment manager's performance had been good, and after they were hired it had not been nearly as strong. He had real concerns about their performance over the past three years. Also, when you looked at managers in the top quartile and how they performed over five years, the success rate of them repeating that performance was only about 18%-19% on average, so what comfort did he have in the methodology of manager selection that they would perform at a high level going forward. Another concern was there was only one manager with one style managing both fixed income and equities. He understood that to diversify would mean using some bonds or other vehicles, but he thought that should be discussed with the manager as a possibility. On the fixed side, he was concerned with duration being so much shorter than the government corporate bond index. Secretary D'Ambra wanted these concerns discussed at the next meeting. Chair Sabin responded these were similar issues to what was discussed at each semiannual meeting with the investment manager, which was usually an hour to an hour and a half discussion. Vice Mayor Paterno indicated he was curious whether Bogdahn was more concerned with this pension or how it did in the universe. Attorney Jensen advised there was an attribution report the Board did not receive. Secretary D'Ambra asked that Mr. Johnson be reminded he had asked that the attribution report be provided. Secretary D'Ambra also wanted to know if they were compliant. Vice Mayor Paterno commented he had the Finance Director call Bogdahn last week to ask how they came up with their returns, internal rate of return, and weighted return. Attorney Jensen responded, clearly Mr. Johnson should be asked, but it was her understanding Bogdahn took the fund's custodian's reports and input each and every item and replicated each to come up with their reports. Vice Mayor Paterno responded it was his understanding they took into consideration all the costs and contributions included in their rate of return. Attorney Jensen explained they did a financial reconciliation and netted out contributions; they showed the capital appreciation and income. It was her understanding it was an exact replication of what had happened, and contributions did not count in the rate of return. Finance Director Forsythe advised she had spoken with them regarding internal rate of return which took Workshop Meeting Minutes Board of Trustees of Public Safety Officers' Pension Trust Fund January 22, 2010 7 into account everything and weighted return which did not; she would have thought the weighted return would have been lower, but in fact, it was not. Vice Mayor Paterno indicated his question was exactly what rate of return they were showing. Secretary D'Ambra commented they should be compliant with approved method of computation of return and if the manager was not compliant that was a reason for concern. Chair Sabin responded not to jump to that conclusion; Secretary D'Ambra responded at the last meeting he asked for some changes in the report for clarification, which he hoped Bogdahn had done. Packets for the next meeting were distributed so that the members could look at the current monitor's and manager's reports. Attorney Jensen advised she did not look so much to the manager's quarterly returns because they were marketing for themselves-not that they would misstate their returns, but if there were a doubt they would go in their own direction. Her judgment of the manager's returns was really on the monitor's report, because they mimicked the portfolio and were able to report from an independent standpoint, they had a fiduciary relationship to the Board and a responsibility to report to the Board in the plan's best interests. The monitor's report was a clearer picture of the returns. The manager brought their market outlook and their future determination of what the funds should be invested in, the particular market environment, and what should be done going forward. Vice Mayor Paterno commented at one time the manager was using a different cutoff than Bogdahn; Attorney Jensen responded they might have used a different start date-the date that Rockwood actually started investing as opposed to Bogdahn, who probably used an official cutoff such as the beginning of a quarter. Secretary D'Ambra wanted to see a full year calendar summary; Chair Sabin pointed out that information. Other Matters Vice Mayor Paterno asked that the proposed ordinance be addressed. Attorney Jensen went through the proposed amendments to the plan document and explained each one, whether it was voluntary or mandated, and where the wording had come from. The amendments were the HEART provision, in which the death benefit was mandatory, and the disability portion was not; the definition of firefighter which had been omitted but should have been included because the plan covered the firefighters; definition of salary to include differential wages; change in designated beneficiary up to twice; increasing Board terms from 2 to 4 years which was voluntary and recommended by the attorney; fund management authorizing someone who had fiduciary responsibility to make payments, and if internal control procedures could be met a signature stamp could be used; foreign investments were proposed to be raised to 25% from 10% which was recommended by the monitor; divestiture from scrutinized companies. There was discussion regarding how one would go about reverting back to a 6.1 firefighter contribution should 175 money ever become insufficient to make up the 1.1 % difference; Attorney Jensen commented the question at that point would be whether the State would require some sort of a benefit. Another Workshop Meeting Minutes Board of Trustees of Public Safety Officers' Pension Trust Fund January 22, 2010 8 proposed amendment was to clear up language regarding payment of disability benefits that conflicted with the mandated HEART provision. There was discussion regarding the DROP program. The next proposed update was addition of termination of the plan in accordance with the situation that took place in the Town of Lake Park so that if the plan terminated everyone would be entitled to their payout. Another amendment was to allow the Village to pay health insurance premiums for police and firefighter retirees to third party providers because they could get up to $3,000 in income tax deductions if the premiums were paid by the Village; although not mandatory this was recommended by the attorney. The final proposed amendment was the new exclusion of forfeiture that was added to the State statutes. The IRS determination letter was discussed. Attorney Jensen advised when it was received, further changes might need to be made. Vice Mayor Paterno thanked the Board members for their service. ADJOURNMENT There being no further business, the meeting was adjourned at 11:25 a.m. Respectfully submitted, Betty Laur Recording Secretary 1 SYNOPSIS OF PUBLIC SAFETY OFFICERS PENSION BOARD MEETING 01 /22/10: 1. Duane Howison of Gabriel Roeder Smith and Company reviewed the actuarial valuation report of 10/01/2009 and discussed with the Board changes in the mortality tables, 5-year smoothing, and funding method. 2. It was requested that the monitor provide the executive summary page to Pension Coordinator McWilliams for distribution to the Village Council. 3. The actuary recommended lowering the assumption rate from 8% to 7- 1 /2 4. It was requested that the investment manager's investment process be explained at the 2/1/2010 quarterly meeting. 5. Reminder to Dan Johnson of Bogdahn that Secretary D'Ambra had requested the attribution report be provided. 6 The proposed amendments to the plan were reviewed by Attorney Jensen. END OF SYNOPSIS TEQUESTA PUBLIC SAFETY OFFICERS' PENSION TRUST FUND WORKSHOP MEETING MINUTES January 22, 2009 Call To Order and Roll Call A workshop meeting of the Tequesta Public Safety Officers' Pension Trust Fund Board of Trustees was held in the Manager's conference room at the Tequesta Village Hall, 345 Tequesta Drive, Tequesta, Florida, on January 22, 2090. The meeting was called to order at 9:00 a.m. A roll call was taken by Recording Secretary Betty Laur. In attendance at the meeting were: Chair Ed Sabin, Secretary Frank b'Ambra, Board Member Ray Giblin, and Board Member Robert Young. Board Member David Cooper was absent from the meeting. Also in attendance were Mayor Pat Watkins, Vice Mayor Tom Patemo, Council Member Calvin Turnquest, Council Member Vince Arena, Village Manager Michael R. Couzzo, Jr., Attorney Bonni Jensen, Pension Coordinator Lori McWilliams, and Recording Secretary Betty Laur. Duane Howison of Gabriel Roeder and Smith Company was present via telephone. Fire Chief James Weinand joined the mee#ing at 9:04 a.m.; Finance Director JoAnn Forsythe arrived at 9:09 a.m. Human Resources Director Merlene Reid arrived later in the meeting. Review and Discussion of Public Safety Pension Actuarial Valuation Report dated 10/1/09 Mr. Howison provided an overview of the actuarial valuation report dated 10/1/09, which determined the funding requirements for fiscal years beginning 10/1/09 and 10/1/10. The schedule of funding requirements showed a net funding requirement for the fiscal year ending 9/30/09 of $196,642. The total had jumped 16.93% of payroll since the last valuation two years ago. The estimated required contribution for fiscal year ending 9/30/11 was $102,950 for police and $285,745 for fire fighters, and the total required Village contribution was $388,695. Mr. Howison explained the fire fighters' contribution rate had been decreased from 6.1 % to 5%, and the actuary had issued an actuarial impact statement on August 1, 2008 which showed that the effect of this amendment was cost neutral to the plan because State funds were used to pay for it. The following changes had been made in actuarial assumptions and methods: 1) assumed mortality rates had been changed from the 1983 Group Annuity Mortality Table to the RP-2000 Generational Mortality Table. The RP-2000 table assumed that mortality would improve in the future. Mr. Howison referred to page 22 of the report which contained a table of life expectancy and probability of dying in the next year for different age groups. The RP-2000 table was more reflective of what was expected in the future. Because this plan had a small number of participants, only one or two outliers could cause deviations from the assumptions, no matter Workshop Meeting Minutes Board of Trustees of Public Safety Officers' Pension Trust Fund January 22, 2010 2 which table was used. The mortality change had increased the funding requirement by approximately 2-1/2% of payroll. 2) 5-year asset smoothing had been adopted to determine the actuarial value of assets. In the past, market value had been used to determine funding requirements. The smoothing method was designed not #o overstate or understate the asset value, but rather to smooth out volatility. Last year, the expected return on assets had not been met, so it was being smoothed out and they were not recognizing all of that loss this year. Secretary D'Ambra expressed concern that if the methodology were changed to smoothing during a downturn and then the markets rebounded, that was deferring putting money into the plan at a time when it would have been advantageous to do so from an investment perspective, and the cost of plan funding was increased over a period of time; therefore, from an accounting standpoint it might look a little better, but the impact was it would increase the cost to the plan because of losing out on the investment opportunities that would have been available if that money had gone in sooner. Mr. Howison acknowledged it was atrade-off between the asset performance issue and better visibility for funding requirements so that you were not faced with as steep an increase. The Board had felt it was mare advantageous to have a smoother funding rise, and you were not prevented from putting in more than required in a down market. Mr. Howison agreed it was a matter of paying sooner or later. Chair Sabin commented when the decision was made to go to the smoothing method, the Board had been advised that most plans followed the smoothing method. Discussion ensued. Secretary D'Ambra commented he did not disagree with using the smoothing method, but if it were possible to contribute at a higher level to take advantage of market opportunity, he believed it would be in everybody's best long-term interest to do so. Chair Sabin advised the Board could consider recommending to the Village Council that the Village consider go higher than the minimum contribution, and the investment manager could provide advice on that based on the markets. Secretary D'Ambra did not agree wi#h going with smoothing just because other plans did it. Vice Mayor Paterno asked if smoothing would mask investment returns in bad times, making it hard to evaluate the investment manger's performance. Chair Sabin responded that the investment monitor measured the plan against peer groups. Attorney Jensen advised there was a report that gave that analysis. Vice Mayor Paterno commented the Village Council did not always realize the concerns, they just saw the amount of cash they needed to put in. Attorney Jensen suggested sending the Council the executive summary page, and Chair Sabin advised the Board was happy to work with Pension Coordinator McWilliams to give the Council that snapshot of investment performance as well as contributions. Council Member Arena noted the losses were not earth-shattering figures, and must be weighed against taking it easy on your budget and going over five years-which one really Workshop Meeting Minutes Board of Trustees of Public Safety Officers' Pension Trust Fund January 22, 2010 3 helped the Village more. Attorney Jensen noted the actuary had calculated the contribution that would have been needed if smoothing not been used, 21.14%, and it was possible to convert that to a dollar figure. Vice Mayor Paterno commented by changing the methodology during a down time it made a big difference because under the old method it would have been 80% funded and under the new method it was 97% funded. Discussion ensued regarding the Council meeting when this was decided, whether advice had been to hold back. Secretary D'Ambra commented the plan was now underfunded by a million dollars, which was masked by the smoothing. Chair Sabin expressed his opinion that the million dollar shortfall could not be contributed solely to the smoothing, but primarily to the decline in market values. Discussion ensued. Chair Sabin requested clarification from Mr. Howison, who referred to the bottom of page 2 of the actuarial valuation report which discussed the difference in the funding using the old and new methods. Chair Sabin clarified that there was no question that smoothing had an impact, but it should be made clear there were different methods that could be used to determine funding position, and if you changed your method of calculation to a market value of assets calculation you were 80% funded, but if you used the various rules promulgated by government accounting, and financial accounting boards relative to actuarial valuation, which could be argued were not as meaningful, that was where one got to the 97%. Mr. Howison agreed that to dump to the conclusion that the plan was 80% funded because of a change in methodology for the assumptions was not accurate; the funding requirement would have been a little over 4% of payroll higher, or approximately $100,000, if market value were still being used. Secretary D'Ambra questioned the length of amortization of the investment loss; Mr. Howison responded it was now 20 years. 3) The funding method had been changed from the Aggregate Funding Method to the Entry Age Normal Funding method. Mr. Howison explained the entry age normal method was more commonly used by municipal plans. The net effect of this change brought the funding requirement down a little. If two plans were identical from their inception, with one using the aggregate funding method and the other using entry age normal funding method, there would not be much difference in the funding patterns between the two methods. Under the aggregate method losses would be amortized over a shorter period; most plans under entry age normal funding amortized over 30 years and paid it off like a mortgage. In this plan the unfunded amount amortization was as a level dollar amount over 20 years, so the payment would be level in the future, but as payroll went up this would go down. Discussion of IRS amortization times ensued. Mr. Howison explained there was not much difference for this plan between the two methods. Attomey Jensen explained State law provisions would apply to the pension fund. Secretary D'Ambra asked if the Board should move in the direction of the IRS amortization period of 7 years. Attomey Jensen explained she did not know if that would be best practice since this had been developed for Workshop Meeting Minutes Board of Trustees of Public Safety Officers' Pension Trust Fund January 22, 2010 4 private plans the Village was always meeting its funding requirements as required under Florida law, which was different for many private plans. Chair Sabin confirmed with Mr. Howison the Village's investment gains and losses were amortized over 20 years at a level dollar amount. Chair Sabin expressed his understanding the effect of investment gains or losses in any one year was spread over a 10-year period, and now that smoothing had been introduced, in the first year 20% went in, in the second year 40%, etc., so in effect it took a little longer than 10 years to get the foil effect in the calculation. Mr. Howison responded that was mixing two components-one was the investment loss, and that was recognized over 5 years, but the other piece was the smoothing method which extended 20 years. Chair Sabin called attention to prior minutes with an example presented by Mr. Palmquist of an $80,000 loss before smoothing and #hen wi#h the smoothing method. Since Mr. Palmquist had used the terminology "future working lifetime", Mr. Howison advised that referred #o the aggregate funding method. Secretary D'Ambra asked the contribution range--Mr. Howison advised there was no maximum, but there were different ways to increase the funding requirement, such as shortening the amortization period; however, since the debt payment was only about $33,000, it would not make a huge difference. Attorney Jensen advised private sector plans had a range, in governmental plans the loss could be fully funded. Village Manager Couzzo and Council Member Arena discussed what had happened at the Council meeting when there had been an opportunity to invest, but that opportunity had not lasted. Chair Sabin noted no one had a crystal ball, and when the Board had made these decisions, they were trying to adjust to more up-to-date assumptions. Mr. Palmquist had advised at the time that in good times was when the assumptions should be dealt with, and the Board would continue to evaluate these items going forward. Mr. Howison talked about the investment return assumption-it was now 8% and the actuary would like it to go down to 7-112%. They had done a study last spring and recommended lowering the rate #0 7-1/2% or 7%. Chair Sabin advised that would be taken up with the investment manager. Mr. Howison advised a reduction of '/z% would result in approximately 4% percent of payroll increase in funding requirement. Discussion ensued. Village Manager Couzzo indicated all of the assumptions decreased the expectation and increased the contribution, and reduced the risk because the assumptions were not as great. Mr. Howison confirmed the investment return was a net percentage. Expenses were running 1-1/2%. Workshop Meeting Minutes Board of Trustees of Public Safety Officers' Pension Trust Fund January 22, 2010 5 Mr. Howison cautioned to keep in mind the plan was young, so a 20-year amortization made sense, since those people should still be in the plan receiving benefits for several years. Mr. Howison reviewed the chapter revenue chart on page 3 of the actuarial valuation, which was actuarial confirmation of the use of State Chapter money. Secretary D'Ambra asked if as salaries went up, the base amount changed. Mr. Howison advised that amount was static unless some type of plan improvement was implemented. Secretary D'Ambra commented Florida League of Cities was trying to get the State to make a change so that if the plan met State requirements these dollars might be released #or funding purposes. Attorney Jensen advised it could be proposed for this legislative session but she had not seen anything yet. Council Member Arena asked if the firefighters' contribution had been reduced from 6.1 % to 5% because State funds were being received on fire insurance, if it went down why would the Village have to suffer? Would the fire contribution then go back to 6.1 %? Attomey Jensen advised the State had taken the position that in order to increase employee contributions there had to be some corresponding benefit-it did not have to equal the cost of the increase in the contribution. There was no clear definition of a benefit-i# would have to be something better than they had. This was only for 175 and 185 money. Mr. Howison confirmed when returns did not meet the assumption the Village was responsible to make up the difference. Vice Mayor Paterno asked if going forward returns were not meeting the assumption, could the additional State funds be used to pay that, to which the response was no. It was confirmed that the employee contribution could be raised by negotiation. Further discussion ensued regarding the 6.1 % contribution versus 5%. Mr. Howison advised that comparable plans around the state were paying much higher contributions, such as 30% of payroll, and this plan had been well-funded in the past, which helped with the present contribution rate. The FRS rate was currently 20.92%. Mr. Howison left the meeting at this point. Qiscussion of Alternative Investment Strate4ies and Investment Manager Performance Secretary D'Ambra expressed his concerns. He stated he had asked Dan Johnson of Bogdahn if he could succinctly describe the investment process utilized by Rockwood, and did not get an answer he was comfortable with-he talked about being opportunistic, about black box quantitative methodology, and if the manager could not explain to him how they made money, he had a concern. He recognized that was not the manager, it was the monitor, but the monitor made a recommendation, and the response did not make him Workshop Meeting Minutes Board of Trustees of Public Safety Officers' Pension Trust Fund January 22, 2010 6 comfortable. As a consequence of that, he did not have a clear expectation of how they should be performing in relation to the market cycle. He would like to see that addressed. Chair Sabin responded that twice a year, the investment manager met with the Board and there was a lengthy discussion, and the investment manager would be able to answer his questions specifically. Attorney Jensen expressed her opinion the investment manager should be notified the Board wanted that information so they could bring their materials, and when they were hired they had pretty substantial discussion about their methodology. Secretary D'Ambra commented befiore they were hired the investment manager's performance had been good, and after they were hired it had not been nearly as strong. He had real concerns about their performance over the past three years. Also, when you looked at managers in the top quartile and how they performed over five years, the success rate of them repeating that performance was only about 18%-19% on average, so what comfort did he have in the methodology of manager selection that they would perform at a high level going forward. Another concern was there was only one manager with one style managing both fixed income and equities. He understood that to diversify would mean using some bonds or other vehicles, but he thought that should be discussed with the manager as a possibility. On the fixed side, he was concerned with duration being so much shorter than the government corporate bond index. Secretary D'Ambra wanted these concerns discussed at the next meeting. Chair Sabin responded these were similar issues to what was discussed at each semiannual meeting with the investment manager, which was usually an hour to an hour and a hall discussion. Vice Mayor Paterno indicated he was curious whether Bogdahn was more concerned with this pension or how it did in the universe. Attorney Jensen advised there was an attribution report the Board did not receive. Secretary D'Ambra asked that Mr. Johnson be reminded he had asked that the attribution report be provided. Secretary D'Ambra also wanted to know if they were compliant. Vice Mayor Paterno commented he had the Finance Director call 8ogdahn last week to ask how they came up with their returns, internal rate of return, and weighted return. Attorney Jensen responded, clearly Mr. Johnson should be asked, but it was her understanding Bogdahn took the fund's custodian's reports and input each and every item and replicated each to come up with their reports. Vice Mayor Paterno responded it was his understanding they took into consideration al{ the costs and contributions included in their rate of return. Attorney Jensen explained they did a financial reconciliation and netted out contributions; #hey showed the capital appreciation and income. It was her understanding it was an exact replication of what had happened, and contributions did not count in the rate of return. Finance Director Forsythe advised she had spoken with them regarding internal rate of return which took Workshop Meeting Minutes Board of Trustees of Public Safety Officers' Pension Trust Fund January 22, 2010 ~ into account everything and weighted return which did not; she would have thought the weighted retum would have been lower, but in fact, it was not. Vice Mayor Paterno indicated his question was exactly what rate of return they were showing. Secretary D'Ambra commented they should be compliant with approved method of computation of return and if the manager was not compliant that was a reason for concern. Chair Sabin responded not to jump to that conclusion; Secretary D'Ambra responded at the last meeting he asked for some changes in the report for clarification, which he hoped Bogdahn had done. Packets for the next meeting were distributed so that the members could took at the current monitor's and manager's reports. Attorney Jensen advised she did not look so much to the manager's quarterly returns because they were marketing for themselves---not that they would misstate their returns, but if there were a doubt they would go in their own direction. Her judgment of the manager's returns was really on the monitor's report, because they mimicked the portfolio and were able to report from an independent standpoint, they had a fiduciary relationship to the Board and a responsibility to report to the Board in the plan's best interests. The monitor's report was a clearer picture of the returns. The manager brought their market outlook and their future determination of what the funds should be invested in, the particular market environment, and what should be done going forward. Vice Mayor Paterno commented at one time the manager was using a different cutoff than Bogdahn; Attorney Jensen responded they might have used a different start date-the date that Rockwood actually started investing as opposed to Bogdahn, who probably used an official cutoff such as the beginning of a quarter. Secretary D'Ambra wanted to see a full year calendar summary; Chair Sabin pointed out that information. Other Matters Vice Mayor Paterno asked that the proposed ordinance be addressed. Attomey Jensen went #hrough the proposed amendments to the plan document and explained each one, whether it was voluntary or mandated, and where the wording had come from. The amendments were the HEART provision, in which the death benefit was mandatory, and the disability portion was not; the definition of firefighter which had been omitted but should have been included because the plan covered the firefighters; definition of salary to include differential wages; change in designated beneficiary up to twice; increasing Board terms from 2 to 4 years which was voluntary and recommended by the attorney; fund management authorizing someone who had fiduciary responsibility to make payments, and if internal control procedures could be met a signature stamp could be used; foreign investments were proposed to be raised to 25% from 10% which was recommended by the monitor; divestiture from scrutinized companies. There was discussion regarding how one would go about reverting back to a 6.1 firefighter contribution should 175 money ever become insufficient to make up the 1.1 % difference; Attomey Jensen commented the question at that point Workshop Meeting Minutes Board of Trustees of Public Safety Officers' Pension Trust Fund January 22, 2010 8 would be whether the State would require some sort of a benefit. Another proposed amendment was to clear up language regarding payment of disability benefits that conflicted with the mandated HEART provision. There was discussion regarding the DROP program. The next proposed update was addition of termination of the plan in accordance with the situation that took place in the Town of Lake Park so that if the plan terminated everyone would be entitled #o their payout. Another amendment was to allow the Village to pay health insurance premiums for police and firefighter retirees to third party providers because they could get up to $3,000 in income tax deductions if the premiums were paid by the Village; although not mandatory this was recommended by the attorney. The final proposed amendment was the new exclusion of forfeiture that was added to the State statutes. The IRS determination letter was discussed. Attorney Jensen advised when it was received, further changes might need to be made. Vice Mayor Patemo thanked the Board members for their service. ADJOURNMENT There being no further business, the meeting was adjourned at 11:25 a.m. Respectfully submitted, Betty Laur Recording Secretary