MINUTES OF THE MEETING OF THE GENERAL EMPLOYEES PENSION BOARD, AUGUST 15, 2011 Present: Chair Mike Taylor, Vice-Chair Cheri Potts, Secretary Pamela Nadalini, Treasurer Christopher Lyons, and Trustees Barry Keeler, Susan Kosko, and Gretchen Schneider Absent: None Others Present: Attorney Scott Christiansen, Mr. Charlie Mulfinger, Graystone Consulting, Pension Plans Administrator Benita Saldutti, Pension Analyst Gail Loeffler, and Staff Member Diane Torres CALL TO ORDER Chair Taylor called the meeting to order at 8:30 a.m. APPROVAL OF THE MINUTES OF JULY 18, 2011 Chair Taylor noted Board consensus to approve the minutes of July 18, 2011. APPROVAL: EARLY TERMINATION BENEFIT FOR STEVEN STAFFORD, RETIREMENT REQUEST OF WENDY BURKE AND DAVID HILL Ms. Saldutti stated that the early termination for Steven Stafford is effective August 1, 2011, that he is 54 years and 2 months of age, with 20 years and 8 months of service, and has selected the option to change joint annuitant to 75%. Ms. Saldutti stated that Wendy Burke, 62 years and 7 months of age, with 23 years and 6 months of service is requesting retirement with the lifetime option, effective September 1, 2011. Ms. Saldutti stated that the retirement request for David Hill effective September 1, 2011, was previously approved by the Board but he has changed his option to the Lifetime Option. On a motion of Trustee Kosko and a second of Trustee Schneider, it was moved to approve the early termination of Steven Stafford, the early retirement request of Wendy Burke, and the change in the benefit option for David Hill whose retirement request was previously approved by the Board. Motion passed unanimously. INVESTMENT REPORT: GRAYSTONE CONSULTING Mr. Mulfinger gave an overview of the economy and presented the portfolio results of the quarter ending June 30, 2011. He stated that the portfolio balance had a loss of $29,032 net of fees at the end of the second quarter resulting in a portfolio balance of $124,388,294. He continued that the total return of the portfolio was 0.12% gross of fees compared to the benchmark of 0.49%. August 15, 2011 1 Chair Taylor questioned what other steps can be taken as the portfolio already seems well diversified. Mr. Mulfinger stated that he would recommend the Board consider moving some equity to private real estate or hedge funds if the market rebounds to previous levels. Chair Taylor questioned whether the Board should change their investment philosophy since the Commission will be closing the Defined Benefit (DB) plan to new employees. Mr. Mulfinger stated that the Board should become more conservative over time. DISCUSSION RE: ACTUARIAL ASSUMED RATE OF RETURN Chair Taylor stated that the Board will be discussing whether to reduce the actuarial assumed rate of return by 0.2 per year, if circumstances are warranted, resulting in a more controlled decrease rather than one large decrease. Mr. Mulfinger stated that reducing the assumed rate of return over time rather than one large decrease is supported. He continued that the longer-term projection of growth has remained consistent over the past three years which is historically low. Treasurer Lyons asked Attorney Christiansen whether the Board places itself in jeopardy of not making an appropriate fiduciary decision if they do not lower the assumed rate of return if data indicates the rate of return should be lowered. Attorney Christiansen responded that the Board is responsible to make decisions based on realistic long-term expectations. He stated that lowering the assumed rate of return to 6% seems drastic based on the long-term growth of the market over history, and a rate in excess of 8% is higher than most other public pension funds. He continued that unlike some other states, Florida law requires that plans be properly funded in accordance with the requirements of the Actuarial Valuation. Chair Taylor passed the gavel to Vice Chair Potts. On a motion of Chair Taylor and a second of Secretary Nadalini, it was moved to consider reducing the actuarial assumed rate of return from 8.3% to 7.5% on the next actuarial valuation based on the data presented. Chair Taylor stated that the motion was made as the Commission has criticized the Board for not reducing the assumed rate of return. He stated that he is willing to address the criticism of a Commissioner who has indicated the actuarial assumed rate of return should be closer to 6% by proposing to reduce the actuarial assumed rate of return to 7.5% as soon as possible. Secretary Nadalini stated that the Board should take a long-term view. She continued that the Board should not be reactive but rather carefully evaluate the decision of lowering the assumed rate of return. Secretary Nadalini asked Attorney Christiansen if the City Commission can contribute more to the Pension Fund if they believe the funding level is insufficient. Attorney Christiansen responded that the City may contribute more than the amount listed by the Actuarial Valuation. August 15, 2011 2 Chair Taylor stated that he felt the Commission believed the Board was not acting responsibly for having a realistic assumed rate of return. He continued that he wanted to provide an opportunity for the Board to address the belief that the Board acting less than responsible. Vice Chair Potts called for a vote on the motion to consider reducing the actuarial assumed rate of return from 8.3% to 7.5% at the next actuarial valuation based on the data presented, which passed by a 4-3 vote with Chair Taylor and Trustees Keeler and Schneider voting no. Chair Taylor stated that although he made the motion to reduce the actuarial assumed rate of return from 8.3% to 7.5%, he did not support the motion. He indicated that he made the motion for discussion to address a point of view that the actuarial assumed rate of return is too high and should be reduced quickly. Although he agreed the rate of return should be reduced, he stated that it should not be reduced by such a large amount at one time, that a gradual transition would be in the best interest of the Pension Plan and the City. DISCUSSION: PROCUREMENT PROCEDURES Ms. Saldutti stated that a concern was raised by the City's Purchasing Manager as to whether the Board was required to follow the City's normal procurement procedures when hiring consultants. Attorney Christiansen referred to his memo of August 1, 2011 which confirms that the Board is operating within its legal rights. FIDUCIARY INSURANCE POLICY Ms. Saldutti presented the quotation for raising the annual aggregate limit of liability from $1 million with no deductible to $2 million with a $50,000 deductible or $3 million with a $50,000 deductible. She stated that the Board's current policy does include defense costs. Attorney Christiansen recommended increasing the annual aggregate limit. On a motion of Treasurer Lyons and a second of Secretary Nadalini, it was moved to increase the annual aggregate limit of liability from $1 million with no deductible to $3 million with a $50,000 deductible per claim at a cost of $13,890.29. Motion passed unanimously. STATUS REPORT: DEFINED CONTRIBUTION PLAN Ms. Saldutti distributed to each Trustee their personal estimates under the proposed changes to the pension plan and a list of questions to which answers will be provided in the future. She requested Trustees to review and advise of any additional questions which should be added to the list. She stated that an ordinance which closes the existing pension plan to new employees and creates a Defined Contribution (DC) Plan for new employees hired on or after September 7, 2011 will be presented to the Commission tonight. She continued Staff will continue to work on the preparation of an ordinance to implement the changes to the existing pension plan which were agreed to by the City and the Teamsters Union. She continued that August 15, 2011 3 group meetings will be held for existing employees to become better educated on the changes to the pension plan. Ms. Saldutti stated that Trustees are cautioned not to give advice to other members of the general employees' pension plan as to which option they should choose but rather to advise them to seek independent professional investment advice. OTHER MATTERS Actuarial Assumed Rate of Return Secretary Nadalini stated that she wished to reconsider her vote to reduce the actuarial assumed rate of return from 8.3% to 7.5%. Attorney Christiansen stated that a motion to reconsider the vote must be passed. On a motion of Secretary Nadalini and a second of Vice Chair Potts, it was moved to reconsider the motion to reduce the actuarial assumed rate of return from 8.3% to 7.5%. Motion passed unanimously. On a motion of Secretary Nadalini and a second of Vice Chair Potts, it was moved to direct the actuary to prepare the necessary documentation to reduce the actuarial assumed rate of return from 8.3% to 8.0%. Motion passed by a 6-1 vote with Treasurer Lyons voting no. Financial Disclosure Forms Attorney Christiansen stated that all Trustees have submitted the financial disclosure forms. General Employees' Tentative Union Agreement Attorney Christiansen stated that the limitation of up to 300 hours of overtime in pension benefit calculations must be included in the ordinance which will be drafted to make all the necessary modifications to the General Employees' Pension Plan. Verification of Benefits Ms. Saldutti stated that the Pension Office is in the process of verifying benefits of retirees. She continued that after three notifications all but six people have responded. She stated that the last notification informed the retirees that their pension payments will be stopped if no response is received. Attorney Christiansen stated that the Pension Office should send a notification via certified mail to inform retirees of a public hearing which will result in discontinued benefits if no response to the certified mail notification is received. He continued that an item should be placed on the Agenda of the September 19, 2011, General Employees' Pension Board meeting. August 15, 2011 4 Next Meeting The next regular meeting will be on September 19, 2011, in the City Commission Chambers. ADJOURN The meeting was adjourned at 10:01 a.m. Michael Taylor, Chair Pamela Nadalini, Secretary August 15, 2011 5