Book 1 Page 79 02-17-2022 10:00 a.m. MINUTES OF THE EMPLOYEE RETIREMENT ACCOUNT COMMITTEE REGULAR QUARTERLY MEETING OF FEBRUARY 17, 2022. Present: Chair Aaron Olson, Vice Chair Jeffrey Vredenburg, Treasurer Kelly Strickland. Secretary Shayla Griggs, and Member Lauren Sullivan. Others: Pension Plans Administrator Debra Martin and Pension Specialist Peter Gottlieb. Absent: None 1. CALL THE MEETING TO ORDER: Chair Olson called the meeting to order at 10:00 a.m. 2. PLEDGE OF ALLEGIANCE: Presenter: Secretary Griggs Secretary Griggs led the Board and meeting attendants in the Pledge of Allegiance. 3. PLEDGE OF CIVILITY: Chair Olson stated for the record, "We may disagree, but we will be respectful of one another. We will direct all comments to issues. We will not engage in personal attacks. a 4. ROLL CALL: Presenter: Pension Plans Administrator Martin Pension Plans Administrator Martin called roll. All committee members were present. 5. PUBLIC INPUT: None. 6. APPROVAL OF MINUTES: 6.1. Approval Re: Minutes of the Employee Retirement Account Committee Regular Quarterly Meeting of November 18, 2021. Presenter: Chair Olson. Vice Chair Vredenburg made a motion to accept the minutes of the November 18, 2021, meeting; Secretary Griggs seconded the motion. The motion carried unanimously (5-0). 7. QUARTERLY INVESTMENT REPORTS: 7.1. Presentation and Discussion Re: AIG Retirement Services, ERAC Report for Quarter Ending December 31, 2021. Presenter(s): Gregg Hudak, Financial Advisor, Trent Harris, Financial Advisor, and Lilia Pivetta, Relationship Manager, VALIC Financial Advisors, AIG Retirement Services. Mr. Harris and Mr. Hudak appeared before the Committee and introduced themselves. Mr. Harris stated that there have been no new enrollments since the City opted into the Florida Retirement System. He has continued to work with Pension Administration to schedule on-site visits at City Hall, Sarasota Police Department, 12th Street, and Van Wezel Hall to meet with participants with positive engagement. Pension Plans Administrator Martin noted that employees appreciate his availability and efforts. Secretary Griggs also expressed her appreciation to Mr. Harris. The Committee thanked Mr. Hudak and Mr. Harris for their presentation. 7.2. Presentation and Discussion Re: Quarterly Investment Analysis Review Ending December 31, 2021. Presenter: Howard Daher, Principal, Daher Capital Group. Mr. Daher appeared before the Board and introduced himself. Mr. Daher noted that, although his presentation is focused on the 4th quarter of 2021, he would also discuss some of the events which have happened in the 1st quarter of 2022. He discussed the Market Insight Quarterly, noting the 2021 annual return for the S&P 500 was nearly 29%; the NASDAQ, which is considerably more weighted in technology than the S&P, trailed with 22% annual returns. The S&P continues to drive the market, and the market continues to favor large cap stocks to mid- and small-cap stocks. The economy continues to recover and grow slowly, although the concerns which plagued the market in 2021, including inflation, wage inflation, supply chain issues, have continued into 2022. The economy continues to favor larger companies which have the resources to overcome supply chain issues while smaller and mid-sized companies remain hampered. International markets continue to trail the US. He noted that more than 33% of the Plan's participants are invested in domestic, large-cap stocks, and significantly less in mid- and small-cap, or international. 2021 was a strong year for the market, although from January 1, 2022 through close of business on February 16, 2022, the S&P 500 was down 6%; that notwithstanding, the 1-year return for the S&P is still 14%. Mr. Daher reminded the Committee of the importance of analyzing the market from a bigger picture perspective and less on day-to-day quantifications. The Federal Reserve Bank has begun the process of increasing interest rates by up to 1.5% over several increments; the market has already begun to respond. Generally, markets are down. The NASDAQ, which is more heavily weighted in technology than the S&P, is down 10%, which is to be expected, and the Dow Jones is down 4%. To Mr. Daher's question, Mr. Harris noted that he has had a few participants contact him regarding declining account balances, but not an alarming amount as of yet. Mr. Hudak pointed out the importance of recognizing the gains of the past several quarters when discussing the calendar year-to-date performance. Mr. Daher discussed the importance of resetting investors' expectations to pre-pandemic levels. Vice Chair Vredenburg asked Mr. Harris if he had noticed any requests from employees for withdrawals due to economic hardships. Mr. Harris noted that there is no access to a participant's account while that participant is employed. Pension Plans Administrator Martin noted there are requests for emergency withdrawals from the 457(b) Plan, however that Plan is not under the purview of this committee. Mr. Daher reviewed the Performance Summary, noting there are only 3 funds on the Watch List and that this page does not factor risk into the data. Regarding the Vanguard Equity-Income Fund, he explained it received a failing score only because of its performance relative to its benchmark, however it still retured 25% in 2021, and it focuses on stocks which pay dividends, while its benchmark does not. The Equity- Income Fund's growth/dividend strategy provides downside protection as, year-to-date, it is down.16 basis points while the category is down 1%. He recommends keeping the fund on watch, but no action. Mr. Daher Book 1 Page 80 02-17-2022 10:00 a.m. Book 1 Page 81 02-17-2022 10:00 a.m. noted that the 3 funds on the Watch List hold approximately 5% of the total participants' assets, sO there is a relatively small exposure. He stated that the DFA Enhanced US Large Company is on watch due to risk factors. While it has had good performance, it has higher risk and typically fluctuates through greater ranges than comparable funds. Further, it has higher fees than other funds in this category. He is not specifically concerned at this time because it has performed well in rising markets, however he recommends leaving it on watch. Regarding the VALIC Company Small Cap Special Value fund, despite returning 29% in 2021, it was in the bottom half of its category; its inclusion on the Watch List is due only to its performance relative toi its benchmark. Long-term, the Company Small Cap Special Value has performed well. Year-to-date, it is down 3%, compared to the S&P's down 6%. Generally, Mr. Daher had no strong concerns regarding the watchlist when considering the 5- and 10-year performance results. Chair Olson asked if there is a comparable time when the Fed increased interest rates by 1.5%, and how did the market react. Mr. Daher stated that this is an unprecedented period in the context of the global shut- down, low interest rates, and supply chain issues. He anticipates market volatility as well as negative returns, however the duration of those periods is uncertain. Mr. Daher stated there is an appetite for risk, especially in bond investors. As the Fed raises interest rates, bond holders will sell their current holdings to purchase higher yield bonds, which brings more volatility. The equity markets will be similarly volatile as highly leveraged companies will find borrowing to be more expensive, but not to the degree as bond markets. Mr. Hudak added that inflation will also have an impact on retirement accounts in that, in his experience, as costs go up, participants reduce their contributions. Mr. Daher discussed how the market hasn't been performing based on fundamentals and pontificated as to whether interest rate increases will bring a return to rationality amongst investors. While he anticipates growth in the bond market, he does not expect a dynamic bond sector because, even after a 1.15% increase, rates will still be relatively low. In that context, he believes the S&P will have high-single to low-double digit returns for the year because corporate earnings look good. Mr. Harris noted that Fed announcements do not typically give specific information, and therefore it is difficult to predict the Fed's actions until they are taken. Mr. Daher discussed the Asset Allocation by Fund. He explained that the Vanguard Wellington Fund and NASDAQ 100 Index fund have approximately 34% of the plan assets. He stated that 45% of the NASDAQ 100 Index is weighted in technology. While the top 5 holdings represent $14 million, or 62% of the account balances, Mr. Daher asserted this is not concerning as the funds are in equities, which is the sector where the most recent growth has been, ori in well diversified portfolios. He does not believe the funds menu have too much risk, and the target date funds reduce risk over time as participants reach retirement age. He believes the offered funds are sufficient for participants' needs as all asset classes are represented. Chair Olson asked Mr. Harris if he's observed a significant transition from the Vanguard Wellington fund, which had been the Plan's default investment, into the target date funds. Mr. Harris stated he has not, however it is difficult to compare the two funds considering the original Vanguard Wellington Fund is the oldest fund in market. He, Mr. Hudak, and Mr. Daher discussed why the Wellington Fund is attractive and consistently performs well over time, which makes it less likely for investors to move away from it into a target date fund. Mr. Daher asked Mr. Harris if, during volatile markets, he sees more participants logging into VALIC's portal to review their investments or do participants call him directly. Mr. Harris stated that he does not have access to participant log-in numbers; Mr. Hudak stated he would bring engagement details to the next meeting. Mr. Daher reviewed the Watch List and Historical Look-back. Referring to Wellington's Fund Fact Report, Chair Olson asked Mr. Daher if there were any lessons to be learned from the fund's performance from Q4 2019 though Q1 2020. Mr. Daher stated that without the fund manager present to discuss their strategy and outlook, it would be difficult to comment. That notwithstanding, the Wellington Fund will always tilt towards equities and that strategy has paid off over time. Mr. Harris noted that Q1 2020 was the beginning of the Corona virus pandemic and that pulled most stocks down. Mr. Daher provided a brief analysis of the fund compared to its benchmark but emphasized that a more meaningful discussion would need to include the fund manager. The Committee had no further questions and thanked Mr. Daher for his presentation. 8. UNFINISHED BUSINESS: None. 9. NEW BUSINESS: None. 10. OTHER MATTERS: 11. ADJOURN. Chair Olson adjourned the Employee Retirement Account Committee (ERAC) Regular Quarterly Meeting at 10:51 a.m. Char Aaron Olson Secretary Shayla Griggs Book 1 Page 82 02-17-2022 10:00 a.m.