Book 1 Page 103 9-14-2023 10:00 a.m. MINUTES OF THE EMPLOYEE RETIREMENT ACCOUNT COMMITTEE REGULAR QUARTERLY MEETING OF SEPTEMBER 14, 2023 Present: Chair Jeffrey Vredenburg, Vice Chair Aaron Olson, Treasurer Kelly Strickland, Secretary Shayla Griggs, and Member Lauren Sullivan (telephonic). Others: Pension Plans Administrator Debra Martin and Pension Specialist Peter Gottlieb. Absent: None 1. CALL THE MEETING TO ORDER: Presenter: Chair Vredenburg. Chair Vredenburg 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 Vredenburg 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." 4. ROLL CALL: Presenter: Pension Plans Administrator Martin. Pension Plans Administrator Martin called roll. Chair Vredenburg, Vice Chair Olson, Treasurer Strickland, and Secretary Griggs appeared in person. Member Sullivan appeared telephonically. By consensus, the Committee agreed Member Sullivan could participate in the meeting telephonically. 5. PUBLIC INPUT: None. 6. APPROVAL OF MINUTES: 6.1. Approval Re: Minutes of the Employee Retirement Account Committee Regular Quarterly Meeting of June 1, 2023. Presenter: Chair Vredenburg. Treasurer Strickland made a motion to accept the minutes of the June 1, 2023, meeting; Secretary Griggs seconded the motion. The motion passed unanimously (5-0). 7. QUARTERLY INVESTMENT REPORTS: 7.1. Presentation and Discussion Re: AIG Retirement Services, ERAC Report for Quarter Ending June 30, 2023. Presenter(s): Trent Harris, Financial Advisor VALIC Financial Advisors Inc. Mr. Harris appeared before the Committee and introduced himself. Mr. Harris presented the engagement reports in the materials. He advised that the first slide shows his interactions with members; the blue portions of the charts represent actual engagements with members, either virtual or in-person, and the portions inj yellow represent attempts to engage with members. He noted that the amounts for 2023 Q3 are through September 5, 2023, which does not represent a full quarter. The second slide shows members' interactions with the Client Care Center. On the last slide, the portion in green shows the number of members who have logged into VALIC'sV website, and the portion in teal shows the number of members who logged into VALIC's app. He anticipates providing these reports to the Committee quarterly. To Treasurer Strickland's question, Mr. Harris clarified that the information is based on calendar years and not fiscal years. Vice Chair Olson asked if the data presented could show the number of unique members across a longer timeframe sO that, if one member logged in one time each quarter, that member would represent a single, unique client interaction across that larger timeframe. Mr. Harris explained that, in his experience, the majority of client interactions each year are unique events, and he does not typically see the same members each quarter; although in some instances, multiple meetings with a single client is appropriate. He attempts to meet with every member at least once each year and would review Vice Chair Olson's request. The Committee thanked Mr. Harris for his presentation. 7.2. Presentation and Discussion Re: Quarterly Investment Analysis Review Ending June 30, 2023. Presenter: Howard Daher, Principal, Daher Capital Group. Mr. Daher appeared before the Board and introduced himself. Mr. Daher reviewed highlights from the Market Summary for Q2 2023 and noted that market trends recently have been more jagged than in the past, meaning drop-offs and rallies occur more rapidly when, in the past, they occurred over greater timeframes; he asserted this is largely a function oft technology. He added that approximately 25% of the S&P index is technology stocks. Notwithstanding its significant rise in Q1 and Q2, the S&P 500, as of Tuesday, September 12, 2023, remainedj just above 16% for they year, indicating at flat to slightly negative performance since the end of Q2 2023. The Nasdaq, which is approximately 60% technology, has also had a remarkable rally in the first half of 2023; the VALIC NASQAD-100 Index fund, which is one of the Plan's top 5 holdings, is up 39% for the year. Despite an abundance of negative news on inflation, interest rates, employment and wages, and the war in Ukraine, the market remains generally positive. He noted that the market has historically trended upwards in election years, which bodes well for 2024. While generally all asset classes are improving, large-cap stocks are outpacing small- and mid-cap stocks; he added that some analysts continue to forecast a recession in 2024. While bonds lost 1% during the quarter, they were up 2% through Q2 2023; over 5 years, they average a 2% return. Turning to the Investment Analysis Review, Executive Summary, Mr. Daher noted the iShares S&P 500 Index has an expense ratio of 3 basis points, while the Fidelity 500 Index fund has an expense ratio of 2 basis points; considering the popularity of S&P 500 index funds, Mr. Daher recommended the Committee replace the iShares S&P 500 Index fund with the Fidelity 500 Index fund based solely on their respective costs; the long-term performance metrics for both funds are the same. In the Large Cap Growth class, Mr. Daher explained that, although the MFS Growth fund is up 24% year- to-date, it continues to underperform relative to its peer group; he included 3 potential replacements with their performance profiles relative to the peer group. Mr. Daher directed the Committee to the Performance Book 1 Page 104 9-14-2023 10:00 a.m. Book 1 Page 105 9-14-202310:00 a.m. Summary for additional performance data for the MFS Growth fund and the suggested replacement funds. He noted that the Net Expense for the replacement options are each higher than the MFS Growth fund, however the performance is net of the expense. Also noteworthy is that the manager at the Delaware Ivy Large Cap Growth (Delaware) fund has been with the firm only 4 years; Mr. Daher typically prefers managers to be with their firm for at least 3 years to demonstrate a performance record, if not 5, or even 10years to include complete market cycles. Another consideration is that the Delaware fund is concentrated in only 34 stocks; MFS Growth holds approximately 70 stocks, and the peer group averages 62 stocks. Because of Delaware's concentration, 60% of the assets under management are within 10 stocks. By comparison, JP Morgan Growth Advantage (JP Morgan) fund holds approximately 80 stocks and is slightly overweight to large cap growth stocks, although it does hold some mid-cap stocks. Putnam Large Cap Growth (Putnam) fund is even more concentrated in large cap growth and has allocated 46% of the portfolio to technology, compared to the MFS Growth's 37% allocation to technology. JP Morgan's fund manager has been with the firm for 8 years, Putnam's for 5 years, and MFS Growth's for 12 years. He noted that Putnam holds only 59 stocks. Mr. Daher recommends replacing MFS Growth with JP Morgan because the data points he referenced are more appropriate for the Plan; he would recommend Putnam second and Delaware third due to their respective concerns. To Vice Chair Olson's question, Mr. Daher advised he does not know what the average tenure was for a typical fund manager. Mr. Daher and Mr. Harris noted that there are more mutual funds than stocks in which compared fund manager's tenure duration was. Mr. Daher discussed the challenges in picking stocks in the technology sector as the largest tech companies tend to buy up innovative developing companies which further concentrates the market in those largest companies. Mr. Daher discussed the Ariel Fund, noting it rallies higher in rising markets and declines more in down markets when compared to its benchmark. Because its performance profile is a known quantity, he does not currently recommend replacing the Ariel fund. Fidelity Select Health Care is also on the Watchlist; Mr. Daher noted that the assets have grown somewhat since June 30, 2023, and it has had positive year-to-date performance, while the Dow Jones HealthCare fund benchmark had negative performance for that timeframe. Because its short- and long-term performance has been strong, Mr. Daher recommends only monitoring this fund for the time being. Lastly on the Watch List is the American Funds Inflation Linked (American); as this is the second time this fund has appeared on the Watch List, Mr. Daher recommends only continued monitoring. He explained that he included alternative funds in the presentation materials only to demonstrate how the entire sector has been comparably impacted by market and economic trends. He asserted the alternative funds have begun lowering their respective portfolios' credit quality to increase returns while the American fund is required to hold only the highest-grade bonds. Mr. Daher reiterated his recommendations to replace thei iShares S&P 500 Index with the Fidelity 500 Index, replace the MFS Growth with JP Morgan Growth Advantage, and continue to monitor the remaining funds on the Watch List. Treasurer Strickland made a motion to replace the iShares S&P 500 Index with the Fidelity 500 Index, and replace the MFS Growth with JP Morgan Growth Advantage; Vice Chair Olson seconded the motion. The motion carried unanimously (5-0). Mr. Daher reviewed the Asset Allocation by Fund, noting the largest allocations are in the Vanguard Wellington, NASDAQ-100 Index, and US Large Cap Core funds, which comprise nearly 50% of members' assets; the 4th largest allocation, the Fixed Income Option, holds 11% of members' assets, sO that nearly 60% of members' assets are in 4 funds. To Mr. Daher's question, Mr. Harris noted that the majority of participants going into the target retirement date funds tends to be new enrollees who were automatically enrolled upon hiring, but that he does not find a significant interest from existing participants. The Committee thanked Mr. Daher for their presentations. 8. UNFINISHED BUSINESS: None. 9. NEW BUSINESS: None. 10. OTHER MATTERS: 10.1. Presentation and Discussion Re: Proposed 2024 Meeting Schedule. Presenter(s): Debra Martin, Pension Plans Administrator. Chair Vredenburg advised he may not be able to attend the February 15, 2024, meeting due to prior obligations. As Vice Chair Olson confirmed he will be able to attend the meeting, Secretary Griggs advised the Chair would be able to participate virtually. To Treasurer Strickland's question, the Committee agreed that the proposed meeting schedule could be amended during 2024 if the need arose. By consensus, the Committee approved the 2024 meeting calendar, but noted that future meetings may need to be rescheduled due to other City obligations. 11. ADJOURN. Chair Vredenburg adjourned the Employee Retirement Account Committee (ERAC) Regular Quarterly Meeting at 10:37 a.m. - 1/ Chai Jejtsslredenburg Secretary Shayla Griggs Book 1 Page 106 9-14-2023 10:00 a.m.