MINUTES OF THE FEBRUARY 26, 2016 CITY OF SARASOTA POLICE OFFICERS' PENSION PLAN BOARD OF TRUSTEES REGULAR MEETING Present: Chair Kevin Stiff, Vice Chair Ron Baty, Secretary/Treasurer Pamela Nadalini, and Trustees Duncan Miller and Darrell Nixon Others: Attorney H. Lee Dehner, Pension Plans Administrator Harry Ramphal, Senior Pension Analyst Anthonyl Ferrer, and Pension Specialist Chinyere Deehan Absent: None 1. CALLI MEETING TO ORDER: Chair Stiff called the meeting to order at 8:15 a.m. 2. PLEDGE OF CIVILITY: Chair Stiff reviewed a memorandum from Mayor Willie Charles Shaw, dated February 13, 2015, entitled "City Commission and AdvisoryBoards Meeting Protocols and Pledge of Civility." 3. PUBLICINPUT: None 4. APPROVAL OF THE MINUTES: 4.1. Approval Re: Minutes of Police Officers' Pension Plan Board of Trustees Regular Meeting of January 22, 2016 A motion was made by Vice Chair Baty, seconded by Trustee Miller to approve the minutes of the January 22, 2016, Police Officers' Pension Plan Board of Trustees Regular Meeting. Motion carried unanimously(5-0). 5. UNFINISHED BUSINESS: None 6. NEWBUSINESS: 6.1. Presentation and Discussion Re: Audit Update forthe September 30, 2015 Year End Alison Wester, CPA, Mauldin & Jenkins, LLC, came before the Board to advise that her staff have been working diligently towards the completion of the 2015 Plan audit. She stated that heri firm has received the actuarial report needed to complete the audit. In response to Trustee Miller's question regarding preliminary findings, Ms. Wester stated that there are no major findings to report; that Mauldin & Jenkins will be pleased to report to the Board upon finalization of their report. 6.2. Presentation and Discussion Re: Actuarial Valuation as of September 30, 2015 No action taken. Peter Strong, Senior Consultant and Actuary, Gabriel, Roeder, Smith & Companywas unavailable for conference call, due to scheduling conflicts. Book 1 Page 5 02/26/16 8:15 A.M. Book 1 Page 6 02/26/16 8:15 A.M. 6.3. Presentation and Discussion Re: MLP 4Q Investment Performance Report as of December31, 2015 David Hicks, Director, Salient Capital, L.P., came before the Board to present an update of the Plan's Master Limited Partnership allocation. He stated that there has been a lot happening in the markets, especially relating to energy infrastructure. Mr. Hicks advised that nothing fundamental has changed regarding the MLPs since the investments were made; that both the yield component and the growth component has risen for the MLPS, making for a very attractive historical total return. Mr. Hicks believes that over time, there will be a similar total return, in the low double digits; that in the past, this relationship was more of a low single digit yield and a higher growth rate, which has now been somewhat inverted; that today the yield is close to 8%, whereas before itl has been at about 4%. Mr. Hicks further stated that historically MLPs have had a low correlation to the other asset classes, however all markets are starting to correlate to oil; that the markets are going through a challenging time currently, and this is the worse bear market in the history of the energy infrastructure space. Mr. Hicks stated that Salient Capital's position is that the fundamentals of the companies in the MLPS remain intact and are attractive from a valuation perspective; that from an institutional perspective, this has been one of the best periods ever for new fund cash in-flows. In response to Trustee Miller's question regarding the cause of the evaporating excess supply, Mr. Hicks stated that globally, 96 million barrels of crude oil are produced each day and current supply is approximately 95 million barrels a day, sO there is an excess supply of 1-2%; that if one of the suppliers stops producing oil, there is a risk of a supply shock. Mr. Hicks added that the United States is more resilient in terms of producing oil, because domestic suppliers are more efficient. In response to Vice Chair Baty's question regarding the percentage of the portfolio that consists of natural gas, Mr. Hicks stated that the portfolio is almost balanced between natural gas and oil, though the price of oil is affecting the overall performance of MLPS. In response to Secretary/Treasurer Nadalini's question regarding how much the Plan's portfolio lost in 2015, Mr. Hicks stated that the portfolio lost 34.57% while the benchmark Alerian MLP Index lost 32.59%. Chair Stiff requested that Mr. Hicks bring documentation with the Plan's gains and losses to the next meeting that he attends. Secretary/Treasurer: Nadalini stated that she would like to see performance figures for the pension fund's portfolio as of the year ending September 30, 2015. Mr. Hicks agreed to both requests. In response to a question from Chair Stiff regarding how much the plan has invested with Salient Capital, Larry Cole, Senior Consultant, Burgess Chambers, came before the Board and stated that the plan had initially invested $1.4 million with Salient Capital. 6.4. Presentation and Discussion Re: Investment Performance Period Ending December 31, 2016 Larry Cole, Senior Consultant, Burgess, came before the Board and discussed the investment performance report as of December 31, 2015. He stated that in the last three to five years the Plan has achieved equity-like returns in the MLP portfolio with about 50 to 70% of the risk. Mr. Cole further recommended that the Board should maintain the MLP allocation despite the current volatility. He advised that oil is driving the market; if oil is up, the market is up and if oil is down the market is down, which is contraryt to expectations. In response to a question by Chair Stiff asking if any money will be made by the Plan this year, Mr. Cole responded that the short-term projections in the current market are not clear though the stock market is undervalued. Secretary/Treasurer Nadalini requested that Mr. Cole communicate with Westwood Asset Management to obtain a letter detailing reasons for its poor investment performance. She also asked Mr. Cole to work with Pension Plans Administrator Ramphal to schedule Westwood Asset Management to come before the Board. Mr. Cole agreed to the both requests. 6.5. Presentation and Discussion Re: Addendum to Statement of Investment Policies for National Investment Services, Inc. (NIS) Fixed Income and Sawgrass Asset Management, LLC Fixed Income Larry Cole, Senior Consultant, Burgess, came before the Board and presented the addendum thati requires Board approval. A motion was made by SecrelaryTreasurer Nadalini and seconded by Vice Chair Baty to approve the Addendum to Statement of Investment Policies for National Investment Services, Inc. (NIS) Fixed Income and Sawgrass Asset Management, LLC. Motion carried unanimously (5-0). 6.6. Presentation and Discussion Re: Pension Benefit and Plans Request Alan Woodle, retired City of Sarasota Police Officer and chair of the benefit focus group, Emest Cave, retired City of Sarasota Firefighter and President of the Retired Firefighters' Association, and Edward Whitehead, retired City of Sarasota Police Officer, came before the Board to present their request for tax deductions based on their health insurance being withdrawn from their pension check. Mr. Whitehead advised that in 2014, the City of Sarasota's Human Resource Department made changes to the retirees' health insurance that in some cases, have resulted in premium increases of 300 to 400% or higher. He stated that it appears that the City of Sarasota wants to remove as many Medicare eligible retirees off of the health insurance plan as possible. Mr. Whitehead advised that in January 2016, Medicare eligible retirees were offered a stipend to migrate from the City of Sarasota health insurance to private insurance, which would cover the retiree only and not spouses. Mr. Whitehead stated that many retirees opted to move their spouses and dependents to a less expensive, private insurance plan while they remained on the City of Sarasota's health insurance plan. Mr. Whitehead advised that because of this change, the retirees were unable to meet their deductible and were not eligible to receive a tax deduction under the Pension Protection Act of 2006. Mr. Whitehead advised that if the retirees' health insurance is paid without being withdrawn from the retirees' pension check, they are not eligible for the tax deduction. Mr. Whitehead stated that this becomes an issue when the City of Sarasota pays out the stipend to the retirees and the retirees pay for their insurance, the health insurance is no longer tax deductible for retired firefighters or retired police officers. He would like the Police Officers' and Firefighters' Pension Boards to approve a procedure where the cost for the health insurance would come out of the retirees' pension benefit and be paid directly to the insurance company, which would maintain the tax deduction. Discussion ensued regarding the health insurance payment procedure. Mr. Cave advised that they are requesting the Board to get involved in this process because they were promised by the City of Sarasota Human Resources Department that this payment process could be administered by the Pension Administration, though former Pension Administration staff stated that the process is not feasible. Trustee Miller responded this process is not the responsibility oft the Board and is an issue between the retirees and the City of Sarasota. Book 1 Page 7 02/26/16 8:15. A.M. Book 1 Page 8 02/26/16 8:15 A.M. In response to a question by Chair Stiff asking if they have filed a lawsuit against the City of Sarasota, Mr. Cave responded that they have not filed a lawsuit, and that they are trying to work out the process with the City of Sarasota in an amicable manner. In response to Mr. Woodle stating that he has email correspondence between the former Pension Plans Administrator and himself, Chair Stiff requested that he forward those emails to Pension Plans Administrator Ramphal. Chair Stiff further requested transcripts of this issue being discussed at previous City Commission meetings. Secretary/Treasurer Nadalini stated that she would gladyaccommodate this request. Secretary/Treasurer Nadalini stated that it is important to note that the current Firefighters' Pension Code does allow for such deductions but specifically indicates that the fund and its Board of Trustees shall not incur any liability and any administrative costs, as these would be passed on to the retirees. She further stated that she has not seen this same provision in the Police Officers'Code. Attorney Dehner stated that according to the Pension Protection Act of 2006, this deduction is only applicable to public safety officers and permits a deduction of up to $3,000; that the most significant requirement is that direct payments be made from the Plan to the insurance provider; that a waiver of liability may be required for the Trustees and the Board. He stated that he would check if there is a provision in the Police Officers' code that is comparable to the bmerpdPiegNeCaN Pension Plans Administrator Ramphal advised that Pension Administration is reviewing the feasibility of this request with the Plan's third-party payroll provider, ADP; that this request will require the current payroll platform to be altered which may result in an additional cost. Pension Plan Administrator Ramphal concluded that a cost analysis will be performed in evaluating this request. Secretary/Treasurer: Nadalini stated that in addition to the increased cost from the payroll provider, there will be an increase in administrative costs involved; that if there is a consensus to go forward with this process, the Pension Administrative staff would have to work closely with the attorney and thel health insurance providers. 6.7. Presentation and Discussion Re: 2015 Form 1 Statement of Financial Interests Secretary/Treasurer: Nadalini reminded the Board to file their 2015 Form 1 Statement of Financial Interests which is due by July 1, 2016; that it is required by law. Attorney Dehner advised that the trustees will be fined directly if the forms are noti filed in a timely manner. 7. ATTORNEYMATTERS: 7.1. Continued Discussion Re: Scheduling of Disability Hearings for Kelvin Williams and David Van Gostein Attorney Dehner advised that Pension Plans Administrator Ramphal has coordinated the schedule with Attorney Dehner's office and the hearing has been set for April 14, 2016. Chair Stiff requested that Pension Plans Administrator Ramphal send out an invitation for this date at 9:00 a.m. 8. OTHERMATTERS: Secretary/Treasurer Nadalini asked Attorney Dehner if it is possible not to proceed with the Request for Proposal regarding seeking a new Plan custodian; that the General Employees' and Firefighters' Pension Boards are not changing from Salem Trust and further added that it may be beneficial to give Salem Trust another year to see how well the transition has progressed. Secretary/Treasurer: Nadalini advised that she is not sure that it is in the Board's best interest to change its custodian at this time due to the years of service provided by Salem Trust; that Barney Kavanagh should attend the next Board meeting and discuss whether it is feasible to stop the RFP. Chair Stiff agreed with SecretaryTreasurer Nadalini and requested that the Trustees think about whether they want to move forward and discuss this matter in the next meeting. Attorney Dehner advised that the State of Florida legislative session is due to adjourn in the next few weeks and there is no current proposed legislation regarding police officer pension plans. 9. ADJOURN. Chair Stiff adjourned thel Police Officers' Pensions Board of Trustees Regular meeting at 10:00 a.m. W UN a Dyy DNl Chair Kevin Stiff SecretaryTreasurer Pamela M. Nadalini Book 1 Page 9 02/26/16 8:15 A.M.