Book 1 Page 83 06-02-2022 10:00 a.m. MINUTES OF THE EMPLOYEE RETIREMENT ACCOUNT COMMITTEE REGULAR QUARTERLY MEETING OF JUNE 2, 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.' 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 February 17, 2022 Presenter: Chair Olson. Vice Chair Vredenburg made a motion to accept the minutes of the February 17, 2022, meeting; Treasurer Strickland seconded the motion. The motion carried unanimously (5-0). 7. NOMINATION OF BOARD OFFICERS: 7.1. Appointment Re: Selection of Chair. Presenter(s): Secretary Griggs. By consensus, the Committee nominated and accepted Jeffrey Vredenburg as Chair. 7.2. Appointment Re: Selection of Vice Chair. Presenter(s): Secretary Griggs. Treasurer Strickland nominated Aaron Olson as Vice Chair. Secretary Griggs seconded the motion. The Committee approved by consensus. 8. QUARTERLY INVESTMENT REPORTS: 8.1. Presentation and Discussion Re: AIG Retirement Services, ERAC Report for Quarter Ending March 31, 2022. Presenter(s): Trent Harris, Financial Advisor, and Lilia Pivetta, Relationship Manager, VALIC Financial Advisors, AIG Retirement Services. Mr. Harris appeared before the Committee and introduced himself. Mr. Harris stated that he continues to work with Pension Administration to schedule on-site visits at City office locations to meet with participants with positive engagement. Chair Vredenburg noted more communications regarding Mr. Harris's availability; Pension Plans Administrator Martin noted the Plan's participants appreciate his availability for in-person meetings. Vice Chair Olson asked if participants are reducing their contribution rates due to inflation concerns. Mr. Harris noted that the Plan's employee and employer contribution rates are set by the Plan, however he has not noticed any reductions in participation in other retirement or deferred savings plans. The Committee thanked Mr. Harris for his presentation. 8.2. Presentation and Discussion Re: Quarterly Investment Analysis Review Ending March 31, 2022. Presenter: Howard Daher, Principal, Daher Capital Group. Mr. Daher appeared before the Board telephonically and introduced himself. Mr. Daher began his presentation by discussing the Market Commentary, noting the volatility in the market during the first quarter of 2022 was not limited to equities, as even the Bloomberg Aggregate Bond Index lost nearly 6% during that timeframe; despite that volatility, the S&P is up 18% over the last 3 calendar quarters. He also noted that many fund managers and parts of the market are forward-looking, and despite the media's attention to short term events, the market may not react with as much surprise to rising interest rates as anticipated. There are clear signs of an economic recovery as supply chain issues, as well as labor and material shortages, are generally improving which will relieve some inflationary pressures. To Vice Chair Olson's earlier question, Mr. Daher noted he is advising clients and participants to increase their retirement contributions where they are able sO as to take advantage of the available discounts. Many economists are forecasting a less negative, if not positive, second half to calendar year 2022. Mr. Daher discussed how the market has reversed its trend to now favor value stocks instead of growth, noting the Plan offers the Vanguard Equity Income fund, which pays a dividend, performed well along with other dividend funds. As interest rates move up, bond prices have declined and therefore bond fund managers must transition to this environment by purchasing new bonds at higher rates and move off of lower rate bonds. Mr. Daher expects this transition to continue until 2023 or 2024. Book 1 Page 84 06-02-2022 10:00 a.m. Book 1 Page 85 06-02-2022 10:00 a.m. Turning to the Executive Summary, Mr. Daher discussed the funds which are on the watch list. The DFA Enhanced US Large Company fund has failed to meet performance criteria in the last 3 consecutive quarters, and 5 of the last 8 quarters. While he does not recommend replacing the fund, considering the current market volatility, he advises it should be closely monitored. He noted that although it is an equity fund, they have sold off the majority of their equities and moved into treasury bonds which is a defensive move. Regarding the MFS Growth R6, approximately 36% of its assets are invested in technology stocks, which had worked well during the up-market, however tech stocks are rapidly declining now. As of close of market June 1, 2022, it was down approximately 24% and dropping faster than the S&P 500. The Ariel Fund Investor has typically outperformed its index in up-markets, however during this most recent downswing, it declined more than its index, and it is in the bottom 38th percentile amongst its peer-ranking. As of market close June 1, 2022, it is down 11%. Mr. Daher noted he would include additional funds for comparison in his next market report. Regarding the VALIC Company Small Cap Special Value, it has not met criteria in 5 consecutive quarters. Similar to Ariel Fund Investor, VALIC Company Small Cap has a greater down-capture than up-capture, meaning it will lose more in down markets and gain less in up markets than its benchmark. Lastly, the Fidelity Select Health Care fund holds approximately 8% of the total assets in the Plan. The Select Health Care fund holds 2 stocks which are causing the majority of its underperformance: Insulet, which is down 22% over the last 12 months, and Penumbra, which is down approximately 43% over the last 12 months. Mr. Daher recommends leaving these 51 funds on watch for the remainder of the calendar year before deciding whether to replace them. The funds on watch represent approximately 13% of the Plan's assets and approximately $2.8 million. The Committee had no further questions and thanked Mr. Daher for his presentation. Chair Vredenburg asked Mr. Harris why there hasn't been more participants in the target fund dates. Mr. Harris noted that they are relatively new options in the portfolio and now there are no new participants. Mr. Daher explained that the Wellington fund offers a static allocation compared to the target funds. He also noted that during the most recent rounds of market volatility, the top 5 funds remain consistent, and he did not find many participants migrating their investments away from or towards any sector. Instead, participants seemed to generally keep their existing allocations, which he interpreted as a positive sign that participants recognize their retirement plans are long-term investments which will have regular fluctuations. 9. UNFINISHED BUSINESS: None. 10. NEW BUSINESS: None. 11. OTHER MATTERS: 12. ADJOURN. Chair Vredenburg adjourned the Employee Retirement Account Committee (ERAC) Regular Quarterly Meeting at 10:37 a.m. h 12 Cheir/Aaron Olson Secretary/Shayla Griggs