Book 1 Page 95 2-16-2023 10:00 a.m. MINUTES OF THE EMPLOYEE RETIREMENT ACCOUNT COMMITTEE REGULAR QUARTERLY MEETING OF FEBRUARY 16, 2023 Present: Chair Jeffrey Vredenburg, Vice Chair Aaron Olson, 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: Vice 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: Vice 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.' H 4. ROLL CALL: Presenter: Pension Plans Administrator Martin. Pension Plans Administrator Martin called roll. Vice Chair Olson, Treasurer Strickland, Secretary Griggs appeared in person; Chair Vredenburg appeared telephonically. 5. PUBLIC INPUT: None. 6. APPROVAL OF MINUTES: 6.1. Approval Re: Minutes of the Employee Retirement Account Committee Regular Quarterly Meeting of November 17, 2022. Presenter: Vice Chair Olson. Secretary Griggs made a motion to accept the minutes of the November 17, 2022, meeting; Chair Vredenburg 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 December 31, 2022. Presenter(s): Gregg Hudak, District Vice President, Trent Harris, Financial Advisor VALIC Financial Advisors Inc. Mr. Harris appeared in person and Ms. Pivetta appeared telephonically before the Committee and introduced themselves. Mr. Harris stated that he continues to hold, with the assistance of Pension Administration, in-person meetings at City office locations with participants, as well as periodic retirement education seminars. Ms. Pivetta explained that replacements for the DFAI Enhanced US Large Company and the DFA Enhanced US Large Company funds will take place on February 28, 2023 and the participants have been notified. She noted that AIG Retirement Services has been renamed Corebridge Financial as announced on September 15, 2022; Corebridge will continue to advise participants and plan sponsors over time. Secretary Griggs expressed her appreciation to Mr. Harris for his visibility on City campuses and engagement with participants. The Committee thanked Mr. Harris for his presentation. 7.2. Presentation and Discussion Re: Quarterly Investment Analysis Review Ending December 31, 2022. Presenter: Howard Daher, Principal, Daher Capital Group. Mr. Daher appeared before the Board and introduced himself. Turning to the Fourth Quarter 2022 Market Insight Quarterly page of the materials, Mr. Daher provided a market review. He explained that while performance for the quarter was largely positive relative to the rest of the year due to holiday shopping and continued post-pandemic economic re-opening, the S&P 500 Index and the Blomberg Aggregate Bond Index were both down for the year. He noted that bonds and equities typically perform inversely to each other. He asserted the market's poor performance in 2022 was a correction of the prior year's outperformance that had been caused by federal stimulus during the COVID- 19 pandemic. The Federal Reserve (Fed) continues to attempt to slow the economy by raising short term interest rates, however housing prices, wages, employment, and consumer spending continue to remain positive. While analysts had previously predicted the Fed would raise short-term rates by 25%. through March and April in 2023, and then lower rates after the summer when the economy cools, they now believe the Fed will continue to raise rates until inflation comes down to its target. He noted there is less likelihood the economy will fall into a recession, and the Fed should be mindful of that potential as it raises interest rates. While growth stocks performed well, high inflation and rising interest rates create a favorable environment for value stocks; the market continues to favor the later. Rising interest rates also continue to affect the bond market; managers may hold existing bonds to maturity to collect the yield or buy new bonds at lower prices with higher yields. Mr. Daher reviewed the sectors which contributed or detracted the most from the S&P's performance, as shown on the Fourth Quarter Data page of the materials. He cautioned that, even though the top 3 contributing sectors in Q4 2022 are also the top 3 contributors sO far in Q1 2023, they may not continue to be the top contributors going forward. On the Executive Summary page, Mr. Daher reviewed the funds of concern. He noted the Committee had previously approved closure of the DFA Enhanced US Large Company fund; after February 28, 2023, contributions will be directed to the iShares S&P 500 index fund and Corebridge will move any account balances in the DFA fund to the Shares S&P 500 index fund if participants haven't already done so. The MFS Growth R6 fund had a good quarter and was in the top 40% of its category, however for the year, it performed closer to the middle of its peer group while historically, it had performed above. Mr. Daher Book 1 Page 96 2-16-2023 10:00 a.m. Book 1 Page 97 2-16-2023 10:00 a.m. recommended keeping it on the Watch List as it is performing consistently with the market cycle and should therefore begin to outperform when the market rotates to favoring growth stocks. The Ariel Fund Investor is a concentrated fund with only 39 stocks, and it has been on the Watch List for 4 consecutive quarters. While it was up 12% over the last quarter of calendar year 2022, for the entire year, itv was in the bottom 99th percentile of its peer group. He noted that this fund has a greater downside capture, but also a high upside capture, which was observed during the past year. To Vice Chair Olson's question, Mr. Daher explained that the score shown on the Executive Summary is based on pertormance, risk, and expense; he further clarified that risk is a function of how consistent or erratic a fund's performance is. Mr. Daher noted that from January 1, 2023 through February 14, 2023, the Ariel Fund is up 15.26% and is currently in the top 2% of its category. To Vice Chair Olson's questions, Mr. Harris stated that the participants he meets with have not inquired about the Ariel fund and asserted most participants who invest in it do SO by their own choice. Mr. Daher noted it is a high-performance fund which will have more volatility than the market, and investors should be cautious when adding it to their personal portfolios. Mr. Daher noted that there are 13 participants invested in the Ariel fund; as the total amount invested in the fund is only $63,316, he inferred it was a component of each participant's total portfolio and not their primary holding. Mr. Harris added it was possible for participants to have been mapped into the Ariel fund when it was opened approximately 2 years ago. Mr. Daher recommends monitoring the Ariel fund. Mr. Daher discussed the VALIC Company Small Cap Special Value fund, which is also being mapped as of February 28, 2023 to the Vanguard Small Cap Value Index Admiral fund. The last fund on the Watch List is the Fidelity Select Health Care fund; it grew by 6% in Q4 2022, and although it trailed both benchmarks, it returned just under 13% for the year. He noted that 2022 was the first year in the previous 5 this fund underperformed its peer group; itunderperformed its benchmark in only 3 of the last 10 years. Year-to-date through February 14, 2023, the fund is up 2.5% which puts it in the top 50% of its peer group and it is the largest fund on the Watch List. He recommends monitoring the fund. Treasurer Strickland made a motion to keep the Fidelity Select Health Care fund, Ariel fund, and MFS Growth funds on the Watch List; Secretary Griggs seconded the motion. The motion carried unanimously (5-0). Turning to the Performance Summary of the materials, Mr. Daher discussed how performance over the last quarter impacted the returns over each timeframe. He noted the number shown is the percentage return; the number in parentheses is each fund's percentile ranking amongst its respective peer group with 1 being the best ranking and 100 being the worst. He explained that the overall scoring which determines whether or not a fund is on the Watch List is comprised of the overall performance history, expenses, and risk. In that context, a fund with a poor percentile ranking for the quarter may not be on the Watch List if it had low expenses and better performance over the remaining timeframes. Mr. Daher reviewed the Asset Allocation by Fund, noting the Total portfolio balance as of September 30, 2022 was approximately $18.5 million; he asserted the majority of the increase to the balance as of December 31, 2022 was due to market lift and not participant contributions. He pointed out that the Vanguard Wellington fund continues to be the largest allocation, with approximately 22% of the total participant balance, and it outperformed both indexes. The next largest allocation is the VALIC Fixed Interest Option; the 2 largest allocations comprise more than one third of the Plan's assets. The next 3 largest allocations are the NASDAQ index, Fidelity Health Care, and the iShares S&P 500 funds. The 5 largest allocations comprise almost 63% of the Plan's assets. The 5 largest funds, as well as the entire menu of investments, are well diversified and present ample options for participants. Mr. Daher reviewed the Watch List & Historical Look-back, which concluded his discussion on fund performance. Mr. Daher, Mr. Harris, and Ms. Pivetta discussed the Secure Act 2.0, noting some provisions will impact defined contribution retirement plans in 2023, 2024, and beyond. Corebridge has issued some informational fliers, most notably regarding the increase in age for required minimum distributions from 72 %2 to 73 which is effective in 2023; the age will increase again in 2033 to age 75. As additional provisions effect the Plan, Corebridge will issue more information. Ms. Pivetta discussed provisions of the Secure. Act 2.0which are not applicable to the 401(a) Plan, including changes in catch-and employer match contributions being made on a Roth basis. She noted some provisions are optional and some are mandatory. To Mr. Daher's question, Ms. Pivetta explained that Corebridge has numerous fliers on their website, including which provisions are mandatory and which are optional, and when provisions become effective. To Vice Chair Olson's and Mr. Daher's questions, Pension Plans Administrator Martin clarified that the catch-up provision and employer match contributions being made on a Roth basis applied to the Deferred Compensation 457(b) Plan and are being discussed internally. Vice Chair Olson thanked Mr. Harris, Ms. Pivetta, and Mr. Daher for their presentations. 8. UNFINISHED BUSINESS: None. 9. NEW BUSINESS: None. 10. OTHER MATTERS: None. 11. ADJOURN. Vice Chair Olson adjourned the Employee Retirement Account Committee (ERAC) Regular Quarterly Meeting at 10:45 a.m. / Se Lig Char. Jefrey Vredenburg Secretary Shayla Griggs Book 1 Page 98 2-16-2023 10:00 a.m.