MINUTES OF THE CITY OF SARASOTA FIREFIGHTERS PENSION PLAN BOARD OF TRUSTEES REGULAR MEETING OF FEBRUARY 22, 2023 Present: Chair Michael Hartley, Vice Chair Charles Joseph, SecretaryTreasurer Shayla Griggs, Trustee Scott Snow, and Trustee Heather Mushrush. Others: Pension Plans Administrator Debra Martin and Pension Specialist Peter Gottlieb appeared in person. Attorney Robert Sugarman appeared telephonically. Absent: None. 1. CALL MEETING TO ORDER: Chair Hartley called the Sarasota Firefighters Pension Plan (Plan) Board of Trustees regular meeting to order at 9.00 a.m. 2. PLEDGE OF ALLEGIANCE: Presenter(s): Secretary/reasurer Griggs. Vice Chair Joseph led the Board and meeting attendees in the Pledge of Allegiance. 3. PLEDGE OF CIVILITY: Presenter(s): Chair Hartley. Chair Hartley stated for the record, "We may disagree, but we will be respectful to one another. We will direct all comments to issues. We will not engage in personal attacks. n 4. ROLL CALL: Pension Plans Administrator Martin called roll; Secretary Griggs was not present. 5. PUBLIC INPUT: None. 6. APPROVAL OF MINUTES: 6.1. Approval Re: Minutes of the Firefighters Pension Plan Board of Trustees Regular Meeting of January 25, 2023. Presenter(s): Chair Hartley. Trustee Snow made a motion to approve the minutes of the January 25, 2023 meeting; Trustee Mushrush seconded the motion. The motion carried unanimously (4-0). Secretary Griggs joined the meeting at 9:06 a.m. 8. UNFINISHED BUSINESS: 8.1. Presentation and Discussion Re: Gabriel, Roeder, and Smith, Actuarial Valuation Report for Fiscal Year Ended September 30, 2022. Book 1 Page 346 2-22-2023 9:00 a.m. Book 1 Page 347 2-22-2023 9:00 a.m. Presenter(s): Brad L. Armstrong, ASA, EA, FCA, MAAA, Senior Consultant and Actuary, Gabriel, Roeder, Smith & Company. Brad Armstrong of Gabriel, Roeder, Smith & Company (GRS) appeared before the Board and introduced himself. Mr. Armstrong presented the final Actuarial Valuation Report for Fiscal Year Ending September 30, 2022. As stated in the Observed Experience page of the materials, Mr. Armstrong discussed the City of Sarasota's (City's) employer contribution requirement for Fiscal Year Ending September 30, 2024, amortized policy, and funded ratio; he noted the funded ratio is further clarified in Comment E on page A-3. Mr. Armstrong also noted that, as explained on page B-3, if the City decides to pay the employer contribution requirement in bi-weeklyi installments, the amount owed willi include accrued interest based on the timing of the payments; al lump sum payment on October 1, 2023 would not incur interest. Sources and Financing of Unfunded Actuarial Accrued Liability (UAAL) addresses the first layer of accrued liability. In the next fiscal year, the base will be approximately $3.6 million; it be added to the experience gains and losses for the year to create a second base which will be amortized over 9 years. This will provide al historical record of the sources of the unfunded liability. He reviewed the Cash Flow Projection Based on Current Assumptions and Methods, and noted the projection assumes the City will make bi-weekly employer contributions and not a lump sum payment, as well as that there are some unfavorable experiences which have not been recognized in the current year, which is why the Employer Contributions increase through Fiscal Year ending September 30, 2023. Experiences in the coming years would accordingly impact the Employer Contribution amounts. Mr. Armstrong noted that, upon adoption by the Board, the presented valuation will, effectively, become an invoice to the City for the projected employer contributions. To Chair Hartley's question, Mr. Armstrong noted the History of the Investment Return Assumption on page A-7 shows the Board has kept the same expected rate of investment return since the valuation as of September 30, 2018. He noted that 6.85% is a gross return assumption as it includes investment expenses; without investment expenses, it is approximately 6.35% and would be considered conservative for many other pension funds. To Vice Chair Joseph's question, Mr. Armstrong clarified that the Pension Amount of 2.5% of average compensation is applicable to disability benefits. To Chair Hartley's question, Mr. Armstrong estimated the Chapter 175 monies may be exhausted in 2 to 3 years unless new funds are contributed. Vice Chair Joseph made a motion to adopt the Actuarial Valuation Report as of September 30, 2022; Trustee Snow seconded the motion. The motion carried unanimously (5-0). 8.2. Presentation and Discussion Re: Declaration of Expected Rate of Investment Return. Presenter(s): Chair Hartley. Mr. Armstrong explained that Florida Statutes require public pension boards to declare an expected rate of investment return for the short term, intermediate term, and long term, when they adopt actuarial valuations. While actuaries typically focus on the expected rate of investment return over a longer time horizon, current actuarial standards require it to be reviewed annually. Mr. Armstrong recommended the Board maintain the expected rate of 6.85%, as higher interest rates will produce higher retums from fixed income investments, and the Plan will be increasing its investment portfolio allocation towards fixed income; that notwithstanding, thei investment consultant would have more information regarding this subject. He noted that the Board may change its expected rate of return in any increment. The Board thanked Mr. Armstrong for his presentation. 7. INVESTMENT PERFORMANCE REVIEW: 7.1. Presentation and Discussion Re: Graystone Consulting, Quarterly Performance Review as of December 31, 2022. Presenter(s): Scott Owens, Managing Director - Wealth Management, Institutional Consulting Director, Corporate Retirement Director, Impact Investing Director, Alternative Investment Director, Institutional Consultant; Theodore Loew, Vice President, Institutional Consulting Analyst; Graystone Consulting. Scott Owens and Theodore Loew appeared before the Board and introduced themselves. Chair Hartley explained he would like to focus on the expected rate of investment return. Mr. Owens turned to the Fixed Income Performance page of their materials and noted the volatility in returns over the stated time periods. He explained that Graystone's objective is to find the highest risk-adjusted return possible and discussed how risk and volatility complicate the Plan's use of investment income to satisfy its financial obligations. He noted that lowering the expected rate of investment return may require changing the asset allocation to reflect a different risk profile. Mr. Owens stated that the target return for the current allocation is 8% with a standard deviation of 10%; therefore, a declared expected rate of return between -2% and 18% would be a reasonable assumption, and .25% changes in the expected rate of retumn are not consequential from his perspective. While the portfolio is currently overweight in equities, which have done well recently, he anticipates continued volatility in that sector, and suggested moving some of the overweight balance in equities to fixed income to de-risk the portfolio. Mr. Loew provided a market summary. He explained that, although performance in Q4 2022 was good, the S&P 500's return for calendar year 2022 was -18%; he compared it to 2008, when the S&P returned -30% for the year. He explained that 2022 was only the 5th time in the market's history when both equities and bonds were down simultaneously; this was caused by investors' fear of inflation as well as the Federal Reserve's (Fed's) efforts to control inflation. Because the rate ofi inflation remains above 6% and Fed's target rate for inflation is 2%, Graystone does not anticipate the Fed will ease its short-term interest rate hikes. While generally good corporate eamings reports and solid employment numbers may have brought positive returns in Q4 2022, some companies have begun to report lower earnings, suggesting equities may soon decline. Further, the Fed indicated it has not found enough data to suggest the economy has sufficiently cooled for the Fed to slow its periodic rate hikes. Turning to the Capital Market Returns page of the materials, Mr. Loew discussed how the market favored value stocks to growth during the last quarter of 2022 as well as entire year, and the portfolio is overweighted in value stocks. Graystone expects this trend to continue, especially if the Fed continues to raise interest rates. Mr. Loew noted interational equities have outperformed domestic, which hasn't been seen since the mid-2000s. Some of this outperformance is a result of the Fed's prior interest rate hikes, which brought foreign investment into domestic fixed income instruments and were faster than foreign economies' rate hikes; now foreign economies are catching up as they raise their respective interest rates which have made foreign fixed income investments more attractive than domestics. Graystone expects this trend to continue. On the Fixed Income % Retums page, Mr. Loew discussed the significance of the Barclay's Aggregate being down farther for the year than it had ever been previously, which was a result of the Fed's rate hikes. While the Fed previously raised rates by comparable amounts on an absolute basis, the increases have been unprecedented on a percentage basis, and the Fed made the most recent increases significantly faster than previous increases. Although the interest rate increases have generally hurt the portfolio, the portfolio still beat its benchmark as stated on the Asset Allocation and Time Weighted Performance; he noted the portfolio performed as anticipated for the market in that it became more defensive as the market declined. Book 1 Page 348 2-22-2023 9:00 a.m. Book 1 Page 349 2-22-2023 9:00 a.m. Mr. Owens added that over the 5-, 7-, and 10- year timeframes while the market was generally going up, the portfolio underperformed; however, when the market declined in in 2022, the portfolio behaved defensively as intended and outperformed the index by approximately 300 basis points. In this context, the portfolio is forgoing some gains in up markets for the benefit of protecting assets in down markets. He commended the Board for its conviction to maintaining its intended strategy. Turning to the Alternatives section of the Asset Allocation, Mr. Loew reviewed the returns since inception, noting outperformance by UBS and Cohen & Steers relative to their respective benchmarks, and that alternatives were the best performing asset class over the last 12 months. He reviewed the Asset Allocation Compliance and recommended reducing the overweight in growth stocks by 2.5% and add the proceeds to reduce the underweight in Richmond Capital Fixed Income. Mr. Loew compared Wedge Capital, which underperformed relative to its benchmark for the year but outperformed over the longer term, to HGK, which outperformed its benchmark in both the year and longer term. Mr. Owens added that HGK's Since Inception outperformance was largely due to its significant 1-year return as it is a defensive manager; Sawgrass is also a defensive manager and performed similarly. Brown is performing as expected, as have the small cap managers. The international managers have outperformed during the last fiscal quarter to date; as both have struggled over the longer term, Graystone will continue to monitor them. To Vice Chair Joseph's question, Mr. Owens discussed Lazard's Down Capture rate. Mr. Owens explained that the up and down capture rates are percentages, and when the difference to the benchmark is small, the percentage difference can appear sizable. Mr. Loew added that there have not been enough down quarters since the Board added Lazard to the portfolio, which skews the result; Graystone expects Lazard's Down Capture rate in a normal market to be in the mid-80s to mid-90s. Mr. Loew noted no items out of compliance. At Chair Hartley's request, Mr. Owens discussed which holdings to rebalance in anticipation of underperformance by growth stocks. Mr. Owens explained that when the Fed begins to lower its interest rate hikes, it would be prudent to overweight growth equities, however Mike Wilson, Morgan Stanley's Chief Investment Officer, anticipates equities will drop by 25%. At Mr. Owens' suggestion, Vice Chair Joseph made a motion to bring the Fixed Income up to target by reallocating from Growth; Trustee Snow seconded the motion. Attorney Sugarman appeared telephonically and asked Mr. Owens if he had an amount he expected to be liquidated; Mr. Owens stated that because the reports were as of December 31, 2022, he did not have an exact amount. Mr. Loew estimated approximately $3 million would be reallocated. The motion carried unanimously (5-0). 8.2. Presentation and Discussion Re: Declaration of Expected Rate of Investment Return. Presenter(s): Chair Hartley. Chair Hartley noted his preference for incrementally reducing the expected rate of investment return, and it has been 5 years since the Board reduced the rate. That notwithstanding, he recognized Mr. Armstrong's and Mr. Owens' recommendation to keep the rate at 6.85%. Trustee Snow agreed with GRS's and Graystone's recommendation, noting that the Board will re-evaluate the expected rate of return in a year. Trustee Snow made a motion to declare an expected rate of investment return for the next year, several years, and long-term thereafter, of 6.85%; Vice Chair Joseph seconded the motion. The motion carried unanimously (5-0). 9. NEW BUSINESS: 9.1. Presentation and Discussion Re: Mauldin & Jenkins, Financial Statements for the Fiscal Years ending September 30, 2022 and 2021. Presenter(s): Alison Wester, CPA, Partner, Mauldin & Jenkins. Alison Wester and Jennifer Trotter, Manager, of Mauldin & Jenkins appeared before the Board and introduced themselves. Ms. Wester thanked Pension Administration Staff for their efforts which ensured a smooth audit process. Noting the opinion is clean, Ms. Wester advised that auditing standards have changed in the last year which necessitated a change to the order of their report. The Financial Statements begin with the Independent Auditor's Report; Ms. Wester explained each component. She noted the Management's Discussion and Analysis is unaudited but compared to the information in the Financial Statements for consistency. She reviewed the Statements of Fiduciary Net Position; on the Statements of Changes in Fiduciary Net Position, Ms. Wester explained that although the Plan's actuarial valuation uses smoothing and amortization of gains and losses, the Financial Statements recognize both realized and unrealized gains and losses in the year in which they occur. Ms. Wester reviewed each of the Notes to Financial Statements. Note 2 includes commentary on the expiration of the Interlocal Agreement between the City of Sarasota and Sarasota County in calendar year 2023. Note 3, Investments, advises the portfolio contains one real estate fund which exceeds 5% of the total portfolio value. Also in Note 3, Ms. Wester explained that Level 1 investments are those in active markets for an identical investment or security; Level 2 are those for similar securities in active markets; and Level 3 is any other valuation method. Note 4 includes an additional paragraph which discusses the expiration of the Interlocal Agreement, as well as the Board's decision at its January 25, 2023 meeting in which it approved a 10-year layered amortization policy to calculate future required employer contributions. Ms. Wester discussed the Development of the Single Discount Rate and Current Single Discount chart. In Required Supplementary Information, Ms. Wester reviewed the Schedule of Changes in the Net Pension Liability and Related Ratios, Schedule of Contributions, and Schedule of Investment Returns. Other Supplementary Information contains the Schedule of Investment and Administrative Expenses. The Other Auditor's Report would report significant deficiencies or material weaknesses had Mauldin & Jenkins identified any. Ms. Wester reviewed the Auditor's Discussion and Analysis. She reviewed updates to the independent auditor's report; she explained some of the changes in the audit reporting standards which reorganized financial statements and expanded auditors' disclosure responsibilities. She Reviewed the sections titled Additional Information, Independent Auditor's Report, Compliance Report, Required Communications and each subsection, and Complementary Continuing Education And Newsletters for Governmental Clients. Chair Hartley and Secretary Griggs thanked both Mauldin & Jenkins and staff for their diligent efforts which resulted in a predictable and constructive audit process. Secretary/Treasurer Griggs made a motion to adopt the Independent Auditor's Report of the Plans' Financial Statements for Fiscal Years ending September 30, 2022 and September 30, 2021; Vice Chair Joseph seconded the motion. The motion carried unanimously (5-0). 10. ATTORNEY MATTERS: 10.1. Presentation and Discussion Re: Secure Act 2.0. Presenter(s): Robert Sugarman, Sugarman, Susskind, Braswell & Herrera, P.A. (telephonic). Book 1 Page 350 2-22-2023 9:00 a.m. Book 1 Page 351 2-22-2023 9:00 a.m. Attorney Sugarman appeared before the Board telephonically and introduced himself. Attorney Sugarman clarified this largely does not apply to the Plan but that that Sugarman & Susskind will submit changes to the Plan as necessary. The most immediate impact of the Secure Act 2.0 on the Plan will be how health benefit premiums are excluded from taxable pension income. Previously, retirees needed to satisfy 3 requirements to exclude up to $3,000 per year of taxable pension income to use for medical and long-term care benefit premiums: 1) a participant must retire under a normal or disability benefit; 2) a participant must have purchased retiree medical or long-term care insurance; and 3) the premiums from those benefits must be deducted from the participant's retirement benefit. The 3rd requirement necessitated retirees to purchase insurance plans from the City of Sarasota or Sarasota County for the premiums to be deducted from their Plan benefit. The Secure Act2.0 waives the 3rd requirement sO that retirees are free to purchase medical or long-term care insurance from insurance providers other than the City or County. Chair Hartley noted that the City pays the premiums for retirees' health care coverage for life but does not cover health dependents; Attorney Sugarman advised this would minimize the impact of the Secure Act 2.0 on the Plan and would offer some options to retirees who obtain coverage for dependents outside the Plan. Vice Chair Joseph asked Attorney Sugarman if he was aware of any efforts to eliminate the Windfall Elimination provision of Social Security. Attomey Sugarman was unaware of any proposed bills regarding the matter and explained it would not impact the Plan directly. 11. OTHER MATTERS: 11.1. Presentation and Discussion Re: Administrative Budget Analysis for October 1, 2022 through December 31, 2022. Presenter(s): Debra Martin, Pension Plans Administrator. Pension Plans Administrator Martin presented the. Administrative Budget Analysis. She noted that Pension Administration may request al budget adjustment for salaries due to the City's general wage increase issued after the 2023 Budget was approved; however, because salaries are 25% expended as of the Budget Analysis presented, she will defer the request to al later date. She noted that some expenses, such as Dues, Auditing and Accounting, and Actuarial Services, are not annualized and the expended percentages will increase irregularly. 11.2. Presentation and Discussion Re: Check Register for October 1, 2022 through December 31, 2022. Presenter(s): Debra Martin, Pension Plans Administrator. Pension Plans Administrator Martin presented the Check Register. The Board had no questions. Pension Plans Administrator Martin advised that, at the January 25, 2023 meeting, Vice Chair Joseph inquired regarding the minimum retirement benefit. She stated that Pension Administration reviewed the applicable pension code and analyzed the pension payroll and identified the lowest paid benefit recipients who could be impacted by the provision. The applicable ordinance, 24-30(a), states in part: For firefighters who retired prior to April 7, 2003 that had completed twenty-five (25) years ofservice and reached the age requirement for normal retirement as defined at the time of his or her retirement, the pension paid hereunder shall at all times be equal to at least fifty (50) percent of the base salary for a journeyman fire medic top step, as such salary may be changed from time to time. She added that the pension payable to a surviving spouse shall, at all times, be at least equal to 1/3rd of that base pay. As provided by Chair Hartley, the current base salary for a journeyman fire medic top step is $72,384. Of the 11 lowest paid benefit recipients on an annualized basis, the lowest is a surviving spouse of a firefighter who retired with 30 years of service; the recipient receives approximately $30,000 per year, which is more than 1/3 of $72,384. Pension Plans Administrator Martin noted that the benefit recipient who was initially identified as potentially not receiving the minimum benefit was the surviving spouse of a firefighter who retired with only 15 years of service, and therefore did not qualify for the minimum benefit. Attorney Sugarman appeared again telephonicaly before the Board and advised, regarding Vice Chair Joseph' 's earlier question, that House Resolution 82 Social Security Fairness Act of 2023 was introduced on January 9, 2023, and has been referred to the House Ways and Means Committee. Those who wish to receive alerts regarding any action on the resolution may go to Congress.gov, search for HR 82, and submit their contact information on the resolution's description page. He discussed some Congressional Research Service analysis of the resolution. 12. ADJOURN. Chair Hartley adjourned the meeting at 10:26 a.m. S6 Orip Chair Midhael Hartley Secretary/Téasurer Shayla Griggs Book 1 Page 352 2-22-2023 9:00 a.m.