MINUTES OF THE EMPLOYEE RETIREMENT ACCOUNT COMMITTEE REGULAR QUARTERLY MEETING OF SEPTEMBER 15, 2022. 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: Chair Vredenburg called the meeting to order at 10:00 a.m. and noted Secretary Griggs is attending the meeting telephonically. 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. Secretary Griggs 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 June 2, 2022 Presenter: Chair Vredenburg. Vice Chair Olson made a motion to accept the minutes of the June 2, 2022, meeting; Treasurer Strickland seconded the motion. The Committee approved the motion by consensus. 7. QUARTERLY INVESTMENT REPORTS: 7.1. Presentation and Discussion Re: AIG Retirement Services, ERAC Report for Quarter Ending June 30, 2022. Book 1 Page 86 09-15-2022 10:00 a.m. Book 1 Page 87 09-15-2022 10:00 a.m. Presenter(s): Trent Harris, FinancialAdvisor, VALIC Financial Advisors, AIG Retirement Services. Mr. Harris appeared before the Committee and introduced himself. Mr. Harris stated that he continues to hold, with the assistance of Pension Administration, in-person meetings at City office locations with participants. Pension Plans Administrator Martin stated that Pension Administration has received positive feedback from employees regarding Mr. Harris' engagement. Chair Vredenburg asked if contribution rates are available for employees to confirm they are receiving the City's match. Mr. Harris stated that VALIC's portal shows the dollar amounts of contributions, but not the percentage rates, and noted that the employer and employee contribution rates are codified at 6% each. Pension Plans Administrator Martin noted that the dollar amounts are viewable on participants' paystubs. A brief discussion ensued regarding advising employees of their contribution rates in the event employees wished to change other savings rates; Pension Plans Administrator Martin noted that it may cause confusion considering the Plan is closed but she would discuss it with Secretary Griggs. The Committee thanked Mr. Harris for his presentation. 7.2. Presentation and Discussion Re: Quarterly Investment Analysis Review Ending June 30, 2022. Presenter: Howard Daher, Principal, Daher Capital Group. Mr. Daher appeared before the Board and introduced himself. Mr. Daher began his presentation by discussing the Market Commentary, noting that the S&P 500 had dropped 20% during the first 6 months of 2022, and it continued to trend downward during the summer. Similarly, the Bloomberg Aggregate Bond Index was down almost 10% for the first half of 2022, which was the worst bond performance in history. He noted that bonds and equities typically have an inverse relationship, however recently they have been highly correlated. While this market has been especially difficult for investors who are now drawing down their investments, it is an opportunity for new investors. He discussed how the Federal Reserve's attempts to control inflation through interest rate increases have impacted the economy and signaled difficulties to consumers regarding the cost of carrying debt. He noted that as interest rates increased, gas prices have declined, although he was unable to find any causal relationship between them. He noted that year-to-date, the market is down approximately 17%, however between 2019 and 2021, the market had been up between 19% and 31%. In that context, a pull-back is not unreasonable to expect. He stated that the economic performance in August was solid considering back- to-school purchasing, students returning to in-classroom instruction, college football season, which may set up the 4th quarter for continued recovery. While some forecasters maintain challenging times remain, the markets appear to be improving, albeit slowly. Mr. Daher reviewed the Second Quarter Data and commented on the biggest contributing and detracting sectors to the S&P 500. Turning to the Executive Summary, Mr. Daher noted that the funds with criteria scores under 70 are on the Watch List; the criteria scores are based on risk factors including manager tenure, expense ratios, and performance. He noted that the VALIC Company Small Cap Special Value fund is incorrectly marked in the report on pages 11 and 14, and that fund is not on the Watch List with its criteria score of 74. Mr. Daher discussed the Calvert US Large Cap Core Responsible Index I, which has had solid performance in previous years but underperformed over the trailing year. This fund was added for investors who sought companies which believe in responsible Environmental, Social, and Governance (ESG) investing. He noted that Calvert's current trend is similar to that in 2008 and 2009, when the economy performed poorly yet alcohol and tobacco stocks did well. As the historic performance has been good and the fund costs are relatively low, Mr. Daher does not recommend any changes regarding Calvert. The DFA Enhançed US Large Company fund has continued to appear on the Watch List, and its high stock turnover is concerning as it suggests the fund manager is unsure of the market's direction. Mr. Daher advised he will bring in a replacement option with performance and cost information at the next ERAC meeting for the Committee to consider. Chair Vredenburg asked if the Plan's provisions limited the number of funds it could offer to participants; Pension Plans Administrator Martin stated she has not seen a limit. Chair Vredenburg expressed support for expanding the number of investment options available to participants. Mr. Daher stated he would bring in 2 replacement options. Regarding the MFS Growth Fund, Mr. Daher noted that the fund is currently outperforming its benchmark, but it remains on the Watch List because of its consistent underperformance performance relative to its benchmark. He noted that the Plan's scoring criteria is amongst the strictest amongst its peers, however because the Plan has no specific rules requiring replacement, strict criteria is beneficial. While he hopes MFS Growth Fund will perform better over the next quarter, he recommends keeping it on the Watch List because of its criteria score. The Ariel Fund Investor has only 13 participants in it with $58,000 in assets. It is a high-risk fund which outperforms during up-markets and underperforms in down-markets; currently it is in the bottom 99th percentile considering the down-market. Mr. Daher recommended the ERAC consider 2 additional funds at its next meeting sO that investors would have an alternative option within this space, or the ERAC consider closing and replacing it. He noted Ariel holds only 38 stocks, and the top 10 stocks make up 39% of the total fund. Mr. Daher stated that many of his clients are opting to wait for the market to settle before replacing their poorer pertorming funds as significant changes can alarm participants. In that context, he recommended only making changes which are completely justifiable. The last fund on the Watch List is the Fidelity Select Health Care (FSHC), which has historically performed well. FSHC underperformed its benchmark because the benchmark's performance was aided significantly by the pharmaceuticals sector, and FSHC has limited holdings in that sector. FSHC tends to focus on medical devices, and one of its top 10 holdings, Penumbra Inc., dropped 44% during the first half of the calendar year. Mr. Daher stated he reviewed FSHC's performance as of Tuesday, September 13, 2022, and it is in the top 42%. While he recommends leaving it on the Watch List, it appears to be trending positively in the 3rd quarter of the year. Mr. Daher noted that approximately $2.5 million in assets are held by funds on the Watch List, or approximately 12.5% of Plan participants' assets. To Vice Chair Olson's question regarding changing investment strategies in the context of a closed Plan, Mr. Daher noted that because participants continue to make contributions, they continue to dollar cost average their investments, and he recommends making no changes. Chair Vredenburg asked about the number of participants who are invested in the FSHC, and how the volume of assets came to be invested in it. Mr. Harris stated he believed most assets had been mapped to the FSHC from the previous science and health care fund. Mr. Daher discussed the Performance Summary, noting more investors are turning to the BlackRock target funds, which reduce risk based on a participant's age and estimated retirement date. He noted that he has not seen any significant investment changes out of equities and into cash, which suggests successful participant education, or participants who desire simple investment strategies. He also noted the Vanguard Wellington Fund, which had been the Plan's default fund, still remains popular with approximately 25% of the 401(a) plan assets, and strong performance. To Chair Vredenburg's question, Mr. Harris noted there is no longer a default fund as there are no new participants coming into the Plan. Mr. Daher stated that when the Plan transitioned to the mutual fund platform, participants who did not make elections were defaulted into the Wellington Fund, which accounts for some of the volume of assets ini it. Chair Vredenburg reiterated his focus, now that the Plan is closed, on educating participants on their investment options and encouraging their engagement in their retirement account investment strategies. Book 1 Page 88 09-15-2022 10:00 a.m. Book 1 Page 89 09-15-2022 10:00 a.m. Pension Plans Administrator Martin and Mr. Harris discussed how employees are notified of VALIC's in- person, one-on-one meetings with participants. Mr. Daher discussed the Asset Allocation by Fund and noted the Vanguard Wellington Fund has 22.5% of invested assets, and the next largest fund, the NASDAQ-100 Index, holds 11.66%. The VALIC Fixed Interest Option, holds 11.45% of assets. The top 3 funds hold approximately 47% of participants' assets. He discussed the Fund Facts Report. Regarding the Watch List & Historical Look-back, Mr. Daher noted that while the total volume of assets dropped through the look-back period, the percentages have not. This indicates the overall fund is market- driven and not due to changes in inflows or participants divesting. He asserted the total fund balance will increase over time as contributions come in and the market begins to perform again. Chair Vredenburg thanked Mr. Daher and Mr. Harris for their presentations. 8. UNFINISHED BUSINESS: None. 9. NEW BUSINESS: None. 10. OTHER MATTERS: 10.1. Presentation and Discussion Re: Proposed 2023 Meeting Schedule. Presenter(s): Debra Martin, Pension Plans Administrator. Pension Plans Administrator Martin presented the proposed 2023 meeting schedule. The Committee Members did not advise of any scheduling issues. 11. ADJOURN. Chair Vredenburg adjourned the Employee Retirement Account Committee (ERAC) Regular Quarterly Meeting at 10:37 a.m. / - Chair, Jéftrey) yredenburg Secretary Shayla Griggs