MINUTES OF THE CITY OF SARASOTA GENERAL EMPLOYEES PENSION PLAN BOARD OF TRUSTEES REGULAR MEETING OF JANUARY 23, 2025 Present: Chair Ryan Chapdelain, Vice Chair Mark Nicholas, Treasurer Kelly Strickland, Secretary Shayla Griggs, Trustee Robert Reardon, Trustee Barry Keeler, and Trustee Jan Thornburg. Others: Attorney Stuart Kaufman, Pension Plans Administrator Debra Martin, and Pension Specialist Peter Gottlieb. Absent: None 1. CALL MEETING TO ORDER: Chair Chapdelain called the City of Sarasota (City), General Employees Pension Plan (Plan) Board of Trustees Regular meeting to order at 10:30 a.m. 2. PLEDGE OF ALLEGIANCE: Presenter(s): Secretary Griggs. The Board and meeting attendees stated the Pledge of Allegiance. 3. PLEDGE OF CIVILITY: Presenter(s): Chair Chapdelain. Chair Chapdelain stated for the record, "We may disagree, but we will always be respectful to one another. We will direct all comments to issues, and we will not engage in personal attacks." 4. ROLL CALL: Presenter(s): Debra Martin, Pension Plans Administrator. Pension Plans Administrator Martin called roll. All trustees were present. 5. PUBLIC INPUT: None. 6. APPROVAL OF MINUTES: 6.1. Approval Re: Minutes of the General Employees' Pension Plan Board of Trustees Regular Meeting of December 10, 2024. Presenter(s): Chair Chapdelain. Trustee Keeler made a motion to approve the minutes of the December 10, 2024, Regular Meeting; Vice Chair Nicholas seconded the motion. The motion passed unanimously (7-0). 7. APPROVAL OF RETIREMENT REQUEST(S): 7.1. Presentation and Discussion: The DROP Retirement Request of Kurt Richter. Presenter: Debra Martin, Pension Plans Administrator. Book 1 Page 466 01-23-2025 10:30 a.m. Book 1 Page 467 01-23-2025 10:30 a.m. Pension Plans Administrator Martin advised that Mr. Richter is 61 years old and has 35.5 years of service; he requested to enter the DROP effective December 1, 2024, and selected the 50% to joint annuitant with the option to change. Treasurer Strickland made a motion to approve Mr. Richter's request; Secretary Griggs seconded the motion. Regarding Chair Chapdelain's question, Pension Plans Administrator Martin confirmed that there are no issues regarding Mr. Richter's request. The motion passed unanimously (7-0). 7.2. Presentation and Discussion: The Early Retirement Request of Marion Brown. Presenter: Debra Martin, Pension Plans Administrator. Pension Plans Administrator Martin advised that Mr. Brown earned 15.48 years of service, and at age 61, requested an early retirement with the lifetime option, effective January 1, 2025. Trustee Strickland made a motion to approve Mr. Brown's request for early retirement; Trustee Thornburg seconded the motion. The motion passed unanimously (7-0). 7.3. Presentation and Discussion: The Deferred Vested Retirement Request of Willie Holland. Presenter: Debra Martin, Pension Plans Administrator. Pension Plans Administrator Martin advised that Mr. Holland earned 21.6 years of service and separated from employment with the City on January 8, 2022. Mr. Holland requested a deferred vested retirement, 50% to joint annuitant option, at age 55, effective November 1, 2024. Trustee Keeler made a motion to approve Mr. Holland's request; Trustee Thornburg seconded the motion. The motion passed unanimously (7-0). 8. INVESTMENT PERFORMANCE REVIEW: 8.1. Presentation and Discussion Re: Invesco, Performance Review as of September 30, 2024. Presenter(s): Dane Hoard, Client Portfolio Manager; Brianna Holmes, Client Portfolio Specialist; Invesco (Telephonic). Dane Hoard and Brianna Holmes appeared before the Board telephonically and introduced themselves. Mr. Hoard provided a brief firm overview as detailed on pages 7 through 14 of the materials. Andrew Schlossberg rose to become Invesco's Chief Executive Officer in 2023; he has been with the firm for over 20 years and Martin Flanagan remains Chairman of Invesco's Board. The Plan is invested in Invesco's Intermediate Fixed Income strategy; while Invesco offers an array of sub-categories within the strategy, the Plan's assets are only investment grade. Mr. Hoard characterized the Investment Strategy Team as being interdisciplinary guides for the individual portfolio managers who make individual buy and sell decisions. Mr. Hoard reviewed the Portfolio Summary page. He cautioned that, although the portfolio purchases no securities rated below A-/A3, the index contains BBB rated securities, and therefore when the market rewards risk, as it is in the current environment, the portfolio will likely underperform relatively. He briefly reviewed the Market value reconciliation page and advised that the sum of the Income and Investment Change lines are the total return for the period. He added that the yield component in fixed income has been the dominant driver of returns in the asset class since 2022 when the Federal Reserve (Fed) raised interest rates; the rate hike correspondingly increased the global demand for domestic fixed income investments. Mr. Hoard provided a market summary; he noted the fixed income market has not changed significantly since the Board's December 10, 2024, meeting at which other fixed income managers provided extensive market summaries. The year started with a strong economy; the market accordingly sold off with the expectation that inflation would remain sticky, and the Fed would have fewer short-term interest rate cuts. By mid-year, the economy appeared to be growing more modestly than analysts had expected, which brought interest yields down. By the presidential election, the market had an interest rate sell-off, meaning rates were higher. Invesco believes a Republican administration will be better for the market and fixed income has repriced accordingly. Mr. Hoard added that higher interest rates equate to lower fixed income valuations, which will be a headwind for the sector. Credit spread compression has reached an all-time high, and corporates have outperformed treasuries; the portfolio is overweighted to corporates because of the yield component. Tuming to the Performance Summary, Mr. Hoard noted that the portfolio has nearly matched the index across most timeframes, with most of the performance having been a product of yield generation. While the total returns are generally more impacted by the policy tightening which occurred several years ago and the subsequent volatility, the overall benefit to the Plan has been yield and the ensuing income component. Mr. Hoard discussed the contributors and detractors from performance on the Performance Attribution page. Within the banking sector, Invesco has favored national banks as well as larger, more stable and diversified regional banks. Invesco favors higher coupon, mortgage-backed and commercial mortgage-backed securities. The portfolio relatively underperformed due to not holding BBB rated securities which are in the index. On the Characteristics page, Mr. Hoard advised that the portfolio is neutral on duration, considering the uncertain future trends of interest rates; the portfolio is adding value in credit selection and sector allocation. As he mentioned, the portfolio is underweighted to treasuries and overweight to corporates and agency-backed mortgages. On the Relative Positions page, Mr. Hoard reminded the Board that the portfolio does not have securities rated lower than A, and therefore the portfolio relies on single A rated securities to drive returns. He characterized the portfolio's overweight to under 1-year duration as dry powder to be used when Invesco identifies attractive opportunities, as well as the currently high returns on cash. He concluded his presentation by discussing the pages titled Macro backdrop is very supportive of markets and Current portfolio themes. Strong balance sheets amongst companies and consumers give Invesco confidence to hold more credit. The Board thanked Mr. Hoard for his presentation. 8.2. Presentation and Discussion Re: Graystone Consulting, Quarterly Performance Review as of December 31, 2024. Presenter(s): Scott Owens CFA, CIMA, Managing Director Wealth Management, Institutional Consulting Director, Corporate Retirement Director, Impact Investing Director, Alternative Investment Director; Theodore Loew, CFA, Vice President, Institutional Consultant; Graystone Consulting. Theodore Loew of Graystone Consulting (Graystone) appeared before the Board and introduced himself. Mr. Loew provided a brief market overview, noting the overall strong retums in 2024 on the back of strong returns in 2023. In Q4 2024, the market favored growth over value across all capitalization levels. In the S&P Sector % Returns, Mr. Loew noted that some of the "magnificent 7" mega-cap tech stocks, such as Google and Meta, are classified under Communication Services; Nvidia is in the Technology sector. While artificial intelligence (AI) related companies continued to lead the market in Q4 2024, Energy, Health Care, Consumer Staples, Utilities, Real Estate, Materials, and Industrials all lagged. Graystone anticipates stronger economic growth and tariffs, which will be inflationary; although the Fed has announced at least 2 or 3 rate cuts, the actual number of cuts will likely be data dependent. Mid- and small-cap companies tend to be more adversely affected by higher interest rates than large-caps, as reflected in the relative performances of the Rusell 1000 large-cap index and Russell 2000 small-cap index. Mr. Loew explained how a strong US Dollar is a headwind for international investments due to the unfavorable conversion rate from local currencies back to US Dollars upon liquidation. The portfolio is underweighted to international equities; when the US Dollar weakens, Graystone may recommend increasing the international allocation. Fixed Income was negative for the quarter, with the exception of cash and high yield, which is understandable considering the inverse relationship between interest Book 1 Page 468 01-23-2025 10:30 a.m. Book 1 Page 469 01-23-2025 10:30 a.m. rates and the prices of bonds; rates have gone up and bond prices, accordingly, declined. This is consistent with a strong economy. The graphs on the page titled US Inflation! Metrics show how inflation has been stuck around 3% which suggests the Fed will be data-dependent in timing future interest rate cuts. The Drivers of Inflation page shows that Money Supply had the strongest impact in recent years on inflation; while federal spending has generally waned since the COVID-19 pandemic, it has since begun to increase. Similarly, inflation is being felt in insurance premiums and consumer utility costs. To Trustee Reardon's question, Mr. Loew explained that during the COVID-19 pandemic, the federal government was directly injecting money into the economy. The govemment can remove money by purchasing bonds and by requiring banks to hold larger amounts in reserve. Mr. Loew explained how the Turning to the US Treasury Yield Curves page shows when long-term and short- term yield curves were atypically inverted as short-term interest rates were higher than long-term rates. The Green line, showing the yield curve as of December 31, 2024, has normalized such that longer-term rates are generally higher than shorter-term rates. The inversion prompted the Board's decision to invest more in short- term fixed income with Segall Bryant; if interest rates come down over the next 12 to 18 months, Graystone may recommend divesting from Segall Bryant. Mr. Loew concluded his market summary by discussing the US Stock Valuations Metrics page. The S&P recently reached all-time high levels due to Price-to-Earnings (P/E) expansion. While eamings have been in the mid-teen levels, P/E multiples have again exceeded 1 standard deviation from its historic average, as it had in 2000, and 2021; he added that these periods were followed by market corrections. While a correction is not necessarily eminent, the market may be hypersensitive to negative indicators and investors may be less willing to pay high P/E multiples. In response to Trustee Reardon's question, Mr. Loew explained that fixed income valuations, as discussed by Mr. Hoard of Invesco, refer to the price difference between the 10-year Treasury and a corporate bond of similar term. When valuations are tight as they are now, the prices are similar. When there is a risk of recession, the spreads increase, although there currently isn't a significant risk of recession. Turning to the Total Fund - Executive Summary, Mr. Loew reviewed the portfolio and fund managers. While the portfolio lagged slightly on an absolute basis for the quarter, it slightly outperformed relative to the benchmark; the returns on a 1-year basis were the opposite. The Asset Allocation Compliance shows the overweight to equity which benefited the portfolio. The Asset Allocation Compliance showing fund managers shows slightly over-weighted positions to growth managers due to rising stock prices and underweight to fixed income and real estate. There is an approximate 3% position in cash which can be used for distributions or market volatility. Graystone has no recommendations for allocation changes in the current market. Mr. Loew discussed each of the fund managers. Hudson Edge is a defensive manager and underperformed slightly for the! year, 10-year, and since-inception dates, but outperformed over the mid-term ranges. The Large Cap Growth managers, Clearbridge and Polen, both underperformed their benchmark due to underweighted relative positions in the magnificent 7 mega-cap tech stocks, although they had positive absolute returns for the quarter and year. He added that Polen has been liquidated, and the proceeds are being incrementally invested in the Vanguard Russell 1000 Growth Index fund;. NFJ has been heavily invested in materials, and that allocation hurt their performance over the last year; NFJ has performed well over the 3-year timeframe, and it has very low downside capture. Geneva had a positive absolute return for the quarter and year, and relative outperformance since inception. Templeton and Renaissance both underperformed absolutely and outperformed relatively which was to be expected for international equities; Graystone has no concems regarding their performances as they are consistent with their styles and the current market environment. Comparing the two fixed income managers' respective 1-year returns, Segall Bryant, as a short-term bond manager, outperformed Invesco considering the inverted yield curve. As the yield curve normalizes, Invesco will likely outperform. Mr. Loew commended Invesco's performance despite being restricted from holding lower than A-rated, "junkier" bonds which tend to produce higher returns. In real estate, the public market has turned upward, as can be seen in UBS's positive return for the quarter; private markets tend to follow as seen in AEW's slightly lower yet still positive return. Public and private sector employers have begun ending work-from-home policies which have driven up demand for commercial real estate. Interest rate stability would be a benefit for the real estate market. Lazard is performing as expected. Mr. Loew concluded his presentation by noting no compliance issues and no recommendations to change the portfolio. The Board thanked Mr. Loew for his presentation. 9. UNFINISHED BUSINESS: None. 10. NEW BUSINESS: 10.1. Presentation and Discussion Re: Gabriel, Roeder, Smith, and Company, Actuarial Valuation as of September 30, 2024. Presenter(s): Pete Strong, Consultant and Senior Actuary; Israel Bichachi, ASA, MAAA, Consultant and Actuary; Gabriel, Roeder, Smith, and Company. Pete Strong of Gabriel, Roeder, Smith, and Company (GRS) appeared before the Board, introduced himself, and distributed a flyer titled, "What's Happening at GRS." Beginning with page A-2 of the materials, Mr. Strong reviewed the Observed Experience. The City's required contribution for Fiscal Year (FY) 2025 is down from the amount projected in the prior valuation, due in large part to strong investment returns; the funded value of assets on a smoothed basis is up by nearly 4% from the FY 2023 valuation. He reviewed the key elements of the experience as stated in the report. Considering only 75 active members remain in the Plan, compared to nearly 500 when the Plan closed, the average salary increases and the actual number of retirements have less effect on the experience than they had in previous years; in the Plan's current status, the valuation is driven more by retiree deaths, investment return, and the expected rate of investment return. While there were more retiree deaths in FY 2024, the retirees who died had lower-than-average benefit amounts, and that experience was therefore slightly unfavorable. He cautioned the Board that, before factoring in investment gains and/or losses, he expects the City's contribution to increase dramatically in FY 2027 and FY 2028 as explained in the Required Contributions In Later Years section. In discussing the Relationship to Market Value section, Mr. Strong noted that the market value does not smooth in gains and losses over time. Mr. Strong discussed the Contributions to Finance Benefits of the Pension Fund as shown on page B-2. The Total Normal Cost is the current cost of the benefits to be provided to active participants when they retire; because there are relatively few active participants, the dollar cost is dropping and will continue to do sO while the amount as a percentage remains level. The decrease in the Unfunded Actuarial Accrued Liability is largely attributable to investment returns. Mr. Strong briefly reviewed the Unfunded Actuarial Accrued Liability pages, noting the relatively small value in line B, Actuarial present value of future normal costs; that amount for an open plan is considerably larger. On the Sources and Financing of Unfunded Actuarial Accrued Liability, he noted that the amortization period is 13 years, which is also the retirement date of the last active member as projected based on the demographic data available. GRS recommends slowly reducing the amortization period so that the Plan is fully funded when the last active participant retires. He cautioned the Board that when the amortization period falls below 10 years, the payment amount on the unfunded liability will become volatile; the Board may consider at that time, continuing to reduce the amortization period each year, and also recognizing a new base for the unfunded amount to be amortized over a fixed period of 10 years. To Chair Chapdelain's question, Mr. Strong stated that layered amortization could have an impact on the unfunded liability, however, because most of the amounts have 13-year periods remaining, there are insufficient amounts to begin synchronizing the amortizations. If the Plan reaches a point where there are positive and negative bases expiring at different times in consecutive years, he may recommend synchronization. He will, however, recommend in 3 years when the amortization base reaches 10 years, that the Board then recognize ar new base to be amortized over 10 years instead of a progressively declining period. Book 1 Page 470 01-23-2025 10:30 a.m. Book 1 Page 471 01-23-2025 10:30 a.m. On the Actuarial Balance Sheet page, Mr. Strong noted that nearly 80% of the Total Present Value of Expected Future Benefit Payments and Reserves consists of payments to retired members and beneficiaries. To Chair Chapdelain's question, Mr. Strong stated that the Funding Value Adjustment is the difference between the actuarial and market values, which allows for smoothing. On the Reconciliation of Plan Assets page, Mr. Strong reviewed how the totals of each item in Revenues and Expenditures, less the DROP reserves, equals the Market Value Net of Reserves. The Development of Funding Value of Pension Fund Assets page shows how investment gains and losses are phased in over 5-year periods to determine the Actuarial Value of Assets End of Year. Assuming no new investment gains or losses, there will be negative smoothing in the FY 2026 valuation because the 2021 market gain will no longer be phased in while the larger 2022 market loss will be phased in. To Chair Chapdelain's question, Mr. Strong advised that the market return in 2022 was -13.8%, however the actual loss is the difference between the actual rate of return and the expected rate of return of 6.2% at that time, which equates to a 20% loss relative to the expected amount of the return. Mr. Strong reviewed the History of Investment Return Rates page, noting the average returns over the last 5 years, 10 years, and all years shown, even on an actuarially smoothed basis, exceeds the expected rate of investment return. Mr. Strong advised that the FRS released updated mortality tables in 2024; the prior update was issued in 2019. The Plan is required to adopt the updated tables within 2 cycles of issuance, and therefore GRS will incorporate the updated tables into the FY 2025 valuation. The 2024 mortality rates are more conservative, meaning they anticipate longer lifetimes and therefore a higher cost of benefits, than the 2019 rates; he was unsure if the experience study included or excluded COVID-19 related deaths, however it would be reasonable to exclude temporaryi impacts to mortality considering thet tables predict lifespans over the next 120 years. The 2024 tables increase life expectancies by approximately 1 year which translates to an approximate 1% increase in liability to the Plan. Mr. Strong noted that, although GRS typically advises clients to conduct experience studies every 5 years to ensure the experience assumptions are reasonable, the Plan does not have a sufficient number of active participants to significantly influence the experience; as previously discussed, the experience is primarily affected by the investment returns and retiree deaths. To Chair Chapdelain's questions, the updated FRS mortality tables will be used in the. FY 2025 valuation and will have a slightly negative impact; however, even a modest positive investment return should offset the impact of the updated mortality tables. Mr. Strong opined on thei investment asset allocation and risk weightings in light of the current returns in fixed income investments; he suggested the Board may consider moving towards more fixed income investments as the last active participant retires but the investment consultant would be a better resource for this decision. To Mr. Strong's question, Mr. Loew returned to the dais and advised that, while the entire S&P 500's P/E ratio is 22x earnings, when the magnificent 7 stocks are excluded, the P/E ratio for the remaining 493 stocks was recently determined to be between 10x and 20x earnings. Mr. Loew advised that, although reallocating the investment portfolio tol be entirely fixedi income may be reasonable from an actuary's perspective, iti isn'tfeasible until the Plan is 100% funded; at the same time, the Board will want to de-risk the investment portfolio as the number of active participants decreases and reaches 0. Mr. Strong confirmed that an expected rate of investment return of 6.2% is reasonable for the Plan's current portfolio. Chair Chapdelain, Mr. Loew, and Mr. Strong discussed reducing the expected rate of investment return. While it may be in the Plan's best health to reduce the expected rate of return, reductions should be made in consideration of the market returns, interest rates and accordingly coupon rates of fixed income investments, as well as mortality expectations. Mr. Strong noted that, as of today, only positive amounts will be phased-in in FY 2027 and FY 2028, which may make those better years to decrease the expected rate of return. If the portfolio had 60% to 70% of assets in fixed income and 30% to 40% in equities, a 6% expected rate of investment return would be reasonable; the current asset allocation supports an expected rate of investment return between 6.2% and 6.5%, making the current expected rate of return slightly conservative. To Attorney Kaufman's question, Mr. Strong assured the Board he would advise of any assumptions which differed significantly from the respective actual experience. Turning to the Number Added to and Removed from Active Participation page, Mr. Strong noted how similar the expected numbers were tu the actual numbers; a new experience study would not likely change the current assumptions. Treasurer Strickland made a motion to accept the Actuarial Valuation as of September 30, 2024; Secretary Griggs seconded the motion. The motion passed unanimously (7-0). 10.2. Presentation and Discussion Re: Declaration of Expected Rate of Investment Retum. Presenter(s): Chair Chapdelain. At Attorney Kaufman's recommendation, Treasurer Strickland made a motion to declare an expected rate of investment return of 6.2% for the current year, each of the next several years, and the long-term thereafter; Secretary Griggs seconded the motion. The motion passed unanimously (7-0). The Board thanked Mr. Strong for his presentation. 11. ATTORNEY MATTERS: Attorney Kaufman advised that Attorney Atara Twersky of Abraham, Fruchter, and Twersky, LLP, would like to address the Board telephonically regarding a potential class action in a securities litigation against Alvarez V. Pacira Biosciences, Inc; Pension Specialist Gottlieb advised that the Board must call Attorney Twersky when it is ready to hear her presentation. Attorney Kaufman explained that if the Board were to decline to file for lead plaintiff, it would still be eligible to receive its pro-rata share of any settlement or award. The Board briefly discussed Attorney Twersky's memo, the amount of the loss, and individual trustees' appetite for pursuing lead plaintiff. Attorney Kaufman noted that the amount oft the Plan's loss may not be significant compared to larger plans and institutions. The Board agreed by informal consensus to decline to hear from Attorney Twersky; Attorney Kaufman advised he would discuss the matter with Attorney Twersky after the meeting. Attorney Kaufman noted that the proposed ordinance giving the Board more discretion to make investment decisions is scheduled to be presented to the City Commission at its February 18, 20?5, meeting; he will be available should the Commission have any questions. Secretary Griggs stated that she will inform the Commission that it had previously adopted an ordinance with the same investment language for the Police Officers' Pension Plan, and that Attorney Kaufman may appear virtually if necessary. The state legislative session will be from March through May; no bills have been pre-filed which would be applicable to the Plan; a bill applicable to the Florida Retirement System has been filed which would allow retired participants who return to work to continue receiving retirement benefits while re-employed. Ini federal legislation, the Windfall Elimination Provision (WEP) under the Social Security Act has been repealed; this applies to those people who had employment periods during which they contributed to Social Security as well as employment periods during which they did not contribute to Social Security. The WEP repeal is effective retroactively to January 1, 2024, but may not be implemented until late in 2025. 12. OTHER MATTERS: None. 13. ADJOURN. Book 1 Page 472 01-23-2025 10:30 a.m. Book 1 Page 473 01-23-2025 10:30 a.m. Chair Chapdelain adjourned the General Employees' Pension Plan Board of Trustees meeting at 12:03 p.m. AA A Chair Ryan Chapdetain Secretary Shayla Griggs