MINUTES OF THE CITY OF SARASOTA FIREFIGHTERS PENSION PLAN BOARD OF TRUSTEES REGULAR MEETING OF JANUARY 24, 2024 Present: Chair Michael Hartley, Vice Chair Charles Joseph, Secretary/Treasurer Shayla Griggs, Trustee Scott Snow, and Trustee Heather Mushrush. Others: Attorney Pedro Herrera (Telephonic), Pension Plans Administrator Debra Martin, and Pension Specialist Peter Gottlieb. Absent: None 1. CALL MEETING TO ORDER: Presenter(s): Chair Hartley. 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): Secretarny/Treasurer 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: 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 Firefighters Pension Plan Board of Trustees Regular Meeting of November 29, 2023. Presenter(s): Chair Hartley Vice Chair Joseph and Pension Plans Administrator Martin discussed the City's ordinance which requires State premium tax monies received to be recognized in the fiscal year during which they are received. Vice Chair Joseph made a motion to approve the minutes of the November 29, 2023, regular meeting; Trustee Mushrush seconded the motion. The motion passed unanimously (5-0). 7. INVESTMENT PERFORMANCE REVIEW: Book 1 Page 396 01-24-2024 9:00 a.m. Book 1 Page 397 01-24-2024 9:00 a.m. 7.1. Presentation and Discussion Re: DePrince, Race, and Zollo; Performance Review as of December 31, 2023. Presenter(s): Randy Renfro, CFA, Partner, Co-Portfolio Manager; Nate Rusbosin, Marketing and Client Services; DePrince, Race, and Zollo. Randy Renfro and Nate Rusbosin of DePrince, Race, and Zollo (DRZ) appeared before the Board and introduced themselves. After explaining that DRZ is rebranding itself as a "legacy fund," Mr. Rusbosin introduced DRZ's presentation and discussed the Firm Overview page of the materials; he noted that DRZ expects to remain independently owned as it values managing its own growth. DRZ has added new clients to 4 of its 5 strategies, including 61 local public pension plans in Florida; it anticipates investments from at least two state pension plans as well. There have been no changes to the Small-Cap Value Investment Team. On the page titled City of Sarasota Firefighters' Pension Fund, Mr. Rusbosin explained that although the portfolio lagged during the most recent quarter, it has outperformed its benchmark over the 3-, 5-, 10-, 15-, and 20- year timeframes. Mr. Renfro discussed DRZ's dedication to its value methodology and reviewed the page titled The Importance of Dividends. The portfolio had a strong ending to Fiscal Year (FY) 2023, however a risk-on rally in Q1 FY 2024, in which investors' appetites for risk drove up stock prices, lifted lower quality stocks while the portfolio, with its high-quality philosophy, relatively underperformed; this underperformance is to be expected. Mr. Renfro characterized the market environment as of January 2024 as a, "spaghetti of a business cycle, - which has created a significant number of investment opportunities in the small cap value space. He provided an anecdote about one of the portfolio's holdings, Kaman Corp. On Friday, January 19, 2024, a private equity firm took Kaman private at 100% premium; typically take outs are 25% to 50% however this stock was significantly mis-priced. DRZ finds this event encouraging for the future; it has positioned the portfolio neutrally. Chair Hartley expressed confidence in DRZ's performance and acknowledged that isolated quarters of underperformance are not immediately concerning. He asked if the small-cap space has a small group of highly influential stocks, analogous to the Magnificent 7 in the large-cap space. Mr. Renfro advised that excessively high concentrations are not as prevalent in small-caps, although occasional stocks rise to attention, such as Game-Stop. The small-cap market tends to be far less concentrated compared to large- caps. Mr. Rusbosin added that while the Russell 2000 doesn't have a small number of stocks occupying 30% of the total value, the amount of money flowing into the small-cap space has created attractive valuations. Mr. Renfro reiterated that the strongest performers in Q4 calendar year 2023 were low quality stocks, many of which had no income or cash flow, and did not pay dividends. The Board thanked Mr. Renfro and Mr. Rusbosin for their presentation. 7.2. Presentation and Discussion Re: Oak Ridge Investments; Performance Review as of December 31, 2023. Presenter(s): Robert McVicker, Executive Vice President & Senior Portfolio Manager; Keyur Kothari, Senior Vice President of Business Development; Oak Ridge Investments. Robert McVicker of Oak Ridge Investments (Oak Ridge) appeared before the Board and introduced himself and his presentation. Mr. McVicker briefly reviewed the Portfolio Market Values, Asset Allocation, Fiscal and Annual Since Inception, and Performance pages of the materials. He noted the portfolio's strong 3-year performance at the end of calendar year 2022, but acknowledged it lagged through 2023. Turning to the page titled Investment Philosophy, Mr. McVicker asserted that high quality stocks follow fundamentals over long periods of time. Oak Ridge looks for companies which are taking market share, have no or low debt, and organic sales growth. Oak Ridge does not give significance to external factors such as political cycles, and it does not typically invest in deep cyclical stocks, and instead prefers consistent revenue businesses. Oak Ridge also focuses on valuations as a measure of reasonableness and perspective. On the page titled Focus on Earnings, Mr. McVickers noted Oak Ridge seeks consistent eamings per share; referring to Mr. Renfro's example of Game-Stop, which was a bankrupt company favored by the market, Mr. McVickers explained that the portfolio will underperform during those periods. He explained that, in the current environment, lower quality stocks are being favored in the SMID-cap space, which is a headwind for the portfolio. Mr. McVicker discussed some of the detractors from performance. The portfolio has been overweight in health care equipment and supplies due to the expected need for that industry, however that sector rotated out of favor and accounted for an approximate one-third of the portfolio's underperformance. Oak Ridge believes the sell-off in that sector is over and those stocks will rebound. He discussed how some individual stocks detracted, citing Super Micro as an example. Q4 2023 was very challenging for the portfolio, with nearly 75% of the downtrend occurring in December. Nevertheless, the market went from 52-week lows in the Russell 2000 to 52-week highs in less than 50 days. Oak Ridge's higher quality portfolio accordingly missed the market. Because Oak Ridge does not chase returns, and instead focuses on longer hold times, the portfolio will underperform in the current environment. He added that small-cap value industrials, to which the portfolio only has a modest exposure, were the most shorted stocks, which attributes 30% to 40% of the portfolio's underperformance. Mr. McVickers reiterated Oak Ridge's commitment to its philosophy and asserted that its high-quality portfolio will ultimately be rewarded. Chair Hartley expressed concern for Oak Ridge's up- and down-capture. Mr. McVickers acknowledged the portfolio has had difficult times, but that going into 2023, it had been performing well over the 3-year period. He asserted that high quality stocks may soon be favored, at which point the portfolio will again outperform. Mr. McVickers explained that the investment team has always had some amount of turnover, which is encouraging as it shows Oak Ridge employees are desirable. In prospective employees, Oak Ridge looks for cultural fit; just as its investment strategy forgoes rapid, short-term gains and favors consistent trends over longer periods, Oak Ridge looks for employees who demonstrate a similar personality. To Chair Hartley's question, Mr. McVickers stated the portfolio currently has 65 to 70 stocks. There are a lot of new businesses which are coming into the market in the portfolio, and compared to the rest of the market, the portfolio's holdings are very high quality. He expressed frustration that the portfolio isn't being rewarded in the current environment. While the market hasn't seen a true bear market in several cycles, the economy is decelerating; he expects the portfolio to outperform when that happens. The Board thanked Mr. McVickers for his presentation. 8. UNFINISHED BUSINESS: None. 9. NEW BUSINESS: 9.1. Presentation and Discussion Re: Gabriel, Roeder, and Smith, Actuarial Valuation Report for Fiscal Year Ended September 30, 2023. Presenter(s): Brad L. Armstrong, ASA, EA, FCA, MAAA, Senior Consultant and Actuary, Gabriel, Roeder, Smith & Company. Before Mr. Armstrong began his presentation, Chair Hartley advised that he has numerous questions for Scott Owens of Graystone Consulting regarding Oak Ridge's performance and investment team; he asked Book 1 Page 398 01-24-2024 9:00 a.m. Book 1 Page 399 01-24-2024 9:00 a.m. Pension Plans Administrator Martin to advise Mr. Owens to be prepared at the February 28, 2024, Regular Board Meeting to discuss Oak Ridge in detail. Brad Armstrong of Gabriel, Roeder, and Smith (GRS) appeared before the Board and introduced himself. Mr. Armstrong reviewed the employer contribution requirement stated on the page titled Observed Experience (A-2), noting that the increase in the 2024 contribution requirement is consistent with previous projections, but lessened due to Chapter 175 receipts. He also noted that the Chapter 175 monies have been lower over the last 10 years because the federal flood insurance program has had a lingering impact on the amount of money available to municipal pension plans. While this was an unfavorable experience, it was predicted in the actuarial valuation as of September 30, 2022. He explained how 50% of the impact was due to recognized investment gains and losses from FYs 2021, 2022, and 2023, as well as fewer participants dying than had been projected. Secretary/reasurer Griggs left the meeting at 9:18 a.m. and returned at 9:21 a.m. To Chair Hartley's question, Mr. Armstrong explained that, in the Retired Participant and Beneticiary Data as of September 30, 2023, Tabulated by Type of Pension Being Paid (C-9), Death-in-Service Surviving Beneficiaries are benefits paid to persons who survived firefighters who died prior to commencing their own benefits. To the Board's questions, Mr. Armstrong explained that the difference between the projected number of benefit recipients who die and the actual number of benefit recipients who died changes the amount of required employer contributions, actuarial value of liabilities, and funded ratio. The expected number of deaths is calculated based on the Florida Retirement System's (FRS's) Static Base Mortality Tables, Post- Retirement Special Risk for Males and Females; an experience study is conducted every 4 years, and a new experience study should occur this year. While a current experience study will incorporate the COVID-19 pandemic, the Plan would not be impacted if younger persons are living longer. He explained how the FRS mortality tables, which incorporate a larger data sample than the Plan's, are applied to the Plan. While the number of expected deaths will generally rise each year for a period of time going forward, the number will eventually decrease as the total number of living participants reaches a relatively small number. Mr. Armstrong explained that the Plan has a Funding Reserve, as noted in Comments (A-3), Comment E, in the event there is shortfall in Chapter 175 monies and/or City of Sarasota (City) contributions. When the Funding Reserve is less than $781,422, Chapter 175 monies are used to fund the Pre-2003 Retiree Share Fund. When the Plan receives more than one $781,422 or accrues more than that amount in the Funding Reserve, one half of the premium tax monies received in excess of $781,422 are credited to the Post-2003 Retiree Share Fund and one half is used to reduce the required employer contributions; the page titled Determining Dollar Contributions (B-3) provides the details of this calculation. Referencing Other Observations (A-8), History of Investment Return Assumptions, and Experience Gain/(Loss) Years Ended September 30, 2023 and 2022, Mr. Armstrong explained how experience gains and losses are calculated and incorporated into the valuation based on the adopted amortization policy. Mr. Armstrong confirmed Chair Hartley's understanding that the $2.2 million experience loss due to investments, stated on Observed Experience (A-2), is based on the expected rate of investment return (ROR). Chair Hartley advised the Board will need to, after discussing the matter with the City's Finance Manager and the Plan's Investment Consultant, declare an expected ROR. The Board has maintained the current expected rate for several years, and Chair Hartley would like to consider reducing it, which will increase the City's required contribution. Mr. Armstrong clarified that Column 11 on Risk Measures (A-10)i is al history of 5-Year Trailing Average retums. While the Plan does not need an impact statement to declare an expected ROR, the Board has, in previous years, reviewed supplemental valuations based on various rates to determine a reasonable expected ROR to declare. Mr. Armstrong added that the last page shows what would happen if the Plan were to completely de-risk the portfolio byi investing in a fixed income portfolio. Chair Hartley asked Mr. Armstrong to address the consequences of lowering the expected ROR. Mr. Armstrong characterized the portfolio as being historically lower risk than comparable pension funds, although the allocation is consistent with a 20+ year time horizon; he stipulated that he does not attend meetings throughout the year to monitor portfolio allocation decisions. Chair Hartley asserted that lowering the expected ROR would increase the City's funding requirement and help the overall funding of the Plan; Mr. Armstrong advised he would discuss this at the conclusion of his presentation of the Actuarial Valuation. Mr. Armstrong discussed the Phased-In Recognition of Investment Income in line F on the page titled Derivation of Funding Value of Pension Fund Assets (C-5), noting that each year's experience is amortized over 10 years. Turning to Cash Flow Projection Based on Current Assumptions and Methods = September 30, 2023 (B-10), he pointed out that the Employer Contributions increase from $2.04 million in 2024/25 to $3.4 million in 2025/26. Mr. Armstrong reviewed the Low-Default-Risk Obligation Measure (A-6); this page is a new Actuarial Standard of Practice which calculates and discloses liability as the Low-Default-Risk Obligation Measure (LDROM); it states how much it would cost a Plan to invest exclusively in US Treasuries across the entire yield curve. While this is not as extreme a measure as annuitizing the Plan, it is a step in that direction; Mr. Armstrong noted there are additional costs with transferring risk, as insurance companies won't accept risk at par values. Considering the LDROM is approximately $50 million higher than the valuation, it shows the Board's active management of a diversified portfolio is comparatively less expensive. While this is only a calculation performed as of a specified date, if the Board were to invest exclusively in US Treasuries, it would incur an approximate $50 million loss which would be recognized as a single event; even when amortized over a 10-year period, it would still dramaticaly increase the City's funding requirement. Mr. Armstrong estimated that, by using the central Treasury Bill rate of 4.28% as a projected ROR, compared to the expected ROR of 6.85%, the approximate difference of 2.5%, spread over 10 years would increase the liabilities by $5 million instead of the estimated $50 million using the LDROM. Mr. Armstrong noted the Plan is not confined to setting the expected ROR in .25% increments, although that is a common increment. Chair Hartley asked Mr. Armstrong to provide at the February 28, 2024, meeting, computations of what the employer contributions effective October 1, 2024, would be using expected RORS of 6.7% and 6.6%. Mr. Armstrong advised that GRS would issue a supplementary report with the projected computations; after the Board declares an expected ROR, GRS will then issue a final report for the Board to adopt; the final report would not require an additional presentation to the Board. The Board and Mr. Armstrong discussed reducing the expected ROR. Vice Chair Joseph acknowledged that the expected ROR needs to be reduced, although the Board may agree to reduce it by a predetermined increment each year for several years sO that the Board would not need to revisit the issue each year. This may aid the City's budgetary planning. Referring to the Historical Year-End Summary Sheet, Trustee Mushrush noted that since FY2013, the Actuarial ROR has exceeded the Adopted ROR, and the Funded Condition is now approximately 95%. Chair Hartley noted that the Historical Year-End Summary Sheet does not show the actual employer contribution rate, and because Sarasota County had previously been partially funding employer contributions, the projected contributions dropped from FY2021 from $9.3 million to $1.2 million in FY2022. To Chair Hartley's question, Pension Plans Administrator Martin advised that administrative costs approximately $1 million per year. Mr. Armstrong reminded the Board that the Plan may begin to gradually draw down the portfolio balance sO that, ideally, payment of the last pension benefit would exhaust the portfolio balance. Book 1 Page 400 01-24-2024 9:00 a.m. Book 1 Page 401 01-24-2024 9:00 a.m. Chair Hartley proposed deferring the decision to declare an expected ROR until the February 28, 2024, meeting when it can review valuations using expected RORS of 6.7% and 6.8%, and the City Finance Manager may be included in the discussion. Mr. Armstrong noted that it would be appropriate for the investment consultant to also be included in that discussion. By informal consensus, the Board agreed. Mr. Armstrong advised either he or another GRS representative will be able to attend the February 28, 2024, meeting. To Chair Hartley's question, Mr. Armstrong estimated that reducing the expected ROR would certainly increase the Plan's liability, but the City's contribution requirement for the ensuing year would be close to $3 million, depending on which expected ROR the Board declares. 9.2. Presentation and Discussion Re: GASB No. 67 Plan Reporting and Accounting Schedules for Fiscal Year Ended September 30, 2023. Presenter(s): Brad L. Armstrong, ASA, EA, FCA, MAAA, Senior Consultant and Actuary, Gabriel, Roeder, Smith & Company. Mr. Armstrong briefly reviewed the GASB Statement No. 67 Plan Reporting and Accounting Schedules, noting that it is typically not presented to the Board, but used by the Plan's and City's respective external auditors. The primary information is on the Summary of Disclosures (page 1). Although there are 152 retirees and beneficiaries currently receiving benefits, there are likely many more significant others, dependents, and households who are affected by Plan's monthly benefit payments. In reviewing the Net Pension Liability, Mr. Armstrong noted that the Plan Fiduciary Liability is the Government Accounting Standards Board's (GASB's) term for market value of assets, with a few exceptions for nonmarketable types of securities. Additionally, the Plan Fiduciary Net Position as a Percentage of Total Pension Liability is the GASB term for funded ratio, which Mr. Armstrong already discussed as part of the actuarial valuation; for comparison, the funded ratio on a market value basis as of September 30, 2022, was 89.9%. Lastly, he advised that the last Year Ending September 30 in the 2024 to 2123 Projection Period for which Projected Benefit Payments are Fully Funded is a 100-year projection which indicates the Plan is not expected to exhaust its assets in that timeframe. The Board thanked Mr. Armstrong for his presentation and advised they anticipate approving the revised actuarial valuation after declaring an expected ROR at the February 28, 2024, meeting. 9.3. Presentation and Discussion Re: Declaration of Expected Rate of Investment Return. Presenter(s): Chair Hartley. Chair Hartley deferred this item to the February 28, 2024, meeting. 10. ATTORNEY MATTERS: Attorney Herrera appeared Board telephonically and advised that beginning in 2024, certain elected public officials, state cabinet members, and judiciary members must file Ethics Commission Form 6, however the requirement does not apply to pension board trustees. The Plan's Trustees will continue filing Form 1; also beginning in 2024, trustees will file the form directly to the Ethics Commission through a web portal. Attorney Herrera advised he looks forward to seeing the Trustees at the FPPTA conference. 11. OTHER MATTERS: 11.1. Presentation and Discussion Re: Asset Allocation as of January 16, 2024. Presenter/(s): Debra Martin, Pension Plans Administrator. Pension Plans Administrator Martin presented the Asset Allocation as of January 16, 2024. To Chair Hartley's question, she advised that Hudson Edge Investment Partners was formerly HGK Asset Management. Pension Plans Administrator Martin advised that Mr. Armstrong confirmed he will attend the February 28, 2024, meeting. Secretary/Treasurer Griggs advised that Finance Manager Kelly Strickland will also attend the February 28, 2024, meeting. 12. ADJOURN. Chair Hartley adjourned the meeting at 10:07 a.m. - / et3 Chair Michael Hartley SecretarylTréasurer Shayla Griggs Book 1 Page 402 01-24-2024 9:00 a.m.