Book 1 Page 353 3-22-2023 9:00 a.m. MINUTES OF THE CITY OF SARASOTA FIREFIGHTERS PENSION PLAN BOARD OF TRUSTEES MEMBERSHIP MEETING OF MARCH 22, 2023 Present: Chair Michael Hartley, Vice Chair Charles Joseph, Secretary/reasurer Shayla Griggs, Trustee Scott Snow, and Trustee Heather Mushrush. Others: Attorney Pedro Herrera, Pension Plans Administrator Debra Martin, and Pension Specialist Peter Gottlieb. Absent: None. 1. CALL MEETING TO ORDER: Chair Hartley called the Sarasota Firefighters' Pension Plan (Plan) Board of Trustees Membership meeting to order at 9.00 a.m. 2. PLEDGE OF ALLEGIANCE: Presenter(s): Secretany/reasurer Griggs. Secretary/Treasurer Griggs led the Board and meeting attendees in the Pledge of Allegiance. 3. PLEDGE OF CIVILITY: Presenter(s): Chair Hartley. Trustee Snow 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. 4. ROLL CALL: Pension Plans Administrator Martin called roll; all trustees were present. 5. PUBLIC INPUT: Retiree Ernie Cave appeared before the Board and introduced himself. Regarding the Secure Act 2.0 which was discussed by the Plan Attorney during the Attorney Matters item at the Board's February 22, 2023 meeting, Mr. Cave clarified that the City of Sarasota (City) only pays for a retiree's health insurance premium when the retiree elects the United Health Care (UHC) plan, retirees who select the Blue Cross/Blue Shield plan are responsible to self-pay any associated premiums, and there is an additional premium for spousal coverage; the City does not allow those premiums to be deducted from pension benefit checks. He reminded the Board that the Secure Act 2.0 allows retired public safety officers to deduct up to $3,000 of eligible health and long-term care insurance premiums from their federal income taxes, irrespective of whether the Plan Sponsor withholds the premium from the retiree's benefit and remits the premium to the carrier on behalf of the retiree, or paid by the retiree directly to the carrier; prior to the Secure Act 2.0, only eligible premiums withheld from a pension benefit and remitted by the Plan Sponsor to the carrier on behalf of the retiree qualified for the income tax deduction. Because of the significant number of retirees who could be affected by this provision of the Secure Act 2.0, Mr. Cave asked the Plan to advise retirees that tax laws have changed, and they may contact a qualified tax professional with any questions. He provided a blog entry of the National Conference on Public Employee Retirement Systems to the Board for its review. Mr. Cave stated that notifying the membership of the changes in applicable tax laws would be of service to the membership. To Chair Hartley's question, Pension Plans Administrator Martin advised that the most retirees have health insurance premiums deducted from their benefits, however she would not know how many self-pay premiums for themselves and/or spousal health insurance coverage. Attorney Herrera joined the meeting at 9:07 a.m. Chair Hartley asked Mr. Cave to provide a link to the information he referenced to Pension Administration for distribution to the Board. To Chair Hartley's question, Mr. Cave explained that the City pays for a retiree's health insurance premium if the retiree elected the UHC plan; any additional premium for spousal coverage under the UHC plan must be self-paid by the retiree ori insured, and the additional premium cannot be deducted from a retiree's pension benefit. Retirees who do not enroll in the City's health plan are eligible for a stipend, however the stipend and the United Health Care plan are only available to Medicare-eligible retirees. He noted there is a separate health plan available to those employees hired before 1993, but he did not address that group in his remarks. The Board thanked Mr. Cave for bringing this item to their attention. 6. APPROVAL OF MINUTES: 6.1. Approval Re: Minutes of the Firefighters' Pension Plan Board of Trustees Regular Meeting of February 22, 2023. Presenter(s): Chair Hartley. Trustee Snow made a motion to approve the minutes of the February 22, 2023 regular meeting; Trustee Mushrush seconded the motion. The motion carried unanimously (5-0). 7. BOARD OF TRUSTEE REPORTS: 7.1. Presentation and Discussion Re: Annual Board Report for 2022. Presenter(s): Secretary/reasurer Griggs. Secretary/reasurer Griggs presented the Annual Board Report for 2022. She thanked the Board and Staff for their diligence, focus, and consistency in carrying out their respective responsibilities to the Plan over the last year. She noted the Annual Board Report, including the attendance report, had been presented to the City Commission on Monday, March 20, 2023, and accepted on consent; the Annual Board Report is presented to the Board for its information. To Chair Hartley's request, Secretary/reasurer Griggs and Pension Plans Administrator Martin confirmed that Trustee Mushrush was appointed to Seat 2 to fulfill the remainder of former Trustee Shelia Roberson's term which ended January 31, 2023; former Trustee Roberson ceased to be eligible to serve on the Board because she relocated her residence to outside of City limits. After being appointed initially, Trustee Mushrush was re-appointed by the City Commission to serve an additional term through January 31, 2027. Vice Chair Joseph made a motion to accept the Annual Board Report for 2022; Trustee Snow seconded the motion. The motion carried unanimously (5-0). Book 1 Page 354 3-22-2023 9:00 a.m. Book 1 Page 355 3-22-2023 9:00 a.m. 7.2. Presentation and Discussion Re: Proposed Annual Budget for Fiscal Year 2023 - 2024. Presenter(s): Secretary/reasurer Griggs. Secretary/Treasurer: Griggs presented the Proposed Annual Budget for Fiscal Year 2023 - 2024; she noted changes from the 2022 - 2023 budget, which total a net 3.2% increase. Vice Chair Joseph asked if sufficient funds were budgeted for payroll increases as well as for travel. Pension Secretary/Treasurer: Griggs and Plans Administrator Martin explained that if sufficient amounts were not budgeted, Pension Administration could request adjustments at a later date. Vice Chair Joseph made a motion to adopt the Proposed Administrative Budget for Fiscal Year 2023 -2024. Trustee Snow seconded the motion. The motion carried unanimously (5-0). 8. INVESTMENT PERFORMANCE REVIEW: 8.1. Presentation and Discussion Re: Presentation and Discussion Re: HGK Asset Management, Performance Review as of December 31, 2022. Presenter(s): Matthew Witschel, Director, National Accounts, HGK Asset Management. Matthew Witschel of HGK Asset Management appeared before the Board and introduced himself. Noting HGK is one of the Plan's large cap value managers, Mr. Witschel gave a brief overview to his presentation. He reviewed HGK's Investment Philosophy, Statement of Changes Trailing 1 Year as of December 31, 2022, and Statement of Changes Since Inception. On the page titled Long Term Performance as of Q4 2022, Mr. Witschel noted HGK outperformed its benchmark over all timeframes, as well as that HGK is ranked in the top 20% amongst its peers. Referring to the materials he provided at the meeting titled PORT Attribution Report: Attribution, Mr. Witschel advised it corrected information in the bound materials; he also explained that HGK did not have an overweight in cash during the 2022 calendar year, nor did it intentionally overweight in energy, although both aided in the portfolio's outperformance. To that point, no single sector had significant outperformance, and instead, the entire portfolio generally performed well enough to beat their respective benchmark sectors as a result of stock selection. Chair Hartley explained that, because the Plan is closed, it takes withdrawals from its investments to fund benefit payments to retirees in addition to rebalancing the portfolio according to its investment parameters. To Chair Hartley's question, Mr. Witschel noted there have been no changes at HGK, that he expects Michael Pendergast to continue heading the firm for at least 5 to 7 years, although it has added several chartered financial analysts to the firm as it has grown. Mr. Witschel reviewed the Portfolio Characteristics, noting value stocks had rotated into favor in late 2021 when the portfolio was trading at approximately 12 to 13 times earnings. He asserted that its holding stocks with reasonable valuations provided strong downside protection during the 2022 downturn. Secretary/Treasurer Griggs left the meeting at 9:27 a.m. and returned at 9:30 a.m. Mr. Witschel reviewed the sector weighting within the benchmarks, as noted on the right side of the Portfolio Characteristics page of the materials. Considering the high active share of 80.01% within a concentrated portfolio of 40 to 50 stocks, Mr. Witschel asserted the outperformance was due to security selection. To Chair Hartley's question, Mr. Witschel discussed the Consumer Staples sector, noting it is more defensive than many other sectors, and it, energy, and utilities performed well during last year's downturn. He added that, although the technology sector as a whole underperformed last year, IBM, which HGK held, had outperformed during that timeframe and was a top contributor to the portfolio's performance. Mr. Witschel reviewed the Top Ten Holdings and advised that because the portfolio index holds a significant number of financial stocks, the portfolio is, accordingly, heavily weighted in financials. He added that HGK does not own any of the failed or failing regional banks which have been in the news lately, such as Silicon Valley Bank, First Republic, or Signature Bank New York. That notwithstanding, financials have been a detractor to the portfolio which is down 3% year-to-date as of this morning. Turning to the Portfolio Commentary on pages 12 and 13, Mr. Witschel discussed the larger themes in the market and economy. HGK believes the Federal Reserve will not be able to bring inflation down to its target range of 2.0% to 2.5% until the end of 2024. This will keep interest rates at their current levels, which are high relative to the last few years, but are at a normal level when viewed over a larger time span. Bond prices are competitive with stocks and the market is beginning to focus again on fundamentals, which is an environment in which HGK's strategy, which seeks high quality value stocks with a margin of safety, will thrive. Mr. Witschel turned to page 21 of the materials and explained the Operational Quality portion of the graph shows the portfolio is overweight to the highest quintiles of quality in its universe and underweight to lower quality equities. The Valuation section of the graph shows the portfolio is overweight to companies which are less expensive based on fundamentals and underweight to more costly companies. He asserted that this graph, if it represented the portfolio as of today or 3 years ago, would look substantially similar, indicating their dedication to its strategy. To Chair Hartley's question, Mr. Witschel explained Dover Corporation is an industrial conglomerate which HGK has owned for a significant period of time. He related an anecdote regarding Warner Brothers Discovery, which was down last year; HGK performed a full review of the company, decided to hold it, and this year it is up 60% year-to-date in 2023. Mr. Witschel ended his presentation by asserted the current issues in the banking sector do not appear to be systemic and banks are better capitalized today than during the financial crisis in the late 2000's; in that context, HGK does not foresee a looming crisis in that sector. To Vice Chair Joseph's question, Mr. Witschel explained that some of the information used in the chart on page 21 was obtained from Credit Suisse, and that HGK obtains information from a variety of sources for their materials, although, as a foreign company, HGK would not purchase Credit Suisse stocks in this strategy. The Board thanked Mr. Witschel for his presentation. 8.2. Presentation and Discussion Re: Wedge Capital; Performance Summary as of December 31, 2022. Presenter(s): Richard Wells, General Partner, Wedge Capital Management. Book 1 Page 356 3-22-2023 9:00 a.m. Book 1 Page 357 3-22-2023 9:00 a.m. Richad Wells of Wedge Capital appeared before the Board and introduced himself and his presentation. Mr. Wells noted that there have been no changes in the principals at Wedge, although Brad Fisher, who has been with the firm for 30 years and currently manages the fixed income group, will retire in June 2023; Wedge has prepared replacements to succeed him upon his departure. Mr. Wells reviewed the Value Across Strategies page of the materials, noting the Plan is invested in the Quantitative Equity Strategy QVM Large Cap fund, and the Systematic Investment Process. On the pages titled QVMI Large Cap Value Performance Update and QVM Large Cap Value Performance, Mr. Wells noted the portfolio outpertormed the benchmark over the 3-year, 5-year, 10-year, and Since Inception timeframes; year-to-date in 2023, the portfolio is down 1.27% while the benchmark is down 3%. He reviewed the Activity Summary and Performance history for timeframes through December 31, 2022, as well as year-to-date as of February 28, 2023. He reviewed the Excess Returns shown on the graph titled Distribution of Quarterly Relative Return as well as the up-market and down-market capture ratios in the Wedge QVM Large Cap Value chart. On the QVM: Large Cap Value Performance Attribution, Mr. Wells reviewed the Year-to-Date Positive and Negative influences on the portfolio. On the page titled Performance Attribution Analysis By QVM Sector, Mr. Wells discussed which sectors contributed and detracted the most to the portfolio. He reviewed the Characteristics as of 12/31/22 on the QVM Large Cap page, noting the portfolio has always had overweighted positions in technology, but that it has diversified holdings within the sector. Wedge anticipates the circumstances in 2001 and 2002, during which value factors took over and the strategy outperformed despite the end of the dotcom bubble even though the tech sector as a whole declined dramatically, will return in the current environment. He discussed the Sector Weightings, noting an over- weight position in tech and underweight in financials, which is typical for the portfolio. While Wedge holds some regional banks in the portfolio, none have had significant losses such as Silicon Valley Bank or Signature Bank. Mr. Wells explained that Wedge is optimistic going forward, referring to the page titled Balancing Value with other Characteristics, as it is finding quality growth stocks with lower valuations which he asserts will bring greater returns on equity over time. To Trustee Mushrush's and Chair Hartley's questions, Mr. Wells discussed Wedge's weightings compared to HGK's relative to their common benchmarks. He clarified that because Wedge predated the Russell 1000 Value Index, Wedge continues to define each sector consistently since its inception, as changing to match the benchmark's definition would require changing its investment model. Further, while Wedge defines each sector consistent across its own materials, they will not be consistent with HKG's definitions. Chair Hartley thanked Mr. Wells for his presentation. 9. UNFINISHED BUSINESS: None. 10. NEW BUSINESS: None. 11. ATTORNEY MATTERS: Attorney Herrera advised proposed House Bill 3 in the Florida Legislature would restrict public pension plans to consider only "pecuniary factors" when making investment decisions. Pecuniary factors are metrics such as rates of return, standard deviation, alpha, performance, and fees. Other factors, such as environmental, social, or governance considerations, would be impermissible, and trustees who considered impermissible factors could face criminal consequences as breaches of their fiduciary duties. The proposed legislation encompasses bond offerings, as well as banking institutions which house public assets. While this would generally not affect the Board on a practical level, it would have additional administrative disclosure and reporting requirements. It could further compel the Board to adopt a proxy voting policy for shareholder votes. Currently the Plan delegates proxy votes to investment managers and it has no formal policy in place; this may increase management fees due to the additional administrative burden. This bill has bicameral support and is expected to pass. To Chair Hartley's question, Attorney Herrera explained the legislature is considering lowering the service requirement for a normal retirement in the Florida Retirement System (FRS) from 30 years to 25 years, as well as extend the DROP from 5 years to 8 years. The Board discussed how the changes could be implemented by the FRS. 12. OTHER MATTERS: 12.1. Presentation and Discussion Re: Asset Allocation as of March 14, 2023. Presenter(s): Debra Martin, Pension Plans Administrator. Pension Plans Administrator Martin presented the Asset Allocation as of March 14, 2023. She noted that as of close of business on March 21, 2023, the portfolio was at approximately $165 million. Chair Hartley and Trustee Snow noted the Plan currently must liquidate approximately $1.2 million every month for its pension obligations. Mr. Cave re-appeared before the Board and asked for the Plan's funded ratio and number of participants. Pension Plans Administrator Martin advised that, as of September 30, 2022, the funded value on an actuarial basis was 97.7%. Trustee Snow and Chair Hartley added that the Board recently increased its amortization policy to 10-year smoothing to reduce volatility in the funded ratio caused by the City becoming solely responsible for all employer contributions upon the expiration of the interlocal agreement, as well as decreases in the expected rate of investment return to 6.35% (net) and 6.85% (gross) as necessitated by market conditions. Currently 153 people receive monthly pension benefits from the Plan, of which 107 are retired employees and 46 are survivors of retired employees. There are 2 members in the post-2013 group who have balances in health trust accounts; it would be of benefit to the Trust for those 2 members to receive distributions. Pension Plans Administrator advised the State Report has been filed and the State of Florida has reviewed it. Pension Administration has already responded to the State's follow up questions. Trustee Snow advised that the current monthly payroll amount of $1.2 million is the highest in the Plan's history; it is largely due to the Cost-of-Living Adjustment. The Actuary advised that as the Plan matures, it will draw down more of its investment assets and should reach a portfolio balance of $0 during the 2060s, although Trustee Snow expressed a preference for having some assets in reserve when the final benefit recipient ceases to be eligible for benefits. Attorney Herrera advised that any asset held by the Plan at the time the final participant ceases to be eligible for benefits would inure to the City. Chair Hartley advised he will not be able to attend the April 26, 2023 meeting; Vice Chair Joseph will preside. Book 1 Page 358 3-22-2023 9:00 a.m. Book 1 Page 359 3-22-2023 9:00 a.m. 13. ADJOURN. Chair Hartley adjourned the meeting at 10:16 a.m. Bmp Chair Michae S66 Harlley Sécretary/yeasurer Shayla/Griggs