MINUTES OF THE CITY OF SARASOTA POLICE OFFICERS' PENSION PLAN BOARD OF TRUSTEES REGULAR MEETING FEBRUARY 25, 2022 Present: Chair Demetri Konstantopoulos, Vice Chair Johnathan Todd, Secretary/Treasurer Shayla Griggs, Trustee Ronnie K. Baty, and Trustee Joseph Jody" Hudgins. Others: Attorney Scott Christiansen, Pension Plans Administrator Debra Martin, and Pension Specialist Peter Gottlieb. Absent: None. 1. CALL MEETING TO ORDER: Presenter(s): Chair Konstantopoulos. Chair Konstantopoulos called the regular meeting of the Police Officers' Pension Plan (Plan) Board of Trustees to order at 8:15 a.m. 2. PLEDGE OF ALLEGIANCE: Presenter(s): Secretany/reasurer Griggs. Secretary/Treasurer Griggs led the Board and those in attendance in the Pledge of Allegiance. 3. PLEDGE OF CIVILITY: Presenter(s): Chair Konstantopoulos. Chair Konstantopoulos 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: Debra Martin, Pension Plans Administrator. Pension Plans Administrator Martin called roll. Vice Chair Todd was not present; Pension Plans Administrator Martin advised Vice Chair Todd would join the meeting late. 5. PUBLIC INPUT: None. 6. APPROVAL OF MINUTES: 6.1. Approval Re: Minutes of the Police Officers' Pension Plan Board of Trustees Regular Meeting of January 21, 2022. Presenter(s): Chair Konstantopoulos. Trustee Baty made a motion to accept the minutes of the January 21, 2022 meeting; Secretaryreasurer Griggs seconded the motion. The motion carried unanimously (4-0). Book 1 Page 265 02-25-2022 8:15 a.m. Book 1 Page 266 02-25-2022 8:15 a.m. 7. RETIREMENT REQUEST(S): 7.1. Approval Re: DROP Retirement Request of Derrick Gilbert. Presenter(s): Debra Martin, Pension Plans Administrator. Pension Plans Administrator Martin stated that Mr. Gilbert requests to enter the DROP effective January 1, 2022 at 54.5 years of age and with 24.8 years of service. He selected the lifetime only benefit. Trustee Baty made a motion to accept Mr. Gilbert's application to enter the DROP; Trustee Hudgins seconded the motion. The motion carried unanimously (4-0). 8. INVESTMENT PERFORMANCE REVIEW: 8.1. Presentation and Discussion Re: Burgess Chambers & Associates, Investment Performance Summary for Period Ending December 31, 2021. Presenter(s): Larry Cole, Burgess Chambers & Associates. Larry Cole of Burgess Chambers & Associates appeared before the Board telephonically. Mr. Cole began by noting the strong market performance for the quarter ending December 31, 2021 however those gains have largely been lost as of the date of this presentation.. He provided a market outlook in which BCA asserts the Federal Reserve will likely increase short-term interest rates, but not more than 50 basis points. There is concern, however that short term rates will end up being higher than longer term rates, which has historically predicted recessions. He reviewed the Quarterly Market Summary and the Investment Policy Compliance Review noting all categories are within ranges. Secretary/Treasurer Griggs left the meeting at 8:22 a.m. and returned at 8:23 a.m. Mr. Cole reviewed the Investment Performance - Net, noting the total fund return for the quarter was less than the target index, and that almost all of the large-cap growth managers reviewed by BCA significantly underperformed their respective benchmarks for the quarter. He reviewed the Actual VS. Target Asset Allocation, noting that year-to-date, the portfolio is down by 4% to 14% depending on the index, and there have been corrections in the S&P 500 and NASDAQ indexes. While Mr. Cole expressed confidence in stocks over the longer term, he has concerns for the short term. The Producer Price Index, which is the wholesale costs of goods, has been increasing by 2% to 5% more than the Consumer Price Index; this is significant because it indicates producers have not passed along their increased costs to consumers which decreases eamings and profit margins. Also, wages have been increasing which also pushes earnings down. Third, interest rates have begun to creep up, and rising interest rates typically won't support high price-to-eamings multiples. Additionally, the market is due for a correction and the conflict in Ukraine has brought additional uncertainty in the market. Since the end of the calendar year, the domestic equity weighting has come down, and the portfolio is well diversified between real estate, convertibles, and global infrastructure to provide good downside protection. Vice Chair Todd joined the meeting at 8:26 a.m. To Chair Konstantopoulos's question, Mr. Cole expressed confidence in global infrastructure investments despite the conflict in Ukraine. Just as a domestic infrastructure bill was recently passed, this sector similarly remains a priority to world-wide, and therefore investment in global infrastructure should be a safe investment. Additionally, infrastructure investments tend to pay dividends to provide downside protection, and the allocation in this portfolio is not relatively substantial sO any downturn would have a nominal effect. Mr. Cole continued with the Asset Allocation & Performance - Gross, noting the Quarter-to-Date return was good on an absolute basis, but not relative as it was in the bottom 85th percentile; the majority of this performance is attributable to the large-cap growth sector. He noted Allspring Large Cap Growth, formerly known as Wells Fargo, had a quarterly return of 1.8% compared to the benchmark of 11.6%. Mr. Cole pointed out that the Russell 1000 Growth Index is extremely concentrated, as the top: 2 holdings, Apple and Microsoft, comprise 21% of the holdings; the top 5 holdings represent 35%, and the top 10 holdings represent 49%. Fund managers who held less of those top 10 in the Russell 1000 Growth in its own portfolios underperformed, and most managers are restricted from such concentrations by investment policies or internal policies. He believed this was an aberrant quarter. He reviewed each sector and suggested that, due to attractive valuations, he is having internal discussions to evaluate whether or not to reçommend investing more in American Funds EuroPacific Growth. In the real estate sector, Mr. Cole noted his previous concerns regarding the accuracy of real estate valuations as the COVID-19 pandemic caused reductions in the numbers of transactions to verify the valuations. As the commercial real estate market picks up, more transactions have completed and appraised values have, for the most part, been at or above sales prices, providing assurance that the valuations were accurate. Mr. Cole stated that he will likely present an additional real estate fund to the Board at the May 2022 meeting, which would complement the JP Morgan fund. Regarding Fixed Income, he stated he was unconcerned regarding the rankings because the range is tight, and small shifts can produce dramatic changes in rankings. Mr. Cole reviewed the Asset Allocation & Performance Net, and regarding the Peer Universe Quartile Rankings, he pointed out that the 1st Quartile and 3rd Quartile are separated by 1.4%, meaning a 1.4% increase would change a ranking from the 75th percentile to the 25th percentile. In that context, he was not overwhelmingly concerned. He discussed the Fiscal Year Rates of Returns and Total Fund. Despite a rough quarter and year, the long-term numbers remain strong. Trustee Hudgins asked Mr. Cole to recommend an assumed rate of return considering the events of the year. Mr. Cole discussed his reluctance to rely on capital market reports and noted most of his clients have assumed rates of return between 6.75% and 7.25%. Attorney Christiansen stated the Plan's current declared rate of expected return is 6.5%. Mr. Cole advised 6.5% was a reasonable expectation. 10. NEW BUSINESS: 10.2. Presentation and Discussion Re: Declaration of Assumed Rate of Investment Return. Presenter: Chair Konstantopoulos Trustee Hudgins asked if it would be appropriate to address item 10.2. at this point in the meeting. Chair Konstantopoulos and the Board concurred. Trustee Hudgins made a motion, in consultation with the investment consultant, to declare the Board expects to receive a rate of investment return of 6.5% for the next year, several years, and long-term thereafter; Trustee Baty seconded the motion. Book 1 Page 267 02-25-2022 8:15 a.m. Book 1 Page 268 02-25-2022 8:15 a.m. The motion carried unanimously (5-0). Chair Konstantopoulos thanked Mr. Cole for his presentation and service to the Board. 9. UNFINISHED BUSINESS: 10. NEW BUSINESS: 10.1. Presentation and Discussion Re: Mauldin & Jenkins, Financial Statements for the Fiscal Years ending September 30, 2021 and 2020. Presenter(s): Alison Wester, CPA, Partner, Mauldin & Jenkins. Alison Wester of Mauldin & Jenkins appeared before the Board telephonically and introduced herself. Ms. Wester presented the Financial Statements, noting that the Independent Auditor's Report is a clean and unmodified opinion. She gave brief overviews and descriptions of each portion of the Financial Statements and Auditor's Discussion and Analysis. She reviewed the Management's Discussion and Analysis, Statements of Fiduciary Net Position, Statements of Changes in Fiduciary Net Position noting the change in net position was driven primarily by the appreciation of investments. She discussed each of the Notes to Financial Statements. Regarding Note 4, Cash, Cash Equivalents and Investments, Concentration of Credit Risk, Ms. Wester stated that the portfolio held 3 mutual funds which had aggregate amounts exceeded 5% of the market value of the fund's assets. While the investment compliance report did not identify any concentrations in any individual issuer, the concentrations were likely due to strong market performance at the end of the fiscal year 2021. Also in Note 4, Fair Value Measurements, Ms. Wester reminded the Board that Level 1 is the same investment in an active market; Level 2 is a similar investment in an active market; and Level 3 is any other pricing method used to derive fair market value. Trustee Hudgins asked Ms. Wester to discuss Note 5, Net Pension Liability, in greater detail as the Board has not experienced this circumstance in 15 to 20 years. Ms. Wester explained that as of September 30, 2021, the calculated net pension liability was less than the fiduciary net position. The fiduciary net position grew in fiscal year 2021 by approximately $61 million due to the change in value of the investment portfolio. She noted that as the market value of investments changes, sO will the fiduciary net position. This will be seen on the net pension asset or liability in the Supplemental Information. Trustee Hudgins asked why this wasn't presented as the "actuarial accrued liability. Ms. Wester explained that GASB 67 and 68 changed the terminology for financial reporting, and plan sponsors are required to bring the liabilities on balance sheets, and the phrase, 'actuarial accrued liability," has changed to, "net pension liability. Trustee Hudgins noted there is no, "net pension liability,' item on the Statements of Fiduciary Net Position. Ms. Wester explained that the Plan does not report the liability, however the City of Sarasota does. Trustee Hudgins left the meeting at 8:52 a.m. and returned at 8:53 a.m. Ms. Wester continued her discussion of Note 5, Net Pension Liability; at Trustee Hudgins' request regarding the Sensitivity of the Net Pension Liability to Changes in the Discount Rate, she explained the benefit of showing how a change in the discount rate alters the net pension liabilities. Mr. Cole added that this measurement also provides a clearer perspective on the Plan's general health, whereas information published by the State of Florida regarding public pensions with rankings and funded ratios can be less informative. Ms. Wester agreed. She discussed the Required Supplementary Information, explaining how the Schedule of Changes in the City's Net Pension Liability and Related Ratios is constructed and shows the cumulative effects of assumption changes and investment returns on the funded ratio from year to year. She noted that page will be reformatted for legibility in future reports. She reviewed the Schedule of Contributions noting it was based on the contribution rates which were calculated 2 years in advance of the contribution. The last section of the financial statements Ms. Wester presented was the Independent Auditor's Report on Internal Control over Financial Reporting and on Compliance and Other Matters; it is not an opinion on the internal controls however an auditor would present identified deficiencies or material weaknesses for consideration and disclosure in this section. The Board had no further questions or comments regarding the financial statements. Ms. Wester discussed the Auditor's Discussion and Analysis which included information about Mauldin & Jenkins, the engagement team and its qualifications, changes in staff, additional information about the independent auditor's report, required communications, as well as continuing education opportunities offered by Mauldin & Jenkins. Chair Konstantopoulos and the Board thanked Ms. Wester for her report and service to the Plan. Trustee Hudgins made a motion to accept the audit as prepared; Vice Chair Todd seconded the motion. The motion carried unanimously (5-0). The Board discussed Mauldin & Jenkins' history with the Plan, and the identification of material weaknesses and a significant deficiency approximately 5 years ago. 11. ATTORNEY MATTERS: 11.1. Presentation and Discussion Re: Litigation Report ITMO Conagra Brands, Inc. Presenter(s): Scott Christiansen, Christiansen & Dehner. Attorney Christiansen explained the Plan's representing firm, Robbins Geller Rudman & Dowd, LLP (Robbins Geller), had filed a complaint which a court dismissed; Robbins Geller appealed the dismissal to the United States Court of Appeals for the Seventh Circuit, which heard oral arguments. Attorneys are awaiting a decision on the dismissal. Attorney Christiansen is processing a request for disability benefits from Bobby Sue Patrick; Attorney Christiansen's office has received all indicated medical records and they are setting up an independent medical evaluation (IME). Upon completion of the IME, the Board will be able to review the claim for disability benefits. Attorney Christiansen advised of an issue with Lt. Robert Resch, who is currently in the DROP. Through an attomey, Lt. Resch asserted that, in making his decision to enter the DROP, he relied on an incorrect DROP payment schedule which had been provided by Pension Administration and significantly overstated the DROP accumulation. Prior to being contacted by Lt. Resch's attorney, Pension Administration had identified the error and provided Lt. Resch with a corrected DROP payment schedule. Upon receiving the Lt. Resch's communication via his attorney, Pension Administration provided Attorney Christiansen with a timeline of events including supporting documentation and correspondence from Lt. Resch which showed he had decided to enter the DROP prior to receiving any information from Pension Administration. Chair Konstantopoulos asked how Attorney Christiansen established Lt. Resch had decided to enter the DROP before receiving incorrect information. Attorney Christiansen explained that Pension Administration received an e-mail from Lt. Resch advising he wished to enter the DROP effective January 1; Pension Administration shortly thereafter provided Lt. Resch with a benefit projection which forecasted the benefit payment within a reasonable amount. Lt. Resch then entered the DROP on January 1 and notified his department sO that his employee contributions ended. On approximately January 23, Pension Book 1 Page 269 02-25-2022 8:15 a.m. Book 1 Page 270 02-25-2022 8:15 a.m. Administration provided Lt. Resch with the inaccurate payment schedule; at the same time, Lt. Resch signed an Election of Retirement Benefit Options; his signature appears next to the correct benefit amount. Because Lt. Resch received the incorrect document only after he decided to enter the DROP, and he acknowledged the correct benefit amount at the time the erroneous information was simultaneously provided, he could not have detrimentally relied on the incorrect document to decide to enter the DROP. Attorney Christiansen submitted a written response to Lt. Resch's attorney and is awaiting a reply. Trustee Hudgins asked about a potential resolution to a hypothetical case of detrimental reliance; Attorney Christiansen stated that is not the question in this circumstance. Secretary/Treasurer: Griggs added that during the time the incorrect information was provided to Lt. Resch, Pension Administration did not have adequate controls, but those have been put in place and errors such as this will not occur going forward. Attorney Christiansen stated that his correspondence to Lt. Resch's attorney included copies of the Plan's operating rules and claims procedures, and it advised Lt. Resch could request to appear before the Board to assert why he believed he was entitled to additional benefits. Attorney Christiansen further explained in his correspondence that that the Board has a fiduciary responsibility to ensure benefits are determined in accordance with all Plan provisions. Lt. Resch remains in the DROP through the end of 2022 and Attorney Christiansen will advise the Board if he receives further communication on the matter. Lastly, Wells Fargo has completed its transition to Allspring, and it is now a different company. Although the Plan consented to Wells Fargo assigning its contract with the Plan to Allspring, Attorney Christiansen recommends drawing up a new contract with Allspring which incorporates the provisions of the Wells Fargo agreement. Trustee Hudgins made a motion to authorize Attorney Christiansen to draw a contract with Allspring to the prior terms of Wells Fargo. The motion carried unanimously (5-0). 12. OTHER MATTERS: None. 13. ADJORN. Chair Konstantopoulos adjourned the meeting at 9:15 a.m. ALecC Chair Demetri Konstantopoulos SecretanfTreasurer Shayla Griggs