MINUTES OF THE MARCH 18, 2013 GENERAL EMPLOYEES' PENSION BOARD MEETING Present: Chair Cheri Potts, Vice Chair Gretchen Schneider, Treasurer John Lege, and Trustees Ryan Chapdelain and Barry Keeler Absent: Secretary Pamela Nadalini Others Present: Attorney Scott Christiansen, Christiansen & Dehner, Actuary Pete Strong, Gabriel Roeder Smith via phone, Pension Plans Administrator Tom Kelley, Pension Analyst Gail Loeffler, and Office Assistant Nicole Ackerman CALL' THE MEETING TO ORDER Chair Potts called the meeting to order at 12:00 p.m. PUBLIC INPUT - 3 Minute Limit None APPROVAL OF THE FEBRUARY 11, 2013 GENERAL EMPLOYEES' PENSION BOARD MINUTES On a motion of Vice Chair Schneider, and a second by Trustee Keeler, it was moved to approve the minutes of February 11, 2013. Motion carried unanimously. Pension Analyst Gail introduced the new Pension Plans Administrator Tom Kelley. ATTENDANCE REPORT Pension Administrator Kelley explained that Secretary Nadalini was at the Supervisor of Elections office conducting business with regard to City elections; that he will be giving the Attendance Report in her absence. (The Attendance Report is attached as part ofthe minutes.) Vice Chair Schneider asked if it is considered an absence when a member of the Board arrives late to a meeting; that she only remembers missing one meeting but knows she has arrived late as well. Pension Analyst Loeffler stated that she would review the dates ofher attendance; that late doesn't constitute an absence. HIGHLIGHTS OF PENSION ACTIVITY FOR 2012 The Highlights of Pension Activity as presented by Chair Potts is attached as part of the minutes. In response to Trustee Keeler's question regarding the vacant seat on the Board, Pension Analyst Loeffler stated that they are looking to fill the seat with a candidate with investment or banking experience; that the position is on the City website and is published in the Herald Tribune and other smaller newspapers. TREASURER'S REPORT Treasurer Lege stated that the total revenue for year ended September 30, 2012 was $24.5 million; that total expenditures were $12.3 million; that total investments were $118.2 million; that the funded ratio is 67.9% and the net investment return was 18.8%. (The Treasurer's Report is attached as part of the minutes.) In response to Vice Chair Schneider's question for clarification regarding the item that lists return of participant contributions, Treasure Lege stated that those refunds were paid to participants who terminated employment with March 18, 2013 1 the City prior to being vested; that participants who elected a lump sum oft their benefit would be listed as benefits paid under expenditures. QUESTIONS FROM THE MEMBERSHIP Rudolph Robsel asked for an explanation of the overall health oft the Plan. Chair Potts stated that there has been great improvement over last year; that the investment return last year was 18.8%; that the Plan is 67.9% funded. Mr. Robsel further asked where does the Plan stand with what was lost over the previous years. Treasurer Lege stated that over the years the funding ratio has been decreasing; that there has been changes made to ensure that the Plan is fully funded and sustainable over the long term; that as of September 30, 2012 there was $118 million in total investments and as of mid March 2013 investments are up to $124 million. Discussion ensued regarding the market value and the five year smoothing, and was determined that the 2008- 2009 loss of about $10 million will fall off the actuarial value of assets and have a positive effect of about $2 million. In response to Trustee Chapdelain's question regarding what will it look for the Plan with the 2008 losses falling off and having a conservative investment return, Mr. Strong stated that it is expected that the actuarial value and the market value will remain in line with each other as long the expected rate of return is achieved; that it will not have a significant impact next year by the 2008 losses dropping off; that the effect was fully recognized this year by having a recognized return on the actuarial value of only 1.4% while the market value was 18.8%. Trustee Chapdelain asked how this would affect the City's contributions next year. Mr. Strong stated that this would cause the City's contribution to increase marginally next year. Jane Hindall asked if the meetings minutes were posted on ePoint. Pension Analyst Loeffler stated that the minutes are posted on Granicus which is on the City's home page. Ms. Hindall asked if 67% a healthy funded percentage. Mr. Strong stated that last year the assumption was changed to 7% a year; that this assumption assumes that less money will come in from investments which will increase the shortfall between liabilities and investments; that with the lowered assumption rate, more money will come in due to higher City contributions than originally expected SO that will in turn increase the funding level more quickly. DISCUSSION RE: DRAFT OF PROPOSED CITY ORDINANCE AMENDING SECTION 24-101, CREDITED SERVICE, REGARDING DIFFERENTIAL PAY; AMENDING SECTION 24-103, PENSION BENEFITS, SUBSECTION (F), TO COMPLY WITH INTERNAL REVENUE CODE AND SUBSECTION (D)(1) C.2, REGARDING LANGUAGE TO CLARIFY STARTING DATE OF COLA FOR RETIREE OVER AGE 65; AND SECTION 24-107, DISABILITY BENEFITS, SUBSECTION (A)(2), REGARDING CORRECTION OF A SECTION NUMBER Attorney Scott Christiansen explained that this proposed Ordinance is intended to bring the Plan into compliance with the Internal Revenue Code; that there a couple housekeeping changes; that one change is a correction to a section number and the second change is clarifying the COLA benefits; that the Internal Revenue Code changes are regarding the maximum pension; that the maximum benefit amount allowed per year has increased to $205,000; that the second Internal Revenue Code change is in regards to those in the military with differential pay. In response to Treasurer Lege's question whether these changes will have an actuarial impact on the Plan; Mr. Strong stated that it would not. On a motion of Trustee Chapdelain, and a second by Vice Chair Schneider, it was moved to approve the draft of the proposed City Ordinance for consideration by the City Commission. Motion carried unanimously. March 18, 2013 2 ATTORNEY MATTERS Attorney Christiansen stated that the Legislative Session started in Tallahassee; that nothing at this point specifically applies to the Plan. Discussion ensued regarding the Florida Retirement System (FRS) changes that the Legislature is considering. DISCUSSION RE: ACTUARIAL CASE STUDY OF MORTALITY ASSUMPTION. DOLLAR BASE CONTRIBUTION METHOD, REDUCTION OF THE AMORTIZATION PERIOD, AND THE AGGREGATE COST METHOD Pete Strong, actuary, Gabriel Roeder Smith & Company, presented via telephone conference; that because the General Employees' Pension Plan is closed to new employees, the payroll will continue to decline; that the percentage used to determine the contributions at valuation will result in a lower dollar amount of actual contribution than the recommended amount; that over time the contributions coming in will be too low to fund the Plan adequately once they are compared to the actual emerging payroll. Mr. Strong stated that the study was based on four proposed changes in the assumptions and methods: (1) change the method for determining the required contribution from the percentage of pay method to the dollar-based method; (2) change the mortality table assumption from the 1994 Uninsured Pensioners Mortality Table projected to 2014, to the RP-2000 Mortality with mortality improvements projected to all future years using Scale AA; (3) reduce the maximum amortization period to 25 years as of October 1, 2012, and reduce it by one additional year on each anniversary date thereafter; and (4) change the actuarial funding method from the Entry Age Normal funding method to Aggregate funding method. Mr. Strong explained the graphs enclosed in the study. In response to Treasurer Lege's question regarding if this study is to revise the October 1, 2012 valuation or would it be for the October 1, 2013 valuation, Mr. Strong stated that the September 30, 2012 actuarial valuation would not have to be revised; that the dollar amount instead of the percentage pay would result in a higher contribution. Vice Chair Schneider asked how this relates to the assumed rate of return since it has been decreased to 7% and there has been conversation about reducing it even further; that there are a lot of different things happening and is it a menu of different things we should be selecting or should the Board be doing them all. Mr. Strong stated that it is up to what the Board wants to target; that ifthe Board would like to target a level dollar amount coming into the Plan each year, even as payroll starts to decrease, then it is his recommendation that the Entry Age Normal funding method will continue to be used, but that the Board switch to the dollar based method instead of the percent of pay method. Vice Chair Schneider asked if the changes being made have to go in order of the example in the study where the different methods continue to build on the prior method, Mr. Strong stated that one or two of the methods could be adopted separately instead of all of them; that the aggregate funding method should be adopted independently. Discussion ensued further regarding the study. Consensus was reached to place the topic on the April 15, 2013 meeting for further consideration. The Board thanked Mr. Strong for the presentation. OTHER MATTERS Pension Administrator Kelley stated that the HGK transfer is complete and funds are now being invested with them; that the spreadsheet the Pension Office uses to calculate retirement benefits is now complete for the Plan changes regarding the prior and after December 28, 2011 split; that Board direction is requested on when the new actuarial equivalent interest rate of 7% is effective; that Trustee Chapdelain's seat expires in June 2013 and he has expressed an interested in continuing to serve. March 18, 2013 3 Attorney Christiansen asked Mr. Strong to clarify if when changes are made to the assumed rate of return for the actuarial valuation, whether that also requires a change in the actuarial equivalence interest rate for the benefit calculation. Mr. Strong responded that the two do not have to be the same, but the Board did elect to adopt a 7% actuarial equivalence interest rate; however, apparently an effective date for the change was not specified at the time of adoption. Attorney Christian asked if changing the interest rate from 8% to 7% would cause an increase or decrease in the joint and survivor benefits and Mr. Strong stated that it would make the conversions to the optional forms of benefit lower. Pension Administrator Kelley stated that in reducing the benefit amounts that were already presented to a retiree after the benefit option was selected could have legal ramifications. Attorney Christiansen further stated that this would not be a problem if it was clear as to the effective date of the actuarial equivalence change; that if it is unsure whether there was an effective date established, then one could be set for today. Discussion ensued further regarding the effective date and the change in the actuarial equivalence interest rate. On a motion of Trustee Chapdelain, and a second by Vice Chair Schneider, it was moved to approve an effective date of March 18, 2013 for the actuarial equiyalence interest rate change to 7%. Motion carried unanimously. In response to Treasurer Lege's question regarding whether the Finance Director's position on the Board was by City Charter, Attorney Christiansen stated that it is not by Charter, but by ordinance. ADJOURN The meeting was at 1:30 p.m. OTHER INFORMATION The next meeting is scheduled for April 15, 2013, at 8:30 a.m. in the City Commission Chambers. Chair Cheri Potts Secretary/Ireasurer Pamela Nadalini March 18, 2013 4 CITY OF SARASOA Interoffice Memorandum March 18, 2013 To: General Employees' Pension Board of Trustees From: Pamela M. Nadalini, Secretary Subject: Attendance Report Since the last membership meeting on March 16, 2012, the General Employees' Pension Board has had 11 meetings. Listed below is the attendance record ofthe Trustees. Name Missed Meetings Cheri Potts 2 Susan Kosko (resigned 6/1/2012) 0 Gretchen Schneider 2 Pamela Nadalini 1 Christopher Lyons 2 John Lege (effective 2/1/2013) 0 Barry Keeler 2 Ryan Chapdelain Highlights of Pension Activity for 2012 Trustees: V Barry Keeler and Gretchen Schneider were re-elected V Gretchen Schneider was elected as Vice Chair at the departure of Susan Kosko Still an open seat on the Board for the City Commission to appoint a member Pension Updates: Rate of return was lowered to 7% V Investment Policy Statement was approved on March 19, 2012 V Plan Summary Description was approved for the 2011 Plan amendments V There was a new Florida law passed regarding ex-spouses as beneficiary or joint annuitants Pension Department: V There was a City Commission Pension Workshop held with investment consultants, attorneys and actuaries Pension Administrator Benita Saldutti retired and a new administrator was hired Investment Changes: A new investment manager hired (HGK) Other Changes: V Pete Strong became the new actuary due to the retirement of Actuary Stephen Palmquist Retiree Changes For Plan Year September 30, 2012 Retired: 18 Entered DROP: 8 Passed Away: 10 Annual Membership Meeting March 18, 2013 GENERAL EMPLOYEES PENSION FUND TREASURER'S REPORT Year Ended Year Ended 9/30/2011 9/30/2012 REVENUES: a. City Participant contributions $ 1,175,296 $ 944,917 b. County participant contributions 22,830 18,758 C. City contributions 2,985,371 3,557,464 d. County contributions 57,868 69,165 e. Employee Service Purchase 65,035 f. Investment income -60,966 19,867,162 g. Total Revenues $ 4,245,434 $ 24,457,466 EXPENDITURES: a. Refunds of participant contributions 237,624 218,917 b. Benefits paid 8,010,997 11,183,695 C. Interest on DROP Accounts 61,367 52,542 C. Administrative & investment expenses 886,202 889,351 d. Total Expenditures $ 9,196,190 12,344,505 NET INCOME: Total revenues minus total expenditures $ (4,950,756) $ 12,112,961 SUMMARY OF INVESTMENTS: Market Value ofInvestments 9/30/2011 9/30/2012 Cash $ 190,860 $ 314,835 Short-term 3,004,703 5,467,894 Bonds - Government & Agencies 23,371,072 24,740,234 Corporate 6,869,066 7,566,231 Foreign Securities 14,140,624 16,911,312 Common Stock 58,291,722 63,203,218 Total Investments $ 105,868.047 $ 118,203,724 ADDITIONAL INFORMATION: The funded condition, as measured by the ratio of the funding value of assets to the actuarial accrued liability, is 67.9%. The net investment return for the fiscal year was 18.8%. As of September 30, 2012 the membership consisted of: Retirees, beneficiaries and DROP participants receiving benefits: 410 Vested terminated members not yet receiving benefits: 18 Vested employees: 157 Non-vested employees: 118 Total Participants: 703 AmmAlmhmp.lang March 18, 2013 GENERAL EMPLOYEES PENSION BENEFIT Name: Terry Adkins Date: 1-Apr-2013 Hire Date: 8-Feb-1995 Age at Retirement 64 4 Days Without Pa 0 Years Months Service Time: 18.16 GROSS EARNINGS FOR THREE HIGHEST YEARS Sep-11 thru Oct-10 $51,364.57 Apr-10 thru May-09 $49,008.00 Apr-09 thru May-08 $44,005.98 3 YR TOTAL: $144,378.55 /36 = $4,010.52 LIFETIME OPTION Average Earnings: $4,010.52 Multiplier Service Time Pension % of Benefit Prior to 12-28-2011 2.4900% X 16.90 = $1,687.25 0.944 On & after 12-28-11 1.9920% X 1.26 - $100.68 0.056 18.16 $1,787.94 100% JOINT OPTIONS Survivor Age: 63 POP UP (Cannot change Joint Annuitant) OPTION TO CHANGE JOINT ANNUITANT Option Factor Retiree Survivor Factor Retiree Survivor 100% 0.8166 $1,460.03 $1,460.03 0:8417 $1,504.91 $1,504.91 75% 0.8559 $1,530.30 $1,147.72 0.8559 $1,530.30 $1,147.72 66.67% 0.8698 $1,555.15 $1,036.82 0.8698 $1,555.15 $1,036.82 50% 0.8991 $1,607.53 $803.77 0.8991 $1,607.53 $803.77 10 YEARS AND LIFE: 0.9613 $1,718.74 15 YEARS AND LIFE: 0.9168 $1,639.18 LUMP SUM OPTION: 11.89701 $255,253.27 POP UP OPTION: In the event the Joint Annuitant predeceases the retiree, the pension amount pops up to the Lifetime benefit amount. Joint Annuitant cannot be changed. ** OPTION TO CHANGE JOINT ANNUITANT: The Joint Annuitant can be changed twice. Benefit is recalculated based on the age oft the new Joint Annuitant. FINAL 3/25/2013