MINUTES OF THE EMPLOYEE RETIREMENT ACCOUNT COMMITTEE REGULAR QUARTERLY MEETING OF NOVEMBER 17, 2022. Present: Chair Jeffrey Vredenburg, Vice Chair Aaron Olson, and Secretary Shayla Griggs. Others: Pension Plans Administrator Debra Martin and Pension Specialist Peter Gottlieb. Absent: Treasurer Kelly Strickland and Member Lauren Sullivan. 1. CALL THE MEETING TO ORDER: Chair Vredenburg called the meeting to order at 10:00 a.m. 2. PLEDGE OF ALLEGIANCE: Presenter: Secretary Griggs Secretary Griggs led the Board and meeting attendants in the Pledge of Allegiance. 3. PLEDGE OF CIVILITY: Chair Vredenburg 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: Pension Plans Administrator Martin Pension Plans Administrator Martin called roll; Treasurer Strickland and Member Sullivan were absent; Chair Vredenburg noted the Committee has a quorum. Pension Plans Administrator Martin advised that Treasurer Strickland and Member Sullivan will request excused absences at the next meeting. Pension Plans Administrator Martin noted that the electronic materials for the meeting under item 7.2.b. contain an outdated Watchlist from Daher Capital Group and will be updated upon the conclusion of the meeting; the packets provided at the meeting contained the current Watchlist. 5. PUBLIC INPUT: None. 6. APPROVAL OF MINUTES: 6.1. Approval Re: Minutes of the Employee Retirement Account Committee Regular Quarterly Meeting of September 15, 2022 Presenter: Chair Vredenburg. Vice Chair Olson made a motion to accept the minutes of the September 15, 2022, meeting; Secretary Griggs seconded the motion. The motion passed unanimously (3-0). Book 1 Page 90 11-17-2022 10:00 a.m. Book 1 Page 91 11-17-2022 10:00 a.m. 7. QUARTERLY INVESTMENT REPORTS: 7.1. Presentation and Discussion Re: AIG Retirement Services, ERAC Report for Quarter Ending September 30, 2022. Presenter(s): Gregg Hudak, District Vice President, Trent Harris, Financial Advisor VALIC Financial Advisors Inc.. Mr. Harris and Mr. Hudak appeared before the Committee and introduced themselves. Mr. Harris stated that he continues to hold, with the assistance of Pension Administration, in-person meetings at City office locations with participants, as well as periodic retirement education seminars. Pension Plans Administrator Martin stated that Pension Administration has received positive feedback from employees regarding Mr. Harris' engagement. To Chair Vredenburg's question, Mr. Harris noted that the last retirement education seminar was not well attended, but that in 2023, he will work with Pension Administration to better publicize those events. Mr. Hudak thanked the Committee for the opportunity to serve. The Committee thanked Mr. Harris for his presentation. 7.2. Presentation and Discussion Re: Quarterly Investment Analysis Review Ending September 30, 2022. Presenter: Howard Daher, Principal, Daher Capital Group. Mr. Daher appeared before the Board and introduced himself. Mr. Daher discussed the Market Insight Quarterly page of the presentation materials, noting the poor performance in both the equity and bond markets for the calendar year; while the markets began to rally towards the end of the summer, they resumed their downward trend. As of close of business on November 16, 2022, the S&P 500 index is down approximately 18%. He noted that gains and losses are not realized until investors complete transactions. He described the current market as suffering from a "COVID-19 hangover," and noted that, had the market performed similarly in 2020, most investors would not have been as concemed. While the overall economy retums to normal, the market has contracted significantly in the last year; never-the-less, the 3-year returns are still largely positive. He anticipates continued efforts by the Federal Reserve (Fed) to cool the economy by raising short-term interest rates. While the Fed's actions typically have the most effect on big ticket transactions, the sector with the most positive performance in Q3 2022, as noted on the Third Quarter Data page of the materials, was Consumer Discretionary; this sector includes non-essential purchases such as retail shopping, vacation expenditures, and home improvements. In this context, the Fed's efforts have not dampened consumer spending. He also noted that in a rising interest rate environment, growth stocks typically pull back and value stocks tend to outperform, yet during Q3 2022, the 3 best performing asset classes were small- mid- and large- capitalization growth stocks. He reminded the Committee that the market remains unpredictable and recommended investors consider diversifying instead of looking at previous strong performers, as well as to minimize loss leaders. Mr. Daher asserted that now is a buying opportunity for investors, as the market is currently discounted relative to its recent highs. He explained that the market generally trends upwards but does SO through periods of rallies and declines. Mr. Daher asserted inflation, wage inflation, and the costs of health care, both personal and as an employee benefit, will continue to increase over the next 6 to 12 months which will have an effect on unemployment as employers attempt to replace higher cost technology with that of lower cost. While some analysts predict the economy will go into recession during the first half of 2023, Mr. Daher noted that a recession can only be identified in retrospect; while he agreed the economy has slowed, he was skeptical it would contract. Turning to the Executive Summary, Mr. Daher noted there are 5 funds on the watchlist. The DFA Enhanced US Large Company has been on the Watchlist for approximately 2 years when it has consistently trended downward; as of September 30, 2022, 68 participants were invested with an average account balance of $7,700. Mr. Daher included the Vanguard Growth & Income Adm fund for additional reference, noting that while most funds are declining in the current market, it has scored well over the prior 2 quarters relative to the benchmark, the iShares S&P 500 Index K. He noted this Vanguard Growth & Income Adm fund is more conservative as it has both growth and dividend payment components. In the current market environment, funds which pay dividends will score better than similarly performing funds which do not pay dividends. He also noted that, when two funds reach the same result over the same timeframe, investors will prefer the fund with consistent performance over one which is volatile; if the Board were to replace the DFA Enhanced with the Vanguard Growth & Income, the iShares S&P 500 would be the consistent performer and would therefore make the Vanguard Growth & Income a reasonable alternative. Mr. Daher noted there was no urgency to replacing the DFA Enhanced fund as the asset class is down as a whole. That notwithstanding, as of close of business on November 16, 2022, the DFA fund was down 19% year-to-date, which puts it in the bottom 93% of its category, and therefore delays in replacing it could prolong the losses due to its downward trend. Considering the relatively low number of participants and dollar amounts invested in the DFA Enhanced fund, Mr. Daher suggested closing the fund and remapping the invested monies to the Shares S&P 500 index, considering risk, return, and performance, would not be unreasonable. The Committee discussed the merits of closing the DFA Enhanced. Chair Vredenburg noted the poor scores over the last 2 years indicates closing the fund would be in investors' best interests. Vice Chair Olson asked if closing the DFA Enhanced would force investors out at its lowest point and preclude benefit from ap potential market rebound. Mr. Daher noted the DFA Enhanced has performed poorly over the last 2 years in both rising and falling markets. There are merits to leaving the fund on Watch, considering the market is unpredictable and there are 2 alternatives to the DFA Enhanced in the asset class. However, analysts are forecasting a continued downward trend for at least 6 more months, and it may not be reasonable to continue offering a fund which has been on the Watchlist for 2 years. Mr. Daher added that, as a fiduciary, he would find it difficult to offer the DFA Enhanced to a new client considering its history relative to the S&P index. He added that the DFA Enhanced fund would need to significantly outperform for several quarters to recover its losses. Mr. Daher discussed frameworks through which to view the DFA Enhanced fund's performance relative to the benchmark, including risk for return, costs, and general performance. The Committee discussed the value of deferring a decision until the full Committee could discuss the matter versus the consequences of continuing to offer a long-term, underperforing fund to participants. To Secretary Griggs' request, Mr. Daher stated that the Committee has the option to leave the DFA Enhanced fund on Watchlist until its next meeting or close the DFA Enhanced and transfer the invested balances to the iShares S&P 500 Index K, noting VALIC would complete the transition after participants received notice 30 days in advance of the fund closure. Vice Chair Olson made a motion to close the DFA Enhanced US Large Company and direct participants' future contributions to the iShares S&P 500 Index K. Secretary Griggs seconded the motion. The motion carried unanimously (3-0). Mr. Daher discussed the MFS Growth fund, noting approximately 33% of the fund is technology stocks which underperformed recently and brought the fund's score down for the last 3 quarters. He noted the amount invested in the fund as well as that the VALIC Company NASDAQ-100 Index is a reasonable alternative. He stated that there is little turnover within the fund, which indicates the managers want to retain their holdings and they likely anticipate better performance in the quarters ahead. Regarding the Ariel Fund, Mr. Daher stated it is a concentrated fund which tends to outperform in rising markets and decline more than its benchmark in falling markets. He included 3 alternative options in the asset class which have all scored well over the same timeframe. He noted the Allspring Special Mid Cap Value is also very concentrated, while the BlackRock Mid-Cap Value K and Principal Mid-Cap Value are Book 1 Page 92 11-17-2022 10:00 a.m. Book 1 Page 93 11-17-2022 10:00 a.m. more diversified; further, Principal Mid-Cap Value has had more consistent returns over various market cycles. There are 13 participants in the Ariel Fund for an average balance of approximately $4,300. He suggested the Committee may consider adding one of the 3 options as a lower risk alternative within the asset class, noting the Principal Mid-Cap Value seems to have the most consistent performance, making it al better choice than Allspring or BlackRock. Chair Vredenburg asked if participants in Ariel would be notified of the addition of a complementary fund to the class which was outperforming Ariel. Mr. Hudak stated that all participants would be notified of the addition, but that it would not comment on performance unless the Committee specifically requested it. Chair Vredenburg expressed concern that participants who are invested in the Ariel Fund may not be aware of the fund's underperformance. Vice Chair Olson noted that all 3 alternates have scored higher than the Ariel Fund since Q4 2020; he expressed support for adding at least 1, if not 2 alternatives, as well as possibly closing the Ariel Fund. He also conceded that, as Chair Vredenburg noted, participants in the Ariel Fund may not be closely monitoring the fund's performance. Mr. Hudak and Mr. Harris expressed skepticism that participants closely monitor their retirement funds' performance. To Vice Chair Olson's question concerning participant's reactions to fund closures, Mr. Harris further noted that no participant has ever mentioned using Ariel as part of an investment strategy. Mr. Hudak and Mr. Daher asserted that most participants rely on the Committee to monitor fund manager performance. By consensus, the Committee agreed to keep the Ariel Fund on Watchlist and in the available portfolio without adding an alternative and discuss it at a later meeting. To Vice Chair Olson's question, Mr. Daher noted that Allspring has a similar risk profile to the Ariel Fund due to their similar concentration and standard deviation. BlackRock and Principal have more conservative risk profiles, but Principal has more consistent performance. Mr. Daher discussed the VALIC Company Small Cap Special Value (VCSC) fund; it has been on watch for 6out of the 8 quarters and 53 participants are invested for an average investment balance of approximately $2,200. He asserted the participants in VCSC also have other holdings in their respective portfolios. He discussed 3 alternate funds, noting Federated Hermes Clover Small Value, despite scoring well, has a higher risk profile than the other funds and it has only outperformed its benchmark 2 out of the last 7 calendar years which suggests greater volatility. Mr. Daher recommended the Vanguard Small Cap Value Index Admiral because of its significant diversification, similar risk factors and returns, but lower cost. Chair Vredenburg stated that if the Committee closed the DFA Enhanced fund, it should also close the VCSC fund for consistency, as well as considering how long it has been on the Watchlist. Mr. Daher noted that 2 years is sufficient time for a fund manager to correct a downward trend. Vice Chair Olson made a motion to close the VALIC Company Small Cap Special Value fund and add the Vanguard Small Cap Value Index Admiral fund; Chair Vredenburg seconded the motion. The motion carried unanimously (3-0). The last fund on the Watchlist is the Fidelity Select Health Care fund (FSHC). Mr. Daher stated that it is on the Watchlist because it has not consistently outperformed both its index and peer group during the same time period, but it has separately outperformed both. In 3Q2022, it failed the scoring criteria by a single point, and from a performance perspective, it has been in the top half of its peer group. Because it has performed well historically, Mr. Daher recommends keeping this fund on the Watchlist for the time being. Mr. Daher summarized the decisions by stating that that the DFA Enhanced fund will close, and contributions will be mapped to the iShares S&P 500 Index K; the Ariel Fund, MFS Growth, and Fidelity Select Health Care funds will be kept on the Watchlist; and the VALIC Company Small Cap Special Value fund will be closed and contributions will be mapped to the Vanguard Small Cap Value Index Admiral fund. The Committee confirmed. Mr. Hudak asked Pension Administration to send to him and Lilia Pivetta by e-mail a signed statement advising what transactions the Committee approved, including the fund names and Fund IDs stated on the report; he would distribute the statement at' VALIC to execute the appropriate requests. He noted that before VALIC sends any correspondence to participants, it would first send the correspondence to Pension Administration for its review. He asked Pension Administration to include the date or a date range by which the Committee expects the closures and additions to occur, noting participants must be advised 30 days prior to those transactions. To Pension Plans Administrator Martin's questions, Mr. Hudak and Mr. Harris explained that the correspondence addressing fund closures and additions would be sent to all participants, even if they are not invested in one of the funds being closed. He also noted that some communications may be posted to the company website, and not necessarily sent by regular mail. Mr. Daher reviewed the Asset Allocation by Fund and stated that he has not seen significant movement between funds; less movement indicates investor confidence and is a positive sign. The top 5 funds remain consistent, the Vanguard Wellington Fund has 22% of the Plan assets, followed by the Fixed Interest Option with 14% of assets; these two funds represent approximately 1/3 oft the Plan's assets. Because one fund is diversified and the other is guaranteed, Mr. Daher was not concerned regarding the concentration. The top 5 funds in the Plan represent 64% of the Plan's assets; because those 5 funds are well diversified, Mr. Daher was not concerned. The remaining 36% of offered funds represent a variety of different asset classes. The total amount of assets in the Plan dropped approximately $2.4 million in the last 12 months, mostly due to market performance. Mr. Hudak noted that some members withdrew from the Plan when they were offered a one-time choice to enroll in the Florida Retirement System. Mr. Daher expressed confidence the market will eventually rebound, and the balance will return to previous levels. Mr. Hudak compared a declining market to a retail store which reduced the prices of its inventory. Chair Vredenburg thanked Mr. Daher for his presentation. 8. UNFINISHED BUSINESS: None. 9. NEW BUSINESS: None. 10. OTHER MATTERS: 11. ADJOURN. Chair Vredenburg adjourned the Employee Retirement Account Committee (ERAC) Regular Quarterly Meeting at 11:06 a.m. Wlu - 1 Çhai effrey Vredenburg Secretary Shayla Griggs Book 1 Page 94 11-17-2022 10:00 a.m.