Book 1 Page 21 06/20/16 8:30 A.M. MINUTES OF THE JUNE 20, 2016 CITY OF SARASOTA GENERAL EMPLOYEES PENSION PLAN BOARD OF TRUSTEES REGULAR MEETING Present: Chair Barry Keeler, Vice Chair Ryan Chapdelain, Secretary Pamela Nadalini, Treasurer John Lege, and Trustees Gretchen Schneider, Bonnie Wagner, and Kari McVaugh Others: Attorney Scott Christiansen, Pension Plans Administrator Harry Ramphal, Senior Pension Analyst Anthony Ferrer, and Pension Specialist Chinyere Deehan Absent: None 1. CALL THE MEETING TO ORDER: Chair Keeler called the meeting to order at 8:30 a.m. 2. PLEDGE OF CIVILITY: Chair Keeler read into the record a memorandum from Mayor Willie Charles Shaw, dated February 13, 2015, entitled "City Commission and Advisory Board Meeting Protocols and Pledge of Civility." 3. ROLL CALL: 3.1. Approval Re: Excused Absence for Secretary Nadalini on May 16, 2016 Secretary Nadalini requested that the Board excuse her absence on May 16, 2016 due to issues with her vehicle that were beyond her control. A motion was made by Trustee Wagner, seconded by Trustee Schneider to approve the excused absence for Secretary Nadalini on May 16, 2016. Motion carried unanimously (7-0). 3.2. Approval Re: Excused Absence for Trustee Schneider on June 20, 2016 Trustee Schneider is present at the meeting so no approval necessary. 3.3. Approval Re: Excused Absence for Trustee McVaugh on July 18, 2016 Trustee McVaugh requested the Board to excuse her absence for the July 18, 2016 General Employees' Pension Plan Board of Trustees Regular Meeting as she will be recovering from surgery. Secretary Nadalini stated that she would recommend that the Board wait until the meeting for approval of Trustee McVaugh expected absence. 4. PUBLIC INPUT: None. 5. APPROVAL OF MINUTES: 5.1. Approval Re: Minutes of the May 16, 2016 General Employees' Pension Plan Board of Trustees Regular Meeting A motion was made by Treasurer Lege, seconded by Trustee McVaugh to approve the May 16, 2016, General Employees' Pension Plan Board of Trustees Regular Meeting minutes. Motion carried unanimously (7-0). 6. APPROVAL OF RETIREMENT REQUEST(S): 6.1. Approval Re: Retirement Request of Kenneth Byron Pension Plans Administrator Ramphal stated that Kenneth Byron requested a retirement date of June 30, 2016; that Mr. Byron is 61 years of age, has 30.17 years of service, and elected the 100% to Joint Annuitant Option. A motion was made by Vice Chair Chapdelain, seconded by Secretary Nadalini, to approve the retirement request of Kenneth Byron. Motion carried unanimously (7-0). 7. INVESTMENT REVIEW: 7.1. Presentation and Discussion Re: HGK Asset Management Investment Performance Michael Pendergast, CEO, HGK Asset Management and Matt Witschell, Director of National Accounts, HGK Asset Management came before the Board to present the investment portfolio for the pension fund. Mr. Pendergast gave an overview of the firm and how they determine whether a company they considering investing in has value. He briefly discussed the volatility of the current market and how the market affected the investment portfolio. Mr. Pendergast stated that the total fund rate of return as of May 31, 2016 is 24.07% versus the benchmark at 35.67% since inception; that the total market value of the as of May 31, 2016 is $20.8 million. In response to Secretary Nadalini's request for the portfolio's performance for the fiscal year ending September 30, 2015 and the total investment returns, Mr. Pendergast stated that he will provide that information to Pension Plans Administrator Ramphal, who will share it with the Board members. 8. NEW BUSINESS: 8.1. Presentation and Discussion Re: Leroy Collins Institute 2016 Other Post-Employment Benefits Report - Presenter(s): Vice Chair Chapdelain Vice Chair Chapdelain stated that he did not feel that Leroy Collins Institute 2016 Other Post- Employment Benefits (OPEB) report was appropriate to be placed on the agenda and that he communicated this to Pension Plans Administrator Ramphal. Secretary Nadalini stated that the report was distributed months ago and several individuals have contacted her in that time, expressing confusion over the report referencing OPEB; and that individuals still associated the OPEB report with unfunded pension liability and the welfare and health of the defined benefit pension plans; that a lay person would not know the difference between OPEB and pensions. Chair Keeler stated that several individuals also contacted him with questions regarding the OPEB report. 9. ATTORNEY MATTERS: Attorney Christiansen stated that the Statement of Financial Interests Form 1 is due by July 1. Secretary Nadalini stated that all of the Board members appear to have filed their forms in a timely manner. Attorney Christiansen stated that he is still working on comparing the plan's operating rules and procedures with the City Commission's provisions for consistency; that he will have the summary plan description completed to present at the next Board meeting. Attorney Christiansen stated that he has been working with Pete Strong, Actuary, Gabriel, Roeder, Smith and Company (GRS), to provide some revised language in the ordinance to clarify how lump sum calculations are done. He suggested to the Board that a call be made to Mr. Strong, to have him explain the changes that were made. Book 1 Page 22 06/20/16 8:30 A.M. Book 1 Page 23 06/20/16 8:30 A.M. Mr. Strong was called on the phone and asked the Board what information they wanted him to discuss; Treasurer Lege stated that in March 2016, the Board approved a lump sum payout for Andrew Goenne and at the time there was discussion on whether the calculation was done correctly; that he stated at a subsequent meeting that he had concerns on how the lump sum was calculated for Mr. Goenne; that the Board then gave him permission to work with Attorney Christiansen and Mr. Strong to look into the calculation. Treasurer Lege further stated that he asked Pension Plans Administrator Ramphal to agenda the discussion of the calculation for the next meeting and was advised that it was too short notice; that Pension Plans Administrator Ramphal sent an email to the Board members advising them of this discussion. Treasurer Lege read into record an email from Mr. Strong stating that after much research with Attorney Christiansen, Mr. Strong concluded that Mr. Goenne's lump sum payout was calculated incorrectly; that the lump sum amount should have been $35,927.88, not $74,509.32, and resulted in an overpayment of $38,581.44 from the plan; that Attorney Christiansen has drafted the ordinance that would make the language concerning the way to determine the lump sum more clear and that the ordinance would not change the benefits in any way, it would only provide clarification; that as a follow up, it does not look like the three year average compensation of December 28, 2011 is being calculated to the four year average determination date; the three year average as of December 28, 2011 should be the minimum final average compensation; that it is Mr. Strong's recommendation that GRS start reviewing final benefit calculations before benefit amounts and options are provided to plan members, for at least a temporary period of six to twelve months. In response to a question from Secretary Nadalini asking if the suggestion is, based on his conversations with Mr. Strong, the error in the calculation is the result of the fact that the ordinance language is unclear or due to proposed amendments to the ordinance, as the Pension Administration staff must follow the current code and cannot base their calculations on future amendments, Attorney Christiansen stated that Mr. Strong would be in a better position to answer Secretary Nadalini's question. In response to Attorney Christiansen's question asking if previous calculations of the same lump sum calculation were not done in the same manner as Mr. Goenne's calculation, Mr. Strong stated that is correct; that the few calculations that he reviewed from the past, were done in the way that he has corrected in Mr. Goenne's calculation. Mr. Strong stated that there are two different ways to interpret the ordinance and that is why he believes that the mistake was made; that the ordinance was interpreted one way for Mr. Goenne's calculation versus the way it has been interpreted in the past; Mr. Strong stated that Mr. Goenne was 49 years old when he terminated employment; that the original calculation used an immediate annuity factor, assuming that the benefit would start at age 49, which resulted in a lump sum that was much higher than if you used a factor that said Mr. Goenne would commence at age 65 if he waited for his benefit, instead of immediately at age 49. Mr. Strong further stated that the language in the code is unclear, sO he can see how Pension Plans Administrator Ramphal interpreted it the way that he did. He continued that there are no changes to anything that was done in the past; that the past benefit calculations have been done in accordance with the ordinance and with how he revised the Goenne calculation; that it is his conclusion that it was a misinterpretation of the ordinance language; that the proposed ordinance changes was drafted by Attorney Christiansen to remove the ambiguity regarding the calculations going forward. Secretary Nadalini asked that, based on Mr. Strong's comments, was it possible that the past calculations were also misinterpreted; that some of the other pension plans have required corrections based on things being done inaccurately in the past. She stated that she is very concerned because of the attempt to fix something on which a decision was already made; that when Mr. Goenne's calculation was approved, Attorney Christiansen confirmed that Pension Administration staff applied the calculation consistent with the code adopted by the City Commission; that now that it appears that Mr. Goenne was overpaid by over $30,000, the Board would have to go back and look into all of the past calculations and that it would also affect any future retirees. Secretary Nadalini continued that there is a chance that the Board would be dealing with a legal matter if Mr. Goenne decides to retain legal representation; that this could also be considered a union matter if the Board is considering proposing changes to the City Commission. She expressed her disappointment in the length of time that it took to decide that Mr. Goenne's calculation was done in error; that months have passed since guidance was asked for regarding the accuracy of Mr. Goenne's calculation; that she is asking the Board to allow herself and the trustees adequate time to review the ordinance changes and place it as an item for discussion on next month's agenda sO that the attorney and actuary can give the Board a full presentation; and that Assistant City Attorney Sarah Warren should be present and provide input. Mr. Strong stated that he and Attorney Christiansen were researching the ordinance to ensure that they were correct in their interpretation of the ordinance, which caused the delay in presenting their interpretation to the Board. In response to a question from Vice Chair Chapdelain asking that if the lump sum calculations were done correctly in the past, why has there been a deviation from what was done historically in this case resulting in an overpayment of over $30,000, for which someone will have to be held accountable, Mr. Strong stated that he was unaware of how the calculations were originally done; that he only saw the calculations after the lump sum had been paid to Mr. Goenne, which is why he suggested that he review some of the calculations going forward, to make sure that the lump sum payments are calculated accurately before they are paid. Pension Plans Administrator Ramphal stated that Attorney Christiansen stated on email and in a previous Board meeting that the code was interpreted correctly regarding Mr. Goenne's lump sum calculation and the Board voted unanimously to approve Mr. Goenne's lump sum calculation. Secretary Nadalini stated that regardless of whether it is thought that the previous lump sum payments were calculated correctly versus how they are calculated presently, Pension Administration staff must follow the code every time; that if Pension Administration staff contacted the attorney to confirm that they were following the code, it is the ambiguity in the language of the code that is presenting the issue. Attorney Christiansen stated that he was not involved with the calculation when it was done; that the Board was under the gun when Mr. Goenne came in; that the Board took a recess during the meeting to go back and check the numbers regarding Mr. Goenne's lump sum calculation. He further stated that Mr. Goenne's lump sum payment was approved in February and the question regarding whether it was done correctly was posed in April, after the payment was made to Mr. Goenne; that he stated that Mr. Goenne's lump sum payment appeared to have been calculated correctly. Attorney Christiansen continued that he has not looked at previous calculations done over the years; that the appropriate review should be with the actuary not the lawyer. He stated that the provision of the code has been the same for years but it has within its language the possibility of being interpreted more than one way; that in past applications of that language, it has always been interpreted and calculated in the same fashion each time the issue came up; that when the calculation was done this time, it was reinterpreted with an interpretation that was not in line with the interpretation of the past. Secretary Nadalini stated that Pension Administration staff's responsibility is to follow the code to determine lump sum payments; that if the code has a discrepancy, it is the responsibility of the Board to suggest a change to the City Commission and not the current Pension Administration staff to follow calculations that were done by former staff members. Secretary Nadalini stated that a similar issue arose with the Firefighters' board, and that their code was very clear in how the calculations should have been handled, in that instance; that if the language of the code has any ambiguity in its interpretation, then the code should be fixed by making the recommendation to the City Commission. Attorney Christiansen stated that he agrees that the Pension Administration staff must follow the code; that Mr. Strong indicated that he understood that there was more than one interpretation of the language in the code; that if there is the possibility of more than one interpretation, then there is ambiguity and it needs to be fixed; that if the language of the code has been interpreted in a certain way over the years, then past practice dictates that you would continue this way. Secretary Nadalini stated that Pension Administration staff would not have known that there was ambiguity in the code, as they are not attorneys involved in writing the code; that Pension Administration staff would follow the code that was adopted by the City Commission. Book 1 Page 24 06/20/16 8:30 A.M. Book 1 Page 25 06/20/16 8:30 A.M. She further stated that ift the Board finds that the code is ambiguous, that a recommendation would be made to the City Commission as the Board does not have the authority to change the language. Trustee Schneider stated that if this is now the correct interpretation of the code, the Board would have to look at the lump sum calculations done previously, to ensure that the retirees received the correct payment amount. Discussion ensued regarding the actuarial liability of the lump sum calculations. Secretary Nadalini stated that she would recommend that the Pension Plans Administrator, the actuary and the attorney get together to discuss this further and come back with a recommendation for the Board to review; that the discussion should be placed as an agenda item for a future meeting, if agreed to by the Board. She further stated that if previous calculations were done incorrectly, the Board would have to proceed very carefully and she would like the Board to be well informed before proceeding. Trustee Schneider stated that the Board has a fiduciary responsibility regarding approval of lump sum payments, so she wants to ensure that the Board has been approving the correct amount. Secretary Nadalini stated that the Board also has a fiduciary responsibility to understand the code and clarifying the language in the code would come from the City Commission based on the recommendation of the Board. Attorney Christiansen stated that there is an ambiguity in the way the code could be interpreted; that the language that he wrote was rewritten by Mr. Strong, who thinks that clearly identifies the methodology that needs to be used. Mr. Strong stated that he could look at past calculations to determine which factors were used. Secretary Nadalini stated that she would like to first focus on clarifying the language of the code and forwarding a recommendation to the City Commission. In response to a question from Treasurer Lege regarding receiving any payment back from Mr. Goenne if it is determined that there was an overpayment, Attorney Christiansen stated that the Board has the authority to receive recoupment of the overpayment. 10. OTHER MATTERS: Vice Chair Chapdelain requested confirmation of the reelection of his seat on the Board; Secretary Nadalini stated that it will be placed on the next meeting agenda. Discussion ensued regarding notice of the election of Board members. Treasurer Lege stated that he needed clarification on trustees adding items to the agenda and if there is a timeframe when information can be added. Attorney Christiansen stated that there is nothing specific in the operating rules that gives a timeframe when information can be added to an agenda; however, the rules of public notice require that an item up for discussion be noticed at a reasonable time prior to the meeting. Secretary Nadalini stated that the City Auditor and Clerk's office works to get agenda information out to the Board members in a timely manner; that an attempt is made to get the information out approximately three to four business days before the meeting. Chair Keeler stated that past practice has been that pension benefit statements were attached to the participants' paystubs and it is not feasible for many of them to come to the Pension Administration office to obtain their statements. Pension Plans Administrator Ramphal stated that the pension benefit statements will be sent to the department heads through interoffice mail to be distributed to the employees. 11. ADJOURN. Chair Keeler adjourned the General Employees' Pensions Board of Trustees Regular meeting at 10:28 a.m. BReI N Keever Jes n - - Chair Barry Keeler Secretary Pamela M. Nadalini Book 1 Page 26 06/20/16 8:30 A.M.