MINUTES OF THE CITY OF SARASOTA FIREFIGHTERS PENSION PLAN BOARD OF TRUSTEES REGULAR MEETING OF JANUARY 22, 2025 Present: Chair Michael Hartley, Vice Chair Charles Joseph, Secretary/Treasurer Shayla Griggs, Trustee Scott Snow, and Trustee Heather Mushrush. Others: Attorney Pedro Herrera telephonic), Pension Plans Administrator Debra Martin, and Pension Specialist Peter Gottlieb. Absent: None. 1. CALL MEETING TO ORDER: Presenter(s): Chair Hartley. Chair Hartley called the City of Sarasota (City), Firefighters' Pension Plan (Plan) Board of Trustees Regular meeting to order at 9:00 a.m. 2. PLEDGE OF ALLEGIANCE: Presenter(s): Secretary/reasurer Griggs. Vice Chair Joseph led the Board and meeting attendees in the Pledge of Allegiance. 3. PLEDGE OF CIVILITY: Presenter(s): Chair Hartley. Chair Hartley stated for the record, "We may disagree, but we willl be respectful to one another. We will direct all comments to issues. We will not engage in personal attacks." 4. ROLL CALL: Presenter(s): Debra Martin, Pension Plans Administrator. Pension Plans Administrator Martin called roll; all trustees were present. 5. PUBLIC INPUT: None. 6. APPROVAL OF MINUTES: 6.1. Approval Re: Minutes of the Firefighters' Pension Plan Board of Trustees Regular Meeting of October 23, 2024. Presenter(s): Chair Hartley Vice Chair Joseph noted that item 11.1. should state that he and Secretary/Treasurer Griggs may not be available to attend the November 26, 2025, meeting, and made a motion to approve the minutes of the Regular Meeting of October 23, 2024, with the noted correction; Trustee Snow seconded the motion. The motion passed unanimously (5-0). Book 1 Page 448 01-22-2025 9:00 a.m. Book 1 Page 449 01-22-2025 9:00 a.m. 7. INVESTMENT PERFORMANCE REVIEW: 7.1. Presentation and Discussion Re: DePrince, Race, and Zollo, Inc., Investment Performance Review as of December 31, 2024. Presenter(s): Kurt Wood, Director of Client Service, Nate Rusbosin, Client Service and Sales Associate; DePrince, Race, and Zollo, Inc. Kurt Wood and Nate Rusbosin of DePrince, Race, and Zollo, Inc. (DRZ) appeared before the Board and introduced themselves. Mr. Rusbosin briefly reviewed the Firm Overview page of the materials, noting that in 2024, DRZ added new clients in each of its strategies which are listed on page 5 of the materials; the Plan is invested in the small-cap value strategy. DRZI is 100% employee-owned and its 2 co-chief executive officers are founding partners. There have been no changes to the small-cap value investment team. On the City of Sarasota Firefighters' Pension Fund, Mr. Rusbosin noted the absolute and relative underperforance for the quarter, but reiterated the portfolio outperformed both absolutely and relatively over most timeframes. To Chair Hartley's question, Mr. Wood explained the longest period in market history during which it favored large cap stocks over small caps ended in 2024. Despite analysts' bullish forecasts, small-cap companies were in an earnings recession in 2023 and 2024 and DRZ accordingly kept a defensively positioned portfolio and accordingly underperformed. Both domestically and internationally and across all asset classes, the markets were momentum-driven in 2024, meaning investors generally stayed with stocks which provided the best returns, rrespective of fundamentals; he added that momentum markets average approximately about 11 months, suggesting the momentum market may end. DRZI is tracking many stocks iti is considering for investment when the momentum market unwinds in 2025. He noted that DRZ evaluates stocks on a number of factors including their price and value; it buys stocks it determines are undervalued and sells stocks it determines to be overvalued. Mr. Rusbosin added that DRZ's buy/sell discipline is a disadvantage in a momentum market because DRZ sells overvalued stocks even if those stocks continue to provide strong returns. Mr. Wood provided a market summary of 2024. Cooer-nan-orecasled inflation announced in July 2024 caused a junk rally which is not a favorable environment for DRZ's higher-quality strategy. The benchmark had 6 negative months in the year; DRZ outperformed relatively in 4, and it wasn't able to keep up during sharp spikes. In the months following the presidential election and the Federal Reserve's (Fed's) latest interest rate cut, DRZ was unable to match the pace of the market; while underperformance isn't desirable, Mr. Wood asserted it was due to DRZ staying consistent to its strategy and process, and therefore the underperformance should be expected for the environment. Chair Hartley noted DRZ's long-term outperformance, and that in his experience, a bad year is typically followed by several positive years. Mr. Wood echoed Chair Hartley's sentiment and asserted that DRZ's long-term returns are evidence of the effectiveness of their strategy. Mr. Wood concluded the presentation by discussing the page titled Small-Cap Value Strategy and DRZ's Top 10 Holdings. EnerSys produces batteries; while it primarily served construction vehicles, it has transitioned to providing battery back-up services to artificial intelligence (AI) data centers. Perrigo provides over-the-counter medication; while Perrigo's stock suffered due to rule changes by the Food and Drug Administration, DRZ anticipates Perrigo to have a strong earnings announcement in the coming weeks. HA Sustainable Infrastructure, which provides financing to green energy initiatives and was adversely impacted after the presidential election, remains a high-quality company at a reduced price, and therefore DRZ is adding to this allocation. The Board had no questions for Mr. Wood or Mr. Rusbosin and thanked them for their presentation. 8. UNFINISHED BUSINESS: None. 9. NEW BUSINESS: 9.1. Presentation and Discussion Re: Gabriel, Roeder, Smith and Company, Actuarial Valuation Report for Fiscal Year Ending September 30, 2024. Presenter(s): Brad Armstrong, ASA, EA, FCA, MAAA, Senior Consultant and Actuary, Gabriel, Roeder, Smith and Company. Brad Armstrong of Gabriel, Roeder, Smith and Company (GRS) appeared before the Board and introduced himself. Mr. Armstrong began by discussing the Observed Experience, noting that all of the key experiences were negative, which decreased the funded ratio to 89%. Investment losses are currently being phased in over a 3-year period, sO that the last phase-in amount of the approximate -11% absolute investment return in 2022 is in the current valuation; Mr. Armstrong noted that the amount of the loss relative to the expected rate of investment retum is closer to -18%. The 2-participant difference in the number of recipients who were actually removed compared to the number expected to have been removed generated an approximate $1 million increase in Plan liability. Chair Hartley, Pension Plans Administrator Martin, and Mr. Armstrong discussed the data adjustments made to 9 retirees; the adjustments were to correct errors in survivor elections reported to GRS by prior Pension Administrations and identified during the current valuation process. Pension Plans Administrator Martin assured the Board that Pension Administration staff carefully reviews the data inherited from prior Pension Administrations. Senior Pension Analyst Anthony Ferrer appeared before the Board and discussed the adjustments. All of the affected participants retired between 1998 and 2002 when the controlling Plan provisions automatically afforded the spouse at the time of a retiree's death a 66 2/3% survivor benefit. He provided an example in which, after a participant retired with the automatic 66 2/3% survivor benefit, the retiree's spouse died; for the purpose of calculating future benefit costs, GRS treated the benefit as a lifetime only benefit because no spousal benefit would be paid to a retiree who was unmarried at the time of death. That retiree remarried while the new: spouse's date of birth was not reported to GRS to correct the survivor classification, and GRS continued to calculate the future liability of the benefits as if no survivor benefit would be paid. Pension Administration staff and the Plan Administrator have reviewed the data to ensure integrity. Mr. Armstrong advised that he and GRS staff also carefully reviewed the data for integrity as well and noted the because pension benefits go up as a recipient ages, corrections to survivor benetits are more costly than errors made when a pensioner is newly appointed. To Trustee Snow's question, Mr. Armstrong confirmed that experience losses will be amortized over 10 years beginning October 1, 2025. Mr. Armstrong noted that the Observed Experience does not reflect the Board's decision to reduce its expected rate of investment return from 6.7% to 6.6%, which added an approximate $1.7 million to the unfunded liability. With reference to the data adjustments, he explained that GRS would not perform any form of forensic audit without cause, and it assumes the reported data is accurate. Additionally, the projected benefits are only projections; should any of the respective spouses predecease their retiree, the cost of future benefits will change. Referring to page C-9, Mr. Armstrong explained that in the FY 2023 valuation, the number of benefits which terminated upon the death of the retiree was 23 and 9 have been moved to the Automatic potential to survivor category. The data adjustments increased the total liability by approximately 2%. Mr. Armstrong reviewed the continuation of Comment F on page A-4 of the report; Chapter 175 monies have increased which has helped the City's contribution requirement. Regarding Comment G, Mr. Armstrong noted that the Board's decision to reduce the expected rate of investment return, effective with the FY 2025 valuation, from 6.6% to 6.5% will increase the liability by $1.8 million. Book 1 Page 450 01-22-2025 9:00 a.m. Book 1 Page 451 01-22-2025 9:00 a.m. Regarding Comment H, Mr. Armstrong explained that the Florida Retirement System (FRS) released updated mortality tables in 2024; the adoption of the updated tables will increase the Plan's liability by approximately $9 million and that amount will then be amortized over 10 years into approximately $900,000 installments. The updated tables add slightly more than a year to each participant's expected lifespan which results in approximately 15 additional payments. Attorney Bob Sugarman had previously petitioned the State of Florida to allow closed plans to disregard FRS updates to mortality tables; Attorney Herrera appeared telephonically and advised that the petition was denied. Mr. Armstrong noted that the Plan is required to adopt the updated tables for the FY 2025 valuation. According to the Derivation of Funding Value of Pension Fund Assets, in section F, Phased-In Recognition of Investment Income, the investment losses from 2022 will be fully recognized with the FY 2024 valuation; currently, there will be only positive phase-ins in the FY 2025 valuation which will help offset more of the negative phase in from the updated tables and reduction in the expected rate of investment return. To Chair Hartley's question, Mr. Armstrong explained that line K, Recognized Rate of Return, is the rate of investment return after gains and losses are smoothed in using a 3-year lookback period. He added that on page C-6, the Plan Funding Reserve, Final Balance as of 9/30/2024 may be used by the City to help offset the substantial increase in its contribution amount and can be drawn to $0. Additionally, the Plan's liability increased because the average life expectancy of people being appointed to survivor benefits, according to the current assumptions, is approximately 19 years. Chair Hartley, Vice Chair Joseph, and Mr. Armstrong discussed future Chapter 175 payments. If the Chapter 175 receipts in 2025 remain at the same level as they were in 2024, the Post-2003 Retiree Share Reserve balance as of September 30, 2024, will be available to retirees for at least an additional year, and would add an approximate $100,000 towards offsetting the Share Reserve Liability. If Chapter 175 monies are insufficient to fully fund the full pre-2003 retirees' share, the post-2003 retirees' share would be reduced on a pro-rated basis to satisfy the pre-2003 retirees' full share payment. Chapter 175 monies are not guaranteed, and the State of Florida has used those monies in previous years to supplement some insurance costs. To Chair Hartley's question, Mr. Armstrong confirmed that the number of surviving beneficiaries of death- in-service members has not changed during FY 2024. Secretary/Treasurer Griggs made a motion to approve the Actuarial Valuation Report for Fiscal Year Ending September 30, 2024, as prepared by GRS; Vice Chair Joseph seconded the motion. The motion passed unanimously (5-0). 9.2. Presentation and Discussion Re: Gabriel, Roeder, Smith, and Company, GASB No. 67 Plan Reporting and Accounting Schedules for Fiscal Year Ended September 30, 2024. Presenter(s): Brad L. Armstrong, ASA, EA, FCA, MAAA, Senior Consultant and Actuary, Gabriel, Roeder, Smith, and Company. Mr. Armstrong explained that the GASB No 67 Report is used by the Plan's auditors, Mauldin & Jenkins, in preparing the financial statements, and presented to the Board fori its information. To Chair Hartley's question, Pension Plans Administrator Martin advised that Sarasota County (County) uses the GASB 68 report; the County accordingly paid the associated cost of the GASB 68 report. 9.3. Presentation and Discussion Re: Declaration of Expected Rate of Investment Return. Presenter(s): Chair Hartley Mr. Armstrong advised that when a public pension plan in Florida approves an actuarial valuation, Florida Law requires that board to adopt the expected rate of investment return used in the actuarial valuation for the following year, several years, and long-term thereafter. He noted that an expected rate of investment return of 6.6% on a gross basis is a conservative and reasonable rate for the Plan. Attorney Herrera agreed and clarified that the declaration does not have an impact on the actual investment returns or Plan funding, and the Board may change the expected rate of investment return in the future. As recommended by Attorney Herrera, Vice Chair Joseph made a motion to declare. an expected rate of investment return of 6.6% for the next year, several years, and long-term thereafter; Trustee Mushrush seconded the motion. The motion passed unanimously (5-0). 10. ATTORNEY MATTERS: 10.1. Presentation and Discussion Re: Potential Class Action against Pacira Biosciences, Inc. Presenter(s): Pedro Herrera, Sugarman, Susskind, Braswell & Herrera, P.A (telephonic).; Atara Twersky, Abraham, Fruchter, and Twersky, LLP (telephonic). Chair Hartley noted that this item has been removed from the agenda. Attorney Herrera briefly discussed the Sugarman, Suskind, Braswell & Herrera Special Report regarding vendor contracts with government entities concerning human trafficking and foreign countries of concern. After Pension Plans Administrator Martin advised that the special report had not been received, Attorney Herrera advised he would distribute the report and discuss it at a subsequent meeting. 11. OTHER MATTERS Pension Plans Administrator Martin addressed the data adjustments in the actuarial valuation. The incomplete data was inherited from previous Pension Administration staff, and the Plan is required to correct such errors to ensure the accuracy and validity of the valuation. When such errors are identified, Pension Administration staff performs a thorough review of the applicable data and parameters to confirm the scope of the error and make the appropriate corrections. She expressed confidence in Senior Pension Analyst Ferrer's review and analysis of the data. 11.1. Approval Re: Administrative Budget Analysis for July 1, 2024, through September 30, 2024. Presenter(s): Debra Martin, Pension Plans Administrator. Pension Plans Administrator Martin presented the Budget Analysis for the Board's information. She noted that salaries and actuarial services exceeded their respective approved amounts. The Board approves its budget before the City announces salaries for that year; for FY 2024, the City issued higher than anticipated raises. Actuarial services cost more than the budgeted amount because of additional work GRS performed regarding the expected rate of investment return for the FY 2023 actuarial valuation. 11.2. Approval Re: Check Register for July 1, 2024, through September 30, 2024. Presenter(s): Debra Martin, Pension Plans Administrator. Pension Plans Administrator Martin oresented the Check Register for the Board's information. To Trustee Snow's question, the insurance premium is an annual fee for the fiduciary insurance which is budgeted monthly. Pension Plans Administrator Martin also distributed an asset allocation for the Board's information. To Vice Chair Joseph's question, Pension Specialist Gottlieb confirmed that Graystone is scheduled to present a quarterly report and a core manager search at the February 26, 2025, regular meeting. Secretary/Treasurer Griggs advised that the March 26, 2025, Membership meeting may need to be relocated as the City Commission may be holding public interviews for City Manager candidates in the City Commission Chambers on that date. Book 1 Page 452 01-22-2025 9:00 a.m. Book 1 Page 453 01-22-2025 9:00 a.m. 12. ADJOURN. Chair Hartley adjourned the meeting at 10:17 a.m. Chair Michael Hartéy Sacetayeasugsicl Griggs -