Book 1 Page 65 06-03-2021 10:00 a.m MINUTES OF THE EMPLOYEE RETIREMENT ACCOUNT COMMITTEE REGULAR QUARTERLY MEETING OF June 3, 2021. Present: Chair Jeffrey Vredenburg, Vice Chair Aaron Olson, Secretary Shayla Griggs, and Treasurer Kelly Strickland. Others: Pension Plans Administrator Debra Martin, Senior Pension Analyst Anthony Ferrer, and Pension Specialist Peter Gottlieb. Absent: None. 1. CALL THE MEETING TO ORDER: Chair Vredenburg called the meeting to order at 10:01 a.m. 2. 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. 3. ROLL CALL: Presenter: Pension Plans Administrator Martin Pension Plans Administrator Martin called roll; all committee members were present in chambers. Also appearing in chambers were Pension Plans Administrator Martin and Pension Specialist Gottlieb. Senior Pension Analyst Ferrer appeared telephonically. 4. PUBLIC INPUT: None. 5. APPROVAL OF MINUTES: 5.1. Approval Re: Minutes of the Employee Retirement Account Committee Regular Quarterly Meeting of February 18, 2021. Presenter: Chair Vredenburg. Vice Chair Olson made a motion to accept the minutes of the February 18, 2021, meeting; Chair Vredenburg seconded the motion. The motion carried unanimously (4-0). Treasurer Strickland requested an excused absence from the February 18, 2021, meeting. Secretary Griggs made a motion to excuse Treasurer Strickland's absence from the February 18, 2021, meeting; Vice Chair Olson seconded the motion. The motion carried unanimously (4-0). 6. BOARD APPOINTMENTS: 6.1. Appointment Re: Appointment of Seat 4 by City Commission. Presenter(s): Secretary Griggs. Secretary Griggs explained Seat 4 is currently held by Chair Vredenburg, he has re-applied for the seat, and only 1 application was received for the pending vacancy. Treasurer Strickland made a motion to accept Chair Vredenburg's application for reappointment to Seat 4; Secretary Griggs seconded the motion. The motion carried unanimously (4-0). 6.2. Appointment Re: Appointment of Seat 5 by ERAC. Presenter(s): Secretary Griggs. Secretary Griggs explained Seat 5 is currently held by Vice Chair Olson, he has reapplied for the seat, and only 1 application was received for the pending vacancy. Secretary Griggs made a motion to accept Vice Chair Olson's application for reappointment to Seat 5; Chair Vredenburg seconded the motion. The motion carried unanimously (4-0). The Committee discussed the vacant seat 3; Pension Plans Administrator Martin stated the vacancy is listed in the mayor's weekly update. Secretary Griggs stated the City of Sarasota also advertises externally on social media for the position, and that although there is a preference for an individual with investment banking or investment management experience, the Committee may waive those preferences as it deems appropriate. Chair Vredenburg suggested even a city employee may be acceptable as it represents employee involvement on the management of the account. Secretary Griggs stated Pension Administration would review the ordinance to confirm the requirements. 7. NOMINATION OF BOARD OFFICERS: 7.1. Appointment Re: Selection of Chair. Presenter(s): Secretary Griggs. Chair Vredenburg made a motion to nominate Aaron Olson as Chair; Treasurer Strickland seconded the motion. The motion carried unanimously (4-0). 7.2. Appointment Re: Selection of Vice Chair. Book 1 Page 66 06-03-2021 10:00 a.m. Book 1 Page 67 06-03-2021 10:00 a.m. Presenter(s): Secretary Griggs. Treasurer Strickland made a motion to nominate Jeffrey Vredenburg as Vice Chair; Secretary Griggs seconded the motion. The motion carried unanimously (4-0). 8. QUARTERLY INVESTMENT REPORTS: 8.1. Presentation and Discussion Re: AIG Retirement Services, ERAC Report for Quarter Ending, March 31, 2021. Presenter(s): Gregg Hudak, Financial Advisor, Trent Harris, Financial Advisor, and Lilia Pivetta, Relationship Manager, VALIC Financial Advisors, AIG Retirement Services. Trent Harris and Gregg Hudak appeared before the Committee telephonically and introduced themselves. Mr. Harris stated that as of June 2, 2021, he has assisted 16 employees, in addition to performing existing participant reviews and assembled retirement pathfinder financial plans at the request of employees. Mr. Harris stated that meeting with employees using Zoom has enhanced communications. He scheduled 2 educational webinars in March however no employees registered to attend. Chair Olson asked, as addressed at the February 18, 2021, meeting, if Mr. Harris had received a list of e- mail addresses for participants who had not previously submitted them. Mr. Harris stated he requests e- mail addresses from employees as he meets with them and asked Lilia Pivetta if she was able to obtain those addresses. Ms. Pivetta appeared before the Committee telephonically and introduced herself. She stated she generated a report which showed 223 participants who did not have e-mail addresses on record with AIG/VALIC. Ms. Pivetta also advised the Committee, in response to its request at a prior meeting, that 183 participants are invested in the Vanguard Wellington fund. Secretary Griggs and Pension Plans Administrator Martin added that because each participant must enter their contact information and preferred method of contact at enrollment, as well as have the ability to modify those items at any time, it would be inappropriate for the City to supply any additional contact information for participants. Mr. Hudak and Mr. Harris confirmed AIG/ALIC would never add contact information to a participant's profile without the participant's express permission. Ms. Pivetta stated they could perform a communication campaign to reach those participants who do not have e-mail addresses on record to update their contact information. Further, she stated a message could be included on each participant's quarterly statement to update their contact information. Mr. Hudak advised the Committee that AIG/ALIC has authorized its staff to resume in-person meetings with participants at an employer's campus when requested by the clients, effective June 1, 2021. To return to an employer campus, the employer must submit a letter of request which outlines the visitation policy. Mr. Harris already forwarded the requirements for the letter of request to Pension Administration. By consensus, the Board directed Pension Administration to draft a letter of request for AIG/VALIC to enable Mr. Harris to resume in-person participant meetings at City Hall. Mr. Hudak addressed AIG/ALIC's failure to notify participants and the Committee of the closure of the VALIC Health Sciences Fund and subsequent merger of invested participants into the VALIC Company I Science & Technology Fund. He stated that AIGNALIC contracts with Bridgestone, a third-party marketing group, with communicating these types of transactions and it clearly failed to deliver a letter of notification to the Committee and City of Sarasota participants, for which he apologized. He stated that the letter of notification had been delivered appropriately to many of AIG/VALIC's clients, however the City of Sarasota participants and ERAC were clearly omitted from the group. Mr. Hudak advised that the notification letter has since been forwarded to Pension Administration with an apology. Ms. Pivetta addressed participant notification and advised annuity participants in the 457(b) plan were timely issued the letter of notification and provided with proxy voting. The first merger occurred on April 19, 2021, and the communication was distributed on February 12, 2021; the communication for a second fund closing- regarding the liquidation of the VALIC Company I Small Cap Aggressive Growth Fund was distributed on March 30, 2021. A prospectus supplement was issued on April 6, 2021, and May 3, 2021. A transfer of value letter was sent to all affected participants. Ms. Pivetta advised AIG/VALIC should have notified all participants prior to the event and apologized for the oversight. Mr. Hudak reiterated that participants enrolled in the both the 457(b) and the 401(a) plans were timely notified of the events, and AIG failed to notify only those people who participate in just in the 401(a) plan. In response to Chair Olson's inquiry, Pension Plans Administrator Martin stated there were employees who identified discrepancies in their account values and contacted Pension Administrations with concerns; specifically that some employees noticed decreases in their account values and contacted Pension Administration. Mr. Harris explained this issue was an accounting error related to the payment of a special dividend post-merger of funds. He stated that, normally, when dividends are distributed, the Net Asset Value (NAV) of a fund drops. Participants in the Health Science Fund noticed the NAV decrease on Thursday, April 15, which should have cycled overnight but did not, and was instead applied on Friday 16 and backdated to April 15; participants were able to see the proper account value on the morning of Saturday, April 17. Vice Chair Vredenburg asked AIG/VALIC what precautions it was taking to ensure this type of oversight does not occur again. Mr. Hudak advised he has had numerous communications and meetings regarding the matter and assured precautions are in place regarding any fund changes of this nature, and the third- party marketing firm has been notified as well. Mr. Harris added that the second merger, that of the VALIC Company I Small Cap Aggressive Growth Fund into the VALIC Company I Small Cap Growth Fund has already occurred without incident. Howard Daher of Daher Capital Group appeared before the Board telephonically and introduced himself. He stated that, without exacerbating this discussion, he wanted to point out that the City's 457(b) plan is not under the Committee's purview and should therefore not be referenced in the discussion. He characterized the events as having been AIG/VALIC's failure to notify the Committee and City of the fund closures when the purpose of the Committee is to oversee these types of events. According to Mr. Daher's records, approximately $8 million, as of March 2021, had been in the health care fund and transferred to a technology fund which had not been approved by anyone outside of AIG/VALIC, which has no fiduciary responsibility to the Plan. In response to Mr. Daher's questions, Mr. Hudak discussed the transition and timeline of events. Mr. Hudak explained the transitioned participants are still in the technology fund, that the transitions would have occurred even if notification had been timely issued, and that he had not received any notification of the transitions at the time of the February 18, 2021, Committee meeting. Mr. Daher asked if AIG/ALIC has analyzed the performance of the technology fund, the health care fund, or the health care index to show what participants' returns would have been ift they had been allowed to stay in a health care fund; Mr. Hudak was confident those have not been performed, however he could raise the request with AIG/ALIC to attempt to create a limited look-back period to rectify any forgone market gains. Mr. Daher stated he was only asking for purpose of the discussion and the Committee would need to approve any directive for action. Mr. Hudak also acknowledged the Committee has no purview over the 457(b) plan but discussed it for context. The Committee expressed concem that its investment advisor suggested a resolution rather than AIG/VALIC representatives. At Treasurer Strickland's request, Mr. Hudak reiterated that he believed this was an aberration, checks and balances are in place, and in the case of future transitions of this nature, they will receive ample notification to provide to all participants and the Committee. The Committee discussed Mr. Daher's suggestion of a look-back period. Book 1 Page 68 06-03-2021 10:00 a.m. Book 1 Page 69 06-03-2021 10:00 a.m. Vice Chair Vredenburg made a motion to direct AIG/ALIC to have a look-back period to see the impact to participants; he requested Mr. Daher's assistance in crafting the language and noted he would separate any policy directives into a second motion. Mr. Daher advised that, with other plans he serves which experience comparable circumstance, the vendor record keeper would make participants whole as if nothing had happened because it must act in participants'best interest. To confirm participants are whole, one would compare the performance of the vendor-selected replacement as well as the committee- approved replacement over the time-period from when the vendor mapped participants out of a fund through a determined date in the future when participants may invest in the commitee-approved replacement and an index to the closed fund. He advised participants losses resulting from transition to the vendor-chosen fund would be made up by the vendor, but that if participants benefitted from their actual investments, then the Committee and participants have been assured due diligence had been performed appropriately. Mr. Daher stated he would discuss options for replacements to the health care fund during his agenda item. Chair Olson seconded the motion. The motion carried unanimously (4-0). Treasurer Strickland stated she believed a second motion would not be required as AIG/VALIC has assured this was an isolated event. The committee concurred. Mr. Hudak confirmed he received adequate instructions and will begin the process today. At Vice Chair Vredenburg's request, Mr. Hudak could not confirm if the process would include participant communication or just communication with the ERAC. Mr. Hudak did not have a time estimate as to how long the entire process would take but would communicate his findings with Mr. Daher and Pension Administration; he anticipates having an analysis for the September 2021 ERAC meeting. The Committee informally agreed that a special meeting could be scheduled if sufficient information was available prior to the September meeting date. Mr. Daher explained he had replacement options for both the technology and health care funds, as well as the small cap aggressive growth fund. If the ERAC were to vote today for replacements, AIG/ALIC could determine a future transition date which would then allow for a 30-day advance notice period. Ms. Pivetta explained that the participant notices of exchanges could also include fund information, as well as whether the differences were positive or negative. Mr. Harris asked if there was a specific health care index the ERAC wanted to compare the performance. Mr. Daher explained the index he typically uses for the category is the Dow Jones US Health Care Index. Mr. Hudak advised he believed the ERAC's request was reasonable and feasible and would communicate his findings with the ERAC after having he discussed them internally. 8.2. Presentation and Discussion Re: Quarterly Investment Analysis Review Ending March 31, 2021. Presenter: Howard Daher, Principal, Daher Capital Group. Mr. Daher reviewed the economic and market activity for the first quarter of the year, noting the NASDAQ, which is tech-heavy, trailed the S&P 500. The market appears to be transitioning from cycling away from growth stocks and into value. Equities have performed well with news of the economy reopening. Low interest rates have created a healthy credit environment and as small businesses reopen, especially hospitality, transportation, and those which regularly borrow cash, financial markets should improve as well. The market was up 6% at quarter end, and up approximately 12% as of close of business on June 2, 2021. The bond markets are somewhat negative with concerns of inflation. He stated corporate taxes will start increasing in the late 3rd to early 4th quarters, and corporate earnings will likely be adjusted for profitability. Until that point, the market continues to perform well. International markets are rebounding as anticipated, although there are lingering concerns related to COVID-19 vaccines. He noted that although popular, the technology sector was not the best performing sector. Mr. Daher reviewed the 3 funds on the Watch List. He explained the Small Cap Aggressive Growth Fund is one of the two funds out of which AIG/VALIC has transitioned participants. The Vanguard Equity Fund is focuses on value investments and has a dividend strategy; as the market has slowed, this fund has provided some downturn protection and therefore Mr. Daher stated he was not overly concerned as dividend funds have traditionally performed well over the long-term. He had no significant concerns for any of the 3 funds on the Watch List. Referring to the Asset Allocation by Fund in his presentation materials, Mr. Daher noted that 23.7% of the Plan's assets are in the Vanguard Wellington fund which had been the default fund until switching to the mutual fund platform. The default funds now are the BlackRock LifePath target date funds which are based on each participant's age. He believes the plan is well diversified both from a menu and utilization standpoint. Mr. Daher turned his attention to the Executive Summary in the DCG Investment Analytics report. He noted the VALIC Company Small Cap Aggressive Growth Fund is no longer in place; he did not have scoring available for AIG/VALIC's replaçement fund at the time his report was issued. He reviewed thel Performance Summary, noting the data was as of the end of the first quarter of the calendar year, the number in parentheses was its ranking in its peer group, and the benchmarks are highlighted in grey. He discussed how to weigh each fund relative to their risk profiles. In the Small Growth sector, Mr. Daher noted the Lord Abbett Developing Growth fund was the highest risk, meaning it would have the most volatility. He recommended the American Century Small Cap Growth as the most consistent performer, having a 7-year history, and the least risk compared to the others. That notwithstanding, he has not had the opportunity to review the small cap growth fund AIG/VALIC selected. In response to Chair Olson's question, Mr. Daher explained that, if the Committee were to select a replacement fund for the closed Small Cap Aggressive Growth fund, subsequent analysis would not be as meaningful because they are within the same sector, and the transition is essentially a merger. Because the closed Health Sciences fund is in an entirely different sector than the technology fund VALIC chose as a replacement, evaluating their relative performances may be of greater value to the Committee. Treasurer Strickland made a motion to select the American Century Small Cap Growth Fund to replace the closed VALIC Company Small Cap Aggressive Growth fund, based on its scoring. Secretary Griggs seconded the motion. The motion carried unanimously (4-0). Mr. Daher referred to the Executive Summary for the Health Sciences and replacement funds' scoring history, as well as to the Performance Summary for the current information. He reviewed each of the 3 replaçement funds and explained how they differed in strategy, active versus passive management, and turnover. He recommended, if the Committee preferred active management, The Fidelity Select Health Care fund; if it preferred passive management, he recommended the Vanguard Health Care Index Admiral. The Committee discussed the merits of active and passive management. They noted that for those participants who prefer passive management, the target funds are available. Vice Chair Vredenburg made a motion to select the Fidelity Select Health Care as a replacement to the VALIC Company Health Sciences fund. Treasurer Strickland seconded the motion. The motion carried unanimously (4-0). In response to the Committee's request, Mr. Daher explained that because it has selected replacements for the 2 closed funds, VALIC will provide analysis of each fund's performance from the time of the change to when the replacement funds are available to participants and calculate any the potential gain or loss. Book 1 Page 70 06-03-2021 10:00 a.m. Book 1 Page 71 06-03-2021 10:00 a.m. AIG/VALIC will then be charged with determining who to notify, all participants or if just those participants who were invested the closed funds, and what the appropriate dates of notification should be. The Committee thanked Mr. Daher for his presentation. 9. UNFINISHED BUSINESS: None. 10. NEW BUSINESS: None. 11. OTHER MATTERS: None. 12. ADJOURN. Chair Olson adjourned the Employee Retirement Account Committee (ERAC) Regular Quarterly Meeting at 11:27 a.m. COhn - -- - L Chair Aaron Olson Secretary ShaylaGriggs