Book 1 Page 271 01-28-2022 9:00 a.m. MINUTES OF THE CITY OF SARASOTA FIREFIGHTERS PENSION PLAN BOARD OF TRUSTEES REGULAR MEETING OF JANUARY 28, 2022 Present: Chair Michael Hartley, Vice Chair Shelia Roberson, Secretary/Treasurer Shayla Griggs, and Trustee Scott Snow. Others: Attorney Pedro Herrera, Pension Plans Administrator Debra Martin, and Pension Specialist Peter Gottlieb. Absent: Trustee Charles Joseph 1. CALL MEETING TO ORDER: Chair Hartley called the Sarasota Firefighters' Pension Plan (Plan) Board of Trustees regular meeting to order at 9.01 a.m. 2. PLEDGE OF ALLEGIANCE: Presenter(s): Secretary/Treasurer Griggs Vice Chair Roberson 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 will be respectful to one another. We will direct all comments to issues. We will not engage in personal attacks.' 4. ROLL CALL: Pension Plans Administrator Martin called roll; Trustee Joseph was absent. Pension Plans Administrator Martin stated that Trustee Joseph had advised prior to the meeting he was unable to attend and will request an excused absence at the next meeting. 5. PUBLIC INPUT: None. 6. APPROVAL OF MINUTES: 6.1. Approval Re: Minutes of the Firefighters' Pension Plan Board of Trustees Regular Meeting of December 1, 2021. Presenter(s): Chair Hartley. Trustee Snow made a motion to adopt the December 1, 2021, meeting minutes; Secretary/Treasurer Griggs seconded the motion. The motion carried unanimously (4-0). Chair Hartley noted that Mr. Owens and Mr. Mcllvaine of Graystone Consulting were delayed in traffic, and asked Brad Armstrong of Gabriel, Roeder, Smith, & Company to present at this time. 9. NEW BUSINESS: 9.1. Presentation and Discussion Re: Actuarial Valuation Report for Fiscal Year Ended September 30, 2021. Presenter(s): Brad L. Armstrong, ASA, EA, FCA, MAAA, Senior Consultant and Actuary, Gabriel, Roeder, Smith & Company. Mr. Armstrong appeared before the Board and introduced himself. Mr. Armstrong began his presentation by discussing the funding ratio, noting the Plan is effectively 100% funded, how the Chapter 175 monies are contingent upon a plan being less than 100% funded, and the suspension of Chapter 175 monies will have a cascading effect on the Plan, including on Cost-of-Living Allowance (COLA) payments for pre-2003 retirees and post-2003 retirees.1 Attorney Herrera joined the meeting elephonically and introduced himself. Mr. Armstrong discussed the Observed Experience in the valuation, noting the County's/City's contribution requirement was just for expenses and that the payments received during the current fiscal year would be expected to pay off the existing unfunded liability as of the valuation date SO that, as of September 30, 2022, GRS expects the Plan will be fully funded. Because there are no active employees, there is no normal cost or unfunded cost, leaving only the administrative and investment expenses. While Florida statutes only require a plan to cover the administrative expenses, this Plan has also covered the investment expenses sO that investment returns are used completely for funding benefits. Chair Hartley commented that considering the most recent annual investment income versus annual retiree benefit payments, he does not believe the Plan will reach 100% funding this year. Mr. Armstrong also noted that the market events of the last 3 weeks likely reduced the portfolio balance; because the Board plans to use assets instead of investment returns to pay annual benefits, they agreed the stock market would need to continue performing as it did 2020 and 2021, which is unlikely, to achieve 100% funding. Mr. Armstrong explained that the amortization policy, which was down to 2 years as of last year, is now at 1 year; had the Plan's investments performed poorly in the last fiscal year, that hypothetical poor performance would have equated to a significantly higher required employer contribution. He discussed the key elements, and stated that the sentence, Three pension recipients removed versus four expected," is a misprint and should read, Three pension recipients stepped aside versus four expected;" Mr. Armstrong apologized for the error. Mr. Armstrong reviewed the Comments and noted that because the Board meets monthly, any requested revisions to the valuation could be easily accomplished with minimal impact to the City of Sarasota's (City) and Sarasota County's (County's) budgeting process. He discussed Comment D and recommended the Board review and change its amortization policy; while the Board could wait until 2023 to address the policy, having a Board-approved policy based on best practice will more effectively factor in experience and assumption changes than reactively created policy for a specific circumstance. He recommended a layered 1 The Board advised, duringi its February 23, 2022 meeting, that Mr. Armstrong appeared to be referençing Chapter 175 tax premium monies. Please see the minutes of the February 23, 2022 meeting, Item 6.1. Book 1 Page 272 01-28-2022 9:00 a.m. Book 1 Page 273 01-28-2022 9:00 a.m. amortization policy over at least 5 years and noted that even if the assumptions were to not change, which is not a reasonable expectation, there will still be experience deviations each year, including any time the Florida Retirement System changes its mortality tables. Regarding Comment E, Mr. Armstrong noted that investment gains and losses are smoothed over 3 years; had they marked to market, the plan would be 105.8% funded. He stated that he spoke with Steve Bardin at the State of Florida, Division of Retirement, Police and Fire Pension Funds Office (PFPFO), regarding the suspension of Chapter 175 monies. Mr. Armstrong stated the PFPFO must make the decision to suspend Chapter 175 based on a State-accepted report, however the PFPFO could not clearly advise when that decision is effective: when a plan submitted a State-accepted report, when the State reviewed that report, or some other date. He pointed out that the State of Florida could conceivably distribute Chapter 175 monies in August 2022 and later review a valuation effective September 30, 2021 showing a plan is 100% funded, and thus not be eligible for the funds distributed in August 2022. A similar uncertainty exists with the reinstatement of Chapter 175 monies if a plan which had previously reached 100% funded status subsequently experienced losses which reduced the funded ratio to below 100%. In this context, there is operational uncertainty. Mr. Armstrong suggested the Board could reduce its investment return assumption rate to reduce the risk of losing Chapter 175 monies due to reaching 100% funded status because of this operational uncertainty, as well as the cascading effect the suspension would have on COLA payments. He analogized the process of attempting to have Chapter 175 monies reinstated to the challenges of attempting to have private mortgage insurance removed from a residential home loan. He noted that Chapter 175 monies also impact the ability to pay Share accounts, although the valuation report does not explicitly state this. Mr. Armstrong stated that Comment G discusses the procedures to calculate Share account payments. There is a State of Florida provision which could add to the Post-2003 Retiree Share Fund reserve, however the receipts for 2021 were not sufficient to trigger that provision. Mr. Armstrong discussed Risk Measures, noting that although the Plan is currently strong, ample risk remains. While investment returns account for some of the Plan's strength, some is also attributable to an aggressive amortization policy. Mr. Armstrong discussed the broad strategy to fund pension benefits through its final payment by transitioning from an income-generating investment portfolio towards drawing down assets over time; he advised the Plan should expect Negative Investment Cash Flow to become more sizable through this transition. He noted the investment consultant is focused on this metric to most adequately manage investments based on market performance and the Plan's needs. He reviewed Cash Flow Projection Based on Current Assumptions and Methods - September 30, 2021, stating it is a base-line projection which assumes all other assumptions have been met and do not change; he stated the increases are due to projected inflation. Trustee Snow asked what amortization assumption was used for the projections out to 2030. Mr. Armstrong stated this assumes the Plan has no debt. He analogized it to having a car with 12 months of financing payments; the projection assumes the payments will be paid off in 12 months, and the car is road-worthy for 10 years, sO the remaining liabilities are continued maintenance to keep the car on the road. Mr. Armstrong also noted that Benefit Payments increase over time even though no new retirees are added; the increases are due to the COLA. Eventually, the effects of retiree mortality will overcome the increases due to COLA and benefit payments will go down. While Mr. Armstrong could not predict a specific timeframe for when benefit payments would crest, he noted the increases from year to year appear to be reducing, suggesting it may soon crest. At Mr. Armstrong's request, Scott Owens of Graystone Consulting appeared before the Board, and stated he believed the portfolio was currently between $190 and $195 million. Chair Hartley noted for the record that the valuation states, as of September 30, 2021, the Plan has 156 total retirees; Mr. Armstrong noted there are no vested and terminated participants. Trustee Snow, Chair Hartley, and Mr. Armstrong noted for the record that page C-6 shows the Plan Funding Reserve and Share Reserve Liability, which shows the Post-2003 Retiree Share Fund balance. 9.2. Presentation and Discussion Re: GASB No. 67 Plan Reporting and Accounting Schedules for Fiscal Year Ended September 30, 2021. Presenter(s): Brad L. Armstrong, ASA, EA, FCA, MAAA, Senior Consultant and Actuary, Gabriel, Roeder, Smith & Company. Mr. Armstrong stated this document states the valuation on a market value basis and is primarily used by the auditor. If the Board were to change an assumption at this meeting, GRS could be required to change the GASB 67 schedule because it impacts the values of the liabilities which are reported on the financial statements. Chair Hartley and Vice Chair Roberson discussed when the Board typically reviews the assumed rate of investment return. Vice Chair Roberson stated that conversation typically occurs in December to advise the actuary of rates of return the Board wishes to consider, the actuary presents the rate scenarios to the Board in January at which time the Board could make a determination. Because of the timing of their respective budgeting processes, the Board would need those scenarios at this meeting to advise the City and County. Chair Hartley recalled deciding the Board would leave the assumed rate of return as it is currently and evaluate it in Deçember 2022. Chair Roberson concurred. Trustee Snow made a motion to accept the actuarial valuation as prepared by GRS for the fiscal year ending September 30, 2021; Secretary/reasurer: Griggs seconded the motion. Vice Chair Roberson asked Mr. Owens and Attorney Herrera if they had any questions or concems regarding the actuarial valuation; Mr. Owens and Attorney Herrera individually affirmed they had none. The motion carried unanimously (4-0). Mr. Armstrong asked if the Board needed to take any action regarding the GASB 67 report so that the auditor could complete its reporting; Attorney Herrera stated that the Board typically does take formal action, not but could not recall if this board had taken action in the past. Vice Chair Roberson asked Pension Administration to forward copies of the valuation to the County and City to formally request funding for Fiscal Year 2023. By consensus, the Board accepted the GASB 67 report. Mr. Armstrong noted that page B3, states the employer contribution allocation between the City and County. The Board thanked Mr. Armstrong for this presentation and service to the Board. INVESTMENT PERFORMANCE REVIEW: Book 1 Page 274 01-28-2022 9:00 a.m. Book 1 Page 275 01-28-2022 9:00 a.m. 6.2. Presentation and Discussion Re: Graystone Consulting; Quarterly Performance Summary as of December 31, 2021. Presenter(s): Scott Owens, Associate Vice President, Institutional Consultant; Andrew MclIvaine, Institutional Consultant; Graystone Consulting. Mr. Owens returned before the Board; Andy Mclivaine of Graystone Consulting also appeared before the Board and introduced himself. Chair Hartley and Trustee Snow thanked Graystone Consulting for timely delivering their quarterly report materials. Mr. Owens introduced Graystone's presentation, Mr. MclIvaine provided a market and economic recap. He noted the market pull-back which occurred since January 1, 2022 overshadows the Q4 2021 gains. As of the end of 2021, the S&P 500 was up approximately 29% when its typical long-term growth rate is closer to 10 to 11%; the rallies seen since March 2021 have not been driven by fundamentals but by trillions of dollars injected into the market. The downturn in the market in 2022 will provide a clearer measurement of fund managers' performance than the previous upswing. He discussed how fundamentals are trending in positive directions, however inflation due to excess market liquidity is emerging as a concern. Increases in employment will help to alleviate supply chain issues and reducing liquidity will decrease demand, which should keep inflation manageable. He reviewed the Capital Market Returns in the Quarterly Performance Summary. He noted that in the large cap space, growth outperformed value but only due to the performance in the 4th quarter; absent 4th quarter gains, value would have outperformed growth in the large-cap space; value outperformed growth for the year in both mid- and small-cap spaces. He reviewed the S&P 500 Sector returns, Developed and Emerging Markets noting they underperformed compared to US markets, and Fixed Income. He noted that Fixed Income returns were negative for the year due to inflation. Mr. Owens noted the total portfolio value as of December 31, 2021 was $195 million but he would address the information in the Asset Allocation later in his presentation. He discussed why defensive managers don't typically perform well in up-markets and better in down-markets and commended the Board on its commitment to lowering risk in the portfolio. He reviewed the Cash Flow Analysis; regarding the Asset Allocation Compliance he noted the portfolio is underweighted in fixed income and overweighted in equities. He discussed the Asset Allocation Compliance by manager and recommended taking assets from the most overweight and reallocating funds to UBS to reach a combined 8%. Mr. Owens discussed the Executive Summaries of each manager. Regarding HGK, which is a value fund, he noted that although it has a negative performance since inception, it has outperformed in the last year; Mr. Owens asserted HGK will continue to perform well in the current environment and has no recommendation to divest. Sawgrass, Mr. Owens reminded, is a defensive manager and it therefore did not keep up with its benchmark as the market trended up, however it has fallen significantly less than its benchmark, demonstrating its effectiveness. He noted DRZ's consistently strong performance has been the reward of slightly more risk than other holdings; Oak Ridge, the counterbalance to DRZ, has similarly performed well over the last quarter and year. Regarding Lazard and Renaissance, which are both international funds, Mr. Owens stated that Morgan Stanley is now recommending overweighting in high quality and diverse international holdings because of their attractive valuations. Regarding Renaissance, Mr. Owens explained its diversity works against it when the market is overly concentrated, as it has been recently, but he noted it is a defensive manager which is why the Board has continued to hold it. He noted the standard deviation of equity holdings is between 15 and 20, while Richmond Capital Fixed Income fund, the standard deviation is 4. However, this lower risk has brought negative returns when accounting for inflation. He stated that Richmond Capital is performing well within its asset class, however the asset class, in general, will not perform well in the current environment. To provide diversity amongst the lower risk holdings, the Portfolio has moved into other asset classes, such as real estate. He noted UBS TPF has a lower standard deviation than Richmond but grew 15% over the last year. Regarding UBS TPI, he noted the down capture rate of -148, which means when its benchmark, the Barclays Aggregate, went down, UBS TPI went up. He discussed Cohen & Steers, which has performed well but has only been in the portfolio for approximately 2 years. Mr. Owens had no significant recommendations regarding the portfolio with the exception of bringing both UBS funds to an aggregate 8% by taking overages from the 2 large cap funds, whichever is the most overweight. Trustee Snow asked if UBS's benchmark reinvests its dividends, noting that the Plan receives dividends from UBS and uses them as income. Mr. Owens confirmed that the gain and yield are reflected in Graystone's reports for both funds. Trustee Snow noted that if more assets are invested into UBS, the dividends, which are taken as income for the Plan, will similarly increase. Chair Hartley asked Mr. Owens which UBS fund he recommend putting additional assets into, if not both. Mr. Owens stated he would invest additional assets in both, as they perform slightly differently, however the amounts would be sufficient to increase their aggregate total to 8% of the total portfolio. Chair Hartley noted that, as stated on the Cash Flow Analysis, the TPF has $14 million and the TPI has $5 million in it and advised Mr. Owens to determine the appropriate amounts for each fund. Mr. Owens stated he would consult the original documents to determine the percentage to investi in each fund and advise Pension Administration before execution. Mr. Owens commented on the variety of plans he has as clients which all receive similar investment information but have not performed as well as the Plan as many have changed their investment strategy. Vice Chair Roberson attributed the Board's investment success, based on her conversations with money managers, to the tenure of the Board and consensus amongst trustees on the Plan's investment goals. Secretary/Treasurer: Griggs asked if a rebalancing was necessary because UBS's percentage of the portfolio has changed since December 31, 2021. Mr. Owens asserted the Board must take some sort of action based on the quarter-end report, but that he would use real-time numbers and advise Pension Administration if rebalancing was not necessary. Mr. Owens agreed with Vice Chair Roberson's assessment regarding Board's tenure and consistency in investment philosophy. He commended the Board for not over-reaching in setting investment goals. He noted no other compliance issues. Chair Hartley asked Mr. Owens, if he would recommend the Board make its portfolio more conservative by changing the allocation from 60% equity and 40% fixed incomelalternatives to 55% equity and 45% fixed income/alternatives, and if sO, how could that be accomplished. Mr. Owens noted that there are benefits to lower risk and seeking returns based on a plan's needs, as opposed to reaching for the highest returns possible. He noted the portfolio already contains infrastructure and real estate; additional alternative asset classes include structured products, private credit, and private equity however those classes tend to be less liquid, have higher fees, or can be complicated investments. He stated he would research a variety of products and asset classes, and present education material to the Board. After presenting education materials and discussions, he could prepare asset allocation studies and further discuss whether the Board wished to proceed. Book 1 Page 276 01-28-2022 9:00 a.m. Book 1 Page 277 01-28-2022 9:00 a.m. Secretary/Treasurer: Griggs asked if rebalancing would require targets. Attorney Herrera stated that a motion would be needed to change targets, asset allocations, or revising the Investment Policy Statement (IPS). Mr. Owens stated that he had requested rebalancing within the existing IPS and that he wants to, based on the current investment policy, reduce the most overweight asset class, and use the proceeds to increase the most underweight asset class, based on the current investment policy. Mr. MclIvaine stated that if the Board were to change its risk profile and/or enter a new asset class, that would require a board motion. However, a motion would not be necessary for the investment consultant to present information to the Board about prospective investments in new asset classes. Attorney Herrera agreed. Mr. Owens and the Board continued their discussion on de-risking the portfolio. Mr. Owens stated that alternatives were preferrable to fixed income unless interest rates go up significantly, which would hurt existing fixed income investments but would be an opportunity for new investment in fixed income at the higher yield rates. Trustee Snow asked how moving additional assets towards fixed income would affect the assumed rate of investment return. Mr. Owens discussed the investment goal of the most return with the lowest amount of risk appropriate for the portfolio. Mr. Owens asked if a motion was required to rebalance if necessary. Attorney Herrera stated that formal board action is typically not necessary to rebalance, and but that consensus would be appropriate. Chair Hartley asked Mr. Owens to stay in close communication with Pension Administration because it will be moving more money to meet retiree payroll needs. Attorney Herrera asked if there was a standing policy to allow Graystone to rebalance between meetings. Mr. Owens stated that Pension Admin advises him what amounts it needs, and Graystone advises which asset to liquidate to stay within the boundaries of the IPS. 7. NEW BUSINESS: None. 10. UNFINISHED BUSINESS: 7.1. Presentation and Discussion Re: Graystone Consulting's Unified Management Account Fee Program. Presenter(s): Chair Hartley. Chair Hartley noted this item had been tabled from ap previous meeting so that the full Board could be present due to the importance of the issue, however Trustee Joseph was not present. He asked for this item to be tabled again until a future meeting when all trustees were present. The Board informally agreed. Mr. Owens noted that the Board previously asked how many of his clients participated in the UAM; he stated currently 18 out of 50 of his clients use the program. Chair Hartley asked Mr. Owens if he could provide the name of a plan that was approximately the size of the Firefighters' Pension Plan; Mr. Owens stated the Plan is the largest of his clients, but that Aventura Police and Longboat Key Consolidated are comparable in size. Mr. Owens asked for the disposition of the Clearwater Access letter. Pension Plans Administrator Martin noted it had been signed and she would return it electronically. Vice Chair Roberson stated, referring to Attorney Herrera's question regarding rebalancing, that she located the appropriate provision within the investment policy goals and guidelines. She read for the record, "Although fund contributions or withdrawals may be used to maintain the appropriate balance between investment manager portfolios, it may also be necessary for the Plan Administrator to transfer securities or cash from one investment manager to another on a quarterly basis to rebalance the Plan portfolio. Pension Plans Administrator Martin stated Pension Administration does this on a monthly basis. The Board thanked Graystone for its presentation. 11. ATTORNEY MATTERS: Attorney Herrera stated that House Bill 117 has been filed which would add COVID-19 as a presumptive condition to granting death or disability benefits. If a member requested disability benefits on the assertion that their disability was caused by COVID-19, or a member died from COVID-19, the burden of proof would shift from the applicant to the Board to disprove the disposition. The bill does not have a vaccination requirement for eligibility, however existing provisions of Chapter 112 includes a vaccination requirement. Chair Hartley noted the Plan is closed and the bill would therefore not have an impact on the Plan. Chair Hartley asked if Attorney Herrera had received any calls regarding the last trustee position; Attorney Herrera said that he was not aware of any. 12. OTHER MATTERS: Vice Chair Roberson asked Pension Administration to give a presentation at the next Board meeting on cybersecurity and how it protects the Plan's digital records and electronic information. To Pension Plans Administrator Martin's question, Vice Chair Roberson stated the presenters and information presented would be left to the discretion of Pension Administration. Trustee Snow and Chair Hartley noted the number of investment managers presenting at the February and March meetings. The Board agreed the presentation could be given at the March or April, 2022 Board meetings. The Board congratulated Secretary/Treasurer: Griggs on receiving her FPPTA certification. 11. ADJOURN. Chair Hartley adjoured the meeting at 10:56 a.m. 1 6A Chair Michaél Hartley Sebrétar/Treasurer Shayla Griggs Book 1 Page 278 01-28-2022 9:00 a.m.