Book 1 Page 219 10-19-2020 8:30 a.m. MINUTES OF THE CITY OF SARASOTA GENERAL EMPLOYEES' PENSION PLAN BOARD OF TRUSTEES REGULAR MEETING OF OCTOBER 19, 2020. Present: Chair Ryan Chapdelain, Vice Chair Susan Blake, Secretary Shayla Griggs, Treasurer Kelly Strickland, Trustee Mark Nicholas, Trustee Kari McVaugh, and Trustee Robert Reardon. Others: Attorney Scott Christiansen, Pension Plans Administrator Debra Martin, and Pension Specialist Peter Gottlieb. Absent: None. 1. CALL MEETING TO ORDER: Chair Chapdelain called the meeting to order at 8:30 a.m. 2. PLEDGE OF CIMILITY: Presenter(s): Chair Chapdelain, via teleconference. Chair Chapdelain stated for the record, "We may disagree, but we will always be respectful to one another. We will direct ail comments to issues, and we will not engage in personal attacks. " 3. ROLL CALL: Presenter(s): Debra Martin, Pension Plans Administrator via teleconference. Pension Plans Administrator Martin appeared before the Board telephonically and called roll. Chair Chapdelain, Vice Chair Blake, Treasurer Strickland, Secretary Griggs, Trustee Nicholas, and Trustee Reardon appeared telephonically. Also appearing telephonically were Attorney Scott Christiansen and Pension Plans Administrator Martin. Pension Specialist Peter Gottlieb appeared in person. Trustee McVaugh was not present at roll call. 4. PUBLIC INPUT: None 5. APPROVAL OF THE MINUTES: 5.1. Approval Re: Minutes of the General Employees' Pension Plan Board of Trustees Regular Meeting of September 21, 2020. Presenter(s): Chair Chapdelain. A motion was made by Vice Chair Blake, seconded by Trustee Nicholas, to approve the minutes of the General Employees' Pension Plan Board of Trustees Regular Meeting of September 21, 2020. Motion passed unanimously (6-0). 6. APPROVAL OF RETIREMENT REQUEST/S): 6.1. Approval Re: Early Retirement Request of Larry Payne. Presenter: Debra Martin, Pension Plans Administrator. Ms. Martin stated that Mr. Payne seeks and early retirement with 13.79 years of service time and has selected the 100% pop-up option which does not allow for a change in joint annuitant. A motion was made by Vice Chair Blake to accept Mr. Payne's retirement. Trustee McVaugh stated at 8:35 a.m. that she had joined the meeting and seconded the motion. Motion passed unanimously (7-0). 7. INVESTMENT PERFORMANCE REVIEW: 7.1. Presentation and Discussion Re: Allianz Global Investors Investment Performance Review as of September 30, 2020, via teleconference. Presenter(s): Michele Cameron Director, Senior Relationship Manager, Institutional Client Team; John Mowrey, Managing Director & Chief Investment Officer, Value Equity US; Timothy McCarthy, Director, Senior Portfolio Manager, US Small Cap Growth, Allianz Global Investors, via teleconference. Ms. Cameron appeared before the Board telephonically and introduced herself. Ms. Cameron thanked the Board for its trust and business. She gave a brief overview of the firm, and noted that in July, Allianz entered into a strategic partnership with Vertis Investment Partners to optimize growth in the retail market; she stated that beginning in 2021, Vertis will become the distributor of its US mutual funds and certain separate investment accounts, and that its value equities team formerly known as NFJ will join Vertis as an affiliated manager, but there will be no changes to the investment team used by the Plan. She stated that in April, Allianz announced a consolidation of its Small Cap and Mid Cap growth teams under the leadership of Steven Klopukh and Tim McCarthy, both of whom have recently announced their resignations from Allianz to pursue opportunities outside the firm. Management of the Small Cap and Mid Cap Growth teams is transitioning to Mark Phanitsiri and Moritz Dufner, which will be completed by November 6, 2020. Despite this change, the Small Cap fund is, year-to-date, outperforming the benchmark by 20%. Scott Owens of Graystone Consultants appeared before the Board telephonically and introduced himself. He and Ms. Cameron discussed the personnel changes, noting the structure change was developed after Mr. Klopukh and Mr. McCarthy announced their resignations. They also discussed the strategic partnership with Vertis, noting it will only affect distribution and not the Small Cap Value investment team process or decision- making; the Small Cap Growth team decision making process will change, however Vertis will not be involved in that process. Chair Chapdelain suggested a more thorough discussion at the Board's December 2020 meeting. John Mowrey appeared before the Board telephonically and introduced himself. He discussed the transition process to Vertis, explaining the NFJ brand will be put back in place and it will retain the same structure and autonomy it had when the Plan began its partnership with Allianz. He reiterated there will be no structural changes in the team and decision-making process, although it has added analysts who are proficient with both finance and accounting, as well as proficiency with "big data," machine learning, and newer technologies to adapt to the evolving nature of financial research. Mr. Mowrey discussed Allianz's investment philosophy and process, its emphasis on dividends, earnings and quality, on- and off-balance sheet leverage, and high returns on capital. He discussed the Plan's portfolio characteristics, performance, and sector portfolio allocation. Chair Chapdelain thanked Mr. Mowrey and Ms. Cameron for their presentation. 8. UNFINISHED BUSINESS: Book 1 Page 220 10-19-2020 8:30 a.m. Book 1 Page 221 10-19-2020 8:30 a.m. None 9. NEW BUSINESS: 9.1. Presentation and Discussion Re: Fluidigm Corporation Securities Class Action: Recommendation to Pursue Appointment as Lead Plaintiff. Presenter(s): Atara Hirsch, Director of Institutional Investor Services, Abraham, Fruchter & Twersky, LLP, via teleconference. Ms. Hirsch appeared before the Board elephonically and introduced herself. Ms. Hirsch explained how Fluidigm, a biotech company which the Plan previously held stock in, allegedly manipulated demand for its products as well as issued inaccurate representations in its investment guidance, which benefitted both top executives as well as the company yet caused a loss to shareholders; the Plan suffered trading losses in excess of $116,000. Ms. Hirsch explained that because this a small cap company, the Plan likely suffered more than most investors and would therefore make it a better candidate for Lead Plaintiff. Attorney Scott Christiansen appeared before the Board telephonically and introduced himself. Mr. Christiansen, Mr. Owens, and Ms. Hirsch discussed the suit being against the company and not, at this point, against the CEO and CFO personally, and although it is a small cap company, the suit would likely not force Fluidigm out of business. The entire amount of market loss could not be determined until lead plaintiff was decided, although Fluidigm's value dropped from approximately $630M to about $300m; Ms. Hirsch stated that any potential estimate of the amount of recovery could not be established until the case developed further, although she estimated a 50% return of loss would be generous. She provided arguments for having an institutional investor as Lead Plaintiff over an individual, including a greater assurance litigation would not be prematurely settled. Ms. Hirsch explained, at Chair Chapdelain's request, that any judgment against Fluidigm would likely be paid out by its insurance. Further, Ms. Hirsch stated she would not find fault with the fund manager which selected Fluidigm, or any a fund manager in a similar circumstance. Mr. Owens stated he could find out which fund manager purchased Fluidigm. Ms. Hirsch further explained that, if the Plan did not seek Lead Plaintiff, the Plan would be al bystander to the case without a "voice at the table, and that she did not have an alternate institutional investor she would recommend seek lead plaintiff. Treasurer Strickland advised she does not support pursuing lead plaintiff as she believes it is ambulance chasing," and outside the Board's purview. Ms. Hirsch stated her firm's purpose is to function as a private version of the Securities Exchange Commission, which is ill equipped to pursue action in every case of suspected securities fraud. She further explained that, while losses in the amount of $120,000 may not be significant to larger funds, such as the California State Teachers' Retirement System (CalSTRS), to the Plan, taking lead plaintiff sends an important message to companies which attempt to illegally manipulate the markets to their advantage. Chair Chapdelain asked the Board if any trustee would like to make a motion to pursue lead plaintiff; none was made. Ms. Hirsch explained the Board would have until November 20, 2020 to submit an application for Lead Plaintiff. Chair Chapdelain thanked Ms. Hirsch for her presentation. 9.2. Presentation and Discussion Re: Proposed 2021 Meeting Schedule. Presenter(s): Debra Martin, Pension Plans Administrator, via teleconference. Pension Plans Administrator Martin explained the 2021 meeting schedule was developed to avoid having Board meetings on the same day as City Commission meetings. She noted the January meeting was scheduled on the same day as the Police Officers' Pension Plan Board of Trustees (POPP BOT) meeting because both Plans use the same actuary who will make the same presentation to both Plans because they use the same actuarial tables issued by the Florida Retirement System. She reviewed other details of the draft schedule. She explained that because the June meeting only had one presenter, that presenter was moved to another date SO that meeting could be cançelled. A discussion ensued regarding moving the July meeting from the 12th to the 26th to allow Graystone Consulting sufficient time to compile second quarter performance for presentation to the Board, and rearranging fund managers to have no more than two when the Plan had a meeting at the same date as the POPP BOT. Trustee Nicholas made a motion to approve the 2021 meeting schedule with the July meeting being scheduled for July 26 and limiting the number of fund manager presenters at the September, October, and December meetings to two. Trustee McVaugh seconded the motion. The motion carried unanimously. Attorney Christiansen suggested having a fund manager present on the same date as Mauldin & Jenkins. 9.3. Presentation and Discussion Re: Declaration of the Rate of Return. Presenter: Chair Chapdelain, via teleconference. Chair Chapdelain confirmed the Plan's actuary, Pete Strong of Gabriel Roeder Smith, was in attendance telephonically at the meeting. Chair Chapdelain noted that at the Board's June 2020 meeting, it had discussed reducing its declared rate of return by 5 to 20 basis points at a later time in the year to allow for performance results to be incorporated; the declared rate of return is currently 6.8%. Mr. Owens advised he does not have the 2020 fiscal year end performance results, but conservatively estimated, based on the amounts he had sO far, a 3-4% return on a fiscal year-to-date basis. Mr. Strong stated he believed, considering a gain in actuarial valuation of assets due to be smoothed in this year, the Plan may have a neutral year for investment returns to be recognized in the valuation. That notwithstanding, Mr. Strong stated the new Florida Retirement System (FRS) mortality tables represented a significant cost decrease and would be comparable to reducing the assumed investment retumn rate by approximately 20 basis points. He stated he recommends all clients reduce their investment return assumptions whenever that can be done in a cost-neutral way, and the Plan's goal should be to reach 6%. He believed it will become more difficult in the future to lower the investment assumption, and the current 10 year forecast for a typical 35/65 allocation is approximately 5.5%. He stated capital forecasts have come down because of low interest rates, where valuations are, and economic outlooks. Mr. Strong stated that a reduction in the investment return assumption to 6.6% would have a neutral assumption change impact for the year, and perhaps a slight cost decrease. Chair Chapdelain expressed support for reducing the assumed rate of return as well as concern for any action which could increase employer contribution requirements for the next fiscal year; Mr. Strong noted a reduction in the assumed rate of return now would be applicable to the 2020 valuation, which would affect the 2022 budget. Chair Chapdelain asked if a 25-basis point reduction would still be cost-neutral; Mr. Strong stated it would likely cause a slight cost increase, 20 basis points would be a slight cost decrease, and a true neutral point would be around 22 basis points. Treasurer Strickland stated she would not support a 25-basis point reduction. Mr. Strong noted that an investment rate of return of 4-6% would result in a neutral position, and other public plans have rates of return in the 5-10% range. Secretary Griggs and Treasurer Strickland discussed Mr. Strong's recommendation to reduce the investment return assumption by 20 basis points as being cost-neutral or possibly a cost reduction, and a 25-basis point reduction would result in a slight increase in cost to the City. Mr. Strong stated that during the valuation, he could compute the exact investment return assumption which would result in a cost-neutral position, although it would look somewhat irregular as iti is typically rounded to the nearest 5 basis point. Book 1 Page 222 10-19-2020 8:30 a.m. Book 1 Page 223 10-19-2020 8:30 a.m. Vice Chair Blake expressed support for reducing the investment return assumption possible while remaining cost neutral. Treasurer Strickland stated she supported a 20-basis point reduction but not more, even if Mr. Strong determined a 22-point reduction would still be cost-neutral. Mr. Strong stated that even a 20-basis point reduction is a reasonable amount as it still trends towards the goal of 6%. He explained the Police Officers' Pension Plan Board of Trustees (POPP BOT) reduced their investment return assumption to 6.75% to offset the FRS mortality impact, with Attomey Christiansen noting the POPP is an open plan. Pension Plans Administrator Martin noted the Firefighters' Pension Plan's investment return assumption is 6.85%. Mr. Strong gave a brief explanation of the FRS mortality tables, how and when they are calculated, and why they present an opportunity to decrease thei investment return assumption. He stated he would need to have a declared rate of retum assumption by the December 2020 meeting to have a valuation completed for the January 2021 meeting. Trustee McVaugh suggested waiting until the December 2020 meeting to declare an assumed investment return rate to obtain more information. Treasurer Strickland agreed. Vice Chair Blake stated that declaring the rate of return today versus December would not have an effect. Attorney Christiansen clarified the Board would need to make a motion to declare a rate of return, or to table the discussion until December. Vice Chair Blake made a motion to declare the lowest assumed rate of return while having a neutral impact on the City of Sarasota's employer contribution rate for the 2020 valuation. Mr. Strong and Mr. Christiansen asked if Vice Chair Blake would clarify the motion to state iti is a cost-neutral assumption impact such that it offsets the FRS mortality tables. Chair Chapdelain asked if there was any benefit to incorporating other Plan experiences into reducing the investment return assumption. Mr. Strong stated that allowing other experiences to factor into the investment return assumption complicate the computation; addressing the FRS mortality tables with the assumed rate of return is more clear, and the other actuarial experiences would flow through as a gain or loss as they are. Vice Chair Blake clarified her motion to offset the rate of return based on FRS Mortality tables to remain cost neutral after the calculation has been done applicable to the October 1, 2020 Plan valuation. Chair Chapdelain seconded the amended motion. The motion fails 2-5 with Treasurer Strickland, Secretary Griggs, Trustee Nicholas, Trustee McVaugh and Trustee Reardon voting against the motion Treasurer Strickland made a motion to table the discussion until the December 2020 meeting. Trustee McVaugh seconded the motion. Mr. Strong confirmed he would be available to attend the December 7, 2020 meeting. The motion carries 6-1 with Chair Chapdelain voting against the motion 10. ATTORNEY MATTERS: Attomey Christiansen reminded Pension Plans Administrator Martin the Plan needs to issue Pension Letter 2 to present ai fiscal year-end report to the City Commission. He also asked Pension Plans Administrator Martin for a copy of the signed Mauldin & Jenkins audit letter. Attorney Christiansen proposed amending the Plan in accordance with revisions to the Internal Revenue Service Code changes effective October 1, 2020. He stated the IRS, and accordingly the Plan, had previously restricted employees who were rehired from drawing retirement funds if the employee was less than 62 years of age, meaning employees under age 62 would not be able to draw a retirement benefit and a salary from employment with the City; the IRS has reduced that age to 59 %. Attorney Christiansen stated this was not a required change, but a permitted change under the IRS Code. Further, Attorney Christiansen stated the IRS increased the minimum distribution age from 70 % to age 72. Vice Chair Blake made a motion to authorize Attorney Christiansen to draft an ordinance change reflecting the IRS Code changes for approval by the City Commission. Trustee McVaugh seconded. The motion carried unanimously (7-0). Attorney Christiansen noted the Governor may not extend his executive order suspending in-person quorums past the end of October, and in-person meetings could be required after November 1. Chair Chapdelain advised the Trustees to prepare for in-person meetings in the future, noting the City Chambers have plexi-glass barriers in place. 11. OTHER MATTERS: Pension Plans Administrator Martin asked the Board to authorize, in the context of the Mauldin & Jenkins annual audit, the use of comparative financial statements on the statements of Fiduciary Net Position and Changes in Fiduciary Net Position. Ms. Martin stated the POPP and Firefighters' Pension Plan have authorized their audits to be performed. Treasurer Strickland voiced her support of approving comparative financial statements. Treasurer Strickland made a motion to present comparative financial statements to Mauldin & Jenkins for the annual Plan audit. Trustee Blake seconded the motion. The motion carried unanimously (7-0). 12. ADJOURN: Chair Chapdelain adjourned the meeting at 10:13 a.m. Sbahi Chair Ryan Chapdelain Secretary/Shayla Griggs Book 1 Page 224 10-19-2020 8:30 a.m.