Book 1 Page 439 01-23-2025 8:15 a.m. MINUTES OF THE CITY OF SARASOTA POLICE OFFICERS' PENSION PLAN BOARD OF TRUSTEES REGULAR MEETING OF JANUARY 23, 2025 Present: Chair Johnathan Todd, Vice Chair Ronnie K. Baty, Secretary/Treasurer Shayla Griggs, Trustee Joseph "Jody" Hudgins, and Trustee Tyler Rossnagle. Others: Attorney Stuart Kaufman, Pension Plans Administrator Debra Martin, and Pension Specialist Peter Gottlieb. Absent: None. 1. CALL MEETING TO ORDER: Presenter(s): Chair Todd. Chair Todd called the January 23, 2025, regular meeting of the Police Officers' Pension Plan (Plan) Board of Trustees to order at 8:15 a.m. 2. PLEDGE OF ALLEGIANCE: Presenter(s): Secretary/reasurer Griggs. Secretary/Treasurer Griggs led the Board and meeting attendees in the Pledge of Allegiance. 3. PLEDGE OF CIVILITY: Presenter(s): Chair Todd. Chair Todd 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." 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 Police Officers' Pension Plan Board of Trustees Regular Meeting of December 20, 2024. Presenter(s): Chair Todd. Trustee Hudgins made a motion to approve the minutes of the Board's Regular Meeting on December 20, 2024; Vice Chair Baty seconded the motion. The motion passed unanimously (5-0). 7. RETIREMENT REQUESTS: None. 8. INVESTMENT PERFORMANCE REVIEW: None. 9. UNFINISHED BUSINESS: None. 10. NEW BUSINESS: 10.1.Presentation and Discussion Re: Gabriel, Roeder, Smith, and Company, Actuarial Valuation as of September 30, 2024. Presenter(s): Pete Strong, Consultant and Senior Actuary; Israel Bichachi, ASA, MAAA, Consultant and Actuary; Gabriel, Roeder, Smith, and Company. Pete Strong of Gabriel, Roeder, Smith, and Company (GRS) appeared before the Board, introduced himself, and distributed an informational flyer titled, "What's Happening at GRS." Turning to page A-2 of the Actuarial Valuation report (report), Mr. Strong reviewed the Observed Experience; the predicted equivalent dollar contribution projected for Fiscal Year (FY) ending September 30, 2026, is down from the previous prediction because the City's contribution is a percentage of its payroll, and payroll has increased. Additionally, the funded ratio is calculated using smoothed values of assets and liabilities. He reviewed the actuarial experience and noted that the significant negative returns in 2022 are still being smoothed into the rate of return. To Trustee Hudgins' questions, Mr. Strong advised that the Plan's rate of expected rate of investment return (EROR) of 6.5% is less than those of many of GRS's other clients, which averages between 6.8% and 6.9%; the Florida Retirement System uses 6.7%. He stated that a lower EROR is an easier target to achieve which contributes to the overall health of the Plan because the generated positive actuarial experience increases the funded ratio and reduces long-term costs, however it increases the employer's contribution in the short-term. Mr. Strong reviewed the remaining actuarial experience. The largest negative impacts on the experience were actual salary increases and retiree deaths, both of which differed from their respective projected amounts and created an approximate $1.9 million experience loss; the experience gain was approximately $6.15 million which pushed unfunded liability down by $4 million more than had been projected. Mr. Strong explained how the City's contribution rate was affected by the net effect of demographic changes impacting normal cost and fluctuations in Chapter 185 receipts. Mr. Strong reviewed the Relationship to Market Value, noting the market value of assets now exceeds the actuarial value of assets. In the section titled Variability of Future Contribution Rates, Mr. Strong stated that the investment portfolio's strong returns reduced the City's projected future contribution rate. In the page titled Chapter Review, Mr. Strong discussed how Chapter 185 State monies are used by the Plan to offset the City's required contribution, and excess monies are divided between the City and the Share Plan. Mr. Strong reviewed the page titled Contributions to Finance Benefits of the Pension Fund. The Total Normal Cost is the current cost of the benefits to be provided to active Police Officers when they retire. He noted that, approximately 10 years ago, the Unfunded Actuarial Accrued Liability exceeded the Total Normal Cost. The decrease in the Unfunded Actuarial Accrued Liability is largely attributable to investment returns and increases in payroll. He noted that because Chapter 185 monies vary from year to year, there may be an actual shortfall or excess in the expected covered payroll contribution in FY 2026. Mr. Strong briefly reviewed the Unfunded Actuarial Accrued Liability pages. On the Comparison of Actuarial Value, Market Value and Funded Ratio page, Mr. Strong noted the volatility in the Market Value of Assets caused by the year-to-year changes in the Market Return on Assets; the Actuarial Value of Assets shows a less volatile increase as a result of actuarial smoothing. Referring to the chart on page B-12, Mr. Strong noted Book 1 Page 440 01-23-2025 8:15 a.m. Book 1 Page 441 01-23-2025 8:15 a.m. that the Plan's EROR in 2008 was 8.0%; had the Plan's EROR been 6.5% in 2008, the funded ratio would now be in the mid-70% range. Trustee Hudgins, SecretaryTreasurer Griggs, Attorney Kaufman, Pension Plans Administrator Martin, and Mr. Strong discussed the EROR. Had the Board maintained the 8% EROR since 2008, the subsequent employer contributions would have been considerably less, there would have been more experience losses, and the employer contribution rate would have been trending up over time. Further, the Plan would have received less in employer contributions and therefore less money invested in the market. Mr. Strong asserted that the State of Florida may not accept a retirement plan's valuation with an EROR of 8%. Secretary/Treasurer Griggs and Pension Plans Administrator Martin advised that the City does not typically comment on the Plan's EROR, and instead focuses on the employer contribution amount. Neither Attorney Kaufman nor Mr. Strong knew of any plans in the State which currently have an 8% EROR. Mr. Strong suggested that improved forecasting regarding investment returns, considering the information currently available about investments such as price- to-earnings ratios, growth rates, and base interest rate levels, has allowed plans to reduce their EROR over the last 15 to 20 years. He noted that increased interest rates will make fixed income investments more attractive; more assets invested in fixed income would bring more predictability to future returns. While the FRS has issued commentary in its reports suggesting an EROR of 6.7% may be conservative, it does not recommend plans increase their respective EROR, nor does Mr. Strong know of any plans which have done so. He suggested that a healthy plan should declare an EROR slightly below the rate it anticipates eaming, and that the Plan's current EROR of 6.5% is reasonable, but the Board may anticipate increasing it to 6.7% in the future. He noted that the funded ratio trends upward when the actuarial retum on investment was above 7%, and trends downward when the actuarial retumn was closer to or below 5%. Mr. Strong reviewed the Reconciliation of Plan Assets page, noting the increase in Contributions due to payroll growth, strong net Investment Income, and consistent Benefits from 2023 led to an increase in the Market Value Net of Reserves. On the page titled Development of Actuarial Value of Asset, which shows the smoothing effect on assets and liabilities, Mr. Strong noted that negative cash flow is tyoical for a plan of this age. Further, the Board should anticipate a negative phase-in in FY 2026 because the significant market gains from FY 2021 will have been completely phased in while 1 year remains to phase in the market losses from FY 2022; the future phase-in amounts are predicated on a 6.5% EROR. Mr. Strong briefiy reviewed the History of Investment Return Rates. Mr. Strong advised that the FRS released updated mortality tables in 2024; the prior update was issued in 2019. The 2024 mortality rates are more conservative, meaning they anticipate longer lifetimes and therefore a higher cost of benefits, than the 2019 rates; he was unsure if the, experience study included or excluded COVID-19 related deaths, however it would be reasonable to exclude temporary impacts to mortality considering the tables predict lifespans over the next 120 years. The 2024 tables increase life expectancies by approximately 1 year which translates to an approximate 3% increase in liability to the Plan. Mr. Strong noted that the Plan last conducted an experience study in 2018, and that experience studies should be conducted every 5 to 7 years; he recommended the Board conduct a new experience study of the Plan data GRS has received through October 1, 2024. Ac discussion amongst the Board, Attorney Kaufman, Pension Plans Administrator Martin, and Mr. Strong ensued. Mr. Strong stated that the cost of an experience study would be similar to that of an actuarial valuation as adjusted by the Consumer Price Index. Secretary/Treasurer Griggs and Pension Plans Administrator Martin advised that, although not anticipated in the FY 2025 budget, the Board could approve an adjustment to the budget. While Mr. Strong did not know of any assumptions which are at odds with current experiences, deviations occur; a new experience study would correct those deviations. Turning to the page titled Number Added to and Removed from Active Participation, Mr. Strong noted the differences between the actual and expected numbers of Normal Retirement and DROP, Disability Retirements, Died In Service, and Terminations. A new experience study would help adjust the assumptions to more closely anticipate the actual experiences. Mr. Strong noted there have been differences in actual salary increases as stated on page D-5, compared to the salary assumption. Mr. Strong advised that he will submit more information about the cost of an experience study to Pension Administraticn. Trustee Hudgins made a motion to accept the actuarial valuation as presented by Mr. Strong; Vice Chair Baty seconded the motion. The motion passed unanimously (5-0). 10.2.Presentation and Discussion Re: Declaration of Expected Rate of Investment Return. Presenter(s): Chair Todd. As recommended by Attorney Kaufman, Trustee Hudgins made a motion to adopt an expected rate of investment return of 6.5% for the current year, each of the next several years, and the long-term thereafter; Trustee Baty seconded the motion. The motion carried unanimously (5-0). 11. ATTORNEY MATTERS: Attorney Kaufman reminded the Board that it had pended Officer Michael Pangallo's request for disability benefits until a later date to allow Officer Pangallo to pursue additional treatment modalities; Attorney Kaufman will request any additional records and present them to the Board at a later meeting for its review. Attorney Kaufman noted that, while the Board should conduct any discussion on the matter when Officer Pangallo was present, individual trustees may discuss the matter with Attorney Kaufman outside of a public meeting. The recently signed Social Security Fairness Act removed the Windfall Elimination Provision (WEP), which had reduced the Social Security benefit amounts for people who had both periods of employment during which they contributed to Social Security and periods of employment during which they did not contribute. While the revocation of the WEP is retroactive to January 2024, the implementation may not be completed until later in 2025. There is no new or proposed legislation applicable to municipal pension plans; a bill has been filed proposing retired FRS members who return to work be allowed to continue receiving pension benefits while re-employed. The Internal Revenue Service had changed its regulations to allow in-service distributions. 12. OTHER MATTERS: 12.1.Presentation and Discussion Re: Presentation and Discussion Re: Asset Allocation as of January 16, 2025. Presenter(s): Debra Martin, Pension Plans Administrator. Pension Plans Administrator Martin presented the Asset Allocation. The Board had no questions. 10. ADJOURN. Chair Todd adjourned the meeting at 9:00 a.m. - - / - - V 62 C Chaif Johnathan Todd Secretay/éasurer ShaylaGriggs Book 1 Page 442 01-23-2025 8:15 a.m.