MINUTES OF THE REGULAR MEETING OF THE CITY OF SARASOTA FIREFIGHTERS PENSION BOARD OF TRUSTEES OF MARCH 25, 2015 Present: Chair Michael Hartley, Vice Chair Shelia Roberson, Secretary/Ireasurer Pamela M. Nadalini, and Trustees Charles Joseph and Scott Snow Absent: None. Others Present: Joshua McCoy, Manatee County President Institutional & Government Relationship Manager, SunTrust Bank, Joe Langella, Director, Managed Accounts, Philadelphia International Advisors, LP via telephone conference, Brad Rinsem, President, Chief Executive Officer, Salem Trust Company, Lynn Skinner, Vice President, Salem Trust Company, Kristine Taylor, CPA, Auditor, Bobbitt Pittenger & Company, P.A., Attorney Robert Sugarman, Sugarman & Susskind, P.A., Pension Plans Administrator Thomas Kelley, Pension Analyst Gail Loeffler, and Administrative Specialist Nicole Ackerman 1. CALL' THE MEETING TO ODER: Chair Hartley called the meeting order at 9:04 a.m. 2. PUBLIC INPUT: None. 3. APPROVAL OF MINUTES: On a motion of' Trustee Joseph, and a second of Secretary Nadalini, it was moved to accept the minutes of February 25, 2015. Motion passed unanimously (5-0). 4. PRESENTATION AND DISCUSSION: 4.1. Presentation and Discussion Re: Attendance Report: Secretary Nadalini stated that there were 13 meetings the calendar year of 2014; that Chair Hartley, Vice Chair Roberson, Trustee Snow, and Trustee Joseph attended all meetings; that she only missed one meeting due to a pension conference. On a motion of Vice Chair Roberson and a second by Trustee Snow, it was moved to approve the Attendance Report. Motion passed unanimously (5-0). 4.2. Presentation and Discussion Re: Highlights of Pension Activity for 2014: Chair Hartley presented the Highlights of Pension Activity for 2014 detailing activities related to trustee elections, investment changes, Plan changes, and the Pension Department. Vice Chair Roberson requested that the market rate of return, funded condition and detailed membership information be added to these highlights next year to have a quick look back at the Plan Information. March 25, 2015 1 4.3. Presentation and Discussion Re: Treasurer's Report: Secretary/Treasurer Nadalini presented the Treasurer's Report for fiscal year ended September 30, 2014; that total revenues were $23.5 million and total expenditures were $12.6 million resulting in a net income of$11 million; that the market value of investments was $134.7 million; that the funding ratio of assets was 77.1%; that the net investment return was 15.1%. On a motion of Vice Chair Roberson and a second by Trustee Snow, it was moved to approve the Treasurer's Report for the fiscal year ended September 30, 2014. Motion passed unanimously (5-0). 5. OUESTIONS FROM THE MEMBERSHIP: None. 6. NEW: BUSINESS: 6.1. Presentation and Discussion Re: SunTrust New Implementation Process and New Terms Governing the Treasury Master Management, Agreement: Joshua McCoy, Manatee County President Institutional & Government Relationship Manager of SunTrust Bank, came before the Board to explain the new implementation process and new terms governing the Treasury Master Management Agreement. Mr. McCoy stated that the change is to any new service added by the manner in which it is communicated; that the Board will make approvals of any changes necessary to the agreement; that staff will communicate to bank by sending a copy of the minutes showing the Board approval; that when a change is made to the agreement that only the requested change is made and everything from original agreement will stay the same. Attorney Sugarman stated that based on this new agreement SunTrust can make changes to the agreement with 30 days' notice; that the agreement also allows electronic signature; that if this is allowed there will need to be internal controls put into place to monitor. Further discussion ensued regarding the electronic signature. Mr. McCoy stated that the signature authorization form outlines this choice for the Plan. On a motion of Secretary Nadalini, and a second by Trustee Snow, it was moved accept the SunTrust's new implementation process and new terms of governing the Treasury Master Management Agreement. Motion passed unanimously (5-0). 6.2. Presentation and Discussion Re: Philadelphia International, Advisors, LP: Joe Langella, Director and Managed Accounts of Philadelphia International Advisors, LP, (PIA) was available via telephone conference to discuss the ADR Separate Account Portfolio. Mr. Langella explained that Andrew Williams, the President and Lead Portfolio Manager, is retiring due to health reasons; that the decision was made to dissolve the firm as June 30, 2015 because the firm did not feel that they could move forward without Mr. Wiliams involved. Mr. Langella provided a market update. He stated that the market value of the fund is $6.5 million; that since inception the rate of return is 9.79% versus the benchmark at 9.1%. Secretary Nadalini requested that Mr. Langella provided the fiscal year return and the gains and losses of this Plan. March 25, 2015 2 Chair Hartley asked if there would be active or passive management, Mr. Langella stated there will be active management but that the Consultant will be working quickly to transfer Funds out. Mr. Langella provided a geographic diversification break down and sector positioning, Attorney Sugarman stated that the Board should expedite the replacement process; that there should be a special meeting to accept candidates to be interviewed prior to the next regular scheduled meeting. Vice Chair Roberson stated that she would like the money moved to a holding account in order to protect the Fund's money because PIA has a downward trend in the rate of return over the past few months. 6.3. Presentation and Discussion Re: USFAS Audit Opinion of Fund Custodian Salem Trust Company: Brad Rinsem, President and Chief Executive Officer of Salem Trust Company, and Lynn Skinner, Vice President of Salem Trust Company, came before the Board to discuss the adverse opinion that Salem Trust Company received. Mr. Rinsem stated that he can assure the Board that the assets are all there and where they should be; that they are separate and apart from any other assets in their funds; that the income has been collected; that everything is in order. Hej provided his apology because of how the adverse opinion has caused conçern in this Fund and his other clients. Mr. Rinsem stated that he has over 220 municipal clients throughout the State of Florida; that, there has not been a single instance where assets have been missing or income has not been posted in all ofhis clients that have had their fiscal year end audits. Mr. Rinsem provided background on the conversion and the adverse opinion that was received on Salem Trust Company. Attorney Sugarman invited Kristine Taylor, CPA, Auditor, Bobbitt Pittenger & Company, P.A., to come before the Board to join the discussion. Attorney Sugarman stated that the Fund's audit is complete. In response to Attorney Sugarman's question regarding how the fiscal year ended 2013 audit differed from the fiscal year ended 2014 audit, Ms. Taylor stated that the first draft of the audit was presented in January, prior to this adverse opinion being available; that the audit had an unmodified opinion; that an internal control letter was provided showing no issues; that they did not and have not in the past relied on the SSAE 16 regarding the company; that they perform all their own testing based on their audit risk assessment; that she returned in February, the same morning that the adverse opinion had been issued; that she reviewed the adverse opinion and the testing results; that she went through each testing exception prior to issuing the final audit to determine if this presented a risk to their audit; that she wrote a memo to the file about why the adverse opinion did not provide a risk to the Firefighters' audit. In response to Attorney Sugarman's question regarding whether Ms. Taylor is satisfied with the assets that are shown in the Fund, she stated that she is satisfied that the valuation of the assets that are shown in the report are correct; that the SSAE: reports will not verify if assets are being held; that a financial audit is the only way to verity the assets being held; that the SSAE report is only an audit of internal controls. Mr. Rinsem stated that their financial audit is only of the assets and liabilities of Salem Trust Company; that the assets of a plan are always held in the name of the plan in a separate account. In response to Ms. Taylor's question regarding whether there is a separate audit of the individual plan accounts, Mr. Rinsem stated that Salem Trust does not perform one. March 25, 2015 3 Attorney Sugarman stated that we want to know that the assets that are listed in the account are there and that the valuation of the assets is correct. Ms. Taylor stated that the SSAE report will not determine if assets are in account but that no one can provide complete assurançe. Mr. Rinsem answered that there are two ways to handle this; that Salem Trust issues the statement of funds that it holds; that each investment manager has reçords of all transactions and what they believe to be true in the account; that the consultants should be looking at these to bring them together; that if an asset is missing the manager would notice because they watch the statement's S diligently because the numbers will affect their performance represented to their client; that the consultant would also see a differençe in the performance for each of the funds. Attorney Sugarman stated that the questions are how the Board knows that assets are there when Salem Trust provides a statement and whose responsibility is it to assure the plans that the assets are there. Attorney Sugarman stated that the City's external auditor was requesting that the Board verify that they are satisfied that Salem Trust's statements are correct; that none of the Trustees personally know this information nor could they be expected to know this information; that the Trustees hire personnel to do this for them. Further discussion ensued regarding additional testing to ensure the validity of the assets at Salem Trust. -In response to Attorney Sugarman's question regarding whether there are additional procedures that Ms. Taylor could do to determine if Salem Trust's statements are correct to provide the assurance needed, she stated that the when audit is performed she relies on confirmations from third parties; that for example they would confirm with SunTrust that there are funds in the bank, but they do not audit SunTrust; that she can audit the separate fund that holds the investments; that it would be considered a separate audit not an additional procedure. Attorney Sugarman stated that because Salem Trust received an adverse opinion the City's external auditor could not rely on their internal controls; that they had to rely on the Fund': s internal controls which Bobbitt Pittenger & Company has reviewed and there were no exceptions. Further discussion ensued. Pension Plans Administrator Kelley stated that the City's external auditor was asking for assurançe in the amounts on the Salem Trust statements. In response to Attorney Sugarman's question regarding whether trust companies have audits performed to represent that what is stated is in the trust fund is actually there, Mr. Rinsem stated that there is a daily reconciling process that happens with all accounts; that an external auditor will review what is on Salem Trust's records versus what is in each location where client assets are held; that this is under the fiduciary audit. Pension Plans Administrator Kelley exited the meeting to contact the City's external auditor for further verification. Chair Hartley asked ifthere was a way to verify that the stocks that are stated in the statement were actually in the Firefighters' Fund and that this has been audited to show accuracy. Ms. Taylor stated that that procedure would not be an audit; that is considered aj procedure; that this can be chosen as an additional audit procedure; that stocks in this Fund could be confirmed in US Bank by confirmations; that at some point you have trust the information you are being provided. Secretary Nadalini stated that the City's external auditor is looking for an outside source to provide confirmation oft the Salem Trust statements. March 25, 2015 4 Ms. Taylor asked if the Firefighters' separate account could be confirmed with a third party's information. Mr. Rinsem stated that yes but stated that he would need contact the head of operations to confirm specifically. Pension Plans Administrator Kelley stated that the City's external auditor wanted confirmation of the material accuracies of Salem Trust' s statements; that he was not questioning whether the assets were there. Attorney Sugarman stated the management letter submitted to the City's external auditor was correct. Continued 6.2. Presentation and Discussion Re: Philadelphia International Advisors. LP: Pension Plans Administrator Kelley stated that both Charlie Mulfinger and Scott Owens were traveling and unable to be available via telephone conference; that Mr. Owens was able to speak briefly to answer a few of the Boards questions; that they would be available for a special meeting in order for the Board to make a selection on the foreign manager; that it would not be incorrect for the Board to choose to move the money to ai mutual fund; that they would be out of compliance with their Investment Policy Statement while this was happening. On a motion of Secretary Nadalini, and a second by Vice Chair Roberson, it was moved to terminate the agreement with Philadelphia Investment Advisors and to the move funds to cash. Motion passed unanimously (5-0). 7. OTHER MATTERS: Discussion ensued regarding participating in the Request for Proposal (RFP) for another audit firm with the other Pension Plans. Pension Plans Administrator Kelley explained that General Employees' Pension Plan and Police Officers' Pension Plan are going for an Request for Proposal for next year's audit; that his question is would this Board would be interested in being included with the RFP. Secretary Nadalini stated that she would be in best interested in going out for a RFP to see what services are provided by other audit firms. On a motion of Secretary Nadalini, and a second by Trustee Joseph, it was moved to go out for an RFP with the other City Pension Plans. Motion passed (3-2). Attorney Sugarman stated that Staff should request the audit price in three different ways: one Pension Plan accepting them, two of the Pension Plan's acceptance, or all for all three Pension Plans acceptance of the same auditor. Continued 6.4. Presentation and Discussion Re: USFAS Audit Opinion of Fund Custodian Salem Trust Company: Mr. Rinsem stated that he spoke with to the head of operations and that the trust fund could be compared to the banks holding the: investment; that his external auditor could do this or the Plan's auditor could do this. Discussion ensued regarding how to review the Firefighters' separate account with Salem Trust. Mr. Rinsem stated that an audit of the company would be a significant undertaking; that he could do a review of a particular date oft the positions held in this Fund. March 25, 2015 5 Ms. Taylor explained that US Bank holds specific assets for all the trust funds; that the Firefighters' Trust Fund would be included in that total amount that is held by US Bank. Attorney Sugarman asked if the City's external auditor accepted the management letter that was completed, and Pension Plans Administrator Kelley stated yes, Discussion regarding whether to issue a Request For Proposal (RFP) for another Custodian, and what their role is and what is the consultant'srole. Attorney Sugarman stated that the Board should look to the Pension Staff and the Consultant regarding the type of service that Salem Trust provides and Pension Plans Administrator Kelley stated that the service is fine. Attorney Sugarman continued by stating that the service is not the cause of the discomfort among the Board members; that it is the job of the attorney, custodian, and auditor to give the Trustees a level of comfort; that if they are not comfortable they need to determine what is needed to bring the level of comfort needed. Chair Hartley stated that he is comfortable now since everything fell in line with all the statements and that there were: no discrepancies. Secretary Nadalini stated that the issue is no longer whether there was sufficient internal control; that she is no longer comfortable with the exchange regarding the assurances of whether the assets are where they are supposed to be; that she believes that it is Salem Trust's responsibility to provide the Board with the level of assurance necessary. Attorney Sugarman stated that the Board should ask Bobbitt Pittenger & Company to select one Salem Trust statement within the last six months; that they confirm the assets are being held as the statement states. Ms. Taylor stated that this would be considered an Agreed Upon Procedure report; that they would take a specific representation and provide a separate report with an explanation of what was done and the results of the procedure; that it would not be an audit; that it would be a request based on what is specifically requested. In response to Attorney Sugarman's question regarding if this Agreed Upon Procedure would give the Board the necessary comfort, Secretary Nadalini stated yes. In response to Attorney Sugarman's question regarding if Salem Trust would be able to cooperate with this procedure, Mr. Rinsem stated yes this procedure can be performed; that they will make their daily reconciliations apart of the SSAE 16: report going forward. Further discussion ensued regarding the SSAE 16 report. Attorney Sugarman stated the question is if the Board wants to engage Bobbitt Pittenger & Company to provide the additional Agreed Upon Procedure where they will confirm that the shares that Salem Trust represents are on deposit at the sub custodian, US Bank. Consensus is to have the Agreed Upon Procedure report that Attorney Sugarman discussed to provide the level of comfort needed for the Board. Secretary Nadalini stated that the external auditor should review the separate trust account where the Funds are being held for the Pension Fund; that this assurance is provided going forward. Mr. Rinsem confirmed that their auditor can perform the Agreed Upon Procedure report and provide the findings to the Firefighters' Pension Fund; that Ms. Taylor will review the report to make sure that it addresses the Board's concern. March 25, 2015 6 8. ATTORNEY MATTERS: Attorney Sugarman stated that he has complete confidence in the pension office; that Pension Plans Administrator Kelley has been unrelenting in getting this issue regarding the Salem Trust adverse opinion resolved with the City's external auditor; that Secretary Nadalini has been unrelenting as well as with input and working to make sure requested information is being sent. Attorney Sugarman stated that Shelia Kall requested information regarding ifherb beneficiary pension benefit would stop if she remarried and Attorney Herrera sent email explaining that the only event that would stop the benefit would be her death. Attorney Sugarman stated that the HGK Asset Management agreement should be approved shortly for Chairman's signature. CONTINUED 7. OTHER MATTERS: Trustee Snow stated that he will not be at the next regular scheduled meeting. Secretary Nadalini requested that the Board have a conversation with Charlie Mulfinger, the Plan's consultant, regarding his role and role oft the custodian. Vice Chair Roberson requested that she receive a copy of Salem Trust's SSAB report. Pension Plans Administrator Kelley stated that Pension Analyst Loeffler is retiring after 17 years of service to the City; that her last day at work will be June 30, 2015; that he will be looking at the job description and internal control procedures before bringing it back to the Board for approval. Chair Hartley stated that the Firefighters' Union is in collective bargaining with Sarasota County; that the proposed ordinance regarding the reserve State money will be coming up for discussion in one of the next sessions with the negotiations. 9. ADJOURN. The: meeting adjourned at 11:39 a.m. W ps Wooay nu Chair Michael Hartley Secretary Pamela M. Nadalini March 25, 2015 7