Book 1 Page 75 11-18-2021 10:00 a.m. MINUTES OF THE EMPLOYEE RETIREMENT ACCOUNT COMMITTEE REGULAR QUARTERLY MEETING OF NOVEMBER 18, 2021. Present: Chair Aaron Olson, Vice Chair Jeffrey Vredenburg, Secretary Shayla Griggs, and Member Lauren Sullivan. Others: Pension Plans Administrator Debra Martin and Pension Specialist Peter Gottlieb. Absent: Treasurer Kelly Strickland. 1. CALL THE MEETING TO ORDER: Chair Olson called the meeting to order at 10:01 a.m. 2. PLEDGE OF CIVILITY: Chair Olson 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. Treasurer Strickland was absent. 4. PUBLIC INPUT: None. 5. APPROVAL OF MINUTES: 5.1. Approval Re: Minutes of the Employee Retirement Account Committee Regular Quarterly Meeting of September 9, 2021. Presenter: Chair Olson. Vice Chair Vredenburg made a motion to accept the minutes of the September 9, 2021, meeting; Secretary Griggs seconded the motion. The motion carried unanimously (4-0). 6. QUARTERLY INVESTMENT REPORTS: 6.1. Presentation and Discussion Re: AIG Retirement Services, ERAC Report for Quarter Ending September 30, 2021. Presenter(s): Gregg Hudak, Financial Advisor, Trent Harris, Financial Advisor, and Lilia Pivetta, Relationship Manager, VALIC Financial Advisors, AIG Retirement Services. Mr. Harris and Mr. Hudak appeared before the Committee and introduced themselves. Mr. Harris stated that he enrolled 19 new employees between the last ERAC meeting and November 17, 2021.Mr. Harris stated he has met with over 100 Plan participants over 16 days which he met exclusively with City of Sarasota participants; meetings focused on the transition to the Florida Retirement System (FRS). He continues to use Retirement Pathfinders to compare to participants' estimates using FRS's benefit estimator. Mr. Hudak addressed the ongoing health science fund merger. He explained that VALIC internally categorizes participants' investments using numeric codes and not the publicly available ticker symbols, and that notating a participant's investments is a manual process. Thanks to Mr. Daher's alert, VALIC found that during the conversion from one fund to the other, a processing technician input fund code 7355 instead of 7335. VALIC is undertaking the same corrective process it had so that all monies are returned to their proper allocations, and participants will be made whole with no impact due to VALIC's errors. He stated there are approximately 500 accounts which were affected, of which 302 have been corrected as of November 17, 2021; he anticipates the remaining will be completed by December 15, 2021. He noted that this was a manual process; the conversion for an exchange for multiple funds is more automated with less opportunities for human errors. To Vice Chair Vredenburg's question, Mr. Hudak stated notices will be sent to affected participants on their quarterly statements, although neither he nor Mr. Harris received any calls or requests for information from participants about the last correction. He stated they would also send a formal letter to the City fori its records explaining what happened. Vice Chair Vredenburg asked if VALIC would have identified the issue had the Board not notified it. Mr. Hudak stated that the error went undetected for approximately 4 weeks, however Mr. Harris may have identified it; Mr. Hudak again thanked Mr. Daher for identifying the issue. Chair Olson thanked Mr. Daher for his diligence. Vice Chair Vredenburg asked VALIC/AIG to discuss its onboarding presentation regarding the 457b Deferred Compensation Plan, specifically how it differentiates between investment options which are approved by the Plan versus non-Plan investment options such as Roth IRAS or annuities. Mr. Hudak stated that, as financial planners, VALIC and AIG are professionally qualified to analyze a participant's investment portfolio, and that Mr. Harris has the discretion to make recommendations beyond the participant's employee-related retirement options. Vice Chair Vredenburg asked how an employee would differentiate between the required 401(a) and voluntary 457b) plans sanctioned by the City of Sarasota versus plans which are outside those offered by the City and could generate some form of payment to the financial planner for enrolling a participant. Mr. Hudak explained that they are professionally bound to explain the required 401(a), as well as the superiority of the City's 457(b) plan when compared to IRAS or other types of investments. Mr. Harris added he reviews the 401(a) and 457(b) investment options related to a participant's income from the City, however if a participant has other investments, for example a deferred compensation plan from a previous, non-City of Sarasota employer, he may make independent recommendations regarding that portion of the participant's investment portfolio, depending on his professional judgment. Vice Chair Vredenburg asked how VALIC's and AIG's relationship with the Plan will change considering the transition to the FRS. Mr. Hudak stated that VALIC has other clients which also offer the FRS, and that while there will be no new participants in the defined contribution plan, the deferred compensation plan with VALIC and AIG will still be available to participants and therefore they will continue in their current role. Pension Plans Administrator Martin explained that the new hire/orientation process will no longer have an AIGNALIC presence, and instead Pension Administration has provided a video to the City's Human Resources department which covers each of the deferred compensation vendors; she noted that FRS is handled by Human Resources. The Committee thanked Mr. Hudak and Mr. Harris for their presentation. Book 1 Page 76 11-18-2021 10:00 a.m. Book 1 Page 77 11-18-2021 10:00 a.m. 6.2. Presentation and Discussion Re: Quarterly Investment Analysis Review Ending September 30, 2021. Presenter: Howard Daher, Principal, Daher Capital Group. Mr. Daher appeared before the Board elephonically and introduced himself. Mr. Daher reviewed the economic and market activity for the third quarter of the year, noting that the S&P had modest returns in the third quarter bringing a 9-month return of 16%, although the market continues to rise. He discussed large and small cap stock performances, noting both trail the S&P year-to-date. Difficulties due to the COVID-19 Delta variant, slow economic growth, supply chain issues which could last into 2023, and a generally flat quarter, growth outperformed value and technology drove the S&P. Going forward there are concerns regarding inflation increasing faster than wages, as well as regarding what action the Federal Reserve may take regarding inflation. He noted the Defined Contribution plan offers an inflation-protected bond fund, the American Fund Inflation-Linked Bond Fund; participants have approximately $73,000 invested in it. For 2022, Mr. Daher expects positive gains in the market but not to the degree seen in 2021. Chair Olson asked Mr. Daher to comment on the possibility of a global corporate tax rate, which is being discussed at the United Nations Summit and how it may impact large cap stocks. Mr. Daher noted that corporations are already adjusting their earnings forecasts for anticipated taxes, and therefore large and medium companies may not suffer as significant adverse consequences as they would from rising interest rates. He noted the Chief Executive Officers of Wal-Mart and Target recently announced they do not anticipate passing increased production costs onto consumers; however, smaller, growing companies will suffer more due to higher costs of goods, materials, and labor. Mr. Daher reviewed the Executive Summary and Performance Summary. He discussed the two funds on watch, which have approximately 3% of the Defined Contribution assets. He explained that the DFA Enhanced US Large Company (DFA fund) is ranked in the top 38th percentile in its class, and its net expenses are .15% which also makes it an attractive investment, but it is on watch due to risk factors. Mr. Daher explained why he was not currently concemed with the DFA fund being on watch. Regarding the VALIC Company Small Cap Special Value fund (VALIC fund) has been on watch for 3 consecutive quarters; 11 participants have a total of $55,189 invested in it. While the VALIC fund has returned 55.36% over the last year, it has also underperformed compared to its benchmarks. That notwithstanding, the VALIC fund has lower fees than its peer group, and generally performed better than its peer group over 3, 5, and 10 years. He also recommended keeping VALIC fund on watch in hopes it gets closer to its peer groups' performance. Mr. Daher reviewed the Asset Allocation by Fund, noting that while only 5 funds hold approximately 60% of the assets under management, the portfolio is still appropriately diversified, and more assets are moving into the target date funds. He reviewed the Watch List & Historical Look-Back. The Committee thanked Mr. Daher for his presentation. 7. UNFINISHED BUSINESS: None. 8. NEW BUSINESS: None. 9. OTHER MATTERS: 9.1. Presentation and Discussion Re: 2022 Proposed Meeting Schedule. Presenter(s): Debra Martin, Pension Plans Administrator. Pension Plans Administrator Martin presented the 2022 proposed meeting schedule. The committee members, Mr. Daher, Mr. Harris, Mr. Hudak, and Ms. Pivetta noted they should be available on the proposed dates. Mr. Hudak noted they may have a schedule conflict between the February 17, 2022 meeting and a VALIC regional meeting which has not been finalized yet; should a conflict arise, VALIC could step out of its regional meeting and appear virtually at the ERAC Committee meeting. Vice Chair Vredenburg made a motion to adopt the 2022 proposed meeting schedule. Secretary Griggs seconded the motion. The motion carried unanimously (4-0). Secretary Griggs stated that participation on the Committee requires enrollment in the City's 401(a)Plan, and therefore if a committee member elected to enroll in the FRS Plan, the Committee would, at a subsequent date, need to have a discussion regarding participation. 10. ADJOURN. Chair Olson adjourned the Employee Retirement Account Committee (ERAC) Regular Quarterly Meeting at 10:51 a.m. Lcd Chair Aaron Olson Selfetanyshaylaeridgs Book 1 Page 78 11-18-2021 10:00 a.m.