MINUTES OF THE CITY OF SARASOTA FIREFIGHTERS PENSION PLAN BOARD OF TRUSTEES REGULAR MEETING OF JANUARY 25, 2023 Present: Chair Michael Hartley, Vice Chair Charles Joseph, Secretary/Treasurer: Shayla Griggs, Trustee Scott Snow, and Trustee Heather Mushrush. Others: Pension Plans Administrator Debra Martin and Pension Specialist Peter Gottlieb appeared in person. Attorneys Robert Sugarman and Madison Levine appeared telephonically. Absent: None. 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/reasurer Griggs. Vice Chair Joseph 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 respectfult 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; all trustees were present. 5. PUBLIC INPUT: None. 6. APPROVAL OF MINUTES: 6.1. Approval Re: Minutes of the Firefighters' Pension Plan Board of Trustees Regular Meeting of November 30, 2022. Presenter(s): Chair Hartley. Trustee Snow made a motion to approve the minutes of the November 30, 2022 meeting; Vice Chair Joseph seconded the motion. The motion carried unanimously (5-0). 10. NEW BUSINESS: 10.1. Presentation and Discussion Re: Gabriel, Roeder, and Smith, Actuarial Valuation Report for Fiscal Year Ended September 30, 2022. Book 1 Page 340 1-25-2023 9:00 a.m. Book 1 Page 341 1-25-2023 9:00 a.m. Presenter(s): Brad L. Armstrong, ASA, EA, FCA, MAAA, Senior Consultant and Actuary, Gabriel, Roeder, Smith & Company. Brad Armstrong of Gabriel, Roeder, Smith & Company (GRS) appeared before the Board and introduced himself. Mr. Armstrong discussed Section A-2, Observed Experience, and noted that the recognized rate of investment return of 4. .0% was due to the positive investment growth in 2021 and negative growth during 2022, both of which will be smoothed over 3 years. He noted this is the first valuation since 1996 in which the City of Sarasota (City) will be solely responsible for required employer contributions, as Sarasota County is no longer considered a local employer plan sponsor due to the expiration of the interlocal agreement. Regarding the policy to amortize unfunded liabilities discussed in Comment D on page A-3, Mr. Armstrong noted there will be a longer discussion at today's meeting. Regarding Comment E, he stated that the Market Value of Assets (MVA) of 105.8% as of September 30, 2021 could have triggered a suspension of the State's Chapter 175 monies, however, the MVA as of September 30, 2022 of 89.6%, negated that risk. Mr. Armstrong discussed Risk Measures on page A-9, noting Retiree Liabilities in Column 7 have trended down over the last 3 fiscal years. While he expects this downward trend to continue considering the Plan's closed status, the payment of a 3.5% Cost of Living Allowance will cause Retiree Liabilities to trend down at a lesser rate. He advised that, while Column 8 will likely be removed from future valuations as it is not decision-useful, that Column 10 is critical to monitor in light of the increasingly negative cash flow; he asserted the more negative a plan's cash flow is, the more it will impact a plan's investment policy and asset allocation decisions. Regarding Column 11, Market Rate of Return, Mr. Armstrong noted that the returns in 2021 and 2022, when viewed collectively, were approximately 8%, while the Plan expected a total 13.7% over both years; in that context, the experienced underperformance in 2022 more than offset the outperformance in 2021. Turning to Employer Contribution Projection Based on Alternate Assumptions and Methods, Mr. Armstrong noted that under the current, 1-year amortization policy, the required employer contributions will increase to $14 million in Fiscal Year Ending September 30, 2026. He advised that none of the closed plans he works with currently use a 1-year amortization policy, and some use 8 or 10 year, layered amortization policies. He explained that a "layered amortization" policy means that a new base is opened for the prior year's experiences. Mr. Armstrong asserted the City has a low risk of default and therefore allowing it a longer period of time to pay the Plan's unfunded liability is reasonable, prudent, and within the Board's fiduciary responsibilities as it would minimize contribution volatility. Chair Hartley asked what the Plan's amortization policy was prior to Sarasota County joining as a Plan sponsor, which would have been between 1996 and 2000, as well as for Mr. Armstrong's recommendation to the Board. Mr. Armstrong stated that, while the earliest policy shown on page A-7 was 15 years as of September 30, 2006, the amortization policy likely would have been 20 or 30 years prior to the County joining. He recommends the Board adopt a layered amortization policy, as a closed amortization policy would require the Board to re-address the topic at the end of the amortization term; a 10-year policy would offer more stability and less volatility than a 5-year term. Mr. Armstrong explained that Florida Statutes require closed plans tol have closed amortization periods, however, because they do not require a single amortization period, layered amortization is possible. To' Vice Chair Joseph's questions, Mr. Armstrong stated that under a layered amortization policy, each) year's experiences are separately identified with separate amortization schedules which conclusively pay off each liability. Additionally, he referred to the charts on the Employer Contributions Projection Based on Alternate Assumptions and Methods page of the materials and noted that the 10-year Layered under Alternate 4: shows the most consistent, and stable payment option. To Chair Hartley's and Vice Chair Joseph's questions, Mr. Armstrong recommended the Plan adopt a 10- year layered amortization policy and noted that other pension plans in Florida have adopted that policy. Mr. Armstrong explained the Board would need to revisit the current amortization policy at the end of each amortization period sO that, if the Board adopts a 5-year, single amortization period, it will need to review the policy again in 5 years. To Trustee Mushrush's question, Mr. Armstrong stated that, the decline in funded ratio would not trigger changes in interest or discount rates, as would occur with bonds. Attorney Bob Sugarman appeared before the Board telephonically and introduced himself. He discussed why public sector pension plan sponsors, which lack pricing power and are subject to state aws regarding generation and use of tax revenues, must work to stabilize employer contribution volatility; private pension plan sponsors, however, have more tools available to respond to changing contribution requirements. He explained that the Plan is financially healthy and well-funded, and therefore it does not need to require immediate payments of its liabilities to disburse pension benefits. Further, because the City has guaranteed its pension obligations, the Plan's pension payments are as secure as the City is. He explained that, if the City were to miss a required employer contribution, the State of Florida could assume control over the City's finances, and therefore city commissioners have a significant political incentive to adequately fund employer contributions. While a city could declare bankruptcy to avoid making its pension obligations, Florida law requires the Governor to approve of a city's bankruptcy, which is an additional political disincentive. In these contexts, participants can be confident in the Plan's financial soundness if the Board accepts the actuary's recommendation. He further noted that, because the City will pay interest on the amortized amounts at the assumed rate of investment return, the payments have a guaranteed retum; the same cannot be said for the Plan's investments. Mr. Armstrong agreed. Kelly Strickland, Director of Financial Administration for the City, appeared before the Board and introduced herself. She stated that the City appreciates the Board's consideration of the Plan's impact to the City, as well as that it concurs with Mr. Armstrong's evaluation. She stated that the City's bonds are AA rated with Fitch and AA+ with Moody, and it has a healthy general fund balance with expectations to continue in that manner. Vice Chair Joseph made a motion to adopt a 10 year, layered amortization policy regarding the actuarial valuation as recommended by GRS; Trustee Snow seconded the motion. The motion carried unanimously (5-0). Chair Hartley asked Mr. Armstrong to recompute the valuation using the approved 10-year, layered amortization policy and present it to the Board at the February 22, 2023 meeting. 10.2. Presentation and Discussion Re: GASB No. 67 Plan Reporting and Accounting Schedules for Fiscal Year Ended September 30, 2022. Presenter(s): Brad L. Armstrong, ASA, EA, FCA, MAAA, Senior Consultant and Actuary, Gabriel, Roeder, Smith & Company. Book 1 Page 342 1-25-2023 9:00 a.m. Book 1 Page 343 1-25-2023 9:00 a.m. Mr. Armstrong advised this report is used by the Plan's auditors, and he had no additional prepared remarks about it. Vice Chair Joseph and Chair Hartley asked Pension Administration to review the minimum payable pension for beneficiaries, which is 50% ofeither Step 8, or thet top step, for a firefighter, and if any surviving beneficiary was receiving less than that amount as indicated on page C-10 of the Valuation. Mr. Armstrong noted that he was unsure if the minimum payment to a survivor was further reduced by 66 2/3%. Chair Hartley stated the minimum payment was implemented to ensure survivors received pensions greater than the poverty level. The Board thanked Mr. Armstrong for his presentation. 11. ATTORNEY MATTERS: Attorney Sugarman explained that Attorney Caroline Quill has separated from Sugarman & Susskind to pursue other opportunities; Attorney Madison Levine, who has been with Sugarman & Susskind for 3 years, will represent the Plan as guided by Attorney Sugarman or Herrera. The Board had no questions for Attorney Sugarman or Attorney Levine. 7. INVESTMENT PERFORMANCE REVIEW: 7.1. Presentation and Discussion Re: DePrince, Race, and Zollo; Performance Review as of December 31, 2022. Presenter(s): Nate Rusbosin, Marketing and Client Services; Jason Palma, Client Services; DePrince, Race, and Zollo. Nate Rusbosin and Jason Palma appeared before the Board and introduced themselves and their presentation. Mr. Palma discussed the Firm Overview and U.S. Small Cap Value Investment Team, noting no changes. He reviewed the DRZ Small Cap Value Strategy and explained that while DRZ's minimum required dividend is 1%, the portfolio dividend is 3.1% and is greater than 98% of DRZ's 225 peers in the Small Cap universe; this helps offset lower returns in the current environment. He noted DRZ's buys stocks based on yield, valuation, and fundamental catalyst criteria, and will sell a stock which fails any of the 3 components. He reviewed the Performance as of 12/31/22, noting its outperformance over every timeframe, and thanked the Board for its 20-year history. Mr. Palma explained that DRZ will outperform in when the market favors value and dividends, which has been the case for the last 2 years; accordingly, DRZ has outperformed. Mr. Rusbosin explained that the slides titled Cumulative Risk Factor Attribution (2017-2022), SCV Active Risk Exposures as of 12/31/22, and SCV Portfolio Characteristics as of 12/31/22 act as a report card and demonstrate how DRZ continues to remain faithful to its stated strategy and philosophy. He discussed the Portfolio Positioning as of 12/31/22, noting its underweighted position in Financials is the largest underweight in its history; this is due to declining loan growth in the banking subsector. That notwithstanding, DRZ has found other interesting areas within the Financial sector, such as Cohen & Steers, which is in both real estate and financial sectors, and has benefitted from recent government programs. He reviewed the Top Ten Holdings as of 12/31/22 and Decades of Alpha, noting that a $100 million investment in 1995 would have grown to over $2 billion, while the same amount invested in the benchmark would have grown to only $1.1 billion. To Chair Hartley's questions, Mr. Rusbosin stated that there have been no changes to DRZ's principals, and that the Bartow General Employees and Bartow Police Department, as well as the Ft. Myers Police Department have invested in DRZ's large cap product. He noted DRZ's large cap fund has outperformed that index, but not to the same degree its small cap fund outperformed its respective index. The Board thanked Mr. Rusbosin and Mr. Palma for their presentation. 7.2. Presentation and Discussion Re: Oak Ridge Investments; Performance Review as of December 31, 2022. Presenter(s): Robert McVicker, Executive Vice President & Senior Portfolio Manager, Oak Ridge Investments; John G. itzgibbons, Vice President and Regional Director, North Square Investments. Robert McVicker and John Fitzgibbons appeared before the Board and introduced themselves and their presentation. Mr. Fitzgibbons discussed the slides in the presentation materials titled Portfolio Market Values noting gains in the last quarter of calendar year 2022, Asset Allocation, Performance (Annualized Returns as of 12/31/2022), Current Fiscal Year to Date, Fiscal Since Inception, and Annual Since Inception. Chair Hartley asked Mr. McVickers who Oak Ridge underperformed in 2022 when it! has typically fared better in prior declining markets. Mr. McVickers asserted that while Oak Ridge actually outperformed in 2022, the stocks it holds according toi its philosophy, which are high quality, consistent, repeating revenue stocks, were not favored by the market. He expects Oak Ridge to perform better as inflation comes down which will collapse the nominal Gross Domestic Product (GDP) rate, which is inflation plus GDP. As defensive stocks become favored, he asserted Oak Ridge would perform better. Mr. McVickers discussed Oak Ridge's Investment Philosophy, noting their focus on fundamentals, sustainable earnings growth, and reasonable valuations, and Focus on Earnings. He reviewed the Portfolio Characteristics and Portfolio Positioning, noting why it over- or under-weighted in various sectors. The Board thanked Mr. McVickers and Mr. Fitzgibbons for their presentation. 11. OTHER MATTERS: 11.1. Presentation and Discussion Re: Travel Policy. Presenter(s): Debra Martin, Pension Plans Administrator. Pension Plans Administrator Martin explained that the Board previously approved Vice Chair Joseph's travel to Las Vegas, NV to attend a National Association of Police (NAPO) conference; she requests clarification as to whether the Travel Policy includes coverage of a trustee's rental car while at the conference if that trustee had traveled to the conference by air. She stated that the Travel Policy suggests the Plan would provide coverage of the least expensive travel option, irrespective of the mode of travel, and trustees of other City of Sarasota Pension Plans who have attended NAPO conferences have taken taxis or shuttle services between the airport and hotel. In this context, a car rental would be more expensive than a taxi/shuttle service and appears to not be a reimbursable expense by the Plan. A discussion ensued; Chair Hartley and Trustee Snow expressed support for allowing Plan coverage of rental cars for use while attending trustee conferences. Chair Hartley noted the Travel Policy stipulates the Plan will cover a non-luxury, full size sedan or smaller vehicle. Pension Plans Administrator Martin asked if the Plan would reimburse the cost of rental auto-insurance through the rental agency, as the Plan's travel insurance policy only covers accidental death and dismemberment, accident medical expenses, or temporary or total disability. Chair Hartley noted he rents cars on his personal credit card which carries its own auto-rental insurance. Book 1 Page 344 1-25-2023 9:00 a.m. Book 1 Page 345 1-25-2023 9:00 a.m. Trustee Joseph made a motion, as clarified by Attorney Levine, to clarify the Travel Policy to state that the Plan will provide reimbursement of reasonable automobile rental and expenditures as discussed under Other Expenses; Trustee Snow seconded the motion. The motion carried unanimously (5-0). 11.2. Presentation and Discussion Re: Asset Allocation as of January 13, 2023. Presenter(s): Debra Martin, Pension Plans Administrator. Pension Plans Administrator Martin noted this is presented for the Trustees' information. To Chair Hartley's question, she explained that Pension Administration has implemented control procedures to ensure fund managers confirm receipt of transfer requests, as well as monitor the transfers of funds, SO that adequate account balances are maintained to meet pension expense needs. Pension Administration currently liquidates approximately $1.2 million of the investment portfolio each month for Plan benefit disbursements. 12. ADJOURN. Chair Hartley adjourned the meeting at 11:19 a.m. 66 Bay 0 Cheir Michael Hartley Sec'elary/Tplasurer Shayla Griges