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03-16-2009 General Employees' Pension Board of Trustees Minutes - Regular Meeting March 16, 2009 Page 1 of6 CITY OF EDGEW ATER GENERAL EMPLOYEES' PENSION BOARD Regular Meeting MINUTES Monday, March 16,2009 CALL TO ORDER! ROLL CALLIDETERMINATION OF A QUORUM The Edgewater General Employees' Pension Board held its quarterly (regular) meeting on Monday, March 16, 2009 in the City Hall Conference Room at the City of Edgewater, Florida. Members Present: John Brackin Brenda Dewees Bobby Laramore Jonathan McKinney Tim Sopko Harriet Rhodes Tyna Hilton H. Lee Dehner Brad Heinrichs, Foster & Foster Sheila Hutcheson Mike Welker, The Bogdahn Group Mark Conrad, Attorney, and Tonya Niday (by telephone) Donna Looney, Personnel Director Liz McBride Ken Hooper Members Absent: Plan Attorney: Plan Actuary: Board Administrator: Consultants: Principal: City Staff: Claimant: Claimant's Representative: Vice-Chairman Dewees called the meeting to order at I :55 p.m. Members indicated their presence; there was a quorum, with five members present. APPROVAL OF MINUTES - Quarterly Meeting - December 11, 2008 Member Laramore made a motion to approve the minutes of the December 11, 2008 quarterly meeting; Member McKinney seconded the motion, which passed unanimously. NEW BUSINESS Initial Hearing - consideration of claim filed by Liz McBride Principal was contacted by telephone and Attorney Dehner outlined the procedure for the initial hearing pursuant to the claims procedure that had been adopted by the Board (Rule 14). This stage is an informal hearing which can proceed to a more formalized process. Ms. McBride requested this hearing to make a claim of estoppel, involving a statement of fact, her reliance on the information, and that her reliance was justifiable; i.e., she had no reason to believe the information provided by Principal was a mistake. There were no questions on procedure. Ms. McBride's presentation was made by Ken Hooper, who opened by advising that Ms. McBride was employed from November 1992 till June 2007 and she had an employment contract. There was a General Employees' Pension Board of Trustees Minutes - Regular Meeting March 16, 2009 Page 2 of6 separation agreement at the time her employment ended and the member pension contributions were deducted from the separation pay. Additionally, there was a payment of unused leave benefits, the number of hours of which Ms. McBride could have used to ensure that her service date would be past the September 30 date referenced in the Pension Plan. Mr. Hooper stated that the Plan Document is not written well and is confusing. The issue is that at the time of her separation from service, there was an email written to Principal asking specifically if her retirement would be adjusted based on the severance and unused leave benefits pay. In its response to this email.Principal stated that it would be adjusted; accordingly, Ms. McBride signed the separation agreement acting in reliance on the information provided by Principal. The amount of increase in her retirement benefit was about $700.00/month. Mr. Hooper reiterated that Ms. McBride proceeded based on her reliance on the information from Principal; had she known that Principal would not adjust her retirement as stated in their em ail response, she would have ensured that her employment ending date was after September 30. Ms. McBride's request to the Board was to authorize the retroactive payment on her benefit from when she retired (counting this as part of her highest year) until the present time. Mr. Hooper stated that the mistake is Principal answering "yes" to Ms. McBride's question and she made her decision on separation from service acting in reliance on that response. Attorney Dehner asked if any estimates of the amount had been provided to her and she said she had calculated the amount herself. Prior to her separation, she was already retired and working and that is why she asked the question about the inclusion of the severance pay and unused leave. Attorney Dehner summarized that there are two issues: is the last year included and is severance pay included? Mr. Hooper said these two questions were addressed to Principal in the email sent on Ms. McBride's behalf and Principal had responded that the benefit would be recalculated to include both. Then, Mr. Dehner asked Personnel Director Donna Looney if she had any information to provide; she said the email was sent because of the significant amount of money involved in the severance and unused leave payment and it would not be at the end of the fiscal year. Ms. Looney stated that she understood that Principal, by their response, would include it. Attorney Conrad said that Principal is not adversarial to the claimant. He further stated that Principal says that their response was a general response to an inquiry without any specifics (there was no benefit quote updated). He went on to say that Principal's role was to provide general recordkeeping services on behalf of the Plan. Member McKinney asks if there is any guidance from the IRS that might apply to this situation and was told this issue is governed by the Plan Document. Member Sopko asked about any past practice and was told that Ms. McBride was the only retiree who was subject to an employment contract. When Mr. Hooper mentioned some other members, Attorney Conrad said that Principal might not have been told in the past what the termination pay included. Member Dewees asked if Ms. McBride's wages would have included severance pay had she worked till September 30. Mr. Hooper then reviewed the definition of compensation and noted again that the pension member contribution was deducted on the severance pay. Attorney Dehner pointed out that the email from Ms. Looney to Principal clearly specified that Ms. McBride's last check would include a large amount of severance pay. Mr. Conrad then said the email was not sent to the claimant but to Ms. Looney and said the benefits were recalculated and increased (to include service credit) but not to include severance pay. He further said this was a general response and significant information was omitted from the email.Mr. Hooper stated that this was in May; Ms. McBride then met with Personnel Director Looney to specifically address this issue and there were several conversations with Principal in which this was clearly discussed. Attorney Dehner asked about other communications with Principal and Ms. Looney responded that she did talk to Principal in this regard and asked for detail. She stated that one call to Principal was made when Ms. McBride was present in her office. Via telephone, Tonya Niday said the increase in the retirement benefit would be for years of service but not for the amount of compensation and that the member contribution went to offset the cost of the plan. Member Laramore said that if the 2.5% member contribution was paid on the earnings, he thought the benefit should be based on that. Principal again stated that they are only in a General Employees' Pension Board of Trustees Minutes - Regular Meeting March 16, 2009 Page 3 of6 recordkeeping role and any determination of benefits would be based on the Plan Document. They also said that if the Board decides to grant the request from Ms. McBride, it doesn't create an estoppel liability on the part of Principal. However, Attorney Dehner said that Principal may have liability, with which Attorney Conrad disagreed. Member Laramore said this is Principal's responsibility, not the Board's. Mr. Dehner said the decision by Ms. McBride was made based on Tonya Niday's email response. Attorney Conrad then said that Rule 14 puts the burden on Ms. McBride, not Principal, to establish the claim; Mr. Dehner agreed, noting that the Board wanted Principal's input. Then, Mr. Conrad stated that if the Board finds that the claimant acted in reliance on the information provided in the email, the determination is by the Board (Plan), not Principal. Mr. Dehner agreed, and again commented that there are two issues. Member McKinney made a motion to recalculate Ms. McBride's retirement benefit to include severance and unused leave payments retroactive to the effective date in 2007 of her separation from service with the City and to adjust her monthly retirement benefit prospectively; Member Laramore seconded the motion, which passed unanimously. Mr. Dehner advised the Board that after the recalculations have been prepared, the Board can then consider action with respect to Principal. Actuary Brad Heinrichs will prepare the calculations as directed by the Board (no interest will be added). The Plan Administrator will then follow up with Principal to process the adjusted payments to Ms. McBride. Actuary Brad Heinrichs said that he would prepare a separate calculation of the cost to the plan (impact that will be the claim against Principal). At the next meeting, the Board will then discuss any action the Board may want to take against Principal. Attorney Dehner said he would prepare the order of the Board when the date her benefit began has been confirmed and the Actuary will calculate the new monthly benefit amount and the retroactive payment amount. The Administrator asked if the Board wished to continue tape recording the meeting now that the claim hearing was over and the Board said to continue recording. Principal contract amendment (November 2008) for approvaVexecute It was the consensus of the Board to defer consideration of the Principal contract amendment until the June meeting when Principal can attend the meeting and the contract can be reviewed by Mike Welker and the Attorney. Discussion/action: Review of Principal Plan Document provision for member contribution refund with reduced retirement benefit (related to retirement calculation issues) The Plan Administrator discussed the plan provision in both the Police and General plans that allows terminated vested members an option to withdraw their member contributions with a correspondingly lower retirement benefit and limited options; the current plans' language does not, however, provide the same alternative to service retirees. This was brought to the forefront when a Police service retiree (upon entering DROP) asked for the alternate calculation (with refund of his member contribution) and it was determined that the plan document does not allow this, although Principal had provided it to another Police service retiree. Personnel Director Donna Looney said that there has been one terminated, vested General Plan member who has withdrawn the member contribution, with no alternate future benefit calculation provided by Principal. General Employees' Pension Board of Trustees Minutes - Regular Meeting March 16, 2009 Page 4 of6 Attorney Dehner advised that the current document specifies that terminated vested members can withdraw the member contribution and have only a life annuity option as their retirement benefit (at a reduced amount to reflect the withdrawal). He said that calculations need to be prepared by the Actuary based solely on the plan document provisions. Member Dewees said that the 2.5% contribution was implemented to provide for earlier retirement and asked it a refund wouldn't void that. The Actuary said it would not, because the benefit is reduced to reflect the withdrawal and actuarial equivalence is maintained. There was discussion about waiting until the plan is separated from Principal, at which time the plan document will be completely restated. It was decided, in the interim, to follow the plan document when preparing calculations. The Board then asked when the contract with Principal can be terminated. Mr. Dehner advised that the first step is the Actuary's calculation of the amount of money due upon termination and whether or not this was properly represented to the Board/City by Principal. With that information, the Attorney for Principal would be contacted and would be provided evidence of the misrepresentations that led to the Board signing the contract. In order to maximize the amount the Plan would receive from Principal, releases would be obtained from as many retirees as possible for their benefits to be paid by the new plan. This process takes about one year. Mr. Heinrichs said that the contract states that Principal determines the amount of assets their company retains to continue to pay retirees and they won't release the information as to how the amount is calculated. Therefore, it is necessary that Principal advise of this amount; the Actuary can determine the benefit index number from the last report from Principal. Mr. Welker said that he would discuss at the next meeting custodians, investment managers, etc., that may be used when the plan is "unbundled" from Principal. Report from Administrator/Actuary: retirement calculation on tenninated, vested member Ms. Hutcheson reported that she has received a retirement calculation request from a terminated vested member and, in order for the calculation to be prepared, the Actuary must know which mortality table should apply. Principal has not responded to the request for this information, so the Board's direction is needed to proceed with the calculation based on the recommendation that the 1983 mortality table be used. By consensus, the Board authorized the use of the 1983 mortality table for the retirement calculations. Heart Act Operational Summary (Principal) Attorney Dehner outlined the mandatory requirements of the Heart Act which specifies that if a plan member dies in military service, his/her survivor would receive retirement benefits. The optional part of the Act relates to credited service and Mr. Dehner did not recommend that the Board include this provIsIon. Member Sopko made a motion to authorize execution of the Heart Act Operational Summary form from Principal without the optional service credit; Member Brackin seconded the motion, which passed unanimously. Recommendation to City Manager/City Council for Board appointments (the tenns of Trustees Rhodes, Laramore, and Sopko ended on February 5, 2009) The consensus of the Board was to recommend the reappointment of Members Sopko and Laramore, provided Member Laramore's reappointment is approved by the SPEA. Member Rhodes did not wish to General Employees' Pension Board of Trustees Minutes - Regular Meeting March 16, 2009 Page 5 of6 be reappointed. OLD BUSINESS - None. REPORTS (ATTORNEY/CONSULTANTS) The Bogdahn Group - Mike Welker Mr. Welker opened by reporting that Lisa Spanraft is no longer with The Bogdahn Group and that he will be handling the account. He then reviewed the performance, noting that the fund had $] O. ] million as of December 3],2008 and specified the allocation of the portfolio (about 50/50 stocks and bonds). He next discussed the breakdown of styles and that the overall fund performance was negative ] 6.] 4% (net of expenses) for the quarter ending December 3], 2008, compared to the index's negative 9.30% for the quarter. The average manager's performance with this fund's allocation was negative ]3.38%. The historical returns have also been negative and the fixed income investments also had poor performance. Member Dewees asked if the Board should give some sort of direction to Principal for change, but this has been tried before and Principal wouldn't sign the Board's Investment Policy statement. Mr. Welker concluded by advising that he will discuss investment managers and custodians at the June ] 0, 2009 quarterly meeting. Foster & Foster, Actuary Actuary Brad Heinrichs distributed a letter regarding the projection method for development of funding requirements. Since the 2008 Valuation is not yet completed, he recommended that the Board adopt this method so that the City will know it funding requirements for the fiscal year ending September 30, 2009 in a timely manner. Member McKinney made a motion to adopt the projection method outlined in Mr. Heirnirch's letter (contribution requirement of $746,241 for the fiscal year ending September 30, 2009); Member Sopko seconded the motion, which passed unanimously. Presentation: 2008 valuation - the Board deferred this item until the June 10,2009 meeting; Mr. Heinrichs said he would mail the Valuations to Member Dewees for the Board members and one copy to the Plan Administrator. The Board will formally accept the Valuation at the next meeting. H. Lee Dehner, Attorney Mr. Dehner opened his report with an update of legislation, noting that the issue of allowing up to $3,000/year of retiree insurance premiums to be on a pre-tax basis is still pending. With respect the Rule 60T, the Florida Division of Retirement is reviewing the proposed amendments, in conjunction with the input received at the October 2], 2008 public hearing, and there will be some changes made. The Attorney then advised the Board that State Actuary Charles Slavin has retired, which should have a positive impact. He concluded with a reminder that the annual Financial Disclosure Forms must be filed by July 1,2009. Sheila Hutcheson, Boanl Administrator - no separate report General Employees' Pension Board of Trustees Minutes - Regular Meeting March 16, 2009 Page 6 of6 PROCESSED DISBURSEMENTS/RETURN OF CONTRIBUTIONS and DEPOSITS DISBURSEMENTS 1. Sheila Hutcheson, plan administration fees (December, 2008, January, February, 2009) -$2700.00 ($900/month); postage/mileage expense - $24.26 2. Christiansen & Dehner, professional legal fees, $116.00; $1535.31; $87.00 3. The Bogdahn Group, performance consultant fees, 4th quarter, 2008 - $2500.00 4. IRS qualification filing fee - $1000.00 DEPOSITS None Member McKinney made a motion to approve the disbursements/return of contributions and deposits; Member Laramore seconded the motion, which passed unanimously. STAFF REPORTS, DISCUSSION, and ACTION - None. TRUSTEES' REPORTS, DISCUSSION and ACTION Member McKinney reported that the City's consultant, Brown & Brown, will be reviewing insurance programs, including the pension fiduciary insurance. REQUESTS FROM THE PUBUCIEMPWYEES PRESENT The Plan Administrator advised that Fire Pension Board Chairman Jim Jollie had asked for a joint special meeting next month for the three Pension Boards to discuss future issues, based on the market downturn. The Board agreed to participate in the joint meeting. ADJOURNMENT Member McKinney made a motion for adjournment; Member Sopko seconded the motion, which passed unanimously. The Vice-Chairman adjourned the meeting at 4:20 p.m. Respectfully Submitted: Approved: ~ Sheila Hutcheson Plan Administrator (~/jJ~. Chairman