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09-15-2008 u u o General Employees' Pension Board of Trustees Minutes - Regular Meeting September 15, 2008 Page I of7 CITY OF EDGEW A TER GENERAL EMPLOYEES' PENSION BOARD Regular Meeting MINUTES Monday, September 15, 2008 CALL TO ORDER! ROLL CALLIDETERMINA TION OF A QUORUM The Edgewater General Employees' Pension Board held its quarterly (regular) meeting on Monday, September 15,2008 in the Conference Room at Edgewater City Hall, 104 N. Riverside Drive, Edgewater, Florida. Members Present: John Brackin Brenda Dewees Tyna Hilton Bobby Laramore Jonathan McKinney Harriet Rhodes Tim Sopko None H. Lee Dehner Sheila Hutcheson Lisa Spanraft, The Bogdahn Group Brad Heinrichs, Foster & Foster Donna Looney, Personnel Director Ken Hooper, Elizabeth McBride Members Absent: Plan Attorney: Board Administrator: Consultants: City Staff: Members of the Public: Chairman Rhodes called the meeting to order at 1: 1 0 p.m. Members indicated their presence; there was a quorum, with all members present. The other attendees introduced themselves. APPROVAL OF MINUTES - Quarterly Meeting - July 21,2008 Member Dewees made a motion to approve the minutes of the July 21, 2008 quarterly meeting; Member Hilton seconded the motion, which passed unanimously. REPORTS (ATTORNEY/CONSULTANTS) The Bogdahn Group - Lisa Spanraft Ms. Spanraft opened her report by noting that the second quarter began on a strong note, but then declined as the quarter progressed. She reported that all indices were down, with a total fund return of negative 2.27% for the quarter, and negative for the year, as well. The stock market doesn't like uncertainty and this has contributed to the downward spiral. The market is officially a bear market, which usually lasts about nine months but when the market comes back from a o General Employees' Pension Board of Trustees Minutes - Regular Meeting September 15, 2008 Page 2 of7 bear market, it does come back positively. The last bear market was in 2002 and it came back very substantially after that period. Next, Ms. Spanraft reviewed the sector environment and performance, noting that growth stocks outperformed value stocks for the quarter, followed by reporting on the asset allocation, which is within appropriate guidelines and requires no change. She continued her report by advising that large cap value was the worst performing stock class and that mid cap growth stocks were positive (+4.38%) for the quarter. Ms. Spanraft continued by reporting the ending value of the portfolio, as of June 30, 2008, was $12, 805,219. The Chairman asked what actions could be taken to effect improvement and could the Board require that Principal increase the investments in equities; Ms. Spanraft said that the Board doesn't have much latitude while with Principal. Chairman Rhodes then asked Attorney Dehner what the Board's options would be and he said that he would have to review the Plan Document in this regard, but suggested that the Board could, at this time, submit a request to Principal to increase the equity investments. Member Hilton made a motion that a letter be sent from the Chairman requesting that Principal increase the investments in equities to the maximum allowed by their investment policy; Member Laramore seconded the motion, which passed unanimously. The Administrator was directed to prepare the letter for the Chairman's signature. u Member Hilton made a motion to mandate that Principal increase the investments in equities if the Attorney's research of the Plan Document indicates that the Board has the authority to do so; Member Laramore seconded the motion, which passed unanimously. City Manager Tracey Barlow asked about Principal's performance in relation to other similar arrangements and Ms. Spanraft said Principal is in the lower percentile in some areas and a little better in some other areas. The universe for comparisons is funds with 50% stocks (with 10% in international equities) and 50% bonds. Ms. Spanraft concluded the report stating that the up market/down market ratios clearly demonstrate the reasons to sever the pension plan from Principal. Foster & Foster (F&F) - Contract for actuarial services (Brad Heinrichs) u Mr. Heinrichs opened his presentation by discussing the contingency fee proposal that he had included in the F&F contract for actuarial services; this would mean that F&F would receive 5% of any amount of funds returned by Principal in excess of what the contract says they are required to return. He referred to the amounts based on the October 1, 2006 Valuation, noting that it would mean Principal would keep $2.3million in excess of the amount necessary to continue to fund the benefits. Recently, F&F and Attorney Dehner were successful in negotiating with Principal to relinquish some additional assets to another agency that terminated their contract. He said that his proposal would mean a fee of 5% of the increased return of monies. Attorney Dehner explained that the legal argument asserted that resulted in the release of the additional money had to do with the Attorney demonstrating that the onerous termination provisions in the contract weren't adequately explained by Principal. The City Manager asked Mr. Heinrichs to discuss the action the Police Pension Board took in this regard; they approved a pure contingency fee for this matter only. In other words, there would be no hourly rate paid and u General Employees' Pension Board of Trustees Minutes - Regular Meeting September 15, 2008 Page 3 of? the only funds F&F would receive for this initiative would be based upon the monies obtained from Principal in excess of the amount needed to continue to fund benefits. Member Hilton asked the Attomey for his input as to the contingency fee arrangement and he advised that no other contracts have yet had this provision, other than the contract just approved by the Police Pension Board, and it is up to the Board to decide if it is in the best interest of the plan Member McKinney made a motion to authorize the Attorney to prepare a contract for execution by the Chairman and Secretary to include, aside from the hourly rate for other actuarial services, a contingency fee of5%for thejirst $1.5million excess returned and 2.5% of any return in excess ofthejirst $lmillion differential, capped at a maximumfee of $95, 000; Member Sopko seconded the motion, which passed unanimously. It was noted that the work performed by F &F that would be eligible for the contingency fee would not be subject to any other charges billed to the Board. u Attomey Dehner advised the Board that he would need to receive information that Principal presented to the Board and/or to the City in meetings when the plan changes were made in 1997 that included the termination provisions that are so adverse to the City. Some of this information had been presented by John Ascherl. The Board Administrator asked Board members and staff to send any information in this regard to her so that she could forward it to the Attomey. Next, Mr. Dehner discussed the process used with Haines City in the termination of their contract with Principal, noting that the change there from the benefit index to direct funding had the same burdensome termination provisions as with Edgewater and the provisions weren't adequately explained to the agency. He would need any information available from the City that would demonstrate that these provisions were not clearly outlined in 1997 when the change was made, so that he could assert this argument with Principal. Mr. Heinrichs then asked the Board to specify what services F&F should be performing while Principal is still considered the plan's actuary. Member Brackin asked for an explanation of the parties responsible for handling various tasks during the process of unbundling from Principal and Ms. Spanraft explained the process. Actuary Heinrichs. asked to be provided any amendments to the plan that have occurred in the past year, since the issue with in-service distributions. Member Dewees made a motion to send a notice to Principal to discontinue the provision of actuarial services, with an accompanying reduction in cost, at such time as F&F executes the contract for actuarial services approved by the Board today; Nfember Laramore seconded the motion; which passed unanimously. H. Lee Dehner, Attorney Q Mr. Dehner opened with a report on legislation, noting that there has not been much activity in this regard but he will keep the Board posted with respect to the proposed expansion to non- public safety retirees of the federal law which allows up to $3000/year of retiree group insurance premiums deducted from retirement checks to be paid on a pre-tax basis. He next discussed provisions of the Pension Protection Act of 2006 and Section 415 compliance and also said that o General Employees' Pension Board of Trustees Minutes - Regular Meeting September 15, 2008 Page 4 of7 he will recommend that the Board consider filing with the IRS for a favorable determination letter for the pension plan at the time that the plan is severed from Principal. The report continued with a brief overview of the rules proposed by Charles Slavin, Actuary, Division of Retirement, which would have serious impact on Cities and Florida public pension plans if passed. He mentioned that there was a public hearing on the proposed rules scheduled in conjunction with the Police/Fire Conference that was supposed to be held in Kissimmee on September 8 -10. The conference was cancelled due to the potential of a hurricane and had been rescheduled to December 1-3, including the public hearing on the rules. Mr. Dehner advised the Board that both he and Actuary Heinrichs would be speakers at the conference on December 1, which would necessitate rescheduling the Board's quarterly meeting; this would be coordinated by the Board Administrator. The Attorney encouraged Board members to attend the conference if they could, not only for the hearing on the rules, but to attend the sessions which apply to General Employee Pension Plans as well as Police/Fire Plans. Member Hilton made a motion to authorize attendance, including lodging, if desired, by any members who are able to attend the Police/Fire Conference in Kissimmee on December 1 - 3, 2008; Member Dewees seconded the motion; which passed unanimously. u The report continued as Mr. Dehner advised that Principal's interpretation of the "safe harbor" issue has not been correct; it does not apply to the retirement age, but to in-service distributions. He discussed the indicia of the IRS in this regard, noting that the IRS has not addressed all of the issues. The Board discussed the illogic of a prohibition against retiring/continuing to work for the same employer while allowing it if working for another public entity, after retiring from the City. Sheila Hutcheson, Board Administrator . Verification that Board is receiving emails/attachments Some members were not able to open attachments, so the Administrator asked that they notify her immediately upon receipt of any email attachment that cannot be opened so that it can be sent in another way. . Discussion - issues related to letter/response from The Principal Ms. Hutcheson advised the Board that Principal has not responded that they would research the "safe harbor" issue; they see this as a City/Board responsibility. However, they have advised that upon signature of the amendment to the Plan Document regarding lump sum benefits (Actuary Brad Heinrichs recommended that the Board request usage of the 1994 Group Annuity Reserve Mortality Rate), the plan restatement can be prepared and then the Summary Plan Q Description, requested by the Board in its letter, will also be prepared. Q General Employees' Pension Board of Trustees Minutes - Regular Meeting September 15, 2008 Page 5 of7 . 415 compliance - Memorandum from Attorney Dehner The Attorney had sent information in this regard to Ms. Hutcheson and he recommended that she forward it to Principal since they are still providing actuarial services at this time. NEW BUSINESS - The Board took a brief recess before this item was considered; Member McKinney did not return to the meeting after the recess due to a departmental issue. Consideration/approval of Rules/Procedures Manual The Attorney had prepared a draft manual and asked for the Board's input as to its comments/changes. Chairman Rhodes asked that each Board Member comment based upon review of the document. The Board's discussion/recommended changes were as follows: ~ . Clarification that Board Secretary is for legal reasons, but the Board wants to ensure that records are also kept by the City Clerk. . Election procedures - specified the number and type of trustees; board terms as three years; and five days for balloting. . Clarification that job descriptions would apply only to employees of the Board; the Administrator's duties are outlined by contract. . Pension fiduciary insurance - the Attorney recommended that the Board should get secure this coverage; the consensus of the Board was to obtain the insurance from the Florida League of Insurance (like the Police Board had) and that the Administrator would proceed in this regard. . Dissolution of marriage rule - the Attorney explained the reasons for including this was to ensure that no orders were entered in a divorce settlement that do not apply to Florida public pension plans. . Actuarial studies for plan members - allows two studies at no cost to the member. . Invoice and other payments can be processed between meetings by two signatures, one of which can be the Administrator, with ratification of payments at the next Board meeting. . Board's mail - handled by the Administrator. . Clarified that terminated members could get a refund of member contributions, but doing so would forfeit any retirement benefit (since all of the plan's members are vested). . Insurance for Board Members when traveling (conferences) - the language will be maintained since it is discretionary. . Clarified that the performance monitor is The Bogdahn Group. . The provision for surveillance on a disability claim is to allow this without alerting the person on whom it would be performed. . The Attorney explained the Board's autonomy, noting that the Board is an independent legal entity. u The Attorney will prepare the final Rules Manual including the changes discussed for the Board's consideration/approval at the next quarterly meeting. u v o General Employees' Pension Board of Trustees Minutes - Regular Meeting September 15, 2008 Page 6 of7 OLD BUSINESS None DISBURSEMENTSIRETURN OF CONTRIBUTIONS and DEPOSITS . DISBURSEMENTS I. Sheila Hutcheson, plan administration fees and postage, July 21 - 31, 2008 - $320.86; August, 2008 plan administration fees - $900.00 2. Christiansen & Dehner, professional legal fees, July 31, 2008 invoice - $2721.22 3. The Bogdahn Group, performance consultant fees, 2nd quarter, 2008 - $2500.00 . DEPOSITS None Member Sopko made a motion to approve the disbursements/return of contributions and deposits; Member Hilton seconded the motion, which passed unanimously. STAFF REPORTS, DISCUSSION, and ACTION None. TRUSTEES' REPORTS, DISCUSSION and ACTION None. REQUESTS FROM THE PUBLICIEMPLOYEES PRESENT - this item on the agenda was heard after the approval of the minutes as a courtesy to Mr. Hooper and Ms. McBride. Elizabeth McBride had requested the opportunity to address the Board regarding the appeal of her retirement benefit calculation from Principal. Ms. McBride was accompanied by Mr. Ken Hooper who made a presentation on her behalf. Ken Hooper opened with a summary of the issue with Ms. McBride's retirement calculation and employment status in 2007, with respect to the inclusion of severance pay for her retirement calculation. He said that Principal first responded that her severance pay would be included, and later said she would have had to have been employed through the end of the fiscal year in order receive the benefit of that additional compensation calculation. Mr. Hooper said he does not find that exclusion in the Principal Plan Document. He mentioned various sections of the Plan Document in this regard. The inclusion of this pay would substantially increase Ms. McBride's monthly retirement benefit and had she known it would not be included, she would have remained actively employed until the end of the fiscal year. The Chairman asked what remedy Ms. McBride is seeking and the remedy is have the Board advise Principal that her severance pay should be included in her retirement benefits and to request a recalculation of her retirement ~ (~ v v General Employees' Pension Board of Trustees Minutes - Regular Meeting September 15, 2008 Page 70f7 amount. It was noted that a change in this instance could also affect other plan members. The Chairman then asked for the Attorney's opinion and he said he would need to review the documents and then report back to the Board at a special meeting. Ms. McBride would be kept informed. It was reported by staff that, in the past, the unused leave was cashed in prior to the fiscal year end. Chairman Rhodes asked if the payment for unused leave was included in other retirees' calculations; it was as it was "cashed in" before September 30 of the year in which they retired. Personnel Director Donna Looney said that the plan has been administered that service credit counts for partial years but not for compensation. The Chairman said that the Board needs to know what Ms. McBride was told and if she was told that she would receive credit for this severance compensation in the calculation of her retirement amount, she should, in fact, receive it. Ms. Looney said that she will give all the records to Attorney Dehner for his review/recommendation. Mr. Hooper asked who is now the official Plan Administrator and was advised that the Board of Trustees is the Plan Administrator. ADJOURNMENT The Chairman adjourned the meeting at 3:58 p.m. Respectfully Submitted: Approved: ~~ yf;m~ _/ ~.ttU4 _ __. Haffiet Rhodes-- .8ee>>.lJA t.. J)EVJbW \// c..~ Chairman Sheila Hutcheson Plan Administrator