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06-10-2009 General Employees' Pension Board of Trustees Minutes - Regular Meeting June 10, 2009 Page] of5 CITY OF EDGEW A TER GENERAL EMPLOYEES' PENSION BOARD Regular Meeting MINUTES Wednesday, June 10,2009 CALL TO ORDER! ROLL CALLIDETERMINATION OF A QUORUM The Edgewater General Employees' Pension Board held its quarterly (regular) meeting on Wednesday, June 10,2009 in the City Hall Conference Room at the City of Edgewater, Florida. Members Absent: Gigi Bennington John Brackin Brenda Dewees Jonathan McKinney Tim Sopko Tyna Hilton Bobby Laramore H. Lee Dehner Brad Heinrichs, Foster & Foster Sheila Hutcheson Mike Welker, The Bogdahn Group Allen Smith, Principal (by telephone) Donna Looney, Personnel Director Julie Christine, Personnel Department Members Present: Plan Attorney: Plan Actuary: Board Administrator: Consultants: Principal: City Staff: Vice-Chairman Dewees called the meeting to order at 11 :04 a.m. Members indicated their presence; there was a quorum, with five members present. The Board welcomed new trustee Gigi Bennington, who was recently appointed as the City Council Member to serve on the Pension Board. ELECTION OF OFFICERS -This item was deferred at this time. APPROVAL OF MINUTES - Quarterly Meeting - March 16, 2009 Member Sopko made a motion to approve the minutes of the March 16, 2009 quarterly meeting; Member McKinney seconded the motion, which passed unanimously. OLD BUSINESS - None. NEW BUSINESS At the beginning of New Business there was a brief discussion of the process of separation from Principal and the time frame of three to six months to accomplish this. Mike Welker will be working during this time to set up custodial arrangements and money managers and may have a special meeting in this regard. It was also noted that the participation of Member Hilton, Personnel Director Donna Looney, former Personnel Director Debbie Siegler, Attorney Dehner, and Actuary Brad Heinrichs would be very important in the Principal contract termination process. General Employees' Pension Board of Trustees Minutes - Regular Meeting June 10,2009 Page 2 of5 Consideration/Approval of Summary Plan Description (SPD) from Principal Allen Smith, Principal, was contacted by telephone; he was asked to address an overview of the SPD and he emailedTonyaNidaytojointheconferencecaII.Mr.Smith. in the interim, proceeded to the contract amendment (outlined in number 2 below). Since Ms. Niday was not available, further discussion of this item was deferred until the September meeting. Principal contract amendment (November 2008) for approval/execution (deferred from the March 16,2009 meeting) Mr. Smith said that the investments in the proposed contract amendment are already being used and some have been added since October I, 2008. He reviewed some of the investments and their performance. Mr. Dehner asked if it is his recommendation that the Board execute the amendment since the investments are already being used. Mike Welker said that the amendment really is Principal's document and Principal determines the asset allocation. Attorney Dehner said that the Board wants to continue to consider this item and Principal will continue to manage the money at their discretion. Actuary Brad Heinrichs asked what advantage there would be to the Board to sign the amendment and the Board asked Principal to research the impact of not signing it. The Trustees want additional information in order to make an informed and prudent decision and, meanwhile, Principal's management will continue at their discretion. Vice-Chairman Dewees asked about the mechanism for directing the investments and Mr. Smith will follow up with the Board. This information from Mr. Smith will be sent to the Administrator to provide to the Board at the next meeting. Discussion: impact of claim filed by Liz McBride Actuary Brad Heinrichs had prepared a letter outlining the $111,735 cost impact as a result of Principal's actions with respect to Ms. McBride's retirement benefits. Vice-Chairman Dewees asked the Attorney to address this and he said there were two issues in Ms. McBride's claim: service till the end of the fiscal year and the unpaid leave (both separate from and including severance pay). Mr. Heinrichs had calculated this including the service credit and said that he could also calculate the cost impact without the service credit if necessary. The severance pay was the greatest factor in the cost impact of $111,735. It was decided that this issue may be used, along with the many other problems with Principal, for termination of contract arguments; however, Attorney Dehner recommended that a demand letter be sent now to Principal. Member Sopko made a motion to authorize the Attorney to send a demand letter to Principal regarding the cost impact of the Liz McBride claim; Member McKinney seconded the motion, which passed unanimously. REPORTS (ATTORNEY/CONSULTANTS) The Bogdahn Group, Performance Consultant - Mike Welker Quarterly report - March 31, 2009 Mr. Welker opened by reviewing the asset allocation and performance, noting that the fund had $9,284,914 as of March 31, 2009 and specified the allocation of the portfolio (about 39% in stocks and 53+% in bonds). He next discussed the breakdown of styles and reported that the overall fund General Employees' Pension Board of Trustees Minutes - Regular Meeting June 10, 2009 Page 3 of 5 performance was negative 7.57% (net of expenses) for the quarter, compared to the index's negative 5.56% for the quarter. The average manager's performance with this fund's allocation was negative 5.09%. The historical returns have also been negative. He continued that the fixed income investments were negative 13% for one year; this sector should have buffered the performance losses. Principal has performed poorly from an investment perspective, as well as in other areas of responsibility for the Plan. Discussion: custodians, investment managers, etc., that may be used when the plan is "unbundled" from Principal. Mr. Welker reviewed the process his firm uses for recruitment of custodian banking and investment management services, including their research and database. He said that this is a better approach than via internal City procurement. He will coordinate with John McKinney to see if this can be done through The Bogdahn Group's process, based on their contract's provisions. He recommended a special joint meeting (with the Police Board) before the next quarterly meeting to discuss these items specifically. The Administrator will coordinate the meeting with Mr. Welker and the Boards. Member McKinney made a motion to authorize The Bogdahn Group to solicit custodial and money management services (provided the contract with The Bogdahn Group specifies this service); Member Brackin seconded the motion, which passed unanimously. Foster & Foster, Actuary Presentation: 2008 valuation Mr. Heinrichs reviewed the funding outlined in the valuation and advised that the Division of Retirement, going forward, will require funding to be as a percentage of payroll, rather than as a dollar amount. The substantial decrease in the funding requirement is because of the reduction in the number of active members. This resulted from the change that affected those members who were drawing a retirement benefit while still working - they are no longer being counted in the plan. For the current fiscal year ending September 30,2009, the City will contribute $746,271, but next year, the City will be required to fund 28.6% of a smaller payroll amount. The Actuary concluded with a review of the market and actuarial value of assets. Member McKinney made a motion to approve the October 1, 2008 valuation; Member Bennington seconded the motion, which passed unanimously. The Attorney then advised the Board as to the statutory requirement that a declaration of returns be made in conjunction with approval of the valuation. The Board was advised by Mr. Welker that, due to the current market conditions, it is not expected that the fund will meet its 7.5% (net of fees) assumed return this year. However, the total expected annual rate of return will be 7.5 % for the next several years and for the long term. Member Bennington made a motion to accept the recommendation of Mr. Welker that the portfolio may not achieve a return of 7.5% this year, but the expected returns should be 7.5% over the next several years and for the long term; Member Brackin seconded the motion, which passed unanimously. The Administrator will prepare the declaration of returns letter, which will include the documentation that Mr. Welker will send as to the basis for the long-term achievement of the 7.5% return and will forward it to Donna Looney for the Vice-Chairman's signature. It will then be distributed to the Division of General Employees' Pension Board of Trustees Minutes - Regular Meeting June 10, 2009 Page 4 of 5 Retirement, City Manager, Actuary, and The Bogdahn Group. Sheila Hutcheson, Plan Administrator Update on IRS filings and ratification of two amendments filed with response to IRS questions on the qualification submittal Ms. Hutcheson advised the Board that due to the very short time frame for response to the request for additional information by the IRS, it had been necessary for the Vice-Chairman to sign two plan amendments, which she asked the Board to ratifY. The Attorney suggested that the disclaimer placed by Principal at the end of the amendments be lined through and initialed by the Vice-Chairman. Member Sopko made a motion to ratifY the plan amendments, annotated as recommended by the Attorney; Member McKinney seconded the motion, which passed unanimously. Discussion: Review of Principal Plan Document provision for member contribution refund with reduced retirement benefit (related to retirement calculation issues) The Administrator outlined the need to amend the Plan to ensure that the language conforms to the practice of alternate retirement calculations (with and without member contributions) for service retirees and terminated, vested members who later retire; and also to eliminate the provision for a refund of member contribution to a retiree who selected the lifetime option and dies before the amount of benefit paid is equal to his/her member contribution (the plan is not valued to allow this). Member Sopko made a motion to direct Principal to prepare an amendment to the Plan Document to conform the language to the past practice to allow the alternate reduced retirement benefit calculations (reduced by refund of the member contribution); to make the amendment retroactive to cover the former members; and to provide for the elimination of the payout of member contribution to a retiree with lifetime only option if the retiree died before the total amount of member contribution had been paid; Member Bennington seconded the motion, which passed unanimously. Authorization for Attorney Dehner to prepare forms for the plan The Attorney recommended that this be delayed until the Principal contract is terminated; at that time, forms consistent with the Plan as defined in the Plan Document that he will prepare can be issued. Schedule pension boards' joint workshop meeting - The Administrator will work on this with the other Boards. Submittal of plan restatement (approved by the Board on December 11, 2008)/amendments to City Council for adoption by reference The Administrator had met with the City Manager and Personnel Director before the meeting to discuss the need to submit the pension plan document to the City Council for adoption by reference. It was the Board's consensus to proceed and the Administrator will work with the City in this regard. General Employees' Pension Board of Trustees Minutes - Regular Meeting June 10, 2009 Page 5 of5 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 non-public safety retirees' insurance premiums to be on a pre-tax basis is still pending. With respect to Rule 60T, the Florida Division of Retirement is reviewing the proposed amendments, in conjunction with the input received at the October 21, 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 I, 2009. PROCESSED DISBURSEMENTS/RETURN OF CONTRIBUTIONS and DEPOSITS DISBURSEMENTS I. Sheila Hutcheson, plan administration fees (March - May, 2009) - $2700.00 ($900/month); postage/mileage expense - $3.44 2. Christiansen & Dehner, professional legal fees, $290.00; $1797.79 3. The Bogdahn Group, performance consultant fees, 151 quarter, 2009 - $2500.00 4. Foster & Foster, Actuary, Invoice dated April 27, 2009 - $17188.00 5. Processed normal retirement for Roy Jones (former employee), joint and 100% survivor option effective April I, 2009 - $156.58/month 6. Processed early retirement for William Frazier (former employee), joint and 100% survivor option to be effective July I, 2009 - $238.91/month 7. Processed normal retirement for Beverly Kinney-Johnson (former employee), lifetime option effective June 1,2009 - $707.94/month 8. Processed normal retirement for employee Don Bowling, joint and 100% survivor option to be effective July 1,2009 - $1,502.86/month 9. Processed retroactive adjustment ($18,009.64) and increase in monthly retirement benefit to $2,237.94 as of May I, 2009 for Liz McBride (based on outcome of her appeal on March 16, 2009) DEPOSITS None Member McKinney made a motion to approve the disbursements/return of contributions and deposits; Member Bennington seconded the motion, which passed unanimously. TRUSTEES' REPORTS, DISCUSSION and ACTION The Vice-Chairman asked about questions from members on adjustments by Principal for the six months of service in the preceding fiscal year for retirees still working and the Administrator and the Personnel Director reported that they are working on this with the City Manager. ADJOURNMENT There was nofurther business and the Vice-Chairman adjourned the meeting at 1:23 p.m. ~ Approved: ~/./;~ Viet. - hairman ' Sheila Hutcheson, Plan Administrator General Employees' Pension Board of Trustees Minutes - Regular Meeting June 10, 2009 Page 5 of5 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 non-public safety retirees' insurance premiums to be on a pre-tax basis is still pending. With respect to Rule 60T, the Florida Division of Retirement is reviewing the proposed amendments, in conjunction with the input received at the October 21, 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. PROCESSED DISBURSEMENTS/RETURN OF CONTRIBUTIONS and DEPOSITS DISBURSEMENTS 1. Sheila Hutcheson, plan administration fees (March - May, 2009) - $2700.00 ($900/month); postage/mileage expense - $3.44 2. Christiansen & Dehner, professional legal fees, $290.00; $1797.79 3. The Bogdahn Group, performance consultant fees, 1 SI quarter, 2009 - $2500.00 4. Foster & Foster, Actuary, Invoice dated April 27, 2009 - $17188.00 5. Processed normal retirement for Roy Jones (former employee), joint and 100% survivor option effective April I, 2009 - $156.58/month 6. Processed early retirement for William Frazier (former employee), joint and 100% survivor option to be effective July 1,2009 - $238.91/month 7. Processed normal retirement for Beverly Kinney-Johnson (former employee), lifetime option effective June 1,2009 - $707.94/month 8. Processed normal retirement for employee Don Bowling, joint and 100% survivor option to be effective July 1, 2009 - $1,502.86/month 9. Processed retroactive adjustment ($18,009.64) and increase in monthly retirement benefit to $2,237.94 as of May I, 2009 for Liz McBride (based on outcome of her appeal on March 16, 2009) DEPOSITS None Member McKinney made a motion to approve the disbursements/return of contributions and deposits; Member Bennington seconded the motion, which passed unanimously. TRUSTEES' REPORTS, DISCUSSION and ACTION The Vice-Chairman asked about questions from members on adjustments by Principal for the six months of service in the preceding fiscal year for retirees still working and the Administrator and the Personnel Director reported that they are working on this with the City Manager. ADJOURNMENT There was no further business and the Vice-Chairman adjourned the meeting at 1:23 p.m. Respectfully Submitted: ~~ Sheila Hutcheson, Plan Administrator Approved: ~~ J)IQJW' tlr:r hairman r