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12-14-2009 General Employees' Pension Board of Trustees Minutes - Regular Meeting December 14, 2009 Page I ofS CITY OF EDGEW A TER GENERAL EMPLOYEES' PENSION BOARD Regular Meeting MINUTES Monday, December 14,2009 CALL TO ORDER! ROLL CALLillETERMINA TION OF A QUORUM The Edgewater General Employees' Pension Board held its quarterly (regular) meeting on Monday, December 14, 2009 in the City Hall Conference Room at the City of Edgewater, Florida. Members Present: Gigi Bennington John Brackin Brenda Dewees Tyna Hilton Bobby Laramore Jonathan McKinney Tim Sopko None H. Lee Dehner Sheila Hutcheson Mike Welker, Tyler Grumbles, The Bogdahn Group Julie Christine, Personnel Department Tracey Barlow, City Manager Donna Looney, Personnel Director Members Absent: Plan Attorney: Board Administrator: Consultants: City Staff: Chairman Bennington called the meeting to order at II :00 a.m. Members indicated their presence; there was a quorum, with all members present. APPROVAL OF MINUTES - September 14, 2009 Joint Special and Quarterly Meetings; October 12, 2009 and December 3, 2009 Joint Special Meetings Member Hilton made a motion to approve the minutes of the September 14, 2009 joint special and quarterly meetings; October 12, 2009 and December 3, 2009 joint special meetings; Member McKinney seconded the motion, which passed unanimously. NEW BUSINESS Investment managers - allocation offunds for investment by ICC MultiCap and WestEnd Consultant Mike Welker, The Bogdahn Group, recommended a 50/50 split of assets between the two firms. Chairman Bennington asked about volatility; he addressed this, stressing the good blend between the two managers. Member Sopko asked about the frequency of changing the allocations and was told this can be revised by the Board at any time. Member McKinney asked about international investments and Mr. Welker said that he recommends one core manager and referred to the review in his December 3, 2009 report. All the managers shown have exposure to emerging markets. Member McKinney also asked about REIT's and Mr. Welker said that some of the domestic managers have exposure, but not as a General Employees' Pension Board of Trustees Minutes - Regular Meeting December 14, 2009 Page 2 of5 separate asset class. The next markets consider are the core value and real estate products. The allocation recommended was as follows: 22.5% - ICC MultiCap 22.5% - Westend 15% - International 40% - fixed income (bonds) Mr. Welker said that in the next year, the fixed income investments may be reduced to 30% with I 0% invested in real estate. Member Sopko made a motion to allocate the investments 50/50 with WestEnd and ICC MultiCap; Member Dewees seconded the motion, which passed unanimously. Consideration/Approval of Principal Service Agreement (July 2009) Attorney Dehner recommended that the Board not sign any documents with Principal except the Pension Protection Act (PP A) amendment. Consideration of Pension Protection Act (pP A) amendment from Principal Attorney Dehner said this amendment is necessary and he had requested it from Principal at a previous meeting. He recommended that the Mayor should be the official signing the amendment, based on the request from the IRS on other amendments. Member Hilton made a motion to approve the PPA amendment for signature by the Mayor; Member Sopko seconded the motion, which passed unanimously. Approval of quarterly meeting dates - 2010 (all meetings begin at 11 :00 a.m.) March 15,2010 June 7,2010 September 13, 20 I 0 December 13,2010 The Board's consensus was to approve the 2010 meeting dates as listed. Consideration of Summary Plan Description (SPD) from Principal Attorney Dehner recommended issuance of the SPD to plan members if the Board approves it. Member Sopko made a motion to approve the SPD for distribution to all Plan members; Member McKinney seconded the motion, which passed unanimously. The Administrator will notity Principal and request that the SPD's be sent to Personnel Director Donna Looney for distribution. OLD BUSINESS - None. General Employees' Pension Board of Trustees Minutes - Regular Meeting December 14,2009 Page 3 of5 REPORTS (ATTORNEY/CONSULTANTS) The Bogdahn Group, Performance Consultant - Quarterly report - September 30, 2009 Mr. Welker opened by reporting that the quarter was very strong, noting that the fund had grown from $10,244,848 on June 30,2009 to $11,562,349 on September 30,2009. The fund return was 11.98% for the quarter, which outperformed the index. For the calendar year, the return was negative 3.04%, underperforming the index. He commented that the equity investments have slightly outperformed the index, since inception, but the area that has really hurt the overall performance is the fixed income investments, which badly underperformed, and affected the total portfolio returns. Then, he discussed the asset allocation by Principal, noting that it is not very good, with an overweight to bonds (54.0%). The portfolio has been hurt by Principal not increasing the percentage of investments in equities. The Investment Policy Statement (IPS) was approved in October and will guide future investments after the plan is separated from Principal. Mr. Welker said that he will prepare an addendum to the IPS for each manager. Mr. Welker continued with a discussion of international investments and said the two funds he recommends are Manning & Napier (good returns and fees {75 basis points}) and EuroPacific, which is one of the biggest funds with good returns (a very diversified fund with fees at only 57 basis points). He pointed out that Manning & Napier (M&N) is smaller, while EuroPacific is highly diversified and has analysts all over the world. Both are very good, but Mr. Welker said there is a little less risk with EuroPacific than with M&N. He said that the investments in international stocks would total about $1.7million. Member McKinney made a motion to select the EuroPacific Fund for international investments; Member Dewees seconded the motion, which passed unanimously. Mr. Welker said that the EuroPacific Fund is a mutual fund investment that the custodian bank (Salem Trust) will buy (institutional share class). Mr. Welker then reported that there will be about $5million to invest in fixed income investments and he recommended Integrity, which invests in A or better bonds, is conservative, and in Florida its cost is 25 basis points. Alternatively, Davis Hamilton Jackson would be an acceptable fixed income investment manager. Member Hilton made a motion to select Integrity for fixed income investments, subject to contract negotiations by Attorney Dehner; Member McKinney seconded the motion, which passed unanimously. Consideration of fee increase Mr. Welker distributed an analysis of Consultants' fees, which showed that the proposed fee increase is very reasonable compared to other consultants and to Principal's fees (as best can be determined). The firm's fees (guaranteed for three years) will increase from $10,000 per year to $14,500 per year (if all three Boards meet on the same day) and $15,500 per year, if the meetings are on different dates. Member Hilton made a motion to approve the fee schedule as of January 1,2010 (guaranteedfor three years) and to authorize the Attorney to prepare the contract amendment for execution by the Chairman; Member Dewees seconded the motion, which passed unanimously General Employees' Pension Board of Trustees Minutes - Regular Meeting December 14, 2009 Page 4 ofS H. Lee Dehner, Plan Attorney Report on status of Principal contract termination Mr. Dehner first discussed the letter from Principal that had just been emailed to his office after 5:00 p.m. on December II (the Administrator had distributed the letter to the Board for his discussion). The Attorney said he had made several calls and also emailed the Principal Attorney trying to get a response, which did not arrive till this letter after business hours on December II. In the letter, Principal states that the circumstances are not the same as in the other contracts that Attorney Dehner has successfully terminated. Mr. Dehner said the next step should be a discussion with Attorney Konrad at Principal to try to see how determined Principal is to maintain this position. This may lead the Board to consider litigation. The Board stated that they want to terminate the contract as soon as possible and the City Manager asked about the time frame before litigation is considered (litigation could take two years); Mr. Dehner said by mid-January he would hope to have this discussion with Mr. Konrad. If litigation is decided upon, Attorney Dehner said he would have to get a litigator in this area. Member Dewees asked how the Board's contract is different from the Haines City and Auburndale contracts; the Attorney said it is his opinion that the contracts are the same. The legal issue is Principal's fraudulent misrepresentations to the Board of an unconscionable contract. Mr. Dehner said that he would send a written timeline for termination, based on the discussion in the teleconference. He also said that retirees should not be contacted until the process is further along. Attorney Dehner said he would call to check on litigation attorneys if he doesn't hear from Principal by mid-January. In preparation for the teleconference in January with Principal, Mr. Dehner asked the Administrator to have Foster & Foster update the benefit index analysis for both plans for the past fiscal year and to analyze the amount of money lost by their investment strategy assuming the plan had terminated as of October I, 2008, with investments 50% Russell 3000 and 50% Barclays Aggregate (from October I, 2008 - September 30, 2009). He said that it may be necessary to set a special meeting in mid-February (or move the next quarterly meeting to mid- February) with Actuary Brad Heinrichs attending. The Attorney's report continued by advising that the federal legislation on pre-tax treatment for non- public safety retirees' insurance premiums is still pending. The legislation would also eliminate the direct funding requirement for premium deductions and it contains a proposal to index the current $3,000 cap on the amount of premium that would not be subject to income tax. He next advised that Florida Division of Retirement Rule 60T is still on the "back burner" and, if implemented in the future, it will be much better than what was originally proposed. He concluded with a reminder that an IRS survey may be sent and it is mandatory to respond within a certain time frame. Both Principal and Attorney Dehner would have to be involved, along with the City, in the response to the survey. Sheila Hutcheson, Plan Administrator The Administrator reported on the following items. . Fee schedule - $1, I OO/month effective January 1,2010 Member Hilton made a motion to approve the $1,l00.00/monthfee schedule as of January 1,2010 and to authorize the Attorney to prepare the contract amendment for execution by the Chairman; Member Dewees seconded the motion, which passed unanimously. General Employees' Pension Board of Trustees Minutes - Regular Meeting December 14, 2009 Page 5 of5 . FPPT A membership dues for 20 I 0 - $600.00 . Preparation of ordinance by Attorney Dehner (City Manager) The Administrator advised that the City Manager, Personnel Director Donna Looney, and she would work on this to send it to the City Council as soon as possible. . F ASB does not apply to public plans, per discussion with Actuary Brad Heinrichs PROCESSED DISBURSEMENTS/RETURN OF CONTRIBUTIONSIDEPOSITS DISBURSEMENTS I. Sheila Hutcheson, plan administration fees (September - November, 2009) - $2700.00 ($900/month); postage/mileage expense - $11.00 2. Christiansen & Dehner, professional legal fees, $87.00, $2,025.45; $464.00 3. The Bogdahn Group, performance consultant fees, 3rd quarter, 2009 - $2500.00 4. Principal, invoice for preparation of plan amendment (deducted from account)- $500.00 5. Foster & Foster - $2,175.00 6. Florida Municipal Insurance Trust, Fiduciary Insurance Renewal - $3,516.82 DEPOSITS None Member McKinney made a motion to approve items 1, 2, 3, 5, 6 above; Member Dewees seconded the motion, which passed unanimously. It was noted that item 4 was inadvertently included and had already been approved at the September 14, 2009 meeting. TRUSTEES', STAFF, EMPLOYEES', and PUBLIC REPORTS, DISCUSSION and ACTION - None. ADJOURNMENT Member Hilton made a motion to adjourn the meeting; Member Laramore seconded the motion, which passed unanimously. The Chairman adjourned the meeting at 12:50 p.m. Respectfully Submitted: Approved: ~~ Sheila Hutcheson, Plan Administrator