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03-15-2010 Police Pension Board of Trustees Minutes - Quarterly Meeting March 15,2010 Page I of5 CITY OF EDGEWATER POLICE OFFICERS' PENSION BOARD OF TRUSTEES QUARTERLY MEETING MINUTES Monday, March 15,2010 CALL TO ORDER! ROLL CALL/DETERMINA TION OF A QUORUM The Edgewater Police Officers' Pension Board held its quarterly meeting on Monday, March 15,20 I 0 in the City Hall Conference Room at the City of Edgewater, Florida. Members Present: Ferd Heeb Gary Conroy Lawrence Leaf Dan Blazi Kevin Seymour H. Lee Dehner Sheila Hutcheson Mike Welker, The Bogdahn Group (by telephone) Donna Looney, Personnel Director Tracey Barlow, City Manager Members Absent: Plan Attorney: Plan Administrator: Consultants: City Staff: Secretary Conroy called the meeting to order at I :35 p.m. The Administrator called roll and there was a quorum with three members present. APPROVAL OF MINUTES - December 14, 2009 Quarterly Meeting Member Heeb made a motion to approve the minutes of the December J 4, 2009 quarterly meeting; Member Leaf seconded the motion, which passed unanimously. NEW BUSINESS Discussion by City Manager/City Attorney regarding preparation of plan restatement/plan amendments for adoption by City Council The City Manager addressed this item since the City Attorney was unable to attend the meeting. Mr. Barlow said that the staffs research revealed some areas of concern with respect to plan amendments that have not yet been approved by the City Council. Among these items is a guaranteed 6.5% return promised to several DROP participants; this provision is not in the ordinance. Additionally, there is concern as to which plan document Principal is using. The City Manager recommends that the Board authorize the City Attorney and Pension Attorney to work with the City staff/Administrator to address these issues and prepare the submittal to the City Council. Mr. Heeb addressed amendments that had been approved by the Board but not yet approved by the Council and asked for time frame/cost. The City Manager said it could be about six months and the Board would pay the Pension Attorney. Member Heeb made a motion to authorize the Pension Attorney to work with the City Attorney and City staff on the ordinance to adopt the most recent plan document (October J, 2008) and amendments to the plan document; Member Leaf seconded the motion, which passed unanimously on a roll call vote. Police Pension Board of Trustees Minutes - Quarterly Meeting March 15,2010 Page 2 of5 Consideration of Operating Rules Manual The draft document that had been previously submitted to the Board was prepared by Attorney Dehner in 2007. The City Manager stated that Rule 4 should be deleted and that Rule 6 regarding fiduciary insurance should be in accordance with City policy. It was also discussed that in Section 6.2, language needed to be added to specifY "if the insurance is not already afforded through the City" (for elected trustees). Member Heeb asked to defer consideration of the Rules Manual so that he can review the document again. The Board will consider this at the next meeting. OLD BUSINESS - None. REPORTS (ATTORNEY/CONSULTANTS) The Bogdahn Group, Performance Consultant Quarterly report - December 31, 2009 Mr. Welker opened by reporting the portfolio's assets as of ]2/3]/09: $6,878,]64 (an increase from $6,767,820 on 9/30/09). He then noted that Principal still manages the asset allocation and has not changed it to increase exposure in equity investments and this has hurt the performance. The return for the quarter was 3.0] %; for one year, the return was] 8.33%, both of which underperformed the policy. Going back to October ], 2000, the fund has underperformed consistently. Next, ile discussed that $2.2million of the $3.7million in the fixed income investments is related to the benefit index and has to be in conservative investments. He advised that he will prepare an analysis back to 2000 to determine the losses sustained by Principal's investment returns compared to the index for the same time period (this will be used for discussions with Principal on termination of the contract). In response to a question from Member Heeb, he addressed Principal's shortcomings in fixed income investments, stock selection, and asset allocation. Mr. Heeb said he would like to have meetings next year closer to the end of the quarter so that performance information is more timely. Mr. Welker said that once the plan has separated from Principal, he can provide "flash" reports that are more up to date and will email reports as soon as available. He concluded his report with a review of volatility and risk. Consideration ofICC proxy voting guidelines With regard to the proxy voting guidelines of recently hired investment manager ICC, Mr. Welker discussed that this investment is individually owned so there will be notices to vote proxies. The Board relies on ICC to vote those proxies for the Board using their best judgment. ICC uses a service called Risk Metrics, which refers to the AFL-CIO (employee oriented) philosophy in this regard. This is a consistent process and Mr. Welker said there is no problem with the proxy guidelines. ICC provides proxy voting information each year to the Board. Mr. Welker then discussed the Florida statutory requirement regarding investments in scrutinized companies; The Bogdahn Group will be sending a letter to Principal in this regard by the end of this quarter and they will ensure compliance with this requirement. Police Pension Board of Trustees Minutes - Quarterly Meeting March 15,2010 Page 3 of5 H. Lee Dehner, Plan Attorney Report on status of Principal contract termination Attorney Dehner reported that he had just received a response letter from Principal, which stated that they will not release the funds if the contract is terminated, even with releases executed by the retirees. Therefore, the next option is litigation; he has talked to two litigation firms and asked if they will review the Principal contract and advise the Board as to their basis for representation. The firms would be compensated on an hourly basis, but may consider a contingency arrangement depending on potential and actual losses as analyzed by Actuary Brad Heinrichs in a recent study authorized by the Board. Therefore, the Board needs to decide how to proceed and an hourly rate would have to be determined. The Board then discussed the cost and time impact of litigation, and Mr. Dehner said that is unknown at this time. Mr. Welker said that he can go back to 2000 to determine the losses sustained by Principal's investment returns compared to the index for the same time period. He said he would send this analysis by the end of this week to Attorney Dehner so that the litigation attorneys could review it and then let the Board know what the basis of litigation would be, as well as the cost impact and chances for recovery/success. Mr. Dehner said there are two firms that he would consult: Beggs and Lane (Attorney Greg Miller) and Levin Papantonio. Member Conroy and Member Heeb asked about the time frame for such litigation. Attorney Dehner said the litigation attorneys would decide the best way to proceed and would be the best judge of the time required (it could be two to three years, if the case went to litigation). Mr. Dehner continued by stating that he believes that it is best not to terminate the contract at this time, which would trigger annuity purchases by Principal. He recommended that Mr. Welker prepare the historical performance information (back to 2000, as referenced above) for review/analysis by the litigation attorneys. Then, there might be ajoint special meeting with the General Employees' Board attended by the litigation attorneys once they have reviewed the information. Next, Attorney Dehner discussed the Health Care Enhancement for Local Public Servants bill (HELPS-2) which is the program that allows up to $3000/year of insurance premiums by public safety retirees to be on a pre-tax basis, when deducted from the pension checks. A new proposal would allow the retiree to take it off his/her income taxes even if paid direct (not from the pension check) and would also expand to all public sector retirees, not just public safety. If the bill passes, he will advise the Board of steps to implement the program. With respect to Rule 60T, which has been discussed at past meetings, this is still on the "back burner." The Attorney then discussed the current legislative session, which he said has the worst proposals for pension changes he has seen in his thirty+ years of practice. The Florida League of Cities is encouraging participation in defined contribution (DC) plans rather than defined benefit (DB) plans and, also, the merger of local law plans into FRS. The proposed bills are not employee-oriented or Board-friendly. Currently, Police/Fire plans must have a DB plan in order to receive State monies, and all members (other than the Chief, if the plan has an opt-out provision) have to participate. There is a proposal that would allow State monies even if the Police/Fire plans are in FRS or are DC plans. Amendments are also proposed to F.S. Chapter 112, which would increase administrative expenses to plans by requiring certain projections by the Actuary, such as an experience study mandated every five years, instead of as determined by the Board. There is a proposal to F.S. Section 112.66 that would require the Board to prepare a budget and send it to the City each year for the City's approval. This would create a concern by individual Board members as to their fiduciary responsibility to prudently administer the Plan, when it would be up to the City to decide if the Board would have the funds to do so. Underlying the proposals is an effort to prop up FRS and the impetus appears to be the thought that Boards/Cities will decide it is easier to join FRS than to deal with the new requirements, if passed. Police Pension Board of Trustees Minutes - Quarterly Meeting March 15,2010 Page 4 of 5 Another proposal (F.S. Section 112.64) has to do with the benefit limitation. The current ceiling is 100% of final compensation as defined in the local law plan's ordinance. The proposed bill would change the maximum benefit (for members with fewer than ten years service as of July 1, 20 I 0) to 70% of base pay (not compensation as defined by the plan). This would substantially lower the retirement benefit. There is also a bill that includes a proposal to use career average earnings instead of the three-year or five-year average earnings commonly specified in DB plans. Mr. Dehner concluded by stating that it is not likely that all of the proposed legislation will pass, but he encouraged the Board to contact legislative representatives to express opposition to the bills. He will update the Board as to the status of the legislation at the next meeting. He concluded with a reminder to let him know immediately if a survey is received from the IRS, as response is mandatory and time sensitive. Benefit index and Principal returns (analysis by Foster & Foster) - this report had been sent to the Board in January, 20 I O. Status of Milberg contract Attorney Dehner reported that he thought Milberg had sent the signed contract to the Administrator with the few changes he had requested. Ms. Hutcheson said she did not receive it. Member Conroy said he would contact Milberg and ask them to email the signed agreement for execution by the Board. Sheila Hutcheson, Plan Administrator Consideration/Approval of Principal Service Agreement (July 2009) - follow up information from Tonya Niday The Board's consensus was to not execute the Service Agreement and to advise Principal of this decision; the Board has more pressing issues to deal with at this time. The Administrator then reported the following: . Member Blazi's term as an elected trustee ends on June 5, 20 10 - an election will be coordinated. Members Leaf and Conroy have been appointed/elected to new two-year terms until March 17, 2012. . Foster & Foster (F&F) now has all the information from the City to complete the 2009 Valuation and the Valuation will be presented at the June 7, 2010 meeting. F&F will also be preparing the Annual Report. PROCESSED DISBURSEMENTSIRETURN OF CONTRIBUTIONS and DEPOSITS . DISBURSEMENTS I. Christiansen & Dehner, professional legal fees - $87.00, $1165.02; $2824.51 2. Sheila Hutcheson, plan administration fees, (payments on Jan. 1, Feb. 1, & Mar. I, 20 I 0) - $3,300.00 ($1, I OO/month); postage/mileage expense - $22.00 3. The Bogdahn Group, performance consultant fees, 4th quarter, 2009 - $2500.00 4. FPPT A membership dues, 20 I 0 - $600.00 5. American Express (credit card statement) - $2561.00 6. Gary Conroy, per diem for NAPO Conference (Feb., 20 I 0) - $320.00 ($64.00/day) 7. Larry Leaf, per diem for NAPO Conference (Feb., 20 10) - $320.00 ($64.00/day) Police Pension Board of Trustees Minutes - Quarterly Meeting March 15,2010 Page 5 of5 8. Robert Claudio, refund of member contributions - $7763.31 9. Ratification of Ronald Robbins commencement of early retirement as of April I, 20 I 0 - lifetime with first 180 payments guaranteed option, with refund of member contribution . DEPOSITS None Member Leaf made a motion to approve the processed disbursements/return of contributions and deposits; Member Heeb seconded the motion, which passed unanimously, upon a roll call vote. STAFF REPORTS, DISCUSSION, and ACTIONrrRUSTEES' REPORTS, DISCUSSION and ACTION; REQUESTS FROM THE PUBLICIEMPLOYEES PRESENT Member Leaf asked the Board to send a gift to Chairman Blazi for the birth of his baby. Member Conroy said he would use any available American Express account bonus points, and if the points are insufficient, he would pay the difference. Member Leaf made a motion to approve a gift for Chairman Blazi, as noted; Member Heeb seconded the motion, which passed unanimously. ADJOURNMENT The meeting was adjourned at 3:40 p.m. Respectfully Submitted: Approved: ~~ y~ Dan BI Chairman Sheila Hutcheson Plan Administrator