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09-13-2010 General Employees' Pension Board of Trustees Minutes - Regular Meeting September 13, 2010 Page 1 of 4 CITY OF EDGEWATER GENERAL EMPLOYEES' PENSION BOARD Regular Meeting MINUTES Monday, September 13, 2010 CALL TO ORDER/ ROLL CALL/DETERMINATION OF A QUORUM The Edgewater General Employees' Pension Board held its quarterly (regular) meeting on Monday, September 13, 2010 in the City Hall Conference Room at the City of Edgewater, Florida. Members Present: Brenda Dewees Bobby Laramore Jonathan McKinney Tim Sopko John Brackin Gigi Bennington Members Absent: Tyna Hilton Plan Attorney: H. Lee Dehner Board Administrator: Sheila Hutcheson Consultants: Jack Evatt, The Bogdahn Group Principal: Steve Geadelmann (by telephone) City Staff: Donna Looney, Personnel Director Julie Christine, Personnel Department Chairman Bennington called the meeting to order at 11:00 a.m. and there was a quorum, with six members present. APPROVAL OF MINUTES - June 7, 2010 Quarterly Meeting; June 7, 2010 Joint Special Meeting; July 8, 2010 Joint Special Meeting; July 8, 2010 Special Meeting Member McKinney made a motion to approve the minutes of the June 7, 2010 quarterly meeting, June 7, 2010 joint special meeting, July 8, 2010 joint special meeting, and the July 8, 2010 special meeting; Member Laramore seconded the motion, which passed unanimously. NEW BUSINESS /OLD BUSINESS - None REPORTS (ATTORNEY /CONSULTANTS) Principal, Steve Geadelmann Mr. Geadelmann, was contacted by telephone and began his report by stating that the return for the portfolio has been 4.99% for the calendar year through August 31, 2010, which outperformed the indices. The asset allocation remains at 60% in fixed incomes and 40% in equities. He noted that there has been some rebound in the returns, but that the overall equity markets have been volatile. The fund had $11.6 million as of August 31, 2010. Jack Evatt, The Bogdahn Group, asked for some longer -term analysis; Mr. Geadelmann said that the fixed income investments over the last three -year period have had lower returns than desired, but the fixed income return has significantly rebounded in the last twelve to eighteen months. The portfolio return for one year was 30.51 %; negative 1.99% for the past three years; and 1.97% General Employees' Pension Board of Trustees Minutes - Regular Meeting September 13, 2010 Page 2 of 4 for the past five years. The return was 2.7% below the benchmark for the five -year period and was also below the index for the three -year period, but the return exceeds the index for the one -year period. Mr. Evatt asked about the process that was used for the asset allocation determination, and Mr. Geadelmann said the client completes a risk questionnaire and Principal then looks at key investment data, actuarial measures, and other criteria in developing the asset allocation. Mr. Evatt asked for a copy of the risk questionnaire and also asked for the ranges that are used for the target allocations; Mr. Geadelmann said the target allocations are +/ -4 %, +/- 3% or +/- 2 %, depending on the type of investment. He next discussed the REIT's and the queue for withdrawals, stating that no new assets are being invested in this segment (currently, 4.5% of the portfolio is invested in REIT's as of August 31, 2010, {which exceeds the target }). Mr. Evatt then asked about Principal's fees; Mr. Geadelmann said there are underlying management fees, and investment advisory fees (five - seven basis points) in addition to the management fees. The management fees are at about 70 -80 basis points. He next discussed some changes that will be recommended in the equities' investments and Principal's due diligence process. When asked by Mr. Evatt if he is the portfolio manager, Mr. Geadelmann never really answered specifically, but stated that he is responsible for the plan, along with Principal's investment advisors. Mr. Evatt asked who at Principal has the ultimate responsibility for the plan's performance and Mr. Geadelmann said that Principal's Financial Advisors have the responsibility with respect to asset allocation and the specific investments made pursuant to the fund's allocation (60 %/40% in bonds /equities). Again, he never really addressed the question. Mr. Geadelmann also discussed that contract amendments are required for signature only when a whole new investment class is recommended but not when there is only a new sub - advisor. The telephone call was ended at this point. Administrator Sheila Hutcheson asked Mr. Evatt how Principal's fees compare to the fees the fund would have if separated from Principal. He said it would be about a 50% savings in the fees under the new structure. Mr. Evatt noted that it is clear that there is no one person responsible for systematic review and management of this plan's investments. Mr. Evatt asked Attorney Dehner what the timeline would be for a class action suit, and he said it would likely be more than two years. Member Sopko stated that he would urge the Milberg Firm to reach a decision in its evaluation of the feasibility of litigation so that the Board can take action. Member Dewees asked Attorney Dehner about the downside of terminating the Principal contract now and still pursuing litigation through Milberg, which he said would need to be addressed by Milberg in this assessment. Discussion ensued as to the previous issues on the benefit index and Principal's unwillingness to accept the waivers on the benefit index retirees. It was the consensus of the Board to have Attorney Dehner contact Milberg regarding the Board's (and the Police Board's) desire to meet as soon as possible (but no later than six weeks from now) to discuss their recommendations on contract termination. The Board asked Ms. Hutcheson to contact Actuary Brad Heinrichs to ensure his attendance at the meeting with Milberg and to ask him to prepare updated calculations related to contract termination (benefit index costs). The Bogdahn Group, Performance Consultant - Quarterly report - June 30, 2010 Jack Evatt opened by discussing the recent volatility in the market in the past few months. The fund assets were $11,428,770 as of June 30, 2010, compared to $12,118,329 as of March 31, 2010. The return for the quarter was negative 4.41% (net and gross, since it cannot be determined what Principal's fees are), outperforming the index. The fiscal year -to -date return was 2.29% and the one -year return was 14.54 %. Over the long term (three years, five years, and back to 2000), Principal has consistently underperformed. This underperformance is as a result of the allocation of majority of the assets to fixed income investments, in which Principal has underperformed the benchmark. In discussing the economy as a General Employees' Pension Board of Trustees Minutes - Regular Meeting September 13, 2010 Page 3 of 4 whole, he noted that there is $1ltrillion that is not being invested waiting to see the outcome of the elections and based on the concerns regarding government intrusion into business. H. Lee Dehner, Plan Attorney The Attorney opened his report by stating that he has a similar issue to the Liz McBride case (the Board's demand for $111,000 for Principal's incorrect calculation of her retirement benefit) inn a New Smyrna plan, and has talked to a local litigation attorney, Darryl Brock, in this regard. Attorney Brock would be willing to take both plans on a fee basis; Mr. Dehner will report back to the Board when he has more information in this regard. Next, he advised that the IRS has stopped sending out the mandatory surveys that he had previously discussed with the Board. The Attorney discussed the federal bill, HELPS -2, on which he has previously reported. There is some good news in that the proposed bill would expand the $3000 pre -tax treatment of retiree insurance premiums (currently only for public safety retirees) to all public pension plan retirees who retire at normal retirement or upon disability; would allow premiums to be remitted direct to insurance companies; and would index the $3000 so that it would increase periodically. This bill is still in process and he will keep the Board apprised. • Discussion: Disability request by Tonya Elliott - Mr. Dehner said that he had discussed this with the Administrator and Mr. Elliott is not eligible for a disability retirement under the provisions of the plan. Member Dewees asked why she would not be eligible and was advised that when. Ms. Elliott separated employment from the City as a terminated, vested member under the defined benefit pension plan, she didn't apply for disability at that time. She subsequently recovered and was able to return to work at the City, but was then a member of the defined contribution pension plan, which has no disability provisions. She will be eligible for normal or early retirement as a terminated, vested member and the letter that the Administrator will send to her will include this information. • Status of Principal contract - Milberg is still reviewing the records that were furnished by the City and will meet with the Boards at the next quarterly meeting or at a special meeting if their review is completed before the December quarterly meeting. Chairman Bennington .said that she is very concerned about the delay in terminating of the Principal contract, as she believes it is necessary in order, to mitigate continued losses due to underperformance. Attorney Dehner said he has talked to Jonesboro, AK staff and they may, along with others, enter into a class action lawsuit. He has also requested that Milberg this consider in their assessment. Member Sopko asked about the time frame of a class action suit and continued losses to the plan. The Attorney said that the only way litigation makes sense is on a contingent fee basis, with the plan being terminated prior to the suit being filed, rather than continuing the contract while the litigation is ongoing. Member McKinney said that Principal has continued to underperform, with the result that the Police and General Plans are in a much worse position than the Fire plan. The Board asked Ms. Hutcheson to try to expedite the process with Milberg. Member McKinney asked if the monies could be sent to Salem Trust beginning October 1, with The Bogdahn Group making investment decisions, but this cannot until the contract issues with Principal are addressed. The Board's consensus was to continue to move forward with the Milberg evaluation and action as soon as possible. Jack Evatt said the loss has been 4% more than it would have sustained if not invested by Principal, and the management fees would also have been less. Sheila Hutcheson, Plan Administrator • John Brackin was reappointed by City Council on 8/16/10 for a three -year term till 9/10/2013 General Employees' Pension Board of Trustees Minutes - Regular Meeting September 13, 2010 Page 4 of 4 • The terms of appointed Members Dewees, McKinney, and PEA Appointed Member Hilton end on 11/5/10. Ms. Hutcheson said she would notify the City that Members Dewees and McKinney would be willing to continue to serve and she would contact Member Hilton to ascertain her interest. • Attorney Kartalopolous, Milberg, could not attend the meeting due to a court date and will try to attend the December meeting • FPPTA Trustees' School is in September (West Palm Beach). No trustees indicated that they would be able attend. Ms. Hutcheson said that she would email information regarding the Police/Fire Conference that will be held in Orlando in October, in case members might be able to attend. PROCESSED DISBURSEMENTS/RETURN OF CONTRIBUTIONS/DEPOSITS DISBURSEMENTS 1. Sheila Hutcheson, plan administration fees - $3,300.00 ($1100 /month); postage /mileage expense - $20.00 2. Christiansen & Dehner, professional legal fees - $145.00, $1,801.71, $1,132.25 3. The Bogdahn Group, performance consultant fees, 2 quarter, 2010 - $3625.00 4. Fiduciary insurance renewal with PRIA as of October 1, 2010 - $3,306.74 /year (premium guaranteed for three years) DEPOSITS None Member Sopko made a motion to approve the processed disbursements /return of contributions and deposits; Member McKinney seconded the motion, which passed unanimously. TRUSTEES', STAFF, EMPLOYEES', and PUBLIC REPORTS, DISCUSSION and ACTION - None. ADJOURNMENT Member McKinney made a motion to adjourn the meeting; Member Sopko seconded the motion, which passed unanimously. The Chairman adjourned the meeting at 12:28 p.m. Respectfully Submitted: Approved: Sheila Hutcheson, Plan Administrator i 1 / re rnacu_ �� uJ e V I c-¢-