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08-02-2006 - Special Nair' %toe GENERAL EMPLOYEES PENSION BOARD SPECIAL MEETING AUGUST 2, 2006 10 :30 A.M. CITY HALL CONFERENCE ROOM MINUTES CALL TO ORDER: Chairwoman Rhodes called the Special Meeting to order at 10:30 a.m. in the City Hall Conference Room. ROLL CALL: Members present were Harriet Rhodes, Brenda Johnson, Robert Polizzi, Christi Moeller, Rob DeLoach and Tyna Hilton. Also present were Deborah Sigler, Personnel Director; Liz McBride, Assistant City Manager; Dee Finneran, Principal Financial; John Ascherl; Ascherl Financial Services, Mike Welker and Dave West, Bogdahn Consulting, and Kathy Miller, Recording Secretary. Jon Williams, Interim City Manager joined the meeting at 11:37 a.m. APPROVAL OF MINUTES: Special meeting of July 21, 2006 Mrs. Moeller made a motion to approve the July 21, 2006 minutes, second by Mr. DeLoach. MOTION CARRIED 6 -0. NEW BUSINESS: Report by Bogdahn Consultants Mr. Welker gave a quick recap from the last meeting where it was suggested that the investments be reviewed. Mr. Welker indicated that the investment returns were adequate, done a little above the indexes, which was positive. However, looking at the bundled solutions they thought it was better for the Board to look at the actuary piece and the attorney piece as separate components. Mr. Welker advised that what Principal is doing is not wrong, it's not illegal, but what they have seen in other municipalities is that when you separate the two, have a separate attorney and a separate actuary, what is seen is more stability, more transparency and it's more easily understood by the employees and the administrators that are putting on the plan. From that the Board has asked to get some requests for quotes of the different providers, the attorney and the actuary. Mr. Welker then distributed two sheets of paper to the Board members giving different quotes, prices and some information about the different attorney firms they work with. The attorney sheet gives five different attorney firms (see attached). Mr. Welker suggested the Board look at who has had experience with extracting different components of a bundled service. Mr. Welker suggested that the two most experienced, based on plans they represent, are Christiansen & Definer and Sugarmann & Susskind. Mr. Welker Nis" Nose advised that Ken Harrison is the attorney for the Police and Fire Boards so he has some experience with the City. Mr. Welker suggested that the Board hire an attorney on a time basis rather than a retainer. He also advised he had asked the attorneys about the coordination fee as far as if there would be any reduction doing all the plans or just one and the majority said they presented it separately and it would be an hourly rate and would not be able to reduce the cost. However, the cost savings would be the travel time if all the Boards would be able to meet on the same day. The travel time would then be divided by three Boards instead of just the one. There are also Para Legal fees associated with each of them, which ranges from $75.00 - $80.00 an hour. Chairwoman Rhodes asked if any Board member had any opinion on the attorneys. Ms. Johnson requested to hear from Principal to see how this was going to affect the Board's relationship with them. Ms. Finneran addressed the request from Ms. Johnson, saying that she was surprised to learn from a newspaper article that the Board was ready to vote to un- bundled the plan, in particular by one article in the newspaper that we could save about $260,000.00 by doing so. Ms. Finneran advised she could not understand the Board's apparent willingness to think that a smaller contribution to the pension plan is a good thing. She further said there are other cost methods for the actuary to employ. Ms. Finneran said most Board members had met the Board's actuary, Karen Claypool, who was here last August and she too, as any other actuary that the Board might bring in, can modify and change assumptions, if that is what the Board really wants to do, to lower the current costs. However, this does not change the ultimate cost of the pension plan and that is the benefits themselves. It is possible to spread the cost over a longer period of time, but the plan is unique, in the fact that it is a closed group. Ms. Finneran mentioned that in Section 112 -61 F.S.: It is the intent of this act to prohibit the use of any procedure, methodology, or assumptions the effect of which is to transfer to future taxpayers any portion of the costs which may reasonably have been expected to be paid by current taxpayers. Section 112 does allow part of the cost to be spread over thirty years from each valuation. Ms. Claypool has advised the City that based on Florida Statute she didn't think it would be appropriate to spread the cost that far in the future to a closed plan where all the participants will be retired in thirty years. Ms. Finneran said that the youngest employee in the retirement plan is age 34. Under the provisions we currently have in the retirement plan, he is actually eligible to receive his benefits in February of 2026, just twenty years from now. Ms. Finneran indicated that what was most misleading in the newspaper article was the misconception that we can save costs. Over 99% of the cost for the retirement plan is strictly for benefits. The City was sent a letter last October with Principal's pricing structure for the coming year. If the Board hires an outside actuary, the Board will now have separate actuarial fees. Ms. Finneran said we would have to pay for all the future benefits, and that we could certainly have lower costs today but it means we will have the costs for a longer period of time. 2 liame N.? Ms. Finneran also indicated that an actuary's primary responsibility is to the plan participant and Mrs. Claypool, the plan actuary, has no incentive to make her assumptions or her methods conservative, other than her incentive to do what she feels is in the best interest for the plan participants. She does not set assumptions to drive more money to The Principal, as was eluded to in the article. She reports up through the organization to the Chief Actuary, she does not report to Principal's retirement services organization. Mrs. Claypool has professional standards that she is expected to meet as a member of American Academy of Actuaries, which all actuaries must meet these same professional standards and those standards require her to use reasonable assumptions. Ms. Finneran also said that this plan is not subject to ERISA funding standards, and has none of its benefits guaranteed by the Pension Benefit Guarantee Corporation and Mrs. Claypool is required to act on behalf of the plan participant by ERISA. She treats this plan just as she does any other ERISA based plan. Ms. Finneran said that if the Board wants to investigate changing the actuarial assumptions and lowering the cost, the Board should afford the same courtesy to Mrs. Claypool and invite her to visit with the Board. She further said that Mrs. Claypool visited last August, went through the entire actuarial report and met with representatives from the City and made the changes in some of the assumptions in her valuation to try to accommodate some of the costs. Ms. Finneran asked that after having a trusted relationship with Principal for 28 years, shouldn't the Board afford the same courtesy and the same amount of time and consideration the Board has given to the consultant recommendations so that the Board would also hear our current actuary who has been working with the plan for 6 years to address some of the same concerns the Board has, and talk to the Board about the pros and cons of changing assumptions before a final decision is made. Chairwoman Rhodes requested to know who employs Mrs. Claypool. Ms. Finneran advised her salary is actually paid by Principal Life Insurance Company. Chairwoman Rhodes asked if it was Ms. Finneran's opinion that the reason the General Employees Pension Fund does not perform as well as the Fire and Police is that it's a closed fund and there is no other reason? Ms. Finneran advised that it was certainly the primary reason, but she was not familiar with the actual plan benefits in the Fire or Police Plan, but certainly the fact this is a closed plan and has a low retirement age. Chairwoman Rhodes advised that is why the Board hired Bogdahn, to give the Board that evaluation because this plan does not perform like those plans. At one point we were at 40% of salaries the City had to kick in. The Police and Fire are at about 25% which is why the Board has done this. Ms. Finneran said that Mrs. Claypool tried to explain it to the Board last August. Chairwoman Rhodes advised that explaining it doesn't change it. We need to change it. Ms. Finneran asked what the Board is willing to change. Ms. Johnson said that one of the things the Board has continually asked Principal and Bogdahn is how would opening this plan back up affect this plan? Bogdahn's answer is to hire an attorney and an actuarial. 3 • 1•40 Now Ms. Finneran asked if the Board has presented that request to Principal, to Mrs. Claypool to give the Board a quote on what it would be to reincorporate all the general employees back into the plan? Ms. Johnson said she wasn't sure, it had been discussed several times with the Board. Ms. Finneran indicated that the Board had not. Chairwoman Rhodes indicated that Mr. Ascherl has been at the meetings and the Board has asked for answers but didn't get them. There are employees that are still working for the City, retired and collecting a pension. It doesn't say anything in the documents that this could be done. Ms. Finneran indicated that it is in the documents where an employee could retire and continue working, which is under the definition of Normal Retirement Date. Even if the participant is an employee, on his normal retirement date he may choose to have his retirement benefits begin on such date. Chairwoman Rhodes and Mrs. Moeller indicated that it seemed to be unclear and there was conflict. Mr. Ascherl said that the language was not something that Principal created, this is just information that is part of the plan. If the Board wants to change that then the Board is afforded that opportunity, so it seems unfair to criticize Principal on the document when it can simply be adjusted. Chairwoman Rhodes indicated that the Board was not blaming Principal. That was why an attorney was needed, to sort it out and figure out what the document does and doesn't say and when we figure out what it says to put it clearly in the plan so that everybody understands it when they read it. Mrs. Moeller said that it was the understanding that Principal did write the plan. Ms. Finneran said Principal did write the plan and Principal adopted it for the Board so we didn't have to hire an attorney. Chairwoman Rhodes also indicated that it was adopted by the Board. Mr. Ascherl commented that his father has been associated with this plan for about 30 years as an independent objective advisor to the plan, and they have no loyalties to Principal as they are brokers working hard for their clients. Chairwoman Rhodes said she has been on the Board as Chairperson for 5 — 6 years and over that time we have asked questions from Jack Ascherl and we didn't get a response, or we didn't get out needs met. After further discussion, Mrs. Johnson indicated that it seems the Board will still need to retain an independent attorney who is familiar with this to get an opinion on what the document says as far as paying retirees that are still currently working. Mr. Ascherl said Principal has listened to the Board and Principal's recommendation is to unbundle, go independent, and there will be savings initially and will have stability for the long term. That's what the City wants, that's what Principal heard from the City, and to have it consistent over time so it can be budgeted. There will be some slight modifications on the investment aspect. Mrs. Moeller asked Interim City Manager Williams how would the employees that are not in the current plan be affected since we went from the defined to the other plan in 1996? Would we have to buy them back into this plan, would they start at ground zero or 4 Nov • ■.•• would that ten year span just continue status quo and the new employees be brought back into this plan if we opened it up. Interim City Manager Williams said that one of the original thoughts, when we were looking at how to control costs if we opened it up and allowed those in the defined contribution plan to take their assets and put it into the plan, what would that do to this plan? Obviously we'd have a sudden rush of assets in but you'd also have some obligations on the back side of it and we'd have to look at those costs. It had been considered but the Board never formally asked for an actuarial cost to get that but we suggested a number of ways that potentially could help control some of the costs. Mrs. Moeller asked Interim City Manager Williams, "what if the employees don't want to be in the defined benefit plan ?" Ms. Johnson indicated at one time employees had a choice which plan they wanted to be in, if they were not already vested. Interim City Manager Williams indicated he didn't feel we could force them to do so. Chairwoman Rhodes suggested that the Board get an actuarial report from Karen Claypool, hire an actuary and a lawyer. Mrs. Moeller made a motion to hire Christiansen & Dehner to look at the plan and determine what the plan says regarding benefits and for them to give that information to Foster & Foster as a one time actuarial, who I would like to make a motion that we hire, and to also give that information to Principal to compare and to give us an actuarial evaluation based on the information provided by Christiansen & Dehner, second by Mr. DeLoach MOTION CARRIED 6 -0. Chairwoman Rhodes asked who would be doing the actual physical hiring of the attorney. Interim City Manager Williams advised it would be taken before City Council Monday night to ask Council to execute an agreement to hire Christiansen & Dehner and engage Foster & Foster. ADJOURNMENT: With no further business to discuss the meeting was adjourned at 12:10 p.m. Minutes submitted by: Personnel Department 5