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01-19-2000 GENERAL EMPLOYEES PENSION BOARD MEETING January 19, 2000 CALL TO ORDER: The General Employees Pension Board meeting was called to order by Chairman Lichter in the City Hall Conference Room, Wednesday, January 19, 2000 at 2:03 p.m. ROLL CALL: Judith Lichter Present Jack Corder Present Lisa Miller Present Eric Bosse Present Kathy Cornelius Present James Hoppe Absent Mike Tenney Present Also present were: Jack Ascherl, Consulting Agent of Record,Mark Cusumano, Principal Group Representative, Donna Looney, Payroll Pension Specialist, Deborah Sigler, Personnel Dir., Ken Hooper, City Manager, Michele Goins,Finance Dir., Terry Wadsworth, Dir. of Environmental Services, Rob DeLoach, Water Plant Supt. APPROVAL OF MINUTES: Ms. Miller questioned the amount of$94,000 written in the minutes under Old Business as the cost for the proposed changes. This was the cost to make the plan actuarially sound, but not for the changes. Mr. Ascherl added that for the Plan I proposal, it would cost $76,000 and the cost for Plan II was $85,2000 additional. Ms. Miller moved to accept the minutes as corrected, being seconded by Mr. Bosse. Motion CARRIED all voting yes. OLD BUSINESS: Mr. Ascherl reviewed the proposed plan changes with the board members. He also reviewed the method Principal used to come up with the cost of these changes. (These proposals and costs are in the attached Actuarial Cost Estimate) Mr. Corder asked if the special risk employees (Fire and Police)were paying for a portion of their benefits. Mr. Ascherl answered they are paying 6% of their salaries and the extra benefits are also funded through a premium tax collected by the State. Mr. Ascherl explained that one adjustment Principal made was to move from an 8% interest assumption to a 7.5%rate. Their philosophy is to be conservative on their assumption. He continued to the bottom of page 2, reviewing the costs of the two proposals. Ms. Miller questioned if this cost is over the life of the plan? Mr. Ascherl answered this is over the life of the plan. Explaining further that these figures are based on 1998 valuation;we don't have this year's valuation figures; it may cost around $94,000 more than it was last year for the same plan. These are all annual contribution figures, they are not a one time shot for the next forty years. He explained how Principal makes the assumptions each year with the information they receive as to current participants' salaries, who retired, etc. Mr. Corder asked about the need to have the interest assumption change to 7.5%. Mr. Ascherl showed the members the report where our interest earnings last year were at around 5%, our assumption was at 8% and Principal is saying it should be 7.5%. If the board wanted to keep it at 8%you can, Principal would probably write a letter stating that they are suggesting that all their clients go with 7.5%. Mr. Bosse commented that the change they are recommending is to protect the City in the event it doesn't perform, the City will have to come up with a large sum to fund the plan. Mr. Ascherl answered this is correct; it is Principal's business to keep the City's plan out of trouble. Mr. Corder stated his concern is when these figures are given to the Council, (approx. $150,000, increase) and if the assumption is dead-on,where is the money going to come from? Mr. Ascherl stated we will be able to tell more when the new actuarial evaluation comes out next month. The October 1999 is the evaluation we are waiting for. Ms. Miller pointed out this is a closed plan, and asked how many years the plan will remain active. Mr. Ascherl answered the plan will remain active until the last person in it retires. Also, the fact that no one is being added to this plan is another reason to lower the assumption. The option of having long term investments moves to having more short term investments. The plan isn't going to cost anymore, it's just they are being conservative with their investments and assumptions. At this time Mr. Ascherl explained a question that came up at a meeting with the members of the Defined Contribution Plan. A few of those people were in this Defined Benefit Plan and are now in that plan and their question was, can anyone freeze the funds from this plan and go into that plan? He explained that the method used in.Defined Benefit Plans for accrual of earnings has a scale where during the last years it takes a turn upwards. In order to guarantee that pension from the Defined Benefit it would cost the City quite a bit. A few years ago he was asked about closing out the entire Defined Benefit Plan and open a Defined Contribution Plan for everybody and at that time the City would have had to come up with over$300,000. He asked what this board's feelings are on him looking into this. Mrs. Sigler told the board members the reason that question came up was the members of the Defined Contribution Plan were originally told they could not invest their own contributions to the Plan, and we were informed today by the Principal representative that they can. Mr. Ascherl added that these contributions are after tax and because of that they are more accessible, so they can borrow on those funds. City Manager Hooper asked if there was any reason this would not be a good idea for the employees? Mr. Ascherl answered the individual would have to do their own calculations and there would be a risk involved depending on the market and their investment decisions. Ms. Goins explained that she understood the question also was of equity by allowing one group of employees to contribute to their retirement fund and another group not having that option. It was pointed out that there are other retirement-type programs that any employee can contribute to, such as ICMA, so that should not be a problem. Ms. Miller pointed out in that plan the individuals are responsible for making their own investment decisions and with our plan it is done for us by professionals. There was more discussion about the investment options the Defined Contribution Plan has. There was more discussion about the assumption rate. The consensus was this is going to be such a minor portion of the calculations that it is not going to make sense to challenge Principal's suggestion. Mr. Ascherl again pointed out that once the report is available some questions will be answered. Mr. Corder questioned the possibility of polling the employees in this plan about making contributions to cover some of the cost for these improvements. Mr. Ascherl went over the percentages and increases for each proposal and stated the funding can come from the City and the participants if that is agreeable. It is really a cash flow cost that is going to increase. Mr. Rob DeLoach asked the board if the plan language allows employees to work passed twenty- five years? The answer was yes, and the calculations were still the same as far as working longer. Chairman Lichter asked if either of these proposals have been brought up to the membership? It was explained that right now,the City is being asked to fund the cost of Plan I and that the motion to this effect was made at the last meeting. Mr. Hooper stated he understands a lot more now to be able to explain to the Council what the proposals are. He added that the earliest the board can get an answer about the money being available for this will be April, and it may be October before a real answer can be given. He asked what the next step for the board is. There was discussion about whether this should be presented to the membership. The consensus was to get all the facts and figures(from the report that is forthcoming)before going to the membership with the information. Mr. Hooper asked Mr. Ascherl to get with Principal and get the information about freezing their account with this pension and moving to the other plan. The board members did not speak in favor of that being an option, but felt the membership should be kept up to date with all the information. NEW BUSINESS: Mr. Ascherl reviewed the Flexible Pension Expense Statement, adding that the overall expenses run about 1/2% per year. Mr. Ascherl gave an overview of the quarterly fund statement, reviewing the investment options and the City's return on each. (See attached report) He explained that the City has a diversified port folio. Mr. Bosse questioned when we should expect to earn money in the General Investment Account? Mr. Ascherl answered this is mostly bonds and not to worry because Principal holds on to the bonds and we are earning the average of 6.65 and 6.95%. Mrs. Sigler called the board's attention to a communication received from Principal concerning increases in expenses. Mr. Ascherl explained this is due to inflation and it is a matter of Principal keeping their clients up to date. Ms. Miller spoke about the fiduciary liability insurance;the Council has defense insurance which pays for an attorney, this does not cover the individual members. She referred to the State Statute which states the plan can purchase fiduciary insurance. Mr. Ascherl answered the board has to do what they are comfortable with,but he knows the legislature has tried to cover every loop hole so members of these type boards would not need this type insurance. The letter from City Attorney Niki Clayton was discussed, and Chairman Lichter agreed to bring this matter to our new attorney's attention and get an opinion. Ms. Miller asked about the plan having to be restated? Mr. Ascherl explained this is done automatically by Principal with the federal changes and you will receive a new document. ADJOURNMENT: Mr. Corder moved to adjourn, being seconded by Mr. Bossee. Meeting adjourned 3:40 p.m. Minutes submitted by: Personnel Department