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06-17-2013 General Employees'Pension Board of Trustees Minutes-Regular Meeting June 17,2013 Page 1 of 5 CITY OF EDGEWATER GENERAL EMPLOYEES' PENSION BOARD Regular Meeting MINUTES Monday, June 17,2013 CALL TO ORDER/ROLL CALL/DETERMINATION OF A QUORUM The Edgewater General Employees' Pension Board held its quarterly (regular) meeting on Monday, June 17, 2013 in the City Hall Council Chambers at the City of Edgewater, Florida. Members Present: Brenda Dewees Tim Sopko John McKinney Tyna Hilton Bobby Laramore Members Absent: Gigi Bennington John Brackin Plan Attorney: H. Lee Delmer Board Coordinator: Julie Christine, Personnel Department Consultant: Jack Evatt, The Bogdahn Group Doug Lozen, Foster&Foster City Staff: Tracey Barlow, City Manager Donna Looney, Personnel Director Member Dewees called the meeting to order at 11:02 a.m.; there was a quorum with five members present. APPROVAL OF MINUTES -Quarterly Meeting -March 18, 2013 Member Hilton made a motion to approve the minutes of the March 18, 2013 quarterly meeting;Member Laramore seconded the motion, which passed unanimously. NEW BUSINESS - Confirmation of minutes - Special Joint Meeting -January 7, 2013 and January 15, 2013 Member Hilton made a motion to confirm the minutes of the January 7, 2013 and January 15, 2013 Special Joint Meeting;Member Laramore seconded the motion, which passed unanimously. Review and discuss RFP's for Board Administrator- The members discussed retaining Foster & Foster as the Board Administrator. Member Dewees questioned whether there would be a conflict of interest since Foster & Foster is the actuary of the plan. H. Lee Delmer, Plan Attorney stated no. Member McKinney questioned an additional amount on the Foster & Foster invoice of $148.00. Doug Lozen from Foster & Foster explained that the additional General Employees'Pension Board of Trustees Minutes-Regular Meeting June 17,2013 Page 2 of 5 amount is not billed for time but, out of office expenses. The amount on the bill is shared with other plans. There is no billing for time;those charges are for vehicle use, food and hotel. Member Hilton made a motion to retain Foster & Foster as the Pension Plan Administrator contingent upon successful contract negotiations;Member Sopko seconded the motion, which passed unanimously. OLD BUSINESS- Discuss fees for consultants and attorney- Member McKinney suggested that since the board has a new plan administrator(Ferrell Jenne),the board should give direction for her to receive hourly rates not only for plan attorney but also for financial advisor. If the fees are legitimate then no more discuss and if the fees are out of whack then we warrant further discussion. H. Lee Delmer wanted to make a comment on the attorney side; he stated the bottom line fee is at least as low if not lower than anybody and the hourly rate is more than reasonable given the experience in what they do. Member Hilton standpoint is what she stated at the last quarterly meeting, if it's not broke. It may not be the cheapest but you get what you pay for. Member McKinney further commented that at the end of the day someone has to pay the bills and we have to make the decision to make sure that down the road ever retiree has a monthly check. If there is a potential to save money here or there,he believes we have a fiduciary responsibility to do that. Member Hilton questioned what it will cost us to find out. Member Dewees stated that we do not have a contract yet with the new plan administrator and we should table this to the next quarterly meeting. Member McKinney made a motion to table the discussion for consultants and attorney until the next quarterly meeting;Member Hilton seconded the motion, which passed unanimously. H. Lee Delmer also had one other comment in that regard. The interest for consultants should be done as a fee survey as appose to an RFP for consultants because RFP's has a negative impact stating that the board is not happy with the services and your looking for someone else. Member Hilton and McKinney stated they are not saying they are unhappy. Member McKinney commented at the last quarterly meeting and will comment again saying he is satisfied with all three consultants but, are we paying an appropriate fee. REPORTS (ATTORNEY/CONSULTANTS) Doug Lozen, Foster &Foster,Actuary Presentation: Experience Study Before Mr. Lozen presents the Experience Study he wants to know if the board has any questions, observations or comments. Member McKinney stated Foster & Foster did exactly what was discussed at the last meeting. This is a closed plan and is there another way to fund that unfunded liability over a greater time period in order to reduce the current annual required contribution from the City. On page 6 you answered that exact question. Under the Entry Age cost method utilizes two components for funding as follow: Item B; An amortization payment for the Unfunded Actuarial Accrued Liability (UAAL). In conjunction with a change to the Entry age method, we are recommending an initial 20-year amortization of the UAAL. Based in guidance from the Division of Retirement, we are also recommending 10-year amortizations of future experience gains and losses. So, what are we looking at to be our annual contribution for next fiscal year? Mr. Lozen stated if you make no other change with the cost method on page 8, and go from a percent of payroll funding to dollar funding, $956,884. On page 9, if you change General Employees'Pension Board of Trustees Minutes-Regular Meeting June 17,2013 Page 3 of 5 the cost method to refinance and keep it in dollars, $743,737. That is a cost reduction of a little over $200,000 a year. For the record,that does not change anyone's benefits. The current cost method is a very conservative method. It requires everything is funded at the time the last active member goes into retirement status. Payroll is getting smaller and the 12 remaining members right now, on average are eligible for full retirement in about 4 or 5 years. The current cost method requires full funding by that point. Member Sopko asked what the assumption is for the last active person in the plan for retirement. Mr. Lozen stated the current assumption is everyone retires at age 60 or 6 years. On Page 8, currently City's percent of payroll is 154.2%, $956,884 per year. At some point you will have to lower the assumption because you're a close plan. For discussion purposes only, Lozen decided what would the plan funding look like if you lower the assumption from 7.5% to 7%, the City funding would be $1,057,932. It would go up about $100,000 a year. The funded ratio would drop at little bit. If it was 6.5%, the impact to the City would be $200,000 a year. Mr. Lozen and Mr. Evatt will recommend that soon you should think about lowering the assumption at little more in the next year or two to get it moving downward. Mr. Evatt stated generally what we do is change the investment assumption, really the effect of moving the plan to a more conservative asset allocation in order to cut down on the volatility and to increase the income. However, he is not convinced at this time that moving from equity to fixed income will increase the level of income or reduce the level of volatility. It's a very challenging time to go down that path. He will go through some of that in depth in his report. Mr. Lozen proceeded to discuss the salary scale. The change in the City dollar funding is small $3,333 a year. That goes a lot with reducing the salary assumption from one year to the next. The remaining 12 increase their pay by 5.5%., Mr. Lozen looked at recent history and it's closer to 4%. If you lower the salary assumption you will lower future payroll. McKinney commented if you look on page 9, and assume the 4%then the reduction in City funding would be $43,300. The turnover of normal retirement based on what's happened the City's funding would go from $956,884 to $2,123,840. Based on an experience study in 2008 members were retiring in their early 60's, closer to social security. In the last 3 years, the average age dropped and people started taking retirement at 25 years of service. Mr. Lozen recommends we do away with turnover rates (the probability that someone leaves before early retirement). People are waiting until their 25th year and then leaving or people that have less than 25 years are leaving at age 58. There are two different combination type scenarios. First the combined assumption with 7.5%, leave 7.5%alone for now, change salary scale to assume 4% instead of 5.5%, adopt a new turnover and retirement rate and change the cost method. The City's funding requirement would be $766,179, the current amount is $956,884. If this is what you adopted you would lower the City's funding requirement by $200,000 per year. The second scenario combined assumption at 7.0%, the City's cost would be $833,380. Mr. Lozen asked the board, which method and assumptions do you want to change and when do you want to do it. Do you want to redo the 2012 evaluation and give the City a new funding for 13/14 or do you want Foster and Foster to implement it in the next evaluation in 2013. Member Dewees questioned what would be the cost to do this. Mr. Lozen stated to redo a cost evaluation would be $1,500. Member McKinney stated from a budget standpoint if there is a potential to lower the budget we need to do it now. Mr. Lozen recommended moving away from percent to dollar method. Member McKinney made a motion to change the current valuation method to encompass scenario #5 on page 9,which is the combined assumptions with the 7.5%invest return and for Foster and Foster to revise the 2012 actuarial evaluation at a cost not to exceed$1,500;Member Sopko seconded the motion, which passed unanimously by roll call. General Employees'Pension Board of Trustees Minutes-Regular Meeting June 17,2013 Page 4 of 5 Jack Evatt, The Bogdahn Group,Performance Consultant Quarterly Report- March 31,2013 Mr. Evatt opened by discussing the quarterly report he distributed to the Board, starting out on page 2, very good quarter for equities in general. He reported that we ended March 31, 2013 at$11,635,545. Mr. Evatt then discussed the Domestic Equity Review, 2nd Quarter 2013. Member Hilton made a motion to go with the recommendation from The Bogdahn Group, 113 Vanguard Total Stock Market, 113 Ridgeworth, and 113 Wells Premier for the domestic equity investment;Member McKinney seconded the motion, which passed unanimously. H. Lee Delmer,Plan Attorney Mr. Delmer opened with, Legislative update: working on drafting required internal revenue amendments into the Ordinance which will have to be adopted. Tallahassee, Senate Bill 534 are imposing on defined benefit plans in Florida causing additional filing and disclosure requirements, which will result in significantly increase administrative expenses to the plan. There are several groups that have been discussing challenging this bill in court. As of right now the bill will be effective July 1st Mr. Delmer wanted to remind the board to do their financial disclosures by July 1, 2013 and have proof of the filing. Mr. Delmer prepared an addendum to Investment Management Agreement between the General Board and Integrity Fixed Income Management, LLC,this fee is guaranteed not to increase for a period of three (3)years from the contract date. Mr. Delmer stated on the agenda was to discuss Draft Operating Rules & Procedures. Member Dewees suggested doing a workshop, scheduled for 9:00 a.m. on September 16, 2013 (next quarterly meeting) to include Lee. RAFTIFICATION OF PROCESSED DISBURSEMENTS/RETURN OF CONTRIBUTIONS, DISBURSEMENTS, and DEPOSITS DISBURSEMENTS 1. Christiansen&Dehner,professional legal fees -$2,154.00 2. The Bogdahn Group,performance consultant fees, 1st quarter, 2012 -$3,625.00 3. Foster&Foster, actuarial services -$7,148.00 4. Salem Trust, custodian services,January 17, 2013—March 31,2013 -$942.45 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. General Employees'Pension Board of Trustees Minutes-Regular Meeting June 17,2013 Page 5 of 5 TRUSTEES', STAFF,EMPLOYEES', and PUBLIC REPORTS,DISCUSSION, and ACTION ADJOURNMENT- There was no further business and the meeting was adjourned at 12:48 p.m. Respectfully Submitted: Approved: Donna Looney, Personnel Director Gigi Bennington, Chairman