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FMTF11-20-07 BOARD OF TRUSTEES Florida Municipal Trust Fund Retirement Plan and Trust for the Firefighters and Police Officers Longwood City Commission Chambers 175 West Warren Avenue Longwood,, Florida REGULAR 11/lEETING MINU'CES November 20, 2007 7:00 p.m. Present: Jack Smythers, Chair Matthew Jammes, Member Marc McLarnon, Member . H. Lee Delmer, Board Attorney Paul Shamoun, Florida League of Cities (left at 8:18 p.m Carol Rogers, Finance Director Linda F. Goff, Recording Secretary Absent: Chris Kempf, Vice Chair Robert Redditt, Member 1. Calt to Order. Chair Smythers called'the meeting to order at 7:03 p.m. ~ 2. Approval of Minutes -September 1!~, 2007 Regular Meeting. Member McLarnon moved to approve the minutes as presented. Seconded by Member Jammes and carried by a unanimous voice vote with Vice Chair Kempf and Member Redditt absent. 3. Election of Secretary. Chair Smythers opened the floor for nominations. Chair Smythers moved to nominate Matthew Jammes. Seconded by Member McLarnon and carried by a unanimous voice vote with Vice Chair Kempf and Member Redditt absent. 4. Review of Agenda Packet Material. A. Plan Account Statements. Chair Smythers said the Fiscal Year Statement showed the Fund returned 11.75% for the Plan year. The Plan Account Statements for August and September 2007 were reviewed. Mr. Shamoun advised this Plan was invested in a pool with other Plans. He stated several members joined the Trust Fund on September 30~' and wired Pension 11-2(1-2007/1 approximately $5 million in cash o~:1 that day. This is why there appears to be more in case and it shows there is 4.15% in cash. He stated the front page was a snapshot of how the Fund appearE;d on September 30~'. Member McLarnon inquired if the performance of the Fund was gross or net of fees. Mr. Shamoun stated it was net of fees. B. Investment Performance Review. Mr. Shamoun reviewed the portfoli~~. He advised the total contributions last year from the employees, the City, :ind the State money was about $550,000 and the Fund made a little over $500,000 in net earnings for the year. Mr. Shamoun said the Value Portfolio had some tremendous under performance for the quarter and for the calendar year. It was about 7 basis points under. He stated the primary reason was due to their position with home building companies. He advised the Small Cap Fund has roughly the same amount of assets. This had a 650 basis point performance for the quarter and had a tremendous rebound. He :;aid if looking at all of the high quality portfolios, they all outperformed the: perspective benchmarks for the quarter. He advised the Value Managers wo~.~ld be making a presentation next week and it will be decided whether to retain them. Member McLarnon inquired if there: was a manager for each portfolio. Mr. Shamoun responded in the affirmative. Member McLarnon expressed concern about this portfolio because of how the home builder industry and market is. Mr. Shamoun explained they have an Investment Advisory Committee made up of Finance Directors from across the State. The Committee's Chair is Mickey Miller who is the retired Chief Financial Officer of Orlando and now the Chief Financial Officer of Jacksonville/Duval County. He stated there cvas also a Board of'Trustees that sits above the Florida Municipal Pension Trust Fund. They meet quarterly and have presentations by the managers and consultants. Chair Smythers said part of the concern at the last meeting was not being sure how the funds were being managed. Member McLarnon said this information made it clear how the Fund was being managed. Mr. Shamoun said, as a consulting group, there was an independent monitoring firm they have hired to review the managers' performance who Pension 11-20••2007/2 was completely independent of the ]Florida League of Cities. He affirmed the Fund continues to perform well, given the conservative nature of the investments. Chair Smythers inquired if the 60/40 allocation was referring to 60% in equity and 40% in bonds. Mr. Shamoun responded in the affirmative. He explained they do offer other asset allocations. They have a 70/30 and a 50/50 allocation. He said the primary driver of the allocations wa;~ the interest rate assumption the actuary uses when doing the valuations. Member McLarnon inquired, with the Defined Benetlt Plan, how it affects the City and what they need to contribute to the Fund or the State and what they need to put into the Fund. Mr. Shamoun said the City was responsible to make up any deficiencies of the Fund, for instance, if there were. bad investment earnings. He explained they were assuming 7.5% and anything under that will produce a negative actuarial result to the funding of the Plan and anything over; the cost to the City would come down. He said the target the a<;tuary was using for the long term growth of the assets was 7.5%. He stated thE~ interest rate assumption was something this Board could set. However, it is f:xtremely expensive to change the interest rate assumption. He said when this flan was setup in 1996 the instructions to the actuary were to be conservative on all assumptions. He stated the assets were invested with long term in mind. Member McLarnon inquired if the DRAGO Fund was through the City or the League of Cities. Mr. Shamoun advised it was all one :Fund within that Trust. He explained there were separate accountings for three portions: the Regular Retirement Benefit,. the Defined Retirement Accumulation Group Obligation (DRAGO), and there is a Surplus Fund of contributions over the required amount the City has made since 1996. Member McLarnon inquired if because of the excess funds the City has contributed, if that was why it was fu ly funded. Mr. Shamoun said there were no City contribution required based upon the valuation. He explained the City. has already put in more money than required for this year. He explained that fully :funded means there is enough money in the Fund to pay the promised benefit; for everyone in the Plan without having to contribute additional money. He explained the actuarial valuation model determines a contribution rate each year. Mr. Dehner said there was not enough money in the Plan to pay the value of benefits to be earned. Pension 11-20-2007/3 Chair Smythers inquired if the DRAGO Option was excess money that was excess in growth. Mr. Shamoun said there was a State: based amount that was the amount of State money each year used to fund the benefits in t}ie Plan as they exist. Anything the Fund receives from the State in a year over the $302,000 goes into the DRAGO Fund. Ms. Rogers advised this year the Fund received $424,000 from the State. She explained the $302,000 was a bencl•~mark amount established by the Statutes. Chair Smythers inquired if the State: money was derived from insurance premiums paid by residents. Mr. Shamoun responded in the affirmative. Secretary Jammes inquired if the contribution the City was currently making went into the City reserve. Mr. Shamoun said that was correct. He stated the City was continuing to contribute, even though they are not required. Secretary Jammes handed out and reviewed a document showing the contributions by the City, State, and Employee based on documentation provided by Mr. Shamoun a few months ago. Mr. Dehner inquired when the Actu~u'ial Valuation as of October 1, 2007 would be prepared. Ms. Rogers said she did not plan to cio a valuation this year since there have been no changes from last year, unless the Board desires to have this done. She stated the cost was approximately $4,000. Mr. Shamoun said they would be doing a valuation every other year. Originally they did the report every three years. Member McLarnon agreed it was not necessary to do another valuation report if nothing has changed in the Plan. Mr. Dehner advised the Statutes require an Actuarial Valuation Report every three years. He agreed every other year would be adequate based on the size of the plan. He said the last report showed that as of October 1, 2006 the market value of assets was $1.9 million and benefits earned to date were a little over $1 million at that point. He: pointed out if the Plan were to be terminated on that date there were mere than enough assets. On the other hand, the total present value of future: benefits to be earned was $4.6 million. Pension 11-20-2007/4 Member McLarnon said they discussed a DROP benefit at the last meeting. He inquired if there was any intention to cover information on a DROP at a future meeting. Mr. Dehner said they had discussed some fairly popular optional plan provisions, such as buy back provisions and a DROP Plan. He had provided some examples for discussion. He suggested having a full board when talking about these provisions. Discussion was held regarding buyback provisions and DROP benefits. Mr. Dehner said if implementing the-se types of bene:6ts, the benefits would have to be defined and implemented by an ordinance. Secretary Jammes said in the DRAGO option a lot of the Firefighters and Police Officers are concerned about the 2.5 cap of 75% of the retirement benefit. He stated another question thhey have was whether they were vested at 5 years or 10 years of service since some of the documents state 5 years and others state 10 years. He explained tPneir concerns and why they would like to look into a COLA or DROP rather than the DRAGO option. He stated a lot of the plan members were questioning ~~vhy they could not do away with the lump sum and look into increasing t}ie multiplier or use the money to purchase more benefits. Mr. Dehner said the excess State money over the 1997 amount had to be used for benefit improvements for members of the Plan in one of two ways; it either becomes part of the Defined Benefit Plan for additional Defined Benefits or a Share Plan. Ms. Rogers said the cap could be sornething they could look at for one of the improvements that the Board may want to make. Member McLarnon said if you take the time to run a spreadsheet on the DRAGO option, and really look at th.e excess State contribution, as well as the earnings of the Fund and carry it forward 10 years. Comparing this to a COLA, he would think they would find it is a much better program. He stated if the plan member invested the lump sum in a very conservative venue, they could ultimately make more money than any of the other benefits. Mr. Shamoun said that was part of the discussion when this option was put in place. This should provide a large en~~ugh sum of money that the interest paid from investing that amount would pr~~vide the COLA. Secretary Jammes inquired how they decided what amount of the money was to go into the City reserves in 1999, when the money was split. ~ Mr. Shamoun said it was based upon the 99-1 and ho~v the money would be accounted for from that point forward. He stated previous to that, whatever Pension 11-20-:2007/5 was in excess was the Reserve Account. From that point forward was when the excess funds were set aside to go into the DRAGO option. Ms. Rogers explained that prior to 999 the State money was commingled with the City contributions, employer contributions, and any earnings all into one fund. She said when 99-1 came about was when they stated any money above a certain amount had to be set aside which was when the whole structure of the Plan was changed. ~~he affirmed that all of the money, including the reserve, was in the Pe~lsion Fund and it was not the City's money. Mr. Shamoun said he would do some research and they would try to provide enough records to give a comfort le~rel to the Trustees that everything during that time was done correctly and properly according to the law. Mr. Dehner said the Statute has provided since 1986 that the premium rebate monies were to be used for extra benefits for Police Officers and Firefighters. The Statute did not define, however, what that meant: or how you would measure that. He stated that prior to 99-1 amendments, the Actuary for the State, Charles Slavin, suggested to tlhe actuaries that a method to measure whether or not the additional State monies were providing extra benefits was to do a value determination of the Police Officer and Firefighter benefits versus what the general employee benefits were and do a gap measurement.. If the gap was at least equal to the State money, then you were deemed to be in compliance prior to 99-1. He explained with 99-1 the Statute very clearly specified that to meet the requireme~rt of providing extra benefits for Police Officers and Firefighters, any amounts of State money received above the 1997 year amount, the checks received in 1998; any additional amounts haci to be spent for benefit improvements irn the Plan, or go into a Share Plan. Mr. Shamoun left at this point of the meeting. 5. Other Business A. Schedule of Meetnngs. Mr. Dehner submitted a memorandum for tentative 2008 meeting dates for Board approval. He proposed the quarterly meetings be held on January 15, 2008, April 15, 2008, July 15, 2008, and October 21, 2008 at 7:00 p.m. It was the consensus of the Board to approve the meeting dates as submitted by Mr. Dehner. B. Review of Rules and Procedures. Mr. Dehner said they had been provided with a memorandum this evening dated November 20 from the City Clerk that identifies a City Ordinance that addresses some of these items. He suggested they review this with the draft ~ rules. He said they couldn't have anything in the rules that would conflict with the City Ordinance. He suggested tabling the review of the Rules until they Pension 11-20-2007/6 have the other members present andl have the opportunity to review the Ordinance against the proposed document. It was the concurrence of the Board to have a full Board present for the review. C. Review of RFP's for Fund Analysis. Member McLarnon said he did not feel they needed to move forward with a request for proposals since they were just informed this is being done. Ms. Rogers said they do have the Rl?P's and they have not been opened. Mr. Dehner said from discussion at the last meeting they did know they had the analysis being done by Asset Consulting. He said there was some discussion at that time regarding a confidence level and the Board discussed doing a one time review. He stated these were not to replace Asset Consulting. He stated this was for a one time review and they do have the submissions. He said the Board may want to take the time to review them and determine if they want to move forward with the one time review. He stated they were not obligated to do the one time review. Ms. Rogers stated there were six responses. ~ Mr. Dehner advised there were multiple copies provided. He suggested they be divided and distributed among thf~ Trustees and himself for review and they discuss these at the next meeting. It was the concurrence of Board that the RFP's be sent to the Trustees and Board Attorney for review so they cain be discussed at the next meeting. D. Review of Board Attorney Invoice!;. Ms. Rogers said this was on the Agenda at her request. She distributed the only invoice she has received to date and attached to it was an Agenda Item from 2003 authorizing her to send bills to Mr. Shamoun for payment and bring the invoices to the Board after the fact. She requested direction from the Board if they wanted to continue with this policy. Chair Smythers said he was comfortable with the Attorney's fees and the value he brings to the Board. Member McLarnon said they should :remain consistent with the method in place. 6. Plan Administrator Report. The Plan Administrator Report was given under Item 4, Review of Agenda Packet Material. Pension 11-20-:007/7 7. Board Attorney Report. Mr. Dehner reported there was Federal Legislation signed into law August 2006, The Pension Protection Act. One of the: items where this affects Public .Safety Officers was to reduce the age from 55 to 50 for a lump sum distribution subject to tax without a 10% penalty for early withdrawal. A second item of this Legislation that became effective January ls` of this year was a provision that would allow Public Safety Officers to }Nave deducted from their retirement check up to $3,000 a year, pre-tax, to pay health insurance premiums and long term care insurance premiums. He said there were; limitations as to who can take advantage of this provision. He stated the problem was that a requirement of the Federal Statute to get this benefit was for the money to be transferred directly from the pension system to the insurance company. He advised the IRS resolved this by stating if the City acknowledges, in wriiiing, to the Pension Fund that they will pay the premium directly to the insurance company; then this satisfied the IRS. He said if implementing this program, a retiree, with a normal retirement. benefit or a disability retirement benefit, who has their insurance with the City could take advantage of the $3,000 pre-tax. Unfortunately, as a matter of State Law under 175/185, a retiree that has their own insurance apart from the City, would not be able to take. advantage of this because Pension Funds are prohibited from making direct payments to the insurance company. He advised he sent out the forms for this last week. Chair Smythers inquired if the Board should have a discussion on implementing . this at the next meeting. Mr. Dehner suggested it be discussed to determine. if implementation was desired. Mr. Dehner reported Session starts in March and the same proposals that passed the House last Session and did not make it to the Senate floor prior to adjournment would be coming back. He reviewed some of these provisions anti said he would keep the Board informed. 8. Member Comments. Secretary Jammes inquired if vesting was 5 or 10 years of service. Ms. Rogers said this was to be determin<;d. She stated she believed it was 5 years and said there were some housekeeping. ~~hanges to be made and these would be brought forward. Secretary Jammes said he has been asked by several Plan members if the language should say 10 years of service and' age 50 or vested at age 50. They were asking if this was an oversight if vesting was at 5 years of service. Mr. Dehner said the October 1, 2006 Valuation Report in the Summary Plan Report indicates 5 years vesting. Howevc;r, this change apparently has not been by Pension 11-20-2007/8 Ordinance yet, as Ms. Rogers mentione:d, was a housekeeping item. He explained ~ there is a distinction between years of service required to attain certain eligibility for retirement, and years required to vest. In this case 5 year vesting means on.e would need to work 5 years to be eligible to draw a benefit if they terminate. The normal retirement is 10 years of service; and age 50 or 25 years of service regardless of age. Secretary Jammes inquired if a person was vested at 5 years and left, what would their normal retirement age be since the: normal retirement was 10 years of service and age 50. M .Rogers said she believed their normal retirement age would be age 50. She said Mr. Shamoun has provided her with a draft of the items that need to be changed. Mr. Dehner asked Ms. Rogers if she would send him a copy of the draft. Ms. Rogers responded in the affirmative. 9. Public Participation. Travis. Patrick, Police Department, said he had a question regarding the lump sum payout. He inquired if it was a requirement of 25 years of service to receive the lump sum, or if you have less than 25 years of service. at age 50 are you eligible to ~ receive the lump sum payout. Ms. Rogers advised the benefit reads at normal retirement. Mr. Patrick said he would like to see the: buyback provision implemented as soon as possible so he can purchase prior years of service. He said the longer they wait, the more expensive it would be. He statf;d members would like to have this option in place as well as the DROP. Rob Ladowskv Teamsters Loca1385, said he also works full time at the Longwood Police Department and is currently under the State Retirement. He stated he has no vested interest in the League of Cities Pension. He stated he could not reiterate enough regarding the buyback for military or prior service as it is a standard for pensions and typically was cost neutral to the Fund. He encouraged the Board to consider this provision, even if only a few would utilise the provision. 10. Adjournment. Chair Smythers adjourned the meeting at 8:55 p.m. t'~i• r Jack Smythe ,Chair ATTEST: i Linda F. Goff, Recording ~ cretary Pension 11 20-2007/9