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Pension04-19-11Min 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 MEETING MINUTES April 19, 2011 7:00 p.m. Present: Robert Redditt, Chair Peter Katauskas, Vice Chair Chris Kempf, Secretary Derek Chenoweth, Member (arrived at 7:22 p.m.) Scott Christiansen, Board Attorney Jon C. Williams, Financial Services Director /Acting City Administrator Paul Shamoun, Florida League of Cities Sarah M. Mirus, Recording Secretary Absent: Marc McLarnon, Member 1.. Call to Order. Chair Redditt called the meeting to order at 7:19 p.m. 2. Pledge of Allegiance. Chair Redditt led in the Pledge of Allegiance. 1 Certify Election of Trustee- Officer Derek Chenoweth. Vice Chair Katauskas moved to certify the election of Trustee. Seconded by Secretary Kempf and carried by a unanimous roll call vote with Member McLarnon absent. Member Chenoweth was introduced to the Board and took a seat at the dais at this point of the meeting. 4.. Approval of Minutes: October 19, 2010 Regular Meeting and January 18, 2011. Secretary Kempf moved to waive the approval of the Minutes until the next meeting. Seconded by Vice Chair Katauskas and carried by a unanimous voice vote with Member McLarnon absent. 5. Review of Agenda Packet Material. A. Plan Account Statements (January 2011 and February 2011). The Board reviewed the Plan Account Statements in detail. Pension 04 -19 -11/1 Chair Redditt noted the Beginning Balance as of January 1, 2011 was $6,958,024.29. He stated Contributions for the month of January was $26,369.65 and the Earnings were $77,112.76. He noted there were no Distributions and stated there were Fees and Expenses of $3,359.26, with an ending balance of $7,058,147.44, which was an increase of $100,122.15 for the month. He stated on the next page, which was the summary for the month of February 2011, they started with $7,058,147.44 and had Contributions for the month of February of $17,607.14, and had Earnings of $155,555.59 with no Distributions or Fees or Expenses. He stated the Ending Balance was $7,231,310.17, which was an increase for the month of February of $173,162.73. He said they had two (2) nice increases for the first two (2) months of the year. Secretary Kempf said it looked like they were really doing well. He stated comparable to other Funds, it seems like they were doing pretty good. Mr. Shamoun said for the first quarter of the year, they were up about six (6 %) percent. He said that would put you above expectations if nothing changed for the rest of the year and it was an encouraging start to this Fiscal Year's returns. He said for the December 31 quarter, the Fund had about $400,000 in Earnings for the quarter and the Return for the quarter was 5.9 %. The one (1) year number looking back was 12.07, the three (3) year was 1.3, the five (5) year was 4.17, and the seven year was 4.74. He said they were beginning to dig their way out of 2008. He said they looked back at the December 31 five (5) year numbers and the Standard & Poors (S & P) 500 and what it's return was looking back at each year. He said in 2004 that number was a negative 2.2, in 2005 it was about'' /2 a percent, in 2006 it was 6.2 and in 2007 it was 12.8. He said this was the S & P's five (5) year annualized return as of December 31 of each year. He stated at that point, the blended fund they were in was at 8.86 %, well above expectation. He said 2008 was not so good and at the end of 2008 that five (5) year number went from 12.8 to negative 2.1. He said in 2009, that five (5) year number was worse at negative 5.6. He said in 2010, the five (5) year number was back up to 2.2 positive. He stated it made up a huge amount of ground in that one (1) year. He said a lot of people were arguing the cost of these plans was too high, and they needed to cut, cut, cut. He said it was only three (3) years ago, before the largest collapse they had, and everything was running very smoothly and well above expectations. He said what was considered aggressive in some people's opinion, was considered conservative a few years ago. He said things were coming back, as they tend to do in cycles. He noted the one thing they had made a change in was the Investment Manager for the International_ Portfolio. They terminated the International Manager about three (3) months ago, and have just made that transition at the end of March. He said they hired a new Manager called Sorenberg Asset. Manager. He then answered questions from the Board Members regarding the information he had just presented to them. Pension 04 -19 -11/2 B. Quarterly Performance Review. The Board reviewed the Quarterly Performance Review for the quarter ending December 31, 2010. C. Invoices. Chair Redditt noted the only invoice in the packet was a balance due of $1,713.70, and that was from a bill they had received that was not yet paid. Mr. Williams said it was for legal services from the last meeting and with the Board's approval, they would submit payment to the Florida League of Cities. Vice Chair Katauskas moved to approve the payment of the bill. Seconded by Secretary Kempf and carried by a unanimous roll call vote with Member McLarnon absent. D. Public Records Management. Chair Redditt said a copy of a letter was received by Christiansen & Delmer, P.A. regarding this matter, and it looks as if there was a form already completed. Mr. Christiansen said the Resolution has been completed and signed. He stated that a. copy of the Resolution and the Memorandum with the additional information would need to be sent to the Agency listed on the Memorandum. He said the State needs to know who their designated Records Management Liaison Officer was. Ms. Mirus stated she would take care of it. 6. Other Business. A. Discussion on the formula used in calculating each participants benefit for the DRAGO Fund. Chair Redditt said DRAGO stands for Defined Retirement. Accumulation Group Obligation Fund. He said the City has to pay an annual amount into the Retirement Fund, and if they pay in excess of the required amount, it goes into the DRAGO Fund and noted it was State money. Mr. Christiansen said it was basically what they called a share plan. He said he does not have the ordinance that establishes this and noted they do this differently here, because most of their plans that have a share plan, they put the share plan in the ordinance. He guessed a decision was made that you did not want it to be in this Pension Ordinance they were doing. Pension 04 -19 -11/3 He said it has been adopted by ordinance of the City as he understands. Secretary Kempf asked if there was a reason why they did not do that. Mr. Christiansen said typically the whole program was together and in one ordinance. He said it was subject to all the rules and regulations that the defined benefit part of the plan was subject to. He said he felt it should all be put together in the ordinance. Chair Redditt said according to the Agenda, the discussion was on the formula used in calculating each participant's benefit from that DRAGO Fund. He said according to the Actuarial Evaluation that was provided it states, "Upon retirement from active employment, the retiree is entitled to receive a pro -rata share of the DRAGO Fund balance as of his date of retirement, where his pro -rata share is determined by dividing the retiree's credited service as of October 1 preceding his last day of employment by the total credited service for all active employees on that date ". He stated that was the formula. Secretary Kempf asked if it made a difference to be in the ordinance or not. Discussion was held whether or not to include the DRAGO Fund into the new ordinance, and why it was not included into the new ordinance. Secretary Kempf moved to have Mr. Christiansen revise the proposed restatement of the Pension Plan to include the DRAGO Fund and to send it back to the City. Seconded by Vice Chair Katauskas and carried by a unanimous roll call vote with Member McLarnon absent. B. Presentation of the Fiscal Year 2011/2012 Actuarial Valuation. Mr. Shamoun reviewed the Actuarial Valuation as of October 1, 2010 in detail. Throughout his presentation, Mr. Shamoun answered questions from Mr. Williams, Mr. Christiansen and the Board Members. Secretary Kempf moved to approve the Actuarial Valuation. Seconded by Vice Chair Katauskas and carried by a unanimous roll call vote with Member McLarnon absent. C. Presentation of Actuarial Impact Statement for the Proposed Ordinance. Chair Redditt said according to the information provided, in summary, the Ordinance would increase the annual contribution required from the City by .70 of payroll and as of October 1, 2011 the expected increase in annual cost was $45,708 if the Ordinance carries. Pension 04 -19 -11/4 Mr. Christiansen said this would increase the frozen amount and this was proposing to use State money to pay for this benefit improvement. He said the $45,000 a year, essentially what was going to happen was the frozen amount, which was 302 now, was going to go up to 348. He said this means that once this benefit was approved, then the City can use $348,000 each year from the State money to fund the defined benefit. He said it would potentially reduce money that would go into the DRAGO Fund. He said there was some legislation pending in Tallahassee that, he was going to cover under his Report but said this was a good time to talk about this particular item since they were changing the definition of compensation. He stated, Senate Bill 1128 proposes to make a change to all police, fire and general employee plans to add a limitation on the definition of salary and compensation, such that you could not include lump sum payments of sick and vacation time that would be paid when someone leaves or more than 300 hours of overtime. He said if this Bill passes as it was currently configured, it would go into effect July 1' unless they had a union. He said that would change the compensation definition that they have in the Ordinance because they would have to acid that it would not include the lump sums and does not include more than 300 hours of overtime. He said that may have the effect of reducing the cost of the Plan, which he suspects it would, and they would have to make that change to comply with that provision of the State Law if adopted. Mr. Williams stated the City had unions. Mr. Christensen said that provision becomes effective with the effective date of the next contract and would not go into effect on July 1' He said they would get a reprieve for a while but ultimately it would become effective. Secretary Kempf said it would increase excess funds but the DRAGO Fund would be at a standstill an_ d there would not be a whole lot of increase in that. Mr. Williams stated it may be a little premature to talk about it until they know what the effects of the legislative action was going to be. He said if Senate Bill 1128 passes as proposed, they would have to make the changes and do another impact analysis and come back to see what the effect of that change would be. He said then they can come back and be in a better position to talk about the State monies. Mr. Christiansen said these things were hard to keep up with because they can change daily and frankly, they have changes a lot. He said there has been an amendment proposed to Senate Bill 1128 to require all plans to have a DRAGO Fund and requires the State money that comes in be used to partially pay down the unfunded actuarial accrued liability, and the other half of it would go into the DRAGO Fund. He said they were Pension 04-19-11/5 changing the rules and everyone would have a DRAGO Fund or a shared plan. Discussion ensued regarding the proposed legislation and the DRAGO Fund. Mr. Christiansen said there was proposed legislation that the Board would be required to prepare and submit an annual budget. He said the budget would have to go to the City, and the City would have to approve the budget, and they cannot spend any money unless the money was budgeted. He stated Members of the Board were potentially personally responsible for the decisions that were made, and they have that responsibility and now they were proposing to take away from the Members the authority to decide how much money they need to spend to carry out their fiduciary responsibilities. He said he sees all kinds of potential problems with that particular issue and discussed them in detail. Discussion was held regarding the upcoming changes with the Florida Retirement System (FRS). 7. Board Attorney Report. Mr. Christiansen said what the State law requires was that each time they approve an Actuarial Evaluation, which they just did; the Board has to review the investment program and declare an expected rate of investment return for the next year, the next several years and for the long -term thereafter. He stated they typically look to the investment professionals to give them a recommendation. He said Mr. Shamoun does not do any of the direct investing but he may be able to give them a recommendation. Mr. Shamoun said they would be in the range of 7% o, 7 %z% or 8% percent over a long period of time. He said he did not want to quote numbers since he did not have the numbers in front of him. He said the research showed that the return over the next ten (10) years should return 7.6% net of investment related expenses. Mr. Christiansen explained the reason for the Declaration of Returns. Secretary Kempf moved that based upon the advice of Paul Shamoun and their investment professionals, the Board expects to get a 7.5% investment return over the next year, the next several years and the long -term thereafter. Seconded by Vice Chair Katauskas and carried by unanimous voice vote with Member McLarnon absent. Mr. Christiansen stated they needed to provide a letter to the State and asked staff to send the information. He then noted Vice Chair Katauskas term was up in July and needed to go before the Commission for approval. Pension 04 -19 -11/6 Ms. Mirus noted Member Chenoweth's term was going to be up soon and it would need to go back to the Membership for nominations. Mr. Christiansen reminded the Board they needed to complete their Form 1, Statement of Financial Interest by July 1 St and turn it into the Supervisor of Elections Office. 8. Member Comments. Chair Redditt stated Ms. Mirus sent everyone the information on the 32 Annual Police and Firefighters Pension Trustee's School that would be held May 16 -18, 2011 in Tallahassee. He asked if Members who wanted to attend the Conference would have to pay for it. Secretary Kempf stated the Board pays for it and it would have to be approved by the Board. Mr. Christiansen noted all Trustees were required to get continuing education in the area of Board responsibilities and investments. He said the Plan would pay for the education or continuing education of Trustees and the Trustees were required to attend. Discussion ensued regarding the upcoming Conference. Secretary Kempf moved to approve the expenses for anyone who wishes to go from the Board. Seconded by Vice Chair Katauskas and carried by a unanimous roll call vote with Member McLarnon absent. Chair Redditt asked Ms. Mirus to register him for the three (3) day conference. 9. Public Participation. Mr. Christiansen noted that he would be attending all future Board meetings. 10. Adjournment. Chair Redditt adjourned the meeting at 8:39 p.m. obert Redditt, Chair ATTEST: Sarah M. Mirus, MMC, MBA, Recording Secretary Pension 04 -19 -11/7 This Page Left Blank Intentionally. ti Pension 04 -19 -11/,8