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HomeMy WebLinkAbout2006 09 11 Regular 306 Board of Trustees Pension Plan COMMISSION AGENDA ITEM 306 Regular September 11, 2006 Regular Meeting MGR DEPT. Authorization REQUEST: City Manager requesting the City Commission consider recommendations from the Pension Board of Trustees regarding the City's Pension Plan. PURPOSE: This agenda item is needed for the Commission to consider recommendations from the Pension Board of Trustees regarding the City's Pension Plan. CONSIDERATIONS: On August 31, 2006 the Board of Trustees voted unanimously to recommend the following items to the City Commission for consideration as provided by the City's 3rd Party Pension Advisor, Bogdahn Consulting: 1. RFP for Pension Investment Manager Services. Utilizing the asset allocation strategy proposed in item #2 below, issue an RFP for Pension Investment Manager Services via advertisement in Pensions & Investments Magazine and utilize Bodgahn Consulting to review and evaluate the responses to the RFP based on the City's Investment Policy Statement and Bogdahn's professional experience and evaluation criteria. 2. Asset Allocation/Investment Managers. The RFP is proposed to seek separate investment managers in each of the following specialties. This asset allocation strategy is outlined in the Investment Policy Statement submitted for consideration in item #3 below. a. Multi-Cap Growth Equity Manager b. Multi-Cap Value Equity Manager c. International Equity Manager d. Domestic Fixed Income Manager e. Other Investment Opportunities (to include): i. Core Real Estate ii. Timber f. Custodial Bank Services The top 3 candidates in each discipline will be brought forward for interviews with the Board of Trustees who will then make a recommendation for approval of each manager to the City Commission. The City Commission had previously directed staff to issue an RFP for investment manager services. Subsequent to that recommendation, Bogdahn Consulting was hired as the City's 3rd Party Pension Advisor. Bogdahn was advised of the forthcoming RFP issuance by the City and strongly recommends that they handle the RFP (in that they have the professional expertise and experience in this area) via the above approach. 3. Pension Plan Investment Policy Statement Revisions. Revisions to the Investment Policy Statement (IPS) include structuring the IPS in a manner consistent with Bogdahn Consulting's "standard format" for ease in their on-going investment performance evaluation; providing performance measurement standards; refining risk exposure and controls; and defining asset allocations as proposed in item #2 above. A copy of the revised IPS is attached. FUNDING: Once an Investment Manager selection is made and approved by the City Commission, funding for their services would come from the Pension Plan. Funding for the Investment Manager Search Process is included as part of Bogdahn Consulting's regular fee for services. RECOMMENDATION: Staff has reviewed the recommendations of the Board of Trustees and finds no reason for the Commission not to approve their recommendations as follows: 1. Approve the RFP process as outlined in item # 1. 2. Approve the Asset Allocation and Investment Manger Strategy as outlined in item #2. 3. Approve the Revised Investment Policy Statement. ATTACHMENTS: 1. Revised Investment Policy Statement as prepared by Bogdahn Consulting. COMMISSION ACTION: City of Winter Springs General Employee Retirement System Investment Policy Statement BOGDAHN CONSULTING, LLC. I. PURPOSE OF INVESTMENT POLICY STATEMENT The Pension Board of Trustees maintains that an important determinant of future investment returns is the expression and periodic review of the Fund's investment objectives. To that end, the Trustees have adopted this statement oflnvestment Policy. In fulfilling their fiduciary responsibility, the Trustees recognize that the Pension Plan is an essential vehicle for providing income benefits to retired participants or their beneficiaries. The Board also recognizes that the obligations of the Fund are long-term and that investment policy should be made with a view toward performance and return over a number of years. The general investment objective, then, is to obtain a reasonable total rate of return - defined as interest and dividend income plus realized and unrealized capital gains or losses - commensurate with the Prudent Investor Rule and any other applicable statute. Reasonable consistency of return and protection of assets against the inroads of inflation are paramount. However, the volatility of interest rates and securities markets make it necessary to judge results within the context of several years rather than over short periods of two years or less. The Pension Board of Trustees will employ professional Investment Management firms to invest the assets of the fund. Within the parameters allowed in this IPS, the Investment Managers have full discretion, including security selection, sector weightings and investment style. The Trustees, in performing their investment duties shall comply with the fiduciary standards set forth in Employee Retirement Income Security Act of 1974 (ERISA) at 29 D.S.C. s. 1104(a) (1) (A) - (C). In case of conflict with other provisions of law authorizing investments, the investment and fiduciary standards set forth in this section shall prevail. II. TARGET ALLOCATIONS In order to provide for a diversified portfolio, the Board has engaged Investment Management firms with target investment allocations as provided for on Schedule A, attached hereto. The managers are responsible for the assets and allocation of their mandate only, subject to the restrictions as outlined in this policy. On a regular bias (at least quarterly) the Investment Consultant will review the investment portfolio for the purpose of rebalancing assets within the target investment allocations prescribed on Schedule A, and shall coordinate the overall asset allocation and affect rebalancing of the portfolio when necessary. The consultant shall also periodically review the investment portfolio and report to the Board the style and capitalization of the individual and total portfolios. DRAFT: 8-06 - 2 - III. INVESTMENT PERFORMANCE OBJECTIVES The following performance measures will be used as objective criteria for evaluating effectiveness of the investment managers. A. Total Fund Performance 1. The performance of the total Fund will be measured for rolling three and five year periods. These periods are considered sufficient to accommodate the market cycles experienced with investments. The performance of this portfolio will be compared to the return of a portfolio comprised of 60% S&P 500 and 40% Lehman Brothers Intermediate Aggregate Bond Index., 2. On a relative basis, it is expected that the total fund performance will be in the top 40% of the Appropriate peer Universe over three to five-year periods. 3. On an absolute basis, it is expected that total return of the combined equity, fixed income, and cash portfolio, will equal or exceed the actuarial earnings assumption (9%), and equal or exceed the Consumer Price Index plus 3% over three to five year periods. B. Equity Performance The combined equity portion of the portfolio, defined as common stocks and convertible bonds, is expected to perform at a rate at least equal to the S&P 500 Index. Individual components of the equity portfolio will be compared as outlined in Schedule A. All portfolios are expected to perform in the top 40% of an appropriate peer universe. C. Fixed Income Performance The overall objective of the fixed income portion of the portfolio is to add stability, consistency and safety to the total fund. The fixed income portion of the portfolio, defined as fixed income and preferred stocks, is expected to perform at a rate at least equal to the Lehman Brothers Intermediate Aggregate Bond Index, and in the top 40% of the appropriate peer universe. D. Alternatives (Real Estate/Timber) The overall objective of the alternative portion of the portfolio is to provide an attractive level of income with minimal volatility to the fund. This portion of the fund is expected to provide an absolute rate of return as benchmarked in Schedule A attached hereto. DRAFT: 8-06 - 3 - IV. INVESTMENT GUIDELINES A. Authorized Investments With the exception of commingled funds as may be approved by the board, all investments made or held in the fund shall be limited to: 1. Time, savings, and money market deposit accounts of a national bank, a state bank or a savings and loan institution, insured by the Federal Deposit Insurance Corporation, provided the amount deposited does not exceed the insured amount. 2. Obligations issued by the United States Government or obligations guaranteed as to principal and interest by the United States Government or by an agency of the United States Government. 3. The Florida Local Government Surplus Fund (SBA) 4. Commercial Paper rated in the highest category by a nationally recognized rating service. If a Letter of Credit (LOC) backs the Commercial Paper, the long-tern debt of the LOC provider must be rated A or better by at least two nationally recognized rating servIces. 5. Bankers Acceptances of United States Banks or a federally chartered domestic office of a foreign bank, which are eligible for purchase by the Federal Reserve System, rated in the highest category by a nationally recognized rating service. 6. General Obligation and/or Revenue Bonds of state or local government taxable or tax-exempt debt rated A, for long term debt, by a nationally recognized rating service or rated MIG-2 or SP-2, for short term debt, by a nationally recognized rating service. 7. Intergovernmental investment pools authorized pursuant to the Florida Interlocal Cooperation Act provided in Section 163.01, Florida Statutes. 8. Common and preferred stocks, commingled funds administered by national or state banks, mutual funds and bonds including bonds or notes, registered or unregistered under Rule 144A, or other evidences of indebtedness, issued or guaranteed by a corporation organized under the laws ofthe United States, any state or organized territory of the United States or the District of Columbia, bonds issued by U.S. Corporations, structured mortgage products issued by the United States Government, and mortgage related or asset backed securities not issued by the United States Government, government agency or instrumentality, and bonds issued by municipal issuers, provided: a. The securities meet the following ranking criteria: DRAFT: 8-06 - 4 - 1. Fixed Income: Investment Grade as measured by Standard & Poor's or Moody's. a. Rule 144A notes or bonds must include rights of registration b. Any bond or note that falls below investment quality must be liquidated immediately. c. The fixed income portfolio may be invested in securities with a maturity up to thirty (30) years, so long as the average effective duration of the portfolio will not exceed +/- 125% of the duration of the Policy benchmark. 11. Equities: Traded on a national exchange. 111. Money Market: Standard & Poor's Al or Moody's PI. b. Not more than 5% of the Fund's assets shall be invested in the common stock or capital stock of anyone issuing company, nor shall the aggregate investment in anyone issuing company exceed 5% of the outstanding capital stock of the company. c. The value of bonds issued by any single corporation shall not exceed 3% of the total fund. 5. Real Estate and real estate securities as deemed proper investments by the Board. 6. Repurchase Agreements a. The Plan's investment managers may invest in repurchase agreements composed of only those investments authorized in number 2 (above). All firms are required to sign the Plan's Master Repurchase Agreement prior to the execution of a repurchase agreement transaction. b. A third party custodian with whom the Plan has a current custodial agreement will hold the collateral for all repurchase agreements with a term longer than on (1) business day. A clearly marked receipt that shows evidence of ownership must be supplied to and retained by the Plan's investment manager. c. Securities authorized for collateral must have maturities less than 10 years with a market value for the principal and accrued interest of 102% of the value and for the term of the repurchase agreement. Immaterial short-term deviations from 102% requirement are permissible only upon the approval of the Pension Plan Administrator. 7. Foreign Securities, to include fixed income and equity securities. 8. Mutual funds registered under the Investment Company Act of 1940. DRAFT: 8-06 - 5 - B. Limitations 1. Investments in corporate common stock and convertible bonds shall not exceed 75% of the fund assets at market value. 2. Foreign securities shall not exceed 20% of the value at market of the fund. 3. Alternative investments (such as timber or real estate investments) shall not exceed 15% of the value at market of the fund. D. Tradin2 Parameters When feasible and appropriate, all secuntIes shall be competitively bid. Except as otherwise required by law, the most economically advantageous bid shall be selected. Commissions paid for purchase of securities must meet the prevailing best- execution rates. The responsibility of monitoring best price and execution of trades placed by each manager on behalf of the Plan will be governed by the Portfolio Management Agreement between the Plan and the Investment Managers. v. COMMUNICATIONS A. On a monthly basis, the custodian shall supply an accounting statement that will include a summary of all receipts and disbursements and the cost and the market value of all assets. On a quarterly basis, the managers shall provide a written report affirming compliance with the security restrictions of Section IV above and a summary of common stock diversification and attendant schedules. In addition, the manager shall deliver each quarter a report detailing the Fund's performance, adherence to the investment policy, forecast of the market and economy, portfolio analysis and current assets of the Trust. Written reports shall be delivered to the Trustees within 60 days of the end of the quarter. A copy of the written report shall be submitted to the person designated by the City, and shall be available for public inspection. The Investment Managers will provide immediate written and telephone notice to the Trustees of any significant market related or non-market related event, specifically including, but not limited to, any deviation from the standards set forth in Section IV above. B. The Investment Managers will disclose any securities that do not comply with section IV in each quarterly report. C. If the Fund owns investments, that complied with section IV at the time of purchase, which subsequently exceed the applicable limit or do not satisfy the applicable investment standard, such excess or noncompliant investments may be continued until it is economically feasible to dispose of such investment in accordance with the prudent man standard of care, but no additional investment may be made unless authorized by law or ordinance. D. The Trustees shall retain a monitoring service to evaluate and report on a quarterly basis the rate of return and relative performance of the Fund. The Trustees will meet quarterly to review the monitoring service's Performance Report. The Trustees DRAFT: 8-06 - 6 - will meet with the investment manager and appropriate outside consultants to discuss performance results, economic outlook, investment strategy and tactics and other pertinent matters affecting the Fund on a periodic basis. E. At least annually, the Trustees shall provide the Investment Managers with projected disbursement needs of the plan, so that the investment portfolio can be structured in such manner as to provide sufficient liquidity to pay obligations as they come due. To this end, the Investment Managers should, to the extent possible, attempt to match investment maturities with known cash needs and anticipated cash-flow requirements. VI. COMPLIANCE A. It is the direction of the Trustees that the plan assets are held by a third party custodian, and that all securities purchased by, and all collateral obtained by, the plan shall be properly designated as plan assets. No withdrawal of assets, in whole or in part, shall be made from safekeeping except by an authorized member of the board of Trustees or their designee. Securities transactions between a broker-dealer and the custodian involving purchase or sale of securities by transfer of money or securities must be made on a "delivery vs. payment" basis to insure that the custodian will have the security or money in hand at conclusion of the transaction. B. At the direction of the Trustees, operations of the fund shall be reviewed by independent certified public accountants, as part of any financial audit periodically required. Compliance with the Trustees' internal controls shall be verified. These controls have been designed to prevent losses of funds that might arise from fraud, error, or misrepresentation by third parties or imprudent actions by the Board or employees of the plan sponsor, to the extent possible. C. Each member of the Board of Trustees shall participate in a continuing education program relating to investments and the Trustee's responsibilities to the fund. It is highly suggested that this education process begin during the Trustees' first term. D. With each actuarial valuation, the Board of Trustees shall determine the total expected annual rate of return for the current year, for each of the next several years and for the long term thereafter. This determination shall be filed promptly with the Department of Management Services, the plan's sponsor and the consulting actuary. E The proxy votes must be exercised for the exclusive benefit of the participants of the Fund. Each manager shall provide the Board with a copy of their proxy voting policy for approval. On a regular basis, at least annually, each manager shall report a record of their proxy vote. VII. CRITERIA FOR INVESTMENT MANAGER REVIEW DRAFT: 8-06 - 7 - The Board wishes to adopt standards by which judgments of the ongoing performance of a portfolio manager may be made. If, at any time, anyone of the following is breached, the portfolio manager will be warned of the Board's serious concern: A. Four consecutive quarters of total Fund performance below the 50th percentile in manager performance rankings. B. Standard deviation for a fund component in excess of 150% of the assigned benchmark. C. Loss by the manager of any senior investment personnel. D. Any change in basic investment philosophy by the manager. E. Failure to attain a 60% vote of confidence by the Board of Trustees. F. Failure to observe the security quality restrictions of section IV. Nothing in this section shall limit or diminish the Trustees' right to terminate the manager at any time for any reason. VIII. FLORIDA STATUTES AND APPLICABLE CITY ORDINANCES If, at any time, this document is found to be in conflict with Chapter 112 or 518 Florida Statutes, or the applicable City Ordinances, the Statutes and Ordinances shall prevail. IX. REVIEW AND AMENDMENTS It is the Trustees intention to review this document at least annually subsequent to the actuarial report and to amend this statement to reflect any changes in philosophy, objectives, or guidelines. Any investment not specifically allowed as part of this policy is prohibited. If, at any time, the Investment Manager feels that the specific objectives defined herein cannot be met, or the guidelines constrict performance, the Trustees should be notified in writing. By initial and continuing acceptance of this Investment Policy Statement, the Investment Managers concur with the provisions of this document. CITY OF WINTER SPRINGS GENERAL EMPLOYEES RETIREMENT SYSTEM By: Chairman, Board of Trustees Date: By: ADVISOR Date: By: ADVISOR Date: By: ADVISOR Date: By: ADVISORS Date: DRAFT: 8-06 - 8 - Schedule A TARGET RANGE ASSET CLASS MANAGER (0/0 MARKET) (0/0 MARKET) BENCHMARK INDEX Broad Growth Equity -------- 25% 20% - 30% R1000G Broad Value Equity -------- 25% 20% - 30% R3000V International Equity -------- 15% 10% - 20% MSCI EAFE Investment Grade Bonds -------- 25% 20% - 30% LBIA TIPS -------- 5% .....3%- 7% LBTIPS Income Opportunity Timber -------- 0% 5% - 10% Absolute 8% Core RE -------- 0% .....5%-10% Absolute 7% Investments in corporate common stock and convertible bonds shall not exceed 75% of the Fund assets at market value. Investments in foreign equity shall be limited to 20% of the fund assets at market. CITY OF WINTER SPRINGS GENERAL EMPLOYEE RETIRMENT SYSTEM By: Chairman, Board of Trustees DRAFT: 8-06 - 9 -