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HomeMy WebLinkAbout1992 08 27 Board of Trustees Regular Minutes ..-. BOARD OF TRUSTEES MEETING WINTER SPRINGS PENSION PLAN AUGUST 27, 1992 The Meeting was called to order by Chairman John Ferring at 7:00 p. m. Present: John Ferring, Chairman Art Hoffmann William Jacobs Seymour Berman Frank Kruppenbacher, City Attorney Also present: Mayor Philip A. Kulbes Commissioner John Langellotti Richard Rozansky, City Manager Harry Martin, Finance Director The Chairman introduced the Board of Trustees and the League Representatives introduced themselves. Fred Deeb, Tri State Pension Services, Chip Reames, Managing Director of Atlanta Capital, Joyce Case, Manager of Risk Administra- tive Services with the F.L.C. in Tallahassee and Curt Heyman, State Representative for the League were all present. The Chairman explained the representatives were asked to come and talk this evening .-. because we have been looking for added value in our pension fund. He said we have sent out RFPs to see how the evaluation will rate against Atlantic Capital Management and other firms in the universe. He asked the representatives to give a little background and what Atlantic Capital Management has been doing for the firm. Joyce Case explained the Florida Municipal Pension Trust Fund was started in 1985 and was established as a collective arrangement to provide a collective pension plan for local governments who either did not have a current pension plan or who had a pension plan and were looking for optional or alternative pension services. She said they felt there was a need to offer an option to the current Florida Retirement System as there seemed to be a continuing and escalating contribution rate demanded by the State of Florida. Once you become a member of that system you have no option, and you must continue to participate, there is no option to elect or to remove yourself from that plan. Ms. Case said they thought there was a need to begin a pension plan and a reasonable fee collective pension plan that would offer a bundle service arrangement. She said what they also found was there are a lot of vendors out in the industry who offer fees that they could not find the fees the City was paying, and still today many times they go out into the cities and ask what fees they are paying for certain services and are told it does not cost anything. She said that is one of the things they hope to address this evening. She said one of the things they wanted to provide was maximum disclosure to the members and participants, and they feel they have. She said if you look at their fee schedule you will find that they offer several exhibits and everything is outlined in detail as to the services provided by the Pension Trust Fund, and in great detail. ",-.. .- Board of Trustees Meeting August 27, 1992 Page 2 Ms. Case said one of the things that the Florida League of Cities has been able to offer, not just through the Florida Municipal Pension Trust Fund, but through all of the sponsored trust funds is a negotiated power that the individual cities have not been able to enjoy on an individual basis. She said they feel that through collective management of the money, they have more purchasing power, and more collective power in negotiating with the vendor services than the cities might have otherwise. , She went on to say they set off to do that collectively and have been very successful at it. She said the people that are seated here, Fred Deeb, who came on later after 1985 as our professional administrators, but Atlantic Capital was with us initially from the onset of the program and has been handling the money management since inception of the program in 1985. She explained that when Atlantic Capital was hired as well as all the other services on the Fund, there were no less than 15 request for proposals that were sent out to money management. It was carefully scrutinized, and carefully compared. She said they compared apples to apples and had several people evaluate the proposals and Atlantic Capital was chosen on that basis after making presentations to the Board of Trustees of the Pension Trust Fund. .- Ms. Case explained they direct the investment under a Master Trust Agreement and when Winter Springs as well as any other participant becomes a member of the Florida Municipal Pension Trust Fund they sign a Trust Joinder Agreement that in fact binds them to the Master Trust Agreement which allows the trustees of the Florida Municipal Pension Trust Fund to manage the investments of the Trust Fund. under careful scrutiny of an investment policy that is carefully monitored on a quarterly basis by the Board of Trustees of the Pension Trust Fund. She explained they also have, and not seated here tonight, is the performance evaluator. They have changed. Originally Robinson Humphrey were the evaluators which later was bought out by American Express and subsequently hired Shearson Lehman and now are currently using Nations Bank as theperformance evaluator. They provide evaluation on a quarterly basis to the Board of Trustees and she said we determine and look at and also subsequently discuss the industries of which we want to measure both the management and frequently have asked them to review it at different measures so they can look at it in alternative measures. Ms. Case explained the professional administrator, Mr. Deeb, as seated here tonight has been with the League for three years. He contracts and uses an actuarial team to do the defined benefit and does all of the defined contributions and defined benefit valuations and participant statements that each of the participants of the plans receive on an annual basis. Those are also submitted to the regulatory agencies of the State of Florida and in turn we receive a receipt of acknowledgement or receipt of approval from the state regulatory agencies. The Florida League of Cities as the overall administrator markets the program. She said they are the coordinator of all of the vendors associated with the program and work as a direct liaison to the member- ship of the City of Winter Springs and all of the other members of the program. She said they also answer directly to the Board of Trustees and to members. .- Mr. Chip Reames spoke about his company. He said Atlantic Capital was selected back in 1985 out of 31 respondents to the Request for Proposals they sent out and after seven finalists were selected and made presentations. He said in the beginning they started with zero money, which is a little unusual for Atlantic Capital, but they .~ Board of Trustees Meeting August 27, 1992 Page 3 thought the future of this enterprise was sufficiently bright and they were willing to waive their minimum size account restrictions to begin working with the League and the original Board of Trustees of the Florida Municipal Pension Trust Fund. Mr. Reames said he was the one that made the presentation back in 1985 and has worked with the League on this program from the beginning. He said Atlantic Capital is 23 years old, founded in 1969 and have a little over twenty employees, about half of whom are investment professionals. They manage 2.1 billion dollars in total for about forty clients, and about two-thirds of that is in stocks or equities and another third or quarter is in fixed income securities. He referred to the booklet and said brief biographies appear of their staff; he said the next page is a partial list of clients. He then spoke about the investment philosophy. He said acting under the guidelines established by the Board of Trustees of the Pension Trust the fund is invested 55% in equities and about 45% in bonds, fixed income securities. For the bond portion of the portfolio he said they do the same thing for the Florida League of Cities that they do for all the other clients that were listed in the booklet. He said they manage the portfolios in a very disciplined research based process which they believe is absolutely necessary to achieve long term success. He said they invest only in the very high quality companies. They do not buy junk bonds, they do not buy emerging growth companies, they do not buy companies whose records are anything but of the ~. highest quality. He said they do that because their research shows them that those kinds of companies over a long period of time has given you the best return. "He said they attempt to enhance those returns by emphasizing certain investment themes in terms of the way they put those portfolios together. He said when they want to have more than a market weighting, for instance, in oil companies or a significant exposure to health care, he said they have a theme of investing in investment oriented companies, capital investment of people that are building plants, machinery and equipment because they believe sooner or later this economy is going to turn around and they believe it will shift from being a consumer driven economy as it was in the 1980's to one where business investment will be on the margin of what makes the economy run. "Mr. Reames said they use a certain amount of new investment technology some of which was not developed when they first started with the League of Cities. They try to control the risk by minimizing the volatility of the trends in the portfolio. They remain pretty well fully invested most of the time. 'He then referred to the high quality identifications in the booklet. He said to their knowledge they are the only firm in the country that has measured the results the relative returns compared to the overall stock market of companies with different quality ratings, and the results based on investing 100 in each one of those port- folios of A+ rated companies are shown on the chart. 'Starting in 1971 through the end of 1991 you will notice two things. The highest nominal return and when all is said and done are the two blue lines, one solid, one dashed. Those are portfolios of companies that are rated A by S&P or rated A-; they are slightly lower than the highest rated companies which are A+ you see at the bottom which happen to have the lowest return. Those are the best companies in the ~ ...-.-. Board of Trustees Meeting August 27, 1992 Page 4 world. He said the very best returns on this page occurred between 1975 and 1983 in the B rated companies. Those are lower rated, they are very volatile. He said the next page shows you by focusing on those we are basically operating with about 25 to 30% of the total marketplace. He said they will buy some A+ and some B+ to round out our theme, but they really want most of the companies that are in your portfolio to be A and A-, because over a long period of time they have a lot going for them. The next page, the top line graphs the rate of return on the stock market, the S&Ps 500. The wavy line beneath is that same record but if you take out the six best months in the entire decade of the 1980's as you can see one whale of a lot came in those six months. Mr. Reames said in 1987 they went to the Trustees and said they were going to sell 25% of the stock because they were way over priced. He said they did not know a crash was coming. All they could tell was the stocks were way ahead of themselves and for two months they sat on that cash and it hurt because the market kept going up. Then you all know what happened in October 1987, and it worked out pretty well for the League plan. .- Mr. Berman asked what type of yield have you been averaging? Mr. Reames answered yield on stocks will run about 3~% today. He said ours will be a little less than that because they buy companies that grow fast. Your high yield stocks, utilities and things like that, generally are not the kind of companies they would own. The yield on their portfolios have generally been lower than the market place. He said they are looking to making most of their money in price appreciation rather than income generated by the dividend. They have 45% in bonds where they are getting yields even today 6~ to 7% when rates are obviously very very low. Mr. Hoffmann asked what sort of a percentage turnover of stocks do you have? Mr. Reames answered for the last three or four years probably 40% calculated according to the standards in the industry is not unusual. He said in more recent quarters made a most conscientious effort to cut that down, because they believe the cost of trading has just gotten out of control. Mr. Hoffmann asked if their average holdings are two years or less. Mr. Reames answered it is probably longer than that. He said probably closer to three. Mr. Hoffmann asked do you use some other advisory service other than your in-house people? What advisory services do you use? Mr. Reames answered did he mean research services. He said they could have used a number of outside research services to provide research information and data. The basic decisions are driven by models that they have developed. They need the input for those models, screen through there and pick out the companies that are high in quality and meet their other criteria and it will fit to- gether in a portfolio that they think will be the least amount of risk. ..-.-. Mr. Hoffmann pointed out a discrepancy in two different charts, one on page 19 and one on page 9. Mr. Hoffmann said the one on page 19 shows the one year funds return almost 21% and then the chart in the booklet shows the funds return about 7~%. Mr. Reames said he had no idea what the difference is, unless that is a quarterly return instead of an annual return. He said he did not have a September return with him. Board of Trustees Meeting ~ August 27, 1992 Page 5 For the entire year, total account before any expenses was roughly 21.6, the equities only about 34.8 and fixed income was up 13.6, that is through December 31, 1991. Mr. Hoffmann asked do you run between September and September to tie in with the League's reports or do you run December to December? Mr. Reames said we can do it any way you want. Mr. Ferring said here is some communications that we received from the FLe. You have basically the same group of charts only set up in 3 dimensional and as in the annual report it is a flat chart graph which is a much more easier chart to read, and one of the questions I want to ask is that the indices here will reflect that the fund is not keeping pace with the S&P 500. The S&P is outperforming the fund, is that correct? Mr. Reams said there is a discrepancy in the League's graphs and he would look into that. ~ Mr. Reames said in Section 3, the fixed income portion of the portfolio is managed in accordance with the philosophy that stresses intermediate maturity bonds. He said they also believe mortgage banks securities which is a fairly recent addition in the fixed income scene in the capital market offer excellent values, and they believe that you should always have a significant percentage of the portfolio invested in mortgage bank securities. He said they have measured the return in various measures of risk of the different components of the Lehman Brothers bond index on the second page, breaking it down to intermediate bonds, long term bonds total of which is all that put together. Over a twenty year period of time the intermediate bonds have given you virtually as high a return if not higher than all the others. The long term bonds with considerably less risk, whether you measure in average duration, generally the longer maturity of a bond the more the price will go up without giving a change in interest rates and that measured by duration, long term index for the duration. Basically that says if interest rates go up 1% price of those bonds is going to go down 10% or 9.6 vs. 3.3 for the intermediate. So you have inherently less risk in investment yet you have about the same return over 20 years in terms of the volatility of those returns shown in the right hand column. Part of the intermediate portion of that index is made up of the mortgage index. If you will look at, turn the page, you will see that within the in- termediates the mortgage index has done even better. Now they are a little more volatile but you have gotten in spite of that volatility three fourths of a percent more return per year. Mr. Reames said you will never see their names at the top of a performance list in the bond market, and you should never see it at the bottom either. He said they will generate consistent returns and over time they ought to compare favorably to any markets. He said they also have a significant exposure to asset backed securities which are also new. These are basically certificates in huge pools, billion dollar pools such as credit card receivables, automobile loans, triple A rating. The next page is a statement of investment objective that they currntly operate under as approved by the trustees of the fund. The objective is to seek long term growth of capital and income consistent with conservation of capital. That has always been the ~ first statement in this objective. He said in the very early days when there was very little money in the fund, they only bought bonds that they thought it imprudent to expose the portfolio to the volatility of the market. He said emphasis is placed - Board of Trustees Meeting August 27, 1992 Page 6 on achieving consistent returns and avoiding extreme volatility in market value. Every other year for the last six years we have had a very volatile market. Mr. Reames said they have had periods of September to September with double digit nega- tive returns sandwiched around returns of 20 and 30% in the stock market. He said it was clear from the beginning the trustees said that is not the kind of perform- ance even though over a five year period of time that may work out to a higher compound number, that is not the kind of performance we want you to generate for this fund. We want it to be more consistent if you have to give up some return to get that consistency that is what we want. The investments must be approved by Florida Statutes. They must be in accordance with Florida law. The indenture I worked with Jim Wolfe on that when it was set up. This trust may never be more heavily invested in stocks than 70%. Beneath the ultimate guideline, the Board of Trustees is to meet with the investment advisors and to establish operating maximum allocations given the circumstances of the time. The current maximum allocation is 55% in stocks. In trading this portfolio they are constrained only by their ability to get the best price at the lowest commission rate. He said they do not trade with anybody in particular, they are not obligated to trade with anybody in particular. All of these trades are put out for bid, they solicit offers of these securities when they pay those where that interest of the fund is served. ~ Mr. Reames said time weighted AIMR approved performance for calendar years, he said he probably should have done that on a September to September basis and he apologized for that. He said he would be delighted to do it that way and send it back so every- one can compare all that as shown on the last page. He said this is gross, gross, before Atlantic Capital's fee, before Fred's fees, legal fees and any fees. There are legitimate reasons why they could be different and it has to do with the timing when your cash flows come in, when your payments go out, etc. Mr. Ferring asked do all of the funds in the League participate at the same time? Mr. Reames said as far as they are concerned they have one portfolio, they have money coming into it, money going out of it each month. Mr. Ferring said taking the case of two different cities, if the contributions come in from the City of Winter Springs in December and they are invested at that time, then the contributions from the City of Clermont come in the following June, they are invested at that time. Mr. Reames said they are invested as soon as they get the money. They will not hold the City of Winter Springs contribution until they get Clermont's. They invest as soon as the money is available to spend. Ms. Case explained the money is put into a custodial account at Nation's Bank and that account is swept on a 24-hour daily basis and idle funds that are not needed for any purpose or for any expenses of the fund are immediately transferred to Atlantic Capital for management. Mr. Ferring asked are all contributions sent to the League at the same time. Mr. Deeb answered no, they come in throughout the year. Some plans contribute on a monthly _ basis, some on a quarterly basis and some plans are waiting until after the end of the year to contribut for the previous year. Board of Trustees ~ August 27, 1992 Page 7 Mr. Ferring asked how do you calculate that on the overall scheme, how do you pro- rate that? Mr. Deeb answered each fund is pro-rated according to the money they have in the plan. Each fund has a proportionate share of the total profit depending on how much money you have in the fund at any given point. Mr. Ferring stated and when the contributions were made. Mr. Deeb answered exactly, so obviously if they had a year like for instance the year ended 9/30/91 the contribution was made in October or November for that year. There were other plans that had contributed during the whole year and obviously that market was up for that year and would have participated at a higher level than our fund. Mr. Ferring asked Mr. Deeb are you indicating that a time weighted contribution plan would have been much more desirable as opposed to an annual contribution rate. Mr. Deeb answered yes, a contribution which had been contributed during the eyar quarterly, monthly as do most of the plans that are in the fund, would have been a little more beneficial; that is something we control. Mr. Deeb said he would make an overview of what he does for the fund. He said his firm sends out requests for information through the League, everything goes through the League office. They send out requests for information, payroll data, contribu- tion analysis, etc. that we receive on an annual basis sometime after September 30. They put together the participant's statement and account for all of the monies during the year that were contributed and taken out of the fund and then report it to the City and the State of Florida. ~ Mr. Ferring asked when you have overall percentage of return, when you are weighing your return the percentage basis, do you use an average mean? Mr. Deeb answered at the end of the year, September 30th, we account for the dollars that are supposed to be in fund. Even though you have not made your contribution of $100,000 as of Sept. 30th we as the accountants for the fund are going to account for the receivable and of course that is not going to give any retun. It would just be the contribution shown as a receivable on the books, so there will not be any return on that money. So it appears at the end of the year that you had $100,000 more in the fund than you actually did and you have to take that out of there. Mr. Hoffmann asked that in discussing when funds are contributed to your fund, seems like if we would do it on a monthly or quarterly basis we get the benefit of the dollar cost averaging which you do not get with a lump sum. Mr. Deeb answered abso- lutely, and that is going to make these numbers be different here than what you think because you are showing a contribution, say for instance in 1989, and in fact it may have been May of 1990. Mr. Ferring gave Mr. Deeb and Mr. Reames three examples of individual member contri- butions and individual member net asset value from the City of Winter Springs. Mr. Jacobs asked Mr. Ferring to identify them for Mr. Deeb and the League so they could verify them because he said "on your last example you were totally 100% wrong". Mr. Ferring said these particular employees are the City Manager Richard Rozansky, Finance Director Harry Martin and Don LeBlanc, LDC. He said possibly they could come back and give us their evaluation of what a time weighted net asset value of these particular individuals in their particular fund. ~ Mr. Hoffmann asked what brokerage outfits do they use. Mr. Reames answered in recent years they have seen much more basket trading through small programs. He said they have probably used 35 different dealers. Mr. Hoffmann said Nations Bank handles the funds of deposit. Mr. Deeb said they are the custodian. Board of Trustees Meeting ~ August 27, 1992 Page 8 Ms. Case explained the Board on a quarterly basis reviews the reports submitted by Atlantic Capital and those reports include an overall forecast of future investments as well as asset summary, a transaction report, but in addition to that they require that Atlantic Capital provide on a quarterly basis a reconcilement so that they can see any trade differences on a quarterly basis and any commissions paid to any broker throughout that quarter, so that they not only receive the confirmation of all the trade taken through that quarter which is reconciled to the statement, but they also advise the trustees on a quarterly basis of all commissions that were paid. Mr. Hoffmann asked what would you say your investment expense is as a percentage of your net assets in equities? Mr.Reames answered that is probably the most difficult question in the investment world right now. He said they spend a lot of time worrying about it and they are confident that a trade in, trade out is going to cost 1%. He said they have seen estimates as high as 5%. He said they are trading on about 6~ to 7 cents a share, but he said, that does not amount to anything if you are paying fifty cents up on every share that you buy, so the price is the thing that you have to be very careful about. There is no standard of comparison. ~ Mr. Ferring said he came across a report showing fifteen cents a share, Merrill Lynch. Mr.Reames explained that it must have been medium cap stock. Or he said, they said to Merrill there are 15 stocks we want to buy and 15 stocks we want to sell, and we want a net price. Mr. Reames said when they go in and trade all those stocks by the time they get through with the program they are going to move the price up two points. He said if they can buy a net increase up a dollar, they have saved a dollar for their clients. Merrill owns all their stock, they have to guarantee to them the closing price and they they have to buy which means they are putting up their capital. Mr. Deeb said we are not going to pay it. Mr. Ferring asked who oversees this execution? Mr. Reames said the managing director of Atlantic Capital. If they are putting up capital seven cents is not a fair commission, so you may have been looking at a basket trade. If you look at everything they do in the ship for the whole year it averages out to 6~ cents. ' Mr. Hoffmann asked if they use options in any of their trading. Mr. Reames said not in this, its a good way to make money, but its a good way to lose too. Mr. Berman congratulated Atlantic Capital on the conservative type investments. He asked Ms. Case if the League is considered a not for profit organization. Ms. Case answered the definition in the audited statement by the independent auditors is the League being a wholly owned instrumentality by dues paid members the cities of the State of Florida to the Florida League of Cities. Mr. Hoffmann asked Ms. Case, in looking over the report the monthly statement you send to the City, you have a total of fees or its reductions in some of the money ~ returned to the City for people who have left. Then you have an item that just says fees. Do you make a presentation as to the calculation of those fees as they are applied, for example if it comes from Atlantic Capital or investment advisory or yourself? ~. Board of Trustees Meeting August 27, 1992 Page 9 Ms. Case explained they do have a reconcilement on a monthly basis and the comp- troller at the main office maintains a separate accounting on a monthly basis for all the fees. Mr. Hoffmann said he would like to see a calculation for each month that you charge the City for something. Ms. Case explained the method of accounting chosen by the pension plan is very similar to what might be called mutual fund accounting. It is on a pro-rata basis, so what you are seeing is a beginning balance of any charges, any contributions, any fees, total on a one line basis. What you are talking about is a unit value accounting and our previous custodial bank did provide that. We are considering returning to that method of accounting. Nations Bank in their recent merger now has that accounting system available to them and we are discussing that and returning to that in the near future because we do recognize that our membership does desire to see a little bit more detail than what is being provided. However, at the current time we will continue to use the market value system until that is in place. ~ Mr. Hoffmann asked if Ms. Case had any idea when that might occur. Ms. Case said no sir, Nations Bank just recently merged within the past six months. They are still working out merging computer systems and software systems. Mr. Hoffmann said the same thing would apply and I am sure you could do it on the League's charges, so much per person, etc. Ms. Case said she thinks the fees may be applicable to a unit rather than a per participant. Mr. Hoffmann said no the charges are a fixed amount plus an amount per participant. Mr. Deeb said it is on a participant level and we do give a breakdown. Mr. Hoffmann said he was talking about an administrative fee the League charges. Mr. Deeb said that is the only fee that is charged. Mr. Hoffmann said it should be broken down at least so you can see how you calculate it because either this year or last year there was an error in the fee and then some money had to be switched back and forth. If we could see just how you are calculating it - so many employees above 99 and so on. Ms. Case said that she did provide a reconcilement to the City Manager's office. She said she did reconcile the fees for the unit of Winter Springs but was not done on a per participant level but the unit of Winter Springs. Mr. Hoffmann said speaking of the unit, we have 135 employees - 22.50 times where the number is, it would be good to see that number calculated in giving the amount that you are going to charge the city. .~ Mr. Ferring asked has there ever been a time or has the League or any of the Staff of the League done any research on the time weighted values of all of the funds on an individual basis to see how they are performing in comparison to each other, and all of the different cities? Mr. Jacobs said they are all lumped together. Mr. Deeb said each year we do an approximate rate of return on what the fund has done. He said they know what the beginning balance is and they know what is paid out during the year and they know what the ending balance is. Mr. Ferring asked has this ever been done for any of the funds? Mr. Deeb said he does it each year for all funds but the information is not given out. Mr. Ferring asked if he had the information for this fund, and Mr. Deeb says yes for the last plan year. Mr. Ferring said just the last year, what about since the inception. Mr. Deeb said he has only been around for three years. Board of Trustees Meeting August 27, 1992 ~ Page 10 Mr. Ferring said you have administrative expenses of $125,000 listed under that summary of operations. Ms. Case explained the summary of operations for the period ending 1990 this should be taken directly from the audited report. Those figures should be directly reflective from the audit. Mr. Ferring asked if there is a written policy statement in the possession of the Board of Trustees, master trustees? Ms. Case said are you referring to an investment policy? Mr. Ferring said a written policy statement and Ms. Case said an investment policy yes, on record in her office. Mr. Ferring asked if he could get a copy of the written policy statement and Ms. Case answered certainly. Mr. Reames explained that having dealt with a number of clients in regards to the investment policy the Staff of the Florida League of Cities is the most decidous of the clients that we have in the way they pursue those. He said he has spent many, many hours with Jim Wolfe, Chip Morrison, attorneys for the funds, and he has reviewed hours upon hours of Florida Statutes regarding acceptable investments which he finds to be virtually unintelligible. - Mr. Ferring asked if the League does have attorneys on Staff. He said my research at this particular point he has been lead to believe that the return of forfeiture money in lieu of cash paymens directly back to the employer could possibly make the particular fund lose their qualification under I.R.S. Mr. Meade indicated to you that it was o.k., but Mr. Ferring said he finds it strange that Ms. Case did not check with her own legal staff. Ms. Case explained she sought an op1n1on from the professional administrator also an opinion from her attorney, also an opinion of the City requesting the legal counsel of the City of Winter Springs. Ms. Case said her letter reflects that she felt some discomfort to return of the forfeitures which is why she sought the additional opinions, and having disclosed that it was forfeitures from the City of Winter Springs it was then with reluctance sent by check to the City. Mr. Ferring asked Ms. Case if she knew how many funds in the League have amended their plans to conform with the TRA of 1986. Ms. Case said no she did not. Mr. Deeb said this is not an ERISA Plan therefore, they are not required to do the amendments of TR86. Mr. Ferring said we have been told by our attorneys it does have to be amended by 1993 and will be retroactive. Mr. Deeb explained the opinion is that these are not ERISA plans. They are exempt from ERISA. There is no requirement that any of the plan provisions other than a couple of the payout provisions adhere to any of the TRAs. If there are any amend- ments that are required, then yes, they will be provided, but they have not been provided because he does not see any amendments that really are required. if there were any required the new regulations have been pushed up to 1995. Mr. Ferring said we have information other than that. He said we will send you the issue that we are discussing at this particular time and then we can discuss them in depth. ~ .-. Board of Trustees Meeting August 27, 1992 Page 11 Mr. Jacobs said this was discussed at our last meeting, and our City Attorney was there, and it was also discussed that it was not out of or in violation of any state or federal regulation, and it was a policy decision made by the City to keep the forfeitures. That was something that we were going to address as a board as to making a recommendation to the City Manager, the City Commission as to whether or not we were going to recommend that the forfeiture monies go back into the plan or go back into the general fund to offset expenses. Mr. Jacobs said that was not brought up that we were in violation of anything. Attorney Kruppenbacher explained that Mr. Meade who has been counsel for advising the City on this Plan has opined that the chartered plan and forfeiture practice is in conformance with the law. The Chairman has obtained what may be a conflicting viewpoint. He said he is specifically putting the League on notice that he will expect to have the League Counsel's opinion involved also. He said he wants every body to have a chance to give their opinion, then he will issue as City Attorney the final opinion. Mr. Ferring explained the matter in question is that as a general rule those monies are credited to the fund at the end of the year or when the contribution rate is made and it is not given back in the form of a cash payment to be put into a miscellaneous income fund or any other fund. Now this is what we are going to be getting a legal interpretation on. ,.-. Mr. Deeb said there was a letter sent out to the City from the League because, they drafted the letter to the League, and it says specifically those funds should be used to offset future contributions. The City subsequently with their legal opinion came back and requested the funds anyway. Mr. Deeb said that seems to be a problem with the City and not with the League. The City Attorney asked Ms. Case about her comment where she used the words "with great reluctance you returned the money". Ms. Case explained it is not normal procedure to return forfeitures to the City and that is why the question was raised. Mr. Ferring asked if any other City in the League is doing that, and Ms. Case said not to her knowledge. Manager Rozansky explained the reason the City requested the money back was because we made payment to the fund before we actually knew what the forfeitures were. If we paid them $117,000 and including the forfeitures should have only paid them $100,000 we said that is not forfeitures and we want those dollars back. We did not see anything wrong with that. Next year that will not happen because we are going to give them the figures ahead of time. Mr. Deeb explained there is a regulation that allows for a refund of the funds that are contributed to a plan to the sponsor of the plan if it were a mistake of fact. Attorney Kruppenbacher asked how many cities belong to the League plan and Ms. Case said currently they have 18 cities and 27 plans. Attorney Kruppenbacher asked that the forfeiture issue is no longer an issue because of the process the City now has. Manager Rozansky said we changed our process and they will get the figures earlier. ,- Board of Trustees Meeting ~ August 27, 1992 Page 12 Mr. Ferring asked how many cities does FLC represent in all forms of business and Ms. Case said there are 396 cities in the State of Florida and 393 participate as dues paid members of the League of Cities. Mr. Ferring spoke about his request for information in his letter of March 2nd. Mr. Ferring spoke about Ms. Case's letter in answer to his request which addressed return of forfeiture money or the return of monies to individuals. He said maybe we can open up a line of communication and get the information that we requested. Ms. Case answered that she thought she had responded to the Chairman's request. Mr. Ferring asked what has the master trustees done to see whether or not Atlantic Capital's performance has been to their satisfaction, how was it evaluated and whether or not they have initiated or looked into any other areas for other money managers. ,- Ms. Case explained the Board of Trustees of the Pension Trust Fund receive and have relied on a quarterly basis the opinion of the independent evaluator. She said she did not know if the City received a copy of their report. They measure Atlantic Capital with other managers who handle typical type portfolios and measure them in different methodology and against different measures and the trustees have totally relied on the independent evaluator to review or to determine the performance of Atlantic Capital. As far as diversification of assets after thorough research over a period of years, you heard Mr. Reames mention to you that with great reluctance they decided to take the Florida Municipal Pension Trust Fund as an account who has a zero balance. Their minimum balance is 5 million dollars. We more or less talked Atlantic Capital into handling our account with a zero balance. In examining the universe of managers, one of the things often discussed was the break even cost factor for diversification of managers was somewhere between ten and fifteen million and that when the fund reached that threshold we would then consider diversify- ing the management. Whether we decided to break, diversify by equity management or fixed income management, is still a decision to be determined by the Board of Trustees, but we felt that we would not be giving a cost advantage to the members, the partici- pants of the fund, if we were to diversify prior to the ten or fifteen million threshold. Mr. Ferring said we have a very difficult situation. We have no documentation to be able to back up anything that we have been looking for. The Board of Trustees there should have been minutes that we do not have to ask you about and questions that we would not have to ask you about but we are trying to get our act together over here. Naturally a lot of questions have come into our minds and one of the questions that I have right now, looking at the administrative costs from Oct. 1, 1991 to present day when we clocked in at about $20,000+ dollars for administrative costs so far this year. Ms. Case said she would have to find out exactly what you are including in administra- tive costs. She said she knows what would have been billed the City for annual administration, but what Mr. Ferring is including in the $20,000, she would have to see some more detail in order to explain that. ~ Ms. Case again referred to her letter of March 23rd where she provided the first quarter of 1991/92 and that was all the information available when she responded. ,-.. Board of Trustees Meeting August 27, 1992 Page 13 She said if Mr. Ferring would like she can complete the balance of the 1991/92 fund year and give you the detail as she did for the first quarter of that fund year. She said she can do it by going through the comptroller and accounting records at the League office and make that information available to you. Mr. Ferring said what he did was break out the money that was returned to the employees on those statements and he separated that as opposed to administrative expenses over the same period of time. He said he would appreciate it if we could get some information on that. Mr. Hoffmann said if you are looking at the monthly statement you cannot determine what the administrative costs are, and asked if they could come up with a better form for the monthly statements so that we could determine what the administrative costs are. Ms. Case explained that they do recognize the need for more detail on the statement. She said they are again approaching Nations Bank and hope to develop some unit value accounting which will give more detail. Mr. Ferring said he was curious how the City of Winter Springs stands among the 18 cities on a percentage return and asked if that information is available. Ms. Case answered that information is not available and the reason is that they do not look at the City of Winter Springs as being the only member. She said this is a collective investment pool for the City to participate in the pension trust fund. Mr. Ferring said yes, but each one has a different percentage return. Ms. Case said but collectively they have a return. Mr. Deeb answered they will have the same return if they have the same amount of money in the plan at the same time. ---- Mr. Ferring asked if there has ever been any discussion to try to coordinate the method of contribution of all the cities at the same time. Mr. Deeb said there was a letter sent out by the League asking that the contribution be made at least on a quarterly basis, but he said there are still a few holdout cities that are making annual contributions. All but two or three of the cities are making quarterly or monthly contributions. Mr. Ferring said we are one of the ones .that do not, and Mr. Deeb said that is correct. Mr. Ferring asked if he would be able to get the minutes of the Board of Trustees. Ms. Case explained that the minutes are very extensive, and if you have a specific agenda item they would be glad to find that provision and mail that to you. She said they do not routinely make the minutes available. She said they are available for copying at their office and can be secured during normal business hours. Mr. Ferring asked how often the trustees meet. Ms. Case said quarterly. Attorney Kruppenbacher said we would make a formal request and we will pay for copies of the last one year's minutes of their meetings if they would be kind enough to make the copies. Ms. Case said o.k. Mr. Jacobs said he understands the League and/or one of the representatives is going to provide this board with an answer to the three employees and respond to the figures. Also believe that they are going to give us the cost actual percent or dollar amount and/or both. Mr. Jacobs said he believes the fund from incpetion has been 11, 12 and 13%. He said Mr. Ferring has been quoting six or seven. ---- ~ Board of Trustees Meeting August 27, 1992 Page 14 Mr. Jacobs asked the League to put this in laymen's terms and lowest common denomina- tors so all Board members can understand them. Mr. Ferring answered that is the reason he provided you with those figures to see the difference between an individual's net asset value as opposed to what the fund is showing as an overall return. He asked is it correct that all funds in all cities do not have the same percentage ratio. Mr. Deeb said depending on contributions. Mr. Ferring said our fund would have to be evaluated individually. Mr. Deeb asked what exactly did Mr. Ferring want him to show regarding these three people. Mr. Ferring said he would like if he could to show on those three individuals their time weighted returns since their inception into the fund. Mr. Jacobs said if we can get everything consistent. When they do that if they do time weighted and if they do yields or if they do percentages, if they keep any information that you put forth on these three individuals, that you would do on the total fund, that you would do on the annual cost, whatever it is just try to keep it the same. If we are looking at weighted returns, annual returns from inception or total return, that it is all the same so when we sit down here as a board we are all looking at hopefully the same type of information and not trying to figure out whether or not an annual return is higher or lower than a time weighted return. ~ Mr. Jacobs asked Ms. Case what approximat1ey is the cost to the member cities for participation in the Pension Trust Fund. Ms. Case answered costs are one and one half percent of the asset trust fund, of each members assets. Mr. Ferring called a recess at 9:00 p. m. and called the meeting back at 9:10 p.m. Mr. Ferring said we will draft a letter regarding what we discussed and we will go from there. He thanked the representatives for coming. Meeting was adjourned at 9:15 p. m. Respectfully submitted, Mary T. Norton, City Clerk ----