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HomeMy WebLinkAbout2012 02 14 Board of Trustees Regular Meeting Minutes CITY OF WINTER SPRINGS, FLORIDA MINUTES BOARD OF TRUSTEES ORIENTATION AND REGULAR MEETING FEBRUARY 14, 2012 CALL TO ORDER The Orientation and Regular Meeting of Tuesday, February 14, 2012 of the Board of Trustees was called to Order by Chairperson Maria Fair at 5:30 p.m. in the Commission Chambers of the Municipal Building (City Hall, 1126 East State Road 434, Winter Springs, Florida 32708). Deputy City Clerk Joan L. Brown discussed the Orientation packet, conducted all of the Oaths of Office and swore in the Reappointed and newly Appointed Board Members. Roll Call: Chairperson Maria Fair, present Board Member Shelly Burlon,present Board Member Brian Fricke, present Board Member Frank M. Mundo, present Board Member Barbara Watkins, present Deputy City Clerk Joan L. Brown, present A moment of silence was followed by the Pledge of Allegiance led by Chairperson Fair. REGULAR AGENDA- PART I REGULAR 600. Office Of The City Clerk Requesting An Election Of Chairperson Be Held For 2012. "I WOULD LIKE TO NOMINATE MARIA FAIR TO CONTINUE ON AS THE CHAIRPERSON." MOTION BY BOARD MEMBER WATKINS. SECONDED BY BOARD MEMBER MUNDO. DISCUSSION. DEPUTY CITY CLERK BROWN ASKED, "AND YOU ACCEPT CHAIRPERSON FAIR?" CHAIRPERSON FAIR REPLIED, "YES." CITY OF WINTER SPRINGS,FLORIDA MINUTES BOARD OF TRUSTEES REGULAR MEETING-FEBRUARY 14,2012 PAGE 2 OF 12 VOTE: BOARD MEMBER WATKINS: AYE BOARD MEMBER FRICKE: AYE BOARD MEMBER BURLON: AYE BOARD MEMBER MUNDO: AYE CHAIRPERSON FAIR: AYE MOTION CARRIED. REGULAR 601. Office Of The City Clerk Requesting An Election Of Vice Chairperson Be Held For 2012. "I MAKE A MOTION THAT BARBARA WATKINS BE VICE CHAIR(PERSON)." MOTION BY BOARD MEMBER BURLON. SECONDED BY BOARD MEMBER MUNDO. DISCUSSION. VOTE: BOARD MEMBER FRICKE: AYE BOARD MEMBER BURLON: AYE BOARD MEMBER MUNDO: AYE CHAIRPERSON FAIR: AYE BOARD MEMBER WATKINS: AYE MOTION CARRIED. INFORMATIONAL AGENDA INFORMATIONAL 100. Finance And Administrative Services Department Providing A Summary Of The Pension-Related Expenditures For The First Quarter Of Fiscal Year 2012. Mr. Shawn Boyle, Director, Finance and Administrative Services Department presented this Agenda Item and spoke about an outstanding invoice for Actuarial services that have not been sent from Gabriel, Roeder, Smith & Company. Continuing, Mr. Boyle discussed the Impact Analysis and explained to the Board Members that any major changes to the Pension Plan need to be filed with the State. Referencing the outstanding invoice, Vice Chairperson Barbara Watkins asked, "When we get billed, is that going back to the year it belongs to or does it show up in this Fiscal Year?" Mr. Boyle explained, "We do a report — for our CAFR (Comprehensive Annual Financial Report) our annual report." Mr. Boyle then added, "It will be in Fiscal Year 2012." CITY OF WINTER SPRINGS,FLORIDA MINUTES BOARD OF TRUSTEES REGULAR MEETING-FEBRUARY 14,2012 PAGE 3 OF 12 CONSENT AGENDA CONSENT 200. Office Of The City Clerk Requesting Approval Of The November 8, 2011 Board Of Trustees Regular Meeting Minutes. "I WOULD LIKE TO MAKE A MOTION FOR THE APPROVAL OF THE NOVEMBER 8TH, (2011) MEETING." MOTION BY VICE CHAIRPERSON WATKINS. SECONDED BY BOARD MEMBER MUNDO. DISCUSSION. VOTE: VICE CHAIRPERSON WATKINS: AYE BOARD MEMBER FRICKE: AYE BOARD MEMBER BURLON: AYE BOARD MEMBER MUNDO: AYE CHAIRPERSON FAIR: AYE MOTION CARRIED. AWARDS AND PRESENTATIONS AWARDS AND PRESENTATIONS 300. Not Used ❖❖ AGENDA NOTE: THE FOLLOWING "PUBLIC INPUT" WAS DISCUSSED NEXT, FOLLOWED BY THE REST OF THE AGENDA, AS DOCUMENTED. ❖❖ PUBLIC INPUT No one spoke. 400. REPORTS Referencing the Board of Trustees upcoming meeting with the City Commission on Monday, April 9, 2012, Chairperson Fair stated, "The entire board is invited. If we want to have any kind of presentation other than us being there, we will have to appoint a member of the Board to work with a Staff member to put the presentation together. It can only be one (1) due to the Sunshine Law. So, that is basically what we want to discuss at this time. First of all, who will be available to be there at that meeting? CITY OF WINTER SPRINGS,FLORIDA MINUTES BOARD OF TRUSTEES REGULAR MEETING-FEBRUARY 14,2012 PAGE 4 OF 12 I guess that Vice Chair(person) Watkins will not be there that evening being that that will be April the 9th, 2012 and as a CPA (Certified Public Accountant), I don't know if you will be here that night. What does your agenda look like Frank (Board Member Mundo) at this point? Would you be able to be here?" Board Member Frank Mundo stated, "I will be here." Chairperson Fair asked, "And Brian (Board Member Fricke)? Board Member Brian Fricke commented, "I should be available." Chairperson Fair then asked, "Shelly(Burlon)?" Board Member Shelly Burlon mentioned, "I should be available." Next, Chairperson Fair commented, "So, I think the majority of the board should be here. Is there any kind of presentation we really need to do?" Board Member Fricke asked, "Are there any issues?" Chairperson Fair responded, "Absolutely— It is something that we have been concerned about — since I have been on the board, it is the cost of this Plan. It is a very, very expensive Plan administratively— just because we do pay an extraordinarily large amount of expenses for the size of the Plan. It is a twenty three million dollar ($23,000,000,000.00) Plan." Chairperson Fair asked Mr. Boyle, "What is the annual cost of this Plan?" Mr. Boyle commented, "Two hundred and fifty thousand (dollars) [$250,000.00]." Chairperson Fair stated, "For the size of the Plan that we have with roughly two hundred and fifty (250) participants, it is a very expensive Plan to run because we have individual money managers and although there are some nuances — if you are using Index Funds or you are using different methods - could we save money or would we actually defray the cost in a different way." Chairperson Fair commented, "I do know that that is an issue with the employees. They don't like the fee structure that we currently have. They think it is exorbitant and that has been something that has been discussed." Vice Chairperson Watkins stated, "So, you are saying for two hundred and fifty (250) people it is a thousand dollars ($1,000.00) per person and our expenses are two hundred and fifty thousand (dollars) [$250,000.00]?" Chairperson Fair remarked, "Roughly, yes." Board Member Fricke asked, "Is that administration or is it also money management?" Chairperson Fair replied, "It included money management. It is the Lewis Longman & Walker which is our Pension Attorney, it is Gabriel, Roeder, Smith (& Company), it is the investment advisory fees and our Consultant fees." Mr. Boyle confirmed that, "It is administrative and also the investment fees to manage the funds. So, it is both." Mr. Dave West, Bogdahn Consulting, LLC, 4901 Vineland Road, Suite 600, Orlando, Florida: stated, "That equates to about one percent (1%) of your total assets which—and Larry (Wilson, Gabriel, Roeder, Smith & Company) would probably be a good one to offer you some additional insight on that issue as he actually factors in the Actuarial Valuation that you will be going through later on and this is all in there, but for your plan assets, that is all inclusive. That includes Actuarial services — at one percent (1%) of assets. That is actually pretty low." CITY OF WINTER SPRINGS,FLORIDA MINUTES BOARD OF TRUSTEES REGULAR MEETING-FEBRUARY 14,2012 PAGE 5 OF 12 Chairperson Fair stated, "Because of the way the Plan is set up. That would be the reason. If we were using Templeton Global Fund, we are using the institutional share class, what is the internal operating, point four eight (percent) [.48%]?" Mr. West commented, "I think that is right." Chairperson Fair mentioned, "There are no additional costs. So, when you look at other options, it is actually fairly expensive, given the size of our Plan and that there are other ways - that is something that has been talked about and looked at for probably a couple of years, but really no action has been taken." Chairperson Fair commented, "Since we have been through some pretty tough years, and in 2008, we certainly had our share of issues. The Pension Plan is only about sixty five percent (65%) of target funding and that is also a problem - the concern is the viability of the Plan long term." Mr. Boyle said, "It is a concern of the employees when they look at where we are funded and the State just recently came out with a grading system and just recently we moved into the `D' category where we were in an `E-F' category as far as the overall sustainability of the Plan, so we definitely need to look at it." Chairperson Fair remarked, "All of us are here because we are taxpayers and not only do we have a duty and obligation to the citizens that we represent when we sit on this board, we have a duty and obligation as well to the employees. So, we have a double sided duty and responsibility, so anything that we would do, we want to make sure that we are absolutely exercising the best possible judgment and we have a fiduciary obligation to the taxpayers and the employees. And so, for that reason, we have got to consider what our Plan costs. Are there ways that we can reduce those costs because if we can reduce the cost, hopefully that would improve the return and give us a much more sustainable track for the future to keep a Plan such as this in place. Defined Benefit Plans, as you know, are not out in the market place. Go find a job in today's environment where you can get a Defined Benefit Plan. There's not too many except in the government sector. So, I think given that, I think that a lot of our employees have taken jobs here at the City making far less money than they could have made in the private sector because of the Defined Benefit Plan and the benefits that we have offered them." Continued discussion ensued on a Defined Compensation Plan and Chairperson Fair commented, "That is for newly hired employees, effective October 1st, (2011)." Board Member Burlon asked, "You are going to offer people the option of converting?" Mr. Boyle stated, "We are. The Commission along with the BOT (Board of Trustees) talked about it a year ago and that was one of the options that we were going to offer employees, if they wanted to `opt' out. We are trying to figure out what that looks like." CITY OF WINTER SPRINGS,FLORIDA MINUTES BOARD OF TRUSTEES REGULAR MEETING—FEBRUARY 14,2012 PAGE 6 OF 12 Mr. Boyle stated, "What we did was, we took all the new General Employees hired after October 1, 2011 and offered them a DC (Defined Compensation) Plan. However, Police which represent a little bit more than half of the City population are still on the DB (Defined Benefit) Plan and the existing employees. Not to mention, the growing number of retirees and as Mr. West pointed out at the last meeting, the growing needs of liquidity which are drawing funds away from the investment." Chairperson Fair indicated that, "When contributions are made by the employees and the City, those funds can't be invested because we have to use that money for distribution of payouts for retirees. My recommendation would be that we work with Kevin (City Manager Smith) and Shawn (Boyle) to prepare a presentation on the cost of the Plan. I think that in the spirit of full disclosure to make sure that our Commission is fully aware of our Plan design and our Plan costs that we should prepare to present to them so that they are aware what we are paying for the Plan." Discussion. Next, Chairperson Fair stated, "We did have a greater than normal amount of retirees effective at the end of the Plan year last year to get in under the old Plan before it was amended. It was probably more valuable for those people to go ahead and retire earlier, so because of that we had a larger than normal amount of retirees. So, yes I do think our Plan has caused people to make early retirement decisions." Mr. West stated, "The Plan is designed to be self supporting assuming you hit certain assumptions and as obviously pointed out, financial markets have created an enormous strain on the investment assumptions and with the changes to the Plan, those — withdrawing had created a cash flow." Next, Chairperson Fair added, "Our Plan calls for an eight percent (8%) rate of return and that was in the Plan. We inherited this from whenever—none of the people here were on that Board. That is what we got and that is what we inherited. As we know, there has not been an eight percent (8%) in the last six (6) years —therefore, that has impacted the amount of funding requirements. That is why our funding is only sixty five percent (65%) of funding, but changing that would create the City having to put more money in and we already have budget deficit, so it is a very problematic situation." Tape 1/Side B Chairperson Fair mentioned, "The Vote was to keep the Defined Benefit Plan and we did make provisions for the Special Risk class." CITY OF WINTER SPRINGS,FLORIDA MINUTES BOARD OF TRUSTEES REGULAR MEETING-FEBRUARY 14,2012 PAGE 7 OF 12 Regarding the City's Plan documents, Mr. Boyle remarked, "Our Pension Attorney, Jim Linn has asked us to - fully implement all the changes that we wanted. So, now what we have to do is, we have to take all these Ordinances — and we need to pull them together in a Plan document and that is one thing that Jim (Linn) wanted to wait a couple of months and then create this new Plan document and send it out. But, I will tell you that all the Ordinances and all the changes are out on the Internet and anybody can read them — but we do need to do a new Plan document." Chairperson Fair suggested, "We do a very short presentation for the Commission about our Plan; just some basic information to include our Plan expenses and make sure it is clear." Board Member Fricke remarked, "I would also like to see in that presentation - comparable Plan expenses, so we can give the Commissioners an idea as to how the expenses, perhaps by category, if it is Actuarial expenses, administrative expenses, investment management expenses and how our expenses compare with — other Plans of similar sizes so they can get a clear picture." Mr. West mentioned, "We could certainly assist in that. The Actuary would be one (1) source, because as I suggested, they go through the itemized expenses for all Plans and they will typically calculate an expense ratio for that." Chairperson Fair remarked, "My only concern would be additional cost. Any time we ask for additional studies and things to be done, there is a cost for that." Mr. West stated, "I don't think they would have a problem sharing that information. We can obtain some information. There is some information published at the State. Every Plan has to submit to Tallahassee their report — all that information is public. The challenge is just getting it." Chairperson Fair asked, "Can you work on that Shawn (Boyle)?" Mr. Boyle replied, "Yes." Mr. West commented, "We can certainly provide some input on investment costs as there are a couple of studies out there that are well respected sources of information and we can give you some comparable comparisons." Chairperson Fair summarized the presentation to include the structure of the Defined Benefit Plan,how the Plan is set up, and the costs. Discussion. Mr. Boyle stated, "One of your prime functions is to handle the investments — typically the administrative group, we would probably come to you and say, `We want to make Plan changes', but Kevin (Smith) wants to convey to your group that your primary objective is the investment of these funds." CITY OF WINTER SPRINGS,FLORIDA MINUTES BOARD OF TRUSTEES REGULAR MEETING-FEBRUARY 14,2012 PAGE 8 OF 12 Chairperson Fair remarked, "I would like to get a Consensus of what everyone feels comfortable with and I know we have some new members on the board, but we clearly need to have some form of a presentation and I think it makes sense to just kind of make it simple at this point and then if the Commission wants more detailed information other than an overview with the current costs, the current in flow and current out flow, then they will ask us for that and then we would have another opportunity to come back to another Commission meeting and to dive into it further or they may give us a direction to do additional work at a Regular meeting or a Special meeting. We have been asked to do other things at times. We were asked a few years ago in (20)'08 to render advise for the cash reserves. So, we had Special meetings for that, so that is not out of the ordinary for the Commission to ask. Again, if we give them information and then let them process that information, then they will give us the direction that they really want us to go. So, that would be my recommendation based on my experience on the board thus far." Chairperson Fair asked, "What I would like to do is at least reach a Consensus that that is acceptable to everyone". Vice Chairperson Watkins stated, "I consent." Board Member Fricke mentioned, "It makes absolute sense to me and I would - ask that you work with Shawn (Boyle) to put that presentation together on our behalf." Chairperson Fair remarked, "Absolutely. I would be glad to do that." Board Member Burlon commented, "I agree." Board Member Mundo nodded in agreement. Chairperson Fair asked Shawn(Boyle), "You and I can get together on that and then prior to that meeting, I would assume that you would be able to send what we have put together to the other Board Members and then they can provide you direct feedback." Mr. Boyle acknowledged this directive. PUBLIC HEARINGS AGENDA PUBLIC HEARINGS 500. Not Used REGULAR AGENDA - PART II REGULAR 602. Finance And Administrative Services Department Intercontinental Real Estate Management—Update On Performance. Mr. West introduced this Agenda Item and spoke briefly on Allocations and stated, "The objective is to have a long term strategic Allocation for which we have made the determination that we will have bans around which we will automatically rebalance so that we stay objective." CITY OF WINTER SPRINGS,FLORIDA MINUTES BOARD OF TRUSTEES REGULAR MEETING—FEBRUARY 14,2012 PAGE 9 OF 12 Mr. West remarked, "The Plan is in perpetuity; it is not closed; it is not frozen; there have been some adjustments made to the projected liability, but the Assets are to be invested in perpetuity, so the Allocation that was assembled appropriately, was also put together with the eye on the longer term investment horizon. In keeping with that, the Plan has a ten percent (10%) Allocation to institutional real estate—we are talking about institutional commercial type real estate properties that other similar pension funds and you would be invested along side them in these funds." Mr. West briefly spoke about American Realty and Intercontinental Real Estate Managers that have been selected for the Plan. Mr. Peter C. Hapgood, Director, Institutional Services, Intercontinental Real Estate Corporation. Post Office Box 550, Sturbridge, Massachusetts: spoke of his background and the firm's history and presented a document entitled, "U.S. Real Estate Investment Fund, LLC"to the Board Members. Mr. Hapgood reviewed the Fund Summary and the Fourth Quarter 2011 Performance and stated, "Because we know what our leases are and we also know what our financing is, we feel that we can deliver another double digit year for you in 2012. We feel very comfortable about that." Further discussion. Tape 2/Side A REGULAR 603. Finance And Administrative Services Department The Bogdahn Group Quarterly Investment Report Mr. West presented an overview of the"Winter Springs General Employees General Plan and Trust for 4th Quarter 2011" and remarked, "As the Consultant (Bogdahn Group), our role is to bring recommendations to the Advisory Board with regard to the Investment Policy structure which we view as the engineering doctrine for the whole program." Continuing discussion, Mr. West commented, "Our interest is to make sure that we are bringing the most honest and objectively possible recommendations to the table." Referencing page 4, Mr. West reviewed the Market Environment and commented, "Treasuries remained somewhat unchanged—the market has been largely unchanged, but most of the activity was actually in the non-Treasury arena." Continuing, Mr. West referred to page 10, and stated, "Most of the return in equities came in October, November and December—the markets trailed off but, unfortunately— when you look at the numbers, you had a very nice and a very positive first quarter experience." CITY OF WINTER SPRINGS,FLORIDA MINUTES BOARD OF TRUSTEES REGULAR MEETING—FEBRUARY 14,2012 PAGE 10 OF 12 Mr. West reviewed the Asset Allocation on page 14, the Financial Reconciliation Quarter to Date on page 20 and the Comparative Performance Trailing Returns on page 22. Continuing, Mr. West referred to page 24 and reviewed the Allocations with the individual managers. Mr. West commented on Dalton, Greiner, Hartman, Maher & Company and said, "They are making the Asset Allocation decision for us between Capitalizations. Referencing Lateef Asset Management Equity, Mr. West remarked, "Lateef (Asset Management Equity) had a nice quarter and actually they were way ahead in the quarter and then during the month of December, unfortunately they retraced a lot of that lead." Chairperson Fair commented, "On page 4 — (Barclays US) TIPS are up thirteen percent (13%) over the past year, yet this Fund is no where close to that." Mr. West remarked, "I absolutely needed to follow up on that as an administrative issue." Tape 2/Side B Continuing, Mr. West stated, "Two (2) things happened. We made an error — in the Manager's Report. We were reporting the—Broad TIPS Benchmark and we should have been reporting the BC U.S. Treasury Inflation Notes: 1-10 Year TIPS that we have rectified and put that in there. If you noticed the return disparity is much tighter now than we were previously reporting. I apologize as it is an error on our part. Because this is an indexed strategy, it should be coming close. The second issue, which continues to be an issue—is we did confirm that there are pricing variances between the manager service and the custodian's pricing service and how they get calculated in the index. Eventually, they should be working out, but the larger issue was that we had erroneously placed the aggregate TIPS Benchmark in this portion of the report and should have been putting into the 1-10 Year—that has been rectified." Further discussion. Board Member Mundo asked, "In our Allocations, did we suggest a five percent (5%) - Intermediate TIPS or just in TIPS?" Mr. West replied, "Our Allocation recommendation was to go to an Intermediate TIPS Allocation." Board Member Mundo then inquired, "So then relative to what we asked for, their performance is okay?" Mr. West answered, "Yes. It is in line." Board Member Mundo remarked, "Is it fair to say, that if we go back to a `normal interest rate environment' — that the short end of the TIPS Market should outperform the long end, in which case then we would be happy that we have this investment?" Mr. West remarked, "Absolutely. And again that is consistent with the intent of looking to the down side and in this case and obviously the down side is - a rate rising environment and then we are subject to negative markets, but this portfolio should hold much better." CITY OF WINTER SPRINGS,FLORIDA MINUTES BOARD OF TRUSTEES REGULAR MEETING-FEBRUARY 14,2012 PAGE 11 OF 12 Mr. West remarked, "The Templeton Global Bond Fund was recently added and — we talked about some of the challenges of time in getting through the process. That Fund was actually purchased on December 1St, (2011) and this is an Institutional Share Class Mutual Fund, lowest possible Share Class that we can get in here." Mr. West spoke about American Core Realty Fund on page 25, and stated, "This is a very conservative Fund and that is why it is our anchor and then we have Intercontinental (Real Estate) on top of that." With further discussion, Mr. West stated, "To calculate the progress of this total plan and to be compliant with State requirements, we are showing you Net — after all the Manager's fees." Board Member Fricke asked, "Is the Fixed Income Allocation in one form or another all in a comingled fund, mutual fund type of environment as opposed to individual holdings allocated to the Plan?" Mr. West replied, "Yes and no. The Galliard Intermediate Core investment grade core — that is in a collective Fund. The TIPS Allocation is separately managed at basically at an indexed price. Actually we are getting that managed for less than — Vanguard. That is the only one that is separately managed and obviously the Templeton(Global Bond Fund) is an institutional share class mutual fund." Chairperson Fair inquired, "Are any of the Managers that we currently employ, are they on a `watch' list from your investment policy committee?" Mr. West replied, "There are no Managers currently on the `watch' list." REGULAR 604. Finance And Administrative Services Department The Bogdahn Group Discussion On Managed Futures. A document entitled, "Overview of Managed Futures, Presented Fourth Quarter 2011" was distributed by Mr. West and discussed this Agenda Item. Chairperson Fair asked Mr. West, "Bring us some alternatives that includes some Index Funds, because so far if we had been using Index Funds, our performance would have been far superior than what we have and we would have paid far less money." Diversification and Commodities were discussed relating to the Portfolio and Board Member Fricke suggested separately Managed accounts on all Fixed Income. CITY OF WINTER SPRINGS,FLORIDA MINUTES BOARD OF TRUSTEES REGULAR MEETING—FEBRUARY 14,2012 PAGE 12 OF 12 Mr. West remarked, "Our objective is to bring forward — the most appropriate applications — with larger Asset sizes." With further discussion, Mr. West then added, "As we move to a more negative cash flow by default, we may have to move to an Index Fund, because we need a no cost source of Funds and obviously buying and selling a Vanguard — an S & P (Standard & Poors) 500 Index Fund and if we need to raise Funds to make distributions and rebalance. A very common application especially for closed plans." Board Member Fricke inquired about Index Funds and inquired, "It would be interesting to see historical research performance." Mr. West responded, "We would be happy to put that together." PUBLIC INPUT No one addressed the Board. ADJOURNMENT Chairperson Fair adjourned the Regular Meeting at 8:33 p.m. RESP; CTFU LYSUBMITTED: NL. . •OWN D• UT l CITY CLERK NOTE: These Minutes were approved at the May 8,2012 Board of Trustees Regular Meeting.