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HomeMy WebLinkAboutMinutes Fire Pension 102008PALM BEACH GARDENS FIREFIGHTERS' PENSION FUND MINUTES OF MEETING HELD October 20, 2008 A meeting of the Board of Trustees was called to order at 9:05 A.M. at Council Chambers, Palm Beach Gardens, Florida. Those persons present were: TRUSTEES Ed Morejon Tom Murphy Rick Rhodes Steve Rogers MINUTES OTHERS Margie Adcock, Administrator Bob Sugarman, Attorney (9:25 A.M.) Joe Bogdahn, Investment Monitor The Board reviewed the minutes of the meeting held August 18, 2008. A motion was made, seconded and carried 4 -0 to accept the minutes of the meeting held August 18, 2008. ADMINISTRATIVE REPORT Ms. Adcock presented the engagement letter from Steve Gordon for the audit for the fiscal year ended September 30, 2008. A motion was made, seconded and carried 4 -0 to authorize the Chairman to execute the engagement letter. Ms. Adcock presented the list of disbursements to be made. A motion was made, seconded and carried 4 -0 to approve the disbursements listed. Ms. Adcock provided the Board with a copy of the Investment Policy Statement for their Trustee Handbooks. INVESTMENT MONITOR REPORT Joe Bogdahn appeared before the Board. He discussed the market environment and asset class performance. He stated that there was a lack of confidence in the market. He noted that all asset classes were negative except for government- backed securities and mortgage backed securities. He noted that small cap did better than large cap and growth did better than value. He reviewed information on historical bear markets. He stated that being able to add in money is always a positive thing. Mr. Bogdahn reviewed the investment performance for the quarter ending September 30, 2008. The total market value of the Fund as of September 30, 2008 was $22,595,024. He noted that Agincourt was funded and the money in Galliard was taken out during the quarter. He stated that DHJ had a little in Lehman Brothers and sold right out of it. 2 Bob Sugarman entered the meeting. The Fund was down 6.48% net of fees for the quarter while the benchmark was down 6.94 %. For the fiscal year the Fund was down 12.30% net of fees while the benchmark was down 14.06 %. The equity portfolio managed by Dana was down 8.75% for the quarter while the benchmark was down 8.73 %. The international portfolio managed by Voyageur was down 16.50% for the quarter while the EAFE was down 20.50 %. The real estate portfolio managed by American Realty was down .56% for the quarter while the NCREIF was down .52 %. The fixed income portfolio managed by DHJ was down 2.88% for the quarter while the benchmark was down .13 %. Mr. Bogdahn noted that Agincourt did not have the money for the full quarter. There was discussion on the actuarial assumption rate of 8.25% and if that was realistic in the long term. Mr. Bogdahn stated that it could get problematic depending on what happens with the 60T workshop. He discussed the proposed changes to 60T with respect to the rate of return. He stated that if the Fund can add TIPS, timber and infrastructure that would help diversify the Fund even more and would add more value. However, there would need to be an Ordinance change to allow some of those asset classes. There was discussion on the sanctions, if any, of not following the proposed 60T rules if they are adopted. Mr. Sugarman stated that the sanctions would be the withholding of State monies. Mr. Bogdahn discussed Inflation Protected Securities — TIPS and CIPS. He stated that inflation protected securities are a negative correlation to equities. Over time they will underperform bond managers. The reason to have them in the portfolio is that during times of inflation or stress, they offer greater protection. Mr. Bogdahn reviewed the comparison between TIPS and CIPS. He stated that it is a great time to be buying long- term corporate stocks. However, the issue is whether the company will be around. CIPS are in a senior position for payment purposes. He stated that DHJ has a TIPSUPS program that has been in place for two years. He noted that CIPS have only been around since 2003 while TIPS have been around since 1997. He stated that the Fund could earmark 5% of the portfolio in a separate account for TIPS /CIPS. He stated that it would be a nice piece. He would need to add it to the Investment Policy Statement. Mr. Sugarman stated that it was a legal investment. There was a lengthy discussion on the concern of bond ratings, especially on the CIPS side. It was noted that a restriction would be placed that they could only buy domestic TIPS /CIPS so as not to exceed the international restriction. There was discussion on whether the Board could direct the manager to buy only TIPS and not CIPS. Mr. Bogdahn stated that he would not want to do that. He would want to give the manager the ability to purchase CIPS if they see an opportunity. However, they could place a restriction to purchase only CIPS that are AA rated or better. There was a discussion on the liquidity of such an investment. Mr. Bogdahn stated that the process of DHJ is longer term on TIPS and shorter term on CIPS to get a yield kick. He stated that with respect to the IPS he would add TIPS in the total Fund performance and on the fixed income side he would add TIPS as a component. The Board directed Mr. Bogdahn to invite Gilbert Garcia from DHJ to the next meeting to 3 make a presentation on TIPS /CIPS. Mr. Bogdahn stated that he would prepare a draft revised Investment Policy Statement for TIPS /CIPS. The Board inquired if diversifying into TIPS /CIPS. would affect the 8.25% assumed rate of return. Mr. Bogdahn stated that it helps the Fund achieve that rate by adding additional diversification and it is a hedge against the downside of equities. He stated that he would like the Fund to go into other fixed income asset classes like timber or infrastructure. Mr. Sugarman asked if the 8.25% assumed rate is realistic. He noted that most of his plans are at 8 %. Mr. Bogdahn stated that 8% is predominately the number. He stated that if the Board could change it without any negative consequences he would recommend it. However, the Board needs to weigh the consequences to the benefits. It will increase the funding requirement, which puts more money into the Plan. He stated that he does think the Fund can achieve 8.25% in the long term. If that rate could be reduced, it would give more wiggle room and he would encourage that. Mr. Bogdahn provided the Board with an international equity manager search. He stated that the Fund currently has Voyageur as the international manager, which is a value manager. He would like to add a growth piece of about $1 million. He reviewed the manager search process and provided three candidates to consider: American Funds EuroPacific Growth; MFS International Growth; and Harding Loevner International Equity. He reviewed the performance versus the universe through September 30, 2008 for the quarter, year to date, 1, 2, 3, 4, 5, 6 and 7 year time periods. He reviewed the risk and return analysis and the up and down capture ratios. He noted that EuroPacific has better risk adjusted numbers on both ends and also a higher return. However, they need to look at how the managers would pair up with Voyageur. He reviewed the performance rankings with 50% in Voyageur and 50% with each candidate. He reviewed the risk return analysis and the up and down capture ratios of each of the blended managers. It was noted that EuroPacific was an institutional mutual fund, which the Custodian can buy directly, and the fee is 67 basis points. The funding for the growth international manager would come from Voyageur. Mr. Sugarman stated that he was familiar with all three managers. Mr. Bogdahn recommended the EuroPacific Growth R5. It is the least expensive, it an institutional fund and is only offered to retirement plans that have over $1 million in assets. A motion was made, seconded and carried 4 -0 to accept the recommendation of the Investment Monitor and hire EuroPacific Growth R5. Mr. Sugarman discussed the fiduciary obligation of the managers. He stated that if the Board hires EuroPacific there would be no agreement where they will accept fiduciary duty. All that will exist is an agreement to buy the mutual fund. EuroPacific is obligated to go by whatever their prospectus says and must act in the best interests of the shareholders. Other managers are required to act in the best interests of the Participants and Beneficiaries of the Fund. Mr. Bogdahn stated that the Board could look at some additional managers who would agree to a side letter and he could bring that list back for the next meeting. Mr. Sugarman stated that the Board could direct Mr. Bogdahn to only bring companies that would acknowledge that they would be a fiduciary to the Plan either through an agreement or a side letter or the Board could take a risk with EuroPacific but he could not recommend that. He stated that he feels if a manager acknowledges a 4 fiduciary duty the Fund is better protected. However, if the Board decided to hire EuroPacific, it would be based on Mr. Bogdahn's recommendation and he is a fiduciary. There was a lengthy discussion. The Board decided to take a look at other managers because of the Attorney's recommendation. A motion was made, seconded and carried 3 -1 to reconsider the vote on the motion to hire EuroPacific. Mr. Rhodes opposed the motion. Mr. Sugarman stated that that wiped out the prior vote but not the prior motion. A motion was made, seconded and carried 4 -0 to table the motion to hire EuroPacific until the next meeting. ATTORNEY REPORT Mr. Sugarman discussed the status of the disability hearing for Toby Bivins. He stated that the hearing had been scheduled for today. However, the Board learned late last week that Mr. Hitchins would not be able to attend the meeting. A copy of that notice was sent to Mr. Sicking to give him the opportunity to reschedule if he wanted to have a full Board. Mr. Sicking called Mr. Sugarman and advised that he wanted a full Board. Mr. Sugarman recommended that the Board reschedule the hearing. Mr. Sugarman stated that he was asked if Mr. Bivins could receive his Share Account. The Ordinance provides that a terminated employee can received their Share Account after the fiscal year end of when they were terminated. However, because of investments the Actuary advised that Mr. Bivins could be give 50% of his Share Account Balance as of September 30, 2007. Mr. Sugarman reported that Jayne Goldstein sent a letter advising that she is with a new firm. He stated that she was asking the Board to sign an agreement to hire her with her new firm. A motion was made, seconded and carried 4 -0 to replace Mager and Goldstein with Shepherd & Finkelman and authorize the Chairman to execute the agreement. Mr. Sugarman discussed the issue concerning the Share Account balances and certain individuals that were hired at the same time but having different Share Account balances. Mr. Armstrong sent an e-mail stating that up until 2001 the shares were allocated to the salary of a member compared to total fire department payroll. After that the shares were allocated according to years of service and not pay. The Board did not recall that there had been two methods of allocation and thought it was only based on years of service. Mr. Sugarman stated that Mr. Armstrong was correct as to the way the Ordinance reads. The Board requested that Evan Bestland be called to come to the meeting as he was on the Board and might remember this issue. Mr. Sugarman discussed filing for an IRS Determination Letter. He stated that he was reversing their recommendation to submit for an IRS Determination Letter at this time. He stated that the IRS is sending out questionnaires to various plan and he thinks the chances of them selecting this Fund is very small. He stated that there have been two recent laws that need to be put in the Ordinance: PPA and the HEART Bill. The Fund has until 2012 to amend the Plan for these. Even if the Plan adds the necessary language for 5 these laws now, the IRS will not take a look at them if a Determination Letter submission was made now. Then the Board would need to go back in five years and do it again. He was not sure it was worth spending money now for something that they would have to do again in five years versus the risk of the IRS approaching the Fund. There was a lengthy discussion. A motion was made, seconded and carried 4 -0 to hold off on the IRS Determination Letter filing until the next cycle unless the Attorney makes a determination that it needs to be done earlier. Evan Bestland entered the meeting. There was a continuation of the discussion regarding the crediting to the Share Accounts. Mr. Bestland stated that to the best of his recollection the Share Accounts were set up to be fair and so they did it based on years of service and not pay. However, he did recall something that the attorney at the time said had to be done because of the State initially and then would be changed. It was determined that more research would need to be done. A motion was made, seconded and carried 4 -0 to have the Secretary research this further and report back at a future meeting. There was further discussion on the disability hearing for Toby Bivins. The Board asked if clarification was received from Dr. McFarland. Mr. Sugarman stated he provided the Board with all that was received. Mr. Murphy stated that he found that there was nothing to be found by talking to Mr. Bivins' co- workers for the time period of February 27 to March 27, 2007. He stated that he asked the questions that Mr. Sugarman provided and asked everyone the same thing. He stated that no one recalled where Mr. Bivins was not doing his share of the work. Mr. Sugarman stated that the option to send Mr. Bivins to Dr. Sherman for an FCE was not there because Dr. Sherman did not have the capability to do that. There was discussion on who else might be able to do that. The Board directed Mr. Sugarman to check with Dr. Lichtblau to get a FCE done and then have Dr. Sherman review the FCE before the disability hearing. Mr. Sugarman stated that he did not think that all would be done before the next meeting. The Board stated that they would call a special meeting for this matter if necessary. Mr. Sugarman provided an update on the proposed changes to the State Administrative Rules pertaining to funding and disclosure. He stated that there is a Rule 60T workshop tomorrow morning. He stated that Mr. Harrison and himself would be there representing the Fund and their other clients. A motion was made, seconded and carried 4 -0 to reimburse any Trustee for the cost of a renal car if they wanted to attend the workshop. Mr. Sugarman stated that it was a legitimate educational expense. Mr. Sugarman stated that there was a widely published newspaper article that stated that the IRS was going to eliminate the early retirement option. He stated that that issue has been put off for three more years until October 1, 2011 for this Plan. Mr. Sugarman discussed the issue. He stated that the problem has not gone away, it is just further down the road. 6 It was reported that the City has advised the Union that they are having a committee to research the issue of going to FRS. The committee consists of the City Manager; Fire Chief, Police Chief; HR Director; representative from the Fire Union and the Police Union; and the Finance Director. Mr. Sugarman advised Mr. Morejon to ask to be on the committee as the Firefighters Pension Fund's Chairman. Mr. Sugarman stated that it was disappointing to him that the expertise and value of this Plan is not recognized by the City to decide what this Plan is going to be. FRS is a good plan but the 175 monies would cease and there are the issues of the transition to FRS such as buying back past years in FRS at 2 %. Mr. Sugarman suggested that the Chairman formally request to put a person from this Board on the committee. A motion was made, seconded and carried 4 -0 to direct the Chairman to request the City Manager to have a representative of the Pension Board on the committee and copy the letter to the City Council and authorize the Chair to decide who that representative should be and give the Chair the authority to engage the Attorney and Actuary to perform whatever services are needed. OTHER BUSINESS There being no further business, the meeting adjourned. Respectfully submitted, Tom Murphy, Secretary