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Minutes 4-30-15.doc
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City of Palm Beach Gardens Police Officers’
Pension Fund
Minutes of the Meeting Held
April 30, 2015
The regular meeting of the Board of Trustees of the City of Palm Beach Gardens
Police Officers’ Pension Fund was called to order at 9:17 AM by Jay Spencer in the
Council Chambers at the Palm Beach Gardens City Hall at 10500 North Military Trail,
Palm Beach Gardens, Florida.
TRUSTEES PRESENT OTHERS PRESENT
Jay Spencer, Chairman Audrey Ross (Resource Centers)
Marc Glass, Trustee Bonni Jensen (KKJ&L)
Brad Seidensticker, Trustee Brendon Vavrica (Thistle Asset Consulting)
Greg Mull, Trustee Richelle Hayes (American Realty)
Brad Rinsem (Salem Trust Company)
Karen Russo (Salem Trust Company)
Jim Burdick (Cherry Bekaert)
Pete Strong (GRS)
Alan Owens (City of PBG Finance Director)
PUBLIC COMMENTS
N/A
PRESENTATION OF THE 9/30/2014 AUDITED FINANCIAL STATEMENTS
Cherry Bekaert – Presented by Jim Burdick
Mr. Burdick welcomed himself back and stated that an unqualified opinion was issued
this year, which is the highest level. He also noted that there were no deficiencies or
material weaknesses found while performing the audit. He reviewed the new GASB
statements in which are required this year, but he explained that they do not change
the Plan’s assets or financial statements; they are just for reporting purposes. Next
year the City will need to implement the new GASB 68 disclosures which will then
carry the pension’s liability on their books. Mr. Burdick explained that they did have
to perform additional procedures this year due to the Salem Trust adverse opinion
letter that was issued, but in the outcome there were no findings but it did take
additional work. He also noted that two of the international accounts are held and
purchased through Salem Trust so it was a little harder to get backup information
detail information pertaining to just this fund. Ms. Jensen asked if this is something
that the Board should consider changing and Mr. Burdick stated that it is not an audit
decision but more of an investment decision and also it is not uncommon to have it
invested this way. He reviewed and compared the statements of assets from 2013
to 2014 and noted that the total assets increased to $72.3M in 2014 from $64.6M in
2013. There was an increase in benefit payments due to more retirees and members
exiting the DROP, as well as an increase to the employer contributions and the State
money. The employee contributions slightly decreased this year as well as the total
administrative expenses, but the investment expenses increased. Lastly Mr. Burdick
discussed the Salem Trust issue and how the additional fees were incurred that
totaled $1,800. Ms. Jensen stated that Salem Trust has agreed to pay the additional
costs for other clients in the same position, but first the Board needs to approve the
fee and then submit it to Salem Trust for reimbursement.
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MOTION: Mr. Glass made a motion to approve and authorize Cherry
Bekaert’s additional audit fee in the amount of $1,800 and to
submit the bill to Salem Trust.
SECOND: Mr. Seidensticker seconded the motion.
CARRIED: The motion carried unanimously 4-0.
MOTION: Mr. Glass made a motion to approve and authorize the Chair to
sign the audit representative letter as presented.
SECOND: Mr. Seidensticker seconded the motion.
CARRIED: The motion carried unanimously 4-0.
MOTION: Mr. Seidensticker made a motion to approve and the September
30, 2014 audited financial statements as presented.
SECOND: Mr. Glass seconded the motion.
CARRIED: The motion carried unanimously 4-0.
PRESENTATION OF THE 9/30/2014 ACTUARIAL VALUATION REPORT
GRS – Presented by Pete Strong
Mr. Strong explained that this valuation does not include the future changes that will
be occurring in 2016. The required employer contributions will increase from
46.77% to 59.42% of covered payroll effective October 1, 2016. Mr. Strong stated
that there are a lot of active members that are currently in the DROP, so when they
exit the City will need to hire some new members. This year the Plans assumed rate
of return was lowered from 7.2% to 7.1% with a goal of 6.5%. The Plan had a net
gain this fiscal year of $1,184,221 which was primarily due to lower than expected
salary increases and also due to investment gains. Mr. Strong noted that he thinks
the salary projection increase of 7.5% might be a little too high going forward and
also the retirement assumption is also a little on the high end. Therefore the Board
should consider doing an experience study in the near future to review all their
assumptions to see if they are inline. Lastly Mr. Strong reported that the Plan’s
funded ratio slightly increased this year from 69.2% to 70.8% and he reviewed the
Plan’s unfunded liability and discussed lowering the amortization period from 15
years to 10 years. The Trustees stated that they are fine with staying at 15 years as
the Division of Retirement recommends no less than 25 years.
MOTION: Mr. Glass made a motion to approve and authorize GRS to
complete a full experience study.
SECOND: Mr. Seidensticker seconded the motion.
CARRIED: The motion carried unanimously 4-0.
MOTION: Mr. Mull made a motion to approve the September 30, 2014
Actuarial Valuation Report as presented.
SECOND: Mr. Glass seconded the motion.
CARRIED: The motion carried unanimously 4-0.
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MOTION: Mr. Glass made a motion to set the expected rate of return at
7% for the next year, 6.9% for the year after, and 6.5% for
every year thereafter.
SECOND: Mr. Mull seconded the motion.
CARRIED: The motion carried unanimously 4-0.
Mr. Strong discussed the DROP assets. He explained that more of the Plan assets
are becoming DROP assets (up to $11.3M) and in the future the Board may want to
consider a different approach because you do not want the DROP assets to become
such a large part of the Plan’s total assets; especially when guaranteeing a fixed rate
of return of 6.5%. Mr. Strong stated that he is not concerned about it right now but
it is something that the Board needs to think about in the future because it could
become a leveraging risk.
CUSTODIAN REPORT
Salem Trust Company – Presented by Brad Rinsem & Karen Russo
Mr. Rinsem stated that Salem Trust is reaching out to all their clients and he and Ms.
Russo are here today to review their failed system conversion issue that took place
in 2013 and now the subsequent SAE16 audit that followed. Mr. Rinsem briefly ran
through the conversion process and what lead up to all the issues that they had
during that time. Investment Managers were not following the new instructions and
ultimately that caused delays in transactions and trades being posted and then a
snowball of other issues occurred from there. Everything since then has been fixed
and till this day everything continues to run smoothly, although they did just wrap
up their audit cycle for that time period in which the transition occurred. The
auditors issued an adverse opinion in their audit and when the report was released it
caused a stir with some of auditors that they work with on the pension funds. Mr.
Rinsem explained that some auditors felt like they needed to do additional testing
since they could not rely on Salem Trust’s audit at this point, and some auditors
stated that they already do additional testing during the auditing process so they
were comfortable with the outcomes. Ultimately in the end there have been no
findings in the reports where additional testing was completed and that going
forward all their SAE16 reports should come back clean since this is something they
have to put behind them. Lastly Mr. Rinsem explained that last time they attended
this Plan’s meeting they agreed to a 15% discount and they will also agree to pay
any reasonable costs associated with this year’s audit. Ms. Ross stated that this Plan
has already received a bill from their auditor for $1,800 related to this issue. Mr.
Rinsem stated that he will review the bill for approval once he gets a breakdown
from the Plan’s auditor.
INVESTMENT MANAGER REPORT
American Realty – Presented by Richelle Hayes
Ms. Hayes welcomed herself back and commented that there have been no firm or
personnel changes since they last meet. American Realty remains the largest
privately held real estate manager with 151 properties in the portfolio and 9 offices
throughout the United States. American Realty is up to $6.78B in assets and they
only invest with pension plans like this one. Ms. Hayes briefly reviewed their
investment philosophy and process and noted that they focus on 4 certain areas
within the portfolio; office, industrial, retail, and multifamily. Their investment
committee meets once a week to review all the leads and opportunities that they
receive in. American Realty does not hold any debt as a company, but within each
individual property they may hold a little debt as their total debt remains low at
17.2%. Also about 70% of that debt is on a fixed rate. Ms. Hayes reviewed the
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Plan’s performance as of March 31, 2015 and commented that they are up 4.17%
net of fees versus the index at 3.06%, but for the fiscal year they are slightly behind
the index net of fees at 11.73% versus 12.24%. Overall the fund and real estate are
doing well. American Realty still has an incoming queue around $80M, and this
Plan’s full commitment is $3.9M but only $700K of it was taken in early 2015. The
Trustees had a lengthy discussion on increasing their overall real estate target to
10%. Mr. Vavrica stated that it would also require a policy change.
MOTION: Mr. Seidensticker made a motion to approve to revise the Plan’s
Investment Policy Guidelines to reflect an increase to the real
estate policy to 10% (with a 7.5% target maximum) by
decreasing the total fixed income target from 30% to 25%.
SECOND: Mr. Glass seconded the motion.
CARRIED: The motion carried unanimously 4-0.
MOTION: Mr. Glass made a motion to authorize the transfer of the rest of
the 7.5% from the fixed income account to the American Realty
account when called.
SECOND: Mr. Mull seconded the motion.
CARRIED: The motion carried unanimously 4-0.
INVESTMENT CONSULTANT REPORT
Thistle Asset Consulting – Presented by Brendon Vavrica
Mr. Vavrica reviewed the Plan’s asset allocation during the quarter and noted that
they remain a little underweighted to fixed income but that is fine due to the market
environment. For the quarter ending March 31, 2015 the total fund outperformed
the index net of fees at 2.83% versus 2.41% and for the fiscal year to date they are
in the same position at 6.79% net of fees versus the benchmark at 5.93%. Also as of
March 31, 2015 the Plan’s assets have increased to $75.7M. Mr. Vavrica briefly
reviewed each managers performance during the quarter and noted that all
managers outperformed their indexes with the exception of the Highland Capital
fixed income account and the international equities. He explained that the Plan is
moving in the right direction as they are taking less risk and getting more of a
return. Mr. Vavrica stated that Rhumbline now offers an international mutual fund
product that could be another option for the Plan that was not there before. Ms.
Jensen stated that she thinks that if the Board did make this change to Rhumbline’s
international mutual fund product, than there would be too many assets with 1
manager. The Trustees briefly discussed and noted that they like their diversification
with the other 4 international accounts that they currently have.
ATTORNEY REPORT
KKJ&L - Presented by Bonni Jensen
Ms. Jensen notified the Trustees that their Annual Form 1 Disclosures are due July 1,
2015.
Ms. Jensen updated the Board on the pending IRS determination letter. She
explained that back in December 2014 the IRS liked how the DROP accounts were
setup and funded and had no problem with them, but since then the Plan has
received a letter from the State with some additional questions regarding the DROP
accounts. Ms. Jensen responded to the questions around early April but she has not
heard anything else since and commented that she will update the Board as more
information becomes available.
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Ms. Jensen explained that Mr. Pierson’s Trustee term expired back on December 31,
2014 and according to the City Clerk’s office he was not supposed to be reappointed
as Mr. Pierson is not a City of Palm Beach Gardens resident; he resides in an
unincorporated Palm Beach County neighborhood. Therefore the City terminated his
position on the Board and stated that they are working on appointing a replacement.
The Trustees extended their gratitude and thanks to Mr. Pierson for taking the time
to serve on the pension Board for all the years that he did. Also the Trustees
directed Ms. Ross to purchase a gift card to the Riverhouse Restaurant for Mr.
Pierson on behalf of the pension board to show their appreciation like they have for
all prior Trustees that served on the pension Board as well.
MOTION: Mr. Seidensticker made a motion to authorize the Plan’s
Administrator to purchase a $200 gift card to the Riverhouse
Restaurant for former Trustee David Pierson on behalf of the
Pension Board.
SECOND: Mr. Mull seconded the motion.
CARRIED: The motion carried unanimously 4-0.
ADMINISTRATOR REPORT
Resource Centers – Presented by Audrey Ross
Ms. Ross notified the Board that she is in the process of renewing the Plan’s tax
exempt certificate with expires within the next couple of months.
MINUTES
MOTION: Mr. Glass made a motion to approve the minutes from the
January 29, 2015 regular meeting.
SECOND: Mr. Mull seconded the motion.
CARRIED: The motion carried unanimously 4-0.
DISBURSEMENTS APPROVALS
MOTION: Mr. Seidensticker made a motion to approve the
disbursements.
SECOND: Mr. Glass seconded the motion.
CARRIED: The motion carried unanimously 4-0.
BENEFIT APPROVALS
MOTION: Mr. Mull made a motion to approve the applications to exit the
DROP for Robert Thomas, Ernest Carr, Rick Facchine & Jack
Segreto, the applications for distribution from DROP account
(4/15/2015) for Gwen Fleming & Robert Thomas, and the
applications for distribution from DROP accounts for Wayne
Sidey & Robert Wummer.
SECOND: Mr. Glass seconded the motion.
CARRIED: The motion carried unanimously 4-0.
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FINANCIAL STATEMENTS
The board reviewed and discussed the financial statements that were provided
through March 2015.
The board received and filed the financial statements through March 2015.
OTHER BUSINESS
The Trustees changed the August meeting date from August 24, 2015 to August 12,
2015.
AJOURN
There being no further business, the Trustees officially adjourned the meeting at
12:19PM. The next meeting is scheduled for Wednesday August 24, 2015 at 9AM.
Respectfully submitted,
_____________________________
Brad Seidensticker, Secretary