HomeMy WebLinkAboutMinutes Fire Pension 102820CITY OF PALM BEACH GARDENS
FIREFIGHTERS' PENSION BOARD OF TRUSTEES
QUARTERLY MEETING MINUTES
City Hall, Council Chambers
10500 North Military Trail Palm Beach Gardens, FL 33410
Wednesday, October 28, 2020, at 1:OOPM
TRUSTEES PRESENT: Ed Morejon
Rick Rhodes
Jon Currier
Frank Spitalny
Eric Bruns
TRUSTEES ABSENT: None
OTHERS PRESENT: Michelle Rodriguez, Foster & Foster (via phone)
Siera Feketa, Foster & Foster
Doug Lozen, Foster & Foster (via phone)
John Thinnes, AndCo Consulting (via phone)
Pedro Herrera, Sugarman and Susskind (via phone)
Members of the Public
1. Call to Order — Rick Rhodes called the meeting to order at 1:02pm.
2. Roll Call — As reflected above.
3. Public Comments — None.
4. Approval of Minutes
The Board approved the July 20, 2020, disability hearing meeting minutes, upon motion by Frank
Spitalny and second by Jon Currier; motion carried 5-0.
The Board approved the July 29, 2020, quarterly meeting minutes, upon motion by Jon Currier and
second by Frank Spitalny; motion carried 5-0.
5. Reports
a. AndCo Consulting, John Thinnes, Investment Consultant
i. Quarterly report as of September 30, 2020 (preliminary)
1. John Thinnes commented the report being presented was preliminary as
they did not have the returns for American Realty yet, but American Realty
was pretty flat and therefore, there would not be a large impact to the
overall figures.
2. John Thinnes reviewed the market environment for the quarter. John
commented the market was currently down 3.0%.
3. John Thinnes reviewed the schedule of investable assets.
4. John Thinnes reviewed the asset allocation commenting there was no
need to rebalance at this time.
5. The preliminary market value of assets as of September 30, 2020 was
$116,926,974.
6. The total fund gross returns for the quarter were 4.57%, underperforming
the benchmark of 5.78%. The total fund trailing gross returns for the 1,3,
5, 7, and 10-year periods were 5.88%, 6.95%, 8.86%, 8.34% and 9.15%
respectively. Since inception (May 01, 1998), total fund gross returns were
6.34%, slightly underperforming the benchmark of 6.35%.
7. John Thinnes reviewed the Fiscal -Year -To -Date (FYTD) returns and the
returns of the investment managers on a FYTD basis, which contributed
to the total gross FYTD return.
8. Ed Morejon, Frank Spitalny, and John Thinnes discussed the value tilt.
9. John Thinnes commented on a FYTD basis their returns were not very
good, but on a long-term basis the plan was still a top performing plan.
10. Ed Morejon and John Thinnes discussed the Garcia Hamilton Hybrid
Index. John commented Agincourt and Garcia Hamilton were being
benchmarked against the aggregate. John reviewed the reason for the
Garcia Hamilton Hybrid Index commenting he could add a separate line
item for the aggregate since that was the benchmark used, but he would
leave the hybrid on the report since that was what had been used over the
last ten years.
11. Eric Bruns asked if the returns of the investment managers were gross or
net -of -fees. John Thinnes commented they were gross on the comparative
performance, but he could add a page to show net -of -fees for the
investment managers.
12. John Thinnes commented since the last time the Board met, AndCo's
research team had recommended they part ways from Templeton. John
recommended terminating Templeton and splitting the funds between
Agincourt and Garcia Hamilton and reassessing the fixed income part of
the portfolio after the year had ended given the current environment.
13. Eric Bruns asked if John Thinnes recommended terminating now. John
commented he did, and he could begin the process the next business day.
14. Ed Morejon and John Thinnes discussed the global fixed income space.
John Thinnes commented after the year was over, the Board could better
reevaluate that space.
15. Rick Rhodes asked if moving the funds would keep the plan in compliance
with the Investment Policy Statement (IPS) and John Thinnes confirmed
the plan would be in compliance.
16. Ed Morejon and John Thinnes discussed the timing of the transition. John
commented they did not time the market and it was a process that took
the normal course of business and therefore, was not instant.
17. Ed Morejon asked if the funds would be split 50/50 to Garcia and
Agincourt. John Thinnes commented it would be as close to 50/50 as
possible.
18. Eric Bruns and John Thinnes discussed the global fixed income space in
the long-term. John reviewed why the global fixed income was put into the
portfolio.
19. Eric Bruns asked if the IPS should be reassessed. John Thinnes
commented the IPS was fine for now, but it could be reviewed in 2021
along with the non -core fixed income.
20. Rick Rhodes commented Agincourt seemed to be doing better than Garcia
Hamilton consistently. John Thinnes reviewed the Agincourt portfolio and
the factors contributing to their returns.
The Board voted to liquidate Templeton Global Bond Fund, redistributing those assets to Agincourt
and Garcia Hamilton as an approximately 50/50 split and then reevaluating the global fixed income
space at the beginning of the next year, upon motion by Eric Bruns and second by Frank Spitalny;
motion carried 4-1, with Rick Rhodes opposing.
21. John Thinnes reviewed the performance and fees of Dana Large Cap
Equity, Eaton Vance Atlanta Capital, Fiduciary Management, and the
Vanguard Total Stock Market Index. John commented there were some
interesting opportunities.
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22. John Thinnes commented Fiduciary Management still had an approved
strategy but had high fees for their lack of performance. John commented
the Board could consider hiring a manager that would meet the benchmark
for a lower fee than Fiduciary Management. Eric Bruns agreed with John
and reviewed his concerns with the fees paid and the lack of performance.
Eric commented he was looking at performance and cost.
23. The Board discussed the domestic equity investment managers and the
performances and fees of each manager.
24. Rick Rhodes commented he would like to terminate Dana, Eaton Vance,
and Fiduciary Management. John Thinnes agreed with Rick regarding
Dana and Fiduciary Management, but commented Eaton Vance was put
in the portfolio three years ago and had outperformed each year even
though their FYTD return were low. John commented they had performed
well, and the returns reflected were net -of -fees as it was a mutual fund.
25. Jon Currier asked how long it would take to transition. John Thinnes
commented it would be about a week and a half.
26. Ed Morejon commented it appeared the imbalance was strictly with
Fiduciary Management. John Thinnes commented he felt growth
companies were overvalued and reviewed growth companies.
27. Ed Morejon commented the investment consultant was retained to ensure
the plan stayed balanced. John Thinnes commented these managers
naturally tilt more value, but that was why it was being addressed now.
28. John Thinnes and Rick Rhodes discussed which managers would perform
better in a poor performing market.
29. The Board discussed terminating Fiduciary Management. Rick Rhodes
asked if John Thinnes would use a transition manager to sell the funds.
John Thinnes reviewed the role of a transition manager and commented
he would reach out to the firm to determine if it was worth hiring one.
30. Frank Spitalny and John Thinnes discussed the performance of Dana.
31. Ed Morejon reviewed the intent with adding Dana to the portfolio.
32. Eric Bruns and John Thinnes discussed terminating Fiduciary
Management as a priority and then Dana later.
33. John Thinnes recommended moving half of the funds to the Vanguard
Total Stock Index and reviewed the reasons for his recommendation. John
commented he would like to add more small caps to the portfolio. John
recommended moving the other half of the funds to Vanguard Small Cap
Core Index to round out the portfolio.
34. John Thinnes and Ed Morejon discussed why Fiduciary Management was
added to the portfolio and how terminating them would impact the plan.
35. The Board and John Thinnes discussed the impact of investing in small
caps.
36. John Thinnes commented they had approximately $12M with Fiduciary
Management and the Board would need to decide on how they were
allocating those funds if they terminated them. John reviewed his
recommendation of putting half into the Vanguard Small Cap Core Index
and the other half to the Vanguard Total Stock Index. John Thinnes
confirmed the Vanguard Small Cap Core would be a new allocation for the
plan and the plan was already invested in the Vanguard Total Stock Index.
The Board voted to liquidate Fiduciary Management and move half of the funds to the Vanguard
Total Stock Index and the other half to the Vanguard Small Cap Core Index and have the investment
consultant contact a transition manager to see if makes sense financially to utilize them, upon
motion by Jon Currier and second by Eric Bruns; motion carried 5-0.
37. John Thinnes commented if it did not make sense to use the transition
manager, he would contact Fiduciary Management directly to begin the
liquidation.
Foster & Foster, Doug Lozen, Plan Actuary
i. Experience Study
1.
Doug Lozen reviewed the purpose of the experience study commenting
the study compared the actual plan experience to the current assumptions.
Doug commented they needed to review each assumption individually and
the goal was to pick assumptions that were reasonable individually. Doug
commented an experience study should be prepared about every five
years.
2.
Doug Lozen reviewed the summary of the experience study that showed
the increase/decrease to the required City/State Contributions and
Unfunded Accrued Actuarial Liability (UAAL) and the impact to the Funded
Ratio if they changed various assumptions to the plan.
3.
Doug Lozen reviewed the current funded ratio under the current
assumptions stating it was 84.1%.
4.
Doug Lozen reviewed the factors that impacted the funded ratio. Frank
Spitalny asked if the goal was to have the funded ratio at 100%. Doug
Lozen gave a brief overview commenting 84.1 % was a reasonable funded
ratio. Doug commented the City's current dollar requirement was about
four million dollars.
5.
Doug Lozen reviewed the investment return assumption commenting the
City's cost initially goes up but in the long term it would go down if future
returns exceeded the assumption. Doug reviewed the investment return
commenting he would give a recommended range, but he would not tell
the Board what assumption to pick. Doug commented the current
assumption was 7.15%. Doug reviewed the trend around the country and
commented FRS was at 7.0% as of recently. Doug commented the current
return was reasonable and in range, but they want to keep pace with the
trend of decreasing the investment return assumption. Doug reviewed the
two options he provided for the investment return and the funded ratio for
each scenario.
6.
Rick Rhodes commented the current plan was to decrease the assumed
rate by 10 basis points per year. Doug Lozen commented the Board
should confirm they would like to stay with the glidepath approach. Doug
and the Board discussed the glidepath approach and how it worked. The
Board agreed by consensus to remain with the glidepath approach.
7.
Doug Lozen reviewed the actual salary increases in comparison to the
assumption. Doug commented it appeared the salary increases were
lower than expected, but that did not necessarily mean the assumption
should be lowered to actual experience as the increases could go up.
Doug reviewed the proposed salary assumptions.
8.
The Board, Pedro Herrera, and Doug Lozen discussed the definition of
salary in the Ordinance and the raises included in the current Collective
Bargaining Agreement (CBA) that firefighters had received. Doug Lozen
briefly reviewed the data that was used for the experience study. Doug
commented out of caution they could leave the current assumption in
place. The Board discussed the data used for the experience study. Ed
Morejon commented the actual salaries in the experience study seem to
make sense as the pensionable wages became limited in 2012.
Note: Eric Bruns left room at 2:43pm.
9. The Board and Doug Lozen discussed reasonable salaries in the future.
The Board found the proposed salary increases to be reasonable.
Note: Eric Bruns returned at 2:45pm.
10. Doug Lozen reviewed the mortality assumption. Doug reviewed the
change in the mortality table used by FRS. Doug commented they found
income played a role in life expectancy and overall people were living
longer. Doug reviewed the FRS mortality table that could be adopted with
various adjustments. Doug recommended using the FRS mortality
assumptions with an adjustment to use the no income adjustment rates for
actives and above -median rates for all non -disabled retiree lives.
11. Rick Rhodes asked if they could use the no income adjustment for both
active and non -disabled retirees. Doug Lozen commented he did not see
justification in that as the retiree rates were high. Doug reviewed the tables
commenting at every rate the plan retirees have better benefits than the
published table.
Note: Ed Morejon left room at 2:53pm.
12. Doug Lozen reviewed the assumption for retirement rates commenting
they found people with 25 years of service had historically deferred
retirement. Doug reviewed the actual retirement experience.
Note: Ed Morejon returned to room at 2:55pm.
13. Doug Lozen recommended lowering the assumed rate of retirement for
members with less than 25 years of service. Doug recommended doubling
the assumption for early retirement. Doug commented the total impact of
the recommended changes to the retirement assumption was a 1.34%
decrease for the City.
14. Doug Lozen reviewed the withdrawal assumptions commenting the plan
had experienced low turnover. Doug recommended lowering the
assumption for the withdrawal rates. Doug commented there would be a
cost to lowering this assumption as that meant they expected more people
to retire. Doug commented the cost to the City was an increase of 1.61 %
of pensionable payroll.
15. Doug Lozen briefly reviewed the disability rates assumption commenting
there was not enough data to make assumption changes and therefore,
he was recommending no change.
16. Doug Lozen recommended adopting all assumption with the previously
adopted 7.05% investment return for the October 01, 2020 valuation
report. Rick Rhodes commented the investment return assumption would
decrease 10 basis points per year until they reach 6.75%.
17. Ed Morejon confirmed with Doug Lozen the assumptions they were
approving were for the October 01, 2020 valuation report.
18. Doug Lozen briefly reviewed the impact to the City of adopting all
recommended assumption changes.
The Board voted to accept the actuary's recommended assumption changes based off the
experience study with an investment return assumption of 7.05% for the October 01, 2020 valuation
report, upon motion by Ed Morejon and second by Jon Currier; motion carried 5-0.
c. Sugarman and Susskind, Pedro Herrera, Plan Attorney
i. Pedro Herrera commented the Governor's executive order allowing for virtual
meetings expired this month and reviewed the Governor's decision to extend it
historically.
ii. Pedro Herrera briefly reviewed the items he worked on between meetings
commenting one item was for a firefighter who was staying employed past their
DROP exit date. Pedro Herrera commented the plan could not enforce an
employment decision. Ed Morejon asked if this had an impact the IRS qualification.
Pedro Herrera commented it would not impact the IRS qualification of the plan.
5
iii. Pedro Herrera and Ed Morejon discussed the case of the Fire Chief staying
employed. Pedro commented the benefits could not be paid out until he was fully
separated. Pedro commented if he returned to employment the payments would
have to be suspended until he separated employment again.
iv. The Board and Pedro Herrera discussed the Fire Chief being able to opt out.
v. Pedro Herrera commented another item he worked on was a subpoena sent to the
Plan Administrator.
vi. Ed Morejon briefly reviewed the presentation by Ken Harrison at the FPPTA Virtual
Summit regarding the impact of COVID-19. Pedro Herrera reviewed the Secure
Act and Cares Act and the potential impact to the plan.
6. New Business
a. Proposed 2021 Meeting Dates
i. Michelle Rodriguez reviewed the proposed 2021 meeting dates. The Board agreed
by consensus with the proposed 2021 meeting dates as presented.
b. Member Elected Trustee Seat
i. Michelle Rodriguez briefly reviewed the next trustee term starting on January 01,
2021. Michelle commented they would need to hold an election for Ed Morejon's
seat as he would be resigning by December 31, 2020.
c. Trustee Election Process
i. Michelle Rodriguez commented they would need guidance from the Board on how
to hold the election as her office was unable to locate an election policy in the
records from the prior administrator. Ed Morejon commented it had been done by
mail and by posting in the fire station.
ii. Pedro Herrera reviewed the potential concerns with using email.
iii. The Board discussed having the nomination period for the month of November and
using mail for the election.
iv. Pedro Herrera commented he had record of an election policy and would send it
the plan administrator.
d. Fund Total Cost Analysis and Discussion
i. Eric Bruns commented this was covered under the investment consultant's
report. Eric commented his concern was the entire cost of the investment
managers being reasonable. Pedro Herrera commented based on his experience
the fees of the investment managers were reasonable.
7. Old Business
a. Pension contributions on leave payouts
i. Michelle Rodriguez gave a brief overview as to why this was being discussed and
the leave balances that were included in Average Final Compensation (AFC).
Michelle commented they needed Board direction to determine if contributions
needed to be collected on the members that had recalculations to include their
September 13, 2012 leave balances. Michelle commented when members entered
DROP the contributions were not collected by the City, but they were collected by
the City for the hours actually paid out to those who retired without entering DROP.
ii. Doug Lozen commented from his perspective everyone should be treated equally.
Doug Lozen commented it was common to debit the contributions against the
DROP account.
iii. The Board discussed whether contributions should be paid on the leave payouts
included in AFC.
iv. Ed Morejon reviewed the DROP retirees and the retirees who had exited DROP
that would be impacted. Ed commented the intent was to use the watermark
amount of accruals on September 13, 2012. Michelle Rodriguez asked if the
pension contributions were ever discussed when the negotiations occurred. Ed
confirmed the pension contributions were not discussed.
v. The Board and Michelle Rodriguez discussed the situations in which members
terminated and retired without entering DROP and their leave balances at the time
of retirement were lower than their 2012 balance. Michelle commented their 2012
no
balance was included in the AFC, but pension contributions were only withheld on
the amounts paid to the members.
vi. The Board and Michelle Rodriguez discussed the frequency in which members
were paid out leave balances.
vii. The Board, Pedro Herrera, and Michelle Rodriguez discussed the intent of the
Union when the leave balances were limited.
viii. The Board and Pedro Herrera discussed how the current payouts and pension
contributions worked. Ed Morejon gave an example of how his payout was made.
ix. Pedro Herrera commented the question was whether members owe pension
contributions on the funds and he felt the members did owe pension contributions.
Pedro commented it was an administrative issue to make sure they collected the
pension contributions.
x. The Board discussed the impact to the retirees that would owe pension
contributions.
A. The Board discussed the pension contributions and how they would be paid.
xii. Michelle Rodriguez commented she would need direction on how to handle the
contributions. Michelle and Siera Feketa discussed how the pension contributions
were currently being collected on amounts actually paid to retirees.
Note: Rick Rhodes left room a 3:59pm.
xiii. The Board discussed the definition of salary and what should be included in
pensionable salary and AFC. Pedro Herrera read the definition of salary in the
Ordinance.
Note: Rick Rhodes returned at 4:01 pm.
xiv. Pedro Herrera commented pension contributions should have been paid on the
2012 balance that was included in AFC.
xv. Siera Feketa, Pedro Herrera, and Michelle Rodriguez discussed when pension
contributions were withheld by the City. Pedro reviewed the inconsistencies in
withholding pension contributions commenting there were people who owe the
plan money.
xvi. Michelle Rodriguez commented she would have the actuary confirm the member
contributions owed before contacting the members.
xvii. The Board discussed the letters that were approved to be sent to the members
that were overpaid on their ICMA-RC DROP accounts. Siera Feketa gave a brief
update commenting some may be affected by the pension contributions, so they
were waiting on Board direction regarding the collection of the contributions. Pedro
Herrera commented for ease it made sense to handle both issues with one letter.
The Board voted to authorize the administrator to work with the actuary to confirm the unpaid
contributions to be paid on sick balances included in AFC that pension contributions were not
collected on and to send a letter to those members to collect the contributions, upon motion by Jon
Currier and second by Ed Moreton; motion carried 5-0.
xviii. Pedro Herrera, Michelle Rodriguez and the Board discussed the letter to be sent
to the members. Pedro commented in terms of process, Michelle would get with
the actuary to determine the amounts and draft letters to be sent out. Pedro
commented he could review the letters.
Update on DROP Exit Dates
i. Siera Feketa commented Eric Bruns was going to bring an update. Eric
commented he passed along the information as requested.
8. Consent Aaenda
a. Payment ratification
i. Warrant #35 and #36
b. Payment approval
i. None
c. Fund activity report for July 23, 2020 through October 21, 2020
7
The Board voted to accept the Consent Agenda as presented, upon motion by Frank Spitalnv and
second by Ed Moreion: motion carried 5.0.
9. Staff Reports, Discussions and Action
a. Foster & Foster, Siera Feketa, Plan Administrator
i. Update on State Monies
1. Siera Feketa commented the distribution of state monies in the amount of
$719,467.24 was deposited on August 20, 2020. Ed Morejon and Pedro
Herrera discussed the supplemental distribution. Pedro Herrera
commented there was not a supplemental distribution this year.
ii. Renewal of FPPTA Board Membership
1. Siera Feketa briefly reviewed the FPPTA membership renewal
commenting they did not receive the exact fee yet, but the FPPTA
indicated it would be close to the prior year's renewal flee of $620.
The Board approved renewing their 2021 FPPTA membership, upon motion by Eric Bruns and
second by Jon Currier; motion carried 5-0.
iii. Cyber Liability Insurance Memorandum
1. Siera Feketa briefly reviewed the increase in Foster & Foster's cyber
liability coverage.
iv. Siera Feketa reviewed the upcoming FPPTA Winter Trustee School from January_
24-27, 2021 in Orlando, FL
v. Siera Feketa gave a brief update on the proposed Ordinance that was approved
at the previous meeting commenting she had not received a response from the
City.
10. Trustee's ReRorts, Discussion and Action
a. Jon Currier asked if the FPPTA was waiving any CEU requirements. Siera Feketa
commented they were not and reviewed the FPPTA Virtual Summit. Siera commented she
would confirm.iY'they could stiff be registered if they need CE'Us.
11. Adjournment -- The meeting was adjourned at 4:20pm.
12. Next Meeting — January 27, 2021, at 1:00pm, quarterly meeting,
Resp ctfully submitted by:
"A'Q 4 A � 'La i a)
Siera Feketa, Plan Administrator
Appr ✓�
Jorurrier, Secretary
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Date Approved by the Pension Board: January 27, 2021
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