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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. W 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 r Date Approved by the Pension Board: January 27, 2021 M