06/16/1997 (2)
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PENSION
.. (TRUSTEES)
.. Board of Trustees of the Employees'
,II Pension Fund
Minutes
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ACTION AGENDA
Board of Trustees of the Employeest Pension Fund
June 16, 1997
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TRUSTEES OF THE EMPLOYEES' PENSION FUND MEETING
June 16, 1997
The City Commission of the City of Clearwater, meeting as the Board of Trustees of
the Employees' Pension Fund, met in regular session at City Hall, Monday, June 16, 1997
at 9: 17 A.M., with the following members present:
Rita Garvey
J. B. Johnson
Robert Clark
Ed Hooper
Karen Seel
Kathy S. Rice
Pamela K. Akin
Cynthia E. Goudeau
Chairperson
Trustee
Trustee
Trustee
Trustee
Interim City Manager
City Attorney
City Clerk
ITEM #2 - Minutes:
Trustee Clark moved to approve the minutes of the June 2, 1997, meeting. The
motion was duly seconded and carried unanimously.
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ITEM #3 w Amendment to Investment Manaqement Aqreement with Alliance Capital
Management, L.P. which lowers the investment management fee schedule for the City of
Clearwater Employees' Pension Plan
Earlier this year two members of the Pension Investment Committee attended the
Callan Investment Institute. Based upon knowledge they learned, the committee
negotiated with Alliance Capital Management, L.P. to lower their investment management
fee.
Currently the fee is .40% for the first $25 million and .35% for all amounts over
$25 million. The new fee will be .20% for all amounts. Using the actual number for the
last 12 months, the new fee will result in a savings of $102,000.
In response to questions, Steve Moskun, Cash & Investment Manager, indicated
that while the 3.05% return generated by this manager last year was one of the City's
smallest returns, all fixed income programs are currently poor performers. He also
indicated staff's intent had been to negotiate a lower fee for the manager adopting a
passive style. However, Alliance agreed to the lower fee while maintaining an active style.
An overview of the Pension Fund investment mix and various managers was
requested. This will be done at a future meeting.
Trustee Seel moved to approve the amendment to the Investment Management
Agreement with Alliance Capital Management, L.P. The motion was duly seconded and
carried unanimously.
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~ ITEM #4. Authorize staff search for "core fixed income" stvle manaaer for Employees
Pension Fund; authorize Callan & Associates to assist with search; authorize cost of
search, including staff travel of approx. $3,500 to be paid from pension fund
. For the calendar year ending December 31, 1996, the Employees Pension Plan had a
rate of return of 14.8%. At March 30, 1997, the plan had investments with a market
value of $300.1 million. This amount is evenly split between equity and fixed income on a
cost basis. Market Values by Manager in Millions are: Ark - 26.4; Aeltus - 51.6; Denver -
47.6; Hanson. 50.2; Eickhoff - 59.1; Shields/Alliance - 60.9; and Pooled Cash - 4.3.
Last year at this time the trustees approved the addition of a "value" equity
manager to diversify the equity portion of the investments. The plan currently has four
equity managers.
The plan has two fixed income managers each with a different investment style,
Alliance Capital Markets (core) and Eickhoff, Piper & Willoughby (passive treasury and
insurance contracts).
The City contracts with Callan & Associates to provide performance measurement
and to provide information on investment managers.
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The Investment Committee unanimously recommends an additional "core fixed
income" style manager be added to better diversify the fixed income investments. The
committee is made up of the City Manager, Finance Director, Assistant Finance Director,
Finance Controller, Risk Manager, Senior Accountant and Cash & Investments Manager.
Callan's fee for the search will be $20,000. This fee will be paid by directing
investment trades through their broker and will not be an additional direct expense of the
plan.
The committee will come back to the Trustees in late summer or early fall with the
results of the search for approval. By adding an additional "core fixed income" manager
the investment fee will increase by an estimated $12,500 per year.
The cost of committee member travel to investigate/research the top ranked firm(s)
is estimated at $3,500. The actual amount will be affected by the location of the
investment manager(s) and the number that needs to be researched.
In response to a question, Mr. Moskun indicated most of the funds invested by the
new manager will come from those in the fixed category. However, some will come from
the equity category as the Pension Fund can only have a maximum of 50% of its
investments in the equity sector.
A question was raised regarding the increase in fees to the Pension Fund if the
money for the new manager is being taken from an existing one. Mr. Moskun indicated the
fee for the first $25 million for the new manager is higher.
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Discussion ensued regarding the need for a new manager and whether the current
rate of return on fixed investments is acceptable. Staff indicated as the Pension Fund
grows there is a need to diversify and the current return on fixed investments is
acceptable.
In response to questions, it was indicated the amount of funds handled by each
manager will be rebalanced. It was also reported that Callan & Associates, while assisting
with the search, will have no input into the manager's investment decisions.
Trustee Johnson moved to authorize staff to search for a "core fixed income" style
manager for the Employees Pension Fund, for Callan & Associates to assist with this
search, and for the cost of the search, including staff travel of approximately $3,500 to be
paid from the pension fund. The motion was duly seconded and carried unanimously.
ITEM #5 - Acceot Actuarv's Report for Emplovees' Pension Plan for plan year beginning
1/1/97 which requires city contribution at at least 7% (est. $3,146,874) at compensation
of all employees participating in the plan and an additional contribution (est. $338,526),
representing the difference between the Florida Statutes required contribution of
$3,485;400 and the City's estimated contribution per above, to be deducted from existing
credit balance of the plan (currently, $3,503,365)
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The actuarial valuation and report as of January 1, 1997 calls for a total required
contribution of $7,081,828. Employees contribute 8% ot salary anticipated to be
$3,596,428. The difference to be contributed by the city of $3,485,400 is a decrease of
$1,474,844 from last year. This decrease is primarily due to excellent investment
performance in 1995 (23.36%) and 1996 114.80%). The funded status 01 accumulated
plan benefits increased from 140% in 1996 to 151 % in 1997.
Since the City uses a smoothing approach to asset valuation, the difference
between the actual return for each year and the assumed rate of 7% is spread over 5
years. Based upon this method, the actuarial rate of return for 1996 was 11.54% and
$33,766,507 of existing investments are not recognized in determining the 1997 funding
requirement. Having a credit balance is not a normal occurrence in a pension plan.
The pension fund credit balance was first established in 1 991 when actual
contributions were in excess of those determined to be required. This occurs when the
Florida Statute required contribution is less than the ordinance required contribution. The
credit balance continued to increase through 1994 due to excess contributions and interest
earnings on the credit balance. In 1995 and 1996, due to increased funding requirements,
a portion of the credit balance was used.
The history of the amount of the credit balance is as follows:
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1/1/91
1/1/92
1/1193
1/1/94
1/1/95
1/1/96
1/1197
$ 865,313
$ 925,885
$3,865,373
$4,894,904
$5,304,094
$4,801,302
$3,503,365
A concern was raised regarding spending $2 million to reduce unfunded liability by
$1 million. Steve Metz, the Pension Fund's actuary, indicated this is similar to paying a
mortgage where the bulk of the interest is paid in the early years. Ms. Rice indicated this
method versus simply paying off the amount is reviewed frequently and staff is
comfortable this is the best method.
It was stated the pension fund is very well funded and a sound plan.
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Trustee Clark moved to accept the Actuary's Report for the Employees' Pension
Plan for the plan year beginning 1/1/97 which requires city contribution of at least 7% (est.
$3,146,874) of compensation of all employees participating in the plan and an additional
contribution (est. $338,526), representing the difference between the Florida Statutes
required contribution of $3,485,400 and the City's estimated contribution per above, to be
deducted from the existing credit balance of the plan. The motion was duly seconded and
carried unanimously.
ITEM #6 - Other Business: - None.
ITEM #7 - Adiournment:
The meeting adjourned at 9:35 a.m.
ATTEST: r~L. /Li2.~.
\l City Clerk
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