06/14/2004Pension Trustees Aqenda
r Cleamat Date: 06/14/2004 1:00 PM
Location: Council Chambers - City Hall
Call to Order
Approval of Minutes
05-17-2004
Pension Trustee Items
Robert Sebek, Public Services Department; Geri Doherty, Development &
Neighborhood Services Department; Rowland Herald, Fire Department; Paul McCann,
Fire Department; and Craig McGarry, Police Department, be granted regular pensions
under Section(s) 2.393 and 2.397 of the Employees' Pension Plan as approved by the
Pension Advisory Committee.
2 Michael N. Anderson, Public Utilities Department, be allowed to vest his pension under
Section(s) 2.397 and 2.398 of the Employees' Pension Plan as approved by the
Pension Advisory Committee.
3 Accept the employees listed below into membership in the City of Clearwater's
Employees' Pension Plan.
4 Accept the Actuary's Report for the Employees' Pension Plan for the plan year
beginning 1/1/2004.
5 Approve the changes to the Investment policy for the Employee's Pension Plan.
Other Business
Adjourn
TRUSTEES OF THE EMPLOYEES' PENSION FUND MEETING
CITY OF CLEARWATER
May 17, 2004
Unapproved
Present: Brian Aungst
Frank Hibbard
Hoyt Hamilton
William C. Jonsorn
Carlen Petersen
Also Present: William B. Horne II
Pamela K. Akin
Cynthia E. Goudeau
Patricia O. Sullivan
Chair
Trustee
Trustee
Trustee
Trustee
City Manager
City Attorney
City Clerk
Board Reporter
The Chair called the meeting to order at 9:08 a.m. at City Hall.
To provide continuity for research, items are in agenda order although not
necessarily discussed in that order.
Approval of Minutes:
Trustee Hibbard moved to approve the minutes of the April 12, 2004, meeting, as
recorded and submitted in written summation by the City Clerk to each Trustee. The motion
was duly seconded and carried unanimously.
1 - Request for acceptance into membershi :
Human Resources Manager Dina Hyson presented the recommendation of the Pension
Advisory Committee that the following employees be accepted into membership: Zebulon
Veale, James Van Zandt, Anthony Rocco, Marcelino Lugo, Heath Brenner, Timothy Becker,
Stephen Avise, Matthew Schad, Sean Lefort, Peter Gushee, Norman Kellogg, James Fields,
Eugenia Larson, Shelby Brown, Robert Clark, Jr., Richard Calhoun, Karen Maldonado, Carol
Cortright, and Christopher Lollis.
Trustee Hamilton moved to accept the recommendation of the Pension Advisory
Committee. The motion was duly seconded and carried unanimously.
2 - Reauests for Pension
Ms. Hyson presented the recommendation of the Pension Advisory Committee that
Susan Stephenson, Thomas A. Bissonnette, Robert Brown, Richard Tyler, David Rieumont, and
Michael J. Mobley be granted regular pensions under Section(s) 2.393 and 2.397 of the
Employees' Pension Plan as approved by the Pension Advisory Committee.
Susan Stephenson, Documents & Records Supervisor, Official Records & Legislative
Services Department, was employed on April 9, 1981, and her pension service credit is
effective on that date. Her pension will be effective May 1, 2004. Based on an average salary
of approximately $42,115 per year over the past five years, the formula for computing regular
Pension Trustees 2004-05-17
pensions, and Ms. Stephenson's selection of the Joint & Survivor Annuity, this pension will
approximate $26,660 annually.
Thomas Bissonnette, Customer Service Coordinator, Customer Service Department,
was employed on September 5, 1973, and his pension service credit is effective on May 13,
1974. His pension will be effective June 1, 2004. Based on an average salary of approximately
$47,602 per year over the past five years, the formula for computing regular pensions, and Mr.
Bissonnette's selection of the Life Annuity, this pension will approximate $41,234 annually.
Robert Brown, Service Dispatcher, Police Department, was employed by the City on
February 22, 1993, and his pension service credit is effective on that date. His pension will be
effective April 1, 2004. Based on an average salary of approximately $31,686 per year over the
past five years, the formula for computing regular pensions, and Mr. Brown's selection of the
Joint & Survivor Annuity, this pension will approximate $9,638 annually.
Richard Tyler, Accounting Clerk, Finance Department, was employed on December 3,
1990, and his pension service credit is effective on that date. His pension will be effective June
1, 2004. Based on an average salary of approximately $30,240 per year over the past five
years, the formula for computing regular pensions, and Mr. Tyler's selection of the 100% Joint
& Survivor Annuity, this pension will approximate $10,716 annually.
David Rieumont, Police Officer, Police Department, was employed on May 29, 1984,
and his pension service credit is effective on that date. His pension will be effective June 1,
2004. Based on an average salary of approximately $52,956 per year over the past five years,
the formula for computing regular pensions, and Mr. Rieumont's selection of the 50% Joint &
Survivor Annuity, this pension will approximate $28,476 annually.
Michael Mobley, Police Officer, Police Department, was employed on October 13, 1980,
and his pension service credit is effective on that date. His pension will be effective May 1,
2004. Based on an average salary of approximately $61,467 per year over the past five years,
the formula for computing regular pensions, and Mr. Mobley's selection of the 100% Joint &
Survivor Annuity, this pension will approximate $39,463 annually.
These pensions were approved by the Pension Advisory Committee on April 8, 2004.
Section 2.393 (p) provides for normal retirement eligibility when a participant has reached age
55 and completed twenty years of credited service, has completed thirty years of credited
service, or has reached age 65 and completed ten years of credited service. Section 2.393
also (p) provides for normal retirement eligibility when a participant has completed twenty years
of service in a hazardous duty position. It further specifically defines service as a Police Officer
as meeting the hazardous duty criteria. Ms. Stephenson qualifies under the age 55 and 20
years of service criteria. Mr. Bissonnette qualifies under the 30 years of service criteria.
Messrs. Brown and Tyler qualify under the age 65 and 10 years of service criteria. Messrs.
Rieumont and Mobley qualify under the hazardous duty criteria.
Trustee Jonson moved to grant regular pensions for Susan Stephenson, Thomas A.
Bissonnette, Robert Brown, Richard Tyler, David Rieumont, and Michael J. Mobley, under
Sections 2.393 and 2.397 of the Employees' Pension Plan, as approved by the Pension
Advisory Committee. The motion was duly seconded and carried unanimously.
Pension Trustees 2004-05-17 2
3 - Pension to be vested
Andrew Bachtel, Public Utilities Coordinator, Public Utilities Department, was employed
by the City on April 5, 1982, and began participating in the Pension Plan on that date. Mr.
Bachtel terminated from City employment on December 19, 2003.
Carlos Ulloa, Customer Service Representative Department, was employed by the City
on December 7, 1987, and began participating in the Pension Plan on that date- Mr. Ulloa
terminated from City employment on August 5, 2002.
Linda Stverak, Police Officer, Police Department, was employed by the City on April 3,
1989, and began participating in the Pension Plan on that date. Ms. Stverak terminated from
City employment on February 26, 2003.
The Employees' Pension Plan provides that should an employee cease to be an
employee of the City of Clearwater after completing ten or more years of creditable service
(pension participation), then such employee shall acquire a vested interest in the retirement
benefits. Vested pension payments commence on the first of the month following the month in
which the employee normally would have been eligible for retirement. Section 2.393 (p)
provides for normal retirement eligibility when a participant has reached age 55 and completed
twenty years of credited service, has completed 30 years of credited service, or has reached
age 65 and completed ten years of credited service. Section 2.393 also (p) provides for normal
retirement eligibility when a participant has completed twenty years of credited service in a type
of employment described as "hazardous duty" and further specifically defines service as a
Police Officer as meeting the hazardous duty criteria.
Trustee Petersen moved that Andrew Bachtel, Public Utilities Department, Carlos Ulloa,
Customer Service Department and Linda Stverak, Police Department, be allowed to vest their
pensions under Sections 2.397 and 2.398 of the Employees' Pension Plan as approved by the
Pension Advisory Committee. The motion was duly seconded and carried unanimously.
Other Business - None.
Adjournment
The meeting adjourned at 9:09 a.m.
Chair
Employee's Pension Plan Trustees
Attest:
City Clerk
Pension Trustees 2004-05-17
Cleanv ter Pension Trustee Cover Memorandum
Tracking Number: 605 Actual Date: 06/14/2004
Subject / Recommendation:
Robert Sebek, Public Services Department; Geri Doherty, Development & Neighborhood Services
Department; Rowland Herald, Fire Department; Paul McCann, Fire Department; and Craig
McGarry, Police Department, be granted regular pensions under Section(s) 2.393 and 2.397 of
the Employees' Pension Plan as approved by the Pension Advisory Committee.
Summarv:
Robert N. Sebek, Construction Inspector II, Public Services Department, was employed by the
City on September 5, 1978, and his pension service credit is effective on that date. His pension
will be effective May 1, 2004. Based on an average salary of approximately $45,913 per year
over the past five years, the formula for computing regular pensions, and Mr. Sebek's selection
of the 100% Joint & Survivor Annuity, this pension will approximate $31,721 annually.
Geri Doherty, Inspection Specialist, Development & Neighborhood Services Department, was
employed by the City on December 12, 1973, and her pension service credit is effective on June
29, 1974. Her pension will be effective July 1, 2004. Based on an average salary of
approximately $48,800 per year over the past five years, the formula for computing regular
pensions, and Ms. Doherty's selection of the Joint & Survivor Annuity, this pension will
approximate $40,264 annually.
Rowland E. Herald, Fire Chief, Fire Department, was employed by the City on August 6, 1979,
and his pension service credit is effective on that date. His pension will be effective September
1, 2004. Based on an average salary of approximately $88,362 per year over the past five
years, the formula for computing regular pensions, and Mr. Herald's selection of the 100% Joint
& Survivor Annuity, this pension will approximate $60,323 annually.
Paul D. McCann, Firefighter, Fire Department, was employed by the City on August 28, 1978,
and his pension service credit is effective on that date. His pension will be effective May 1,
2004. Based on an average salary of approximately $47,389 per year over the past five years,
the formula for computing regular pensions, and Mr. McCann's selection of the 75% Joint &
Survivor Annuity, this pension will approximate $33,630 annually.
Originating_ Human Resources
Review Approval
Cvndie Goudeau 05-19-2004 07:54:20
Regular Pensions
Page 2
June 14, 2004
Craig McGarry, Police Officer, Police Department, was employed by the City on September 29, 1990, and his
pension service credit is effective on that date. His pension will be effective May 1, 2004. Based on an average
salary of approximately $52,905 per year over the past five years, the formula for computing regular pensions,
and Mr. McGarry's selection of the Joint & Survivor Annuity, this pension will approximate $17,267 annually.
These pensions were approved by the Pension Advisory Committee on May 13, 2004. Section 2.393 (p) provides
for normal retirement eligibility when a participant has reached age 55 and completed twenty years of credited
service, has completed thirty years of credited service, or has reached age 65 and completed ten years of
credited service. Section 2.393 also (p) provides for normal retirement eligibility when a participant has
completed twenty years of service in a hazardous duty position regardless of age or ten years of service in a
hazardous duty position and at least age 55. It also provides for early retirement for hazardous duty employees
who have at least ten years of service and are at least age 50 with a 3% per year reduction for each year under
the age of 55. It further specifically defines service as a Fire Chief, Firefighter, and Police Officer as meeting the
hazardous duty criteria. Mr. Sebek qualifies under the age 55 and 20 years of service criteria. Ms. Doherty
qualifies under the 30 years of service criteria. Mr. Herald and Mr. McCann qualify under the hazardous duty
criteria. Mr. McGarry qualifies under the early retirement criteria.
Cleanv ter Pension Trustee Cover Memorandum
Tracking Number: 606 Actual Date: 06/14/2004
Subject / Recommendation:
Michael N. Anderson, Public Utilities Department, be allowed to vest his pension under
Section(s) 2.397 and 2.398 of the Employees' Pension Plan as approved by the Pension Advisory
Committee.
Summarv:
Michael N. Anderson, Public Utilities Technician II, Public Utilities Department, was employed by
the City on February 7, 1994, and began participating in the Pension Plan on that date. Mr.
Anderson terminated from City employment on April 23, 2004.
The Employees' Pension Plan provides that should an employee cease to be an employee of the
City of Clearwater after completing ten or more years of creditable service (pension
participation), then such employee shall acquire a vested interest in the retirement benefits.
Vested pension payments commence on the first of the month following the month in which the
employee normally would have been eligible for retirement.
Section 2.393 (p) provides for normal retirement eligibility when a participant has reached age
55 and completed twenty years of credited service, has completed 30 years of credited service,
or has reached age 65 and completed ten years of credited service. Mr. Anderson would have
completed 10 years of service and reached age 65 on April 29, 2011. His pension will be
effective May 1, 2011. This pension was approved by the Pension Advisory Committee on May
13, 2004.
Originating_ Human Resources
Review Approval
Cvndie Goudeau 05-19-2004 07:55:43
Cleanv ter Pension Trustee Cover Memorandum
Tracking Number: 607 Actual Date: 06/14/2004
Subject / Recommendation:
Accept the employees listed below into membership in the City of Clearwater's Employees'
Pension Plan.
Summarv:
Pension Elig.
Name, Job. Class, & Dept./Div. Hire Date Date
Carl Freeman, Tradesworker/General Services 3/22/04 3/22/04
Laura Tearney, TV Specialist/Public Communications 3/22/04 3/22/04
Veronica Josef, Staff Assistant/Engineering 4/2/04 4/2/04
Denise Alvarado, Parks Service Technician I/Parks & Recreation4/5/04 4/5/04
Joseph Ryan, Parks Service Technician I/Parks & Recreation 4/5/04 4/5/04
Gordon Murphy, Custodial Worker/Library 4/5/04 4/5/04
Shannon Lee, Recreation Leader/Parks & Recreation 9/8/03 4/3/04
Jabri Jenkins, Public Services Technician I/Public Services 4/5/04 4/5/04
Marianne McBain, Accounting Technician/Fire 10/20/03 4/5/04 **
Ronald Thiesen, Parks Service Technician I/Parks & Recreation 4/5/04 4/5/04
James DeLuca, Solid Waste Worker/Solid Waste 4/5/04 4/5/04
Roberto Almonte, Custodial Worker/Marine & Aviation 4/12/04 4/12/04
Carol Greenfeld, Recreation Programmer/Parks & Recreation 4/19/04 4/19/04
Daniel Brown, Parks Service Technician I/Parks & Recreation 4/19/04 4/19/04
* originally hired as part-time on 9/8/03; transferred to permanent and pension eligible as of
4/2/04
** originally hired as temporary on 10/20/03; transferred to permanent and pension eligible as
of 4/4/04
Originating_ Human Resources
Review Approval
Cvndie Goudeau 05-19-2004 07:56:52
Cleanv ter Pension Trustee Cover Memorandum
Tracking Number: 613 Actual Date: 06/14/2004
Subject / Recommendation:
Accept the Actuary's Report for the Employees' Pension Plan for the plan year beginning
1/1/2004.
Summarv:
The 1/1/2004 actuarial report for the Employees' Pension Plan indicates that a City contribution
of $8,414,878, equivalent to 12% of covered payroll, is required for fiscal year 2004/2005. This
is an increase from the 2003 valuation, which required a contribution of $7,153,190. This
actuarially-required contribution per Florida Statutes exceeds the minimum City contribution per
the ordinance governing the plan of 7% of the compensation of all employees participating in
the plan, currently estimated at $4,893,523.
The required City contribution was affected by the following factors:
(1) Actuarial investment return of 7.45% versus an assumed rate of 7.5% for plan year 2003
(2002 actuarial investment return was (1.85)%);
(2) Actual salary increases of 6.4% in comparison to an assumed rate of 6% for plan year 2003
(2002 actual salary increases were 5.8%);
(3) Actual expenses for the plan year were $36,978 less than expected.
The difference between the actuarially determined contribution of $8,414,878 and the
ordinance-required contribution of approximately $4,893,523 can be funded from the existing
credit balance, which is currently $25,459,838. The remaining credit balance can continue to be
used to pay actuarially-required City contributions above the ordinance-required 7% in future
years until it is exhausted.
Please see the attached WORD document for additional information on this agenda item
(exceeded text/character limits for the Pension Agenda form).
A copy of the draft Actuary's Report is available for review in the Official Records and Legislative
Services Department.
Originating_ Finance
Review Approval
Maraie Simmons 05-20-2004 15:40:17
Cvndie Goudeau 06-07-2004 08:02:41
Bill Horne 06-05-2004 13:06:05
Tina Wilson 05-20-2004 15:52:18
Garrv Brumback 06-02-2004 13:35:36
Agenda Item for 1-1-04 Actuary Report, Clearwater Employees' Pension Plan, continued:
The Plan uses a phase-in approach of prior asset gains and losses via a rolling five-
year average used to "smooth" investment performance. The market value basis
performance for the last five years (calendar 1999, 2000, 2001, 2002, and 2003,
respectively) has been 18.61%, (3.43)%, (5.16)%, (8.83)% and 20.08%. As a
result of the three years of poor investment market performance, partially negated
by two years of very good performance, the actuarial value of the plan assets
exceeds the market value by almost $36 million. Over the next four years this
deficit will be included in the actuarial value and will gradually increase the funding
requirements. Future actuarially-required contributions are expected to continue to
exceed the ordinance-required 7% contributions, resulting in a significant reduction
in the credit balance over the next few years.
Due primarily to excellent investment performance over the past year (investment
return of 20.08%), the funded status of the plan (ratio of assets at market value to
the actuarial present value of accumulated plan benefits) has increased from 112%
at January 1, 2003 to 122% at January 1, 2004. However the funded status is still
substantially below the funded status in prior years (162% @ 1/1/00; 148% @
1/1/01; and 137% @ 1/1/02).
A copy of the draft Actuary's Report is available for review in the Official Records and
Legislative Services.
The City of Clearwater Employees' Pension Plan
Actuary's Report
As of January 1, 2004 to determine annual contribution
for the Plan Year: 01/01/2004 - 12131/2004 to be paid in the
Fiscal Year: 10/01/2004 - 09/30/2005
Prepared by PricewaterhouseCoopers, LLP
April 2004
pI
CONTENTS
Pages
SECTION I SUMMARY 1- 6
SECTION II FUNDING 7- 11
SECTION III ASSETS 12 - 15
SECTION IV ACCOUNTING 16 - 17
SECTION V CENSUS DATA 18 - 22
SECTION VI ASSUMPTIONS AND METHODS 23 - 25
SECTION VII SUMMARY OF PLAN PROVISIONS 26 - 28
PWWATERHOUSECCOPER5 0
April 13, 2004
Private & Confidential
City of Clearwater
100 S. Myrtle Avenue
Clearwater, FL 33758-4748
Ladies and Gentlemen:
PricewaterhouseCoopers LLP
Two Commerce Square, Suite 1700
2001 Market Street
Philadelphia PA 19103
Telephone (267) 330 3000
Facsimile (267) 330 3300
This report presents the results of the January 1, 2004 actuarial valuation of the City of Clearwater
Employees' Pension Plan. It has been prepared primarily to present to management the contribution
requirements for 2004 and also the current status of funding of accumulated plan benefits. Section
IV of this report includes a presentation of the information required by the Government Accounting
Standards Board (GASB) Statement No. 25.
Our calculations were based on financial data and employee data furnished by the City of Clearwater.
The valuation was based upon generally accepted actuarial methods, and we performed such tests as
we considered necessary to assure the accuracy of the results. To our knowledge there are no
benefits or expenses to be provided by the plan for which a liability or current cost was not
established. We certify that the amounts presented in the accompanying report have been
appropriately determined according to the actuarial assumptions stated herein.
Statement by Enrolled Actuary
This actuarial valuation and/or cost determination was prepared and completed by me or under my
direct supervision, and I acknowledge responsibility for the results. To the best of my knowledge,
the results are complete and accurate, and in my opinion, the techniques and assumptions used are
reasonable and meet the requirements and intent of Part VII, Chapter 112, Florida Statutes. There is
no benefit or expense to these provided by the plan or paid from the plan's assets for which liabilities
or current costs have not been established or otherwise taken into account in the valuation. All
known events or trends which may require a material increase in plan costs or required contribution
rates have been taken into account in the valuation.
Respectfully submitted,
Steph M. Metz
Associate of the Society of Actuaries
Enrolled Actuary Number 02-04342
Derek Ts
Fellow o the Society of Actuaries
Enrolled Actuary Number 02-06080
CITY OF CLEARWATER EMPLOYEES' PENSION PLAN
SECTION I - SUMMARY
A. Actuary's Comments
This report presents the highlights of the January 1, 2004 actuarial valuation prepared to determine the
contribution requirements for the 2004-2005 fiscal year. Since the last actuarial valuation of the plan
on January 1, 2003, there have been no changes in the actuarial assumptions, the plan provisions or the
actuarial cost method. For a detailed description of the plan provisions, please see Section V11 and for
a detailed description of the actuarial assumptions and methods, please see Section VI of this report.
The minimum required City Contribution pursuant to Florida Statutes for the 2004 plan year is
$8,414,878 (excluding the credit balance of $25,459,838), compared to $7,153,190 for 2003.
Although State law allows the City to use the credit balance to entirely fund the actuarially required
City contribution, the City ordinance establishing the Plan requires the City to contribute at least 7% of
payroll. The minimum required contribution was affected by the following factors:
• The investment return on actuarial value of assets was 7.45%, compared to an assumed rate of
7.5%;
• The actual average salary increase was 6.4%, compared to an assumed rate of 6.0%;
• Actual expenses for the year were $36,978 less than expected.
The plan's credit balance is currently equal to $25,459,838, providing a cushion against future
contributions. On the negative side, however, the actuarial value of assets of the plan exceeds the
market value by approximately $36 million. Over the next four years this deficit will be included in
the actuarial value and will gradually increase the funding requirements.
The funded status of the plan increased compared to the prior year, primarily due to greater-than-
expected returns on the market value of assets. The ratio of assets at market value to the actuarial
present value of accumulated plan benefits increased from 112% at January 1, 2003 to 122% at
January 1, 2004.
CITY OF CLEARWATER EMPLOYEES' PENSION PLAN
SECTION I - SUMMARY
(continued)
B. Contribution Requirements for the Plan Year Ending December 31, 2004
Minimum Required Employer Contribution
Florida Statutes $8,414,878*
7% of Payroll $4,893,523
The employer contribution is assumed to be made uniformly during the first two quarters of the fiscal
year beginning on October 1, 2004. Differences in the investment return due to contributions actually
being made at any other time will be recognized as an actuarial gain or loss in the following valuation.
The minimum required contribution represents a funding level which will satisfy the minimum funding
requirements under Part VII, Chapter 112, Florida Statutes. Please refer to Section VI and VII of the
report for a summary of the actuarial assumptions and plan provisions, respectively.
* Excluding the credit balance (currently $25,459,838)
CITY OF CLEARWATER EMPLOYEES' PENSION PLAN
SECTION I - SUMMARY
(continued)
C. Comparative Summary of Principal Valuation Results
Actuarial Valuation Prepared as of: Jan. 1, 2004 Jan. 1, 2003 Jan. 1, 2002
(a) Participant Data
Number Included
Active Members 1,633 1,619 1,592
Retirees and Beneficiaries 646 590 566
Terminated Vested Participants 48 53 47
Annual Payroll of Actives $69,907,473 $65,150,820 $58,929,582
Annualized Benefits
Retirees and Beneficiaries $14,772,610 $12,751,479 $11,813,227
Terminated Vested Participants $961,774 $992,349 $882,207
(b) Actuarial Reserves
Market Value $471,110,205 $397,951,216 $442,042,923
Actuarial Value $507,256,663 $477,541,459 $491,859,015
(c) Liabilities
Present Value of Expected Benefits:
Active Participants:
Retirement Benefits $327,392,044 $321,602,739 $306,539,097
Termination Benefits $29,943,370 $29,196,714 $26,668,857
Disability Benefits $17,019,266 $15,744,154 $15,394,022
Death Benefits $3,970,903 $3,639,787 $3,543,058
Refund of Employee Contributions $2,556,148 $2,212,656 $2,064,718
Total Active $380,881,731 $372,396,050 $354,209,752
Terminated Vested Participants $9,890,625 $9,481,373 $8,264,408
Retirees and Beneficiaries $197,199,518 $165,984,116 $150,289,355
Total Present Value of Expected Benefits $587,971,874 $547,861,539 $512,763,515
Liabilities Due and Unpaid $524,524 $380,686 $456,150
3
CITY OF CLEARWATER EMPLOYEES' PENSION PLAN
SECTION I - SUMMARY
(continued)
C. Comparative Summary of Principal Valuation Results (continued)
Actuarial Valuation Prepared as of: Jan.], 2004 Jan.], 2003 Jan. 1, 2002
.......................... ....._._......_..._..... ....... _.... _..... .... _.... _........................................................ ..........................................................._._........................._...._..............._._........_................_........__.........._.................................................................................
(c) Liabilities (continued)
Unfunded Actuarial Accrued Liability
Frozen Initial Liab. (FIL) - 1/1/1979 $0 $0 $258,509
Supplemental FIL - 1/1/1979 795,515 922,920 1,041,436
Supplemental FIL - 1/1/1981 158,124 174,863 190,434
Supplemental FIL - 1/1/1982 (2,064,101) (2,247,906) (2,418,887)
Supplemental FIL - 1/1/1987 1,026,432 1,072,324 1,115,015
Supplemental FIL - 1/1/1988 1,183,236 1,230,343 1,274,163
Supplemental FIL - 1/1/1989 1,603,210 1,660,310 1,713,426
Asset Valuation Method - 1/1/1994 3,187,614 3,256,087 3,319,783
Change
Plan Amendment - 1/1/1996 13,459,398 13,699,624 13,923,090
Plan Amendment - 1/1/2000 50,537,016 51,171,649 51,762,005
Assumption Changes - 1/1/2002 (30,227,480) (30,548,178) (30,846,502)
Total $39,658,964 $40,392,036 $41,332,472
(d) Funding Account Credit Balance
Prior Year Amount $25,832,535 $21,360,525 $15,156,006
Prior Year:
Required Employer Contributions (7,153,190) (1,766,058) 0
Employer Contributions Made 4,843,053 4,636,029 5,143,599
Interest on Credit Balance 1,937,440 1,602,039 1,060,920
Total $25,459,838 $25,832,535 $21,360,525
(e) Actuarial Present Value of Accrued
Benefits $385,298,167 $354,603,387 $322,794,259
Changes During Prior Year:
Value from Prior Year $354,603,387 $322,794,259 $317,663,113
Benefits Paid $(14,325,691) $(13,003,161) $(11,816,392)
Interest, Aging and Benefits Accrued 45,020,471 44,812,289 39,571,449
Change in Assumptions 0 0 (22,623,911)
Change in Plan Provisions 0 0 0
Net Change $30,694,780 $31,809,128 $5,131,146
Value at Current Year $385,298,167 $354,603,387 $322,794,259
4
CITY OF CLEARWATER EMPLOYEES' PENSION PLAN
SECTION I - SUMMARY
(continued)
C. Comparative Summary of Principal Valuation Results (continued)
Actuarial Valuation Prepared as of: ..
Jan. 1, 2004 .........................
Jan. 1, 2003 Jan. 1, 2002
.....
(f) Pension Cost for Year ................... ........._....... _._._......... _............... _....... ...... .._...._........_............__............... ...... .
Normal Cost $7,843,618 $6,469,476 $100,180
Amortization of Unfunded Frozen
Initial Liability 3,499,977 3,499,977 3,758,486
Administrative Expenses 2,001,370 2,038,348 2,270,968
Shortfall for Expenses in Prior Year (36,978) (232,620) 239,578
Interest Adjustment 711,489 602,075 123,213
Total Required Contribution $14,019,476 $12,377,256 $6,492,425
As a Percentage of Payroll 20.05% 19.00% 11.02%
Anticipated Employee Contributions $5,592,598 $5,212,066 $4,714,367
As a Percentage of Payroll 8.00% 8.0% 8.00%
Anticipated State Contributions $12,000 $12,000 $12,000
As a Percentage of Payroll 0.02% 0.02% 0.02%
City Required Contribution $8,414,878 $7,153,190 $1,766,058
As a Percentage of Payroll 12.04% 10.98% 3.00%
(g) Prior Year Actual Contributions made by
State $12,000 $12,000 $12,279
Employees 5,353,573 5,118,850 4,905,521
City 4,843,053 4.636,029 5,143,599
Total $10,208,626 $9,766,879 $10,061,399
(h) Gains and Losses N/A N/A N/A
(i) Other Present Values
Present Value of Future Salaries
At attained age $592,588,035 $561,764,999 $552,303,111
Present Value of Future Employee
Contributions
At attained age $47,407,043 $44,941,200 $44,184,249
5
CITY OF CLEARWATER EMPLOYEES' PENSION PLAN
SECTION I - SUMMARY
(continued)
C. Comparative SummM of Principal Valuation Results (continued)
Actuarial Valuation Prepared as of.
Jan. 1, 2004 Jan. 1, 2003 Jan. 1, 2002
(i) Other Present Values (continued)
Present Value of Future Normal Costs
$66,516,085 $55,760,579 $(4,567,447)
0) Comparison of Actual and Assumed
. __....... _ ___
Salary Increases Investment Return
Year Ended Actual Assumed Actual Assumed
Market Value Actuarial Value
12/31/1986 7.40% 5.00% 13.21% N/A 7.00%
12/31/1987 5.90% 5.00% 10.78% N/A 7.00%
12/31/1988 9.10% 5.00% 9.12% N/A 7.00%
12/31/1989 8.70% 5.00% 20.84% N/A 7.00%
12/31/1990 5.30% 5.00% 6.21% N/A 7.00%
12/31/1991 6.10% 5.00% 28.52% N/A 7.00%
12/31/1992 6.80% 5.00% 6.49% N/A 7.00%
12/31/1993 1.20% 5.00% 9.29% 7.42% 7.00%
12/31/1994 4.40% 5.00% 0.89% 6.28% 7.00%
12/31/1995 6.40% 5.00% 23.36% 9.14% 7.00%
12/31/1996 6.70% 5.00% 14.80% 11.54% 7.00%
12/31/1997 5.60% 5.00% 17.49% 13.74% 7.00%
12/31/1998 7.40% 5.00% 16.74% 15.28% 7.00%
12/31/1999 4.20% 5.00% 18.61% 17.96% 7.00%
12/31/2000 5.80% 5.00% (3.43%) 12.42% 7.00%
12/31/2001 5.90% 5.00% (5.16%) 7.40% 7.00%
12/31/2002 5.80% 6.00% (8.83%) (1.85%) 7.50%
12/31/2003 6.40% 6.00% 20.08% 7.45% 7.50%
6
CITY OF CLEARWATER EMPLOYEES' PENSION PLAN
SECTION II - FUNDING
A
Development of the Unfunded Frozen Actuarial Accrued Liability
Unfunded Frozen Actuarial Accrued Liability
as of January 1, 2003
Interest to December 31, 2003
$40,392,036
$3,029,403
$43,421,439
2.
3
4
Employer Normal Cost* for Year with interest
to December 31, 2003
Required Employer Contributions for Period
Unfunded Frozen Actuarial Accrued Liability
as of December 31, 2003
* Includes Expenses and Adjustments
7
$3,390,715
$7,153,190
$39,658,964
CITY OF CLEARWATER EMPLOYEES' PENSION PLAN
SECTION 11- FUNDING
(continued)
B. Development of Normal Cost
The Normal Cost is the portion of the cost of projected benefits which is allocated to the current year by the
actuarial cost method. The Normal Cost for the plan years beginning January 1, 2004, January 1, 2003, and
January 1, 2002 are determined as follows:
Total Projected Actuarial Liability: Jan. 1, 2004 Jan. 1, 2003 Jan. 1, 2002
The present value as of the beginning of the plan
year of all benefits expected to be paid in the
future to current participants.
• Active participants $380,881,731 $372,396,050 $354,209,752
• Terminated vested participants 9,890,625 9,481,373 8,264,408
• Retired and disabled participants 197,199,518 165,984,116 150,289,355
• Total Participants $587,971,874 $547,861,539 $512,763,515
Credit Balance: Employer contributions from
prior years reserved for future use. $25,459,838 $25,832,535 $21,360,525
Fund: The actuarial value of fund assets as of
the beginning of the plan year. $507,256,663 $477,541,459 $491,859,015
Excess of Total Projected Actuarial Liability
Over the Fund Minus the Credit Balance:
The portion of the projected total actuarial
liability to be funded in the future. $106,175,049 $96,152,615 $42,265,025
This portion is divided into two components:
a. Unfunded frozen actuarial accrued liability $39,658,964 $40,392,036 $41,332,472
b. Present value of future service liability
(funded over the expected future service
years of current participants) $66,516,085 $55,760,579 $932,553
Present Value of Future Covered Pa roll $592,588,035 $561,764,999 $552,303,111
8
CITY OF CLEARWATER EMPLOYEES' PENSION PLAN
SECTION II - FUNDING
(continued)
B. Development of Normal Cost (continued)
Jan. 1, 2004 Jan. 1, 2003
Normal Cost Rate: The ratio of the present
value of future service liability to the present
value of future covered payroll.
Annual Covered Payroll: The reported payroll
for plan participants who have not attained the
assumed retirement age.
11.22% 9.93%
Jan. 1, 2002
0.17%
$69,907,473 $65,150,820 $58,929,582
Normal Cost: The annual cost as of the
beginning of the plan year to fund the future
service liability over the expected future years of
service of the current participants. $7,843,618 $6,469,476 $100,180
CITY OF CLEARWATER EMPLOYEES' PENSION PLAN
SECTION II - FUNDING
(continued)
C. Schedule of Amortization Pay ents
Initial Jan. 1, 2004 Annual
Date Initial Amortization Unamortized Amortization
Established
_.. ._W__ .
.._.__ __ Reason
v......_.....
._ ... _.......... _.... ..... _...... Amount Period Years
_......
...
?. Amount
........ Payment
...... Y.........
.?
1/1/1979 *
Frozen Initial ..
..
.
Liability (FIL) $9,726,419 25 $0 $0
1/1/1979 Supplemental
FIL 2,707,962 30 795,515 182,906
1 / 1 / 1981 Supplemental
FIL 390,421 30 158,124 27,771
1/1/1982 Supplemental
FIL (4,521,985) 30 (2,064,101) (327,812)
1/1/1987 Supplemental
FIL 1,519,142 30 1,026,432 117,504
1/1/1988 Supplemental
FIL 1,673,738 30 1,183,236 129,658
1 / 1 / 1989 Supplemental
FIL 2,177,772 30 1,603,210 168,952
1/1/1994 Asset Valuation
Method Change 3,724,296 30 3,187,614 290,865
1/1/1996 Plan Amendment 15,063,842 30 13,459,398 1,179,254
1/1/2000 Plan Amendment 52,921,724 30 50,537,016 4,160,471
1 / 1 /2002 Assumption
Changes (30,846,502) 30 (30,227,480) (2,429,592)
Total Charges $71,950,545 $6,257,381
Total Credits (32,291,581) (2,757,404)
Total 39.658.964 3.499.977
* Established July 1, 1963 and being amortized over a forty year period beginning on that date.
10
CITY OF CLEARWATER EMPLOYEES' PENSION PLAN
SECTION II - FUNDING
(continued)
D. Anticipated Amortization Schedule
Shown below is the anticipated amortization schedule for the Unfunded Frozen Actuarial Accrued Liability
taking into account the plan's funding policy.
Anticipated Amortization Schedule
Unfunded Frozen
Date Actuarial Accrued Liabili
2004 $39,658,964
2005 $38,870,911
2006 $38,023,754
2007 $37,113,060
2032 $0
On July 1, 1963, the Unfunded Frozen Actuarial Accrued Liability was established equal to the difference
between the retirement plan's accrued liability, determined under the Entry Age Normal Funding Method and
the actuarial value of plan assets. According to the plan's funding policy, the initial liability is to be amortized
by a series of level payments over a forty-year period. Subsequent changes in the level of the Frozen Actuarial
Accrued Liability due to plan amendments or changes in actuarial assumptions are to be amortized on a
straight-line basis over a period of thirty years. By contributing more than the stated funding policy, the
amortization of the Unfunded Frozen Actuarial Accrued Liability can be accelerated.
CITY OF CLEARWATER EMPLOYEES' PENSION PLAN
SECTION III - ASSETS
Comparative Balance Sheet
As of December 31, 2003
Market Value Market Value
ASSETS Dec. 31, 2003 Dec. 31, 2002
Cash $0 $0
Money Market Accounts 8,855,432 16,668,205
International Equity Securities 41,438,718 31,637,360
Domestic Corporate Equity Securities 229,024,857 171,233,103
Domestic Bonds 189,545,757 176,253,952
Total Investments $468,864,764 $395,792,620
Receivables:
Interest - Pooled Cash 28,049 24,921
Commission Recapture 109,248 0
Employer Contributions 2,632,668 2,514,361
Total Assets $471,634,729 $398,331,902
LIABILITIES AND ACTUARIAL RESERVES
Liabilities:
Accounts Payable $524,524 $380,686
Total Liabilities $524,524 $380,686
Actuarial Reserves:
Accumulated Member Contributions 43,846,975 42,237,450
Balance of Actuarial Reserves 427,263,230 355,713,766
Total Actuarial Reserves $471,110,205 $397,951,216
TOTAL LIABILITIES AND ACTUARIAL RESERVES $471,634,729 398,331,902
12
CITY OF CLEARWATER EMPLOYEES' PENSION PLAN
SECTION III - ASSETS
(continued)
Schedule of Changes in Actuarial Reserves
For the Plan Year Ended December 31, 2003
Market Value
--------- ------
.. ....... . .......... . ........ .......... _.................. _................... .._ ............ .......
Revenues:
....................... ........ ..... . ........ ._ . .......... ............
Employee Contributions $5,353,573
Employer Contributions 4,843,053
State Contributions 12,000
$10,208,626
Earnings on Investments:
Interest $7,023,102
Dividends 1,878,725
Realized Net Gains on Securities Transactions 30,927,732
$39,829,559
Unrealized Appreciation (Depreciation)
on Investments $39,447,865
Expenses:
Benefits Paid $(13,924,071)
Refunds of Contributions (401,620)
Professional Fees (2,001,370)
Other Expenses (0)
$(16,327,061)
Net Change in Actuarial Reserves $73,158,989
Actuarial Reserves at Beginning of Plan Year $397,951,216
Actuarial Reserves at End of Plan Year $471,110,205
13
CITY OF CLEARWATER EMPLOYEES' PENSION PLAN
SECTION III - ASSETS
(continued)
Development of Actuarial Value of Assets
1. Actuarial Reserves at Beginning of Plan Year $397,951,216
2. Time Weighted Employee Contributions 2,676,787
(.5 x $5,353,573)
3. Time Weighted Employer Contributions 302,691
(.5 x .125 x $4,843,053)
4. Time Weighted State Contributions 6,000
(.5 x $12,000)
5. Time Weighted Benefit Payments 6,565,942
( (11/24) x $14,325,691)
6. Time Weighted Expenses 1,000,685
(.5 x $2,001,370)
7. Time Weighted Value of Actuarial Reserves $393,370,067
(Items 1 +2+3+4-5-6)
8. Expected Asset Return $29,502,755
(Item 7 x 7.50%)
9. Actual Asset Return 79,277,424
10. Difference of Expected Return over Actual Return $(49,774,669)
11. Actuarial Reserves at End of Plan Year 471,1 10,205
12. Expected Actuarial Reserves at End of Plan Year $421,335,536
(Items 10 + 11)
13. Difference Between Actual and Expected Asset Return $49,774,669
(Items 11 - 12)
14
CITY OF CLEARWATER EMPLOYEES' PENSION PLAN
SECTION III - ASSETS
(continued)
Development of Actuarial Value of Assets (continued)
Date Initial Annual Amount Amount Excluded Amount Excluded
Established Amount
_...
.............. Recognized _
..
_.......... ............_..
...... Prior Valuation
_..._........__..__............._.._....._.._._..._...._ Current Valuation
.__._........_....._...__............._..._...._............_..__........__....
01/01/2000 _
$48,325,707 _
_
$9,665,141 $(9,665,141) $0
01/01/2001 $(50,971,924) $(10,194,385) $20,388,770 $10,194,385
01/01/2002 $(56,938,003)
01/01/2003 $(71,661,013)
01/01/2004 $49,774,669
Total
Actuarial Reserves
Actuarial Value of Assets, Before Applying Limits
80% of Actuarial Reserves
120% of Actuarial Reserves
$(11,387,601)
$(14,332,203)
$9,954,934
$34,162,802
$57,328,810
$0
$22,775,201
$42,996,607
(39,819,735)
$36,146,458
$471,110,205
$507,256,663
$376,888,164
$565,332,246
Actuarial Value of Assets, After Applying Limits $507,256,663
15
CITY OF CLEARWATER EMPLOYEES' PENSION PLAN
SECTION IV - ACCOUNTING
A. Plan Description and Contribution Information
Membership of the plan consisted of the following at January 1, 2003, the date of the latest actuarial valuation:
Retirees and beneficiaries receiving benefits 590
Terminated plan members entitled to but not yet receiving benefits 53
Active plan members 1,619
Total 2.262
Number of participating employers 1
16
CITY OF CLEARWATER EMPLOYEES' PENSION PLAN
SECTION IV - ACCOUNTING
(continued)
B. Required Supplementaa Information Scheduling of Funding Progress
Actuarial UAAL as a
Actuarial Accrued Unfunded Percentage
Actuarial Value of Liability (AAL) AAL Funded Covered of Covered
Valuation Assets Frozen Entry (UAAL) Ratio Payroll Payroll
Date (a) Age (b) (b-a) (albs (c) (b-a) / e)-__
_
01/01/1991 $141,865,764 $152,118,075 _
$10,252,311 93% $34,532,753 30%
01/01/1992 $184,746,269 $194,550,126 $9,803,857 95% $36,626,332 27%
01/01/1993 $198,315,690 $207,639,701 $9,324,011 96% $38,731,039 24%
01/01/1994 $213,014,474 $225,549,346 $12,534,872 94% $38,710,974 32%
01/01/1995 $225,482,726 $237,428,796 $11,946,070 95% $41,371,332 29%
01/01/1996 $244,744,488 $271,124,381 $26,379,893 90% $44,208,964 60%
01/01/1997 $272,346,200 $297,892,502 $25,546,302 91% $44,955,348 57%
01/01/1998 $308,596,133 $333,250,492 $24,654,359 93% $47,281,198 52%
01/01/1999 $354,088,751 $377,788,731 $23,699,980 94% $49,666,523 48%
01/01/2000 $414,826,422 $490,426,940 $75,600,518 85% $50,937,403 148%
01/01/2001 $461,724,610 $535,672,208 $73,947,598 86% $54,864,584 135%
01/01/2002 $491,859,015 $533,191,487 $41,332,472 92% $58,929,582 70%
01/01/2003 $477,541,459 $517,933,495 $40,392,036 92% $65,150,820 62%
01/01/2004 $507,256,663 $546,915,627 $39,658,964 93% $69,907,473 57%
The information presented in the required supplementary schedules was determined as part of the actuarial
valuations at the dates indicated. Additional information as of the latest actuarial valuation follows:
Valuation date 01/01/2003
Actuarial cost method Frozen Entry Age
Amortization method Level Dollar Closed
Remaining amortization periods Various
Asset valuation method Five Year Average *
Actuarial assumptions:
Investment rate of return 7.5%
Projected salary increases 6.0%
Include merit increases 3.0%
Cost-of-living adjustments 3.0%
Effective January 1, 1994, the asset valuation method was changed from market value to a five
year average method.
17
CITY OF CLEARWATER EMPLOYEES' PENSION PLAN
SECTION V - CENSUS DATA
A. Reconciliation of Employee Data
A summary of changes in the employee data from January 1, 2003 through January 1, 2004 follows.
Employees who do not participate in the plan are not included.
Retired
Terminated Participants
Active Vested And
Employees Employees Beneficiaries Total
Participants included in the
January 1 2003 valuation 1 619 53 591 2,263
Nonvested terminations
Data revisions
Vested terminations
Deaths without eligible
beneficiary
Retirements
Cash settlements
Rehires
New participants
Participants included in the
January 1, 2004 valuation
Active Participants:
(13)
(6)
(4)
(50)
(70)
25
132
1,633
6
(6)
(5)
48
5
(9)
56
3
646
(13)
5
0
(13)
0
(75)
25
135
27
Fully vested 750
Non-vested 883
Total 1,633
18
CITY OF CLEARWATER EMPLOYEES' PENSION PLAN
SECTION V - CENSUS DATA
(continued)
B. Age - Service Distribution of Active Participants as of January 1, 2004
Years of Service
Attained 0-4 5-9 10 - 14 15 - 19 20 - 24 25+ Total
Age
....... .... ............... No.
.._.........................._................ No.
.............. _._...-....... _........... ..... No.
........ ............._._...._........... _ No.
.._.......... ........-....._...._......... _ No.
................. .._-_..................... No.
.. .._...__............................ No.
..... ....... .......... ......_.......
Under 25 58 0 0 0 0 0 58
25 to 29 112 17 0 0 0 0 129
30 to 34 104 79 17 0 0 0 200
35 to 39 93 81 48 21 0 0 243
40 to 44 75 58 47 79 25 0 284
45 to 49 64 55 43 67 54 20 303
50 to 54 44 33 33 41 41 38 230
55 to 59 13 23 20 30 12 19 117
60 to 64 13 9 11 7 5 4 49
65+ 3 5 10 0 2 0 20
Total 579 360 229 245 139 81 1,633
Active Participant Statistics
Average Age 42.93 years
Average Service 10.14 years
19
CITY OF CLEARWATER EMPLOYEES' PENSION PLAN
SECTION V - CENSUS DATA
(continued)
C. Age - Service Distribution of Active Hazardous Duty Participants as of January 1, 2004
Years of Service
Attained 0-4 5-9 10 - 14 15- 19 20 - 24 25+ Total
A e
.. ..... ......
....... No.
........_..-.................
..... No.
......._......... ........... ._..... .._.-..... . No.
.................. .. ............. ..__...._. No.
........... _.......... _............. .... .... No.
.. ....... ...... ..._.............................. ._._... No.
........._....._.................. _............. No.
..........................................
Under 25 6 0 0 0 0 0 6
25 to 29 38 9 0 0 0 0 47
30 to 34 48 43 9 0 0 0 100
35 to 39 17 33 31 11 0 0 92
40 to 44 5 5 22 34 14 0 80
45 to 49 1 2 5 11 17 6 42
50 to 54 1 0 5 4 10 11 31
55 to 59 0 0 1 0 3 6 10
60 to 64 0 0 0 0 0 1 1
65+ 0 0 0 0 0 0 0
Total 116 92 73 60 44 24 409
Active Participant Statistics
Average Age 38.74 years
Average Service 11.34 years
20
CITY OF CLEARWATER EMPLOYEES' PENSION PLAN
SECTION V - CENSUS DATA
(continued)
D. Age - Service Distribution of Active Non-Hazardous Duty Participants as of January 1, 2004
Years of Service
Attained 0-4 5-9 10 - 14 15- 19 20 - 24 25+ Total
Age No. No. No. No. No. No. No.
Under 25 52 0 0 0 0 0 52
25 to 29 74 8 0 0 0 0 82
30 to 34 56 36 8 0 0 0 100
35 to 39 76 48 17 10 0 0 151
40 to 44 70 53 25 45 11 0 204
45 to 49 63 53 38 56 37 14 261
50 to 54 43 33 28 37 31 27 199
55 to 59 13 23 19 30 9 13 107
60 to 64 13 9 11 7 5 3 48
65+ 3 5 10 0 2 0 20
Total 463 268 156 185 95 57 1,224
Active Participant Statistics
Average Age 44.33 years
Average Service 9.74 years
21
CITY OF CLEARWATER EMPLOYEES' PENSION PLAN
SECTION V - CENSUS DATA
(continued)
E. Inactive Participant Count and Benefits as of January 1, 2004
Number o Annual
Participants Benefit
Terminated Vested Participants 48 $961,774
Retired Participants and Beneficiaries 646 $14,772,610
22
CITY OF CLEARWATER EMPLOYEES' PENSION PLAN
SECTION VI - ASSUMPTIONS AND METHODS
A. Actuarial Methods
Investment Yield The investment rate of earnings is assumed to be 7.5% per annum.
Mortality
Withdrawal
Mortality is based on the 1994 Group Annuity Reserving Table.
Pre-retirement withdrawals are assumed to occur in accordance with the following
table:
Rate of Withdrawal
General General Hazardous
. ........................... ............. ... ............. ............... _._
Age Male Fernale Duty
........ .........._........._............................................ _........ ............._.............. _......... ............ ..................__........ ...._................ .................................. --................................................... ..................... ..... ...............
.
25 15% 15% 5%
30 10% 15% 3%
35 5% 10% 3%
40 5% 10% 2%
45 5% 5% 2%
50 2% 5% 0%
55 0% 0% 0%
Disability
Pre-retirement incidence of disability is assumed to occur in accordance with a
standard scale of moderate disability rates (Class 1, 1952 Inter-Company). Rates for
females are assumed to be double that for males. Sample rates for males are shown
below:
Age Incidence _of Disability
20 .17%
25 .17%
30 .17%
35 .18%
40 .20%
45 .23%
50 .29%
55 .39%
60 .59%
65 1.04%
70 1.74%
Service vs. Non-service All pre-retirement deaths are assumed to be non-service related. All incidence of
disability is assumed to be service related.
Salary Scale Future salaries are assumed to increase at the rate of 6% per year - 3% due to
cost-of-living, and 3% due to merit increases.
23
CITY OF CLEARWATER EMPLOYEES' PENSION PLAN
SECTION VI - ASSUMPTIONS AND METHODS
(continued)
B. Actuarial Assumptions
Valuation Salary Compensation during the plan year is assumed to be the greater of (1) and (2).
(1) Compensation earned during the prior plan year, increased by salary scale;
(2) Pay rate for the current plan year.
Retirement Rates Retirement is assumed to occur in accordance with the following table:
... _..........
...... .......
.
..
...
.
. General
....................... ....
.................................. .................
.. Hazardous
..... .
............................ ...._.............. ...............
_ ...............
.
.
.
.
.
.
Age .
.
Employees ................
<45 0% 20%
45 0% 20%
46 0% 20%
47 0% 20%
48 0% 20%
49 0% 20%
50 20% 50%
51 20% 50%
52 25% 75%
53 25% 75%
54 25% 75%
55 50% 100%
56 50% 100%
57 50% 100%
58 50% 100%
59 50% 100%
60+ 100% 100%
Timing of Contribution The employer contribution is assumed to be made uniformly during the first two
quarters of the fiscal year beginning on the October- 1 following the valuation date.
Employees Covered All participants as of the actuarial valuation date.
Spouses Eighty-five percent (85%) of the active participants are assumed to be married (or
have dependents eligible for Survivor's Benefits). Female spouses are assumed to be
five years younger than male spouses.
State Contributions The state contributions are assumed to equal $12,000 per year.
Expenses Expenses are assumed to equal last year's actual expenses.
24
CITY OF CLEARWATER EMPLOYEES' PENSION PLAN
SECTION VI - ASSUMPTIONS AND METHODS
(continued)
B. Actuarial Assumptions (continued)
Completeness of All benefits and expenses to be provided by the Plan are recognized in the valuation.
Assumptions All known events are taken into account; no current trends are assumed to discontinue
in the future.
C. Asset Valuation Method
The Actuarial Value of Assets is based on a five-year moving average of assets valued at statement value. The
statement value reflects an amortized value for bonds and market value for equity investments. From the
statement value, actual and expected return on investments is derived. Any difference between the actual
return on investments for a given year and the expected return is spread over five years. After five years the
entire amount is fully recognized. However, the Actuarial Value of Assets will never exceed 120% nor fall
below 80% of the market value of assets. The use of a derived value of plan assets rather than current market
value will produce a more stable funding pattern for the plan by partially eliminating the effect of unusual
market fluctuations.
D. Actuarial Cost Method
The actuarial cost method is the Frozen Entry Ayze Actuarial Cost Method. Under this method the excess of
the actuarial present value of projected benefits over the sum of the actuarial value of assets plus the Unfunded
Frozen Actuarial Accrued Liability is funded on a level basis over the future compensation of active
employees. The portion of this excess allocated to the current year is called the Normal Cost. The Frozen
Actuarial Accrued Liability is determined using the Entry Age Actuarial Cost Method. This Frozen Actuarial
Accrued Liability is adjusted from time to time to reflect changes in the Plan or in the actuarial assumptions.
The Unfunded Frozen Actuarial Accrued Liability is separately amortized over a fixed number of years.
25
CITY OF CLEARWATER EMPLOYEES' PENSION PLAN
SECTION VII - SUMMARY OF PLAN PROVISIONS
This summary is intended as an outline of plan provisions and does not alter the intent or meaning of the provisions
contained in the contract and / or plan document.
Plan Year
Eli ig bility
Current Employee
Contributions
Average Monthly
Compensation
Accrued Benefit
Retirement Benefit
January 1 to December 31.
Any permanent employee shall participate in the plan immediately.
8.0% of wages and salaries actually paid to a participant.
The total Compensation received during the highest five years of service of the last ten years
divided by sixty.
A monthly benefit equal to 2.75% of Average Monthly Compensation multiplied by the
number of years of service to date.
A. Eligibility (Normal Retirement Date)
• Non-Hazardous Duty: Completion of 30 years of service, completion of at least 20 years of service and
the attainment of age 55, or completion of at least ten years of service and the attainment of age 65.
Hazardous Duty: Completion of 20 years of service or completion of at least ten years of service and the
attainment of age 55.
B. Normal Retirement Benefit
The participant's Accrued Benefit payable as of his actual retirement date on or after his Normal Retirement
Date. No adjustment applies for deferred retirement beyond his Nonnal Retirement Date.
C. Normal Form of Benefit
A monthly annuity for the life of the participant. After the participant's death, 100% of the Normal
Retirement Benefit shall be paid as a Survivor Annuity to the spouse for five years. After five years, such
Survivor Annuity is reduced to 50% of the original amount. The Survivor Annuity ceases upon death or
remarriage of the spouse. 120 monthly payments are guaranteed in any case for police and fire fighters.
26
CITY OF CLEARWATER EMPLOYEES' PENSION PLAN
SECTION VII - SUMMARY OF PLAN PROVISIONS
(continued)
D. Early Retirement Benefit
For police and fire fighters, an early retirement benefit is payable to those participants who have completed
ten years of service and the attainment of age 50. The benefit is equal to the retirement benefit calculated as
of the date of early retirement, reduced by 3% per year for each year below age 55.
E. Cost of Living Increase
All participants commencing annuity benefit payments shall be entitled to a 1.5% increase in their benefit
amount each year.
Disabilitv Benefit
A. Eligibility
Total and permanent disability. If the disability is non-service connected, there is an additional requirement
of the completion of ten years of service.
B. Disability Benefit
The participant's Accrued Benefit, payable immediately. If the disability is service connected, the Disability
Benefit must be at least 66.67% of Average Monthly Compensation.
C. Normal Form of Benefit
A monthly annuity for the life of the participant. After the participant's death, a Survivor Annuity is
provided as described under the Normal Form of Benefit for retirement benefits. 120 monthly payments are
guaranteed in any case for police and fire fighters.
D. Cost of Living Increase
All participants commencing annuity benefit payments shall be entitled to a 1.5% increase in their benefit
amount each year.
Death Benefit
A. Eligibility
Any actively employed participant.
B. Death Benefit
The participant's Accrued Benefit, payable immediately. If death is service connected, the Death Benefit
must be at least 66.67% of Average Monthly Compensation.
27
CITY OF CLEARWATER EMPLOYEES' PENSION PLAN
SECTION VII - SUMMARY OF PLAN PROVISIONS
(continued)
C. Form of Benefit
A monthly Survivor Annuity as described under the Normal Form of Benefit.
D. Cost of Living; Increase
All participants commencing annuity benefit payments shall be entitled to a 1.5% increase in their benefit
amount each year.
Vested Termination Benefit
A. Eligibility
Completion of ten years of service
B. Termination Benefits
The participant's Accrued Benefit payable as of his Normal Retirement Date, provided Employee
Contributions are not refunded.
C. Form of Payment
A monthly annuity for the life of the participant. After the participant's death, a Survivor Annuity is
provided as described under the Normal Form of Benefit, beginning at the latter of the participant's Normal
Retirement Date or date of death.
D. Cost of Living, Increase
All participants commencing annuity benefit payments shall be -entitled to a 1.5% increase in their- benefit
amount each year.
Non-Vested Termination Benefit
A. Eligibility
Any actively employed participant.
B. Benefit
Refund of Employee Contributions with 5% simple interest.
C. Form of Benefit
Lump sum.
G:M S Hri? RLT?CleamalerlDWV aP2004Val Repmtdoc
28
Cleanv ter Pension Trustee Cover Memorandum
Tracking Number: 614 Actual Date: 06/14/2004
Subject / Recommendation:
Approve the changes to the Investment policy for the Employee's Pension Plan.
Summarv:
The Pension Investment Advisory Committee reviews the Investment policy on a regular basis.
The biggest changes relate to a reduction in the amount of a security or equity in a company
that a money manager may hold. In the case of international equity the amount a manager
may hold in any one company has been reduced from 10% to 5%. For fixed income the amount
has been reduced form 10% to 5% for non-government backed securities and from 15% to 10%
for government back securities. The rest of the changes are of a housekeeping nature.
The changes comply with Florida Statutes 218.415.
Stuart Kaufman, the plan's attorney worked with the committee on the changes. He has
reviewed and appproved all of the changes.
Originating_ Finance
Review Approval
Maraie Simmons 05-26-2004 11:39:15
Cvndie Goudeau 06-07-2004 08:12:33
Bill Horne 06-05-2004 12:53:02
Tina Wilson 05-26-2004 11:58:57
Garrv Brumback 06-04-2004 09:16:01
STATEMENT OF INVESTMENT
OBJECTIVES AND GUIDELINES
CITY OF CLEARWATER EMPLOYEES'
PENSION FUND
Proposed 2004
Additions in bold and underlined
Deletions in strike through
PURPOSE
The purpose of this Statement of Investment Objectives and Guidelines hereinafter referred to as
the "Policy Statement" or "Policy" is to assist the City of Clearwater Employees' Pension Fund
(hereafter referred to as the Fund) in more effectively supervising and monitoring the investment of
the Fund's assets.
In the various sections of this policy document, the Fund defines its investment program by:
• stating in a written document the Fund's attitudes, expectations and objectives in the
investment of Fund assets.
• setting forth an investment "structure" for managing assets. This structure includes
various asset classes and investment management styles that, in aggregate, are
expected to produce a prudent level of diversification and investment return over
time.
• providing guidelines for each investment portfolio that control the level of risk
assumed in the portfolio and ensure that assets are managed in accordance with
stated objectives.
• encouraging criteria to monitor and evaluate the performance results achieved by the
investment managers.
This Statement represents the Fund's current philosophy regarding the investment of Fund assets. In
addition, although the Fund shall utilize this Policy Statement in making decisions concerning the
Fund, it shall not necessarily be bound solely by its contents.
PRUDENCE AND ETHICAL STANDARDS
The standard of prudence to be applied by the trustees shall be the "Prudent Person" rule, which
states: "Investments shall be made with judgment and care, under circumstances then prevailing,
which persons of prudence, discretion and intelligence exercise in the management of their own
affairs, not for speculation, but for investment, considering the probable safety of their capital as
well as the probable income derived." The "Prudent Person" rule shall be applied in the context of
managing the overall portfolio.
The trustees shall also be governed by the fiduciary standard set forth in the Employee Retirement
Income Security Act of 1974 at 29U.S.C. s. 1104 (a) (1) (A) - (C).
In the event of a conflict between the Policy and Florida Statutes or City ordinances, the
1
statutes and ordinances shall prevail.
Funding Philosophy
The Fund's funding objectives for the Fund is to be as fully funded as possible so that:
• the ability to pay all benefits and expense obligations from the Fund when due is
ensured;
• there will be no principal erosion of contributed funds or the purchasing power
thereof.
• a "funding cushion" is maintained within the Fund for unexpected developments and
for possible future increases in benefit structure and expense levels;
• the Fund assets should earn sufficient total rate of return over time to reduce the
Fund's dependency on employer contributions to meet all benefit and expense
obligations.
Investment results within the Fund are considered to be the major critical element in achieving these
funding objectives stated above while reliance on contributions is a secondary element.
Liquidity Posture
The Investment Portfolio shall be structured in such a manner as to provide sufficient liquidity
to pay obligations as they come due. Liquidity considerations are low in the short-term and
intermediate-term resulting in an immaterial impact upon investment policy, objectives and
guidelines.
Authorized Investments
The following is a list of authorized investments:
• Invest and reinvest the assets of the pension fund in annuity (including group annuity
contracts of the pension investment type) and life insurance contracts of legal reserve life
insurance companies licensed to do business in the State of Florida, in amounts sufficient
to provide, in whole or in part, benefits to which all of the participants shall be or become
entitled under the provisions of the Fund, and pay the initial and subsequent premiums
thereon. Provided that the amount invested with a life insurance company shall not
exceed 3% of the insurance companies assets.
• Invest and reinvest the assets of the pension fund in:
2
a. Time deposits, savings accounts, money market accounts, funds, certificates of
deposits, or money market certificates of a national bank, a state bank, or a savings,
building and loan association insured by the Federal Government or any agency
thereof or collateralized by United States Government
Agency securities.
b. Negotiable direct obligations of, or obligations the principal and interest of which are
unconditionally guaranteed by, and which carry the full faith and credit of the United
States Government and its agencies. Investments in this category would include but not
be limited to the following: United States Treasury Bills, Notes and Bonds, and securities
issued by the Small Business Administration, Government National Mortgage
Association (Ginnie Mae), Veterans Administration, and Federal Housing
Administration.
c. Fully collateralized United States Agency obligations which carry an implied
guarantee and the implied full faith and credit of the United States government.
Investments in this category would include but not be limited to the following:
obligations of the Federal Home Loan Banks System (FHLB) or its distinct banks and
Financing Corporation (FICO).
d. Other United States Agency obligations which carry an implied guarantee
(Government Sponsored Entities) and the implied full faith and credit of the United
States Government. Investments in this category would include but not be limited to the
following: obligations of the Federal Farm Credit Bank, Federal National Mortgage
Association (Fannie Mae), Federal Home Loan Mortgage Corporation (Freddie Mac),
Student Loan Marketing Association (Sallie Mae), Financial Assistance Corporation and
Federal Agriculture Mortgage Corporation (Farmer Mac).
e. Collateralized Mortgage Obligations (CMO) and/or Real Estate Mortgage Investment
Conduits (REMIC), rated investment grade or equivalent by Standard and Poor's,
Moody's Fitch, or other recognized national rating agencies which are backed by
securities otherwise authorized in this ordinance and which are guaranteed as to the
timely payment of principal and interest by the U.S. Government or its agencies.
f. County bonds (rated in any of the three highest rated categories by either of the
three nationally reco-2nized ratin-2 services; provided that if the bonds are split rated
that the bond must be rated in one of the two highest classifications by one of the
firms that containing a pledge of the full faith and credit of the county involved, bonds
of the Florida Development Commission, or of any other state agency, which have been
approved as to legal and fiscal sufficiency by the state board of administration.
g. Obligations of any municipal authority issued pursuant to the laws of this state;
provided, however, that for each of the five years next preceding the date of investment,
the income of such authority available for fixed charges shall have been not less than one
and one-half times its average annual fixed charge requirements over the life of its
obligations. The bonds of the municipal authority shall be rated in any of the three
highest rated categories by either of the three nationally recognized rating services;
3
provided that if the bonds are split rated that the bond must be rated in one of the
two highest classifications by one of the firms.
h. Common stocks, preferred stocks and bonds and other evidence of indebtedness issued
or guaranteed by a corporation organized under the laws of the United States, any state,
or organized territory of the United States or the District of Columbia or any non-U.S.
corporation, provided:
1. The corporation is listed on any one or more of the recognized national or
international stock exchanges and/or in the case of bonds and mortgage backed
securities, traded among dealers and investors in a recognized and agreed upon
conventional format;
2. All corporate bonds shall carry an investment grade rating as established either
by Standard & Poor's, Moody's, Fitch or other recognized rating agencies; and
3. Not more than three 3 fi-,?-e percent of the e uit assets of the pension fund
shall be invested in the common stock or capital stock of any one issuing
eempan?, corporation except to the extent a hi-2her percentage of the same
issue is included in a nationally recognized market index, based on market
values, at least as broad as the Standard and Poor's Composite Index of 500
Companies, or except upon a specific finding by the investment committee
that such hither percentage is in the best interest of the fund fierce
nor shall the non-U.S. investments
exceed ten percent of the pension fund's assets at cost; nor shall the aggregate of
the investments under this subparagraph at cost exceed sixty-five percent of the
pension fund's assets at cost.
Investments not listed above in this section are prohibited.
Bid Requirements
All securities shall be competitively bid where feasible and appropriate. Except as
otherwise required by law, the most economically advanta-2eous bid must be selected.
Executions must be made on a best-execution basis.
Illiquid Investments
The Fund will not invest in illiquid investments. Illiquid investments being defined as an investment
for which there is no generally recognized market or generally accepted pricing mechanism. Once
an investment becomes illiquid the money manager will notify the plan of the illiquid investment.
Included in that notification will be how the money manager will handle the illiquid investment.
Investment Management Structure
4
The Fund has reviewed the investment program for the City of Clearwater Employees' Pension
Fund. The result of the review is an updated, long-term strategic asset allocation Fund.
Initially, four distinct asset classes were considered for inclusion in the portfolio:
Domestic Equities Domestic Fixed Income
International/Non US Equities Cash
After a thorough review, a permanent commitment to these four asset classes will be made to ensure
diversification at the Fund level. The Fund may consider investments in other asset classes which
offer potential enhancement to total return at risks no greater than the exposures under the initially
selected asset classes.
It is not the intention of the Fund to become involved in day-to-day investment decisions. Therefore,
the assets will be allocated to professional investment managers in a manner consistent with the
Policy's objectives.
Each asset class will have its own investment managers. Diversification of the U.S. Market Equity
commitment will be achieved through the employment of managers of complementary investment
styles, Growth and Value. In the U.S. Fixed Income market a core bond managers will be utilized to
stabilize the fund. In the International Equity market a diversified non-U.S. managers will be hired
and achieve diversification. Cash and cash equivalents will be managed either by the Investment
Managers or the custodian. In addition the City uses the pooling concept to meet the immediate cash
needs of the city and to maximize the interest earnings. All cash placed in the City's pooled cash
account shall be separately accounted for and listed as an asset of the Fund. The Fund will keep
sufficient funds in the City's pooled cash account to meet the current obligations of the Fund.
The guidelines for the allocation of assets, at cost, to investment managers are as follows:
Lower Limit Upper Limit Cost or Market
U.S. Market Equities
Growth
Value 40%
10%
10% 65%
40%
40% Cost
Cost
Cost
Fixed Income 30% 50.0% Cost
International Equity 5.0% 10.0% Cost
Because the asset classes do not move in concert, deviations from the normal commitments will
occur through normal market activity. The Upper and Lower Limits define the ranges within which
market activity will be allowed to shift the allocations. The ranges are designed to allow for a
reasonable period of time to elapse before rebalancing the portfolio. When the investments are out of
policy the assets will be moved from the over-allocated to the under-allocated in a prudent manor.
When in market equilibrium, cash flows will be deployed in a manner that returns the portfolio to its
normal commitments.
5
Internal Controls
As part of the city's annual financial audit the external CPA firm will review the internal controls of
the Fund. The hiring or termination of all money managers, consultants or safekeeping custodians
must be made by the trustees. No individual associated with the Fund may authorize any movement
of monies or securities with out the approval of the trustees, if required, or by the approval of the
Pension Investment Committee if trustee approval is not required. An instance not requiring trustee
approval is rebalancing the portfolio. Internal controls will be designed to prevent losses of funds
which might arise from fraud, error, and misrepresentation by third parties or imprudent actions by
the trustees or city employees.
Makeup of The Investment Committee
The Pension Investment Committee shall be made up (at a minimum) of the following: Finance
Director (Treasurer for the Trustees), Assistant Finance Director, and the Cash & Investments
Manager. The Treasurer for the Trustees shall appoint/remove other Finance professionals as needs
warrant. One representative for each of the unions will also serve on the Investment Committee.
The Financial Director or their designee will chair the committee.
The City Treasurer will make a recommendation to the Trustees as to any changes in the makeup
of the committee.
Continuing Education
The annual budget for the pension Fund will include sufficient funding for the trustees and members
of the Pension Investment Committee to participate in pension education opportunities. These
educational opportunities will include education on the individual's duties and responsibilities as
well as investments in general. The chief investment officer will complete no less than 8 hours of
continuing educational opportunities on pension investments each fiscal year.
Investment Return Objectives
In formulating investment return objectives for the Fund objectives for the Fund assets, the Fund
placed primary emphasis on the following goals:
• Achieve investment performance that exceeds the rate of inflation over time thereby
providing a real rate of return.
• Achieve investment results of at least the actuarial rate of return.
• Achieve investment performance that is materially above average when compared to:
- Other investment managers
- Other investment manager peers of related investment style
6
- Other public retirement plans
- Several capital market indices
For each actual valuation the Trustees will determine the expected rate of return of the current year,
next several years and the long term. Based upon the above and the following the expected annual
rate of return for the current year is 7.5%. The expected rate of return for the foreseeable future is
also 7.5%.
1. Total Fund Return Objectives
The following minimum comparative objectives have been established for the total Fund:
• The total fund should rank in the upper fiftieth (50th) percentile compared to a
recognized performance measure company's total public plan sponsor database
measured over a minimum period of three (3) or maximum five (5) years.
• The Fund's overall annualized total return should perform at least at the upper
fiftieth (50th) percentile compared to investment style peers of similar type as
found in recognized performance measure company's style database for each
asset class segment.
• The Fund's overall annualized total return (which is defined as all price changes
plus all income and/or dividends) should exceed the actuarial assumption over a
rolling three L3) or maximum of five 5 year period.
• The Fund's overall annualized total return should exceed the returns that would
have collectively been achieved if the Fund had been fully invested in the
appropriate percentage of :
- Standard & Poor's 500 Stock Index
- Lehman Brothers Aggregate Bond Index
- Morgan Stanley Capital International EAFE Index
This is a custom benchmark that will be calculated relative to the actual
collective asset class mix of the Fund measured over a minimum of three (3)
or maximum of five (5) years.
2. Equity Segment Return Objectives
A. The following minimum performance goals have been established for the Fund's
domestic equity segment:
7
• The domestic equity segment total return should perform at least at
the upper fiftieth (50th) percentile compared to *e a recognized
performance measurement company's total U.S. equity database
measured over a minimum period of three (3) or maximum of (5)
years.
• The individual domestic equity managers total return should perform
at least at the upper fifth (50th) percentile compared to investment
style peers of similar type as found in a recognized performance
measure company's total U.S. equity database measured over a
minimum period of three (3) or maximum of (5) years.
• The total domestic equity segment total return should exceed the total
return of the Standard & Poor's 500 Stock Index by at least one (1)
percentage point per year measured over a minimum period of three
(3) or maximum of (5) years.
b. The following minimum performance goals have been established for the Fund's
international equity segment:
• The international equity segment total return should perform at least
at the upper fiftieth (50th) percentile compared to recognized
performance measure company's total non U.S. equity database
measured over a minimum period of three (3) or maximum of (5)
years.
• The individual international equity managers total return should
perform at least at the upper fiftieth (50th) percentile compared to the
investment style peers of similar type as found in a recognized
performance measure company's total non U.S. equity database
measured over a minimum period of three (3) or maximum of (5)
years.
• The international equity segment total return should exceed the total
return of the Morgan Stanley Capital International Europe, Australia,
Far East Index (EAFE) by at least two (2) percentage points per year
over a minimum of three (3) or maximum of (5) years.
3. Fixed Income Segment Return Objectives
A. The following minimum performance goals have been established for the Fund's
domestic fixed-income segment:
8
• The domestic fixed-income segment total return should perform at
least at the upper fiftieth (50th) percentile compared to the recognized
performance measure company's total domestic fixed income
database measured over a minimum period of three (3) or maximum
of (5) years.
• The individual domestic fixed income managers total return should
perform at least at the upper fiftieth (50th) percentile compared to
investment style peers of similar type as found in a recognized
performance measure company's total domestic fixed income
database measured over a minimum period of three (3) or maximum
of (5) years.
• The domestic fixed income segment total returns should exceed the
total return of the Lehman Brothers Aggregate Bond Index by at least
one-half (5) percentage point per year measured over a minimum
period of three (3) or maximum of (5) years.
4. Responsibilities of the Third Party Custodian
A third party custodian will hold all Fund assets other than commingled accounts.
In order to maximize the Fund's return, no money should be allowed to remain idle.
Dividends, interest, proceeds from sales, new contributions and all other monies are to be
invested or reinvested promptly. If funds are not reinvested, then they will be placed in
money market instruments or a money market fund immediately by the designated cash
manager working in concert with the custodian.
The custodian will be responsible for performing the following functions:
• Accept daily instructions from the investment managers;
• Advise investment managers daily of changes in cash equivalent balances;
• Immediately advise investment managers of additions or withdrawals from
account;
• Notify investment managers of tenders, rights, fractional shares or other
dispositions of holdings;
• Resolve any problems that investment managers may have relating to
custodial account;
9
• Safekeeping of securities;
• Interest and dividend collection;
• Daily cash sweep of idle principal and income cash balance;
• Process all investment manager transactions on a delivery vs. payment basis;
• Collect proceeds from maturing securities;
• Provide monthly statements by investment manager account;
• All securities purchased by the Fund shall be properly designated as an asset
of the Fund;
• No withdrawal of securities, in whole or in part shall be made except by an
authorized member of the committee or the committee's designee.
RESPONSIBILITIES OF INVESTMENT MANAGERS
The duties and responsibilities of each of the registered investment advisors retained by the Fund
include:
1. Managing the assets under its management in accordance with the policy guidelines
and objectives expressed herein, or expressed in a separate written agreement when
deviation is deemed prudent and desirable.
2. Exercising full investment discretion within the guidelines and objectives stated
herein. Such discretion includes decisions to buy, hold or sell securities in amounts
and proportions reflective of the manager's current investment strategy and
compatible with investment objectives.
3. Promptly informing the Fund regarding all significant matters pertaining to the
investment of the fund assets, for example:
• changes in investment strategy, portfolio structure and market value
of managed assets;
• the manager's progress in meeting the investment objectives set forth
in this document; and
10
• significant changes in the ownership, affiliations, organizational
structure, financial condition, professional personnel staffing and
clientele of the investment management organizations.
4. No deviation from guidelines and objectives established in the Statement should
occur until after such communication has occurred and the Fund has approved such
deviation in writing.
5. The Fund formally delegates full authority to each investment manager for
exercising all proxy and related actions of the Fund's investment assets assigned to
it. Each manager shall promptly vote all proxies and related actions in a manner
consistent with the long-term interests of the Fund and its Participants and
Beneficiaries. Each investment manager shall keep detailed records of all said voting
of proxies and related actions and will comply with all regulatory obligations related
thereto. The Fund shall periodically audit and review each investment manager's
policies and actions in this area.
6. Each Investment Manager shall utilize the same due care, skill, prudence and
diligence under the circumstances then prevailing that experienced, investment
professionals acting in a like capacity, as a fiduciary, and fully familiar with such
matters would use in like activities for like Funds with like aims, while maintaining
appropriate diversification to avoid the risks of large losses, in accordance and
compliance with all applicable laws, rules and regulations from local, state, federal
and international political entities as it pertains to fiduciary duties and
responsibilities.
7. Notifying the Fund of the filing of a lawsuit by a client against the manager
allmin breach of fiduciary duty or other willful conduct.
EVALUATION AND REVIEW
On a timely basis, but not less than four times a year, the Fund will review actual investment results
achieved by each manager (with a perspective toward a five-year time horizon) to determine
whether:
• the investment managers performed in adherence to the investment philosophy and
policy guidelines set forth herein; and
• the investment managers performed satisfactorily when compared with:
- the objectives set forth in Appendix "A", as a primary consideration,
11
- their own previously stated investment style,
- other investment managers, both in asset class and in style group,
- other retirement Funds,
- several different market indices.
In addition to reviewing each investment manager's results, the Fund will re-evaluate, from time to
time, its progress in achieving the total fund, equity, fixed-income, international, and cash and
equivalents segment objectives previously outlined. The periodic re-evaluation also will involve an
evaluation of the continued appropriateness of. (1) the manager structure set forth in Appendix "A";
(2) the allocation of assets among the managers; and (3) the investment objectives for the Fund's
assets.
The Fund may appoint investment consultants to assist in the on-going evaluation process. The
consultants selected by the Fund are expected to be familiar with the investment practices of other
similar retirement plans and will be responsible for suggesting appropriate changes in the Fund's
investment program over time.
Filing of Investment Policy
Upon adoption by the trustees, the investment policy shall be promptly filed with the Department of
Management Services, the City Clerk, and the consulting actuary. The effective date of changes to
the Investment policy will be 31 days after the filing date with the city.
12
APPENDIX A:
FUND SEGMENT AND INDIVIDUAL MANAGER GUIDELINES
13
CITY OF CLEARWATER EMPLOYEES PENSION FUND
INVESTMENT STRUCTURE
January, 2003
Target
Investment Manager Allocation
Domestic Equity Specialist Manager
Value Orientation 10%-40%
Domestic Equity Specialist Manager
Growth Orientation 10%-40%
International Equity Specialist Manager 5%-10%
Domestic Fixed Income Specialist Manager
Core Fixed Income Orientation 30%-50%
14
APPENDIX A: FUND SEGMENT AND INDIVIDUAL MANAGER GUIDELINES
1. Manager Structure
The Fund will retain investment managers that specialize in the use of particular asset
classes. The targeted distribution of Fund assets among specialist managers will be as
illustrated on the previous page. The Fund believes that the established structure:
• is consistent with the practices of other similar-sized retirement funds; and
• offers an appropriate "blend" of investment styles that will produce a
sufficient level of diversification and investment return over time.
2. Cash Flow Allocation
The allocation of assets is consistent with the Fund's desire to diversify its investment
management program.
The Fund intends to review on a periodic basis the allocation of assets among its investment
managers. To the extent that it is practically possible, it is expected that any cash flow will
be allocated to or taken from the managers in the same proportions that each manager's
assets represent to total fund assets in the target asset allocation outlined previously.
3. Trustee Utilization Restrictions
All domestic Fund assets, in any form, shall be solely and exclusively: (a) settled at, (b) held
in custody at, and (c) safe-kept only at custodians designated by the Fund at its sole
discretion. International Fund assets may be held in commingled accounts provided that all
of the normal protection of the Fund's assets is provided for.
4. Transaction Agent Assignment Restrictions
Assignment of specific brokerage firms, dealers, financial institutions, and other transaction
execution agents to all investment managers shall be the sole responsibility of the Fund.
From time to time, the Fund at its sole discretion may specify certain transaction agents that
investment transactions shall be executed through.
5. Short Selling and Related Restrictions
There shall be no: short selling, non-collateralized and/or non-delivered repurchase
agreements, use of financial futures or options, non-marketable direct investments in equity
or debt private placements or lease-backs or any other specialized investment activity
without the prior written consent of the Fund.
15
6. Liquidity and Marketability Restrictions
Liquidity and marketability frequently are perceived to be a function of the quality and the
market capitalization of each security holding. From the Fund's perspective, liquidity and
marketability also may be a function of a manager's aggregate holdings in a particular
security. The Plan believes that an investment manager should not buy or hold a security for
the Funds portfolio if the aggregate holdings among all of that manager's other accounts in
that same security would restrict the manager's ability to expeditiously liquidate the position
at any time.
From a total Fund perspective, the Fund believes the collective holdings among all Fund
managers accounts in that same security would restrict all managers collective ability to
expeditiously liquidate their respective positions in that same security. Therefore, the Fund
retains the sole right to limit any manager's holding of any security in the Fund at any time in
order to prevent the potential for said Fund's collective liquidation and market risk.
7. Usage of Custodian STIF on all Idle Cash Restrictions
Any idle cash not invested by the investment managers shall be invested daily via an
automatic sweep STIF managed by the Custodian or by others in behalf of each investment
manager. It is the Fund's objective to have no idle cash at any time in any manager's
portfolios.
8. Usage of Cross Asset Segment Investment Guideline Restrictions
When a manager's holdings include Fund assets outside of their primary assigned asset
segment assignment (e.g. a primary domestic equity manager also holds some cash
equivalents or fixed income securities as well as equities) the guidelines stated therein for the
non primary asset segment shall fully apply to the manager, in addition to the primary asset
assigned segment guidelines.
9. Diversification Restrictions
Except for criteria noted elsewhere in this Policy and in specific written contracts with each
manager, the appropriate and reasonable diversification of securities by such factors as
geography, region, sovereign risk, native currency, quality, coupon, country risk, maturity,
industry, duration, and sector is within the full discretion and responsibility of the investment
managers.
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10. Other Objectives. Guidelines and Restrictions Forthcoming
The Fund may develop additional objectives, guidelines and restrictions and may
amend the Policy from time to time. (in the fatuf:° ^ et4ef: ^ ° it deem
11. Fund Segment Guidelines
Following are guidelines and objectives established for the fund segments and for each
investment manager retained by the Fund. Individual manager guidelines are designed to be
consistent, in aggregate, with the total fund asset allocation guidelines and investment
objectives set forth in the Statement of Investment Objectives and Guidelines.
11A. Domestic Equity Segment
Each equity manager is expected to adhere to the following guidelines:
• Equity holdings in any one company (including common and preferred stock,
convertible securities and debt) should not exceed 10% of the market value
of the manager's portion of the Fund without the consent of the Fund.
• Equity holdings in any one industry (as defined by Standard & Poor's) should
not exceed 50% of the market value of the manager's portion of the Fund.
• Cash equivalents and fixed income positions should not exceed twenty five
percent (295%) of the manager's portfolio A
manager may invest in fixed income securities
if projected returns on such securities are perceived to
be competitive with potential equity returns. However, fixed income
securities will knot represent more than twenty-five percent (25%) of a
manager's portfolio without the prior written consent of the Fund.
• No purchase shall be made by an investment manager that ?Miieh would
cause a holding to exceed 5% of the issue outstanding.
11B. International Equity Segment
Each international equity manager is expected to adhere to the following minimum
guidelines:
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• Equity holdings in any one company and all of its subsidiaries and affiliates
(including equities, convertible securities and debt) should not exceed five
?en percent 5 4"" of the market value of the manager's portion of the
Fund portfolio without the prior written consent of the Fund.
• Equity holdings in any one industry should not exceed fifty percent (50%) of
the market value of the manager's portion of the Fund portfolio. Equity
holdings in any one sector (e.g., consumer cyclical, energy, technology, etc.)
should not exceed fifty (50%) of the market value of the manager's portfolio
without the prior written consent of the Fund.
• Cash equivalents and fixed income positions should not exceed fifty percent
(50%) of the manager's portion of the Fund assets. A manager may invest in
fixed income securities (i.e. securities with more than two years to maturity)
if projected returns on such securities are perceived to be competitive with
potential equity returns.
• The manager may enter into foreign exchange contracts on currency
provided that: (a) such contracts have a maturity of one year or less, and (b)
use of such contracts is limited solely and exclusively to hedging currency
exposure existing within the manager's portfolio. The intent is to dampen
portfolio volatility and prevent currency loss. There shall be no direct
foreign currency speculation or any related investment activity.
• The manager may purchase or sell currency on a spot basis to accommodate
specific securities settlements.
11 C. Fixed Income Segment
Each fixed income manager is expected to adhere to the following guidelines:
• All Fixed Income Securities held in each portfolio should have a Moody's, or
Standard & Poor's quality rating of no less than Investment Grade from any
of these rating services. (For an issue, which is split-rated, the lower quality
designation will govern. Once a security falls below investment grade the
money manager will notify the plan of the downgrade as soon as practical.
Included in that notification will be how the money manager will handle the
below investment grade security.
• The diversification of securities by maturity, quality, sector, coupon and
geography is the responsibility of the manager.
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• The exposure of each manager's portfolio to any single security other than a
security backed by the full faith and credit of the U.S. Government or any of
its instrumentalities should be limited to five 5 181% of the manager's
portion of the Fund measured at market value.
• No purchase shall be made by a Fixed Income Manager which would cause a
holding to exceed ten 10 -1-5% of the issue outstanding.
• There shall be no use of options, financial futures, derivatives or other
specialized investment activity without the prior written approval of the
Fund.
• Not more than 10% of an investment manager's portfolio, valued at market,
shall be invested in certificates of deposit, time deposits, bankers
acceptances, commercial paper, or related investments of a single issuer
financial institution or financial institution holding company family.
11D. Cash and Equivalents Segment
Although investment managers will be retained for their expertise in a certain investment
segment, it is expected that from time-to-time each will have some cash and equivalents in
their portfolios as a result of discretionary asset allocation decisions. Any idle cash not
invested by the investment managers shall be invested daily via an automatic sweep STIF
managed by the custodian. It is the Fund's objective to have no idle cash at any time in any
manager's portfolio.
11E. Pooled Vehicles
To the extent that the Fund invests a portion of the Fund's assets in commingled vehicles or
institutional mutual funds, then the investment guidelines of the Fund's prospectus will be
adopted as this fund's guidelines.
11F. Master Repurchase Agreement
The money managers and safekeeping custodian will use a master repurchase agreement
whenever appropriate. All repurchase agreements transactions shall adhere to the
requirements of the master repurchase agreement.
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12. Individual Manager Descriptions and Five-Year Expectations
All expectations are minimums. All investment managers shall exceed the stated
expectations.
Investment Manager Percentile Percentile
Expectation Expectation
Relative To Relative To
Other Managers Style Peers
Domestic Equity Specialist Manager 50th 50th
Value Orientation
Domestic Equity Specialist Manager 50th 50th
Growth Orientation
International Equity 50th 50"
Specialist Manager
Domestic Fixed Income Specialist Manager 50th 50"
Core Fixed Income Orientation
Cash and Equivalents and 50th 50th
SET Portfolios
In addition, each domestic equity and fixed income manager is expected to achieve
positive risk-adjusted (alpha) performance over a three (3) or maximum of (5) year
periods.
13. Reporting Requirements:
Consultant Reporting
The Pension Fund's Consultant will provide quarterly reports to the Pension Fund
which, at a minimum, will review the following information about each Investment
Manager and the Total Fund:
• Overview of the most recent quarter and year-to-date investment indicators
• Total Fund asset allocation
• Comparison of total Fund return versus the customized benchmark
• Performance results by individual Manager and Total Fund compared to
appropriate benchmarks.
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Investment Reporting:
• On not less that an annual basis the Trustees will receive a report showing a list
of all of the securities held by investment manager. This report will be provided
by the safekeeping custodians and shall include the portfolio by class or type,
book value, income earned, and market value as of the date of the report. This
report will be filed with the city.
Proxy Voting:
• On not less that a quarterly basis, money manager will report to the Plan their
proxy voting during the last period.
Review of Policy
This Statement of Investment Policy must be reviewed annually by the Pension Investment
Committee with a recommendation to revise or confirm to the Trustees.
Meeting Agenda
At each meeting, the written and oral presentations shall cover the following points:
• A report of performance for past periods. Standard time periods for each
report will be last quarter, last year, year to date, latest twelve (12) months,
two years, three years, etc., and since inception and by calendar year.
Returns should be annualized and calculated on a time-weighted basis for the
total portfolio. All returns should include price change plus income and/or
dividends.
• Discussion of the rationale for performance results by relating them
specifically to investment strategy and tactical decisions implemented during
the current review period.
• Discussion of the investment manager's specific strategy for the portfolio
over the next six to twelve months with specific reference to asset allocation
and sector weighting, as appropriate.
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• Supporting discussion of the next period's strategy with reference to
investment manager's capital market and economic assumptions, if
applicable.
Ten (12) copies of the written summary should be received by the Fund at least five
(5) business days prior to the meeting.
The Fund is interested in fostering an effective working relationship with its
investment managers through a discipline of good communication. The
establishment of Objectives, Performance Standards, Policies and Guidelines, and
Reporting Requirements is intended to provide the Fund with a good foundation
from which to understand specific management styles and strategies, evaluate results
and oversee progress toward overall investment objectives.
The Fund shall be using a third party consultant selected, hired and directed by the
Fund to: (1) assist in appraising performance, (2) to provide performance
comparison data with other retirement plans, several capital market indices, and to
other investment managers, (3) assist in evaluating manager style discipline and peer
comparisons, (4) assist in strategic funding and management of the Fund, and (5)
other factors the Fund deems appropriate. Investment managers are required to
support and assist the consultant with their fullest cooperation.
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