04/13/2010TRUSTEES OF THE EMPLOYEES' PENSION FUND MEETING
MINUTES
CITY OF CLEARWATER
April 13, 2010
Present: Chair/Trustee Frank Hibbard, Trustee George N. Cretekos, Trustee John
Doran, Trustee Paul Gibson, and Trustee Bill Jonson.
Also William B. Horne II - City Manager, Jill S. Silverboard- Assistant City
present: Manager, Pamela K. Akin - City Attorney, Cynthia E. Goudeau - City Clerk,
and Rosemarie Call - Management Analyst.
To provide continuity for research, items are in agenda order although not
necessarily discussed in that order.
1. Call to Order
The meeting was called to order at 9:23 a.m.
2. Approval of Minutes
2.1 Approve the minutes of the March 15, 2010 Pension Trustees meeting as
submitted in written summation by the City Clerk.
Trustee John Doran moved to approve the minutes of the March 15, 2010 Pension
Trustees meeting as submitted in written summation by the City Clerk. The motion was
duly seconded and carried unanimously.
3. Pension Trustee Items
3.1 Employees listed below be accepted into membership in the City of Clearwater's
Employees' Pension Plan as approved by the Pension Advisory Committee.
Pension Trustees 2010-04-13 1
Charles Graves, Maintenance Worker II/General 2/1/10 2/1/10
Services
Brooke Russell, Police Communication 2/1/10 2/1/10
;Operator/Police
Amanda Pullen, Recreation Programmer/Parks & 2/14/10 2/14/10
Recreation
Gordon McTaggart, Police Com. Operator 2/16/10 2/16/10
Trainee/Police
Jennifer Perrin, Police Com. Operator 2/16/10 2/16/10
Trainee/Police
Martha Hefenbarth, Police Com. Operator 2/16/10 2/16/10
Trainee/Police
Nicholas Dorrough, Systems Prog./Information 2/16/10 2/16/10
Technology
Julie Villarreal, Police Information Technician 2/16/10 2/16/10
1/Police
2/19/10 2/16/10
Joseph Bortolus, Police Com. Operator
Trainee/Police
Trustee George N. Cretekos moved to accept the Employees listed below into
membership in the City of Clearwater's Employees' Pension Plan as approved by the
Pension Advisory Committee.
The motion was duly seconded and carried unanimously.
3.2 Accent the Actuarv's Reoort for the Emplovees' Pension Plan for the clan vear
beginning January 1, 2010.
Per the January 1, 2010 actuary report for the Employees' Pension Plan, a
minimum City employer contribution of $19,361,992, equivalent to 24.07% of
covered payroll, is required for fiscal year 2011. This is a decrease from the fiscal
year 2010 required contribution of $23.9 million, or 29.17% of pay.
The decrease in the required employer contribution is primarily due to an actuarial
investment return (essentially a 5-year moving weighted average) of 16.53
percent versus the prior year's negative actuarial investment return of (10.61)
percent. The plan's expected investment return is 7.5 percent.
The improvement in the actuarial investment return is primarily the result of a
30.93 percent return for calendar year 2009. This 30.93 percent return replaced a
9.73 percent for calendar year 2004 that effectively dropped out of the calculation
of the five-year average actuarial investment return.
The plan's credit balance, which reflects prior year employer contributions in
Pension Trustees 2010-04-13 2
excess of the actuarially required contributions, decreased from $15.3 million to $
8.4 million for the current year. This decrease was due to the use of $8.1 million to
supplement City employer contributions, partially offset by $1.2 million in current
year interest earnings on the credit balance.
The plan's current credit balance of $8.4 million can be used to subsidize future
City employer contributions. Staff recommends retaining the credit balance at the
current level for fiscal year 2011 and funding the employer contribution for fiscal
year 2010 at 24 percent of covered payroll.
It is anticipated that future actuarially required contributions will average
approximately 30.5 percent of covered payroll over the next five years.
Consequently staff projects funding the employer contribution at 27 percent of
covered payroll for fiscal year 2012 and increasing the contribution to 30 percent
for years thereafter.
In response to questions, Gabriel, Roeder, Smith and Co. representative Stephen
Palmquist said the assumptions are reviewed every 5 years. The mortality rates used
are from the most recent table.
Finance Director Margie Simmons said staff takes extra effort to use the most recent
information available and realistic assumption rates to keep the plan well-funded.
In response to a question, Mr. Palmquist said the city's assumption rate of 7.5% is very
conservative compared to other plans. The city's plan covers more than one employee
group. For police and fire, the rate is typically 25-40% of payroll, while general
employees is 15-25%. The city's benefits are not that extraordinary since employees
are not covered by Social Security.
Ms. Simmons said city ordinance requires a 7% minimum annual contribution. There
have been years when the city was actuarially required to contribute less than the 7%
required by ordinance. The city has used the credit balance as a stabilizer to ease
contribution rates when needed. Employees have contributed to the plan since the
beginning. Any changes to the plan will require a referendum.
Trustee John Doran moved to accept the Actuary's Report for the Employees' Pension
Plan for the plan year beginning January 1, 2010. The motion was duly seconded and
carried unanimously.
3.3 Review of the pension investment performance for the year ended December 31,
2009.
This is the annual presentation on the performance of the Employees' Pension
Plan for calendar and plan year ending 12/31/2009.
Pension Trustees 2010-04-13 3
For the last calendar year the plan had a return of 30.26% VS a benchmark of
25.53%. This is an excess return of 4.73% and placed the plan in the top 1st
percentile of pension plan performance.
For the last three calendar years the plan has a return of 0.60% VS a benchmark
of (1.24%). This is an excess return of 1.84% and placed the plan in the top 36th
percentile of pension plan performance.
During the calendar year the REITs (real estate), active EAFE and emerging
market managers received their funding or the final part of their funding. Those
managers are:
Earnest Partners
Wentworth, Hauser & Violich
Wellington Management
Eaton Vance
Security Capital
All of the current managers in the pension plan have performed as expected. A
couple of managers whose style is out of favor have underperformed against their
peer group but that is expected. For the new managers, it takes time for them to
overcome implementation obstacles.
The recently completed asset allocation study is being implemented. The search
for private real estate is underway. Once this search is nearing completion, the
search for a timber manger will be started. After the timber search the search for a
hedge fund (absolute return) manager will commence.
The Pension Plan has participated in securities lending for several years. There
has been negative press regarding securities lending recently. Although we had
some issues, our experience with securities lending with our custodian, Northern
Trust, has been better than most. Northern Trust has set the standard on how
securities lend should be done and how a financial institution should perform
when problems do occur. Our issues with security lending are over and we
continue to feel that securities lending will continue to add income to our pension
plan.
Cash and Investments Manager Steve Moskun provided a power point presentation.
In response to questions, Mr. Moskun said diversifying the portfolio should have more
positive returns and stabilize the plan. The goal is to perform better in good years and
not as bad in bad years.
In response to a question, Cap Trust representative Eric Bailey said if the asset
allocation is modified in order to get complete certainty, the city would have a
Pension Trustees 2010-04-13 4
conservative portfolio with a 4% rate of return. The change could drive the contribution
rate to 40-50%. A higher rate of return, with a higher risk portfolio, would reduce the
city's contribution rate, if targets are met. Mr. Bailey said 7.5% is an achievable rate of
return.
It was requested that staff provide a report on ING and timeframe for changes in
progress.
3.4 Approve changes to the Employees' Pension Plan investment policy to provide for
the addition of alternative investments, to change the REIT classification to Real
Estate, to make other changes as approved in the asset allocation study, and to
clarify and make grammatical corrections to make the policy easier to understand.
At the Trustee workshop on January 29, 2010, Cap Trust, the Pension Plan's
consultant, and staff conducted a presentation and led discussion on the changes
to the Employees' Pension Plan investment model as a result of the recently
completed asset allocation study.
The investment policy implements the changes that were presented at that
meeting and recommended in the asset allocation study.
Additions have been underlined and deletions have been marked as a strike
through.
The major changes deal with the addition of alternative assets to the portfolio.
Alternative Investments are being defined and limits set.
The REIT investment class is being changed to Real Estate and an Alternative
asset class is being added to the Investment Management Structure.
The amount of allowable investments in each asset class is being updated to
recognize the addition of the new asset class.
Grammatical changes and changes to make the document easier to understand
have also been made.
Concern was expressed regarding hedge funds.
Finance Director Margie Simmons said the plan cannot go into hedge funds without
bringing the manager to the Trustees.
It was requested that staff clarify the alternatives listed on pages 4 and 6.
Pension Trustees 2010-04-13 5
Trustee George N. Cretekos moved to approve changes to the Employees'
Pension Plan investment policy to provide for the addition of alternative
investments, to change the REIT classification to Real Estate, to make other
changes as approved in the asset allocation study, and to clarify and make
grammatical corrections to make the policy easier to understand. The motion
was duly seconded and upon roll call the vote was,
Chair/Trustee Frank Hibbard, Trustee George N. Cretekos, Trustee
"Ayes": John Doran, and Trustee Paul Gibson.
"Nays": Trustee Bill Jonson.
Motion carried.
3.5 Approve the recommended administrative expenditures for fiscal year 2010-11
totaling $336,500.
The Employees' Pension Plan does not have a legal requirement to have a
budget. The Trustees must approve all expenditures. The following are routine
expenditures that staff is requesting approval. These expenditures involve routine
business matters and are mostly small dollar amounts. Printing and binding is for
the statutorily required annual information distribution to the members of the
pension plan. Postage is for required mailings. Membership dues are for the
annual dues for the Florida Public Pension Trust Association. Training and travel
are for the estimated costs of training required by state statute. This is a not-to-
exceed amount since we don't know which Trustees and Pension Advisory
Committee members will elect to attend conferences. The total paid for training
and travel for FY09 was $926.00 and for FY10 YTD is $1,545.00.
Reimbursement to the General Fund and the Self Insurance Fund is for the cost
of the oversight of the Plan and is recognized as revenue to the general and
insurance funds. This reimbursement covers the services provided by Human
Resources, Payroll, and Finance. Klausner and Kaufman is the Plan's pension
attorney firm. Annual attorney's fees also include medical bills that are for the
medical services authorized by the Pension Advisory Committee. This is an
estimated amount and varies from year to year based upon requirements. Total
paid in FY09 was $69,348 and FY10 YTD is $44,823. Staff is budgeting for a
potential referendum next year. A referendum is required for any changes to the
pension plan. Money manager, safekeeping, actuary, and pension administration
fees are all set by contracts approved by the Trustees and are not included in this
budget.
Pension Trustees 2010-04-13 6
Trustee Paul Gibson moved to approve the recommended administrative expenditures
for fiscal year 2010-11 totaling $336,500. The motion was duly seconded and carried
unanimously.
4. Other Business - None
5. Adiourn
The meeting was adjourned at 11:14 a.m.
Chair
Employee's Pension Plan Trustees
Attest
Pension Trustees 2010-4-13 7