04/15/2013 TRUSTEES OF THE EMPLOYEES' PENSION FUND MEETING MINUTES
CITY OF CLEARWATER
April 15, 2013
Present: Chair/Trustee George N. Cretekos, Trustee Paul Gibson, Trustee
Doreen Hock-DiPolito, Trustee Bill Jonson, and Trustee Jay E.
Polglaze.
Also Present: William B. Horne II - City Manager, Jill S. Silverboard - Assistant City
Manager, Rod Irwin - Assistant City Manager, Pamela K. Akin - City
Attorney, Rosemarie Call - City Clerk, and Nicole Sprague - Official
Records and Legislative Services Coordinator.
To provide continuity for research, items are in agenda order although not
necessarily discussed in that order.
1. Call to Order— Chair George N. Cretekos
The meeting was called to order at 1:32 p.m. at City Hall.
2. Approval of Minutes
2.1 Approve the minutes of the March 18, 2013 Pension Trustees meeting as
submitted in written summation by the City Clerk.
Trustee Bill Jonson moved to approve the minutes of the March 18, 2013 Pension
Trustees meeting as submitted in written summation by the City Clerk. The motion was
duly seconded and carried unanimously.
3. Citizens to be Heard re Items Not on the Agenda — None.
4. Pension Trustee Items
4.1 Accept the Actuary's Report for the Employees' Pension Plan for the plan year
beginning January 1, 2013.
Per the actuary report dated January 1, 2013, a minimum City employer
contribution of$19.6 million, or 26.33% of covered payroll, is required for fiscal
year 2014. This is a decrease of$1.3 million over the fiscal 2013 required
contribution of$20.9 million, or 27.97% of covered payroll.
Pension Trustees 2013-04-15 1
The decrease in the required contribution is primarily due to savings from the
changes to the pension plan effective January 1, 2013, partially offset by
increased costs due to changes in plan assumptions, along with an investment
loss due to a 5.5% investment return on the actuarial value of assets. The savings
from the change in plan benefits, effective January 1, 2013, totaled approximately
$4.9 million. These savings were offset by an increase in the required contribution
due to the assumptions changes, also effective with the January 1, 2013 actuarial
valuation, totaling $2.3 million. Finally, the final year of the "phase-in"; of the
calendar 2008 investment losses resulted in an investment return of 5.5%, based
on the actuarial value of assets„ versus the assumed rate of 7.5% (gross of fees).
This negative investment return performance increased the required employer
contribution, and further offset the $4.9 million savings, by approximately $1.3
million.
The calendar year 2012 investment return was 13.92% gross of fees, versus the
assumed rate of 7.5% gross of fees. This resulted in an improvement in the
investment return based on the actuarial value of assets from 4.46% for the prior
year to 5.50% for the current year valuation. This is the final year of the five year
"smoothing", or amortization, of the 2008 investment losses (negative 27.01%
return). Calendar 2009 thru 2012 investment returns were 30.93%, 17.50%7
(0.32)%, and 13.92%, respectively. If the plan meets its assumed rate of return of
7% net of fees for calendar 2013, investment gains will lower next year's required
contribution to approximately 21% of covered payroll per the actuary's estimate.
The plan's credit balance, which reflects actual contributions in excess of
actuarially required contributions for prior years, decreased from $6,565,156 to
$6,343,864 during calendar 2012. This $224,000 decrease was the result of
budgeting to use approximately $625,000 of the credit balance for fiscal 2013
contributions, offset by interest earnings on the credit balance. The Plan's funded
ratio is 92.2% versus 97.4% for the prior year. The funded ratio after the plan
design changes had improved to 101.2%. However the changes in the plan
assumptions increased the unfunded actuarial accrued liability by approximately
$66 million (amortized over 30 years) resulting in the decrease in the funded ratio
to 92.2%. For comparability to other plans, the actuary notes in the report that the
current funded ratio is 88.9% based on the more commonly used Entry Age
Normal funding method.
The Actuarial Value of Assets exceeds the Market Value of Assets by $47.0
million as of January 1, 2013. If Market Value had been the valuation basis, the
required contribution rate would have been 21.24% of covered payroll.
Gabriel, Roeder and Smith representative Peter Strong reviewed the actuary report. He
expressed a concern regarding the Plan's contribution volatility, which is based on the
size of the market value of assets to the size of covered payroll. The Plan's market
Pension Trustees 2013-04-15 2
value of assets is currently $735 million, but covered payroll is $74 million. The Plan's
contribution volatility is 9.89 as of January 1, 2013. Mr. Strong expressed a concern if
the Plan's market value of assets dropped 5%; impacting approximately 50% of covered
payroll. He suggested the Trustees consider buying annuities through an insurance
company, when the interest rates go up to remove liabilities and assets and decrease
the assets-payroll ratio, or conducting a asset liability study.
In response to questions, Mr. Strong said the City has a mature plan. A mature plan
refers to the point when the ratio of retirees and active members remain constant. The
recent assumptions changes are more conservative, allowing for a more sustainable
and a well-funded plan.
4.2 Determine Trustees' expected rate of return for the pension plan's investments
for the current year, for each of the next several years, and for the long term
thereafter.
Florida Statutes 112.661(9) requires an annual determination of expected rates of
return be filed with the Florida Department of Management Services, with the
plan's sponsor, and with the consulting actuary.
Staff is recommending the current plan investment rate of return assumption of
7.0%, net of investment-related fees, as the expected annual rate of return for the
current year; for each of the next several years, and for the long term thereafter.
Trustee Doreen Hock-DiPolito moved to determine 7.0% as the Trustees' expected rate
of return for the pension plan's investments for the current year, for each of the next
several years, and for the long term thereafter. The motion was duly seconded and
carried unanimously.
4.3 Approve the request of the new hires for acceptance into the Pension Plan as
listed.
Pension
Name, Job. Class, & Dept./Div . Hire Date Elig. Date
Dwayne Randall, Parks Sery Tech I, Parks and Rec Dept 01/28/2013 01/28/2013
Clifton Whitaker, Solid Waste Worker, Solid Waste Dept 01/28/2013 01/28/2013
Mark Snurr, Licensed Electrician, GS/Solid Waste Dept 02/11/2013 02/11/2013
Mercedes McBride, Police Comm Oper Trainee, Police Dept 02/25/2013 02/25/2013
James Blackwell, Police Comm Oper Trainee, Police Dept 02/25/2013 02/25/2013
Pension Trustees 2013-04-15 3
Jamie Duplain, Police Comm Oper Trainee, Police Dept 02/25/2013 02/25/2013
Paige Szymaniak, Police Comm Oper Trainee, Police Dept 02/25/2013 02/25/2013
Jeremy Curvan, Police Officer, Police Department 02/25/2013 02/25/2013
Scott Penna, Police Officer, Police Department 02/25/2013 02/25/2013
Daniel Marschel, Police Officer, Police Department 02/25/2013 02/25/2013
Stacie Gonzalez, Cust Service Rep, Customer Service Dept 02/25/2013 02/25/2013
Tony Gordon, Solid Waste Worker, Solid Waste Dept 02/25/2013 02/25/2013
Trustee Jay Polglaze moved to approve the request of the new hires for acceptance into
the Pension Plan as listed. The motion was duly seconded and carried unanimously.
4.4 Approve the request of employee John Cavaliere, Police Department for a
regular pension as provided by Sections 2.416 and 2.424 of the Employees
Pension Plan.
John Cavaliere, Police Officer, Police Department, was employed by the City on
September 24, 1990 and his pension service credit is effective on that date. His
pension will be effective April 1, 2013. Based on an average salary of
approximately $80,653.64 per year over the past five years, the formula for
computing regular pensions, and Mr. Cavaliere's selection of the 100% Joint and
Survivor Annuity, this pension will approximate $48,859.44 annually.
Section 2.416 provides for normal retirement eligibility when a participant has
completed twenty years of credited service or has reached age 55 and completed
ten years of credited service in a type of employment described as hazardous
duty. Mr. Cavaliere qualifies under the hazardous duty criteria.
Trustee Paul Gibson moved to approve the request of employee John Cavaliere, Police
Department for a regular pension as provided by Sections 2.416 and 2.424 of the
Employees Pension Plan. The motion was duly seconded and carried unanimously.
4.5 Approve the City of Clearwater Employee Pension Plan as lead plaintiff in
litigation against Maxwell Technologies, Inc regarding investment losses to the
Plan; retain Saxena White, P.A. as legal counsel in this regard and authorize
Pension Trustees 2013-04-15 4
staff to negotiate a retainer agreement with Saxena White, P.A.
In December 2011, the City Employees' Pension Plan Trustees approved
contracts retaining Kessler, Topaz, Melzer, and Cheek, LLP, and Saxena White,
P.A., to provide monitoring of securities in the Pension Plan investment portfolio in
connection with claims for damages suffered by the Pension Plan, at no cost to
the Plan.Saxena White has recommended that the Pension Plan move for lead
plaintiff status in a litigation action against Maxwell Technologies, based in San
Diego, California. Maxwell develops, manufactures, and markets products and
services for purification and information technologies and power-conversion
systems and components.
Maxwell has announced it must restate its financial statements by millions of
dollars because it recognized revenue prematurely, that the company lacked
internal controls, and was notified it was no longer in compliance with NASDAQ
listing rules. The company auditor subsequently resigned because it could no
longer rely on management representations. This has devastated Maxwell's
common stock price resulting in a loss of 44% in the value of such stock since
March 7, 2013. The Clearwater Employee Pension plan has sustained losses in
excess of$220,000.Pursuing lead plaintiff status will serve to ensure the Trustees
and Plan administrators are fulfilling their fiduciary responsibilities while conveying
a strong message to the public and corporate world that the City is doing its due
diligence in ensuring that the Plan assets are protected.
The cost of litigation will result in no out of pocket expenses to the Plan and the
retainer agreement will stipulate as much.
Trustee Bill Jonson moved to approve the City of Clearwater Employee Pension Plan as
lead plaintiff in litigation against Maxwell Technologies, Inc regarding investment losses
to the Plan; retain Saxena White, P.A. as legal counsel in this regard and authorize staff
to negotiate a retainer agreement with Saxena White, P.A. The motion was duly
seconded and carried unanimously.
5. Other Business — None.
Pension Trustees 2013-04-15 5
6. Adjourn
The meeting was adjourned at 2:12 p.m.
—qeDV it crcke 1,5
Attest
Chair
Employees' Pension Plan Trustees
City Clerk
Pension Trustees 2013 -04 -15
6