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06/17/1991 TRUSTEES OF THE EMPLOYEES' PENSION FUND MEETING June 17, 1991 The City Commission, meeting as the Board of Trustees of the Employees Pension Fund, met in regular session at City Hall, Monday, June 17, 1991 at 9:01 A.M., with the following members present: Rita Garvey Chairperson Lee Regulski Trustee William Nunamaker Trustee Richard Fitzgerald Trustee Sue Berfield Trustee Also Present were: Michael J. Wright City Manager Milton A. Galbraith, Jr. City Attorney Cynthia E. Goudeau City Clerk ITEM #2 - Minutes: Trustee Berfield moved to approve the minutes of the June 3, 1991, meeting. The motion was duly seconded and carried unanimously. ITEM #3 - Request for Acceptance into Membership: The City Manager presented the recommendation of the Pension Advisory Committee to approve membership for the employee(s) listed below: a) Eddie Adams b) Jimmie Patrick c) Jimmy Dunn d) Donald Filmon e) Frank Wishinsky f) Gwendolyn Legters g) Claudia Walker h) Diana Atkinson Trustee Regulski moved to accept the recommendation of the Pension Advisory Committee. The motion was duly seconded and carried unanimously. ITEM #4 - Request for Pension: The City Manager presented the recommendation of the Pension Advisory Committee that the employee(s) listed below be granted a job-connected disability pension under Section 26.35 and/or 26.27 of the Employees' Pension Plan. a) George T. Roberts Lt. Roberts' injury occurred on February 17, 1990, when he lifted his right leg to step over the dividing wall on the Courtney Campbell Causeway at a rescue scene. He lost his balance as he was stepping over the wall; the result was a herniated disc. On May 1, 1990, he underwent lumbar laminectomy with partial removal of a herniated disc. Lt. Roberts continues to have pain in his leg, a lack of mobility and full use of his back, chronic discomfort, and a limp. He has permanent limitations of no heavy lifting; no repeated bending or stooping; and no prolonged sitting, standing, or walking. Trustee Regulski moved to accept the recommendation of the Pension Advisory Committee. The motion was duly seconded and carried unanimously. b) Ronald Streicher Lt. Streicher was injured originally in 1985 when while sliding down a fire pole, his right ankle was violently inverted upon striking bottom. This injury was treated as a sprain; however, subsequent injuries with the ankle occurred over the years, including one in 1990 when he twisted his ankle on the edge of uneven pavement while stepping out of a fire truck. Trustee Fitzgerald moved to accept the recommendation of the Pension Advisory Committee. The motion was duly seconded and carried unanimously. Item #5 - Agreement with Eickhoff, Pieper & Willoughby, Inc., to act as Investment Manager for the G.I.C. portion of the City's pension plan assets and terminate the existing G.I.C. management agreement with First Union National Bank Since 1978, John Willoughby has been actively involved with the City of Clearwater's pension plan. As a representative of Exchange Bank of Tampa, Mr. Willoughby was originally retained by the Trustees to manage the fixed income (G.I.C.) portion of the portfolio, and to assist the City in monitoring the performance of the equity managers. He was instrumental in hiring Aetna Capital Management and Denver Investment Management in 1983, and also in the recent hiring of Hanson Investment Management in 1990. It was his recommendation that resulted in the liquidation of $10 million in equities in August of 1987, two short months before the unprecedented market "crash" in October, 1987. The subsequent reinvestment of these monies following the crash resulted in significant savings to the plan. When NCNB bought Exchange Bank in 1983, Mr. Willoughby left NCNB for Florida National Bank in Jacksonville. After deterioration was noticed in our service from NCNB, the Trustees approved agreements with Florida National Bank to provide both G.I.C. management and equity advisory services. When First Union bought Florida National Bank in 1990, Mr. Willoughby left First Union to become an equity owner with Eickhoff and Pieper, a well respected local investment management firm. At staff's request, on July 16, 1990, the Trustees appointed the new firm of Eickhoff, Pieper & Willoughby, Inc. as equity investment advisor, but left the G.I.C. management contract with First Union. Staff was hopeful that First Union would continue to effectively manage G.I.C.'s, thereby giving us an additional investment "professional" on the investment team. However, numerous problems with First Union have occurred. Eickhoff, Pieper & Willoughby, Inc. (EPW) has proposed to assume management of the G.I.C.'s for a fee of .06% of assets under management on an annual basis. With approximately $57,250,000 invested in G.I.C.'s, this would translate to an annual fee of approximately $34,350 or a savings of approximately $5,725 from First Union's current .07% fee. EPW's services will include analysis of issuer quality, analysis of appropriate maturities based on existing portfolio and the current market environment, and competitive bids received from multiple issuers. While it would be possible to conduct a full RFP process to select a G.I.C. manager, the Investment Committee believes that this is an unnecessary expenditure of time and effort, given Mr. Willoughby's clearly exceptional prior performance, demonstrated expertise in the field of G.I.C. investing, and thorough knowledge of the City's investment history and philosophy. This proposal seeks a change in management agreements to retain our former manager, due to corporate reorganization. It is felt to be in the best interests of the plan to approve the proposal, at the same time effecting an overall reduction in management fees. Dan Deignan, Finance Director, reviewed the history of the management of G.I.C. Investments. Concerns were raised regarding relying on one person. Mr. Deignan indicated that we will be dealing with a firm that is more likely to cross-train an additional person regarding our account. In response to a question, it was indicated that there is no termination date to this agreement. Trustee Regulski moved to approve the agreement with Eickhoff, Pieper & Willoughby, Inc., to act as Investment Manager for the G.I.C. portion of the City's pension plan assets and terminate the existing G.I.C. management agreement with First Union National Bank. The motion was duly seconded and carried unanimously. ITEM #6 - Request for special actuarial studies from the Plan Actuary, Coopers and Lybrand, in an amount not to exceed $10,000 Discussions with the Unions relative to bargaining for Fiscal Year 1992 have already begun. Many requested benefits, such as health insurance coverage for pensioners, cost of living adjustments, etc., require actuarial determination of the true cost. With approval, the City Manager and Finance Director will review all proposed modifications to the plan, and will direct the actuary to proceed with the analysis on those items which are deemed to be appropriate to review, up to a maximum actuarial fee of $10,000. The City Manager stated the Trustees will be notified of what reviews are being requested. Trustee Regulski moved to authorize the City Manager and Finance Director to request special actuarial studies from the plan actuary, Coopers and Lybrand, in an amount not to exceed $10,000. The motion was duly seconded and carried unanimously. ITEM #7 - Agreement with Callan Associates, Inc. to provide a bond manager search for a fee of $30,000 in directed brokerage commissions (soft dollars) The Investment Committee has recently been giving careful consideration to the investment mix which comprises the City's pension plan. The first step in diversifying the investments was the addition of a third equity manager to complement the two existing managers. This process culminated with the appointment of Hanson Investment Management on November 13, 1990. The $20 million given to Hanson has already grown to $24,070,000, providing a return of approximately 20.35% since assets were actually transferred to Hanson in early December. The final phase of this diversification process involves the fixed income portion of the fund, currently invested only in Guaranteed Investment Contracts (G.I.C.'s). Although its a continued belief that G.I.C.'s provide a valuable stable investment, the Investment Committee has recently given extensive review and consideration toward corporate and government bonds as an additional fixed income investment. Bonds have three primary advantages over G.I.C.'s. First, bonds can be purchased in maturities significantly longer than the "standard" 5-7 year G.I.C. contract. Second, bond purchases can be focused by market sector, unlike G.I.C.'s which can only be purchased from life insurance companies. Third, unlike G.I.C.'s, bonds can be actively traded, which insures that the bond portfolio can be fully liquidated at any time. The primary disadvantage is that bonds must be accounted for at market value, unlike G.I.C.'s which are accounted for at cost. In rising interest rate environments, bond values can decline, resulting in reported losses on the bond portfolio. Conversely, in declining interest rate environments, bonds can increase in value, producing a yield on the bond portfolio in excess of the yield on a comparable G.I.C. portfolio. Even though the long term yield on bonds will likely approximate the long term yield on G.I.C.'s, significant differences can and will occur in the short term. The Investment Committee has considered and discussed these issues and believes that a prudent, responsible approach is to allocate a portion of the plan's fixed income investments to bonds. Consensus is that approximately 25% of the $57 million G.I.C. portfolio should initially be allocated to bonds. This percentage could subsequently be increased to as much as 50% of the fixed income portfolio, based on the actual experience with bonds and subsequent approval of the Trustees. The pension ordinance already allows for investment in corporate bonds, although the fund has not owned any bonds to date. Its recommended to appoint a professional bond manager to be selected via the formal selection process and solicit approval to begin that process. The actual dollar amount to be allocated will be included as part of the final recommendation. Its recommended to have the plan's performance measurement vendor, Callan Associates, Inc., to direct and coordinate the manager search process. Callan was recently engaged to perform the equity manager search which resulted in the successful appointment of Hanson Investment Management. Their fee for that search was $36,000 in directed brokerage commissions (soft dollars), and they have proposed a fee of $30,000 in directed brokerage commissions for the current bond manager search. It's felt the fee is reasonable, and that Callan's prior experience and continuing relationship with the plan makes them the preferred choice to perform the manager search. Because the fee will be paid with directed brokerage commissions, no net cost is expected to the plan to provide the search. With approval to proceed, it's the intention to return back with a recommendation for a bond manager on or about September 16. Once approved, this will complete the current plans for "repositioning" assets in the City's pension plan. Dan Deignan, Finance Director, stated the fixed income portion of the Pension Plan Investments needs to be diversified. Approving this recommendation could result in a $50,000 increase in fees and staff believes this will be offset. Discussion ensued regarding the need to diversify and it was indicated it would take six months to complete the transfer. A total investment of $15,000,000 to $20,000,000 is being considered. Trustee Regulski moved to approve an agreement with Callan Associates, Inc. to provide a bond manager search for a fee of $30,000 in directed brokerage commissions (soft dollars). The motion was duly seconded and carried unanimously. ITEM #8 - Other Business: Chairperson Garvey questioned a recent article regarding Worker's Compensation. Deputy City Manager Kathy Rice indicated this will be one of the items negotiated with the unions. ITEM #9 - Adjournment: The meeting adjourned at 9:25 a.m.