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07/13/1992 TRUSTEES OF THE EMPLOYEES' PENSION FUND MEETING July 13, 1992 The City Commission, meeting as the Board of Trustees of the Employees Pension Fund, met in regular session at City Hall, Monday, July 13, 1992 at 1:03 P.M., with the following members present: Rita Garvey Chairperson Lee Regulski Trustee Richard Fitzgerald Trustee Sue Berfield Trustee Arthur X. Deegan, II Trustee Also Present were: Michael J. Wright City Manager Milton A. Galbraith, Jr. City Attorney Cynthia E. Goudeau City Clerk ITEM #2 - Minutes: Trustee Fitzgerald moved to approve the minutes of the June 1, 1992, 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) Jay R. Schmitt b) Peter E. Lopez c) Vickie Davenport d) David Caseley e) Marcus D. Lane f) Robert P. Berger g) Michael A. Cavallo h) Robert L. Pease i) Joseph I. Walden j) Dwight D. Terry k) John G. Pickart Trustee Fitzgerald 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 that the approval of a job-connected disability pension for Josephine M. Robinson be remanded to the PAC for consideration as a non-job-connected disability pension. Josephine Robinson was employed by the City on November 13, 1967 and began participating in the Pension Plan on that date. She suffers from ulcerative colitis which resulted in her application for a job-connected disability pension. Ms. Robinson has submitted letters from Dr. F. Byron Smitherman (dated 1/30/92) and Dr. Yael Y. Ellis (dated 5/12/92) in support of her request for a job-connected disability pension. The report from Dr. Smitherman states Ms. Robinson "is troubled at this time with a flare-up of chronic ulcerative colitis. It is my impression this has flared because of stress, which is incurred in her occupation. There apparently is no way to change the stress involved in her job and I have recommended, therefore, that because of the serious nature of her difficulty that she plan on medical retirement". The report from Dr. Ellis states "She has suffered from severe ulcerative colitis which has been quiescent for many years and then flared related to multiple stressors of her job ... As a result of many factors, I have recommended that she take an early medical retirement on disability as she is unable to continue to work with all of her medical problems". Ms. Robinson's disability pension was approved as job-connected by the PAC at its meeting of June 24, 1992. Staff believes that the issue of job-relatedness based on job stress is not sufficiently documented with a reasonable degree of medical certainty to support a job-connected disability pension. H. M. Laursen, Human Resources Director, reported there is no indication of from where the stress comes on the job. He also reported the PAC has rejected stress related requests in the past. Trustee Regulski moved that the approval of a job-connected disability pension for Josephine M. Robinson be remanded to the PAC for consideration as a non-job-connected disability pension. The motion was duly seconded and carried unanimously. ITEM #5 - Authorize a continuation of the 8% employee contribution through 12/31/92 and designate a City contribution for fiscal year 1993 which is equal to the actual employee contributions for calendar year 1992 A recent annual investment performance summary memo indicates pension fund investment returns for calendar 1991 were significantly higher than anticipated, including an annualized return of 48.2% for equities and an increase in total assets from $141.9 million on January 1, 1991 to $184.7 million on January 1, 1992. As a result of this phenomenal asset growth, the actuarial report indicates a significant drop in the required annual contribution. The report notes that the total required contribution decreased from $6,357,852 last year to $3,377,997 this year, from a projected 18.4% of payroll last year to a projected 9.2% of payroll this year. The pension ordinance provides for a minimum 6% contribution by the employees and the City, and further grants the Trustees the authority to increase the employees contribution by up to 2% additional, providing the City's contribution is increased by a like amount. To further complicate the process, the employees' contributions are considered on a calendar year basis, whereas the City's corresponding contribution is budgeted and paid during the ensuing fiscal year. The 8% contribution rates proposed will produce a contribution totaling approximately $5,860,214 or $2,482,217 in excess of the state required minimum contribution. This excess will be added to the existing credit balance of $925,885. The combined credit balance of $3,408,102 is available to offset unanticipated future increases in required contribution levels beyond the current 8% level. Despite the unusually good news regarding the state required minimum contribution, staff is recommending the employee contribution rate be maintained at 8%, at least through December 31, 1992. Staff believes a conservative approach is warranted due to the potentially volatile nature of the investment markets, and also due to the uncertainty surrounding the eventual outcome of the "Snair" lawsuit. City management has begun discussions with the City's labor unions to explore the possibility of adding some type of annual benefit adjustment based on above average performance. A separate agenda item recommends appointment of the actuary to determine what type of benefit adjustments could be funded without impacting a matching 8% City/employee contribution. If the current project to "qualify" the plan is successful, this will reduce the impact of the employees' contribution by deferring the federal income tax liability on this amount. If additional benefits are not agreed to, staff will likely return with a subsequent recommendation to lower the employee (and the City's) contribution rate effective January 1, 1993. Dan Deignan, Assistant Director of Administrative Services, reviewed the reasons for not lowering the contributions at this time. Trustee Berfield moved to authorize a continuation of the 8% employee contribution through 12/31/92 and designate a City contribution for fiscal year 1993 which is equal to the actual employee contributions for calendar year 1992. The motion was duly seconded and carried unanimously. ITEM #6 - Authorization for City Manager to spend up to $20,000 for special actuarial analyses regarding pension benefit changes to be considered during the upcoming collective bargaining discussions As staff embarks on the collective bargaining process, possible modifications to pension plan benefits will be one area of major focus for both the City and the employee unions. For example, the addition of an annual benefit adjustment has been consistently requested by the employees but has always been rejected due to excessive actuarial cost impact. As mentioned in a previous agenda item, the extraordinary performance of the City's plan assets in 1991 has put the plan in a position where it is now believed that some form of annual benefit adjustment can be offered without increasing the employee or City required contribution percentage beyond the currently recommended 8%. Coopers & Lybrand has agreed to examine this special potential benefit for a total fee not to exceed $3,000 which will represent the City's initial expenditure. Given the Trustees approval to proceed, the remaining $17,000 of authorized expenditures will be allocated, if needed and at the City Manager's discretion, for additional cost studies for benefit modifications which are proposed during the collective bargaining process. Mr. Deignan indicated the actuary's findings will be discussed with the employee unions. Trustee Fitzgerald moved to authorize the City Manager to spend up to $20,000 for special actuarial analyses regarding pension benefit changes to be considered during the upcoming collective bargaining discussions. The motion was duly seconded and carried unanimously. ITEM #7 - Approve expenditure of not to exceed $5,000 for the City's actuary, Coopers & Lybrand to perform a special actuarial analyses estimating costs of giving retroactive pension credit to employees who were originally excluded from pension participation on the basis of age Thompson, Sizemore and Gonzales, outside counsel representing the City in the "Snair" case have requested a study by the City actuary estimating a "worst case" cost estimate in the unlikely event the plaintiffs would prevail in obtaining full retroactive credit. Coopers & Lybrand indicated their willingness to perform the requested study for a fee not to exceed $3,000. Although staff is hopeful this proposed study will suffice, authorization is requested for an additional $2,000 in the event that follow-up or clarification analysis is required. Any additional expenditure will be approved by the City Manager following a specific request for additional data from Thompson, Sizemore and Gonzales. In response to a question, it was indicated this information will be helpful in the litigation. Trustee Regulski moved to approve the expenditure of not to exceed $5,000 for the City's actuary, Coopers & Lybrand to perform a special actuarial analyses estimating costs of giving retroactive pension credit to employees who were originally excluded from pension participation on the basis of age . The motion was duly seconded and carried unanimously. ITEM #8 - Approve the recommendation of Eichoff Pieper and Willoughby to increase the plans investment in bonds managed by Shields Asset Management, Inc. to 50% of the total fixed income portion of the pension plan portfolio On October 14, 1991, the Trustees approved staff's recommendation to appoint Shields Asset Management, Inc., of White Plains, New York to manage a portion of the fixed income portion of the pension plan portfolio. Currently, fixed income investments total $77,198,626 or approximately 43% of the total $178,359,425 plan assets as of May 31, 1992. Of this amount, $15,525,773 is currently under management of Shields Asset Management, $4,076,468 is invested as a part of the City's Consolidated Cash Pool and $57,596,385 is invested in GIC contracts managed by Eichoff, Pieper and Willoughby (EPW). Based on the City's successful experience with Shields and the recommendation of EPW, the investment committee recommends an increase in the amount allocated to Shields to 50% of the total fixed income portion of the portfolio. With the Trustees approval to proceed, this increase will be accomplished gradually, beginning with the amount in the Consolidated Cash Pool which is not considered necessary to meet current expenses. This will be followed by interest payments received on GIC contracts, as well as principal on maturing GIC contracts as they mature. In no event will GIC contracts be liquidated prior to maturity unless such liquidation is recommended by EPW for reasons other than achieving the recommended bond allocation. Once accomplished, this will bring the amount invested in bonds equal to the amount invested in GIC's and the City will maintain this 50-50 allocation until modified by subsequent action of the Trustees. This reallocation will increase the liquidity and diversification of fixed income assets to the level that the investment committee and the City's advisors believe is both reasonable and prudent. Mr. Deignan indicated most of the bonds will be corporate bonds but some will be Treasury bonds. In response to a question, he reported it does cost a little more to manage bonds. He felt the bonds were no more of a risk than GIC's. Trustee Regulski moved to approve the recommendation of Eichoff Pieper and Willoughby to increase the plans investment in bonds managed by Shields Asset Management, Inc. to 50% of the total fixed income portion of the pension plan portfolio. The motion was duly seconded and carried unanimously. ITEM #9 - Other Business: None. ITEM #10 - Adjournment: The meeting adjourned at 1:16 p.m.