04/14/2003
TRUSTEES OF THE EMPLOYEES' PENSION FUND MEETING
CITY OF CLEARWATER
April 14, 2003
Present: Brian Aungst Chair
Whitney Gray Vice-Chair/Trustee
Hoyt Hamilton Trustee
Frank Hibbard Trustee
William C. Jonson Trustee
Also Present: Garry Brumback Assistant City Manager
Pamela K. Akin City Attorney
Rick Ebelke Assistant Human Resources Director
Cynthia E. Goudeau City Clerk
Patricia O. Sullivan Board Reporter
The Chair called the meeting to order at 1:09 p.m. at City Hall.
To provide continuity for research, items are in agenda order although not
necessarily discussed in that order.
ITEM #2 - Approval of Minutes:
Trustee Hibbard moved to approve the minutes of the March 17, 2003, meeting, as
motion
recorded and submitted in written summation by the City Clerk to each Trustee. The
carried
was duly seconded and unanimously.
ITEM #3 - Request for Acceptance into Membership:
Assistant Human Resources Director Rick Ebelke presented the recommendation of
the PAC (Pension Advisory Committee) to approve membership for employees: Amy Mobley,
Bennett Elbo, Edward O’Neal, Jonathan Phillips, Bryan Elbell, Vance Peel, Marlene Torres,
Judith LaCosse, Rebecca Wikerson, Lana Beck, Brandi Portalatin, Thomas Jensen, Emilio
Maldonado, Aleix Wells, Matthew McCombs, Michelle Friedline, and Rafael Salazar.
Trustee Jonson moved to accept the recommendation of the Pension Advisory
motioncarried
Committee. The was duly seconded and unanimously.
ITEM #4 – Regular Pensions to be granted
Mr. Ebelke presented the recommendation of the Pension Advisory Committee that
Francis MaysEddie LloydDanny WestRobert McKennaJerry Lovett
, , , , and be granted
regular pensions
under Sections 2.393 and 2.397 of the Employees' Pension Plan.
Francis Mays, Gas Specialist, Gas Department, was employed on November 19, 1969,
and his pension service credit is effective on May 19, 1970. His pension will be effective
March 1, 2003. Based on an average salary of approximately $43,992 per year over the past
5 years, the formula for computing regular pensions, and Mr. Mays’ selection of the 50% Joint
& Survivor Annuity, this pension will approximate $41,064 annually.
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Eddie Lloyd, Public Utilities Technician II, Public Utilities Department, was employed on
October 14, 1971, and his pension service credit is effective on April 14, 1972. His pension
will be effective March 1, 2003. Based on an average salary of approximately $35,434 per
year over the past 5 years, the formula for computing regular pensions, and Mr. Lloyd’s
selection of the Joint & Survivor Annuity, this pension will approximate $30,173 annually.
Danny West, Police Sergeant, Police Department, was employed on May 16, 1983,
and his pension service credit is effective on that date. His pension will be effective April 1,
2003. Based on an average salary of approximately $65,071 per year over the past 5 years,
the formula for computing regular pensions, and Mr. West’s selection of the 100% Joint &
Survivor Annuity, this pension will approximate $35,001 annually.
Robert McKenna, Firefighter, Fire Department, was employed on October 11, 1976,
and his pension service credit is effective on that date. His pension will be effective March 1,
2003. Based on an average salary of approximately $44,865 per year over the past 5 years,
the formula for computing regular pensions, and Mr. McKenna’s selection of the Joint &
Survivor Annuity, this pension will approximate $32,493 annually.
Jerry Lovett, Firefighter, Fire Department, was employed on January 10, 1983, and his
pension service credit is effective on that date. His pension will be effective March 1, 2003.
Based on an average salary of approximately $45,527 per year over the past 5 years, the
formula for computing regular pensions, and Mr. Lovett’s selection of the 66 2/3% Joint &
Survivor Annuity, this pension will approximate $25,541 annually.
The PAC approved pensions for Francis Mays, Eddie Lloyd, Danny West, Robert
McKenna, and Jerry Lovett on March 13, 2003. Section 2.393 (p) provides for normal
retirement eligibility when a participant has completed 20 years of credited service in a type of
employment described as “hazardous duty” and further specifically defines services as a
Police Officer, Fire Lieutenant, and Fire Lieutenant Rescue/Paramedic as meeting the
hazardous duty criteria. Section 2.393 (p) also 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. Messrs. Mays and Lloyd qualify under the 30 years of service criteria. Messrs. West,
McKenna, and Lovett qualify under the hazardous duty criteria.
Trustee Gray moved to grant regular pensions for Francis Mays, Eddie Lloyd, Danny
West, Robert McKenna, and Jerry Lovett under Sections 2.393 and 2.397 of the Employees’
motion
Pension Plan, as approved by the Pension Advisory Committee. The was duly
carried
seconded and unanimously.
ITEM #5 –Approve the contract with Northern Trust (lending agent) to provide securities
lending services for the Employee’s Pension Plan.
Securities lending is the process where the owner of a security (stocks or bonds) loans
the security to a third party. The borrower benefits because they get the use of the security.
The owner of the security benefits through extra income. The lender/owner of the security
retains all economic benefits of the security except proxy voting. Securities lending has a long
history and very definitive regulations. For example, statutes give the lender the right to recall
a security at anytime. Regulations govern the behavior of all parties involved. Securities
lending is transparent to the Pension Plan’s money manager and will have no effect on them
or their decision to buy or sell a security.
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The main reason organizations borrow securities are: 1) to cover a settlement failure; 2)
to cover a short trading position; and 3) in a proxy fight. When securities are loaned, the
borrower provides collateral to the lending agent with a value of 102% of the market value of
the security being loaned. On a daily basis, the collateral is marked to the market value of the
security being loaned and adjusted, if needed. The vast majority of the time, the collateral is
cash. The lending agent (Northern Trust) invests the collateral at a rate higher than they are
paying the borrower. The additional earnings are split 70% Clearwater and 30% Northern
Trust.
Steps involved in securities lending between the lending agent (Northern Trust) and the
securities borrower: 1) loan initiated; 2) terms negotiated; interest rate borrower will receive for
collateral; 3) Lending Agent receives collateral; a) 95% time in cash and b) 102% of market
value of security being lent; 4) security transferred to borrower; 5) daily mark to market on
collateral, constant 102% value; 6) security returned to Lending Agent; and 7) collateral
returned to borrower.
With securities lending, risks include: 1) Borrower Default – borrower fails to return
security on demand because of financial difficulty or bankruptcy. Plan protection is collateral
of 102% and Northern Trust will hold Plan harmless in case of borrower default: 2) Operational
Risk – Northern Trust fails to mark the collateral to 102% on daily basis or fails to collect
income due. Northern Trust will hold Plan harmless in these cases; and 3) Collateral
Investment Risk – Failure to earn sufficient earnings on collateral to cover interest earned by
borrower. Staff will invest collateral through Northern Trust in specific investment options
provided by Northern Trust. When the terms of a security loan are being negotiated by
Northern Trust, they will know where the collateral is being invested and at what rate the
collateral will earn.
As part of the custodian RFQ (Request for Qualifications) process, staff asked the
three finalists to provide an estimate of what the Plan’s portfolio (Plan’s share of the earnings)
would have earned over the past year: 1) $132,410 – Northern Trust; 2) $68,500 – State
Street; and 3) $83,354 – Bank of New York.
In addition to earnings, Northern Trust will reduce the custodial fee by $25,000 if
securities lending is approved.
It was stated the PAC had discussed this issue and unanimously supported it.
Trustee Hibbard moved to approve the contract with Northern Trust (lending agent) to
provide securities lending services for the Employee’s Pension Plan, and that the appropriate
motioncarried
officials be authorized to execute same. The was duly seconded and
unanimously.
ITEM #6 – Designate Margie Simmons, Jay Ravins, and Steve Moskun as having the ability to
authorize the transfer of funds by Northern Trust, the plan custodian.
Northern Trust, the plan custodian, has requested that the Trustees designate
individuals who have the ability to authorize Northern Trust to transfer funds. The transfer of
funds occurs when managers are hired or terminated, the portfolio is being rebalanced, or
when funds are needed to pay obligations of the plan. As an internal control function, two of
the three individuals will have to approve a transfer. The transfer of plan assets to Northern
Trust occurred on March 3, 2003.
Pension Trustees 2003-0414 3
It was stated the PAC had discussed this issue and unanimously supported it. It was
requested Pension Trustee items report PAC action.
Trustee Hamilton moved to designate Margie Simmons, Jay Ravins, and Steve Moskun
as having the ability to authorize the transfer of funds by Northern Trust, the plan custodian.
motioncarried
The was duly seconded and unanimously.
ITEM #7 – Other Business – None.
ITEM #8 - Adjournment
The meeting adjourned at 1:14 p.m.
Pension Trustees 2003-0414 4