05/12/2003
TRUSTEES OF THE EMPLOYEES' PENSION FUND MEETING
CITY OF CLEARWATER
May 12, 2003
Present: Brian Aungst Chair
Hoyt Hamilton Vice-Chair/Trustee
Whitney Gray Trustee
Frank Hibbard Trustee
William C. Jonson Trustee
Also Present: Garry Brumback Assistant City Manager
Pamela K. Akin City Attorney
Joe Roseto Human Resources Director
Cynthia E. Goudeau City Clerk
Patricia O. Sullivan Board Reporter
The Chair called the meeting to order at 1:32 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 Jonson moved to approve the minutes of the April 14, 2003, meeting, as
recorded and submitted in written summation by the City Clerk to each Trustee. The
motion was duly seconded and carried unanimously.
ITEM #3 - Request for Acceptance into Membership:
Human Resources Director Joe Roseto presented the recommendation of the PAC
(Pension Advisory Committee) to approve membership for employees: Timothy Murch,
Micah Maxwell, Sergo Alexandre, Michael Dellavolpe, Mark Eggers, Mark Henry, Gregory
Record, John Savage, Christian Schuele, Adam Siegel, Steve Wilensky, Michele Williams,
Floyd Thurman, Christopher Jenkins, Clifford Fisher, Bryan Berry, Michael Reynolds, and
Ronald Gideon.
Trustee Gray moved to accept the recommendation of the Pension Advisory
Committee. The motion was duly seconded and carried unanimously.
ITEM #4 - Regular Pensions to be granted
Mr. Roseto presented the recommendation of the Pension Advisory Committee that
Fred Aust, Howard Wister, Joseph S. Colbert, Kenneth R. Fairchild and Samuel R.
Garrett be granted regular pensions under Sections 2.393 and 2.397 of the Employees'
Pension Plan.
Fred Aust, Solid Waste Supervisor II, Solid Waste/General Services Department,
was employed on April 6, 1981, and his pension service credit is effective on that date. His
pension will be effective June 1, 2003. Based on an average salary of approximately
$47,444 per year over the past 5 years, the formula for computing regular pensions, and
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Mr. Aust’s selection of the 100% Joint & Survivor Annuity, this pension will approximate
$27,655 annually.
Howard Wister, Traffic Operations Supervisory, Engineering Department, was
employed on February 25, 1991, and his pension service credit is effective on that date.
His pension will be effective May 1, 2003. Based on an average salary of approximately
$38,806 per year over the past 5 years, the formula for computing regular pensions, and
Mr. Wister’s selection of the Joint & Survivor Annuity, this pension will approximate $13,088
annually.
Joseph S. Colbert, Fire Department, was employed on March 4, 1985, and his
pension service credit is effective on November 17, 1989. His pension will be effective May
1, 2003. Based on an average salary of approximately $43,530 per year over the past 5
years, the formula for computing regular pensions, and Mr. Colbert’s selection of the 75%
Joint & Survivor Annuity, this pension will approximate $15,453 annually.
Kenneth R. Fairchild, Police Sergeant, Police Department, was employed on June
19, 1978, and his pension service credit is effective on that date. His pension will be
effective June 1, 2003. Based on an average salary of approximately $64,926 per year
over the past 5 years, the formula for computing regular pensions, and Mr. Fairchild’s
selection of the 100% Joint & Survivor Annuity, this pension will approximate $43,983
annually.
Samuel R. Garrett, Police Sergeant, Police Department, was employed on July 23,
1973, and his pension service credit is effective on that date. His pension will be effective
May 1, 2003. Based on an average salary of approximately $63,737 per year over the past
5 years, the formula for computing regular pensions, and Mr. Garrett’s selection of the
100% Joint & Survivor Annuity, this pension will approximate $51,307 annually.
The PAC approved these pensions on April 10, 2003. Section 2.393 (p) provides for
normal retirement eligibility when a participant has reached age 55 and completed 20 years
of credited service, has completed 30 years of credited service, or has reached age 65 and
completed 10 years of credited service. Section 2.393 (p) also 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 service as a
Police Sergeant as meeting the hazardous duty criteria. Mr. Aust qualifies under the 20
years of service and age 55 criteria. Messrs. Wister and Colbert qualify under the 10 years
of service and age 65 criteria. Messrs. Fairchild and Garrett qualify under the under the
hazardous duty criteria.
Trustee Hamilton moved to grant regular pensions for Fred Aust, Howard Wister,
Joseph S. Colbert, Kenneth R. Fairchild and Samuel R. Garrett under Sections 2.393 and
2.397 of the Employees’ Pension Plan, as approved by the Pension Advisory Committee.
The motion was duly seconded and carried unanimously.
ITEM #5 - Approve a legal services agreement between Klausner & Kaufman and the
Board of Trustees of the City of Clearwater Employees’ Pension Plan for legal services to
be provided to the Board and to the Pension Advisory Committee, and authorize payments
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to Klausner & Kaufman in an amount not to exceed $60,000 for the period 5/12/03 through
9/30/04.
On January 6, 2003, RFP (Request for Proposals) 15-03 was issued for legal
services for the Board of Trustees of the City of Clearwater Employees’ Pension Plan, with a
February 14, 2003 deadline for receipt of proposals. The City received three responses.
On March 13, 2003, after presentations from the three responding firms at a joint
meeting of the Board of Trustees and PAC, the law firm of Klausner & Kaufman was chosen
to provide such legal services. During the past four years, the average cost for Pension
attorney services has been $3,400 per month. This amount was multiplied by 17 months to
arrive at an estimated amount that will be spent between May 12, 2003 and September 30,
2004.
Trustee Hibbard moved to approve a legal service agreement between Klausner &
Kaufman and the Board of Trustees of the City of Clearwater Employees’ Pension Plan for
legal services to be provided to the Board and to the Pension Advisory Committee, and
authorize payments to Klausner & Kaufman in an amount not to exceed $60,000 for the
period May 12, 2003 through September 30, 2004 and that the appropriate officials be
authorized to execute same. The motion was duly seconded and carried unanimously.
ITEM #6 - Accept the Actuary’s Report for the Employees’ Pension Plan for the plan year
beginning 1/1/2003.
The January 1, 2003, actuarial report for the Employees’ Pension Plan indicates that
a City contribution of $7,153,190, equivalent to 11% of covered payroll, is required. This is
an increase from the 2002 valuation, which required a contribution of $1,766,058. This
actuarially-required contribution per Florida Statutes exceeds the minimum City contribution
per the ordinance governing the plan of 7% of the compensation of all employees
participating in the plan, which is estimated at $4,560,557.
The minimum City contribution was affected by factors: 1) Actuarial investment return
of (1.85%) in comparison to an assumed rate of 7.5% for plan year 2002 (2001 actuarial
investment return was 7.4%); 2) Actual salary increases of 5.8% in comparison to an
assumed rate of 6% for plan year 2002 (2001 actual salary increases were 5.9%); 3)
Amortization of the Plan’s initial unfunded liability was reduced to zero due to the final
payment towards this liability during 2002; and 4) Actual expenses for the plan year were
$232,620 less than expected.
The difference between the actuarially determined contribution of $7,153,190 and
the ordinance-required contribution of $4,560,557 can be funded from the existing credit
balance, which currently is $25,832,535. The remaining credit balance can be used to pay
additional actuarially-required City contributions above the ordinance-required 7% until it is
exhausted.
The Plan uses a phase-in approach of prior asset gains (losses) through a rolling
five-year average used to “smooth” investment performance. The market value basis
performance for the last five years (1998, 1999, 2000, 2001, and 2002, respectively) has
been 16.74%, 18.61%, (3.43)%, (5.16)% and (8.83)%. As a result of the last three years of
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relatively poor investment market performance, the actuarial value of Plan assets exceeds
the market value by almost $80-million. This deficit will be included in the actuarial value
and gradually will increase the funding requirements, unless the market value of the assets
earns $80-million above the expected 7.5% annual return over the next four years. It
currently is anticipated that this deficit could consume the remaining credit balance in the
next three to five years, requiring the City to budget for annual increases in excess of the
current 7% at that point.
The funded status of the Plan (ratio of assets at market value to the actuarial present
value of accumulated plan benefits) has decreased significantly, from 162% at January 1,
2000, to 148% at January 1, 2001, to 137% at January 1, 2002, and to 112% at January 1,
2003, primarily due to the poor plan investment performance for calendar years 2000, 2001,
and 2002. As indicated above, the Plan has experienced negative investment returns for
the last three Plan years due to the downturn in the stock market.
Actuary Steve Metz said news related to Pension investments has not been good for
several years. He reviewed requirements related to the City’s contribution and indicated
currently, the Plan is well funded. He said due to the Plan’s conservative approach, it has
been hit less hard than other plans. In response to a question, Mr. Metz agreed once the
credit balance is used up, the Plan will have to be funded from the General Fund, if the
market does not improve. The funded status of the Plan, as reported, includes the $25-
million credit balance.
Trustee Jonson moved to accept the Actuary’s Report for the Employees’ Pension
Plan for the plan year beginning January 1, 2003, and that the appropriate officials be
authorized to execute same. The motion was duly seconded and carried unanimously.
ITEM #7 - Investment Performance Presentation
Cash & Investments Manager Steve Moskun reviewed the diversification of the
Pension Plan’s Investments and defined terms: 1) Value Stock - under-priced stocks; 2)
Peer Ranking - 1 to 100 scale, 1 = best; 3) Growth Stock - appreciation through growth or
dividends; and 4) Large Cap - large corporations.
John Willoughby is the Plan’s investment advisor and Bill Badger, of Callan
Associates provides the Plan’s performance measure and guidance.
Plan Investments include: 1) Ark Asset Management Co., Inc. hired October
1996/Large Cap and Value Stocks. Performance: a) last quarter - (4.66)% - rank 43; b) last
year - (24.03)% - rank 39; c) last 3 years - (3.55)% - rank 24; d) last 5 years - (4.39)% - rank
78; 2) Artisan Partners hired June 2001/Mid Cap Growth. Performance: a) last quarter -
(3.00)% - rank 85 and b) last year - (24.35)% - rank 33; 3) Aeltus Investment Management
hired June 1982/ Large Cap, Growth Stocks. Performance: a) last quarter - 0.74% - rank
11; b) last year - (22.11)% - rank 9; c) last 3 years - (17.92)% - rank 26; d) last 5 years -
(1.34)% - rank 21; 4) Capital Guardian Trust Co. hired October 2001/Large Cap Value.
Performance a) last quarter - (1.35)% - rank 1 and b) last year - (26.20)% - rank 68; 5)
Denver Investment Advisors hired June 1982/Mid Cap Companies. Performance: a) last
quarter - 2.14% - rank 6; b) last year - (18.16)% - rank 7; c) last 3 years - (17.10)% - rank
21; d) last 5 years - 1.44% - rank 37; 6) INVESCO Global Assets hired May
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2001/International Value Stocks. Performance: a) last quarter - (8.08)% - rank 47 and b)
last year - (21.31)% - rank 34; 7) Putnam Investments hired May 2001/International Growth
Stocks. Performance: a) last quarter - (8.30)% - rank 57 and b) last year - (24.19)% - rank
67; 8) Vanderbilt Capital Advisors hired December 1997/Fixed Income Core Manager.
Performance: a) last quarter - 1.76% - rank 4; b) last year - 10.4% - rank 73; c) last 3 years -
7.8% - rank 94; d) last 5 years - 6.85% - rank 87; 9) EPW, Inc. hired June 1991/US
Treasuries. Performance: a) last quarter - 1.01% - rank 96; b) last year - 13.61% - rank 10;
c) last 3 years - 9.55% - rank 68; d) last 5 years - 7.76% - rank 33; and 10) Sirach Capital
Management hired August 1998/Fixed Income Core Manager. Performance: a) last quarter
- 1.19% - rank 91; b) last year - 7.01% - rank 99; and c) last 3 years - 5.95% - rank 98.
The Fund Performance: 1) last quarter - (0.54)% - rank 8; 2) last year - (9.61)% -
rank 35; 3) last 3 years - (7.45)% - rank 83; 4) last 5 years - 1.14% - rank 45; and 5) since
December 1987 - 9.81% - rank 12.
The Fund versus Benchmark is 1) last quarter - (0.54)% versus (1.79)%; 2) last year
- (9.61)% versus (10.69)%; 3) last 3 years - (7.45)% versus (6.03)%; 4) last 5 years - 1.14%
versus 1.15%; and 5) since December 1987 - 9.81% versus 9.71%.
Regarding Fund Money Managers, the Small Cap Value Manager search is 90%
complete and the Core Fixed Income Manager search is 20% complete. Regarding
Custodian/Securities Lending, the transfer to Northern Trust is 99% complete and securities
lending is 95% complete.
Future staff plans include release of a RFP (Request for Proposals) for a
performance measurement consultant, a measure trading/execution cost/commission
recapture, and Index Funds for temporary holding.
ITEM #8 – Authorize the termination of Sirach Capital Management fixed income money
manager, transferring $40 million of the assets to the “Daily Aggregate Bond Index Fund”
upon approval of a contract for this fund with Northern Trust by the pension plan’s attorneys
and transfer the remaining approximately $19 million equally to the various domestic equity
managers.
For the last two years, Sirach Capital Management had a return placing them in the
thth
99 and 98 percentile. The Pension Investment Committee has been monitoring their
performance and the changes the company has been making to improve its performance.
To date, no real improvement in the performance has been observed. Earlier this year, the
Pension Trustee’s authorized a search to add an additional fixed-income manager because
of this less than acceptable performance.
As Sirach Capital Management has not met performance expectations, the PAC and
Pension Investment Committee recommend termination of Sirach at this time. Pending
completion of the fixed-income manager search, the PAC, Pension Investment Committee,
and both of the plan’s advisors recommend putting a majority of the plan’s assets into a
“Lehman Brothers Aggregate Index” type fund. This fund duplicates the performance of the
Lehman Brothers Aggregate, the benchmark for the fund’s fixed-income managers.
Northern Trust, the plan’s custodian, has this type of fund (“Daily Aggregate Bond Index
Fund”) available at a cost of 6 basis points, which is a standard fee for a passive index fund.
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As of May 9, 2003, Sirach Capital Management had approximately $59,022,196 of
Pension funds under management. The Pension Investment Committee recommends
placing $40-million in the “Lehman Brothers Aggregate Index” type fund and dividing the
balance equally among the plan’s domestic equity managers. Currently, the plan is over-
funded in the domestic fixed-income area and this transfer will rebalance the portfolio to
current Plan guidelines: 1) 51% - Domestic Equity; 2) 9% - International Equity; and 3) 40%
- Domestic Fixed Income.
Mr. Moskun said the firm has offered to pay up to $38,000 for a new money manager
search if the City remains with them and they under perform. Staff recommends against
accepting this offer. In response to a question, he said it is not standard for a management
fund to make such an offer.
Trustee Gray moved to authorize the termination of Sirach Capital Management
fixed-income money manager, transferring $40-million of the assets to the “Daily Aggregate
Bond Index Fund” upon approval of a contract for this fund with Northern Trust by the
Pension Plan’s attorneys, and transfer the remaining approximately $19-million equally to
the various domestic equity managers, and that the appropriate officials be authorized to
execute same. The motion was duly seconded and carried unanimously.
ITEM #9 – Other Business
In response to a question, Assistant City Manager Garry Brumback said the City
already has hired the personnel it needs to staff the Northwest Fire Station when it opens in
Spring 2004. Until the station opens, the personnel will concentrate on fire inspections.
ITEM #10 - Adjournment
The meeting adjourned at 1:58 p.m.
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