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06/18/2007 PENSION TRUSTEES AGENDA Location: Council Chambers - City Hall Date: 6/18/2007- 1 :30 PM 1. Call to Order 2. Approval of Minutes 2.1 Approve the minutes of the May 15, 2007 Pension Trustees meeting as submitted in written summation by the City Clerk. ~ Attachments 3. Pension Trustee Items 3.1 Employees listed below be accepted into the City of Clearwater's Employees' Pension Plan. ~ Attachments 3.2 Ed Shannahan, Gas Department; Sherwin Meyer, Public Utilities Department; and Wendy Cason, Fire Department, be granted regular pensions under Sections 2.393 and 2.397 of the Employees' Pension Plan as approved by the Pension Advisory Committee. @ Attachments 3.3 Catherine Borden, Public Utilities Department, be allowed to vest her pension in accordance with Sections 2.397 and 2.398 of the Employees' Pension Plan as approved by the Pension Advisory Committee. @ Attachments 3.4 Discussion Item: Provide direction regarding the Citizen member of the Pension Investment Committee regarding qualifications, selection process, term, etc. @ Attachments 3.5 Approve the termination of Capital Guardian as a money manager and tranfer of the majority of the funds to the Northeru Trust EAFE Index Fund with the balance to be used to rebalance the portfolio. @ Attachments 4. Other Business 5. Adjourn Meeting Date:6/18/2007 Pension Trustees Agenda Council Chambers - City Hall SUBJECT / RECOMMENDATION: Approve the minutes of the May 15,2007 Pension Trustees meeting as submitted in written summation by the City Clerk. SUMMARY: Review Approval: 1) Clerk Cover Memo Item # 1 Attachment number 1 Page 1 of 7 TRUSTEES OF THE EMPLOYEES' PENSION FUND MEETING MINUTES CITY OF CLEARWATER May 15, 2007 Unapproved Present: Frank Hibbard Carlen Petersen John Doran George N. Cretekos Paul Gibson Also Present: William B. Horne, II Garry Brumback Rod Irwin Leslie Dougall-Sides Cynthia E. Goudeau Patricia O. Sullivan Chair Trustee Trustee Trustee Trustee City Manage Assistant City Assistant City M Assistant City Att City Clerk Board Reporter The Chair called the meeting to order at 8:34 To provide continuity for research, ite necessarily discussed in that order. 2 - Approval of Minutes ove the minut itten sum mati d unanimously. Re ker/Parks & Recreation Bene s Service Tech. I/Parks & Rec. Sara J ental Specialist/Engineering Joe Harr aste Wkr./Solid Waste/General Services Sammy Cr ield Service Rep. I/Customer Service John Sadowski, WWTP Operator A/Public Utilities Wendy Arnold, Firefighter/Fire Michael Cannarelli, Firefighter/Fire Travis Connolly, Firefighter/Fire Pension Trustees 2007-05-15 itted in 007 Pension Trustee lerk to each Trustee. of Clearwater's Hire Date 02/05/07 02/05/07 02/05/07 02/05/07 02/05/07 02/05/07 03/19/07 03/19/07 03/19/07 Pension Eligible Date 02/05/07 02/05/07 02/05/07 02/05/07 02/05/07 02/05/07 03/19/07 03/19/07 03/19/07 Item # 1 Attachment number 1 Page 2 of 7 Patrick Davis, Jr., Firefighter/Fire James Groth, Firefighter/Fire Jason Haynor, Firefighter/Fire Andrew Leeth, Firefighter/Fire Eric Miller, Firefighter/Fire Sean Premo, Firefighter/Fire Ryan Snelling, Firefighter/Fire Robert Winer, Firefighter/Fire Mark Wing, Firefighter/Fire Ryan Pauly, Police Communications Operator/Police 03/19/07 03/19/07 03/19/07 03/19/07 03/19/07 03/19/07 03/19/07 03/19/0 03/1 03/ Trustee Doran moved to accept the listed employees into m Clearwater's Employees' Pension Plan. The motion was duly secon unanimously. Robert Caruso, Gas Supervisor, Gas De 10, 1977, and his pension service credit is effe effective May 1, 2007. Based on an average s past five years, the formula for com egu Joint & Survivor Annuity, this pens' pro , as employed by ecember 11, 1995. f approximately gular pensions, and Mr. 10,936 annually. rtment, was employed by the City on November e on June 21, 1989. His pension will be of approximately $45,906 per year over the mputing re r pensions, and Mr. Hamrell's selection of the sion will approximate $22,545 annually. roved by the Pension Advisory Committee on April 12, 2007. al retirement eligibility when a participant has reached age 55 of credited service, has completed thirty years of credited service, completed ten years of credited service. Mr. Caruso qualifies under enty years of service and thirty years of service criteria. Mr. Riotto and under the age 65 and ten years of service criteria. Trustee Cretekos moved that Robert J. Caruso, Gas Department; Frank Riotto, Marine & Aviation Department; and Larry Hamrell, Library Department, be granted a regular pension under Section(s) 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. Pension Trustees 2007-05-15 2 Item # 1 Attachment number 1 Page 3 of 7 3.3 Jeffrev A. Patterson, Fire Department, be allowed to vest his pension under Section(s) 2.397 and 2.398 of the Emplovees' Pension Plan as approved bv the Pension Advisorv Committee. Jeffrey A. Patterson, Fire Lieutenant, Fire Department, was employed by the City on July 29, 1991, and began participating in the Pension Plan on that date. Mr. Patterso terminated from City employment on March 25, 2007. The Employees' Pension Plan provides that should an empl employee of the City of Clearwater after completing ten or more ye (pension participation), such employee shall acquire a vested inter Vested pension payments commence on the first of the month foil employee normally would have been eligible for retirement. Section 2.393 (p) provides for normal retirement eligibility w completed twenty years of credited service in a type of employment cri duty" and further specifically defines service as a Fire Lieut as meeting criteria. Mr. Patterson would have completed 20 year July 29, will be effective August 1, 2011. This pension was ension Ad Committee on April 12, 2007. Trustee Gibson moved that Jeffrey A. P pension under Section(s) 2.397 and of t Pension Advisory Committee. Th n Plan indicates a City 'valent to 15.77 ered payroll, is required for cal 2007 required contribution of $15.4 million. The accordance with Florida statutes, exceeds the ance of 7% of payroll ($5.6 million). red employ ontribution was primarily due to recent plan , retirement, and mortality assumptions). These changes, s on January 16, 2007, were the result of a comprehensive njunction with the implementation of a new governmental other post employment benefits. Per the draft actuary report, the current year required contribution to decrease from $15.5 red salaries, to $12.5 million, or 15.77% of covered salaries. uting to the decrease in the required contribution was an actuarial rn (5-year weighted average) of 7.87% versus an assumed rate of 7.5%. This was due to tree years of investment performance that exceeded the 7.5% assumed rate - 20.08%, 9.73%, and 11.80% for calendar years 2003,2004, and 2006, respectively; partially offset by two years of investment earnings below the assumed rate - (8.83)% and 6.67% for calendar years 2002 and 2005. The actuarial investment return five-year average of 7.87% was Pension Trustees 2007-05-15 3 Item # 1 Attachment number 1 Page 4 of 7 an improvement from the January 1, 2006 report's average return of 4.58% due to the dropping off of a negative return of (5.16)% for calendar 2001 from the five-year average, replaced by 11.80% for calendar 2006. Also contributing to the decrease in the required contribution were actual salary increases of 5.15% versus the assumption of 6.00%. Prior year actual salary increases were 5.49%. The plan has a current "credit balance" of $15,046,922, which can be us future City employer contributions. The employer contribution for Fisc 7 13% of covered payroll, and the balance of the required 20.31 % re trib funded from the credit balance. This reduced the credit balance fr .8 million current $15.0 million level. Any difference between the budgeted f and th employer contribution would continue to be funded from the credit Pension Plan Actuary Steve Metz reported the City Pension PI funded; future funding costs should range from 16% to 20% of sala question, Finance Director Margie Simmons said the City used 13% he year, and will use 15% this year. Funding costs are approx' Iy 10% of Hi said the careful management of the plan during good serious s City's contribution had to increase. Ms. Simmons tain acre equal to one year's contribution. Mr. Metz said assumption changes, whi by an estimated $800,000. Trustee Petersen mov Plan for the plan year begin una , Pension ed and carried oskun provided a PowerPoint presentation. Last ity - 13.03% - 92nd; 2) International Equity- % - 16th; 4) Total Fund - 11.76% - 84th; 5) 13.88% - 50th. The last three calendar years' - 11.42% - ; 2) International Equity - 19.32% - 82nd; and 3) 41st; 4) Total Fund - 9.44% _79th; 5) Benchmark - 8.61%- - 50th. The Actual Return was 11.76%. 06, the Plan has hired Independence Capital, a Small Cap Gr Capital, a Mid Cap Value Manager. The Plan is adding Large Cap Valu esearch & Management and Northern Trust Russell 1000 Value Index rk Asset. The Plan is reducing its Domestic Equity Exposure from 55% to 50% a d Income Exposure from 35% to 40%, while increasing International Exposure 0% to 20%. The Plan also is adding REITS (Real Estate) and International Emerging Markets. Had these changes been in place last year, the Actual Return would have increased by 1.8%. Pension Trustees 2007-05-15 4 Item # 1 Attachment number 1 Page 5 of 7 Concern was expressed that the poor performance of Plan investments increases City funding requirements. Mr. Moskun said investments were based on risk tolerance. Ms. Simmons said staff responded proactively to disappointing returns on Plan investments by performing an investment allocation study, expanding Plan investment opportunities via referendum approval, and changing managers. Investment policy changes will improve opportunities to increase returns. Recommendations were made to develop a new system to trac long term needs, focus on returns, and that investments not be reck 3.6 Approve Pension Plan investment policv as amended On March 11, 2007, the voters of Clearwater changed the all Employees Pension Plan. The following changes are being recomme policy to reflect that event: 1) Page 2 - remove "licensed to do busi due to the growing nature of the investment universe; 2) Page 3a - re ove Federal Government or any agency thereof or collateralize nited State Agency securities" due to the privatization of the gover: ored entiti change "County bonds that containing a pledge of dit of the bonds of the Florida Development Commission, ency, whic approved as to legal and fiscal sufficiency by th tion" to re "Securities of countries, states, municipalities eir public which are rated investment grade or len y's Fitch, recognized national rating agencie ect ore estment community; 4) Page 3g - chan tions of any m suant to the laws of this state; provided, hat for each of ng the date of inve me of suc ity available for ave been not less imes its annual fixed s over the life of its the mu uthority shall of the three highest rated ree na recognized rati es; provided that if the bonds ust be one of the two highest classifications by one of the curities, are rated investment grade or equivalent by itch, or 0 ognized national rating agencies." This change class of P\ cked securities and the diminished role of - adding 2. nless an asset allocation for less than s is established." This allows for a future allocation to high mising current City investment grade requirements. This the Trustees; 6) Page 5 - delete "Cash as an asset class" and ate." Adjust the limits of the assets allocation to reflect the Asset e 9 - Add criteria for investment manager review; 8) Page 15 - er" from each class description, redefining the asset target allocation cation Study's objectives. Also being added is the asset class of REITS ) In addition to the above, several scrivener changes have been made to the remo to mat / Real E document. In response to questions, Mr. Moskun said spreading out portfolio investments reduces the volatility of the fund and research indicates that commercial real estate remains a good investment. Pension Trustees 2007-05-15 5 Item # 1 Attachment number 1 Page 6 of 7 Discussion ensued. It was recommended that a seat be added to the Investment Committee for a resident with investment experience. Staff will return with criteria for the seat. It was recommended that unreasonable costs associated with changing managers be reviewed. Mr. Moskun said staff will review the transition process. Trustee Doran moved to approve the Pension Plan investment policy as changes: 1) page 5, "six" investment classes to read "four" and 2) add nt Investment Committee. The motion was duly seconded and carrie ous Previously, the Trustees authorized staff to work with Dahab a replacement manager for Ark Asset Management. Dahab received RFP (Request for Proposals) for a Large Cap Value Manager. Resp ses and passive investment styles. The pension investment co ee and Dah of RFP respondents to six active style finalists: 1) Alet and Man Brandywine Global Investment Management LLC; nagement, Capital; 5) Numeric Investors LLC; and 6) Roths t Inc. After presentations by the six finalists, t unanimous consensus that Aletheia e b committee also agreed that the m he s in passive investment product. "[ Ittee is recom Value Index as the passive i t vehicle. produced an average net of City fees). The ts of more than IlIion. The asset allocation be in the large cap value segment. The pension letheia be funded with $20 million and Northern 40 million. Funding will come from rebalancing f Ark Asset Management. The reduction in omplish an er of the Asset Allocation Study's goals of equities and reducing the allocation to fixed income. 1 % for the first $10 million, .75 of 1 % of the next 15 million and n. This equals an annual fee of $175,000 on $20 million in charges a fee of .08 of 1 % for the first $35 million, .06 of 1 % for the f 1% for all amounts over $100 million. This equals an annual fee of of investments. In r nse to a question, Mr. Moskun said after two years of good performance, the City will increase its allocation to a manager. The current rate for Northern Trust is 8 basis points. Pension Trustees 2007-05-15 6 Item # 1 Attachment number 1 Page 7 of 7 Trustee Cretekos moved to authorize the hiring of Aletheia Research and Management, Inc. and Northern Trust's Russell 1 000 Value Index and approve the termination of Ark Asset Management Co. The motion was duly seconded and carried unanimously. 4 - Other Business - None. 5 - Adjourn The meeting adjourned at 9:52 a.m. Chair Employee's Pe Attest: City Clerk Pension Trustees 2007-05-15 7 Item # 1 Pension Trustees Agenda Council Chambers - City Hall SUBJECT / RECOMMENDATION: Employees listed below be accepted into the City of Clearwater's Employees' Pension Plan. SUMMARY: Name, Job Class, & Depl./Div. Charles Stephenson, Traffic Tech./Engineering Shery Fresk, Drafting & Mapping Tech./Engineering Christina Beaver, Telecommunicator/Police Kimberly Altomare, Telecommunicator/Police Melissa Mason, Telecommunicator/Police Thomas Leonard, Marine Fac. Oper./Marine & A vial. Kyle Wilson, Solid Waste Worker/Solid Waste Michael Austin, Solid Waste Worker/Solid Waste William Duffin, TV Production Spec./Public Com. Hire Date 4/2/07 4/2/07 4/2/07 4/2/07 4/2/07 3/3/07 4/2/07 4/2/07 4/23/07 Pension Elig. Date 4/2/07 4/2/07 4/2/07 4/2/07 4/2/07 3/21/07* 4/2/07 4/2/07 4/23/07 * originally hired as part-time on 3/3/07; transferred to full-time and pension eligible as of 3/21/07 Meeting Date:6/18/2007 Review Approval: 1) Clerk Cover Memo Item # 2 Meeting Date:6/18/2007 Pension Trustees Agenda Council Chambers - City Hall SUBJECT / RECOMMENDATION: Ed Shannahan, Gas Department; Sherwin Meyer, Public Utilities Department; and Wendy Cason, Fire Department, be granted regular pensions under Sections 2.393 and 2.397 of the Employees' Pension Plan as approved by the Pension Advisory Committee. SUMMARY: Ed Shannahan, Gas Supervisor, Gas Department, was employed by the City on April 4, 1977, and his pension service credit is effective on that date. His pension will be effective June 1,2007. Based on an average salary of approximately $59,082 per year over the past five years, the formula for computing regular pensions, and Mr. Shannahan's selection of the 100% Joint & Survivor Annuity, this pension will approximate $48,124 annually. Sherwin Meyer, Wastewater Treatment Plant Operator A, Public Utilities Department, was employed by the City on October 26, 1987, and his pension service credit is effective on that date. His pension will be effective November 1,2007. Based on an average salary of approximately $49,356 per year over the past five years, the formula for computing regular pensions, and Mr. Meyer's selection of the Life Annuity, this pension will approximate $29,894 annually. Wendy Cason, Fire Medic Lieutenant, Fire Department, was employed by the City on January 6, 1986, and her pension service credit is effective on that date. Her pension will be effective June 1,2007. Based on an average salary of approximately $71,480 per year over the past five years, the formula for computing regular pensions, and Ms. Cason's selection of the lO-year Certain & Life Annuity, this pension will approximate $43,454 annually. These pensions were approved by the Pension Advisory Committee on May 10,2007. Section 2.393 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. Section 2.393 also 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" and further defines service as a Fire Medic Lieutenant as meeting the hazardous duty criteria. Mr. Shannahan qualifies under the thirty years of service criteria. Mr. Meyer qualifies under the age 55 and twenty years of service criteria. Ms. Cason qualifies under the hazardous duty criteria. Review Approval: 1) Clerk Cover Memo Item # 3 Meeting Date:6/18/2007 Pension Trustees Agenda Council Chambers - City Hall SUBJECT / RECOMMENDATION: Catherine Borden, Public Utilities Department, be allowed to vest her pension in accordance with Sections 2.397 and 2.398 of the Employees' Pension Plan as approved by the Pension Advisory Committee. SUMMARY: Catherine Borden, Wastewater Treatment Plant Operator A, Public Utilities Department, was employed by the City on January 1, 1994, and began participating in the Pension Plan on that date. Ms. Borden terminated from City employment on April 11 , 2007. The Employees' Pension Plan provides that should an employee cease to be an employee of the City of Clearwater after completing ten or more years of creditable service (pension participation), such employee shall acquire a vested interest in the retirement benefits. Vested pension payments commence on the first of the month following the month in which the employee normally would have been eligible for retirement. Section 2.393 (p) provides for normal retirement eligibility when a participant has reached age 55 and completed twenty years of credited service, has completed 30 years of credited service, or has reached age 65 and completed ten years of credited service. Ms. Borden would have completed at least 20 years of service and reached age 55 on January 6, 2023. Her pension will be effective February 1,2023. This pension was approved by the Pension Advisory Committee on May 10,2007. Review Approval: 1) Clerk Cover Memo Item # 4 Meeting Date:6/18/2007 Pension Trustees Agenda Council Chambers - City Hall SUBJECT / RECOMMENDATION: Discussion Item: Provide direction regarding the Citizen member of the Pension Investment Committee regarding qualifications, selection process, term, etc. SUMMARY: At the May 15 Pension Trustee Meeting, the Trustees approved changes to the Statement of Investment Objectives and Guidelines including the addition of a citizen member on the Pension Investment Committee. The Committee meets at least quarterly for approximately 4-6 hours to review the performance of the individual managers and the fund as a whole. In addition, the committee holds special meetings as needed for the screening and selection of new money managers, to review and make recommendations to changes in the Statement of Investment Objectives and Guidelines, and for other purposes as needed. Staff needs direction regarding the following: 1. Qualifications of citizen member 2. Selction process to be used 3. Term of appointment, etc. Review Approval: 1) Clerk Cover Memo Item # 5 Meeting Date:6/18/2007 Pension Trustees Agenda Council Chambers - City Hall SUBJECT / RECOMMENDATION: Approve the termination of Capital Guardian as a money manager and tranfer of the majority of the funds to the Northern Trust EAFE Index Fund with the balance to be used to rebalance the portfolio. SUMMARY: Capital Guardian has had the following performance over the last 4 years: Year 2006 2005 2004 2003 Cap Guardian Return 11.36% 6.60% 9.98% 38.42% Large Cap Core Style 16.01% 7.17% 10.15% 27.29% Cap Guardian Ranking 93rd 54th 53rd 1 st The Pension Investment Committee recently met with Capital Guardian and based upon the above performance and the results of that meeting, the committee is recommending the termination of Capital Guardian. The majority of the assets of Capital Guardian will be transferred to Northern Trust's EAFE Index product that is currently being used for our international exposure to bring the international equity allocation up to the new portfolio guidelines. The Pension Investment Committee believes that it is important to increase the asset allocation to international equity to bring the exposure up to the not to exceed 20% of the portfolio as soon as possible. Staff will be bringing items forward at the next Pension Trustee meeting related to asset allocation, performance measures, active vs. passive investments, and other issues. Based upon that discussion, staff will begin the process to implement the direction as provided by the Trustees. Type: Current Year Budget?: Other No Budget Adjustment: None Budget Adjustment Comments: Current Year Cost: Not to Exceed: For Fiscal Year: Annual Operating Cost: Total Cost: to Review Approval: 1) Office of Management and Budget 2) Legal 3) Clerk 4) Assistant City Manager 5) Clerk 6) City Manager 7) Clerk Cover Memo Item # 6