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08/31/2000PENSION ADVISORY COMMITTEE SPECIAL MEETING CITY OF CLEARWATER August 31, 2000 Present: Brian Aungst Chair/Mayor J. B. Johnson Vice-Chair/Commissioner Ed Hart Committee Member/Commissioner Pat Greer Committee Member Dick Fitzgerald Committee Member John Lee Committee Member Absent: John Schmalzbauer Committee Member Also Present: Paul O’Rourke Human Resources Administrator Lee Dehner Pension Advisory Committee Attorney Debbie Ford Human Resources Analyst Brenda Moses Board Reporter The Chair called the meeting to order at 10:00 a.m. at City Hall to review the Pension Trustees investment policy. To provide continuity for research, items are in agenda order although not necessarily discussed in that order. ITEM #2 – Pending/New Business Investment Policy Pension Advisory Committee Attorney Lee Dehner said that Callan and Associates are one of the finest consulting firms in the field. He said the investment policy statement done by staff is the best he has ever reviewed, as it is comprehensive and clear and meets the requirements of Senate Bill 372. Cash and Investments Manager Steve Moskun reviewed revisions to the policy draft. A sentence stating an external CPA firm will review internal controls in investment policies and comment on them on page 5, paragraph 4, under “Internal Controls”, and a sentence regarding preventing loss in any movement of moneys will be added. The 2 continuing educational requirements for the Trustees will be defined on Page 5, paragraph 8, under “Continuing Education”. The 2 requirements involve investments and duties and responsibilities. In response to a question, Mr. Moskun said the PAC (Pension Advisory Committee) will be included in the educational process. Financial Services Administrator Margie Simmons said the policy requires that only the Trustees and the members of the Investment Advisory Committee need to be educated in accordance with State law, however, the PAC will be invited to the educational sessions. Mr. Dehner said the advantage of not requiring the PAC to attend sessions is to prevent breach of regulations in the event some members cannot attend. In response to a question, Mr. Dehner said according to the ordinance, the Trustees are in charge of investments, guided by the Finance Director and Investment Advisory Committee. The ordinance provides that the PAC, with respect to any changes to the investment section of the ordinance, is to make recommendations to the Trustees. The PAC should be kept informed of all pertinent activity in order to make appropriate recommendations. In response to a question, Ms. Simmons said over the past 18 years, some changes were made to the membership of the Investment Advisory Committee. She said this written policy formalizes the current informal investment committee and policy. Concern was expressed that although union employees’ money is invested in the General Employees’ Pension Plan, the City’s unions currently have no representation on the Investment Advisory Committee. The Supplemental Pension Plan provides for union employees’ representation. Human Resources Administrator Paul O’Rourke said the Investment Advisory Committee is receptive to including Fire and Police department representatives on the committee. Their inclusion may help increase their knowledge of investment strategy that would assist the 2 supplemental plans. Mr. O’Rourke spoke to Steve Sarnoff of the Bargaining Unit regarding a representation from that union also serving on the committee. The City is ranked fifth of over 100 municipalities in terms of return on investment. The City investment group and Pension investment group meet weekly at 4:30 p.m. on Wednesdays and meet quarterly with investment professionals. Ad hoc meetings also are held. Ms. Simmons suggested after meeting with the unions, staff prepare a list of suggested members to serve on the Investment Advisory Committee to be reviewed at a future PAC meeting and approved at a future Pension Trustees meeting. She said the supplemental pension plan is a defined contribution plan for the Fire and Police Departments employees’ money. The Employee’s Pension Plan is a defined benefit plan requiring the City to make up the balance of contributions that are required to meet the benefits promised. The ordinance provides that the City’s Finance Director serves as the Treasurer in order to monitor proper allocation of those investment benefits. Ms. Simmons suggested the PAC and union representatives attend the quarterly meetings and meetings involving interviewing cash investment managers and consultants, and attend weekly meetings if desired. Mr. Moskun said one CWA employee has been an active participant in the Investment Advisory Committee and encouraged more participants to become involved in the process. Mr. Moskun said a sentence will be added to the Investment Policy on page 6, paragraph 6, indicating that in the evaluation process, the Trustees will determine the expected annual rate of return for the current year and for the foreseeable future. A sentence will be added to “Filing of Investment Policy” on page 11 indicating the policy takes effect 31 days upon the filing date with the City. A section will be added in reference to how the Trustees will bring allocations back to acceptable levels in the event the investment allocations extend outside the policy allocation limits. Annually, it is required that the investment policy be filed with the City. Although that is currently being done, it must be included in the written policy. Mr. Moskun said although the Senate Bill 372 is comprehensive, it is somewhat redundant in certain areas. By the core and structure of the type of securities purchased, it is nearly impossible for the City to own illiquid investments. To clarify that section of the policy, staff has added language stating the City will own no illiquid investments. In response to a question, Ms. Simmons said the ordinance provides for an upper limit of 65% in equities and staff tries to stay at 60% to provide for room to rebalance the portfolio. A referendum would be required to change the 65% stipulation. In response to a question, she said the only time staff travels to investment companies is to perform due diligence. In response to a question, Mr. Dehner said Senate Bill 372 requires that the Trustees receive a report showing a list of all the securities held by the investment manager on an annual basis. The quarterly report from the consultant would identify any performance issues. It was remarked that it is difficult to determine at what point the Trustees want to be involved in the day-to-day operations of the investment process. It was requested the PAC be informed and invited to all investment meetings whether or not their attendance is required. In response to a question, Mr. Dehner said the “Review of Policy” statement should be revised as follows: “This Statement of Investment Policy must be reviewed annually by the Pension Investment Advisory Committee and revised or confirmed with recommendations for revision or changes to the Board of Trustees as appropriate.” It was suggested deleting “advisory” from the Investment Advisory Committee’s title to avoid confusion with regard to their responsibilities. b. Pension Fund Budget Mr. Moskun reviewed the Employees’ Pension Fund administrative budget for Fiscal Years 97/98 – 00/01. He said the major change in the next fiscal year’s budget is in costs related to new employee physicals required by the Employee Pension Plan but not as a condition of employment. In the past, these physicals were not reimbursed by the Pension Plan, although they were required by it. Mr. Dehner said staff is beginning the process of restating the Employee’s Pension Plan. He felt the requirement regarding physical examinations should be deleted from the Plan. Mr. O’Rourke said he feels it is not appropriate for the General Fund to pay for physical examinations required by the Pension Fund. It was felt that further discussion is required regarding costs relating to physical examinations. In response to a question, Mr. O’Rourke said the City currently spends $52,000 a year for physical examinations of which $32,000 is for pre-employment physicals and $20,000 for light-duty employee physicals for those who are vested in the pension plan and require alternative jobs due to injuries. Mr. Dehner said consideration should be given to establishing baselines with regard to physical examinations for new employees and established employees. Mr. O’Rourke said the Police and Fire departments will provide information regarding costs associated with various diseases contracted in those departments. In response to a question, Ms. Simmons said printing and binding costs associated with the Pension Plan are to keep every pensioner and employee informed. She said the Pension Trustees must approve all expenditures. The actuary expenses in FY 97/98 reflect a zero dollar expense in the budget sheet because the expenses reflect any extra work above the annual contract. Reimbursements to the General Fund are approximately $118,200. The increase in the Human Resources budget is due to physical examination costs and time spent on pension issues. In response to a question, Mr. Moskun said the City received 100% of the principal and interest back from the investments from guaranteed investment contracts that went bad. ITEM #3 - Adjournment The meeting adjourned at 10:56 a.m.