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03/13/2003PENSION ADVISORY COMMITTEE MEETING CITY OF CLEARWATER March 13, 2003 Present: Whitney Gray Acting Chair/Commissioner John Lee Committee Member Tom Jensen Committee Member Hoyt P. Hamilton Committee Member/Commissioner Frank Hibbard Committee Member/Commissioner – departed 11:44 a.m. Nathan Hightower Committee Member John Schmalzbauer Committee Member Also Present: Joe Roseto Human Resources Director Margie Simmons Finance Director Debbie Ford Human Resources Analyst Brenda Moses Board Reporter The Acting Chair called the meeting to order at 9:00 a.m. at City Hall. To provide continuity for research, items are in agenda order although not necessarily discussed in that order. Item #2 - Selection of Chair and Vice Chair It was remarked that at the April meeting, the Commission may change the appointment of Commissioners serving on various boards. As the representation on the PAC (Pension Advisory Committee) also could change, it was suggested that members might want to consider postponing the selection of Chair and Vice-Chair to the next meeting. Consensus was to postpone the selection of Chair and Vice Chair to the next meeting. Item #3 - Approval of Minutes of February 13, 2003 Member Hibbard moved to approve the minutes of the regular meeting of February 13, 2003, as recorded and submitted in written summation to each board member. The motion was duly seconded and carried unanimously. Item #4 - Employees to be Heard – None. Item #5 - Action Items: a. Review and Action on Employee Requests for Years of Service Pensions: 1. Francis K. Mays, Gas Department 2. Eddie Lloyd, Public Utilities 3. Danny West, Police Department 4. Robert McKenna, Fire Department 5. Jerry Lovett, Fire Department Member Schmalzbauer moved to approve Years of Service Pension for Francis K. Mays, Eddie Lloyd, Danny West, Robert McKenna, and Jerry Lovett. The motion was duly seconded and carried unanimously. b. Approval of New Hires as Plan Members: As of February 27, 2003, the City had 1744.01 FTEs out of 1844.9 budgeted positions. Member Hibbard moved to accept the following employees into membership in the Pension Plan: Pension Elig. Name, Job. Class, & Dept./Div. Hire Date Date Amy Mobley, Police Communications Op/Police 8/10/02 12/13/02 * Bennett Elbo, Traffic Op Engineer/Engineering 2/3/03 2/3/03 Edward O’Neal, Solid Waste Worker/Solid Waste/Gen Svcs 2/10/03 2/10/03 Jonathan Phillips, Solid Waste Worker/Solid Waste/Gen Svcs 2/10/03 2/10/03 Bryan Elbell, Solid Waste Worker/Solid Waste/Gen Svcs 2/10/03 2/10/03 Vance Peel, Mechanic II/Solid Waste/Gen Svcs 2/10/03 2/10/03 Marlene Torres, Custodial Worker/Solid Waste/Gen Svcs 2/10/03 2/10/03 Judith LaCosse, Staff Asst/Official Records & Legis Svcs 2/10/03 2/10/03 Rebecca Wilkerson, Personnel/Payroll Tech/Parks & Rec 2/10/03 2/10/03 Lana Beck, TV Production Specialist/Public Communications 2/10/03 2/10/03 Brandi Portalatin, Parks Svc Tech/Parks & Recreation 2/10/03 2/10/03 Thomas Jensen, Senior Planner/Planning 2/24/03 2/24/03 Emilio Maldonado, Solid Waste Worker/Solid Waste/Gen Svcs 2/24/03 2/24/03 Alexis Wells, Parks Svcs Tech I/Parks & Rec 2/24/03 2/24/03 Matthew McCombs, Mechanic II/Solid Waste/Gen Svcs 2/24/03 2/24/03 Michelle Friedline, Rec Programmer/Parks & Rec 2/24/03 2/24/03 Rafael Salazar, Police Recruit/Police 12/16/02 12/16/02 * Originally hired as part-time on 8/10/02; status changed to full-time and pension eligible as of 12/3/02. The motion was duly seconded and carried unanimously. Item #6 - Pending/New Business: (Items #6(b) and 6(c) were discussed prior to recessing at 9:19 a.m.) a. Discussion of Pension Changes Consensus was to postpone discussion of Item #6(a) until the next meeting. b. Ownership Change of EPW Investment Management, Inc. EPW Investment Management is a wholly owned subsidiary of United Financial Holding. United Financial Holdings is merging with Synovus Financial Corporation. The City’s contract with EPW Investment Management provides that the City must approve the assignment of the contract. EPW is a fixed income manager who manages a portfolio of Treasuries for the plan. EPW also provides equity investment advice to the plan. For the year ending December 31, 2002, EPW was ranked in the top 9th percentile. For the last 5 years they were ranked in the top 33rd percentile. There will be no changes at EPW Investment Management. The Pension Investment Advisory Committee recommends approval of the change. Member Hamilton moved to approve the change in ownership of EPW Investment Management, Inc. The motion was duly seconded and carried unanimously. c. Fixed Income Manager Search For the year ending December 31, 2002, the Employees Pension Plan had a rate of return of (8.75)% V.S. the benchmark of (8.86)%. While the plan’s return beat the customized benchmark last year, two of three fixed income managers (Vanderbilt Capital Advisors and Sirach Capital Advisors) performed near the bottom of their peer group for the last two years. Vanderbilt Capital Advisors attributes their poor relative performance to their belief that the corporate bond sector will out perform all other fixed income sectors. They believe that they were early and time will prove them right. For the last two years Vanderbilt performed at the 90th and 96th percentile. (1st percentile is the best and 100th percentile is worst performers.) Sirach Capital Advisors has had some personnel problems. They have made changes, however their performance has not improved. For the last two years they performed at the 99th and 98th percentile. The plan’s consultants also are recommending that the City move some of the plan’s assets from Treasuries to other fixed income securities. It is their belief the US Treasuries have seen their run and Treasuries will lag other fixed income sectors in performance. The Pension Investment Committee unanimously recommends an additional “fixed income” style manager. The additional fixed income manager is the first step to reduce funding and/or terminate one or both of the under performing managers. Callan’s fee for the search will be $25,000. This fee will be paid by directing investment trades through a selected broker and will not be an additional direct expense of the pension plan. The Investment Committee will come back to the Trustees in late summer or early fall with the results of the search for approval. The cost of committee member travel to investigate/research the top ranked firm(s) is estimated at $4,000. The actual amount will be affected by the location of the investment manager(s) and the number that needs to be researched. In response to a question, Cash & Investments Manager Steve Moskun said fund managers are instructed to execute the best possible trade and to use the Bank of New York if possible to minimize trade commissions. For those trades executed through the Bank of America, a portion of every commission received by a fund manager goes into an account for the City at the Bank of New York. Callan & Associates is paid annual fees to perform fund manager searches out of that account instead of from the pension plan. Unused monies remain in the account for payment of future fees. In response to a question, Finance Director Margie Simmons said the process to search for an additional “fixed income” style manager takes time because it involves a search by Callan & Associates. Once the search is complete, staff brings forth the request to the PAC for a recommendation to the Pension Trustees. She said it is possible that the City would have four fund managers for a time until their performance indicates which three should be retained. In response to a question, Mr. Moskun said Callan & Associates’ database includes approximately 3,000 fixed income style managers. They perform a search based on performance and other criteria required by the City such as proven history, minimal volatility, etc. Once staff rates the perspective firms, they meet with Callan & Associates to develop a short list of potential fund managers. Mr. Moskun said Callan & Associates works with these manager daily, has a relationship with the firms, and can provide information regarding pending personnel changes, perceived changes, etc. that could affect the City’s decision in selecting a fund manager. Firms on the short list are interviewed and the City interviews the top three. Staff expedites the process as much as soon as possible. It was remarked that John Willoughby, fixed income manager, serves two roles: 1) He serves as an advisor, and 2) he manages a fixed income portfolio. In a previous meeting, Lee Dehner, the PAC Attorney, had indicated that Mr. Willoughby does not meet the definition of a consultant. Concern had been expressed that his participation in searches for new fund managers should be limited because of his dual role. In response to a question, Mr. Moskun said Bill Badger of Callan & Associates had made the recommendation that the City move some of the plan’s assets from Treasuries to other fixed income securities. When asked his opinion, Mr. Willoughby concurred that although he is the manager of the Treasuries fund, funds should be moved from Treasuries due to current economic conditions. The meeting recessed from 9:19 to 11:43 a.m. for a joint meeting of the Pension Trustees and Pension Advisory Committee to discuss pension attorney proposals. Member Hibbard moved to recommend that the City Commission authorize staff to conduct a search for a “fixed income” style manager for the Employees Pension Fund, authorize Callan & Associates to assist with the search for a fee of $25,000, authorize the cost of the search, including staff travel of approximately $4,000, to be paid from the pension fund. The motion was duly seconded. In response to a question, Mr. Moskun said staff becomes concerned when management companies change personnel. Ms. Simmons said before a relationship with a management company can be severed, the request to do so must be brought before the PAC and receive final approval from the Trustees. Upon the vote being taken, Members Hamilton, Jensen, Lee, Hightower, and Schmalzbauer, and Acting Chair Gray voted “aye”. Member Hibbard was absent. Motion carried. Item #7 - Director’s Reports – None. Item #8 - Committee Members to be Heard – None. Item #9 - Adjournment The meeting adjourned at 11:46 a.m.