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2012-08-06 Police Fund Meeting� • u OKEECHOBEE POLICE PENSION BOARD MEETING August 6, 2012 General Meeting Called to Order: 5:05 PM by Jamie Mullis Present: Bettye Taylor Ray Worley Bill Bartlett Absent: Denny Davis Russ Cale ACTURARIAL REPORT Theora Braccialarghe presented an overview of each boards Valuation. Braccialarghe said plans are in good shape considering the state of most plans. Braccialarghe said their valuations are taken on the smooth method which keeps us from being hit so hard. GASB has changed which GASB are the government accounting standards board. GASB sets up what will go into people's financial statement. The standards will separate funding from disclosure. The new rules will look at where the plan is as today and so unfunded dollars instead of looking at how well funded the plan is. GASB will put the unfunded amount of the balance sheet. GASB will determine what those amounts are by how well funded the plan is. She advised GASB will also look at the history of the plan and how it has been handled. The risk will be measured by how the size of the fund compares to the payroll. Putting funding policy that states when excessive money comes in it will not be held it will be placed in to the plan. The plans need to come up with funding policies. Groups are discussing how to reduce • future volatility. Theora said some plans are looking at redesigning their plans to reduce liabilities but she does not see that being an issue with these plans. Some of the things that are being looked at when putting together funding policies: One way to help would be to move into stable funds. Offer to allow employees to leave with lump sum payment will help with liabilities and assets. Another approach would be to purchase equities. You would need quotes from insurance companies for this in which you purchase annuities. Funding policy should take broader view when looking at the future. It is good for the plan that when people leave early they take their lump sum which helps in the assets and liabilities. They recommend updating the mortality assumption and, if possible, lowering the investment returns assumption. The actuarial value of assets exceeds the market value as of October 1, 2011 by $435,000. Basile Coule asked about the plans being divided between the City of Okeechobee and the OUA. Since they don't know what the breakdown is and they each have their own balance sheet. He asked if she would advocate breaking up the plan into two separate entities for accounting purposes. Theora advised the new GASB will have specific guidelines on how these joint plans will be handled. Theora said it would be a higher cost maybe not a lot but it would be some higher. Basile said they don't have an idea of what belongs to whom at this point. Theora said if she had a list of all retirees and employees and which entity they worked for they could break it up. Theora said after they figured it and saw that it was close they might not want to split it and if one had more than the other they might want to split. Basile said they pay right now on the percentage of payroll. Theora said the people at OUA might want to split it just so they don't • have to question whose money is what. Theora said they could split the liabilities easy enough. Theora said splitting the assets would require an agreement between the two entities on how • they wanted to split the assets. Coule said by them changing to a dollar value on the payroll would create a problem with them because they had been doing a percentage basis for their part. Scott Christiansen said they could still use the percentage method under the new laws. Theora said by splitting the plan might make it easier to explain the cost every year. Theora said when they have to show the unfunded amounts on the financial sheet it would requirement more answers to questions as to have what unless they will have to be using arbitrary split amounts. Coule said it is a married couple with joint assets and they are splitting up. Somebody is going to have to make a decision as to who gets what. Coule said the liabilities won't be as much an issue as the assets. Theora said the new GASB law will tell them how they would have to handle this split if they decide to do the split. Christiansen asked if they were talking about splitting the plan or like other plans do in which two mini actuarially studies are done then combined. Coule said it would be no difference then two difference and distinct pension plans. Theora explained that the OUA has to answer to a different type of board then the City Council. Coule asked Scott Christiansen if it would be wise to split the plan into two different plans or just under one plan have two separate entities with a separate actuarially report. Christiansen said there is not a wisdom or legality that either method is okay. Theora said it has to do with the source of funding. Coule said it is like the elephant in the room and at some point will have to be dealt with. Theora asked Attorney Christiansen if he was currently working with the plan on setting up a funding policy. She advised the GASB would become applicable ]une 2013. She explained that a Funding Policy is a written policy that will cover what will occur during favorable and unfavorable experiences. How often should you look at your assumptions? What is your funding target? Do you want to start trending down your fund assumptions as your plan is better funded which would take out some of the volatility out. Christiansen asked if this was stuff the City is responsible for or at least decisions that the board and City should make in conjunction. Theora • advised absolutely. Theora said they are still reviewing the GASB policy and are making us aware of what is in the works. Theora presented the Annual Actuarial Valuation Report. She advised that all three groups use the actual dollar amount to figure contributes. Coule asked if they lost 20 percent of the workforce would the percentage would not come up to the dollar amount the Theora advised even though we don't have a written report there is an unwritten understanding and the State accepting the report that this is what we are going to do. If payroll goes down your cost goes down. Attached is the Annual Report. Police had asset losses of $447,999 which was offset by liability gains of $134,730 which made the total loss for the report at $313,269. Detective Taylor asked Theora about the hard time the City is having getting the reports from her company. Theora said they had trouble getting numbers from the auditors. Theora said they should not be waiting on numbers because they use the numbers from the year before. Janet Kinley asked about them using the last number. Theora said if the city wants current numbers then they have to request them the current GASB page before the rest of the report it has to be requested."She advised they don't automatically do this it has to be requested. Scott Christiansen asked about making a decision on changing the mortality. Generational table is adjusted via computers and build in mortality and changes with issues such as people living longer. The table RP2000 fully generational mortality table needs to be voted on. Theora asked if the boards approved it she would use the new tables in the upcoming evaluation. • � • Scott Christiansen discussed changing the interest assumption rate and said he felt like our • boards were fine staying at the 7%. Christiansen advised that each board needed to vote to approve the Acturiarial Studies. INVESTMENT REPORTS A. David Kelly of Bowen Hanes sent the boards a letter stating he would not be at the meeting because he felt like we would want to further discuss splitting the fixed income portfolio. He advised his firms policy on the fixed income market has not changed. He advised that they believed they had positioned their portfolio in a rising interest rate environment, they realized it had not occurred yet but s611 believed that it would be occurring over the coming years. He advised that our fixed income performance has been subpar upto date as a result. He advised he would respect the boards decisions but would like to continue on as our total portfolio manager. He advised that if we decided to make a change they recommended a transition over several weeks or even a month and will waive their management fee on that part of the portfolio during the transition period. B. Tim Nash for the Bogdahn Group presented an overview for the quarter ending, June 31, 2012. The news over seas has not been good for over a year now. S&P was down 2.8%. Russell 2000 was down 3.5%. Midcaps stocks were down 4.4%. Barclarys was the bright spot in our portfolios with US Agg were up 2.1%, US Treasury's was up 2.8%, US TIPS up $3.2, MBS was up 1.1°/a Corp IG was up 2.5%. Biggest impactor on the portfolios was financials and energy sector. • Financials have been down for the whole year. Stock portfolio has been down for the quarter. A source of concern for his firm is that in our portfolios we have 22 bonds in our portfolio and almost 6% or half of our bonds are in financial backed bonds. So they would not be surprised that our bonds would not do well. We did gain back some of our losses during the quarter. The plan is in the 95% of our peers in the country. We were down overall 3.41 percent. Jack Evatt of the Bogdahn Group said over the half the managers struggled this quarter. He said over the physical year we were at 11.53. Tim Nash discussed the fixed income portfolio. He advised that one of their jobs as independent consultant is to give a report on returns and tell us how their managers have done. He advised they are one of trusted advisors and provide us with what they think is in the plans best interest. He advised they have fiduciary to our plan and if they don't properly advise us of what was going on with our investment managers they would be negligent and the board would have recourse against the investment consult. Nash said Bowen Hanes has been struggling. Nash said they have 5 people in their o�ce that their sole job is to review investment managers and to make sure there are no changes or their processes have not change. Nash said one of the things they have identified is that our manager is not meeting his criteria for the full three years we have had them. He said in general our total fund return has been good in the 11 and 12 percent but we could have been even better. He recommended 75% Dodge&Cox and 25%Pimco as our Fixed Income Managers. Bettye Taylor questioned the whole portfolio due to the low numbers. Nash advised that they were looking at this also and were monitoring it closely. Nash advised they may at a future � meeting recommend a new manager for the rest of the Portfolio. Bettye Taylor questioned if we moved funds on the fixed income side would Bogdahn have to wait till the meetings to move • money if needed. Evatt advised no they would not have to wait that was the purpose of the Receipt and Disbursement letter to handle allocations of funds. Scott Christiansen said that after looking at the numbers that were supplied by Bogdahn Group of the low performance of the fixed income were the funds were consecutively in the 100% we were on the edge of being criticized for not changing funds. Bettye Taylor asked if we would be better off to shop the whole portfolio. Bill Douglas said maybe we needed to clean house and start totally over with whole new firm. Nash said that Bowen had good long term numbers but recently they have had more volatility in the recent three years. Nash said they are concerned about the way they are performing. Nash said it wouldn't cost anything to bring out a review of the whole program. Nash said the boards could look at the other options to see if we wanted to go in another direction. Bettye Taylor asked if since we had always used one manager if we would be better to wait until he did the study and move the whole fund again. Jack Evatt said we are better off not having the funds under one manager that way they off set each other. Evatt said we need to look at the Equity and Fixed Incomes separately. Evatt and Nash said if they came out with other managers they would suggest breaking the equity funds up into individual managers for each one. Bettye Taylor asked if the fees would go up having all these different managers. Evatt reviewed the options of fixed incomes. Evatt said his recommendation was to go with Dodge & Cox at 75% and Pimco with 25%. Nash said we would pay less basis points and have better • returns. Jamie Mullins asked why we needed to pay Bowen Hanes to invest the moneys if Bogdahn could handle the way the funds are invested. Scott Christiansen asked if we moved the Fixed Income funds now would we have the same selection for the equities if we decided to move them at the next meeting. Nash and Evatt said we would. Basil Coule brought up for discussion the letter submitted by David Kelly of Bowen Hanes. Nash said David Kelly is passionate about their strategy. Nash said he had seen the returns for Tampa Police and the investments are not the same. Nash said some of his other accounts have terminated there relationship with Bowen Hanes. Nash said Tampa has language in their ordinance that says they have to have one money manager. Nash said if that language wasn't in their plan they would have diversified. Nash said they want our fund to get the same returns as Tampa. Nash said Bowen Hanes returns are not the same as their larger funds. Evatt said the expectation is that all the plans Bowen handles should be having the same returns and they aren't which concems them. Nash said they would set it up with Bowen to start the liquidation but give them a window to work with so that Bogdahn could coordinate with Bowen. The Boards agreed to call a special meeting when all the boards coultl have a quorum. i � ITEMS/REPORTS FROM BOARD ATTORNEY CHRISTIANSEN C� • Attorney Christiansen asked if we got the R&P from the other actuaries. Basil Coule discussed that after the explanation from Theora the actuary that the problem of delayed reports could be rectified. Coule said that he would communicate with Jay McBee the auditor what was needed to speed the process up on getting reports from the Actuary. Coule said if the problem was not fixed then we should consider changing but only after seeing if the fix would work. Discussed with Christiansen about having some of the specialist show up at the council work shop to discuss the questions the council had. Christensen said to have the council make a list of questions and send to him then he will appear before the board and answer their questions. Christiansen said our funding rate is higher then everybody else's and the City's contribution rate is lower then anybody else. Advised Ray Worley's term is up. He was serving out Louise Chandler's term. He advised we need to get this reaffirmed by the council. Need to put on next agenda that all three boards need to pick Officers. Need all three boards to authorize update summary plans which is required to be done every two years. Everyone's Form 1 is done. • Did everyone get the approval of the annual reports? The state money will come in soon after receiving the approval. Make sure we coordinate with Salem Trust that we have up to date windows on when pensioners fall off the benefit list. We need to make sure in writing that the custodian has a list of stop dates of when people fall off. Made sure the boards know that once a person retires and chooses a benefit retirement it can not be changed at a later date. UNFINISHED BUSINESS TO DISCUSS IN OPEN SESSION Discussion was tabled till a special meeting could be set up with all the boards. Meeting was adjourned due to lack of quorums. �/�.� ��i� + �Bettye T�ylor--Secretary � LJ �