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HomeMy WebLinkAbout12-10-2019 MinutesCITY OF SEBASTIAN POLICE PENSION BOARD MINUTES OF REGULAR QUARTERLY MEETING DECEMBER 10, 2019 Call to Order — Chairman Gillette called the meeting to order at 10:06 a.m Roll Call Present Board Members: Jason Gillette Paul Williamson Tim Wood Absent Christine Vicars — Excused Also Present Bonni Jensen, Klausner, Kaufman, Jensen & Levinson, Attorney for the Board of Trustees Ken Killgore, Plan Administrator Cynthia Watson, Human Resources Manager Doug Lozen, Foster & Foster David Wheeler, Morgan Stanley Andy Mcllvaine, Morgan Stanley Steve Stack, Highland Capital Ann -Marie Fraser, Procurement Contracts Manager Janet Graham, Technical Writer Vote to Excuse Absent Board Member Chairman Gillette announced that Christine Vicars was excused, and there is another absent board member because of a resignation of Mr. Moyer Motion to excuse absentee was made by Mr. Williamson and seconded by Mr. Wood. Motion carried unanimously by voice vote. IV. Aooroval of Minutes — Regular Meeting of September 17, 2019 Chairman Gillette asked if there were any changes or corrections to the Minutes of September 17, 2019 as presented. Hearing none, Chairman Gillette called for a Motion to accept the Minutes as written. Motion to accept the Minutes as presented was made by Mr. Williamson, seconded by Mr. Wood, and approved unanimously by voice vote. POLICE PENSION BOARD PAGE 2 MINUTES OF REGULAR MEETING OF DECEMBER 10, 2019 Old Business A. Approval of Payments 1. Salem Trust — July/September $4,715.00 2. Highland Capital — July/September Fixed Income 2,920.45 3. Highland Capital — July/September Equities 9,719.84 4. Boston Partners — July/September 1,930.29 5. Fiera Capital — July/September 1,497.53 6. Renaissance — July/September 1,723.97 7. Brookfield Public Securities Group -- July/September 803.34 8. Morgan Stanley Consulting -- July/September 3,375.00 9. Klausner, Kaufman, Jensen & Levinson -- September 2,561.25 10. Travelers Insurance -- Year Beginning Nov. 1, 2019 2,585.00 11. City of Sebastian — Minutes Preparation for Sept. 216.00 12. City of Sebastian — Administration Oct./Sept. 6,000.00 Motion to approve the payments as listed above was made by Mr. Williamson, seconded by Chairman Gillette, and approved unanimously by voice vote. B. Correspondence from Salem Trust on Block Trades and Basis Point Fees Mr. Killgore has contacted Salem Trust regarding these questions. Salem Trust informed Mr. Killgore that they had had some reorganization. They are recommending that this Board hold off, as the new organization should result in some fee options that may save this Plan money. Mr. Killgore said he isn't sure if he will hear before our next meeting, but hopefully before the meeting after that. He will put it on next meeting's agenda if he has the information by then. C. Approval of Deferred Retirement Option Plan (DROP) Calculations Mr. Killgore stated that the member who has applied has submitted all the required paperwork, and Mr. Killgore has included in the Board members' packets the calculations he has made based on the ordinance. Mr. Killgore has records of what the applicant's payouts would be for the next five years based on the earnings he will get, so this is all set up. Chairman Gillette called for a motion to approve this matter. POLICE PENSION BOARD PAGE 3 MINUTES OF REGULAR MEETING OF DECEMBER 10, 2019 A motion to approve the applicant's entry into the DROP plan as calculated by the actuary was made by Mr. Williamson, seconded by Mr. Wood, and approved unanimously via voice vote. VI. Public Input — None VII. New Business A. Presentation of October 1, 2019 Actuarial Report by Actuary Doug Lozen of Foster & Foster provided copies of the quarterly report to members of the Board for their perusal. He stated this report is the latest valuation that incorporates assumption changes. The funded status of the Plan is much the same as last year, meaning how much the Plan's assets are compared to promised benefits. They are now more conservative with the investment return assumption. It has been lowered to 7.2% with this report. He explained more fully the changes in the return assumption. He continues to recommend the Board discuss the investment assumption for future years. Mr. Williamson inquired of Mr. Lozen at what point should there be concern by the investors. Mr. Lozen stated that there is no real specific level of a funded status for panic, but he is more interested that the assumptions are reasonable. If that's true, then the funded ratio will grow as it needs to grow. His firm took care of those assumptions with the last experience study. Mr. Williamson asked at what point is there cause for concern on the part of the investors. Mr. Lozen reiterated that his main concern is that the assumptions are reasonable. Mr. Killgore asked Mr. Lozen, if the City should put in more than the required dollars, would Mr. Lozen suggest that, if the City has available funds or additional funds that could be put in by the City, that would be of benefit. Mr. Lozen answered yes, that would be of benefit to the Plan. Mr. Williamson asked when the next time is that there will be an experience study. Mr. Lozen states that happens approximately every five years or so. There ensued a lengthy discussion about "smoothing," and Mr. Lozen explained how that affected the investment. Mr. Lozen stated that, if the Board is satisfied with the report, it will have to be approved by the Board and sent to the State. POLICE PENSION BOARD PAGE 4 MINUTES OF REGULAR MEETING OF DECEMBER 10, 2019 A motion to approve the Foster & Foster study was made by Mr. Williamson, seconded by Mr. Wood, and approved unanimously via voice vote. Ms. Jensen addressed Mr. Lozen regarding the State requiring on an annual basis the expected rate of return to be set over the short term, the midterm, and the long term. Given the fact that an actuarial valuation that has a 7.2% expected rate of return has been approved, the State likes those two numbers to match. Thus, there is a motion needed. A motion to approve the 7.2% expected rate of return was made by Chairman Gillette, seconded by Mr. Williamson, and approved unanimously via voice vote. B. Report from Investment Monitor/Continue Discussion on Manager Search Andy Mcllvaine from Morgan Stanley stood in for Scott Owens, as Mr. Owens had a conflict in his schedule. Mr. Mcllvaine stated he will address the stock market and the economy as well as the search for the large cap growth manager changeover. He stated that the portfolio did well on a relative and absolute basis. For the quarter, it was relatively choppy. He described the volatility in the market surrounding the news about the trade deal with China as well as other geopolitical uncertainties. He stated there is a lot of news surrounding the geopolitical uncertainties in the market that is actually creating the volatility. There has never been seen this much volatility in the market surrounding conjecture. It is not thought that this is going to go away anytime soon. He listed one of the things that is keeping the market up is consumption that came out better than what was predicted. Consumption is now 88% of GDP. Prior, it was closer to 75%. Corporate earnings are good; however, last quarter 88% of companies were guiding lower with their projections moving forward. In this quarter 77% of those companies actually beat those projections. In other words, companies are hedging, meaning they're not expecting quite as good numbers as have been seen in the past. The political landscape affects stock prices, and many companies are stockpiling cash because they are not certain what is going to happen with the political landscape. Those companies are also wailing to see what happens with interest rates. He stated the future for the market will still be stable, but there is not expected to be the double-digit returns that have been seen in the past. He then reviewed the quarterly performance summary, copies of which were provided to all the Board members (SEE ATTACHED). POLICE PENSION BOARD PAGE 5 MINUTES OF REGULAR MEETING OF DECEMBER 10, 2019 At this point, David Wheeler took over, and he further reviewed the quarterly report where it shows the breakdown of returns. He pointed out that for the quarter the Plan is slightly above its benchmark. Mr. Wheeler addressed the large cap growth summary, copies of which were provided for the Board members. He reviewed that Highland Capital, which is a large cap manager, has underperformed for the last two years. He recommended continuing to diversify to what is hoped to be best -in -class managers. Four managers were presented: Highland and three others for comparison purposes. The three other managers are Clearbridge Investments, Polen Capital, and Sawgrass Asset Management. In reviewing the performance of those four managers, Highland has the poorest performance, while Polen has the highest. However, Polen is the highest risk and also has higher fees. There was much discussion among the Board members and Mr. Wheeler regarding these investment managers. Mr. Wheeler suggested, if they were going to pair a manager with the index, he would suggest pairing Clearbridge Investments and the large cap growth index. Polen has a higher return, but they are also higher risk and have higher fees. Mr. Williamson requested that when Mr. Wheeler comes to the next Pension Plan meeting he present a proposal for adding an index as well as Clearbridge. That way, the entire Board would be present, and they could digest the information better. Chairman Gillette and Mr. Wood were agreeable to that plan. C. Report from Investment Managers -- Highland Capital Steve Stack with Highland Capital announced that Todd Wishnia was not able to attend today. He also announced that Grant McMurray has retired. Mr. Williamson asked Mr. Stack to relay to Mr. McMurray how much the Board appreciated his service over the years. Mr. Stack reviewed the market as regards geopolitical issues. He stated that with the Plan having a diversified portfolio, it has done well over the last three to five years. That is still continuing on in this quarter as well. Highland understands why they are underperforming. They have lowered the number of securities from a little over 100 to about 65 presently, which has helped the portfolio. D. Discussion of Cyber Liability Insurance Amendments to Current Contracts Requiring $5 million Coverage POLICE PENSION BOARD PAGE 6 MINUTES OF REGULAR MEETING OF DECEMBER 10, 2019 Mr. Killgore stated the City has acquired a new Procurement Contracts Manager, Ann - Marie Fraser. She is present today. She has also studied the pension accounts and the pension contracts. In reviewing those and working with the Board's attorney, staff has drafted amendments to the current contracts. One of the key factors of those amendments is that they would be required to carry $5 million of cyber liability insurance. That has become a serious problem and a concern for all. The $5 million originally was presented by Ms. Jensen as a suggested amount. Mr. Killgore stated that, with the Board's concurrence, the investment managers carry that amount of cyber liability insurance. Mr. Killgore stated that the City's general liability insurance policy has no provision for cyber liability coverage. With the City's liability policy there is a $2 million level, and he has been considering whether the City should increase its level as well. But the City's policy does not cover pension boards, because pension boards are considered a separate entity from the City. Should an incident occur with the City's intemet activity, it could be ransomware where there might be an amount of a half -million or more demanded. There would be requirements to notify anyone who could be affected by information that was unauthorized and distributed that did damages to people where their personal information, information that the City interchanges with the actuary, and information we interchange with money managers is exposed. Mr. Killgore recommends strong consideration of the amount of coverage. The amount of $5 million is a matter of judgment from the Board as well as consideration of the premium. He has contacted the City's insurance broker, and for every $1 million of coverage, premiums in the marketplace are $10,000 to $12,000. Ms. Jensen stated that there is a Lloyds of London policy that a lot of boards are using which provides $250.000, $500,000, $750,000, or $1 million, and the premiums are very reasonable for that type of liability coverage. She stated the $250,000 coverage is about $650, much more reasonable. Following up on her firm's recommendation of the $5 million, she knows that Foster & Foster actually has gone out to investigate in the market, and they actually were quoted a substantially high premium. That could be because of the difference between the Board's exposure as an entity vs. the actuarial side or their administrative arm which contains a lot of personal identifiable information. So it could be an underwriting risk that they're looking at. POLICE PENSION BOARD PAGE 7 MINUTES OF REGULAR MEETING OF DECEMBER 10, 2019 Mr. Killgore further explained that the insurance policies generally also help with legal assistance or advice on consultants. His staff looks at everything involving the City and does everything they can to protect the City's information systems and provide additional backups using the cloud, etc. But in today's world one never knows when that element of society is going to find a way to get in. Mr. Killgore stated his question to the Board is whether they think these contracts should be introduced to everyone who is connected in any way to the Pension Plan, i.e. the actuary, the attorney's office, and the money managers, and say we require $5 million, or whether another kind of rationale should be applied. He also mentioned that the City's policy covers City employees. So even as an employee of the City sitting on this Board, that employee has the coverage individually from the City. But non -City employees are not covered. An extended discussion was had among the Board members, Ms. Jensen, Mr. Killgore, and the investment managers and actuary concerning this subject. Ms. Jensen stated that the most involvement this Board would have would be notification requirements that would have to be done. Ms. Jensen posed the question to the investment managers that, if someone hacked into their computer system, would the hacker be able to affect what that manager does for this Pension Plan. The answer was no, not with the security systems they have in place. Mr. Williamson suggested that, since Highland and Foster & Foster each has $2 million in cyber liability insurance, the Pension Plan require that they have at least $2 million in order to ensure that they don't lessen or cancel their cyber liability insurance coverage anytime in the future. Mr. Killgore added that it should be a requirement that these investment managers notify the Police Pension Plan if there are any changes to their policies. After discussion, it was decided that Mr. Killgore will contact Highland and Foster & Foster and inform them that the Pension Plan is expecting the $2 million coverage. He will also contact the other money managers as well as Graystone and find out what coverage they have, and request that it be increased to $2 million. Mr. Killgore stated that could probably be done before this Board's next quarterly meeting. All Board members as well as Ms. Jensen agreed. E. Legal Updates — Klausner, Kaufman, Jensen & Levinson Status on Update of the Summary Plan Description POLICE PENSION BOARD PAGE 8 MINUTES OF REGULAR MEETING OF DECEMBER 10, 2019 Ms. Jensen stated that regarding the Summary Plan Description, she was delinquent in getting the paperwork to Mr. Killgore. She suggested this be added to the agenda for the next meeting. That was agreed to by the Board members. ii. Other Legal Matters Ms. Jensen has included in the Board's packet a memo about the Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA). A number of pension plans have asked questions about individuals who are deployed and individuals who are serving on reserve duty. Ms. Jensen stated the most important thing for this Pension Plan is to make sure that it continues people who are serving on active duty military services when they leave from employment, that the Plan continues to report them to the actuary, and that the actuary and the administrator continue to know that they belong to the Pension Plan. She stated there are statutes of the State of Florida that contain requirements that, if people leave from their employment and go to military service, they are entitled to five years of service for free. They don't have to make any contributions into the Pension Plan. So it will be necessary to follow those employees and recognize that we have a potential liability for those individuals. Ms. Jensen reviewed the other item in the memo is related to employment and the different things that must be done for people who are out on that military service — making sure that they get the raises and/or promotions that they were entitled to during the time they're gone. Vill. Board Member Reports and Comments — None IX. Plan Administrator Reports and Comments A. Review of Administrative Expenses Mr. Killgore has provided and reviewed the report on the administrative expenses. There were no questions or comments from the Board. B. Review of Annual Calendar of Board Activities Mr. Killgore provided a report on the Board's activities scheduled for December. He stated he is complying with everything except possibly updating the investment policy and allocation strategy. He will be working on getting that accomplished. POLICE PENSION BOARD PAGE 9 MINUTES OF REGULAR MEETING OF DECEMBER 10, 2019 C. Other Administrative Matters Mr. Killgore stated, regarding the materials that he needs to discuss at the Pension Plan meetings, he will be notifying the consultants that when there is a scheduled meeting date, he needs these materials in time to disseminate them to the Board before he distributes the agenda, which is usually the week before the meeting. He asks for their cooperation in that regard. X. Next Scheduled Quarterly Meeting: March 17, 2020 XI. Adjourn Chairman Gillette called for any further business. Hearing none, the meeting was adjourned at 12:13 p.m. By: Q"N- -�- Jason Gillette jg