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HomeMy WebLinkAbout06-16-2020 MinutesCITY OF SEBASTIAN POLICE PENSION BOARD MINUTES OF REGULAR QUARTERLY MEETING JUNE 16, 2020 Call to Order — Chairman Gillette called the meeting to order at 10:00 a.m. IL Roll Call: Present (via Zoom technoloov) Board Members: Jason Gillette Paul Williamson Tim Wood Albert lovino Andrea Ring Also Present (via Zoom technoloov) Stuart Kaufman, Klausner, Kaufman, Jensen & Levinson, Attorney for the Board of Trustees Ken Killgore, Plan Administrator Andy Mcllvaine, Morgan Stanley Mindy Johnson, Salem Trust Todd Wishnia, Highland Capital Janet Graham, Technical Writer III. Vote to Excuse Absent Board Member — None IV. Aooroval of Minutes — Regular Meeting of April 24, 2020 Chairman Gillette asked if there were any changes or corrections to the Minutes of April 24, 2020 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. lovino, seconded by Mr. Wood, and approved unanimously via voice vote. V. Old Business A. Approval of Payments — Ken Kilgore, Plan Administrator I. Foster and Foster — Reports and Experience Study $20,663.00 ii. Foster and Foster — State Requirements 7,301.00 III, Renaissance — January/March Fixed Income 1,332.50 IV. Boston Partners -- January/March Fixed Income 1,807.40 V. Fiera Capital -- January/March Equities 1,268.73 POLICE PENSION BOARD PAGE 2 MINUTES OF REGULAR MEETING OF JUNE 16, 2020 vi. Brookfield Public Securities Group — January/March $ 346.77 vii. Morgan Stanley Consulting — January/March 3,375.00 viii. Klausner, Kaufman, Jensen & Levinson — April/May 2,390.00 ix. City of Sebastian — January/June Administration 12,000.00 X. Salem Trust -- January/March 5,515.00 Motion to approve the payments as listed above was made by Mr. Williamson, seconded by Mr. lovino, and approved unanimously via voice vote. B. Salem Trust Custodial Fees and Organizational Changes Ms. Mindy Johnson, Salem Trust, stated there has been a lot of activity at Salem Trust over the past year. She reviewed that last year in April Salem was purchased by a company called '@MI TMI Trust. Operationally, things were switched over to the new company back office. There were no personnel changes. There was a very aggressive campaign with the money managers to make sure they were on board and had the new delivery instructions. She stated that, for the most part, it went pretty well. She could not recall that there were any major issues. She stated the new ownership has been great to work with. The employees have been working remotely since the middle of March save for a skeleton crew who comes in to take care of things like checks, etc. She related that there have been no fee changes as of this time. She called for questions from anyone. Mr. Killgore commented regarding the statements that were received from online for April and May, the balance brought forward was different from the ending balance from the previous month. There was an adjustment on the May statement, but he stated there is still owed an adjustment for the end -of -May balance. Ms. Johnson said she will look into that, and she will contact Mr. Killgore about the matter. C. Cyber Insurance and Contract Amendments Mr. Killgore described that Ann Marie Frazier is the Procurement Manager for the City. She has been tasked with following through with all the contracts the City has with the money managers and other providers. She is also tasked with amending contracts and requiring the cyber liability insurance. The City had attempted to get $2 million coverage from each of the providers. At this point, there are a couple of the providers —one being Brookfield, the other being Foster and Foster —who say they only have $1 million coverage, and they want a buy on that level of insurance. The others have the $2 million with the exception that he has not heard from Morgan Stanley. He pointed out that Brookfield has the least amount of money that the pension has invested at less than half POLICE PENSION BOARD PAGE 3 MINUTES OF REGULAR MEETING OF JUNE 16, 2020 a million. So he is asking the board if a million dollars of coverage in their case would be adequate. Foster and Foster has stated that for all their accounts they only have the $1 million coverage, and they do not intend to change that. It is a judgment call whether the Board wants to insist on the $2 million coverage or are satisfied with the $1 million level. Stuart Kaufman commented that, with regard to Brookfield, the investment manager, he is comfortable with $1 million, in that they really do not have any personal identifying information or anything that would really need to be concerned with a cyber breach of data. They really do not hold the money; they just make the trades and advise Salem to carry out the trades. Regarding Foster and Foster, they came out with a memo that set forth all the security they were. providing. His firm has had other clients as well complain about that $1 million, so the suggestion was to allow counsel to speak with Brad Heinrichs of Foster and Foster and see if we could get them to increase it. They have so many clients so that one major breach is going to affect a litany of clients, and they could eat through the $1 million pretty quickly. So his firm will ask Foster and Foster to have at least $2 million coverage if not more. Regarding Morgan Stanley, Mr. Williamson inquired if they have personal information on all the members of the Pension Plan, or do they only have the investment part. Mr. Killgore stated they only review the investments and only have access to the financial records, not the individual participants. Mr. Killgore stated he has had trouble connecting with anyone at Morgan Stanley that could reply to him. Mr. Mcllvaine stated he will get an answer for Mr. Killgore. Mr. Killgore asked if the Board would be comfortable with simple amendments of perhaps two pages, adding the insurance requirement and making sure there is more of a standardized language in all the contracts. He stated all these can be brought back at the next Board meeting, or the Board could give a blanket approval for the Chairperson to sign off on the amendments. A motion allowing Jason Gillette, Chairperson, to sign off on the amendments was made by Mr. lovino, seconded by Mr. Williamson, and approved unanimously via voice vote. D. Formal Approval of Summary Plan Description Mr. Killgore stated that this item was to be addressed at the next meeting after the March meeting. Due to the virus, that did not happen. Mr. Kaufman stated the changes were mostly grammatical in nature. The only thing that was substantive had to do with the change in the divorce laws —that any alimony paid to an ex -spouse is no longer tax deductible. Other than that, Exhibit A, Board of Trustees, needs to be updated. If the POLICE PENSION BOARD PAGE 4 MINUTES OF REGULAR MEETING OF JUNE 16, 2020 Board will approve these updates to the Summary Plan Description, it will be finalized and gotten to Mr. Killgore for distribution. Mr. Killgore concurred. A motion approving the updates to the Summary Plan Description was made by Mr. Williamson, seconded by Mr. Wood, and approved unanimously via voice vote. E. Formal Approval of Investment Policy Goals and Guidelines Mr. Killgore stated this has also been drafted as of March 17th, but it never actually got on the agendas for the Board's approval. All he has presently is the red -lined copy. He will pursue getting the actual updated document. If there are no issues on this, he would like a formal motion on approving the Investment Policy Goals and Guidelines. Mr. Kaufman stated this document is legally sufficient. The only substantive change is on page 3 of the policy where it says Instead of the actual assumed rate of 7.6, the generalized term of whatever the actuarial rate actually is will be used, so it's not necessary to keep adjusting it every time the discount rate is changed. A motion approving the Investment Policy Goals and Guidelines was made by Mr. lovino, seconded by Mr. Williamson, and approved unanimously via voice vote. F. Formal Approval of Operating Rules Mr. Killgore stated he has included the last update of these rules which is dated December 18, 2018. He stated he does not think there has been action to formally adopt these. Mr. Kaufman stated there are no changes that need to be made presently. A motion to approve the Operating Rules was made by Mr. lovino, seconded by Mr. Wood, and approved unanimously via voice vote. VI. Public Input Mr. Killgore stated he has not received any correspondence or questions via email from the public. VII. New Business A. Report from Investment Monitor/Continue Discussion on Manager Search Mr. Andy Mcllvaine stated he is filling in for Scott Owens at this meeting. Mr. Mcllvaine stated it has been an unusual time for the markets. He reviewed that at the last meeting POLICE PENSION BOARD PAGE 5 MINUTES OF REGULAR MEETING OF JUNE 16, 2020 on April 24, discussion was had regarding the first quarter numbers. He stated his plan is to go over where the pension plan is today. He recapped what took place during the first quarter. He reiterated the plan was down 17.4% on the quarter. Now, looking at April, that month was actually one of the best Aprils since the 1970s. The Mayjobs report was also positive. The S&P 500 year to date was down, but down only 2.5%. The NASDAQ is actually positive on the year. There has been a very nice comeback in a very short time. The Plan's accounts have actually gone up by 13%, and the Plan as of the end of May was $15.944 million. He reviewed data regarding the Asset Allocation, which is positive to date at 13%. Regarding the individual managers, five out of the eight of them are actually outperforming their benchmarks. All sections are in compliance with the exception of Highland Large Growth, which is just outside the range of 25%. In order to be in compliance, he suggested moving this by taking it from Highland Large Value and adjusting it to the target of 21.25%. He then suggested reducing Highland Large Growth, not to the target but just by 1.41%. He suggested getting out of MLPs, but since this is the middle of the quarter, he would like to table that in order to see how the managers perform over a full quarter. He further reviewed how the COVID-19 virus has been and will be affecting the markets, and how hard it is to predict future figures based on the virus. He stated it is the consensus that once the economy opens back up fully, the markets will be where they were before the virus. He pointed out that the market activity was not because of a financial crisis, but because of a health -related crisis. Mr. Mcllvaine recommended that the Plan adhere to the investment policy statement and get the Highland Large Growth below 25. He stated that would be the only recommendation he would make at this time. He recommended that discussion regarding a search for Renaissance International Growth and Highland Large Cap Growth be held at the next meeting as well as looking at passive options and discussing MI -Ps. Regarding the rebalancing of the Highland Large Growth funds, a Motion was made by Mr. Gillette, seconded by Mr. Wood, and approved unanimously via voice vote. B. Report from Investment Manager — Highland Capital Mr. Wishnia, Highland Capital, reviewed the updated performance that was described by Mr. Mcllvaine. His update runs through yesterday's close of business. He reviewed that the international is up 17.86% through yesterday against the index at about 13%. Hopefully, the quarter will end on a high note, and that will make the fiscal year better through this quarter. Regarding growth, he is aware that growth has been a very frustrating portfolio. At the end of the quarter, a new portfolio manager was implemented, who made some changes to the portfolio. The previous manager was holding a lot of securities. That has been narrowed down to where there are now approximately 68 POLICE PENSION BOARD PAGE 6 MINUTES OF REGULAR MEETING OF JUNE 16, 2020 holdings. He opined that they were spreading themselves too thin previously. Now, they are a bit more targeted. He is aware it has been frustrating over the last few years as far as performance goes. They are aware, and they have made some changes. Currently, this quarter the plan is up 63 basis points over the index as of yesterday. He is happy that the changes that were made have been beneficial. As to value, the Plan is pretty much even with the index. Right now, it is up about 11 basis points for the quarter. He reviewed things which have impacted performance somewhat. Last quarter was the worst loss for stocks since 2008. Highland holds a value portfolio and a growth portfolio. During these times, value would be expected to hold up a little better. That was not the case. The growth index outperformed value by about 13%. Year-to-date growth has outperformed value by about 21%. A bit of rotation into value is being seen. Through mid -May, values outperformed by about 3%. Some of the sectors that influence performance include energy, which is a big part of the value of the index. Energy was down 50% last quarter. It has come back nicely to being up about 40%. Almost everything is as a result of the virus, which caused a global situation. He reviewed that during the first quarter, they were overweight energy. They cut back, and now they are just slightly underweight energy for this quarter. Another sector is health care, which is about 15% of the value index and 15% of the growth index. Industrials includes aerospace, building products, electrical equipment, etc. With a downturn in industrial output and manufacturing, industrials are not going to do well. There was a $1 trillion infrastructure plan that will be announced. He thinks that will have a substantial affect on industrials. Financials are a big part of the value index and make up about 21%. When interest rates are low, that is going to hurt financial institutions. Since financials are a big part of the value index, that is a big reason why values underperformed growth for the quarter. Technology, which is about 35% of the growth index, is really what has been moving the market over the last few years. He stated they have been advancing and outperforming the index on the up days and falling short on the down days during this period. He reviewed that for the fiscal year, the Highland portion of the portfolio is up 2.83% through yesterday's close of business. There were no questions from the Board regarding Mr. Wishnia's presentation. Vill. Lecal Updates -- Klausner, Kaufman, Jensen & Levinson Proposed City Ordinance Amending the Plan for New IRS Rules POLICE PENSION BOARD PAGE 7 MINUTES OF REGULAR MEETING OF JUNE 16, 2020 Mr. Kaufman stated back in December of 2019, President Trump had signed off on what is called the SECURE Act, which had a change to the tax code. It has been long- established tax law that an individual has to start taking a required distribution by the time they turn age 70-1/2. That age limit was changed from 70-1/2 to age 72. So that requires a change to the Ordinance to change the age. That is the Ordinance that has been drafted. Rather going back to the City every time there is a change in the Tax Code, the Ordinance also provides that his firm can take care of updating the plan as it relates to tax issues on a plan basis rather than a City basis. It also provides that his firm can make any tax changes by administrative policy of the Board rather than going back to the City for an ordinance revision. Any time there is an ordinance that goes forward, there is needed a tax statement from the actuary, so the impact statement will need to be gotten, which will be a one -sentence impact statement saying that there is no impact whatsoever to the Plan. There is no urgency on this matter, and it can be taken care of at an upcoming meeting. Mr. Killgore stated he would be glad to introduce that to the City Manager and get it scheduled for a future council meeting. He will forward this to Foster and Foster for their review. Mr. Kaufman stated there is no time limit for completing the procedure. 2. COVID-19 Message — Extension of Virtual Meetings Updates #4 and 5 Regarding the COVID memo extensions that his firm has put out, the executive order suspending the Sunshine Law as it relates to being allowed to meet virtually is set to expire currently on July 7th. So it will have to be seen whether the governor is going to extend that or whether it is going to sunset. If so, it will be required that the Board will have to meet in person. When July rolls around, he will have a better idea whether the Board will have a meeting in person. 3. Families First Coronavirus Response Act This is really a health -insurance -related issue rather than a pension fund issue, with the main takeaway being that any testing for the coronavirus, both the actual test to determine whether or not you have coronavirus or any antibody test, needs to be covered in its entirety by the individual's health insurance plan, whatever that may be. There is no action needed by the Pension Plan. It is just for informational purposes. 4. Other Legal Matters Mr. Kaufman stated his firm still has not made a determination of when their office is going POLICE PENSION BOARD PAGE 8 MINUTES OF REGULAR MEETING OF JUNE 16, 2020 to be reopened. Hopefully, things will be back to normal soon so that the next meeting will be held in person. Vlll. Board Member Reports and Comments Mr. Killgore welcomed Ms. Ring as a new member of the Board. Ms. Ring asked regarding the need for her to take classes for this position. She asked for a list of the classes she needs to take. Mr. Killgore stated he would get that together for her. He stated there is one a year that is totally free and another one that has a fee. Mr. Kaufman stated the Division of Retirement normally puts on two classes a year for which there is no registration fee. The Fund does pay all travel expenses related to educational seminars. There is also the Florida Pension Trustees Association who will have their next conference coming up in October. He stated that his firm puts on a client conference each year. It was set for two weeks ago, and it was not held because of the pandemic. Next spring, the information on that will be disseminated. It is a 2-1/2-day seminar. There is no fee for that. Mr. Killgore asked if the other meetings Mr. Kaufman mentioned require members to attend in person. Mr. Kaufman stated that presently the FPPTA plans to have an in -person conference in October. He stated he thinks it is October 4th thru the 7th. If one goes to their website, they are also having virtual learning sessions as well that anyone can join and listen to their webinars. Mr. Killgore will get the information to all board members. IX. Plan Administrator Reports and Comments A. Review of Administrative Expenses Mr. Killgore stated an error was made on the budget information. The experience study update with Foster and Foster was not budgeted. He tried to take the $15,000.00 that had been budgeted as a contingency and reduce it by the $7,500.00 and create a budget for the experience study separately to cover that cost. He stated he made a mistake in adjusting those numbers. So the current budget for contingency is down to $7,500.00, and the experience study is currently $7,500.00. Other than that, everything else is in line with what was budgeted. B. Review of Annual Calendar of Board Activities Selection of Board Chairman and Secretary (every two years) Mr. Killgore stated that, according to the Plan's operating rules, selection of the Board POLICE PENSION BOARD PAGE 9 MINUTES OF REGULAR MEETING OF JUNE 16, 2020 Chairman and Secretary is done every two years. He asked for a motion to select a new Chairperson. A motion nominating Jason Gillette to be reelected as Chairperson was made by Mr. Wood, seconded by Mr. Patterson, and approved unanimously via voice vote. Mr. Killgore called for a motion to select a new Secretary. Ms. Vicars has resigned, so that position needs to be filled. Discussion was had regarding the duties of the Secretary. A motion nominating Mr. Woods as Secretary was made by Mr. Gillette, seconded by Mr. Patterson, and approved unanimously via voice vote. C. Other Administrative Matters Mr. Kaufman reminded the Board that the financial disclosure forms need to be filed by July 1st. If the forms are not filed by September 1st, a penalty is activated of $25.00 a day up to $1,500.00. He reminded Ms. Ring that, once she becomes a trustee, she is also required to file the financial form within 30 days of taking her seat as a trustee. Ms. Ring stated she had already filed one form, which Mr. Kaufman stated was likely the financial disclosure form. X. Next Scheduled Quarterly Meeting -- September 15, 2020 XI. Adjournment There being no further business, the meeting was adjourned by Chairperson Gillette at 11:10 a.m. *Approved as amended on Page 2 By: J�Jas'on Date: 9A Gillette jg