Police & Fire Pension

POLICE & FIRE PENSION BOARD MEETING DATE: March 16, 2015 CITY HALL, ROOM 112 TIME: 10:00 A.M. Present: Doug Bagwell, Gail Budrow-Bradstreet, Stan Chubinski and John Hausman (arrived at 10:45 a.m.) and Joe Newman. Absent: None. Also Present: Dori Drayton of Plante Moran Financial Advisors (PMFA); Linda Morrison, Finance and Revenue Services Director; Arbor Hill and David Hoffman of Gabriel Roeder Smith and Company. Chair Newman asked for approval of the agenda. Motion Chubinski, seconded Bagwell to approve the agenda. On a voice vote, motion carried. Minutes of the regular meeting of January 20, 2015 were presented. Motion Bagwell, seconded Chubinski to approve the minutes as presented. On a voice vote, motion carried. A summary of assets prepared by Comerica Bank was presented. As of 1/31/15 the market value of our portfolio was $132,425,694, a loss of $913,314 since 12/31/14. As of 2/28/15 the market value of our portfolio was $134,872,039, a gain of $2,446,345 since January 31, 2015. As of today the market value of our portfolio is $132,935,559, presently a loss of $1,936,480 since the 2/28/15 month end. Motion Chubinski, seconded Budrow-Bradstreet to accept the financial report as submitted. On a voice vote, motion carried. Board Reports Bagwell – none. Budrow-Bradstreet: New hires: Fire Department – Ralf Willms on 3/30/15. Deric Wurmlinger, fire fighter, resigned effective 1/18/15. His request for a full refund of his annuity, comprised of $20,696.40 contributions and $660.11 interest for a total of $21,356.51, was processed on 2/10/15. James McLaughlin, retired police officer, died 1/30/15. He had no surviving spouse. His final gross benefit payment for 30 days is $2,122.09; recovery of one day ($70.74) was requested. Chubinski – none. Hausman – absent at this time. Newman – none. Old Business FAC Policy Review: still working on it. New Business Police & Fire Pension Board March 16, 2015 Page 2 of 4 - Official Election of Officers: Motion Bagwell, seconded Budrow-Bradstreet to keep the same officers as follows: Joe Newman, Chair; Stan Chubinski, Vice-Chair; Gail Budrow-Bradstreet, Secretary/Treasurer. On a voice vote, motion carried. In a recent detailed audit it was discovered two retirees, Ed Jacobs and surviving spouse Adeline Kilpatrick, have been overpaid. Motion Bagwell, seconded Chubinski to approve the following resolution for Jacobs’ overpayment: WHEREAS, retiree Edward Jacobs’ gross monthly benefit has been overpaid by $146 each month since August 1, 2010; and WHEREAS, the error was discovered through a detail audit and corrected as of March 1, 2015; and WHEREAS, the total overpayment was $8,030.00 between August 1, 2010 and February 1, 2015; and WHEREAS, acknowledging Mr. Jacobs’ age and the present value of money; BE IT RESOLVED the City of Battle Creek Police and Fire Retirement Pension Board of Trustees determines it is in the best interest of the retirement system and accepts a lump sum payment of $4,015.00 in lieu of a payment plan and shall consider the error resolved. On a voice vote, motion carried. Motion Chubinski, seconded Bagwell to approve the following resolution regarding Kilpatrick’s overpayment: WHEREAS, retiree Lyle Kilpatrick died August 21, 2012; and WHEREAS, surviving spouse Adeline Kilpatrick began receiving benefits calculated based on 60% surviving spouse benefit effective August 22, 2012; and WHEREAS, retiree Lyle Kilpatrick, at the time of retirement, selected Option II providing for 50% surviving spouse benefit; and WHEREAS, the error was discovered through a detail audit; and WHEREAS, surviving spouse Adeline Kilpatrick’s gross monthly benefit has been overpaid by $120 each month since October 1, 2012; and WHEREAS, Mrs. Kilpatrick is 89 years of age; BE IT RESOLVED the City of Battle Creek Police and Fire Retirement Pension Board of Trustees acknowledges and accepts the error without adjusting the benefit or pursuing any reimbursement to the retirement system. On a voice vote, motion carried. Drayton of PMFA gave an overview of the market highlighting the following (see quarterly update March 16, 2015): The active management vs index returns for 4th quarter, 2014 show some asset classes above zero (domestic equity, domestic fixed income and real estate) and some below (non-US equity & non-US fixed). US markets did better than international in 2014. By equity class – active vs index – small cap markets outpaced large cap; domestic fixed managers extended maturity; as Police & Fire Pension Board March 16, 2015 Page 3 of 4 - Official rates dropped bond prices went up but for 2014 most analysts thought interest rates would rise but long term rates actually fell. International investments were mostly negative. European and emerging markets were extremely negative. With the quantitative easing and the Euro being so low expectation is these markets will improve. Asset allocation is close to the target. The cumulative returns from 2009 to 2014 fund outpaced the benchmark (net of asset management fees). As of December 31, 2014 the total portfolio market value was $133,422,853. Manager returns over the last quarter and year to date outpaced the benchmark. Individual review of managers noted the following: Robeco large cap value – turned things around and doing better; last year 2nd quarter hurt bad; Wells large cap fundamental growth – terminating the investments with Wells – moving to Boston Company. Boston Partner small cap value – disappointing last quarter because overweight in energy. PMFA will continue to monitor but are not concerned with performance at this time. Westfield is doing well. Earnest Partners (bond manager) doing extremely well. Loomis, also a bond manager, is doing well. TIPS are not doing well as an asset class but PMFA still recommends keeping them in the portfolio for diversification. Harding Int’l – no concerns. Lazard is doing well relative to its peers. Both Harding Int’l and Lazard are doing better in 2015. PMFA Summary: the time weighted return is not doing too bad for the year, with annualized earnings at 6.22 percent; fiscal year to date time weighted return annualized is 4.51%. (Hausman arrived). David Hoffman from Gabriel Roeder Smith and Company reviewed the June 30, 2014 actuarial valuation report noting the following (page numbers referenced are from the valuation report): – The intent of assumptions and smoothing is to calculate a level contribution as a percent of payroll; – Page A-2 – the normal cost to fully fund benefits is slightly over 26%; to make up for difference between the unfunded accrued liability is an additional 10.73% for 2015; amortization dropped primarily due to good investment experience. – Page A-8 – on a fund value basis, market value exceeds funding value by a little more than $8 million but for the smoothing it is spread over five (5) years. – Continued good investment returns could increase funding level about another 2%. – The active population has dropped; 250 benefit recipients is more like the active population about 20 years ago; GRS expects our ratio of active to benefit recipients to be in this position. – The best guarantee that we can pay benefits owed is to keep paying the recommended contribution rates. Arbor Hill from Gabriel Roeder Smith and Company went over the 7/1/2009 to 6/30/2014 Experience Study noting the following (page numbers referenced are from the report): – The purpose is to review the current assumptions and possible recommendation for changes. – We should want assumptions to match up with reality. Police & Fire Pension Board March 16, 2015 Page 4 of 4 - Official – The decrement assumptions are found on page A-2 with the following recommendations: reduce the merit and longevity pay increase rate (decreases employer contribution rate); retirement withdrawals were slightly higher than expected but no change made; rates of withdrawal were as expected and no change made; disability rates lower than assumed so there was a 25% reduction (decreases employer contribution rate); GRS also recommended changing the mortality table and scale used as it trends more with actual experience (increases the employer contribution rate). – Economic assumptions – wage inflation should be decreased; would expect these to trend with the payroll assumptions (which also going down); – Allocation of assets used as follows: 50% stocks; 45% BONDS, 5 % cash with an investment return of 7%; recommend decrease our assumptions to 6.75% or 6.50% – PageB-1 illustrates the normal cost, member contributions, and unfunded actuarial accrued liabilities and funding ratio for the 6/30/14 valuation and then the 6/30/14 valuation with the decrement changes as “current.” Alternate 1 and 2 include the investment rate of return and wage inflation recommendations. – The economic assumptions are for the 20 years going forward; modeling assumptions PMFA uses would be are similar. Forecast compared to historical is expected to be about 2% lower. The Board thanked Mr. Hoffman and Ms. Hill for the detailed review and recommendations. This will be discussed in greater detail at the next meeting. Discussion held on the proposed DROP for current and future active fire members. The actuarial valuation for the DROP (prepared 8/6/2014) was reviewed and general questions answered. It was noted this is typically part of the total portfolio and the administrator is responsible for tracking those within the DROP. Public Comment - none. Next regular meeting: Monday, April 20, 2015 at 10:00 a.m. Meeting adjourned at 11:55 a.m. Respectfully submitted, Gail Budrow-Bradstreet, Secretary __________________________________ _________________________________ Board Member signature Board Member signature