Police & Fire Pension

POLICE & FIRE PENSION BOARD MEETING DATE: SEPTEMBER 7, 2022 DPW, CONFERENCE ROOM 204 TIME: 2:00 P.M. Present: Stan Chubinski, Tammy Giannunzio, Ed Guzzo, Jake Martin, and Chris Rabbitt. Also Present: Aaron Kuhn (Assistant Revenue Services Director), Lily Vardell (Police & Fire Pension Administrator.) Chair Chubinski asked for approval of the agenda. Motion Guzzo, seconded by Giannunzio. On a voice vote, motion carried. Presented minutes of the regular meeting from August 9, 2022. Motion Giannunzio, seconded by Rabbitt to approve the regular meeting minutes from August 9, 2022. On a voice vote, motion carried. Bank Summary of Assets & Expense Report: As of 8/31/2022, the market value of the portfolio was $158,470,051.22, a loss of $5,943,754.36 from the 07/31/2022 balance. For the month of August, the following expenses were deducted: Expense Type Payee Amount Frequency Additional Details Consulting Services CAPTRUST 23,750.00 Quarterly 4/1/22-6/30/22 As x2 Class Action Handling Misc Fees 20.00 Needed Fees Total Admin. Fees 23,770.00 Motion Martin, seconded by Rabbitt to accept the financial reports and quarterly bank summaries submitted for August. Guzzo commented that the Investment Section of the Quarterly Bank Summary still represented July amounts and was not updated with August amounts. On a voice vote, motion carried, with the amendment that the Bank Summary Investment Section will be corrected to reflect August amounts in the Current Quarter column. Board Reports Chubinski - none Giannunzio – none Guzzo - none Martin – none Rabbitt – none Page 1 of 5 Vardell  Nicholas Albaran, Police Officer, terminated on 7/12/22. A letter regarding his options for withdrawal was sent 8/4/22.  Garrett Day, Police Officer, terminated on 7/3/22. A letter regarding his options for withdrawal was sent 8/4/22.  Paul Green, Police Officer, terminated on 8/19/22. A letter regarding his options for withdrawal was sent 8/26/22.  New police officer hired: o 5/9/22: Kyle Lefler  New firefighter hired: o 8/22/22: Trevor Hegner  Chester Keeton, retired City Police Officer, passed away 7/29/22: o On 8/4, Comerica requested his 8/1/22 payment back from Chester’s bank so we can issue him a pro-rated portion for 29 days in July. o On 8/10, Comerica stated we received the 8/1 payment back. o On 8/10, we sent Comerica the pro-rated final payment of $2,322.98. o On 8/15, Comerica told us our initial recall request from 8/4 had been rejected (after they told us we had received the money back.) Comerica has informed us that the receiving bank has up to 30 days to reject a recall request. o Working with Comerica to reverse the pro-rated payment. Will have to invoice retiree’s family to get pro-rated portion back. o Do we want to revise our process so that we wait 30 days after a recalling a deceased retiree’s payment to send them the pro-rated portion? Our standard has been to send the pro-rated payment as soon as possible so we don’t chance the account being closed. However, this could result in a duplicate payment if the receiving bank rejects our recall request.  Standard going forward will be to request pension payments back from deceased retiree’s account, and then wait 30 days to issue the pro-rated pension payment.  Question from Guzzo: Should we have a standard practice around how to collect deceased member information?  Answer from Vardell: No, we do not have a standard practice. Will follow- up with MAPERS forum to determine how other municipalities handle gathering deceased member information. Page 2 of 5 Old Business – Experience Study:  Aaron Kuhn (Assistant Revenue Services Director): Upon reviewing the Experience Study with Linda Morrison (Revenue Services Director) we found no issues with the content Experience Study other than the Investment Rate of Return. Actuaries are recommending we lower the rate of return from 6.5% to, at the highest, 6%. After speaking with Jeremy at CapTrust, we are more comfortable with lowering the rate of return to 6%, but still have reservations about it. For example, MERS’ rate of return is at 7%, however their asset allocation is slightly more aggressive than ours: o Global Equities – base allocation of 60%. Minimum of 35% & Maximum of 70%. o Global Fixed Income – base allocation of 20%. Minimum of 10% & Maximum of 60% o Private Investments – base allocation of 20%. No Minimum % & Maximum of 30% o Also, the City’s MERS plan is 58% funded, the Police & Fire Pension plan is over 70% funded.  Kuhn: Actuaries seem to be ignoring our historic rate of return results and focusing more on future projections based on the current market forecast.  Question from Martin: did CapTrust provide us with our historic rate of return?  Answer from Vardell: CapTrust provided a table showing our Historical Benchmark performance as of 12/31/21. Our 10 year rate of return was at 9.08%, 15 year was at 7.08%, and 20 year was at 7.34%.  Comment from Guzzo: Forecast being one or two points below what we have seen in the past makes sense given the current economic situation.  Comment from Chubinski: if we lower the rate of return assumption to 6%, the City’s contribution amount increases dramatically.  Comment from Martin: we were fine with most assumption changes in the Experience Study, except for the Administrative Expense Assumption. GRS recommends removing administrative expenses from the investment return assumption and instead including them in the contribution rate. If we do that, we are adding 1.25% more to the City’s total contribution requirements, which could put more strain on the plan on top of lowering the investment rate of return. Current Total City Contribution Requirement is 34.87%, proposed increase is 46.52%.  Comment from Guzzo: Do we try to get to the 6% rate of return all in this year, or do we try to do it gradually? For example, we could lower the rate of return to 6.25% this year and re-evaluate next year.  Comment from Chubinski: I agree with 6.25%. A City contribution increase can impact the taxpayers and potentially be passed on to them through an increase in the millage rate, so that needs to be taken into consideration when lowering the rate of return.  Comment from Kuhn: We asked GRS, what if the Board does not lower the assumed rate of return to 6%, what are the consequences of that from GRS? GRS stated they would use the Board’s adopted rate of return in the final draft of the Experience Study, but Page 3 of 5  would have to include a statement in the report indicating the Board’s assumptions significantly conflict with GRS’ recommendations.  Comment from Martin: Changing the rate of return to 6.25% with a disclaimer from GRS stating this percentage conflicts with their opinion should not be a huge issue since GRS is going to re-evaluate our rate of return next year.  Question from Guzzo: Are we as aggressive with our investments as we could be? Could we invest in more stocks to potentially increase our rate of return? Can we ask CapTrust to model this out for us? We currently have an asset allocation of 55% stock, 45% bond. Can CapTrust model out how 60% and 65% stock allocations could impact our rate of return?  Answer from Vardell: I will reach out to Jeremy and ask if he can provide these asset allocation scenarios at our next meeting.  Question from Guzzo: When does the Experience Study affect the Valuation Model?  Answer from Chubinski: The Experience Study will impact the upcoming 2022 Valuation we will receive in February. Motion Guzzo, seconded by Martin to accept the assumptions in the Experience Study with two exceptions: not including the 1.25% administrative fee in the contribution rate, which is already covered in our net investment returns, and lowering the assumed investment rate of return to 6.25%, instead of the GRS recommended 6%, based on the plans to adjust our asset allocations. On a voice vote, motion carried. New Business  Policy Review – Election Policy o No changes were made to the policy.  CAPTRUST: there was not a representative present at this meeting, but CapTrust provided a slide representing the current Asset Allocations: o 1.28% Cash and Equivalents = $2,028,137.90 Market Value. o 53.78% Equities = $85,054,500.14 Market Value. o 44.94% Fixed Income = $71,068,440.16 Market Value. Public Comment – none Page 4 of 5 Next regular meeting: Wednesday, October 19th at 1:30 PM Meeting adjourned at 3:11pm Respectfully submitted, Lily Vardell, Recording Secretary __________________________________ __________________________________ Board Member signature Board Member signature Page 5 of 5