Retirement Board

MINUTES OF REGULAR RETIREMENT BOARD MEETING Thursday, November 15, 2018 Falls Church Community Center, Teen Center 223 Little Falls St. 6:00 p.m. 1. Call to Order The meeting was called to order by Chair Connie Rydberg at 6:04 PM 2. Roll Call Present: Connie Rydberg, Richard Campbell, Larry Little, Marshall Jarrett, Jason Widstrom, Ryan Davis and Charles Collier Staff Present: Kiran Bawa, Cindy Mester and Meaghan DeCelle Also Present: Margaret Tempkin, Kathy Weaver, Cheiron Actuarial Services Mary Nye and Howard Pohl, AndCo Consulting 3. Introductions and Welcome—The Retirement Board presented Howard Pohl with a certificate, recognizing and thanking him for over 30 years of collaboration with the City of Falls Church pension plans. Howard is retiring at the end of 2018. 4. Receipt of Petitions: None 5. Review and approval of draft Minutes from August 2, 2018 meeting: Ryan Davis moved and Marshall Jarrett seconded to approve the minutes of August 2, 2018 as presented. The motion passed 7-0. 6. Actuarial Valuation of the Falls Church Basic, Police Pension Plans and OPEB—Cheiron presenters, Margaret Tempkin and Kathy Weaver Ms. Tempkin gave an overview of the new actuarial standards of practice (ASOP) and shared current issues that other public plans are facing, including the draft 2010 public sector mortality tables. The Board expressed interest in updated application of the tables to the City’s Plans once available. Ms. Tempkin then summarized the City’s use of the market gains on the 2014 Water Sale Endowment funds to offset the Actuarially Determined Contribution (ADC) for FY 2018 and FY 2019. Earnings on the Endowment were showed as capped at $825,000 in FY17 and FY18. Mr. Ryan Davis pointed out that the sum of the calculated water sale earnings were not presented accurately. Ms. Tempkin acknowledged the error in the presentation amounts. Market Value of Assets (MVA) shows over 13% returns and Actuarial Value of Assets (AVA) over 10% returns. AVA does not include water sale money. Basic Plan statistics show a small decrease in active membership and a 3.2% increase in retired members. Police Plan statistics show one more retiree. Both plans show a ratio of less than 1 active member supporting each inactive member (retiree and terminated, but not yet receiving benefits), indicating both are “mature” plans. Since the Falls Church plans are open for new members, there is low risk of losing funded status. Cheiron commented that strategies to reduce risk to the plan are not needed at this time. Assuming a 7% discount rate, the Basic Plan is 104.8% funded with a required contribution in FY 2020 of 9.3% of payroll. and the Police Plan is 103.7% funded with a required contribution in FY 2020 of 18.67% of payroll.  Ms. Weaver presented recent legislation that affects retiree healthcare. She then provided a general overview of the OPEB characteristics: OPEB assets returned 14.8% in FY17 and 10.4% in FY18. Funding policy for the OPEB plan is to pay the full ADC. In 2018, the City’s OPEB plan is 111.8% funded. The Unfunded Actuarial Liability (UAL) for the plans is split between three groups: City, Schools and Criminal Justice Academy employees. The City’s UAL is $658 Thousand, the Schools’ UAL is a surplus of $1.96 Million and the NVCJA’s UAL is a surplus of $111 Thousand. Total ADC for the OPEB was miscalculated in the presentation. Upon review, the correct ADC for the total OPEB plan in 2019 is $262,000. Connie Rydberg brought attention to errors presented in the valuations and the Actuarial Determined Contribution rates. Cheiron will provide corrections to the valuation presentations as soon as possible. The Board also noted that our lead consultant, Elizabeth Wiley, was not present. Cheiron indicated that she was unable to attend due to a conflict with another client. OPEB funded ratio has risen significantly in the last few years. The Board may consider adjusting plan funding policy at a future date. 7. Understanding Fees: Training by Mary Nye and Howard Pohl of AndCo Consulting: Howard Pohl presented the fee structure for administration of an open Pension Plan and illustrated the many services that incur administrative costs. Mary Nye gave detailed description of the specific fees that the various vendors and managers charge to the City of Falls Church plans. Board members and staff each received credit for 1 hour of training, per the adopted training policy. 8. Review of the Investment Performance for the Third Quarter of 2018 for the Basic and Police Pension Plans and OPEB – Howard Pohl and Mary Nye of AndCo Consulting Market Performance: Mixed returns were reported in equities and fixed income this quarter. Domestic equity returns were positive and pushed higher by the ongoing strength of the US economy. Growth stocks outperformed value stocks for the quarter with returns for growth indices more than double the returns of the corresponding value indices. Interest rates rose and can be expected to rise another 1-3% in the next year. Fixed income returns are likely to continue to fall as rates rise. Falls Church plans’ investments are being held at the low end of policy to protect the funds from this anticipated poor performance. Market value for the Basic Plan at the start of the 3rd quarter was $110.4 million, net flows totaled $1.07 million out of the plan, and return on investment was $4.7 million. Thus the ending market value for Q3 was over $114 Million. Asset Allocations in the Basic Plan: total domestic are on the high end of the range, and Real Estate is below target range, awaiting the buy-in to Principle Real Estate. Fixed income is being held at the low end of the range, as planned with current market standing. The Board may discuss at a future date the policy ranges and potential adjustments to equities and fixed income. No concerns with any of the individual fund managers were expressed. Market Value for the Police Plan at the start of the third quarter was $34.68 Million with net flows of $231K out of the plan, $1.5 Million return on investment, and an ending market value of $35.96 Million. Asset Allocation in the Police Plan is very similar to the Basic Plan with total Real Estate showing out of policy. Looking at the individual fund managers, Northern Fixed Income funds are below policy at  less than 6% share of total funds. Fixed income policy targets and range could be addressed next quarter after the purchase of Real Estate has been completed. OPEB funds showed return on investment of $609K for Q3 with an ending market value of over $15.4 Million. All OPEB asset allocations are within policy range. 9. Scheduling 2019 Retirement Board Meetings: Quarterly meetings of the Retirement Board will be held on February 21, May 16, August 22, and November 14, 2019. 10. Plan Administrator’s Report—Cindy Mester and staff Ms. Mester provided the Board with a quarterly operational report providing information on administrative activities, training summary and pension administration fees. Ms. Mester shared the findings for liability coverage that extends to the Retirement Board as requested in the August quarterly meeting. The Board is currently covered in the City’s general government and umbrella liability policy. As Plan Administrator, Ms. Mester recommended increasing the liability insurance coverage to a combined $5Million per occurrence without an aggregate cap. She also recommended that the difference in premium costs for the increased coverage be assigned to the Basic and Police pension and OPEB funds. The Board requested that outside attorneys, Williams Mullen, review the new insurance language and that clarification be provided on the application of coverage “per occurrance.” Rick Campbell moved and Ryan Davis seconded to increase the general liability coverage to $1Million with $4 Million excess liability and to charge the cost differential to the Plan funds. The motion, as amended, passed 7-0. Proposed plan administration amendments: a. Purchase of non-credited service for time employed by the City as a temporary or term employee: Ms. DeCelle presented to the Board the current plan document’s provisions for increasing credited service and requested that a holistic review of methods to increase service. Staff will research and present to the Board at a later date. b. Modeling for clarification of the water sale proceeds smoothing is progressing, with internal review. The Board concurs that Chair Rydberg can continue to work with Cheiron and the City on the behalf of the Plans to create an administrative process. Mary Nye recommended and the Board concurred that fund manager, MFS will present at the February 2019 quarterly meeting. 11. Other business not on the agenda: Marshall Jarrett shared anecdotes from the IFEBP Annual Conference. 12. Adjournment: Ryan Davis moved and Marshall Jarrett seconded to adjourn the meeting at 10:16 PM. The motion passed 7-0. THE CITY OF FALLS CHURCH IS COMMITTED TO THE LETTER AND SPIRIT OF THE AMERICANS WITH DISABILITIES ACT. TO REQUEST A REASONABLE ACCOMMODATION FOR ANY TYPE OF DISABILITY, CALL 703-248-5129, TTY711.