Retirement Board

MINUTES OF REGULAR RETIREMENT BOARD MEETING Thursday, February 21, 2019 Falls Church City School Board Office, 800 W. Broad St. 6:00 p.m. 1. Call to Order The meeting was called to order by Vice-Chair Rick Campbell at 6:05 PM 2. Roll Call Present: Connie Rydberg, Richard Campbell, Larry Little, Marshall Jarrett, Jason Widstrom, Ryan Davis and Charles Collier Staff Present: Cindy Mester and Meaghan DeCelle Also Present: Paul Garbe, MFS Pete Loncto, MFS Mary Nye, AndCo Consulting 3. Introductions and Welcome 4. Receipt of Petitions: None 5. Review and approval of draft Minutes from November 15, 2018 meeting: Ryan Davis moved and Marshall Jarrett seconded to approve the minutes of November 15, 2018 as presented. The motion passed 7-0. 6. Presentation by Investment Manager, MFS: Mr. Garbe and Mr. Loncto Mr. Garbe gave an overview of MFS’s International Growth Fund and MFS Growth portfolio’s long- term investment strategy. MFS is owned by Sun-Life Canada and 80% employee-owned. MFS has a robust global research platform with analysts located in Europe, Asia, North and South America. An estimated 70% of assets invested with MFS are for retirement income purposes. Volatility has returned to the market which opens an opportunity for active managers like MFS to temper losses and actualize potential gains. Mr. Loncto highlighted MFS’s company philosophy which includes investing on a long-term horizon, focus on high-quality companies and maintaining strong valuation discipline. Mr. Loncto also introduced the MFS Growth Equity team who make fund management decisions jointly. Then, he reviewed performance results: strong 2018 results partially attributed to MFS selling over-valued tech stocks, based on mid-cycle values. Most of the value added to performance is due to high-quality stock selection. 7. Review of the Investment Performance for the Fourth Quarter of 2018 for the Basic and Police Pension Plans and OPEB –Mary Nye of AndCo Consulting Market Performance: Returns were negative across all sectors in the 4th quarter of 2018. Small cap equities had the most significant loss with -20% for the quarter. Since the beginning of 2019, markets have shown a reversal and are growing positively. Basic and Police Plan Market Values, Net Flows and Returns on Investment were presented in a consolidated chart. The Basic Plan at the start of the 4th quarter was over $114 Million, net flows totaled  $1.8 million out of the plan, and return on investment was negative $12.7 million. Thus the ending market value for Q4 was $99.5 Million. Market Value for the Police Plan at the start of the fourth quarter was $35.96 Million with net flows of $322.5K out of the plan, negative $4 Million return on investment, and an ending market value of $31.6 Million. On a long-term basis, the plans have shown significant positive growth, $27 Million ROI over 5 years for the Basic Plan and over $8 Million ROI over 5 years for the Police Plan. 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. Asset Allocation in the Police Plan is very similar to the Basic Plan with total Real Estate showing out of policy. Fixed income was outside of policy targets in the previous quarter but due to the volatile market performance, total fixed income is back within target range. Investment performance for the quarter ranked the Plans in the bottom decile for the overall universe. In the three-, five-, seven- and ten-year comparative performances, the plans showed rankings in the top decile. Marshall Jarrett made note of the dragging performance of SKBA and the effect on the total fund. Larry Little mentioned that SKBA was reported as a defensive manager who would outperform in down markets but in this down quarter, they went down with the market. Mary Nye noted that a full market cycle has not completed but that in general she has concerns with SKBA. Larry Little inquired if SKBA could be brought to the Board and it was agreed that they would be invited to the August 2019 meeting of the Retirement Board. OPEB funds showed return on investment of negative $1.6 Million for Q4 with an ending market value of $13.7 Million. All OPEB asset allocations are within policy range. 8. Ethics Policy Review and Re-adoption: Ms. Mester suggested that the Board review and readopt the Ethics Policy each year as a change from the current biannual review. Marshall Jarrett moved and Charles Collier seconded to adopt the Ethics Policy as presented with suggested change to annual review. The motion passed 6-0-1 (Ryan Davis required early departure). 9. Actuarial Services RFP—Cindy Mester Ms. Mester provided a brief update on the procurement process for Actuarial Services. A winning bidder has been chosen and next steps are proceeding. The Plan Administrator polled the Board for interest in a special meeting to review the proposal or, rather, to continue to designate the Board Chair to represent the fiduciary interests of the Board in the contract negotiation process. Marshall Jarrett moved and Charles Collier seconded to delegate Chair Rydberg to represent the interests of the Board in the Actuarial Services procurement process. The motion passed 6-0-1 (Ryan Davis required early departure) 10. Water Sale Proceeds Methodology Update: Ms. Mester summarized the methodology and modeling process being performed by Cheiron to document the tracking and utilization of the 2014 Water Sale Proceeds to offset the City’s Actuarially Determined Contribution, remaining consistent with the intent of the 2014 plan amendment. Connie Rydberg has drafted an administrative manual to ensure continuity of the approach going forward.  Marshall Jarrett moved and Larry Little seconded to designate Chair Rydberg to continue to serve in the fiduciary interests of the Board on the Water Sale Proceeds projects. The motion passed 6-0-1 (Ryan Davis required early departure) 11. 2019 Training Plan: Ms. Mester presented the proposed 2019 Board Training Plan and proposed budget of $11,000. Ryan Davis and Charles Collier are confirmed to attend the October IFEBP International Conference. On-site, City-hosted trainings will be held for Board members at future meetings as well. Marshall Jarrett moved and Charles Collier seconded to adopt the Training Policy as presented. The motion passed 6-0-1 (Ryan Davis required early departure) 12. Plan Administrator’s Report Ms. Mester provided the Board with a quarterly operational report providing information on administrative activities, training summary and pension administration fees. Jason Widstrom suggested tracking the hours for administrative processes to measure the value of staff time. Council adopted the two plan amendments presented in December and the revised plan documents were shared with the Board. 2018 Actuarial valuation reports will be finalized after methodology for the Water Sale Proceeds is solidified. Liability insurance coverage increase has been executed and any additional recommended increase is in legal review. Principal Real Estate subscriptions have been submitted and are in the queue. Elections for two positions to the Retirement Board will take place in April. Board Officers will be elected by Board members at the May 2019 meeting. The May meeting was rescheduled to Tuesday, May 14 to accommodate staff schedules. 13. Other business not on the agenda: Marshall Jarrett shared a study published in the Wall Street Journal that concluded only 30% of actively managed funds out-performed index funds in 2018. Larry Little shared that the Fairfax County retirement plan is reducing benefits for new employees to protect funding. Charles Collier thanked the Chair and staff for their hard work on plan administration. 14. Adjournment: Charles Collier moved and Larry Little seconded to adjourn the meeting at 8:25 PM. The motion passed 6-0-1 (Ryan Davis required early departure). 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.