Retirement Board

MINUTES OF REGULAR RETIREMENT BOARD MEETING--Adopted Thursday, November 19, 2020 Virtual Meeting 6:00 p.m. NOTICE: This virtual meeting of the Retirement Board was held pursuant to and in compliance with the Virginia Freedom of Information Act, Section 2.2-3708.2 and state and local legislation adopted to allow for continued government operation during the COVID-19 declared emergency. All participating members of the Retirement Board were present at this meeting through electronic means. All members of the public may view this video of this meeting on the City’s website at www.fallschurchva.gov. 1. Call to Order The virtual meeting was called to order by Chair Connie Rydberg at 6:06 PM 2. Roll Call Present: Connie Rydberg, Charles Collier, Larry Little, Marshall Jarrett, Richard Campbell and Jason Widstrom Absent: Ryan Davis Staff Present: Cindy Mester, Meaghan DeCelle, Kiran Bawa and Steve Mason Also Present: Tammy Dixon and Melanie Clarke, Segal Consulting Kristen Michael, FCCPS COO Mary Nye, AndCo Consulting 3. Introductions and Welcome 4. Receipt of Petitions: No public comments or petitions were received as of the public comment deadline of 6:30 PM on November 19, 2020. 5. Review and approval of draft Minutes from September 10, 2020 meeting: Rick Campbell moved and Larry Little seconded to approve the minutes of September 10, 2020 as presented. The motion passed 6-0-1 (Ryan Davis absent). 6. Actuarial Valuation Presentation, Basic, Police, OPEB—Tammy Dixon and Melanie Clarke of Segal Consulting Segal Consulting presented their valuation of the Plans as of June 30, 2020. Adopted assumption changes as part of the February 2020 Experience Study were first recognized in this valuation. Segal reported that the City Plans are well-managed and continues to be in line with actuarial recommendations. Both plans are over 100% fully funded. The valuations showed that the Preliminary actuarially determined contributions (Preliminary ADC, which is the ADC prior to reflecting Water Sale Proceeds) for the Basic Plan decreased from 4.11% to 3.36% and increased for the Police Plan from 10.3% to 11.61% of payroll. The OPEB Plans valuation used updated census data as of June 30, 2020. Actuarial experience loss decreased the Plan’s overfunded liability by about $1.5 million. In addition, fund investment performance lower than expected resulting in $0.5 million loss. The OPEB Plans also showed Demographic losses, including increases in active and retired lives. Effective June 30, 2020, the Board approved using an actuarial value of assets (AVA) method to determine employer ADC for OPEB funding purposes. The AVA methodology recognizes differences  between the actual and expected investment return on the market value of assets over a five-year period (intended to provide more stable plan costs). Also effective June 30, 2020, the Board updated the OPEB funding policy to include a minimum contribution override (MCO) equal to 75% of employer normal cost for ADC determination. This will apply to each employer if the combined funded ratio based on market value of assets is less than 150%. With these changes, the City and Schools OPEB Plan remain over 100% funded. NVCJA dropped from 226% funded to 79% funded due to several new enrollments among retirees. The number of enrollees more than doubled from 3 to 7. The combined plans are 138% funded and the newly adopted MCO applies. Current year OPEB ADCs, applicable for FY2022 are as follows: City: $115,361, or 0.71% of payroll (MCO applied); Public Schools: $59,579, or 0.22% of payroll (MCO applied); Criminal Justice: $13,798, or 1.00% of payroll (MCO did not apply). Segal presented the status of the assets from the Water Sale Proceeds, including the balance in the City Reserve Account. Water Sale Assets held in the City Reserve Account are not recognized in the Actuarial Value of Assets until City has elected to use allocated investment earning as a “contribution” to the Pension Plan. Rick Campbell moved and Larry Little seconded to accept as presented by Segal the valuation results for the Basic, Police and OPEB Plans. The motion passed 6-0-1 (Ryan Davis absent). 7. OPEB Funding Policy Chair Connie Rydberg shared clarification of the definition of “plan” in the OPEB funding policy. The funding policy combines the City, Schools and NVCJA as one “plan” to determine whether the MCO applies. In other words, the MCO applies to all three groups if the funded status of the three groups (City, Schools and NVCJA) on a combined basis is less than 150%. This is consistent with the Board’s understanding that the three groups are all members of one plan. This is also a more conservative approach and better protects the plan from volatility. The Board concurred with the suggested approach. 8. Review of the Investment Performance for the Third Quarter of 2020 for the Basic and Police Pension Plans and OPEB –Mary Nye of AndCo Consulting Market Performance: Broad asset class returns were positive in the 3rd quarter continuing their rebound from the 2nd quarter. Fixed Income performed well due to extremely low interest rates. US equities outperformed international stocks, and large-cap equities showed higher gains than small-cap. Basic and Police Plan and OPEB Market Values, Net Flows and Returns on Investment were presented in a consolidated chart. The Police Plan at the start of the first quarter was $36.35 Million, net flows totaled $338 thousand out of the plan, market gain of $2.05 Million and the ending market value for Q3 was $38.04 Million. Thus the gross return for the quarter was a 5.57%. Market Value for the Basic Plan at the start of the fourth quarter was $111.75 Million with net flows of $1.2 Million out of the plan, market gains of $6.23 Million and an ending market value of $116.78 Million. Thus the gross return for the Basic Plan in Q3 was 5.58%. Gross returns for the 12-month period were 8.99% for the Police Plan and 8.89% for the Basic Plan. OPEB funds started at $16.32 Million at the beginning of Q3, showed investment gain of $1.08 Million and an ending market value of $17.4 Million, a gross return of 6.62%. OPEB broad asset allocations are within policy range, with total domestic equities being overweight. Vanguard Large-Cap is overweight  out of policy. Mary Nye stated she is comfortable deferring a rebalance to a future quarter if it does not self-correct. Returns are tracking their underlying indices. Asset Allocations in the Basic Plan: All broad asset classes are within policy and close to target. Real estate returns were flat to slightly negative last quarter. Clarion Lion Investments is at the low end of policy in the Police Plan due to negative real estate returns. Mary Nye recommended taking no action and waiting to see if balances will improve in the next quarter. MFS Growth overweight and outside of policy due to exceptional market performance. The City may opt to liquidate some MFS assets for benefit payments in order to get the fund back in policy range. Securian Cash is on the high end of policy in the Police Plan, but expected to correct following benefit payments in next quarter. Comparative performance for the Basic and Police Plan showed the Total Funds ranked 28th in the All Master universe of plans. In the three-, five-, seven- and ten-year comparative performances, the plans showed rankings in the top decile. 9. December 14 Annual Report to Council—Cindy Mester The Retirement Board Chair will provide a report to City Council to summarize the actions of the Board for the year 2020. The Plans’ valuations, ADC and Water Sale Proceeds fund will be highlighted. Chair Rydberg shared the City Council’s appointment of the Deputy City Manager as the Pension and OPEB Plan Administrator in the FY21 adopted budget. 10. 2020/2021 Training Plan—Meaghan DeCelle Ms. DeCelle updated the Board on trainings completed in the past quarter. The City enrolled in the VIP access for all Board members to participate in the virtual IFEBP Annual Conference. Rob Mills from AndCo hosted a Real Estate Basics Training in October and the session was recorded. The Board concurred to delay discussion of setting a training travel expense limit. 11. 2021 Meeting Calendar—Meaghan DeCelle Staff proposed next year’s Board meeting dates to be February 11, May 13, September 9 and November 18, 2021. Rick Campbell moved and Larry Little seconded to accept as presented the proposed meeting schedule for 2021. The motion passed 6-0-1 (Ryan Davis absent). 12. Investment Policy Statements and Plan Amendment: Demographic and Economic Valuation Assumptions/ Plan Amendment—Cindy Mester Ms. Mester shared the draft revisions to the pension plan appendixes that included outdated valuation and demographic assumptions. The process for assumptions was drafted into the Investment Policy Statements and details will be in the valuation reports. Rick Campbell moved and Larry Little seconded to accept the draft Plan Amendment and Investment Policy Statement revisions as presented for the Basic, Police and OPEB Plans. The motion passed 6-0- 1 (Ryan Davis absent). 13. Plan Amendment: Legal General Pension Plan Clarifications—Cindy Mester Ms. Mester presented draft plan amendments that correct a drafting error and language clarifying the prohibition of in-service distributions in section 5.01. In section 5.02 language was added to clarify benefits calculations for rehired members with breaks in service. Thorough review with the City Attorney is still underway. The Plan Administrator and Board concurred to defer action on these amendments to a future date. 14. Plan Amendment: Retiree Rehire Policy—Cindy Mester Staff is working to amend the Pension Plans in section 3.02, regarding participation of re-employed individuals to include restrictions on rehiring retirees, as was put into practice via administrative memo on July 1, 2020. Thorough review with the City Attorney is still underway. The Plan Administrator and Board concurred to defer action on these amendments to a future date. Chair Connie Rydberg advised the Board that Williams Mullen decreased their initial charge of $26K to $13K for the retiree rehire amendment legal review after the Chair objected to the initial expense. The Board and City staff discussed the purpose of the memo and the dual purpose of the memo: (i) confirm Plan compliance with applicable IRS rules, and (ii) to support the staffing needs of the City. Because of the dual purpose of the memo, it was proposed and agreed that the $13K charge would be paid 50/50 by the Pension Plans and City budget. Board and Staff developed a process for expense review. Rick Campbell moved and Larry Little seconded to split the $13K fee for Williams Mullen legal review between the City and Pension Plan funds, each paying $6500. The motion passed 6-0-1 (Ryan Davis absent). Connie Rydberg moved and Larry Little seconded to establish a fee review for ad hoc administrative expenses expected to be paid from the Trust whereby staff will present prices up to $3000 to the Chair or Vice-Chair for approval and to the Board if prices exceed $3000 in advance of services being rendered. Further, all projects expected to be paid from the Trust must include a do-not-exceed clause prior to the project being initiated. The motion passed 6-0-1 (Ryan Davis absent). 15. Administrative Fee Methodology—Meaghan DeCelle and Cindy Mester Staff presented their research and methodology for justifying an increase to the City’s administrative fee that is paid from the Pension and OPEB Plans. Research showed that staff time spent on Pension and OPEB Plans administration by City staff translates to over $99K in salary dollars and fringe benefits per year. Staff requested that the administrative fee to the City be increased from $20,000 to $35,000. Rick Campbell moved and Larry Little seconded to adopt a $35,000 administrative fee to the City for the Fiscal Year 2022. The motion passed 6-0-1 (Ryan Davis absent). 16. Plan Administrator’s Report—Cindy Mester Cindy Mester presented the Administrative Quarterly Report, summarizing special projects, pension participant changes, training and administrative expenses. The Retirement Board Work Plan status was also shared and amended to capture Board-directed activities. Staff is working on a Request for Proposal for Pension recordkeeping services and has the option to pursue an option for benefit calculation review by a third party. 17. Staff and Public Participation protocol—Connie Rydberg Discussion of the participation protocols was deferred to a future meeting. 18. Other business not on the agenda Charles Collier suggests a review of the Disability Retirement allowance in the current plan documents. Note was made to consider putting the item on the 2021 work plan. 19. Adjournment: Rick Campbell moved and Larry Little seconded to adjourn the meeting at 8:53 PM. The motion passed 6-0-1 (Ryan Davis absent). 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.