Retirement Board

MINUTES OF REGULAR RETIREMENT BOARD MEETING-ADOPTED 11/18/21 Thursday, September 9, 2021 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, Marshall Jarrett, Richard Campbell, Kevin Knudsen (arrived late), Larry Little Vacant: City Manager Appointee Staff Present: Cindy Mester, Meaghan DeCelle and Kiran Bawa Also Present: Kristen Michael, FCCPS COO Robert Burrell, Segal Consulting Mary Nye, AndCo Consulting Lauren Albanese, Financial Investment News 3. Introductions and Welcome 4. Receipt of Petitions: Tim Stevens, resident of the City of Falls Church, entreats the Board to take into consideration the effect of the Pension Plans’ investments on Environmental, Social and Governance impacts. Mr. Stevens encourages a focus on global climate change, specifically investigating whether investments are being made into fossil fuels or other carbon-emitting practices. The Board acknowledged Mr. Stevens’ comments and noted that any Environmental, Social and Governance considerations must be reviewed first and foremost from our fiduciary responsibilities. 5. Review and approval of draft Minutes from May 13, 2021 meeting: Marshall Jarrett moved and Rick Campbell seconded to approve the minutes of May 13, 2021 as presented. The motion passed 5-0-2 (one absent and one abstention). 6. Segal New Team Member Meet and Greet Robert Burrell of Segal Consulting now leads the team of actuaries handling the valuations for the City of Falls Church Basic and Police Pension Plans and the OPEB trust. 7. Review of the Investment Performance for the Second Quarter of 2021 for the Basic and Police Pension Plans and OPEB –Mary Nye of AndCo Consulting Market Performance:  Broad US equity markets experienced strong returns during the 2nd quarter of 2021. The primary catalyst during the period was the continued reopening of state and local economies resulting from the ongoing distribution of vaccines. Importantly, US interest rates also fell during the period which resulted in large, growth-oriented companies resuming market leadership. For the period, large cap companies returned 8.5%, compared to 7.5% for mid-caps and 4.3% for small company stocks. The trailing 1-year chart details the market’s dramatic reversal following the onset of the pandemic last year. All broad US equity market indexes have recovered and are trading at near-record levels. Most notably, domestic small cap stocks have led the market higher by returning 62.0% compared to US large caps which returned 43.1% over the trailing 1-year period. Basic and Police Plan and OPEB Market Values, Net Flows and Returns on Investment were presented in a consolidated chart. Market Value for the Basic Plan at the start of the second quarter was $130.94 Million with net flows of $1.23 Million out of the plan, market gains of $8.16 Million and an ending market value of $137.9 Million. Thus the gross return for the Basic Plan in Q2 was 6.25%. The Police Plan at the start of the second quarter was $42.74 Million, net flows totaled $114thousand into the plan, market gain of $2.28 Million and the ending market value for Q2 was $45.15 Million. Thus the gross return for the quarter was 5.34%. Gross returns for the 12-month period were 26.97% for the Police Plan and 28.18% for the Basic Plan. Asset Allocations: Fixed income is barely within policy range on the low end in the Police and Basic Plans due to muted returns. Northern Intermediate Fixed Income is just below policy range. MFS growth is overweight in both Basic and Police Plans due to exceptional investment returns Comparative performance for the Basic and Police Plans showed the Total Funds in the top quartile in overall universe for the quarter and Fiscal Year to Date. In the five-, seven- and ten-year comparative performances, the plans showed rankings in the top decile. OPEB funds started at $18.59 Million at the beginning of Q2, showed investment gain of $1.11 Million and an ending market value of $19.7 Million. Growth in the OPEB plan for the last 12 months showed a gross return of 32.86%. OPEB broad asset allocations show all funds within policy and close to target. Individual funds are also within policy and close to target. Returns are tracking their underlying indices. The Q2 returns show 5.99%, ranking 19th in the universe and 32.86% for the fiscal year to date, ranking 7th. Mary Nye indicated that she has no concerns about any of our investment managers in either the pension plans or the OPEB Plan, and does not recommend any changes at this time. Mary Nye reviewed the annual fee summary for all plan services and investment management. Total fees equaled $1.34 Million or .66 basis points. The City’s plans have historically had total fees below average compared to similarly sized funds. AndCo will present updated fee comparisons to peer funds in the next review. Marshall Jarrett moved and Kevin Knudsen seconded to accept the annual investment fee report and findings that the investment and contracting fees remain reasonable as compared to peers with similar asset levels and, to direct AndCo to compile a list of peer funds with total fee comparisons. The motion passed 7-0. 8. Retirement Board Membership—Meaghan DeCelle  Nathan Dupree, IT Security Engineer and City staff, has been appointed by the City Manager to service a three-year term on the board through April 30, 2024. The updated Board member roster was shared with attendees. 9. Training Policy update—Cindy Mester One trustee requested to attend the IFEBP annual conference virtually and an exemption from the in- person training requirement in consideration of COVID-19 risk. The Board showed support for the request. Rick Campbell moved and Marshall Jarrett seconded to authorize the reasonable accommodation request, for virtual versus in-person training, in response to COVID-19 pandemic health risks. The motion passed 7-0. Staff is in conversation with Williams Mullen to present the annual Mandatory Fiduciary Training for the Board. Ms. Mester proposed that the Board direct staff to proceed with hiring Williams Mullen for the training with a not-to-exceed cost of $1,900. The virtual training is scheduled for October 28, 2021 and the Board had consensus to hold the training in the evening. Marshall Jarrett moved and Rick Campbell seconded approval of the October 28th Williams & Mullen training cost proposal to not exceed $1,900. The motion passed 7-0. 10. Electronic Meeting Participation Resolution Update—Cindy Mester Ms. Mester described the updated electronic meeting participation policy for the potential return to normal operations. The policy states that a Board member can participate electronically for personal reasons when there is an in-person quorum and in-person attendees move and adopt the electronic participation. Trustees may participate electronically up to twice per calendar year. The policy includes a provision for total electronic participation in the event of disability or care for a family member. The Board also has a choice for the November quarterly meeting to either meet completely virtually or under a hybrid virtual and in-person model. Marshall Jarrett moved and Rick Campbell seconded to approve of the Electronic Meeting Participation Resolution as presented. The motion passed 7-0. The Board showed consensus to delay decision on November meeting format until closer to the meeting date. 11. Meeting Frequency Recommendation—Meaghan DeCelle Ms. DeCelle brought forward the suggestion to hold more frequent regular meetings of the Retirement Board in light of the robust agendas and resulting lengthy meetings. After conferring with Board members, staff recommended retaining quarterly meetings but separating out trainings into stand-alone meetings. Marshall Jarrett moved and Rick Campbell seconded to retain the schedule for four quarterly meetings, the July/August training and conducting the mandatory fiduciary training as a stand-alone session rather than combining it with the September quarterly meeting. The motion passed 7-0. 12. City Council Equity Work Plan Review—Cindy Mester Ms. Mester updated the Board on City Council’s entreaty to City Boards and Commission to consider policy changes that would fit the City of Falls Church’s goal for equity and inclusion in the community  and acknowledged the Board’s primary responsibility is to fulfill its fiduciary responsibilities to the beneficiaries of the plan and that the Board should not take any action that would jeopardize the funding of the Plans. On May 25, 2021, the Chair submitted a memo to City Council with possible changes with an emphasis on the Board’s fiduciary responsibilities. City Council will have a work session on September 20, 2021 to review all the Board and Commission suggestions. 13. City Administrative Regulation Changes—Meaghan DeCelle Ms. DeCelle briefed the Board on changes to the City Administrative Regulation 9.0: Employee Leave that will affect Sick Leave balances for permanent employees. The first change is an increase in Paid Parental Leave from two weeks to six weeks which will reduce the use of sick leave following the birth, adoption or placement for foster care of a child. Additionally, there is a change to the annual leave carry-over provision. Formerly, at the end of the calendar year, if staff had an annual leave (vacation) balance over the annual limit, they could only roll over up to 40 hours into their sick leave balance. Now under the new regulation, there is no limit to the amount of annual leave that can be rolled into Sick Leave. This has potential impact on the funding of the Pension Plans due to the Sick Leave adjustment to increase credited service with leftover sick leave at the time of retirement. Staff anticipates the impact to be negligible as the City is focusing on right-sizing staffing levels which will allow for staff to take needed leaves and not accrue large leave balances. 14. OPEB Funding Policy Follow-up—Connie Rydberg Ms. Rydberg briefed the Board on recent research regarding the structure of the OPEB trust as either one plan or three plans—one for each respective employer, City government, Schools and the Northern Virginia Criminal Justice Academy. Segal Consulting provided analysis on the different options and projected the effect on the OPEB plan. The research concluded that assets are co-mingled for investment purposes but liabilities, benefits and funding requirements are currently determined separately for each employer, except that the determination of whether the Minimum Contribution Override applies is based upon the combined funded status of all three employers. Segal analyzed relevant sources to determine whether the OPEB is one plan with three employer groups, or three independent plans, one for each separate employer group. For this purpose, they reviewed the Plan’s Trust Agreement, Investment Policy, and other supporting documents for this Plan, as well as relevant General Accounting Standards Board (GASB) guidance on other post-employment benefits (OPEB). While the Trust Agreement and Investment Policy refer to the OPEB as one plan with three employers, the GASB accounting entries in the Comprehensive Annual Financial Report (CAFR) have been based upon the OPEB being three independent plans. Because of the significant financial implications associated with any changes to the financial reporting to be consistent with a one plan structure, Segal recommended that the Trust agreement and funding policy be amended to match the current accounting of the three-plan structure. Marshall Jarrett moved and Rick Campbell seconded approval of the Multi-Agent Employer Plan, referred to as the “Three Plans”, legal structure and to direct staff to consult with Legal Counsel about the intended next steps and whether the associated fees can be paid from the OPEB Trust or if they should be paid as a shared expense between the School Board, City government and NVCJA. Additionally, that the Plan Administrator is pre-authorized, in consultation with the Chair and Vice- Chair, to approve legal cost proposal, as required for this consultation, in the amount to not exceed $5,000. Finally, that the Plan Administrator solicit bids to prepare the relevant documents, with the bids to be presented at the November meeting. The motion passed 7-0. 15. Investment Policy Statement (IPS) Annual Review—Connie Rydberg Discussion and review of the IPS was deferred to a future quarterly meeting. 16. Plan Amendments— Connie Rydberg Discussion of pending Plan amendments was deferred to a future quarterly meeting. 17. Employee Retirement Savings Plans (IRC 457 and 401(a)) Investment Fiduciary and Oversight Update—Cindy Mester Ms. Mester acknowledged and thanked AndCo for their productive training in August with a focus on duties involved in overseeing investments for deferred compensation plans. In November discussion will continue on whether the Board is willing to take on fiduciary responsibility for the City’s retirement savings plans, the 457(b) and 401(a), as the procurement process for the plans’ record keeper progresses. 18. Annual Disability Case Review—Meaghan DeCelle Marshall Jarrett moved and Rick Campbell seconded that the Falls Church Retirement Board convene in closed meeting, immediately, pursuant to Virginia code Section 2.2-3711.A.16, for the discussion of medical and mental health records subject to the exclusion in subdivision 1 of section 2.2-3705.5, specifically the determination of a disability under the City’s pension plan. The motion passed 7-0. Marshall Jarrett moved and Rick Campbell seconded to return from closed session and cease further discussion of the confidential items. The motion passed 7-0. Marshall Jarrett moved and Rick Campbell seconded to certify that only what was permitted, pursuant to Virginia code Section 2.2-3711.A.16, was discussed in closed session. The motion passed 7-0. Marshall Jarrett moved and Rick Campbell seconded that the disability eligibility determination, based on staff recommendation [and confidential HIPPA protected information reviewed in closed session], is hereby reaffirmed. The motion passed 7-0. 19. Plan Administrator’s Report—Cindy Mester Ms. Mester presented the Administrative Quarterly Report, summarizing special projects, pension participant changes, training and administrative expenses. Staff presented the updated Retirement Board Work 2021 Plan status, summarizing regular duties and upcoming Board-directed activities. Ms. Mester highlighted the addition of tracking the City’s true-up of expenses from the Plans to reimburse the City’s general fund. Staff and AndCo will work together this quarter to compile the Asset Allocation Study for presentation and discussion at the November meeting. 20. Staff and Public Participation Protocol Discussion was deferred to a future meeting. 21. Other business not on the agenda None. 22. Adjournment: Marshall Jarrett moved and Rick Campbell seconded to adjourn the meeting at 9:35 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.