Retirement Board

APPROVED MINUTES OF REGULAR RETIREMENT BOARD MEETING Thursday, February 9, 2023 6:00 p.m. In-person Meeting for Trustees: City Hall, Dogwood A&B Virtual Attendance Option for Consultants/ Staff/ Public Public comments were invited to be submitted to cmester@fallschurchva.gov until 6:30 PM on Thursday February 9, 2023. 1. Call to Order The meeting was called to order by Chair Connie Rydberg at 6:01 PM 2. Roll Call Present: Connie Rydberg, Charles Collier, Marshall Jarrett, Kevin Knudsen, Matt Parker and Nate Dupree Absent: Mathann Jackson Staff Present: Cindy Mester, Shari Davidson, Kiran Bawa and Kristen Michaels Also Present: Mary Nye, AndCo Consulting Steve Schueremann, Kevin Monds and Art Flattich, MissionSquare Robert Burrell, Segal Lauren Albanese, Reporter- Financial Investment News 3. Virtual Trustee Approval: Connie Rydberg moved and Matt Parker seconded to allow Charlie Collier to attend the meeting virtually due to a medical condition that prevented his physical attendance. The motion passed 5-0-2 (One absent, Charlie Collier abstained). 4. Introductions and Welcome 5. Receipt of Petitions: none 6. Review and approval of draft Minutes from November 10, 2022 meetings: Marshall Jarrett moved and Matt Parker seconded to approve the minutes of the meeting as presented. The motion passed 6-0-1 (One absent). 7. Fourth Quarter of 2022 Investment Performance Review a. Performance for the Basic and Police Pension Plans and OPEB–Mary Nye of AndCo Consulting An update on AndCo was provided via the CEO’s client letter and firm organizational chart. Market Performance: Equity markets moved higher during the quarter, but it was not sufficient to offset prior quarter pullbacks for the 12 month period. Factors that contributed to performance included declining inflation, expectations that the Fed would slow the pace of future interest rate increases and China would begin to open its economy. Large Cap value was the best performing domestic segment while large cap growth performed the worst. International stocks experienced strong returns due to a weakening USD. Performance across domestic bond market sectors was positive during the quarter, led by US high yield and corporate investment grade bonds. Much like equities, global bonds outperformed their domestic peers mainly due to a weaker USD. For the period, the S&P 500 large cap benchmark returned 7.6%, compared to 9.2% for mid-cap and 6.2% for small cap benchmarks For the quarter, the MSCI EAFE Index returned 17.3% while the MSCI Emerging Markets Index rose by 9.7% For the quarter, performance of the bond market was broadly positive due to lower inflation and lower interest rate volatility. The Bloomberg (BB) US Aggregate Index returned 1.9%, for the period while investment grade corporate bonds posted a return of 3.6% 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 quarter was $113.07 Million with net flows of $1.23 Million out of the plan, market increase of $7.77 Million and an ending market value of $119.62 Million. Thus, the gross return for the Basic Plan in Q4 was 6.90%. The Police Plan at the start of the quarter was $37.29 Million, net flows totaled $420 thousand out of the plan, market increase of $2.48 Million and the ending market value of $39.35 Million. Thus, the gross return for the Police Pension in Q3 was 6.69%. Gross returns for the 12-month period were -12.69% for the Basic Plan and -12.62% for the Police Plan. Comparative performance for the Basic and Police Plans against all retirement plans showed the Total Funds are still ranking in the top decile in overall universe for the five-, seven-, ten-, and fifteen year time periods. For the quarter, the ranking was 21st percentile for Basic Plan and 25th percentile for the Police Plan. In comparison to plans with a similar investment strategy (greater than 70% allocation to equities) the Basic and Police plans are ranked in the top quartile for the five, seven-, ten- and fifteen- year time periods. For the quarter, both plans rank in the bottom quartile. This result is consistent with the plans’ investment strategy to protect in a downside market, which can mean lower returns in an up market, such as Q4. OPEB funds started at $16.05 Million at the beginning of the quarter, with market increase of $1.17M and an ending market value of $17.22 Million. Thus, the gross return for the OPEB Plan in Q4 was 7.30%. The OPEB plan results for the last 12 months showed a gross return of -16.08%. OPEB broad asset allocations show all funds within policy. OPEB’s Q4 return was slightly better than Basic and Police Plans and was at the 16th percentile. The longer returns (beyond 2 years) were in the top quartile. January was a positive month, which has improved the numbers from the presented results. Proposed Basic and Police and OPEB allocations: Cash will decrease with request for pension payments. MFS Growth was out of investment policy range for Basic and Police, but has rebounded during January.  Overall, there were no concerns about current Managers. Discussion continued from last meeting about the interest rates for our cash to make sure we are getting a competitive rate in an environment of increasing interest rates. Currently the plans are invested in Institutional Money Market Fund at USBank with a sweep feature, which has increased its return. AndCo will discuss other cash options with USBank. The rate will change from Securian when we transition to new custodian. Change in the cash option may require possible review to the Pension Plan IPS. The chair recommended a follow-up, proactive discussion about whether the OPEB investment allocation should remain different from the Basic and Police Plans in the future. Changing the OPEB investment strategy to be the same as the pension plans could simplify the Board’s oversight, while still meeting the Board’s fiduciary responsibilities. It could also reduce vendor fees. The Chair acknowledged that it might be 2024 before the Board could consider this option. b. Defined Contribution Retirement Savings Plans- 457b/401a - Future meetings will include AndCo’s performance review of the Defined Contribution investment options as part of a consolidated report for all Plans. This report can be customized to the Retirement Board’s preferences. AndCo will evaluate the current investment options and fee structure and provide recommendations for an optimal line-up. Steve Scheuermann, Regional Director and Kevin Monds, Director/Client Portfolio Manager of MissionSquare reviewed current demographics, participation and investment elections. The City DC plans have $26.0M in assets and 626 accounts (including employees who are in one or more plans). Employee investments are well diversified, with less than 20% of assets in the stable value fund (MissionSquare Plus Fund). In general, employees have not changed their investment strategy during the market downturn, which is consistent with a long-term view of investing and usually results in better outcomes than missed opportunities caused by attempting to time the market. Asset allocations are age appropriate. Cash flow was positive in 2022, as contributions ($1.4M) exceeded disbursement ($1.1M) from the Plan. Participation increased over the last year from 321 to 360 as employees have been educated about the value of contributing at least $20 per paycheck to get the City match. Very few participants have loans. Question regarding Shariah compliant investment options (governed by the tenets and founding principles of Islam) - MissionSquare does not currently offer a Shariah compliant investment option. This scenario could be achieved with a self-directed brokerage window, if added as an option. c. Defined Contribution Investment Policy Statement (IPS) - AndCo presented a draft Best Practices IPS for review and discussion which will be updated and distributed to trustees based on feedback before the next meeting. Marshall Jarrett moved and Matt Parker seconded to defer action on the proposed Defined Contribution Retirement Savings Plans (457b/401a) Investment Policy Statement to the May 11, 2023 quarterly meeting. The motion passed 6-0-1 (One absent). 8. 2023 Work Plan Adoption, including addition of responsibilities for fiduciary oversight of the Defined Contribution Plans. Consistent with the services MissionSquare provides for many of their clients,  MissionSquare will join the Retirement Board meetings 2x per year in February and September, and will provide plan reporting to the Board quarterly. Marshall Jarrett moved and Matt Parker seconded to approve the 2023 Work Plan as amended. The motion passed 6-0-1 (One absent). 9. Council Annual Report of Retirement Board - January 9, 2023: Connie Rydberg presented the Annual Report and ESG Investment report at the Council meeting. The Council thanked the Retirement Board for the considerable work achieved during the year. There were a few questions asked, primarily about the Water Sale proceeds and ESG. Council requested that the Retirement Board continue to take ESG into consideration in the future as permitted by the regulations and to monitor changes in the market and regulations. 10. Remote and Virtual Meeting Participation Policies were updated now that the COVID emergency has ended and the State is allowing flexibility for virtual meeting access. Marshall Jarrett moved and Matt Parker seconded to approve the Remote and Virtual Meeting Participation Policies. The motion passed 6-0-1 (One absent). 11. Ethics and Purchasing Policies Review/Affirmation – The Ethics policy will be amended to add OPEB and the Defined Contribution Plans. Each trustee and staff member reaffirmed they had reviewed and will be compliant with the Ethics Policy. Marshall Jarrett moved and Matt Parker seconded to reaffirm and readopt the Ethics Policy as amended. The motion passed 6-0-1 (One absent). Marshall Jarrett moved and Matt Parker seconded to approve and readopt the Basic/Police and OPEB Contract and Purchasing Policy as presented. The motion passed 6-0-1 (One absent). 12. Disability Re-evaluation – One retiree remains on disability pension. This retiree was approved for Social Security disability benefits, which reaffirmed his/her total disability status. 13. Member Terms – Mathann Jackson was approved by Council to join the Retirement Board and has been added to the Roster. 14. Benefit Administration (record keeping) and Custodian RFP Update – contract with new vendor completed and paper work being executed. Transition for Benefit Payments slower than hoped, now anticipating April 1, 2023. 15. OPEB Legal Structure Execution completed. 16. City Code Amendment- Defined Contribution Retirement Saving plans (457/ 401a) Update: Council approved the Retirement Board becoming fiduciary at the November 28, 2023 meeting. AndCo Financial Services contract was amended to extend consulting services to the DC Plans. 17. IFEBP Training Report – Kiran Bawa found the Conference very valuable. Kevin Knudson and Matt Parker concurred. 18. Consent Agenda Items on the consent agenda were made public and provided to the Board in advance of the meeting for review. Items included the Plan Administrator’s Quarterly Report and deferred action on Plan amendments. Marshall Jarrett moved and Matt Parker seconded to approve the consent agenda as presented. The motion passed 6-0-1 (One absent). 19. Other business not on the agenda: Charles Collier provided a reminder to prepare certificates of appreciation for former Retirement Board Members to thank them for their service. 20. Adjournment: Marshall Jarrett moved and Matt Parker seconded to adjourn the meeting at 8:56 PM. The motion passed 6-0-1 (One 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.