Retirement Board

APPROVED MINUTES OF REGULAR RETIREMENT BOARD MEETING Thursday, February 8, 2024 6:00 p.m. In-person Meeting for Trustees: City Hall, Dogwood Conference Room 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 8, 2024. None received. 1. Call to Order The meeting was called to order by Chair Connie Rydberg at 6:02 PM 2. Roll Call Present: Connie Rydberg, Marshall Jarrett, Mathann Jackson, Kevin Knudsen and Nate Dupree Absent: Matt Parker and Charlie Collier Staff Present: Cindy Mester and Kristen Michaels, in person; Shari Davidson, Gregory Brown and Eric Cembrook, virtual Also Present: Mary Nye, AndCo Consulting Robert Burrell, Segal Lauren Albanese – Financial Investment News Justine Underhill (arrived at 6:27pm) – Falls Church Councilmember, Retirement Board liaison 3. Welcome and Introductions 4. Receipt of Petitions: none 5. Review and approval of draft Minutes from November 9, 2023 meeting Marshall Jarrett moved and Mathann Jackson seconded approval of the November 9, 2023 minutes as presented. The motion passed 5-0-2 (Charles Collier and Matt Parker absent). 6. Fourth Quarter of 2023 Investment Performance Review a. Performance for the Basic and Police Pension Plans and OPEB–Mary Nye of AndCo Consulting Market Performance: US Equity markets moved broadly higher during the fourth quarter, led by a broad recovery across multiple sectors and expectations of a more favorable interest rate environment. The S&P 500 Index rose 11.7% for the quarter, its best-performing period since the first quarter of 2021. Small-cap value (15.3%) was the best performing segment of the domestic equity market during the quarter, while large cap value (9.5%), though solid, was the weakest relative performer for the period. Returns were 12.8% for the Russell Mid Cap Index and 14.0% for the Russell 2000 small-cap index International developed and emerging market equities also delivered strong results. Europe continued to face geopolitical risks related to the conflict in Ukraine and elevated interest rates. Additionally, renewed conflicts in the Middle East weighed on performance for the region and threatened to be a headwind going into 2024.The developed market MSCI EAFE Index returned 10.4% for the quarter and the MSCI Emerging Markets Index rose by 7.9%. The domestic bond market rallied during the final two months of the year as the Fed took on a more dovish tone at their recent meetings. The Bloomberg US Aggregate Index returned 6.8% for the period, while investment-grade corporate bonds beat out the government and securitized sectors with a gain of 8.5%. During the 2023 calendar year, US equity markets posted their strongest performance since 2021. The large-cap S&P 500 Index finished 2023 with an exceptional 26.3% return. The weakest relative performance for the year was from the Russell 2000 Index, which still climbed 16.9%. International markets also reverted from their poor performance of the year prior. The MSCI EAFE Index was the best international index performer, returning 18.2%, while the MSCI Emerging Markets Index added a more tempered, but still solid, 9.8%. Bond markets were broadly higher for the year. Investment-grade corporate bonds were the best- performing sector of the US Aggregate Index and gained 8.5% for the year. Treasuries lagged at 4.1% during the year but were still a welcome relief from 2022’s negative bond market results. The bellwether fixed income benchmark, the Bloomberg US Aggregate Index, climbed 5.5% in 2023. Basic and Police Plan and OPEB Market Values, Net Flows and Returns on Investment were presented in a consolidated chart. Defined Contribution Plans were included on the consolidated chart. Market Value for the Basic Plan at the start of the quarter was $119.0 Million with net flows of $1.24 Million out of the plan, return on investment of $10.07 Million and an ending market value of $127.86 Million. Thus, the gross return for the Basic Plan was 8.54% for the quarter. The Police Plan at the start of the quarter was $39.32 Million, net flows totaled $446 thousand out of the plan, return on investment of $3.28 Million and the ending market value of $42.16 Million. Thus, the gross return for the Police Pension was 8.42% for the quarter. Gross returns for the 12-month period were 12.04% for the Basic Plan and 11.94% 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 seven-, ten-, and fifteen- year time periods. For the quarter, the ranking was 47th quartile for Basic Plan and 49th 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 near the top quartile for the seven-, ten- and fifteen- year time periods. For the quarter, both Plans ranked in the 90th percentile. The quarterly ranking for the quarter reflects the defensive nature of the Plans’ portfolios, resulting in slightly lower returns in strong market conditions (e.g. the most recent quarter), offset by better returns in down market. Pension asset allocations show all strategies within policy and most close to target. Lazard was re- balanced last quarter when cash was needed and is now in policy range. OPEB funds started at $17.98 Million at the beginning of the quarter. With $2,500k net cash flow out and a return on investment of $1.79 Million, the ending market value is $19.77 Million. Thus, the gross return for the OPEB Plan for the quarter was 9.98%. The OPEB plan results for the last 12 months showed a gross return of 18.54%. OPEB broad asset allocations show all funds within policy except Vanguard Large-Cap Index. Cash needs for next quarter will be taken from this fund. OPEB’s return was better than Basic and Police Plans, mostly due to the absence of real estate investments in OPEB (returns in real estate were negative for the quarter) and was at the 20th percentile. All longer term returns were in the top quartile. January was a positive month (Equities 2% to 6%). February started negative but is almost flat through today. Overall, there were no concerns about current Managers b. Basic/Police/OPEB Index Funds Analysis & Recommended Change – AndCo presented recommendation to change from Vanguard/Northern to Fidelity Index Funds with lower fees, which would save approximately $10,000. All recommended funds are available on USBank’s platform Chair expressed concerns that the following funds might be trading lower fees for lower net returns so the change shouldn’t be made. OPEB Small Cap -There is a 75 basis point difference in the annualized returns which offsets the reduction in fees. Can mix Index families, if preferred. Fossil Fuel percentage is marginally higher in Fidelity than Vanguard. Emerging markets – save 6 basis points in fees, but current fund is 40 basis point higher in returns. Fossil Fuel percentage is marginally better in Fidelity than Vanguard but return is our first criteria. Basic/Police Fixed Income - Different style boxes – Current fund has higher return and higher volatility, 15 basis points excess return vs 3 basis points fee savings. Fossil Fuel percentage is marginally higher in Fidelity than Northern Trust. Consensus to change the funds where style is similar, performance is nearly identical or better, risk is a tie or lower and fees are better. Fossil Fuel exposure served as the tie breaker when needed. There will be a one-time administrative process to make the change. Marshall Jarrett moved and Mathann Jackson seconded approval of the February 2024 OPEB Index Fund recommendations as presented by AndCo Consulting with 4 exceptions: Small Cap, Emerging Markets and the 2 Police/Basic Fixed Income Funds where our current Manager should remain in our OPEB Portfolio. The motion passed 5-0-2 (Charles Collier and Matt Parker absent). c. Defined Contribution Retirement Savings Plans (457b/401a) Report: The 457 Plan has $29.58 in assets, up from $27.07M in the last Quarter. Employee investments are well diversified, with 14.5% of assets in cash and the stable value fund (MissionSquare Plus Fund). 85.4% of assets are in active investment funds. The 401a Plan has $657K in assets, up from $569K in the last Quarter. 61.7% of assets are in Balanced/Target Date Funds, and 25.8% in Domestic Equity. 82.4% of assets are in active investment funds (non-Index Funds).  The investments are participant driven. Balanced Funds/Target Date Funds are the default investment and some employee leave the money there. Employees can view their Plan balance real-time using the MissionSquare App. The 457 and 401a transitioned to the Retirement Board approved new fund line-up on January 26, 2024. The quick view will be provided for new funds goings forward and more discussion about funds not meeting criteria will occur. Since the assets transitioned to new funds at the end of January, next quarter’s data will have partial quarter data. AndCo is working on showing historical track record and hopefully continued data for the funds that were carried over. Report shows performance of each Investment Fund including a color coded chart with more than results (quick view) – which ties to meeting the criteria of the Investment Policy Statement. A new chart showing historical reasons and quarters with underperformance was reviewed. Other than funds that are continuing after the transition, the performance information was less relevant due to the change in funds on January 26. Therefore, the Board did not discuss any performance issues noted in the AndCo report. MissionSquare Income Advantage Plan and Victory Sycamore (continuing in the Plans) are all green. MissionSquare Plus Fund and Western Asset Core Plus (also continuing in the Plans) has some yellow and red but the Retirement Board has recently done a deep dive on these funds and are comfortable with retaining these funds. d. AndCo is being purchased by Mariner Wealth Management, effective 4/2/2024. A new Division will be created called Mariner Institutional. Same service team, tools, contract, etc., just a name change. Technically falls under SEC rule of Change of Control. Potential value add - Mariner works with individuals and provides participant education. AndCo will still be “independent” – not selling products. Culture is similar – Clients First. AndCo’s owners will become partners and future employees can become owners of Mariner. Incentive compensation isn’t changing. Management offered to attend future Retirement Board meeting. AndCo has been responsive to updating contract with our Purchasing Department. 7. Council Updates – Chair presented the Retirement Board Annual Report- January 8, 2024 (including Defined Contribution Plan Changes) Adoption of Revised IPSs - December 11, 2023 Council expressed their appreciation for our hard work and good stewardship of the money. 8. Ethics with Conflict of Interest and Purchasing Policies annual review – updated to include the DC Plans. The Chair individually requested Trustees and Staff to affirm their review and compliance with the updated Ethics and Conflict of Interest policy as presented. All Trustees and Staff attending the meeting have read and agreed to comply. Those not present will be asked to affirm prior to the next meeting. Marshall Jarrett moved and Mathann Jackson seconded approval of the February 2024 Ethics and Conflict of Interest Policy as presented. The motion passed 5-0-2 (Charles Collier and Matt Parker absent). Marshall Jarrett moved and Mathann Jackson seconded approval of the February 2024 Contract and Purchasing Policy as presented. The motion passed 5-0-2 (Charles Collier and Matt Parker absent). 9. Updated Resolution for Plan Administrator Duties - updated to include the DC Plans and operational matters.  Marshall Jarrett moved and Mathann Jackson seconded approval of the February 2024 Plan Administrator Duties Resolution as presented. The motion passed 5-0-2 (Charles Collier and Matt Parker absent). 10. Member Terms Review- April 2024 elections/appointments. Connie, Marshall and Nate encouraged to re- apply to Council/City Manager. Kevin is retiring from the Public Schools at the end of the School year. May run as a retiree. New election needs to be held in April. 11. Disability Benefit Review a. Annual re-evaluation – One active participant, approved for Social Security Disability during the year, no improvement in condition. Marshall Jarrett moved and Mathann Jackson seconded approval of continuation of retirement disability benefits. The motion passed 5-0-2 (Charles Collier and Matt Parker absent). b. Review Disability and Pre-Retirement Death Benefits Reviewed a comparison of the City’s Disability and Pre-Retirement Death benefits with VRS, Federal employees and available local jurisdictions. The Board requested a grid of these benefits with competitors to more easily compare. 12. OPEB Implicit Subsidy Policy – Trustees met individually to review presentation created by Chair and to address any questions or concerns about the proposed policy. Marshall Jarrett moved and Mathann Jackson seconded approval of adjusting the OPEB funding policy to reflect that the Actuarially Determined Contribution is funded by a combination of (1) Cash Contributions made by each employer and (2) Implied Contributions, also referred to as Implicit Subsidy, which are retiree healthcare related expenses paid by each employer. The motion passed 5-0-2 (Charles Collier and Matt Parker absent). Marshall Jarrett moved and Mathann Jackson seconded approval, that the budgeted OPEB cash contribution amount be determined based upon the projected Implied Contribution, also referred to as Implicit Subsidy, as provided by the contracted actuarial consulting firm, with a true-up to occur in the following fiscal year as needed. The motion passed 5-0-2 (Charles Collier and Matt Parker absent). Marshall Jarrett moved and Mathann Jackson seconded to authorize the Plan Administrator, with the concurrence of the Retirement Board Chair and Vice-Chair, to finalize the updated language for the OPEB funding policy, as codified in the Investment Policy Statement (IPS) to reflect the changes approved today. It was further moved that these updates be recommended to City Council for adoption. The motion passed 5-0-2 (Charles Collier and Matt Parker absent). 13. Benefit Administration/ Calculation and Custodian Contract Update a. Securian Contract Termination Status- officially terminated, negotiated for additional data and ability to contact them in the future if needed through a Memo of Understanding. Paid final invoice (~$24,000) and received remaining assets ($50,000 Basic and $450,000 Police). b. Segal Annual Statement- census data provided to Segal at the end of January. Segal reviewing data and Securian historical file. May require some clean-up.  c. Active Employees data tracking options- on hold pending MUNIS upgrade and review of module capabilities 14. Legal Services RFP- Received quote from Segal to assist with Legal RFP, which was reviewed and approved by the City Attorney. Segal will not be bidding on providing Legal Services, so their assistance does not create a conflict of interest. Segal assistance will be paid by City Attorney budget. 15. 2024 Work Plan Revisions – timing revised for projects regarding amendments, disability benefits and Trustee Manual creation. Marshall Jarrett moved and Mathann Jackson seconded approval of the revised 2024 Work Plan. The motion passed 5-0-2 (Charles Collier and Matt Parker absent). 16. Consent Agenda- summarized and accept in block (10 minutes)- action A. Plan Administrator’s Report a. Beneficiaries, training and administrative expenses b. Fiduciary Training Recommendation Follow-up & Cybersecurity c. Retirement Board Work Plan Status d. Trustee Manual and Onboarding update- pending B. Plan Amendments- defer action to 2024 due to prioritizing USB, Securian and Mission Square contract transitions a. General Pension Plan Clarifications b. Retiree Rehire c. Service Calculation Recommendations d. Full review and reinstatement Request to review the Buy Back Pension requests. Marshall Jarrett moved and Mathann Jackson seconded approval of the Consent Agenda as presented. The motion passed 5-0-2 (Charles Collier and Matt Parker absent). 17. Other business not on the agenda: None 18. Adjournment: Marshall Jarrett moved and Mathann Jackson seconded to adjourn the meeting at 9:08 PM The motion passed 5-0-2 (Charles Collier and Matt Parker absent). Next Meeting scheduled for Thursday, May 9, 2024