Retirement Board

APPROVED MINUTES OF REGULAR RETIREMENT BOARD MEETING Thursday, May 9, 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, May 9, 2024. None received. 1. Call to Order The meeting was called to order by Chair Connie Rydberg at 6:04 PM 2. Roll Call Present: Connie Rydberg, Marshall Jarrett, Matt Parker, Nate Dupree and Herb Holmes Virtual: Charlie Collier Absent: Mathann Jackson Staff Present: Cindy Mester, Shari Davidson and Kristen Michaels, in person; Steve Mason, virtual Also Present: Mary Nye, Mariner Robert Burrell, Segal Justine Underhill (arrived at 6:13pm) – Falls Church Councilmember, Retirement Board liaison 3. Virtual Trustee Approval: Connie Rydberg moved and Marshall Jarrett seconded to allow Charlie Collier to attend the meeting virtually due to a medical condition that prevented his physical attendance. The motion passed 5-0-1-1 (Charles Collier abstained, Mathann Jackson absent). 4. Welcome and Introductions 5. Receipt of Petitions: none 6. Review and approval of draft Minutes from February 8, 2024 meeting Marshall Jarrett moved and Matt Parker seconded approval of the February 8, 2024 minutes as presented. The motion passed 5-0-1-1 (Mathann Jackson absent, Herb Holmes abstained). 7. First Quarter of 2024 Investment Performance Review a. Performance for the Basic and Police Pension Plans and OPEB–Mary Nye of Mariner (formerly AndCo Consulting) Market Performance: Domestic equity markets carried their momentum from late 2023 into the first quarter of 2024. Economic indicators continued to signal improving conditions for growth and softening inflation, resulting in an ongoing tailwind for risk assets. For the period, the S&P 500 large-cap benchmark returned 10.6% versus 8.6% for the Russell Mid Cap Index and 5.2% for the Russell 2000 small-cap index. International developed and emerging market equities also posted solid results. European markets continue to face geopolitical risks related to the conflict in Ukraine, the Middle East is grappling with a proxy war that has spread beyond Israel and Palestine, and Asia is feeling contagion effects from China’s economic uncertainty. Despite the uncertainty, the developed market MSCI EAFE Index returned 5.8% for the quarter, while the MSCI Emerging Markets Index advanced 2.4%. Most broad fixed income indexes fell slightly during the first quarter of 2024. While market participants were generally optimistic about the possibility of a Fed rate cut during the first half of the year, sticky inflation pushed out these expectations and caused markets to re-think the timing of 2024’s potential rate cuts. The Bloomberg (BB) US Aggregate Index returned -0.8% for the quarter while investment-grade corporate bonds were down less, returning -0.4%. US equity markets posted a stellar 29.9% during the trailing one-year period. The weakest relative performance for the year was the Russell 2000 Index, which nonetheless climbed 19.7% over the last 12 months. International markets also showcased a healthy rebound in 2023. Over the trailing one-year period, the MSCI EAFE Index was the best international performer, returning 15.3% while the MSCI Emerging Markets Index added a more modest 8.2%. Bond markets were relatively flat over the previous 12 months. Investment-grade corporate bonds were the best-performing sector, up by 4.4%. Meanwhile, Treasuries have lagged, returning just 0.1% over the previous 12 months. The bellwether fixed-income benchmark, the Bloomberg US Aggregate Index, returned a muted 1.7% for the year 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 $127.86 Million with net flows of $1.57 Million out of the plan, return on investment of $8.35 Million and an ending market value of $134.64 Million. Thus, the gross return for the Basic Plan was 6.59% for the quarter. The Police Plan at the start of the quarter was $42.16 Million, net flows totaled $459 thousand out of the plan, return on investment of $2.79 Million and the ending market value of $44.49 Million. Thus, the gross return for the Police Pension was 6.68% for the quarter. Gross returns for the 12-month period were 15.20% for the Basic Plan and 15.35% 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 9th percentile for Basic Plan and 8th 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 top quartile for the seven-, ten- and fifteen- year time periods. For the quarter, the ranking was 36th percentile for Basic Plan and 34th percentile for the Police Plan. Pension asset allocations show all strategies except Fixed Income within policy and most close to target. Northern Trust Intermediate and Core Fixed Income should be adjusted next quarter. OPEB funds started at $19.77 Million at the beginning of the quarter. With $2,500k net cash flow out and a return on investment of $1.27 Million, the ending market value is $21.04 Million. Thus, the gross return for the OPEB Plan for the quarter was 6.43%. The OPEB plan results for the last 12 months showed a gross return of 19.41%. OPEB broad asset allocations show all funds within policy except Fidelity 500 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). All time periods, returns were in the top quartile. April was a negative month mostly across the board (S&P -4%, International and Fixed Income -2.5%, Emerging Markets +.45%). May rebounded and equities are about where they were at the end of March. Overall, there were no concerns about current Managers. Our choice of Domestic managers has been superior. There are still questions about International equity which has struggled and our managers have been mediocre. We recently replaced Templeton. Transamerica Intl fund doesn’t have enough of a track record yet to evaluate. MFS has performed well, Schroder has been solid. We have diversified intentionally and have followed best practice. Should we stay at 20% in International in the future? We should review when we do the Asset Allocation study – be intentional with a wide range of International options. Real estate continues to struggle, likely hasn’t hit the bottom of the cycle. i. OPEB: February Fund Change Approval and April Rebalancing- Fidelity Funds are now in place. Fidelity 500 Index was out of range. All funds were rebalanced to target in April. b. Defined Contribution Retirement Savings Plans (457b/401a) Report: The 457 Plan has $31.30 in assets, up from $29.58M in the last Quarter. Employee investments are well diversified, with 12.3% of assets in cash and the stable value fund (MissionSquare Plus Fund). 78.6% of assets are in active investment funds. The 401a Plan has $728K in assets, up from $657K in the last Quarter. 63.6% of assets are in Balanced/Target Date Funds, and 26.0% in Domestic Equity. 79.2% 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. Mariner (formerly 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 Mariner (formerly AndCo) report. Target date and Index Funds all meet criteria (all green). MFS Growth (not as much tech as the benchmark in the 3 and 5 year) – watching it in the pension plan too. American Funds (not as much emerging market as the benchmark in the midterm). WAMCO still struggling – took a big bet on duration that hurt mid term performance. Keep an eye on it, but no concerns. MissionSquare Plus Fund met criteria in 1st Q 2024 (red previous 3 quarters). 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. i. January 26th fund lineup and participation implementation status- No issues with transition from participants. One member had funds allocated to the wrong Target Date Fund, but MissionSquare identified the error and corrected it to make the participant whole. ii. Annual MissionSquare Recordkeeper review- recommend January 2025 review after one-year from transition date iii.Education and Communication Action Plan update – meetings will be scheduled with employees to explain the new pension statement, remind about the increase in the 457 match to $35 and provide Basic Retirement Savings education with MissionSquare. iv. MissionSquare ADV Part 2A, March 2024 – MissionSquare provided their firm information about qualifications and business practices c. Mariner Institutional, LLC Form ADV Part2A, April 2024- Mariner provided their firm information about qualifications and business practices AndCo was purchased by Mariner Wealth Management, effective 4/2/2024. A new Division was 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. Management offered to attend a future Retirement Board meeting. 8. Annual Economic Valuation Assumption Review- Robert Burrell, Segal Consulting The assumptions are long term estimates and recommendation is to maintain current rates, even with the recent 6% salary increase. The Chair agreed. Marshall Jarrett moved and Matt Parker seconded approval of the Annual Economic Valuation Assumption Review as presented by Segal Consulting. The motion passed 6-0-1 (Mathann Jackson absent). 9. FY25 Training Budget Adoption  Mathann and Herb will attend the IFEBP New Trustee Training and the Conference in San Diego in October. Cindy will also attend the Conference in Person. Marshall Jarrett moved and Matt Parker seconded approval of the Training budget as amended. The motion passed 6-0-1 (Mathann Jackson absent). 10. Travel and Training Expense Policy adoption The Board will follow City rules (Administrative Regulations) and use City reimbursement process. Marshall Jarrett moved and Matt Parker seconded approval of the Travel and Training expense policy as discussed. The motion passed 6-0-1 (Mathann Jackson absent). 11. Member Term Appointment, Elections and Vacancy-April 30, 2024 – Herb Holmes of DPW was elected the new Trustee by Basic Plan Participants. We had 3 excellent candidates on the ballot. Marshall Jarrett has resigned, but no new Council appointee has applied. Marshall will continue to serve until a new candidate has been identified, attends a meeting and is appointed by Council. 12. Disability and Pre-retirement Death Benefits – reviewed current benefits for Disability and pre-retirement death within the Pension and City Benefits Plan. Looked at benefits for comparator jurisdictions, VA state and Federal employees. Key observations from the analysis and proposed next steps were included in the meeting materials. Marshall Jarrett moved and Matt Parker seconded • Develop cost implications if the Retirement Board Long-Term Disability Benefit is eliminated with commitment to maintain the city’s independent Long-Term Disability Benefit. • Research possible design changes and cost implications for Pre-Retirement Death Benefits to align with best practices, looking for guidance to existing plans in the VRS and the corporate sector. • Authorize the Pension Plan Administrator to work with the Chair and Vice-Chair, per the purchasing policy, to execute a proposal from Segal to provide the Board with additional analysis. The motion passed 6-0-1 (Mathann Jackson absent). 13. OPEB Implicit Subsidy Policy Update – discussions continue with the actuaries, finance, Plan Administrator and Chair to finalize the IPS language to allow the Implicit Subsidy to count towards the ADC for OPEB. 14. Council Updates a. June OPEB IPS approval scheduled b. Charter Amendment regarding advisory board change in eligibility – removed the requirement that members be qualified voters in the City. New language below: The council in making appointments shall act only by the affirmative vote of a majority of the members of the council. All members of boards and commissions, appointed by the council, shall be at least eighteen (18) years of age and reside within the city limits. The residency requirement may be waived if the board or commission enabling legislation expressly so provides, or unless waived by a majority of the city council  when it deems such waiver in the best interest of the city and such waiver is not prohibited by any provision of law. 15. Legal Services RFP- the draft RFP has been provided to Procurement Department for distribution within the next week. Ideally a new Legal firm will be in place before the September meeting. Matt Parker moved and Nate Dupree seconded authorizing Chair Rydberg and Trustee Jarrett to execute the contract for legal services. The motion passed 6-0-1 (Mathann Jackson absent). 16. 2024 Work Plan Revisions (5 minutes)- action Marshall Jarrett moved and Matt Parker seconded approval of the revised 2024 Work Plan as amended this evening. The motion passed 6-0-1 (Mathann Jackson absent). 18. Consent Agenda 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 for September meeting B. FY2023 Annual Comprehensive Financial Report/ACFR, (pgs 5a, 5e, 5;, Exhibits 1, 3, 11, 16, 17, 18, 20, 22, 23; Notes to Financials pgs 24-64, 76-83, 97-107, 126, 128, 133-135) C. Principal Mutual Fund Account Name Correction/ Resolution Marshall Jarrett moved and Matt Parker seconded approval of the Principal Mutual Fund Account Name Correction Resolution as presented. The motion passed 6-0-1 (Mathann Jackson absent). D. Plan Amendments- have been deferred due to prioritizing USB, Securian, Mission Square transitions and legal services RFP a. General Pension Plan Clarifications b. Retiree Rehire c. Service Calculation Recommendations d. Full review and reinstatement Marshall Jarrett moved and Matt Parker seconded approval of the Consent Agenda. The motion passed 6-0-1 (Mathann Jackson absent). 19. Other business not on the agenda – Charlie thanked the Board for the cards, plants and keeping in touch while he has been rehabilitating. Cindy dispersed 75th Anniversary pins from the City Council to all Trustees. 20. Adjournment: Marshall Jarrett moved and Matt Parker seconded to adjourn the meeting at 8:52 PM The motion passed 6-0-1 (Mathann Jackson absent). Next Meeting scheduled for Thursday, Sept 12, 2024