Retirement Board

MINUTES OF REGULAR RETIREMENT BOARD MEETING Thursday, September 12, 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, September 12, 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, Matt Parker, Mathann Jackson, Nate Dupree and Herb Holmes Virtual: Charlie Collier (arrived 6:47 PM) Absent: Staff Present: Cindy Mester, Meaghan DeCelle and Kristen Michaels, in person; Kiran Bawa, virtual; Eric Cembrook, NVCJA, virtual Also Present: Mary Nye, Mariner Steve Scheuerman, MissionSquare Antoinette Guy-Wharton, MissionSquare Kevin Monds, MissionSquare Robert Burrell, Segal Consulting Gar Chung, Financial News Now reporter (arrived 6:48 PM) Justine Underhill (arrived at 6:39pm) – Falls Church Councilmember, Retirement Board liaison 3. Virtual Trustee Approval: At 6:48 PM, 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 6-0-1 (Charles Collier abstained) 4. Welcome and Introductions a. HR Staffing Update 5. Receipt of Petitions: none 6. Review and approval of draft Minutes from May 9, 2024 meeting Marshall Jarrett moved and Matt Parker seconded approval of the May 9, 2024 minutes as presented. The motion passed 6-0-1 (Charles Collier absent). 7. 8. Defined Contribution Savings Plan Investment/ Participant/ Education Reports- Steve Scheuerman, Kevin Monds, Antionette Guy-Wharton of Mission Square Mr. Scheuerman shared plan stats and growth analytics of the City of Falls Church plans. 2021: 309 people, now: 419 participants. Presented aggregate demographic data, showing trends in participants investments and balances. Fidelity 500 index fund is the most used. Demographic data allows MSQ to target relevant education for different participant populations. It was estimated that 90% of eligible employees in the City of Falls Church are participating. Ms. Guy-Wharton’s shared her work as part of the 2024 education action plan from MissionSquare. She detailed the methods used in her one-on-one meetings with plan participants including discussions on other income sources, investment education, assistance with contribution changes and enrolling. She discussed how retirees can set up their distributions and have easy access to their money. Financial wellness center offers a wealth of resources related to personal finances and budgeting. MSQ offers Certified Financial Planning services through MorningStar, often at a better price than through an outside CFP. Mr. Monds presented an investment review of the 457 and 401a plan assets. MSQ managed account service can help participants navigate prudent investments, customized for their lifestyle. Ms. Rydberg asked about MSQ’s capabilities around SECURE 2.0’s domestic abuse withdrawal allowance. MSQ is set up for this provision and the City of Falls Church needs to adopt it for their plan. This was added to the staff workplan. Ms. Rydberg also asked about the capability for emergency savings account. MSQ is equipped for this. Ms. Rydberg mention that at retirement clearing house being created in future, and inquired whether MSQ is prepared. Mr. Scheuerman answered that MSQ is waiting on further guidance from the Department of Labor and mentioned that MSQ has an entire microsite on SECURE 2.0. a. The September Chronicle (general government employee newsletter) was shared with the Board to highlight the webinar opportunities from MSQ. 8. Second Quarter of 2024 Investment Performance Review: a. Performance for the Basic and Police Pension Plans and OPEB–Mary Nye of Mariner Consulting Market Performance: Performance in the domestic equity markets was disparate during the second quarter. After a more encouraging showing last quarter, where markets broadened out in terms of strength, large-cap stocks once again surged ahead while smaller-cap stocks weakened slightly. For the period, the large-cap S&P 500 and Russell 1000 indexes posted returns of 4.3% and 3.6%, respectively. The broad-cap Russell 3000 index lagged slightly, returning a more modest 3.2%. Outside of large-cap issues, the Russell Mid Cap and Russell 2000 indexes both experienced equivalent pullbacks during the quarter, with each benchmark returning -3.3%. International developed market equities were muted during the quarter. The MSCI ACWI ex US Index posted a modest 1.0% gain for the quarter, while the MSCI EAFE Index fell slightly, posting a return of -0.4% in USD terms. International emerging market (EM) equities posting a 5.0% return for the quarter, outpacing the performance of their developed market counterparts. Much of the solid performance in the EM region was attributed to a bounce back in China, Taiwan, and Singapore, each posting strong USD results during the quarter. Most broad fixed-income indexes rose slightly during the second quarter of 2024. The Bloomberg US Aggregate Index returned 0.1% for the quarter, while investment-grade corporate bonds slid -0.1%. The TIPS market was the best performing sector during the quarter, outpacing the rest of the domestic fixed income categories with a return of 0.8%. Trends positive since the end of June. 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 $134.67 Million with net flows of $1.15 Million out of the plan, return on investment of $1.36 Million and an ending market value of $134.88 Million. Thus, the gross return for the Basic Plan was 1.03% for the quarter. The Police Plan at the start of the quarter was $44.50 Million, net flows totaled $381k out of the plan, return on investment of $432k and the ending market value of $44.55 Million. Thus, the gross return for the Police Pension was 0.99% for the quarter. Gross returns for the 12-month period were 12.39% for the Basic Plan and 12.47% 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 49th percentile for Basic Plan and 52nd 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 will move into IPS ranges once a cash request for pension benefits are made. Individual funds performed as expected. OPEB funds started at $21.04 Million at the beginning of the quarter. With $244k net cash flow out and a return on investment of $185k, the ending market value is $20.9 Million. The gross return for the OPEB Plan for the quarter was 0.93%. The OPEB plan results for the last 12 months showed a gross return of 14.75%. OPEB broad asset allocations show all funds within policy except Fidelity Short Term Bond Index. In general, OPEB’s long term returns were 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). Current quarter was slightly below median but longer-term returns were in the top quartile. Overall, there were no concerns about current Managers. Mariner recommends an OPEB Rebalance to bring Fidelity Short Term Bond Index back into policy range. The move of funds from FNSOX would be go into: 1. Fid 500 Index 2. Fid Mid Cap 3. Fid International  4. Vanguard small cap Mariner will provide exact dollar amounts needed for the rebalance to the Plan Administrator. Marshall Jarrett moved and Matt Parker seconded to follow Mariner’s recommendation. The motion passed 6- 0-1 (Charlie Collier abstained). i. Investment Commission Fee Review There was an increase in some fees due to work with Segal – the Plans have benefitted from vastly improved service delivery from actuarial services. There were also lower fees in recordkeeping since going to US Bank. Mary Nye shared that Admin fee paid to the City is extremely low compared to plans of similar size. Ms. Rydberg inquired why admin fee is not paid from the OPEB funds. Ms. DeCelle informed that the admin work done by the City does not directly benefit the OPEB. Marshall Jarrett moved and Matt Parker seconded to accept the Commission/Fee review as presented. The motion passed 6-0-1 (Charlie Collier abstained) b. Defined Contribution Retirement Savings Plans (457b/401a) Report: The 457 Plan has $31.38 Million in assets, roughly the same as 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 $773K in assets, up from $728K in the last Quarter. 63.1% of assets are in Balanced/Target Date Funds, and 28.2% in Domestic Equity. 78.8% of assets are in active investment funds (non-Index Funds). 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. Certain MFS Growth Fund metrics are in the “red”, but this is because the fund is underweighted in tech stocks. Mariner believes that this fund continues to be an appropriate fund for the plan (and continues to be an appropriate fund for the DB Plans). Certain metrics for the American Europe Fund are also in the “red”, but the long term (10+ year) results for this fund are strong, and therefore Mariner believes that this fund continues to be an appropriate fund for the plan. Overall, there were no concerns with the managers, other than Western Asset Management Company fixed income fund, as described below. 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. i. Defined Contribution Plan Analysis for FCCPS- informational Ms. Michael shared that the Schools has both a 457 and 403(b) available for their employees. The schools have asked for fee comparison from Mariner. Mary Nye is working on a fee comparison. Next step would be for the school board to review the results, and discuss whether they would want to consider the School’s funds being overseen by the City’s Retirement Board. Legal review will be needed in the future. ii. Western Asset Management Company (WAMCO) briefing and recommendation (manages fixed income mutual fund/ WAPSX)- action Mary Nye informed the Board that one of the fund managers, WAMCO was issued a Wells Notice by the SEC. Mariner is recommending that the funds managed by WAMCO in the 457 and 401a be moved to  Fidelity Bond Index fund to avoid any negative impact to account holders. Discussion around prudent communications to participants proceeded. Marshall Jarrett moved and Matt Parker seconded approval of the fund change to Fidelity Bond Index fund (FXNAX) as recommended by Mariner and that Mission Square inform, with 30 day required notice, the 457(b) and 401(a) participants that their WAPSX funds will be mapped to FXNAX. The motion passed 6-0-1 (Charles Collier abstained) 9. Legal Services RFP – status update 3:13 on recording Cindy Mester provided an update on the status of the Requisition for Proposal on legal services. Finalist reference checks have been made and recommendation for legal services contract is expected at the beginning of October. 10. OPEB Implicit Subsidy Policy Update Connie Rydberg informed the board that after ample review and feedback, the OPEB implicit subsidy update to the OPEB IPS meet’s the Retirement Board’s objectives, although it will require additional oversight by the Board, which will be included in Segal’s annual report to the Board. The changes will now go to Council as part of the readoption of the IPS. 11. Training a. IFEBP Virtual Conference Attendance Request Connie Rydberg moved and Matt Parker seconded approval for Cindy Mester, Plan Administrator, to attend the conference virtually in 2024 due to Pension Plans, Valuation and Retirement Board work requirements and HR staffing shortages in relation to the conference schedule timing. The motion passed 6-0-1 (Charlie Collier abstained) b. October Fiduciary Training Content and Cost Proposal. A representative from Segal with a legal background will present the October training to the Board. Marshall Jarrett moved and Matt Parker seconded approval of the Segal training proposal as presented for the quoted price of not to exceed $2,000. The motion passed 6-0-1 (Charlie Collier abstained). 12. Remote and Virtual Meeting Resolution Update – align to state code changes. Marshall Jarrett moved and Matt Parker seconded approval of the Remote Participation Resolution as presented to align with 2024 VA state code changes. The motion passed 6-0-1 (Charlie Collier abstained) Marshall Jarrett moved and Matt Parker seconded move approval of the Virtual Participation Resolution as presented to align with 2024 VA state code changes. The motion passed 6-0-1 (Charlie Collier abstained) 13. Retirement Board Vacancy- the Council appointed seat on the Retirement Board is still vacant though Marshall Jarrett is serving until a replacement is made. Referrals were encouraged and the City is also making outreach to potential trustees. 14. Disability and Pre-retirement Death Benefits Update Segal identified that they are not valuing on disability benefits. There is no proposal currently for further review as they have already done the research. Segal will bring info in November, then a cost proposal will follow.  15. 2024 Work Plan Revisions Ms. Mester recommended delaying IPS annual review to the November meeting due to workload and other priorities. For November, an asset allocation study will be introduced and the full study is on the schedule for 2025. a. The City is monitoring the VA Attorney General Opinion (23-062): VA Retirement System cannot use ESG criteria Marshall Jarrett highlighted the VA AG’s opinion and encouraged the City to engage their legal team to review the opinion and how it applies to the City’s plans. Marshall Jarrett moved and Matt Parker seconded approval of the revised 2024 Work Plan Revisions as presented. The motion passed 6-0-1 (Charlie Collier abstained) 16. Consent Agenda A. Plan Administrator’s Report Contracts were renewed for both Mariner investment consultants and Segal actuarial services. Neither firm increased their rates. a. Beneficiaries, training and administrative expenses, FCCPS Teacher Vendor Fair b. WSP Administrative Manual Review – no recommended changes c. Fiduciary Training Recommendation Follow-up & Cybersecurity d. Retirement Board Work Plan Status e. Trustee Manual and Onboarding update- pending for November meeting B. 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 (Charlie Collier abstained). 19. Other business not on the agenda: Board and Commission appreciation picnic! Tuesday, September 17th. 20. Adjournment: Marshall Jarrett moved and Matt Parker seconded to adjourn the meeting at 9:13 PM The motion passed 6-0-1 (Charles Collier abstained) Next Meeting scheduled for Thursday, October 10, 2024 (mandatory fiduciary training) (Location: in- person Dogwood A&B)