Retirement Board

APPROVED MINUTES OF REGULAR RETIREMENT BOARD MEETING Thursday, November 7, 2024 5:00 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 5:00 PM on Thursday, September 12, 2024. None received. 1. Call to Order - The meeting was called to order by Chair Connie Rydberg at 5:03 PM 2. Roll Call Present: Connie Rydberg (until 6:15pm), Marshall Jarrett, Matt Parker, Gary Fuller, Herb Holmes, Mathann Jackson, and Nate Dupree Absent: None Staff Present – in person: Cindy Mester, Christopher Valakos, Kiran Bawa and Kristen Michaels Also Present: Mary Nye, Mariner Institutional Robert Burrell and Melanie Clark, Segal Justine Underhill, City Council Tom Hall, Resident 3. Virtual Trustee Approval 4. Introductions and Recognition: Board welcomed Marshall’s last Retirement Board meeting. He was awarded a Certificate for his lengthy service and dedication to the City of Falls Church. Some of his service included: Retirement Board: Served 5 terms for a total of 15 years. 5/1/2006 - 4/30/2012; 2/23/2015 – 11/7/2024 Board of Equalization: Served 1 term for a total of 3 years. 2/24/97 - 1/31/00 Planning Commission: Served 2 terms for a total of 5 years. 2/11/1985 - 12/31/1990 Board of Zoning Appeals: Served 3 terms for a total of 6 years. 7/28/1980 - 12/31/1986 Trustees and staff acknowledged the benefits of his service with specific examples. Charles Collier was also recognized for his service, and he too was awarded a Certificate for his long tenured service to the City. Charles’ service tenure was 22 years. He had a strong commitment to the participants, ensuring fair policy and benefits as well as the financial resiliency of the Plans. He was a strong advocate but also asked critical questions. Mr. Collier’s Certificate will be mailed to him as he was unable to attend the meeting. 5. Petitions: No new petitions. Ms. Mester responded to Mr. Fuller’s inquiry as to the status of the October petitions regarding the DROP Program and VRS participants ability to participate in the City’s pension  benefits. If either item is to move forward, they would need to be added to a future Retirement Board work plan consideration due to requiring legal, HR and workload assessments. Ms. Mester will ensure petitioners requests are acknowledged. 6. Review and Approval of draft Minutes from October 10, 2024, meeting: Marshall Jarrett moved, and Matt Parker seconded approval of the October 10, 2024 minutes as presented and as modified during the meeting. The motion passed 7-0. 7. June 30, 2024 Actuarial Valuation Presentation Summary: Basic, Police OPEB – Segal Consulting a. Water Sales Proceeds City Reserve Account/Transfer – water sales assets are found in the appendix Segal Consulting presented the annual valuation reports for the Basic and Police Pension Plans and OPEB as of June 30, 2024. All are well funded. Past and projected employers’ contribution, Actuarial Determined Contributions (ADC) comply with adopted policies. Some of the factors that impacted to the valuation results included: Terminations and retirements that were different from expected, including turnover (e.g. the movement of prior staff to other municipalities), and salary and COLA increases that were greater than expected. During a discussion, it was noted that the population of school employees participating in VRS has been somewhat stable partially because VRS has portability allowances. Conversely, it was noted that DPW (the Department of Public Works) has had over 60% in vacancies- post Covid as many of those former employees went into private sector because of increased salary opportunities. The following charts provide a summary of the key Valuation results: Key Actuarial Valuation Results - Pension Plans Assumption Changes • No assumption changes since last valuation Basic and Police Pension Plans Results • City contributions in line with actuarial recommendations • Both plans are over 100% funded on an actuarial basis • Rates of Return (assumed rate of 6.50% for year ending June 30, 2024): Basic Plan Police Plan Total Plan Assets 11.86% 12.04% City's Reserve Account (Money Market) 4.66% 4.50% Regular Plan Assets 11.97% 12.17% Actuarial Value of Assets 7.50% 7.53% • Basic had a net non-investment loss of 1.8%, primarily due to salary and COLA increases greater than expected • Police had a net non-investment loss of 2.0%, primarily due to salary and COLA increases greater than expected • Basic Plan Preliminary ADC increased from 3.53% to 3.61% of payroll (MCO applied both years) • Police Plan Preliminary ADC increased from 10.77% to 12.00% of payroll (MCO applied both years) -.X-- Segal 3 Basic Pension Plan Results (in $ million) June 30, 2024 June 30, 2023 Com,., Actuarial Accrued Liability (AAL) $111.3 $106.9 1.8% incrr Actuarial Value of Assets (AVA) $123.2 $119.0 Funded Percentage 110.7% 111.3% Preliminary Actuarially Determined 3.61% of pay Employer Contribution (ADC) (for FY2026) Regular Plan Assets $125.7 Water Sale Assets (Principal) Water Sale Assets (City Reserve Account ) Total Plan Assets Number of Pensioners Number of Inactive Ve·,. Number of Emp1' Projected r Police Pension Plan Results (in $ million) June 30, 2024 June 30, 2023 Comr- Actuarial Accrued Liability (AAL) $37.5 $35.7 2.0% incrr Actuarial Value of Assets (AVA) $39.7 $38.3 Funded Percentage 105.9% 107.1% Preliminary Actuarially Determined 12.00% of pay 10.77" Employer Contribution (ADC) (for FY2026) (f Regular Plan Assets $40.6 Water Sale Assets (Principal) Water Sale Assets (City Reserve Account ) Total Plan Assets Number of Pensioners Number of Inactive Ve·,. Number of Emp1 Projecterl·  Key Actuarial Valuation Results - OPEB Plan Assumption Changes • Net decrease in obligations of $0.5 million(about 5.3%) due to: - Updating the valuation-year per capita health costs to reflect actual premiums and enrollment for FY 2025 - Removing the assumed 9.00% trend on Medicare Part D premium reimbursements for upcoming year OPEB Results • Updated census data as of June 30, 2024 - Two-year cycle for updating (last year's "roll forward " valua tion used June 30, 2022 data) • Actuarial experience gain decreased the Net OPEB Liability (NOL) across all groups by $0.5 million - Demographic gains, particularly in General Government and Public Schools, for decreases in covered members, partially offset by increase in active members and higher enrollment for new retirees -Actual benefit payments, net of retiree contributions, different from expected • Investment experience gain of $1.5 million due to fund investment performance greater than expected (14.7% versus assumed rate of 6.5%) • Funded percentage for all three employers increased, with all over 100% funded • Current year funded ratios and ADCs: Market Value MCO FYE 2026 FYE 2025 Funded Ratio Applied? ADC ADC General Government 175.83% No $0 $1 29,775 Public Schools 273.88% No $0 $0 Criminal Justice 136.17% Yes $6,651 $7,035 -.X-- Segal 4  Following the valuation results discuss, it was noted that the City was scheduled to conduct an experience study during 2025. Connie questioned the timing of the experience study and if 2025 made sense given the inclusion and continued impact of the COVID-19 data within the experience study period. Connie inquired as to whether 2026 would be a better timeframe analysis of data set. Robert indicated that Segal is not concerned about the impact of COVID-19 on the 2025 Experience Study, since the study will be conducted using 4-to-5-years of data. However, delaying the study to 2026 is also acceptable per Actuarial Standards of Practice. There was a consensus on moving the Experience study to 2026 and adjusting the 2025 workplan to reflect the timing delay. Marshall Jarrett moved, and Matt Parker seconded approval of the June 30, 2024, Basic, Police and OPEB Valuation as presented by Segal Consulting. The motion passed 7-0. 8. First Quarter of FY25 (Third Quarter 2024) All Plans Review and Follow up Items – Mary Nye, Mariner Consulting a. Defined Benefit Retirement Plans Reports - Basic and Police Pension Plans and OPEB i. International Asset Allocation Review (May 2024 Trustee request follow-up) Market Performance: Performance in the domestic equity markets was broadly positive after markets received a boost from the Fed’s first rate cut in four years. Small-cap stocks outperformed their large-cap counterparts, with the Russell 2000 returning 9.3% versus a gain of 5.9% for the S&P 500. The all-cap Russell 3000, which is heavily weighted in its large-cap names, lagged the Russell 2000 Index by 3.1%, returning 6.2% for the quarter. For this quarter, value stocks outperformed growth stocks. International developed market equities realized similar results with both the MSCI ACWI ex US and MSCI EAFE indexes gaining during the quarter. The MSCI ACWI ex US Index posted a strong 8.1% for the quarter, while the MSCI EAFE Index returned a slightly lower 7.3%, both in USD terms. International emerging market (EM) equities were the best performing foreign segment, gaining 8.7% in for the quarter and outpacing their developed market counterparts. Much of the solid USD performance for EM can be attributed to the Far East index countries, particularly China, Taiwan, and Singapore. Broad fixed-income indexes added to their year-to-date results during the quarter, thanks in large part to the Fed’s 0.50% rate cut on September 18th. The Bloomberg US Aggregate Index returned a solid 5.2% for the quarter. Investment-grade corporate bonds topped other US fixed-income sectors for the quarter, finishing with a return of 5.8%. The TIPS market, which is not part of the Aggregate Index, was the worst-performing bond benchmark during the quarter with a return of 4.1%, lagging the rest of the domestic fixed-income indexes. 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 $134.8 Million with net flows of $1.39 Million out of the plan, return on investment of $7.71 Million and an ending market value of $141.2 Million. Thus, the gross return for the Basic Plan was 5.76% for the quarter. The Police Plan at the start of the quarter was $44.5 Million, net flows totaled $525 thousand out of the plan, return on investment of $2.63 Million and the ending market value of $46.66 Million. Thus, the gross return for the Police Pension was 5.95% for the quarter. Gross returns for the 12-month period were 23.66% for the Basic Plan and 23.80% 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 37th quartile for Basic Plan and 30th 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 or better for the seven-, ten- and fifteen- year time periods. For the quarter, the Basic Plan ranked in the 64th and the Police Plan ranked in the 56th percentile, which is consistent with the Board’s investment strategy focused on protecting in a down market, with the expectation that relative performance may not be as strong, on a relative basis, in strong markets, such as in the most recent quarter. Pension asset allocations show all strategies within policy and close to target, except Total Fixed Income in the Basic and Police Plans are slightly out of the range. All individual funds are within investment policy range, except Northern Core and Northern Intermediate in the Basic and Police Plans slightly below range (16% vs 11%) due to underperformance. Should be remedied with next rebalancing. OPEB funds started at $20.98 Million at the beginning of the quarter. With $2.5k net cash flow out and return on investment of $1.25 Million, the ending market value is $22.23 Million. Thus, the gross return for the OPEB Plan for the quarter was 5.96%. The OPEB plan results for the last 12 months showed a gross return of 25.18%. OPEB broad asset allocations show all funds within policy and close to target, except Total Cash at the low end of the range. OPEB’s return for the quarter was similar to the Basic and Police Plans and was at the 31st percentile. All longer-term returns were in the top quartile. Return since the most recent quarter: October was a negative month (Equities -2.20% to -.99%). November has started positive. The following were questions posed for Mary Nye at Mariner to answer for the board: Q: Summit Creek (small cap growth)– looking at year by year results, last two years (year ending June 30) were rough – 97th and 76th percentile – but they did a good job defending in the 2022 downturn. Any concerns? R: Energy and industrials have been the sectors detracting from performance. 9 annual years: outperform index 6 (of 9) times, above median 5 (of 9) times. Long term – 10 yrs performance is nearly 2.5% over index and around median. Q: Schroder (Total International Equity) - looking at year by year results, last two years (year ending June 30) were ok, not great – 55th and 61st percentile – and they did NOT do a good job defending in the 2022 downturn. Any concerns? R:2022 was hurt by Chinese financials. The year before 2021 and the year after 2023 outperformed 2-3%. 10 annual years: outperform index 7 (of 10) times, above median 6 (of 10) times. Long term – 10 yrs performance is nearly 0.5% over index and top third. Q: MFS – lots of red in the DC plan scorecard. Any concern? R: MFS has done better than most LCG managers. 3 and 5 yr performance due to narrow/concentrated market. Currently underweight Apple which is 12% of the index and 0 weight Telsa which returned 30%. Q: American Funds T2065 – there are reds for the N/As – but I assume they should really be blank – i.e. they are not really red, correct? R: Correct, should be blank/gray. R: In general, no concerns with any of the managers (excluding Western Asset which is being taken care of with MSq). Western Core Plus Bond (WAPSX) Fund – As a follow up to the September meeting, Mary noted this fund received a Wells Notice so there will be a SEC investigation on one of the senior decision makers of the firm. Based on the Mariner recommendation the Retirement Board approved at the September 12, 2024 liquidating all funds due to the uncertainty of when the investigation will be completed. There is a queue to transfer money out of this fund, but on January 13, 2025 the fund will be closed and proceeds transferred to Fidelity Bond Index Fund (FXNAX). Based on the quarterly Basic performance report Mary recommended that a portion of the Lazard investment be redeemed in order to bring into IPS asset target range compliance. These funds would be invested into two Northern Trust funds to complete the rebalancing. Motion: Marshall Jarrett moved, and Matt Parker seconded to authorize of the Pension Plan Administrator to redeem $1.6 million proceeds from Lazard and reinvest 50% into Northern Trust Intermediate Fixed and the other half into Northern Trust Core Fixed based on the recommendations from Mariner Consulting. The motion passed 6-0-1. (Connie Absent) International Asset Allocation Review- Mary reported on the requested international equity asset allocation analysis. For one of the asset allocation scenarios the change would be taken from international equity (19%) and added to other asset classes. Based on the analysis if any of the scenario changes were made, the return and risk would be lower. Marshall questioned international stocks vs large equity stocks. Models predict the returns from US Stocks will decrease and international will increase. The models use past performance as information. He suggested dialing the back the international stocks into more US Stocks. Models are saying that expected returns will be lower. Mariner uses JP Morgan assumptions from their analysis. Gary – asked if Mariner can look at another analysis besides JP Morgan, as a “second” opinion. Mary indicated that Mariner utilized JP Morgan based on reliable trend analysis and projections. Mary recommends a No Change to the international asset mix at this time. Based upon the international asset allocation review, Marshall Jarrett moved, and Matt Parker seconded approval to conduct the full asset allocation analysis in November 2025.The motion passed 6-0-1. (Connie Absent). 8b. Defined Contribution Retirement Savings Plans [457(b) and 401(a)] Reports: i. Defined Contribution Plan Analysis for FCCPS - update The 457 Plan has $33.05 Million in assets up from $31.38 Million in the last Quarter. Employee investments are well diversified. The 401a Plan has $876,507 in assets up from $773,492 in the last Quarter. 64.5% of assets are in Balanced/Target Date Funds, and 27.6% in Domestic Equity. The investments are participant driven. Balanced Funds/Target Date Funds are the default investment, and some employees leave the money there. Employees can view their Plan balance real-time using the Mission Square App. 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. Marshall Jarrett moved, and Matt Parker seconded approval to authorize Mariner to conduct an analysis of possible asset mix/range changes and fund alternatives for November 2025 consideration. The motion passed 6-0-1. (Connie Absent)  Retirement Board took a 10-minute break from 7:07pm to 7:17pm 9. OPEB Implicit Subsidy Policy Update After detailed review by the Trustees with input from Segal and Finance staff the IPS policy was clarified to document the practice of using implicit subsidy and cash to fund the ADC. The Retirement Board approved the language change in February and requires Council approval. That vote is scheduled for December 9th. 10. Legal Services RFP status update Progressed to phase 2 for a cost proposal and pending receipt of the best and final offer. The Purchasing Office is preparing a new contract with a new legal service provider. Marshall and Connie served on the RFP evaluation committee as did the City Attorney and Plan Administrator. There will be a selection made on the new legal service provider before November 25th. 11. Training a. Upcoming IFEBP Conference update The following trustees will be attending in person at the International Foundation of Employee Benefits in San Diego California from 11/8/2024 to 11/13/2024. Herb Holmes, Nate Dupree and Mathann Jackson. Attending virtually will be Cindy Mester, Plan Administrator. 12. FY2026 Administrative Allocation Request Recommendation to the Retirement Board: Staff recommends the Trustees approve the FY26 City Administrative Fee Transfer in the amount of $42,650 to cover a portion of City’s expenses for Basic/Police Pension Plans and OPEB Trust administration. This amount is a 4% increase from FY2025 and is due to an increase of salary and benefits. Marshall Jarrett moved, and Matt Parker seconded approval of the FY2026 administrative allocation fee in the amount of $42,650. The motion passed 6-0-1. (Connie Absent) 13. Retirement Board Vacancy Update Gary Fuller has been elected as our new Basic Plan Representative, replacing Charlie Collier. Gary participated in the October Fiduciary Training. Tom Hall applied to serve on the Retirement Board and is invited to meet with Council’s appointment committee on November 13th with a probable appointment vote on November 25th. a. A new RB Roster has been updated on the City’s website. 14. Disability and Pre-retirement Death Benefits Update This is a pending item being put on the 2025 Work Plan. It requires follow-up work with Segal after completing priority tasks of benefit calculations, annual pension statements and actuarial valuations. It should be available at the February 2025 meeting. 15. 2025 Work Plan Adoption There will be status updates for each quarterly meeting along with Annual Activities and Special Projects. Marshall Jarrett moved, and Matt Parker seconded approval of the 2025 Work Plan adopted as presented with one change which is the deletion of the Experience Studying 2025 and scheduled for 2026. The motion passed 6-0-1. (Connie Absent) 16. 2025 Proposed Meeting Dates/Thursdays at 5pm (Time changed to 5pm) • February 13, 2025, Note: Mariner will attend virtually due to conflicts with flights • May 8, 2025 • September 11, 2025 • October 9, 2025 (Fiduciary Training)- daytime or evening? • November 13, 2025 Note: Columbus Day is Monday Oct 13th; Veteran’s Day is Nov 10th; IFEBP Conference is from Nov 9- 12th in Honolulu Hawaii (may explore additional training opportunities targeted to public plans) Marshall Jarrett moved, and Matt Parker seconded approval of the 2025 Retirement Board Meeting schedule as presented with one amendment for the meeting start times to be 5pm instead of 6pm. The motion passed 6-0-1. (Connie Absent) 17. Policy Development The importance of administrative policies for Retirement Board administrative oversight of the programs was discussed. In addition to the investment policy, the work plan includes adopting additional polices over time. To date, the Board has adopted: (1) Ethics and Conflict of Interest policy, (2) Training policy, (3) Contract and Purchasing policy, FOIA and (4) Electronic Meeting Participation policy and (5) Basic/Police and OPEB Investment Policy Statements (IPS). The Retirement Board is also subject to the City’s FOIA policy which is annually provided to Retirement Board members. Per the Work Plan policy development activity, the next policy to develop is a policy to document the administration and execution of the plans, since the General Government acts as the Operating, Personnel and Fiscal Agent. This policy does not supersede the plan documents. Marshall Jarrett moved, and Matt Parker seconded the approval of the Board’s 6th policy: Administrative Policy for Operational, Personnel, and Fiscal Agent functions as presented with the following amendment for the last word in the document plan to be made possessive, plans. The motion passed 6-0-1. (Connie Absent) 18. Retirement Board Annual Report to Council, January 13, 2025 Save the date item. Council requires an annual report from all Boards and Commissions. This takes place in January to give time to Plan Administrator and Chair to draft the report. 19. Consent Agenda – summarized and accept in block A. Plan Administrator’s Report – 2024 plan updates are available. There is a continuation to track the fiduciary best practices in the Workplan. Plan Administrator is working with Finance to provide a better reporting on where the RB on liquidating funds to make the payments of the fees for the investments in advance. a. Fiduciary Training Recommendations Follow-up & Cybersecurity b. Retirement Board Work Plan Status c. Trustee Manual and Onboarding update B. Plan Amendments – defer action to first quarter 2025 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 the approval of the Consent Agenda as presented. The motion passed 6-0-1. (Connie Absent) 20. Other business not on the agenda above – none 21. Adjournment – Marshall Jarrett moved, and Matt Parker seconded to adjourn the meeting at 8:06 PM. The motion passed 6-0-1 (Connie Absent) Next Meeting scheduled for Thursday, February 13, 2025, 5:00pm (Location: in-person Dogwood A&B)