Pension Committee

MINUTES City of Murfreesboro Pension Committee February 13, 2019 The City of Murfreesboro Pension Committee met on Wednesday, February 13, 2019, at 8:00 a.m. in City Council Chambers at City Hall. The following members were in attendance: Melissa Wright, Chair Earl Hull, Jr. Ronnie Martin Charlie Myatt Greg Sample Sgt. Sam Smith Erin Tucker Scott Uselton Also present at this meeting were: Adam Tucker, City Attorney Craig Tindall, City Manager Pam Russell, Human Resources Director Natalka Bukalo, President of Chartwell Consulting Rich Shaffer, Senior Partner of Chartwell Consulting Michael Guyton, Senior Consultant, Findley Matthew Gilliland, Senior Consultant, Findley Chris McFarlane, HR Benefits Administrator, Pension Committee Secretary Chair Wright called the meeting to order at 8:00 a.m. and determined a quorum was present. Welcome new Pension Committee members: Chair Wright welcomed City Councilmember Ronnie Martin and Mrs. Erin Tucker to the Pension Committee. Mr. Martin was appointed by City Council on October 18, 2018 and replaces Mayor McFarland as a City Council representative. Mrs. Tucker is the Budget Director for the City of Murfreesboro and was appointed by City Council on January 31, 2019 to replace Interim City Manager Mr. Jim Crumley who retired on February 1, 2019. Mrs. Tucker is a participant of the Defined Benefit Pension Plan. Pension Committee Meeting Minutes February 13, 2019 Page 2 of 5 Elect a Vice Chair for the Pension Committee: Chair Wright opened the floor for nominations for a Pension Committee Vice Chair. Mr. Myatt made a motion to elect Mrs. Erin Tucker as Vice Chair of the Pension Committee. Mr. Sample seconded the motion. There being no further discussion, the motion passed by unanimous vote of the members present. Consideration of the Minutes: Minutes of the September 12, 2018 meeting were presented for consideration. Mr. Sample made a motion that the minutes be approved as submitted. Mr. Myatt seconded the motion. There being no further discussion, the motion passed by unanimous vote of the members present. Discussion regarding the Long Term Rate of Return Assumption approved as a recommendation to City Council by the Pension Committee on September 12, 2018: Chair Wright stated she requested that Mr. Michael Guyton of Findley speak to the Pension Committee regarding the Long Term Rate of Return Assumption of 6.75% recommended at the September 12, 2018 meeting. Chair Wright noted that the City Manager is responsible for presenting a budget to the City Council each year in May. The Long Term Rate of Return Assumption proposed at the last meeting was 6.75% (dropping from 7.25%). Chair Wright requested that the Pension Committee reconsider moving the Long Term Rate of Return Assumption by .25% to 7.00%. The recommendation of 6.75% would add $1 Million Dollars to the City’s budget at a time when Council has directed staff to use less fund balance to balance the budget. Chair Wright stated that Mr. Guyton was going to speak to the City Council today at a workshop regarding the Pension Plan in general. Chair Wright turned the meeting over to Mr. Michael Guyton, Consulting Actuary with Findley. Mr. Guyton referred Pension Committee members to the City of Murfreesboro, Tennessee Employees’ Revised Pension Plan Long Term Rate of Return document dated February 13, 2019, which is attached and incorporated as part of the Pension Committee Minutes of February 13, 2019. Pension Committee Meeting Minutes February 13, 2019 Page 3 of 5 Mr. Guyton reviewed the overall objectives in determining a Long Term Rate of Return Assumption found on Page 1. The Long Term Rate of Return Assumption is based on the expected future investment returns of the portfolio. State law requires that the City fund 100% of the Actuarially Determined Contribution. The current Long Term Rate of Return Assumption for the Plan is 7.25%. Findley does not believe the current asset allocation portfolio will support 7.25% going forward. The time horizon for the capital markets is shorter than the life of the Plan. Effective July 1, 2018, there are 23 years remaining of the amortization of unfunded liability for the Pension Plan. The time horizon for the Pension Plan is at least 60 years. Generally, it is reasonable to add 25 to 50 basis points to the capital market assumption return to adjust to the long term time horizon. Mr. Guyton noted that the Long Term Rate of Return Assumption and asset portfolios can be looked at every year and adjusted as necessary based on the experience of the Plan. Mr. Guyton completed his commentary and review of graphs regarding selecting a Long Term Rate of Return Assumption for the Defined Benefit Pension Plan. Mr. Guyton opened the floor for questions. Mr. Guyton explained that each year Findley measures the liability to the Plan and adjusts the amortization payment to fit the needs of the Plan. After a brief discussion regarding the historical and current trends of the market, Mr. Guyton noted that gains and losses on the Plan assets over the last 10 or 20 years have been up and down and is smoothed out over a long period of time. Mr. Guyton noted that other factors influence the Plan. The City has been reviewing compensation for employees. As compensation rises for participants in the Plan, pension benefits increase which will cost the City for future pension benefits. Chair Wright noted that Findley computes the payroll contribution rate each year. Mr. Sample inquired as to the historic long term rate of return for the Plan. Mr. Shaffer of Chartwell Consulting stated the Plan on a net basis, for the 10 years ending December 31, 2018, achieved 7.00% annualized, noting that the Plan has been conservatively allocated during the 10 years. Approximately half of the Plan’s assets were in Fixed Income during the last 10 years. After discussions regarding current funding responsibility and current budgetary considerations for the City, Mr. Myatt made a motion to approve a long term rate of return assumption of 7.00%. Mr. Sample seconded the motion. There being no further discussion, the motion passed by unanimous vote of the members present. Pension Committee Meeting Minutes February 13, 2019 Page 4 of 5 Review of Investment Assumption and Strategic Asset Allocation Update by Mr. Rich Shaffer of Chartwell Consulting: Mr. Shaffer presented the Strategic Asset Allocation Study Update dated February 2019, which is attached and incorporated as part of the Pension Committee Minutes of February 13, 2019. Mr. Shaffer stated he wished to update the Committee on the original Strategic Asset Allocation Study presented in September 2018 as the Pension Committee asked Chartwell to take the private market allocation assumptions off the table (private equity, private debt, and global infrastructure) and come back to the Pension Committee to address the implications of removing same. Mr. Shaffer directed Committee members to Page 8, Appendix 1, for a commentary on Forecast Asset Class Returns. Mr. Shaffer directed Committee members to Page 6, Table 1, for a commentary on Asset Mixes by comparing the current asset policy with the original Chartwell 2018 Recommendation which included private market exposure at a 12% level, which is now off the table, and a New Chartwell Recommendation for consideration today. Mr. Myatt commented that the original 2018 Chartwell Recommendation has a favorable portfolio return compared to the New Chartwell Recommendation that excludes private equity and private debt (Page 7, Table 2: Forecast Portfolio Returns). After discussions regarding private equity and private debt investments and liquidity of investments, Mr. Myatt made a motion to adopt the original September 2018 Chartwell Recommendation Asset Allocation Portfolio that included private market asset allocations. Mr. Uselton seconded the motion. There being no further discussion, the motion passed by unanimous vote of the members present. Mr. Shaffer stated Chartwell will come back to the Committee with an implementation plan for the original 2018 Chartwell Recommendation. Review of Fourth Quarter 2018 Plan Performance, Asset Allocation, January 2019 Flash Report, and Rebalancing Recommendations for the Defined Benefit Pension Plan by Mrs. Natalka Bukalo of Chartwell Consulting: Mrs. Natalka Bukalo presented the attached City of Murfreesboro Pension Trust - Performance Reports - Fourth Quarter 2018 (Chartwell Review, Executive Summary, and Pension Trust Composite Report) dated February 2019, which documents are attached and incorporated as part of the Pension Committee Minutes of February 13, 2019. Pension Committee Meeting Minutes February 13, 2019 Page 5 of 5 Mrs. Bukalo referred Committee members to the Executive Summary for her commentary of the Pension Trust Plan performance, specifically Pages 2 through 13, and reviewed how market conditions negatively impacted Plan assets in the fourth quarter of 2018. As of December 31, 2018, the Plan balance was $128.9 Million, $10 Million less in assets from the beginning of the 2018 year. Mrs. Bukalo reviewed the performance of all Fund Managers in her report (Pages 11 through 18). Principal High Yield fund was removed from watchlist status. Dodge & Cox International Stock and Harbor Mid Cap Value funds are on watchlist status. Mrs. Bukalo opened the floor for questions on fund performance or managers. After a brief discussion regarding January 2019 gains and losses in the market, Mrs. Bukalo noted that the individual Fund Fact Sheets are available after Page 18 of the Executive Summary. The January 2019 Flash Report was included in the agenda packet and incorporated as part of the Pension Committee Minutes of February 13, 2019. As of January 31, 2019, Plan assets rose to $136.8 Million. Mrs. Bukalo noted that, absent objections from the Committee, Chartwell Consulting will send the rebalancing directives to Chair Wright for completion as outlined on the January 31, 2019 Flash Report by trimming overweight Principal High Yield exposure on strength ($600,000) and adding to Pinnacle Fixed Income ($300,000) and TCW Total Return Bond fund ($300,000). Other Business: There being no other business to come before the Pension Committee, the meeting was adjourned at 9:50 a.m.