Firefighters Pension Board

NI]ES FIREFIGHTERS' PENSIOT{ FUND BOARD OF TRUSTEES MEEnNG 8360 DEMPSTER Nll"E rr 50714 NOVEMBER 13, 2012 The meeting was called to order at 8:39 a.m. by President Greg Schmidt. Trustees Present: Greg Schmidt, Bob Greiner, Wally Blase, James Callero (9:05-11:15), and George Van Geem. Officials Present: Art Tepfer, Fund Actuary; Gary Karshna from Capital Gains, lnvestment Advisor to the Fund; Attorney Carolyn Clifford; Rich Scipione, Pension Clerk to the Fund; and Scot Neukirch, Village Finance Director. Public Comment: No public comment. Actuarial Report: Art Tepfer, our Fund Actuary, stated that we dropped our actuary rate to 7.25% from the original 7.5%. Since we dropped our actuary rate, our liabilities have increased. This liability is reflected in the lower funding percentage. Art has three goals for the Fund: 1. Build our assets through investment returns and municipal contributions. 2. Use a budgetary approach to minimize municipal contribution fluctuation. 3. Fulfill our requirement to pay for the pensions that are being earned today The Department of lnsurance uses the pro.iected unit credit method. The methodolo8y takes the liability of the fund and spreads it out over an increasing pattern. This methodology pushes the costs into the future. This is coupled with a method to amortize the unfunded liability and spread it over years in the future. ln Arfs opinion, this is a poor way of funding the pension fund. The Fund's funding goal is being chanBed to a 90% funding level, which is now provided by state statute, and being done on a straight-line basis for the future- This causes a higher contribution limit that the municipality will have to pay. We are 47% funded as of right now. The Fund was funded at 55% last year at this time, but most of the chan8e in the funding level is from the investment return being reduced to 7.25%. Art is concerned that in the next five years there are over twenty firefighters that will be eligible to retire, which will be a pull on the assets. We are paying out over three million dollars a year in pensions. 1  NIUS FIREFIGHTERS, PENSION FUND BOARD OF TRUSTEES MEETING 8350 DEMPSTER NttEs, tt 60714 NOVEMBER 13, 2012 This is due to increase as more employees retire. According to Arfs calculations the Fund must have an investment return of over 72yo every year to cover the existing pension payments. The only way to increase our Fund's assets will be through municipal contributions. According the actuarial report, the Fund lists over 60% of its members as inactive. The average for most funds is 40% inactive. George Van Geem explained that hiring firefighters would increase the unfunded liability of the Fund. According to the IPPFA, police and fire departments have lost over 7,5m personnel due to the cost of employees being unsustainable. Taking into consideration how the pensions are Boing now, George believes in the long term that the pensions are going to eventually be changed. George described how villages are going to need to think of creative ways of doing business. One of those changes could be consolidation of fire service with Park Ridge, Morton Grove, and North Maine. Carolyn is more comfortable with the trends in commitment to proper pension funding in the Village of Niles, even though our funding level is not as high as some of our peers. Because the senior management of the Village of Niles sits on this Board and the finance director has shown a commitment to proper funding, the Village understands the importance of continued and increased funding. lf the Village hires more firefighters, they will come in with a lower pension (Ter 2). New employees have zero acquired liabilities and support retired members. Bob Greiner questioned the accuracy of the current mortality tables. Art stated the Department of lnsurance just changed to the same mortality tables that he uses. The tables are very modern and use a recent study on retired firefighters that are currently on pension. .lim Callero arrived at 09:05 Scott anticipates that the Village will contribute the actuarial recommended level and not the Department of lnsurance recommendation. Carolyn wants the Board to write a letter strongly requesting that the Villa8e Board fund the Pension Fund with the actuarial recommendation and not the Department of lnsurance recommendation. Gary explained that on the investment side, bond yields are at historic lows. lt is difficult to find an investment with a larBe return. The Fund must stay conservative so we don't "get killed in the bear market." Art Tepfer left at O9:O5. Scot Neukirch presented the audited figures of the Statement of Changes in Plan Assets. Carolyn wants to get information on which investment return, specifically the figure listed on the actuarial report or 2  NII."ES FIREFIGHTERS' PENSIOI{ FUND BOARD OF TRUSTEES MEETING 8350 DEMPSIER NttEs, tt 60714 NOVEMBER 13, 2012 the figure used on the audit report, the Board should consider when communicating with the Village and making decisions regarding funding. On a motion by Greiner, seconded by Blase, to prepare a letter recommending the Village tax levy should be at least 2.7 million dollars to the Pension Fund. AYES: Greiner, Schmidt, Blase, Van Geem, and Callero NAYS: NonC ABSENT: None Motion carried. Previous Minutes Approval : On a motion by Greiner, seconded by Callero, the minutes from the August 21,2012 meeting were approved by a unanimous voice vote. Pension Clerk Scipione reviewed the closed meeting minutes as required semi-annually. The minutes reviewed were: November 30, 2002 February 4 2009 December 15, 2fi)4 September 28, 200!) February 9, 2005 october 15, 2fl)9 February 26, 2005 February 8, 2010 April 11, 2fl)6 April 7, 2010 DecemberT, 2005 September 7, 2010 January 8, 2008 On a motion by Van Geem, seconded by Greiner, to keep the listed meeting minutes closed for another six months. AYES: Greiner, Schmidt, Blase, Van Geem, and Crllero NA\6: None ABSENT: NONE Motion carried. Investment Adviso/s Report: Gary gave a small snapshot of the fiscal year returns included in the actuary report. The federal government, trying to prevent a financial meltdown, dropped the interest rates clos€ to zero. The 3  NILES FIREFIGHTERS' PENSIOT{ FUND BOARD OF TRUSTEES MEETING 8360 DEMPSTER NrrEs, t[ 50714 NOVEMBER 13, 2012 Federal Reserve Chairman stated that the interest rates would be low for a long period of time in the hopes of inflating the economy. The bond fund did very well with a rate of return of 6%. The equities of our portfolio did not perform as well with a rate of return of {.3% Diversification was not working as it should. Greg asked about companies giving special dividends in the next couple of weeks due to the fiscal cliff. Gary is looking at all those options but reminded Greg that the Fund is tax exempt and we own some of these companies through our mutual funds. Gary reviewed the September 30,2Ol2 Monthly Report. Our bond portfolio rate of return was 2.79yo and our equity portfolio had a rate of return of 1.98%. our total portfolios rate of return was 2.08%, beating the blended benchmarks rate of return of 2.07%. Gary is worried of possible increase inflation by 4%-5%, which may hurt the value of our bonds. The Fund only has 81% of the risk of the S&P 50o, and our portfolio should hold up if there is another market correction. Over the last twelve months our bond rate of return was 5.01% (versus the benchmark of and our equity rate of return was 74.45yo (versus the benchmark of _%). The total portfolio -%), rate of return is 8.61% over the last twelve months. cary wants to make changes to our equity portfolio. Gary requests that we sell Ridgeworth Small Cap Value (STCEX) 5700,000 and reduce S&P 50o ETF (lW) 5300,000. We will take the money from these sales and invest (purchase) the following: lnvesco European Growth (AEDAX) S250,00o, lnvesco Select Small Cap Blend (ATlAx) S250,0o0, First Eagle Value Fund (FEvAx) 5500,000, JP Morgan Mid-Cap Value Fund (JCMVX) 5250,m0, and Guggenheim S&P 500 Mid Growth ETF (RFG) 5250,000. Gary requests approval of 51,500,000 wire transfer to Pershing. This recommendation will increase the equity percentage from 49% to 55%. Greg Schmidt and Rich Scipione left at 9:10. The European stock market is discounted to the United States market by over 20%. By owning European stocks, we see a higher rate of return when the currency increases and the stock increases. Europe has a small rally with a decline in the last couple of months. Gary is looking for the double bottom as the best time to invest in the European stock market. On a motion by Greiner, seconded by Callero, to approve Gary Karshna's equity recommendation. AYES: Greiner, Blas€, Van Geem, and Callero NAYS: None ABSENT: Schmidt 4  NIl.ES FIREF]GHTERS' PENSION FUND BOARD OF TRUSTEEs MEETING 8360 DEMPSTER Ntt"E tt 60714 NOVEMBER 13, 2012 Motion carried. Gary discussed transferring of a bond holidng from Village to Fund. He received a letter from the IPPFA about trading securities from the Village to the Pension Fund. The letter stated that the securities are Collateralized Mortgage Obligations and the Fund will be unable to own these. George stated that this offer is off the table, and the Village would keep these securities in the Village' s general fund. Treasure/s Report: Scot went over the fiscal year 2012 lDOl annual statement. Carolyn recommends the Board have someone review the information on the individual members (such as birth dates, years of service, salary, etc.) for accuracy. This annual statement was filed on time to the Department of lnsurance. On a motion by Blase, seconded by Callero, to approve the lllinois Department of lnsurance annual statement. AYES: Greiner, Blase, Van Geem, and Callero NAYS: None ABSENT: Schmidt Motion carried. Greg Schmidt and Rich Scipione returned at 09:35. Scot presented the funding plan and the municipal compliance report that will be provided to the Village Board. This report recommends that the Village contribute Art Tepfe/s actuarial figure and not the Department of lnsurance's actuarial figure. This document shows the Board's funding plan to get 9096 funded by 2040. ln the funding plan, Scot outlines funding sources from the Village reserves and a 0.25% sales tax to improve the funding ofthe two pension funds. On a motion by Callero, seconded by Schmidt, to approve municipal compliance report. AYES: Greiner, Blase, Schmidt, Van Geem, and Callero NAYS: None ABSENT: None Motion carried. 5  NITES FIREFIGHTERS, PENSION FU D BOARD OF TRUSTEES MEETIT{G 8360 DEMPSTER NttEs, tt 50714 NOVEMBER 13, 2012 Gary compared Calumet City to the Village of Niles. We are comparable funds with an almost identical investment strategy. Calumet City placed the required funds into the Fund over the last twenty years, while the Village of Niles was deficient in funding. Calumet City has over 540 million in assets. Old Business: Carolyn reviewed the Board's fiduciary liability coverage. She tasked the Village to have its insurance broker find a policy that does not include the exclusions of underfunding and municipal bond holdings. One option may be Ullico, but Gallagher, the Village's insurance broker, has some problems with the viability of this company and its rating. Gallagher is looking at different options at this time. Renewal of this policy is March 1, 2013. Jim Callero asked if this Board is responsible for the past actions of the Fund. She believes if there is a lawsui! multiple people and the entity will be involved. Carolyn stated there has been a lawsuit filed between Chicago unions and their respective pension funds due to pension underfunding. Fiduciary liability is shifting to the villages and cities, particularly as the municipalities make specific decisions regarding how the actuarial studies are prepared. Carolyn wants a paper trail showing that the Board did everything in its power to have the Villate contribute the required funds to the Pension Fund. This insurance will cover the litigation of any lawsuit that is filed. Scot stated that they will have quotes of 55 million policies. Approva! of Bills and Disbursements: Pension Clerk Rich scipione presented check 2545-2552 for payment for a total of 517,370.02. A motion was made by Callero, s€conded by Blase, to approve the payment of the bills and disbu6ements as presented. Upon a call of the roll: AYES: Van Geem, Greiner, Blase, and Callero NAYS: None ABSENT: None Motion carried. New Business: Gary presented Capital Gains contract renewal to the Board. Capital Gains has been involved with the Fund for over twenty years, since 1992. James asked if any of his other contracts have ever not been renewed. Gary responded no, all his other clients have always renewed his services. Gary charges 23 basis points and then he absorb all the bank fees. After the bank fees are absorbed the fee drops to 19 basis points. 6  NII."ES FIREFIGHTERS' PE]TSION FUND BOARD OF TRUSIEES MEEflNG 8:I5O DEMPSTER NrrEs, [. 60714 ITtoVEMBER 13, 2012 On a motion by Callero, seconded by Greiner, to approve Capital Gains contract renewal until November 2013. AYES: Greiner, Blase, Schmidt, Van Geem, and Callero NAYS: None ABSENT: None Motion carried. Greg asked the Board if they would want a presentation by Woodlake Medical. This company deals with disability pensioners and their annual physicals. Woodlake Medical performs functional capacity evaluation to see if the pensioner would be able to return to work or remain disabled. The Board will revisit this in February. Greg also asked the Board if they would be interested in a presentation by Chicago Clearing/Chimicles and Tikellis LLP. This company deals with all the mutual funds, ETF's and other investments. They check for any active lawsuits or any other judgments that could result in an award to the Fund. Their fees are twenty percent of the collected judgments. The Board will revisit this in February. Training: Carolyn provided the board with training material that will be presented at the Northern lllinois Alliance of Fire Protection Districts annual training conference. Carolyn inquired on how we post our agendas. She wanted to make sure we are in compliance with the law of having the agenda continuously posted in a public place available twenty-four hours. The Board has designated two hours of training for this meeting. Next Meeting: The Board reviewed the proposed meeting schedule for 2013: February 26, May 6, August 28, and November 5, at 8:30 a.m. On a motion by Callero, seconded by Greiner, to approve the 2013 regular meeting schedule, the motion was approved by a unanimous voice vote. The meeting was adjourned at 11:15 a.m. on a motion by Schmidt, seconded by Greiner, and approved upon a unanimous vote voice. Respectfu lly submitted, 7  NIl"ES FIREFIGHTERS' PEI{SION FUND BOARD OF TRUSTEES MEETING 8360 DEMPSTER I{11"ES, tt 50714 NOVEMBER 13, 2012 Bob Greiner, Secretary Minutes approved by the Board of Trustees at its meeting on 2073. Minutes prepored by Rich Scipione. Pension Clerk to the Fund 8  I{IlTS FIREFIGHTERS, PENSION FUND BOARD OF TRUSTEES MEETING 8350 DEMPSIER NttEs, tt 60714 I{OVEMBER 13, 2012 VILI.AGE OF NILES FIRE PENSION FUND Statemenl of Changes in Plan Assats Year to Dale as ot Apnl 30.2012 Frre Pension Bosrd Me€ting - Nowmbor '13, 2012 Ad.rition. Arril 10.2012 Cont'hl.dr3 E.rgorsr E pirrt'to ) il14.249 Iotal ConUluJtprr' i 2.3?6.733 ' ,,!i",- 'l ,., - titafi! 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