Retiree Health Care Investment

Minutes Retiree Health Care Investment Meeting February 7, 2025, 9:30 a.m. City Hall, Room 122 203 S. Troy Street Royal Oak, Michigan 48067 Present: Lee Collick – Chairperson Bret Nelson – Vice Chairperson Joseph Gacioch – City Manager Kymberly Coy – Finance Director Lisa Genord – Financial Analyst / Pension Technician Tom Michaud – VanOverbeke, Michaud, & Timmony, P.C. Brian Green – Mariner Consulting Rebecca Chase – Senior Accountant Mike Kosciuk – Gabriel, Roeder, Smith, & Co. Absent: Amanda Herzog – Trustee Monica Hunt - Trustee _____________________________________________________________________ 1. Call to Order The meeting was called to order at 10:23 am. 2. Public Comment None 3. Approval of Agenda Moved by: Lee Collick Seconded by: Bret Nelson Motion Adopted 4. Approval of Minutes Moved by: Lee Collick Seconded by: Bret Nelson Motion Adopted 1 5. Other Retiree Health Care Plan Actuarial Valuation Report as of June 30, 2024 presented by Mike Kosciuk of Gabriel Roeder Smith. Mike advised the Retiree Health Care Plan Valuation Report is completed every two years. Mike reported that the major change from the 2022 report to the 2024 report was that plan, as of July 1, 2023, moved away from a self-insured model for post-65 benefit coverage to a fully insured Medicare Advantage coverage, which has had a significant impact on lowering liabilities. Mike reported that in 2022, the plan liabilities were $153 million and in 2024 they were $112.9 million, and that the change from the self-insured to the Medicare Advantage plan was a $50 million reduction in liabilities which was offset by $9.2 million increase due to the assumption changes. Mike also reported there was an inflation assumption that applied to the Medicare and pre-65 coverages, in that both will increase at a certain rate that is higher than standard baseline inflation rate (3%), which also impacted the liabilities. Mike reported that plan assets are doing well at $154.6 million, with the plan being 94% funded last year (2023) and now the plan is 137% funded (2024). Mike stated that as a result, there is no contribution requirement recommended for fiscal years 2025-2026 nor for 2026-27. Mike stated that after they completed the 2024 valuation report, GRS was asked to conduct additional analysis to determine if the city could forego contributions in the current fiscal year 2024-2025 beginning in January 2025. GRS provided the city a letter in December of 2024, indicating that indeed no contributions are required beginning in January of 2025. Mike also noted that they did utilize the 2025 Medicare Advantage rates increases when completing the valuation calculations for fiscal year 2026-27. Mike reported that the health trust did realize favorable investment returns in both 2023 & 2024 and that all gains on investments will be phased in over the next five years. Moved by: Lee Collick Seconded by: Joseph Gacioch Request that the Board receive and file the Retiree Health Care Plan Actuarial Valuation Report as of June 30, 2024 Motion Adopted Moved by: Lee Collick Seconded by: Bret Nelson Request that the Board approve the proposed Quarterly Meeting Schedule 2025 / 2026 (Friday's): 5/9/25, 8/1/25, 11/21/25, 2/6/26 Motion Adopted Moved by: Lee Collick Seconded by: Bret Nelson 2  Request that the Board receive and file all reports. Motion Adopted 6. Investments Investment performance review presented by Brian Green of Mariner Consulting. Market value/allocation of assets as of December 31, 2024, is $163,421,884 3-month performance – total portfolio outperformed the benchmark: -0.71% vs. - 0.85% index. Fiscal year-to-date performance – total portfolio underperformed the benchmark: 4.82% vs. 5.15% index. Year-to date performance – total portfolio outperformed the benchmark: 12.92% vs. 11.48% index. 1-year performance – total portfolio outperformed the benchmark: 12.92% vs. 11.48% index. 3-year performance – total portfolio outperformed the benchmark: 4.12% vs. 3.40% index. 5-year performance – total portfolio outperformed the benchmark: 7.85% vs. 7.63% index. Inception – total portfolio underperformed the benchmark: 7.41% vs. 7.64% index. Brian first provided a public comment regarding the health care valuation report presentation stating that there is $400,000 of normal costs that does not need to go into the retiree health care trust fund. Brian stated that there are other clients / communities that he has had this same discussion with and that are overfunded on retiree health care but underfunded on retiree pension. Those clients have opted to take what would have been their retiree health care fund contributions and instead apply those contributions to their retiree pension fund. Lee Collick, chairperson, asked if the Board is allowed to implement his suggestion, knowing that we are bonded to fund the retiree health care trust. Brian explained that his client, West Bloomfield, made this decision from a budgetary / city standpoint, not from a retirement board trustee standpoint. Joe Gacioch, City Manager, advised the Board that he and Kymberly Coy, Finance Director, will be looking into this option once the budget position is better understood. Brian reiterated that the city’s decision to bond in 2017 to fund the retiree health care trust has been a positive financial contribution to the city. Brian reported that as of December 31, 2024, the retiree health care investment portfolio realized a 12.92% return, which was the second year in a row for double-digit returns. Brian stated that the expectation out of the S&P 500 for the calendar year 2025 will probably be more muted. 3  Brian also provided a handout to support an Asset Allocation Discussion with the recommendation to de-risk the portfolio, to continue to protect the funded status of the system (137%). Brian outlined the proposed changes to the Investment Policy Statement targets, by asset class. Brian also had the actuary to review these recommendations as well, to ensure that they align with the valuation report and actuarial recommendations. Brian stated that the recommended asset allocation changes are memorialized in the Investment Policy Statement (IPS) document also provided at this meeting and is requesting that the Board formally adopt the IPS document provided. Moved by: Joseph Gacioch Seconded by: Lee Collick Request that the Board approve the Investment Policy Statement (IPS) document as presented. Motion Adopted Moved by: Lee Collick Seconded by: Bret Nelson Request that the Board receive and file all investment reports. Motion Adopted 7. Legal None 8. Adjournment The next quarterly meeting is scheduled for 9:00 am Friday, May 9, 2025, in conference room #122 at the City Hall Building at 203 South Troy Street. The meeting was adjourned at 10:45 am. Moved by: Lee Collick Seconded by: Bret Nelson Motion Adopted 4