General Employees Retirement Board

UNOFFICIAL MINUTES OF REGULAR MEETING OF THE STERLING HEIGHTS GENERAL EMPLOYEE’S RETIREMENT SYSTEM Thursday, February 21, 2013 Location: Room #201 40555 Utica Road, Sterling Heights, MI 48313 (586) 446-2331 Chairperson Weiler called the meeting to order at 1:35 p.m. BOARD MEMBERS PRESENT: Richard Weiler, Chairperson Brian Baker, Secretary Jennifer Varney, Treasurer Paul Henig, Trustee Todd Marsh, Trustee BOARD MEMBERS ABSENT: ALSO PRESENT: Walt Hessell, Pension Administrator; Michael VanOverbeke, Legal Counsel, VanOverbeke, Michaud & Timmony, P.C.; Mark Buis, FSA, EA, MAAA and Francois Pieterse, ASA, MAAA, Gabriel Roeder Smith & Company: Timothy Brice, Senior Vice President, The Brice Group, Merrill Lynch APPROVAL OF AGENDA: Motion by Marsh, supported by Varney, to amend the agenda for the addition of the annual actuarial fee under Consent Agenda Item I. D-3 Approve Invoices for Payment. Ayes: All. Motion carried unanimously. APPROVAL OF MINUTES: Motion by Varney, supported by Marsh, to approve the minutes of the regular meeting held January 17, 2013. Ayes: All. Motion carried unanimously. COMMUNICATION FROM CITIZENS: None PRESENTATION OF 2012 ACTUARIAL REPORT BY GABRIEL ROEDER SMITH & CO Buis and Pieterse presented the December 31, 2012 (43rd Annual) actuarial valuation for the retirement system to the Board and reviewed the funding status of the closed plan. The funding ratio of the plan is 83.5%. The actuarial experience loss for the year totaled $10,508,374 primarily due to the final year smoothing of the 2008 market losses. During 2012, the actuarial recognized rate of return on a market value basis was 13.59% thereby creating a positive smoothing for the next four years. Buis stated that future market earnings volatility should be mitigated based upon the existing five- year phase-in and projected layers. Approximately $827,407 in savings was realized from the revised benefit provisions that were negotiated into the recent CBA’s. However, the increased rate of retirements did increase the overall liability for the year. Pieterse reported that the City required contribution for fiscal 2013/2014 would be $2,735,453 after netting a projected $687,271 in employee member contributions. The unfunded actuarial liability was amortized over the remaining 17- year period and amounted to $2,249,133 for the current year. Looking forward, it was anticipated that future City required contribution amounts would approximate $2.7 million per year given market returns achieve the 8% assumed rate of return. Hessell asked Brice to comment as to the reasonableness of the 8% assumed rate of return especially given that the fund has returned 9.2% since inception. Brice stated that the update to the formal annual market study was underway and that the new report would incorporate the newest capital market outlook data from Merrill Lynch. Brice believed the current 8% assumption to be appropriate unless proven otherwise by the pending study. Buis said that if necessary, the assumed rate of return could be revised in small increments such as 10 basis points. Buis noted that in his firm’s customer base a number of systems had recently revised their assumed rate of return downward. The Board thanked Mr. Buis and Mr. Pieterse for their report and efforts on behalf of the system, after which they departed from the meeting. Motion by Baker, supported by Varney, that the Board hereby certifies to the employer – City, the employer contribution required for the fiscal year beginning July 1, 2013 (as reflected by the December 31, 2012 Actuarial Valuation) in the amount of $3,422,724, consisting of the City contribution and the general employee contribution, and further that the recommended transfer in the amount of $14,758,937 to the Reserve for Retired Benefit Payments from the Reserve for Employer Contributions be made, and further that a copy of this motion and the 43rd Annual Actuarial report, dated December 31, 2012, be forwarded to the employer – City. Ayes: All. Motion carried unanimously. REPORT FROM LEGAL COUNSEL: VanOverbeke commented on issues as they appeared on the agenda. CONSENT AGENDA: Motion by Baker, supported by Varney, to receive and file consent items I A through I D-3. Ayes: All. Motion carried unanimously. I. RECEIVE AND FILE: A. Benefit register listing for February 1, 2013 from Comerica Bank showing 333 active retirees with a payout for January 2013 of $771,729.63 and a year-to-date payout of $1,541,783.23. B. Cash and Asset Statements as of January 31, 2013 from Comerica Bank and Merrill Lynch showing a total market value of $110,131,321.70 comprised as follows: Desired Actual Bank/Money Market Value Allocation Percentage Manager 0% 0.76% Comerica Bank $835,153.73 16% 15.54% PIMCO 17,114,521.26 16% 14.72% McDonnell 16,213,253.06 15% 13.86% Earnest Partners 15,266,773.37 8% 7.67% Herndon Capital 8,447,491.54 8% 7.71% MFS 8,491,025.59 5.33% 6.23% Victory 6,858,676.68 5.33% 6.43% Winslow 7,075,464.02 5.33% 6.52% Janus Capital 7,185,275.42 8.5% 7.54% Thornburg 8,300,204.05 8.5% 9.01% Allianz - NFJ 9,923,104.65 Cohen & Steers – 4% 4.01% 4,420,378.33 REIT C. Correspondence 1. December 28, 2012 Monitoring Report – Robbins Geller Rudman & Dowd LLP. 2. Form ADV Part 2A received from McDonnell Investment  dated January 10, 2013. 3. Email correspondence and letter sent to Merrill Lynch dated January 17, 2013 regarding the transfer of funds for the payment of benefits. 4. Wire transfer confirmation received form Merrill Lynch dated January 29, 2013. 5. Class Action Settlements Claims Due March 2013. 6. Allianz Global Investors Managed Accounts Trust – supplement to prospectus dated December 31, 2012. 7. Email correspondence and faxed documents sent to Merrill Lynch dated February 14, 2012 in regard to strategic Allocation Modeling Study. 8. “Institutional Investor’s Alpha” magazine dated Winter 2013. 9. “Employee Benefit News” magazine dated January 2013, Vol. 27 10. “Pension & Investments” magazines dated January 21 & February 4, 2013. D. Approve Invoices for Payment 1. Payable from System Assets for the quarterly service period ending December 31, 2012 Quarterly management fees from McDonnell Investment in the amount of $8,115.23. 2. Payable from System Assets for the quarterly service period ending March 31, 2013. Quarterly management fees from Merrill Lynch Consults - MFS in the amount of $14,787.12; from Merrill Lynch Consults SPA – McDonnell in the amount of $3,199.80; from Merrill Lynch Consults – Janus in the amount of $12,954.22; from Merrill Lynch Consults – Winslow in the amount of $10,407.76; from Merrill Lynch Consults – Victory in the amount of $10,051.29; from Merrill Lynch Consults – Herndon in the amount of $12,257.51; from Merrill Lynch Consults – NFJ in the amount of $16,815.46; from Merrill Lynch Consults – Thornburg in the amount of $13,693.05; from Merrill Lynch Consults – PIMCO in the amount of $19,059.90 and from Merrill Lynch Consults – Earnest in the amount of $26,594.25. 3. Payable from City Assets for the quarterly service period ending December 31, 2012 Quarterly investment consultant fees from Merrill Lynch Consulting Services in the amount of $8,208.33; quarterly custodian banking fees from Comerica Bank in the amount of $1,795.59 and annual actuarial services from Gabriel, Roeder Smith & Co in the amount of $17,700.00. REGULAR AGENDA: II. NEW BUSINESS: A. Change in Retiree Status – Jean Shea (Deceased) Motion by Henig, supported by Marsh, to approve termination of straight life option benefits for retiree, Jean Shea, due to her death on January 2, 2013. Ayes: All. Motion carried unanimously. B. Application for Service Retirement for Larry D’Angelo, Court Officer, 41-A District Court Motion by Baker, supported by Henig, to receive and file the application for service retirement for Larry D’Angelo, Court Officer, 41-A District Court. Ayes: All. Motion carried unanimously. C. Pension Administration Comments – None D. Trustee Comments – Tactical Asset Allocation Discussion ensued regarding the portfolio review that had been conducted at the earlier morning meeting. Brice recapped for the Board, a tactical asset allocation within the fixed income portfolio that recommended a rebalance between the fixed income managers that would result in a one-third and two- thirds allocation for McDonnell Investments and PIMCO respectively. Motion by Varney, supported by Baker to authorize The Brice Group to effect a rebalance of the fixed income portfolio for a one-third McDonnell Investment and a two-thirds PIMCO asset allocation. Ayes: All. Motion carried unanimously. ADJOURN: Motion by Baker, supported by Varney, to adjourn the meeting at 2:17 p.m. Ayes: All. Motion carried unanimously. Respectfully Submitted, ___________________________________ Brian Baker, Secretary