General Employees Retirement Board

OFFICIAL MINUTES OF REGULAR MEETING OF THE STERLING HEIGHTS GENERAL EMPLOYEE’S RETIREMENT SYSTEM Thursday, February 19, 2015 ___________________________________________________________________ __ _ ___ Location: Room – City Conference Room #202 40555 Utica Road, Sterling Heights, MI 48313 Telephone: (586) 446-2331 Chairperson Weiler called the meeting to order at 1:32 p.m. BOARD MEMBERS PRESENT: Rich Weiler, Chairperson Brian Baker, Secretary Jennifer Varney, Treasurer Todd Marsh, Trustee Paul Henig, Trustee BOARD MEMBERS ABSENT: None. ALSO PRESENT: Aaron Castle, Legal Counsel, VanOverbeke Michaud &Timmony, P.C.; Walt Hessell, Pension Administrator APPROVAL OF AGENDA: Motion by Marsh, supported by Henig, to approve the agenda as presented. Ayes: All. Motion carried unanimously. APPROVAL OF MINUTES: Motion by Marsh, supported by Henig, to approve the minutes of the regular meeting held December 18, 2014. Ayes: All. Motion carried unanimously. COMMUNICATION FROM CITIZENS: None PRESENTATION OF 2014 ACTUARIAL REPORT BY GABRIEL ROEDER SMITH & CO Buis and Pieterse presented the December 31, 2014 (45th 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 84. 3% that compared favorably to the national averages. Buis commented that based upon actual market asset values, the plan was 87.2% funded. The actuarial experience loss for the year totaled $1,001,209 primarily due to three factors: higher than expected overtime pay increases from the severe winter snow emergencies, more active members retiring than expected and fewer deaths among retirees than assumed. During 2014, the actuarial recognized rate of return on a market value basis was 5.98% thereby creating a negative smoothing layer for the next four years. Buis stated that future market earnings volatility should 1 be mitigated based upon the existing five- year phase-in and projected overall positive layers for each of the next three years. Pieterse reported that the City required contribution for fiscal 2015/2016 would be $2,768,786 after netting a projected $682,906 in employee member contributions. He noted that all bargaining units were now making employee contributions at 8% of gross pay. The unfunded actuarial liability was amortized over the remaining 15- year period and amounted to $2,325,751 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. Discussion then ensued with regard to the phasing out of the Emergency Dispatch Unit effective February 28th, 2015. It was noted that the mandatory actuarial costing study for the ERIP portion would be prepared accordingly and then brought to the Board for review and approval. Overall the phase out of the unit would ultimately result in a substantial reduction to the GERS active member base as approximately 15 members were involved. Hessell asked Buis to comment as to the reasonableness of the 8% assumed rate of return especially given that the fund has returned over 9% since inception. Hessell 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 Morgan Stanley – The Brice Group. Hessell stated that by working with GRS this summer for the compilation of the GASB 67 and 68 reports an opportunity would arise for the redetermination of the assumed rate of return. Buis said that if necessary, the assumed rate of return could be revised in small increments such as 10 basis points and that the rate could be revised for the next actuarial valuation without the requirement of an experience study. The Board thanked Mr. Buis and Mr. Pieterse for their report and efforts on behalf of the system. 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, 2015 (as reflected by the December 31, 2014 Actuarial Valuation) in the amount of $3,451,692, consisting of the $2,768,786 City contribution and the $682,906 general employee contribution, and further that the recommended transfer in the amount of $3,107,893 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 45th Annual Actuarial report, dated December 31, 2014, be forwarded to the employer – City. Ayes: All. Motion carried unanimously. REPORT FROM LEGAL COUNSEL Aaron Castle provided a technical analysis of the Section 402 of the Internal Revenue Code revisions. Section 402 notices and lump sum distribution notices were revised by IRS Notice 2014-54 to include distributions to multiple destinations. From a practical manner, it would be helpful to a retiring member who had both taxed and non-taxed employee contributions in the system. Discussion arose with regard to the DPW Supervisory Group who as a whole have significant allocations to both taxed and non-taxed member contributions. Potentially, a retiring DPW Supervisor could take annuity withdrawal and roll over the non-taxed portion of member contributions to an IRA rollover account with the balance of the taxed contributions rolled to a ROTH IRA account. The Board action item for this matter was presented under New Business Item II A. Castle stated that the Victory Capital money manager contract was under final revisions while the Boyd Watterson contract had been completed and executed. Castle also commented on items as they appeared on the agenda. 2 CONSENT AGENDA: Motion by Baker, supported by Marsh, to receive and file consent items I A through I D-2. Ayes: All. Motion carried unanimously. I. RECEIVE AND FILE: A. Benefit register listing for February 1, 2015 from Comerica Bank showing 351 active retirees with a payout for January 2015 of $854,074.32 and a year-to-date payout of $1,708,719.09. B. Cash and Asset Statements as of January 31, 2015 from Comerica Bank and Merrill Lynch showing a total market value of $115,200,872.12 comprised as follows: Desired Allocation Actual Percentage Bank/Money Manager Market Value 0% 0.04% Comerica Bank $ 42,790.08 21.33% 16.13% PIMCO 18,583,132.17 10.67% 8.13% McDonnell 9,362,837.96 15% 16.24% Earnest Partners 18,705,827.93 8% 9.01% Herndon Capital 10,375,713.54 8% 10.06% MFS 11,585,573.00 5.33% 7.04% Victory 8,111,166.38 5.33% 7.01% Winslow 8,080,097.71 5.33% 7.06% Janus Capital 8,135,646.73 8.5% 7.32% INVESCO 8,430,014.89 8.5% 8.63% Allianz - NFJ 9,946,131.16 4% 3.33% Cohen & Steers – REIT 3,841,940.57 C. Correspondence 1. Q3 2014 Merrill Lynch AIM reports in CD-ROM format. 2. November 28, 2014 and December 31, 2014 Settlement Reports – Robbins Geller Rudman & Dowd. 3. December 31, 2014 Litigation Reports – Robbins Geller Rudman & Dowd. 4. Email correspondence and letter sent to Merrill Lynch dated December 12, 2014 regarding the transfer of funds for the payment of benefits. 5. Wire transfer confirmations received form Merrill Lynch dated December 17, 2014. 6. Authorization letters sent to Merrill Lynch dated December 26, 2014 regarding the custodial transfer of assets to Morgan Stanley. 7. Email correspondence regarding cancellation of the January 15, 2015 regular monthly GERS Board meeting. 8. Email correspondence and letter sent to Merrill Lynch dated January 16, 2015 regarding the transfer of funds for the payment of benefits. 9. Wire transfer confirmations received form Merrill Lynch dated January 23, 2015 10. “Pension & Investments” magazines dated December 22, 2014, January 12, January 26 & February 9, 2015. D. 1. Payable from System Assets for the six month service period ending December 31, 2014: 3  Quarterly management fees from McDonnell Investment in the amount of $5,097.29 and from McDonnell Investment (final) in the amount of $5,145.44. 2. Payable from City Assets for the service period ending December 31, 2014: Quarterly custodian banking fees from Comerica Bank in the amount of $4,809.01; benefit calculation actuarial fees from Gabriel Roeder Smith & Co. in the amount of $2,100.00 and legal services from VanOverbeke, Michaud & Timmony, P.C. in the amount of $10,642.50. REGULAR AGENDA: II. NEW BUSINESS: A. Section 402 Rollover Notice Revisions Motion by Henig, supported by Marsh, to adopt Resolution 15-01 as follows: CITY OF STERLING HEIGHTS GENERAL EMPLOYEES RETIREMENT SYSTEM R E S O L U T I O N 15-01 Adopted: February 19, 2015 Re: Notice to recipients of lump sum distributions from the Retirement System WHEREAS, the Board of Trustees is vested with the authority and fiduciary responsibility for the administration, management and operation of the Retirement System, and WHEREAS, the Board of Trustees acknowledges that Section 402 of the Internal Revenue Code requires the Board to provide notice to recipients of lump sum distributions from the Plan, and WHEREAS, applicable tax law and regulations require said notice to be provided at least thirty (30) days in advance of such distributions, and WHEREAS, legal counsel has prepared a distribution notice and form consistent with IRC Section 402, and WHEREAS, the Board of Trustees has discussed this matter, therefore be it RESOLVED, that the Retirement System is hereby amended to comply with and shall be administered in accordance with the requirements of Notice 2014-54, with respect to the rollover of distributions to multiple destinations, and further RESOLVED, that the Board of Trustees hereby adopts the distribution notice and form, and further RESOLVED, that the Retirement System shall be administered consistent with said notice and IRS Notice 2014-54, and further 4 RESOLVED, that the distribution notice and form be provided to recipients of lump sum distributions from the Retirement System consistent with the Internal Revenue Code, and further RESOLVED, that a copy of this resolution shall be provided to all appropriate parties. Ayes: All. Motion carried unanimously. B. Pension Administration 1. Draft Agenda March 5, 2015 Special Meeting Motion by Baker, supported by Henig to approve the Agenda for the March 5, 2015 special meeting as presented. Ayes: All. Motion carried unanimously. C. Trustee Comments - None. . ADJOURN: Motion by Varney, supported by Marsh, to adjourn the meeting at 2:18 p.m. Ayes: All. Motion carried unanimously. Respectfully Submitted, ___________________________________ Brian Baker, Secretary 5