General Employees Retirement Board

OFFICIAL MINUTES OF REGULAR MEETING OF THE STERLING HEIGHTS GENERAL EMPLOYEE’S RETIREMENT SYSTEM Thursday, September 17, 2015 ___________________________________________________________________ __ _ ___ Location: Room – City Council Conference Room #201 40555 Utica Road, Sterling Heights, MI 48313 Telephone: (586) 446-2331 Chairperson Weiler called the meeting to order at 1:33 p.m. BOARD MEMBERS PRESENT: Rich Weiler, Chairperson Brian Baker, Secretary (via conference call) Jennifer Varney, Treasurer Todd Marsh, Trustee Paul Henig, Trustee BOARD MEMBERS ABSENT: None. ALSO PRESENT: Thomas Michaud, Legal Counsel, VanOverbeke, Michaud and Timmony, P.C; Walt Hessell, Pension Administrator; Leslie Reinhart, City Controller and Nick Makie, City Controller APPROVAL OF AGENDA: Motion by Henig, supported by Marsh, to approve the agenda as presented. Ayes: All. Motion carried unanimously. APPROVAL OF MINUTES: Motion by Henig, supported by Marsh, to approve the minutes of the regular meeting held August 20, 2015 and the special meeting of August 26, 2015. Ayes: All. Motion carried unanimously. COMMUNICATION FROM CITIZENS: None. PRESENTATION OF ANNUAL ACTUARIAL VALUATION REPORT - GABRIEL, ROEDER, SMITH & CO Francois Pieterse presented the June 30, 2015 (46th Annual) actuarial valuation for the retirement system to the Board and reviewed the funding status of the closed plan while noting that this was the first report issued under the revised valuation date in order to coincide with the City’s fiscal year. The funding ratio of the plan is 84.8% that compared favorably to the national averages. Pieterse commented that based upon actual market asset values, the plan was 86.1% funded. The actuarial experience gain for the year totaled $446,802 primarily due to two factors: lower than expected pay increases and more active members terminating than expected (Emergency Dispatch Unit). Offsetting these gains were unfavorable investment performance, more active members retiring and fewer deaths among retirees than assumed. During the June 2015 fiscal year, the actuarial recognized rate of return on a market value basis was 1.97% thereby 1 creating a negative smoothing layer for the next four years. However, Pieterse stated that future market earnings volatility should be mitigated based upon the existing five- year phase-in and projected overall net positive layers for each of the next four years. Pieterse reported that the City required contribution for fiscal 2016/2017 would be $2,648,960 after netting a projected $583,981 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 14- year period and amounted to $2,263,532 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. Overall the phase out of the unit ultimately resulted in a substantial reduction to the GERS active member base as approximately 15 members were involved. Varney asked Pieterse to comment as to the reasonableness of the 8% assumed rate of return especially given that the fund has returned over 8% since inception. He commented that the firm was recommending that a 7.75% assumed rate of return be adopted due to widely anticipated lower investment returns in the future. Hessell stated that the formal annual market study that was recently completed from the capital market outlook data from Morgan Stanley – The Brice Group indicated that the system could still achieve in excess of 8% returns net of fees. By Board consensus, it was decided that the matter would be revisited at the next upcoming special meeting with The Brice Group. Baker inquired as to when a revised assumed rate of return would need to be determined if any and Hessell stated that the Board would need to take formal action by June 2016 so that the next actuarial valuation and GASB reports could be prepared. The Board thanked Mr. Pieterse for the report and efforts on behalf of the system. Motion by Marsh, supported by Henig, that the Board hereby certifies to the employer – City, the employer contribution required for the fiscal year beginning July 1, 2016 (as reflected by the June 30, 2015 Actuarial Valuation) in the amount of $3,232,941, consisting of the $2,648,960 City contribution and the $583,981 general employee contribution, and further that the recommended transfer in the amount of $3,097,199 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 46th Annual Actuarial report, dated June 30, 2015, be forwarded to the employer – City. Ayes: All. Motion carried unanimously. PRESENTATION OF GASB STATEMENTS NO. 67 & 68 PLAN REPORTING AND ACCOUNTING SCHEDULES JUNE 30, 2015 – GABRIEL, ROEDER, SMITH & CO Pieterse reviewed the GASB No. 67 & 68 report with the Board and described the differences between the numbers reported for the funding valuation report and those figures that were incorporated into the GASB report. The most common denominator was that the market value assets in the valuation report agreed to the plan fiduciary net position – ending as presented in the GASB report in the amount of $114,783,963. The net pension liability for the GERS system that would be recorded as a liability amounted to $18,465,919. With both of the City Controllers present, discussion ensued with the appropriateness of the required expense and liability to the proprietary water and sewer fund as required under GASB. It was determined that said allocations were consistent with the allocation methodology as documented in the budgetary allocation process for expensing the City employer annual contribution. The Board thanked Mr. Pieterse for the GASB report. 2 Motion by Henig, supported by Baker, to receive and file the GASB No. 67 and No. 68 Accounting and Financial Reporting for Pensions Report, dated June 30, 2015 and further that a copy of this motion and the GASB No.67 and No. 68 Accounting and Financial Reporting for Pensions Report, be forwarded to the employer – City. REPORT FROM LEGAL COUNSEL No formal report was presented, Michaud commented on items as they appeared on the agenda. CONSENT AGENDA: Motion by Varney, supported by Marsh, to receive and file consent items I A through I C. Ayes: All. Motion carried unanimously. I. RECEIVE AND FILE: A. Benefit register listing for September 1, 2015 from Comerica Bank showing 359 active retirees with a payout for August 2015 of $904,686.50 and a year-to-date payout of $8,313,881.07. B. Cash and Asset Statements as of August 31, 2015 from Comerica Bank and Morgan Stanley showing a total market value of $109,850,354.32 comprised as follows: Desired Market Value Allocation Asset Class / Percentage 0% Cash 1.18% Comerica Bank $ 1,300,045.63 16% Fixed Income 16.50% Boyd Watterson 18,125,185.02 8% Fixed Income 8.27% WAMCO 9,091,545.41 15% Small Cap 16.23% Earnest Partners 17,824,843.48 6.8% Large Cap Value 6.56% Herndon Capital 7,207,500.93 6.8% Large Cap Value 6.81% MFS 7,483,318.50 5% Large Cap Growth 5.05% AMI 5,545,289.52 5% Large Cap Growth 4.59% Winslow 5,038,844.08 3.40% Large Cap Growth 3.33% Janus Capital 3,661,448.01 8% Large Cap Core 8.37% London 9,190,624.75 5% Large Cap Core 5.08% S&P Index 5,577,322.50 8.5% Large Cap Global 7.90% INVESCO 8,673,922.69 8.5% Large Cap Global 8.03% Cambiar 8,818,365.28 4% REITS 2.10% Principal REIT 2,312,099.12 C. Correspondence 1. Securities Litigation Settlement Report dated July 31, 2015. 2. Email correspondence and letter sent to Morgan Stanley and Comerica dated August 20, 2015 regarding the transfer of funds for the payment of benefits. 3. Email correspondence with City Clerk dated August 21, 2015 regarding the election for GERS Board Trustee. 4. Waiver of annual account maintenance fees notice received from Morgan Stanley dated August 21, 2015. 5. Wire transfer notifications received from Morgan Stanley dated August 27, 2015 confirming the transfer of funds for the payment of retirement benefits. 6. Email correspondence regarding market volatility commentary dated September 4, 2015 received from Morgan Stanley. 7. “Pension & Investments” magazines dated August 24 and September 7, 2015. 3 REGULAR AGENDA: II. OLD BUSINESS A. GERS Summary Annual Report (SAR) – Public Act 347 of 2012 Compliance Motion by Baker, supported by Marsh, to receive and file the GERS Summary Annual Report (SAR) which was updated for compliance with Public Act 347 of 2012. Ayes: All. Motion carried unanimously. B. Retirement Information for Mary Tackett, Program Assistant, Senior Center Motion by Henig, supported by Varney, to approve the service retirement for Mary Tackett, Program Assistant, Senior Center, effective July 31, 2015 with service credit of 15 years and the monthly pension amount of $1,284.91 under Straight Life with Annuity Withdrawal based on a monthly final average compensation of $4,404.92. Ayes: All. Motion carried unanimously. III. NEW BUSINESS: A. Pension Administration Comments – Update of Annual Retiree / Beneficiary Verification Hessell informed the Board that the first mailing for the annual verification process was sent out the first week of September and to date, approximately 78% of members have responded. Hessell then briefed the Board as to the City Clerk’s efforts to hold a trustee election for the pending expiration of Trustee Henig’s term on October 15, 2015. To date, only one nomination has been receipted by the City Clerk and the sole nominee was Paul Henig. The nomination process will conclude on the afternoon of September 28th. B. Trustee Comments – None . ADJOURN: Motion by Varney, supported by Weiler, to adjourn the meeting at 2:37 p.m. Ayes: All. Motion carried unanimously. Respectfully Submitted, ___________________________________ Brian Baker, Secretary 4