Police & Fire Retirement Board

REGULAR MEETING MINUTES OF THE STERLING HEIGHTS POLICE AND FIRE RETIREMENT SYSTEM, ACT 345 FEBRUARY 21, 2013 FIRE DEPARTMENT CONFERENCE ROOM 41625 RYAN ROAD STERLING HEIGHTS, MI 48313 1. The regular meeting of the Police and Fire Retirement System was called to order by President Solak at 3:33 p.m. 2. Board Members present: Solak, Wellhausen, Nash, Lamerato, Varney. Also present: Tim Brice, representing Merrill Lynch Private Client Group; Michael VanOverbeke, Legal Counsel; and Nancy Duyck, Pension Technician. 3. APPROVAL OF CONSENT AND REGULAR AGENDAS Motion by Wellhausen, supported by Lamerato, to approve the consent agenda as presented. Ayes: All. The motion carried. The following item was added to the regular agenda: 10 a 8 SHPOA Letter - discussion Motion by Wellhausen, supported by Nash, to approve the regular agenda as amended. Ayes: All. The motion carried. 4. APPROVAL OF MINUTES No corrections were made to the draft minutes of the regular meeting of January 17, 2013. Motion by Lamerato, supported by Nash, to approve the minutes as presented. Ayes: Lamerato, Nash, Solak, Varney.  Abstain: Wellhausen The motion carried; the minutes of the regular meeting of January 17, 2013 are hereby approved as presented. 5. CITIZEN PARTICIPATION There was no Citizen participation 6. REPORT FROM LEGAL COUNSEL No formal legal report was presented. Mr. VanOverbeke reviewed the legislative update with the Board regarding Public Act 528 that deals with notice requirements for meetings of a public body, specifically for a rescheduled regular or special meeting. Public Act 597 of 2012 now provides income tax deductions, beginning with the 2013 tax year, for those retirees not covered by the Social Security Act born between 1946 and 1952 and after 1952. Mr. VanOverbeke commented on items of old business as they were considered. CONSENT AGENDA 7. CORRESPONDENCE a. Correspondence from Intercontinental received February 7, 2013 re: 4th quarter performance report for US REIF and Fund III. b. Other correspondence received from: 1. McDonnell Form ADV Part 2A 2. Merrill Lynch – market value updates 3. Robbins Geller Rudman & Dowd LLP 4. University Conference Services c. Magazines received: 1. Pensions & Investments for January 21, 2013 and February 4, 2013. 2. Institutional Investor for February 2013 3. Plan Sponsor for February 2013 8. BILLS AND EXPENDITURES c. Checking Account Summary Beginning Balance $5,786.91 1/01/13 Additions (1) 1. 1/24 $5,000.00  Subtractions (5) $2,008.21 1. 1/28 Check 1896 37.26 AT & T phone bill – 1/16/13 2. Check 5233 0.00 VOID 3. 1/07 Check 5234 76.62 Contract fee – Gurin & Gurin 4. 1/04 Check 5235 908.86 Contract Payment Nancy Duyck 5. 1/18 Check 5236 908.85 Contract Payment Nancy Duyck 6. 1/30 Check 5238 76.62 Contract fee – Gurin & Gurin Electronic withdrawals (4) $1,322.13 1. 1/07 461.54 IRA contribution 2. 1/09 348.96 IRS Fed. tax w/h 3. 1/18 104.34 Michigan St. tax w/h 4. 1/23 407.29 IRS Fed. tax w/h Ending Balance $7,456.57 1/31/13 d. Transmittal of Checks 1. $50,055.99 received from Aaron Burgess for the purchase of 1 year and 5 months of eligible municipal service credit. 9. FUNDS MANAGEMENT a. The current value of funds as of January 31, 2013 is detailed below: Clearing account $ 2,338,723.45 Intercontinental $ 8,598,343.99 McDonnell $ 15,958,963.79 Pimco $ 16,305,963.93 Wamco $ 16,365,535.84 Winslow $ 18,691,353.47 Janus $ 19,327,433.97 Eagle $ 19,792,484.07 Herndon $ 20,058,554.34 Earnest Partners $ 10,868,008.24 NFJ/Allianz $ 15,761,298.10 AIM/Invesco $ 15,074,771.92 Checking account $ 7,456.57 TOTAL FUNDS $ 179,148,891.68  b. The Board received a copy of the Summary of Employer Contributions to the Police and Fire Retirement System for the 2012 tax year as of 2/13/13. The System has received $8,378,508.10 of the 2012/13 budget of $8,815,031.00, leaving a $436,522.90 balance. c. Benefit Register Listing as of February 1, 2013 from Comerica Bank showing 293 retirees/beneficiaries with a payout for February of $1,192,442.77 and a year-to-date of $2,384,901.73. d. The current Merrill Lynch Bond index for January 2013 is 1.71%. 10. BENEFITS & PLAN ADMINISTRATION Old Business 1. Abel/Noser Reports for December 2012 Abel/Noser has supplied the December 2012 report. 2. Aaron Burgess – adjusted hire (retirement) date The adjusted hire (retirement) date for Police Sergeant Aaron Burgess is January 29, 1993 after the purchase of 1 year and 5 months of eligible municipal service credit. REGULAR AGENDA 8. BILLS AND EXPENDITURES a. Disbursements other than retiree benefit payments (bills) 1. Disbursement to Comerica Bank in the total amount of $2,731.21 for services rendered to the Clearing, Intercontinental, and McDonnell accounts for the quarter ended 12/31/12. 2. Disbursement to Merrill Lynch Private Client Group in the amount of $6,100.00 for consulting services for the period of 1/1/13 through 6/30/13. 3. Disbursement to McDonnell Investment Management in the amount of $7,990.64 for investment management fees for the quarter ended 12/31/12.  4. Disbursement to Merrill Lynch in the amount of $11,535.81 for quarterly SPA fee for the Eagle account for the quarter ended 3/31/13. 5. Disbursement to Merrill Lynch in the amount of $26,831.34 for quarterly Consults fee for the AIM/Invesco account for the quarter ended 3/31/13. 6. Disbursement to Merrill Lynch in the amount of $34,851.22 for quarterly Consults fee for the Janus account for the quarter ended 3/31/13. 7. Disbursement to Eagle Capital Management in the amount of $37,923.66 for investment management fees for the quarter ended 12/31/12. Motion by Wellhausen, supported by Lamerato, to approve the bills as presented. Ayes: All. The motion carried. b. Disbursement to retirees/members other than monthly benefit payments 1. Jeffrey Davey – refund of contributions Fire Fighter Jeffrey Davey was hired on February 6, 2012 and was laid-off June 30, 2012. Mr. Davey has requested a refund of his contributions and interest. Walt Hessell has calculated the amount of the refund in the amount of $1,943.97. All required paperwork is on file in the Pension Office. Motion by Wellhausen, supported by Solak, to approve the disbursement as presented. Ayes: All. The motion carried. The following items were taken out of order of the published agenda. REGULAR AGENDA 10. BENEFITS & PLAN ADMINISTRATION a. Old Business 3. Kathryn Yanez – EDRO benefit resolution - discussion Kathryn Yanez, Alternate Payee of Henry Yanez, has supplied the necessary paperwork to start receiving her monthly benefit as stipulated in the EDRO as of February 1, 2013. All required paperwork is on file in the Pension Office. After discussion, the following resolution was considered: L 13-2-21-1 Re: Kathryn Yanez EDRO BENEFIT WHEREAS, the City of Sterling Heights Police and Fire Retirement System consists of a defined benefit plan and defined contribution plan which are qualified plans under applicable provisions of the Internal Revenue Code, and WHEREAS, the Retirement System is generally subject to Public Act 46 of 1991 of the State of Michigan statutes (MCLA 38.1701, et seq.), and WHEREAS, the Board of Trustees previously received an Eligible Domestic Relations Order, dated January 23, 2009, purporting to grant KATHRYN YANEZ with certain rights and claims regarding Retirement System benefits normally payable to HENRY YANEZ, who terminated employment as of January 17, 2013, and WHEREAS, the Board, at its meeting of February 25, 2009, approved the Eligible Domestic Relations Order, dated January 23, 2009 wherein KATHRYN YANEZ, the former spouse of the member, was granted certain rights to the Defined Benefit Plan benefit of the aforesaid member, and WHEREAS, the benefits payable from the Defined Benefit Plan are subject to the terms of the January 23, 2009 EDRO, and accordingly, the former spouse, KATHRYN YANEZ, shall receive fifty (50%) per cent portion of the member’s Defined Benefit Plan benefits which has accrued from the date of marriage to March 25, 2008, and WHEREAS, KATHRYN YANEZ has elected to receive her actuarial reduced benefit over her lifetime, and THEREFORE, BE IT RESOLVED, that the Board hereby acknowledges receipt of the Eligible Domestic Relations Order, dated January 23, 2009, and shall pay pension benefits consistent with said Court Order, and further RESOLVED, that in accordance with the EDRO, KATHRYN YANEZ shall be paid a yearly regular retirement pay in the amount of $26,214.60 or monthly benefits of $2,184.55. That the Treasurer shall immediately calculate and pay KATHRYN YANEZ the appropriate amount effective February 1, 2013, and further RESOLVED, that pension benefits, consistent with the elections herein and in accordance with the provisions of the January 23, 2009 EDRO, be paid to the former spouse, KATHRYN YANEZ. Motion Wellhausen, supported by Solak, to adopt the resolution as presented and approve the disbursement. Ayes: All. The motion carried; the resolution is hereby adopted. 4. 2012 STD/LTD report - discussion The Board received a listing of Police and Fire members who were off on short-term/long term disability during 2012 from the City Human Resources/Risk Management Department. Persons affected by periods of STD/LTD were sent correspondence detailing the preliminary findings according to the report and the amount of time that may be lost net of the sixty-day allowance permitted by Act 345. Total Total Total Adjusted Member Name Days Off Days credited Lost time Ret. Date Hopper, Colleen 19 19 0 N/A Maxey, Lindsey 15 15 0 N/A Phillips, Thomas 117 60 57 8/18/99 Shippy, Randall 24 24 0 N/A Wemple, Margaret 10 10 0 N/A Post, Eric 212 60 152 1/17/00 It was noted that Eric Post was off on Long Term Disability from October 31, 2012 through December 31, 2012. Motion by Solak, supported by Wellhausen, to approve the 2012 short-term/long-term disability reports, with credits and adjustments as listed. Ayes: All. The motion carried. 5. Proposed 2013/14 budget – discussion  The Secretary reviewed a mid-year spreadsheet for actual expenditures with percentages of budget spent. He also reviewed recommendations for the 2013/14 budget. During discussion, the following budget center amounts were considered: 2013/14 PROPOSED BUDGET ITEM BUDGET 2012/13 PROPOSED 2013/14 SUPPLIES 729.000 Postage 500 600 (20% change) 730.000 Publications 350 0 (-100% change) 751.000 Operating 300 250 (-16.67% change) Supplies 758.000 Computer 0 0 (No change) Software Total Supplies 1,150 850 (-26.09% change) OTHER CHARGES 802.000 Audit/accounting 31,800 22,800 (-28.03% change) 806.000 Legal Services 12,000 12,000 (No change) 807.000 Medical Services 1,000 1,000 (No change) 826.000 Other Contracted 1,030,500 1,142,620 (10.88% change) 903.000 Printing 250 200 (-20.00% change) 922.000 Telephone 710 450 (-36.62% change) 956.000 Local Meetings 0 0 (No change) 957.000 Memberships 325 100 (-69.23% change) 959.000 Education/Training 5,650 5,650 (No change) 1,082,235 1,184,820 (9.48% change) TOTAL ACTIVITY 1,083,385 1,185,670 (9.44% change) CAPITAL EQUIPMENT 979.000 Computer Equipment 0 0 (No change) Motion by Wellhausen, supported by Nash, to approve the 2013/14 budget as presented. Ayes: All. The motion carried. Mark Wellhausen had to leave the meeting at 3:50 p.m. 6. Service Provider Disclosure Policy resolution and forms - discussion Legal Counsel discussed the draft Service Provider Disclosure Policy resolution and forms related to the Act 314 Amendments (PA 347) with the Board. Motion by Solak, supported by Varney, to acknowledge receipt of the draft resolution and forms. Ayes: Solak, Varney, Nash, Lamerato. Absent: Wellhausen. The motion carried. The Secretary will send a copy of the draft resolution and forms to all investment service providers for their review and comments. The Board will consider adoption of the resolution and forms at the regular meeting on March 21, 2013. 7. Account transfer for March 2013 benefit payments – discussion As of February 18, 2013, the Clearing Account had a balance of $1,044,446.98. An additional $135,000.00 is needed for the March 1, 2013 pension benefit payments and bills from the Clearing Account. Merrill Lynch has forwarded an e-mail that the additional amount needed should be taken from the Herndon account based on the asset allocation targets. Motion by Varney, supported by Lamerato, to approve the transfer of the appropriate amount of funds from the Herndon account, based on the asset allocation targets, to provide for pension benefit payments and other disbursements on March 1, 2013. Ayes: Varney, Lamerato, Solak, Nash. Absent: Wellhausen. The motion carried. 8. SHPOA Letter – discussion  The SHPOA never received their requested information from the actuary last year. They now would like to get the information, but have it processed at a revised date. Motion by Solak, supported by Varney, to approve their request and forward the letter to the actuary. Ayes: Solak, Varney, Nash, Lamerato. Absent: Wellhausen. The motion carried. The Board returned to the published agenda. REGULAR AGENDA 9. FUNDS MANAGEMENT e. Quarterly Performance Report 1. Merrill Lynch Tim Brice reviewed the summary report of manager performance. Enclosed in this report was the Board’s summary of investment policies and objectives, fourth quarter 2012 AIM Market Focus report. Also included was an executive summary of the Composite, Allianz, Invesco, Janus, Winslow, Earnest, Intercontinental, Herndon, Eagle, McDonnell, Pimco, and Wamco reports. The following manager specific comments were discussed: McDonnell Investments a. The total portfolio return in the fourth quarter was 0.2%, ranking in the 72nd percentile of the BofAML Domestic Fixed Income Sample. It equaled the Custom Index (0.2%), and the Barclays Capital Aggregate Bond Index (0.2%). b. Their total portfolio return was 6.1% since inception (12/31/08). This exceeded the Custom (5.8%), and equaled the Barclays Capital Aggregate Bond Index (6.1%). c. Cash on hand at fourth quarter ending was within guidelines. Pimco a. The total portfolio return in the fourth quarter was 0.7%, ranking in the 40th percentile of the BofAML Domestic Fixed  Income Sample. It exceeded the Custom Index (0.3%), and the BofAML Broad Market Bond index (0.3%). b. Their total portfolio return was 6.2% since inception (6/30/11). This exceeded the Custom (5.9%), and trailed the BofAML Broad Market Bond index (6.3%). c. Cash on hand at fourth quarter ending was within guidelines. Western Asset Management a. The total portfolio return in the fourth quarter was 0.7%, ranking in the 40th percentile of the BofAML Domestic Fixed Income Sample. It exceeded the Custom Index (0.3%), and the BofAML Broad Market Bond index (0.3%). b. Their total portfolio return was 7.1% since inception (6/30/11). This exceeded the Custom (5.7%), and the BofAML Broad Market Bond index (6.3%). c. Cash on hand at fourth quarter ending was within guidelines. Herndon Investment Counsel a. The total portfolio return in the fourth quarter was -0.1%, ranking in the 84th percentile of the BofAML Domestic Large Cap Value Equity Sample. It trailed the Custom Index (1.5%), and the Russell 1000 Value Index (1.5%). b. Their total portfolio return was -0.1% since inception (9/30/12). This trailed the Custom (1.5%), and the Russell 1000 Value Index (1.5%). c. Cash on hand at fourth quarter ending was within guidelines. Eagle Investment Counsel a. The total portfolio return in the fourth quarter was 2.0%, ranking in the 34th percentile of the BofAML Domestic Large Cap Value Equity Sample. It exceeded the Custom Index (1.4%), and the Russell 1000 Value Index (1.5%). b. Their total portfolio return was 2.0% since inception (9/30/12). This trailed the Custom (1.4%), and the Russell 1000 Value Index (1.5%). c. Cash on hand at fourth quarter ending was above guidelines. Winslow Investment Counsel a. The total portfolio return in the fourth quarter was -1.4%, ranking in the 89th percentile of the BofAML Domestic Large Cap Growth Equity Sample. It trailed the Custom Index (-1.3%), and the Russell 1000 Growth Index (-1.3%). b. Their total portfolio return was -3.0% since inception (3/31/12). This trailed the Custom (0.5%), and the Russell  1000 Growth Index (0.5%). c. Cash on hand at fourth quarter ending was within guidelines. Janus Investment Counsel a. The total portfolio return in the fourth quarter was -0.8%, ranking in the 42nd percentile of the BofAML Domestic Large Cap Growth Equity Sample. It exceeded the Custom Index (-1.3%), and the Russell 1000 Growth Index (-1.3%). b. Their total portfolio return was 10.5% since inception (12/31/09). This trailed the Custom (10.9%), and the Russell 1000 Growth Index (11.4%). c. Cash on hand at fourth quarter ending was above guidelines. Earnest Partners a. The total portfolio return in the fourth quarter was 3.6%, ranking in the 36th percentile of the BofAML Domestic Small Cap Equity Sample. It exceeded the Custom Index (3.0%), and the Russell 2000 Index (1.8%). b. Their total portfolio return was 6.3% since inception (9/30/06). This exceeded the Custom (5.0%), and the Russell 2000 Index (4.0%). c. Cash on hand at fourth quarter ending was above guidelines. AIM/INVESCO Capital Management a. The total portfolio return in the fourth quarter was 4.7%, ranking in the 78th percentile of the BofAML International Equity Sample. It trailed the Custom Index (5.3%), and the MSCI EAFE Growth Index (5.8%). b. Their total portfolio return was 4.0% since inception (12/31/10). This exceeded the Custom (1.5%), and the MSCI EAFE Growth Index (1.7%). c. Cash on hand at fourth quarter ending was above guidelines. NFJ/Allianz Global Investors a. The total portfolio return in the fourth quarter was 6.5%, ranking in the 40th percentile of the BofAML International Equity Sample. It exceeded the Custom Index (5.7%), and the MSCI All Country World ex US-net (5.8%). b. Their total portfolio return was 4.7% since inception (12/31/10). This exceeded the Custom 0.4%), and the MSCI All Country World ex US-net 0.4%). c. Cash on hand at fourth quarter ending was within guidelines. The following table details the Investment Performance Review for the fourth quarter ending December 31, 2012. Market value  of the funds under management as of December 31, 2012 was $174,441,775. The total fund return for the fourth quarter was 1.7%, ranking in the 27th percentile, as summarized below: 9/12 12/11 12/09 12/07 12/02 to 12/12 to 12/12 to 12/12 to 12/12 to 12/12 Total fund* 1.7/27 14.4/12 8.0/43 1.7/99 5.9/84 *Ranked against the BofAML Domestic Balanced Sample – Total Total Portfolio Returns - Equity Sample Domestic# 1.8/43 19.5/18 8.9/69 0.7/64 7.7/66 #Ranked against the BofAML Domestic Equity Sample - Common Stock Total Portfolio Returns - Fixed Income Sample F.I.# 0.6/42 6.9/38 6.8/50 1.8/99 3.2/99 #Ranked against the BofAML Domestic Fixed Income Sample - Fixed Income Real Estate 10.0 9.7 4. 2.4 N/A The following manager specific return information is detailed separately from the other long-term data: 9/12 12/11 12/09 12/08 McDonnell to 12/12 to 12/12 to 12/12 to 12/12 Total Fund* 0.2/72 4.7/68 6.5/55 6.1/72 *Ranked against the BofAML Domestic Fixed Income Sample - Total 9/12 12/11 6/11 Pimco to 12/12 to 12/12 to 12/12 Total Fund* 0.7/40 7.6/32 6.2/55 *Ranked against the BofAML Domestic Fixed Income Sample - Total 9/12 12/11 6/11 Wamco to 12/12 to 12/12 to 12/12 Total Fund* 0.7/40 7.8/30 7.1/40 *Ranked against the BofAML Domestic Fixed Income Sample – Total 9/12 9/12 Herndon to 12/12 to 12/12 Total Fund* -0.1/84 -0.1/84 *Ranked against the BofAML Domestic Large Cap Value Equity Sample - Total 9/12 9/12 Eagle to 12/12 to 12/12 Total Fund* 2.0/34 2.0/34 *Ranked against the BofAML Domestic Large Cap Value Equity Sample - Total 9/12 3/12 Winslow to 12/12 to 12/12 Total Fund* -1.4/89 -3.0/95 *Ranked against the BofAML Domestic Large Cap Growth Equity Sample - Total 9/12 12/11 12/09 12/09 Janus to 12/12 to 12/12 to 12/12 to 12/12 Total Fund* -0.8/42 24.0/1 10.5/50 10.5/50 *Ranked against the BofAML Domestic Large Cap Growth Equity Sample – Total 9/12 12/11 12/09 12/07 9/06 Earnest to 12/12 to 12/12 to 12/12 to 12/12 to 12/12 Total Fund* 3.6/36 20.4/18 14.2/35 6.0/27 6.3/37 *Ranked against the BofAML Domestic Small Cap Equity Sample – Total 9/12 12/11 12/10 Invesco to 12/12 to 12/12 to 12/12 Total Fund* 4.7/78 16.3/75 4.0/28 *Ranked against the BofAML International Equity Sample - Total 9/12 12/11 12/10 Allianz to 12/12 to 12/12 to 12/12 Total Fund* 6.5/40 21.4/31 4.7/23 *Ranked against the BofAML International Equity Sample - Total 11. Trustee Comments None. 12. ADJOURNMENT Motion by Solak, supported by Varney, to adjourn at 5:03 p.m. Ayes: Solak, Varney, Nash, Lamerato. Absent: Wellhausen. The motion carried; the meeting is hereby adjourned. Mark Wellhausen Secretary