Police & Fire Retirement Board

REGULAR MEETING MINUTES OF THE STERLING HEIGHTS POLICE AND FIRE RETIREMENT SYSTEM, ACT 345 MAY 16, 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 3:59 p.m. 2. Board Members present: Solak, Wellhausen, Nash, Lamerato, Varney. Also present: Tim Brice, representing Merrill Lynch Private Client Group; Tom Michaud, Legal Counsel; and Nancy Duyck, Pension Technician. 3. APPROVAL OF CONSENT AND REGULAR AGENDAS Motion by Wellhausen, supported by Nash, to approve the consent agenda as presented. Ayes: All. The motion carried. The following items were added to the regular agenda: 10 a 5. Michael Babisch – termination of child support withholding 6. Eagle Capital – section limits Motion by Lamerato, supported by Varney, 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 April 18, 2013. Motion by Varney, supported by Nash, to approve the minutes as presented. Ayes: Varney, Nash, Wellhausen, Lamerato.  Abstain: Solak. The motion carried; the minutes of the regular meeting of April 18, 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. Michaud commented on the FOIA request from Brightscope. The Board does not have to create a record for an FOIA request. The Countrywide litigation was for information only. No action needed. A Code of Conduct policy was drafted by Legal Counsel for the Board’s review. It will be placed on the June 2013 agenda for adoption. Mr. Michaud commented on items of old business as they were considered. CONSENT AGENDA 7. CORRESPONDENCE a. Other correspondence received from: 1. Bernstein Litowitz Berger & Grossman LLP 2. Eagle Capital Management – ADV Part IIA 3. McDonnell Investment Management – ADV Part IIA 4. Merrill Lynch – market value updates 5. Pomerantz Grossman Hufford Dahlstrom & Gross LLP 6. Robbins Geller Rudman & Dowd LLP 7. Wollmuth Maher & Deutsch LLP b. Magazines received: 1. Pensions & Investments for April 29 and May 13, 2013. 2. Institutional Investor for May 2013 3. Plan Sponsor for May 2013 c. Checking Account Summary Beginning Balance $4,973.51 4/01/13 Additions (1) 1. 4/16 $5,000.00 Subtractions (8) $3,131.41  1. 4/25 Check 1901 500.00 MAPERS reg. (2) 2. 4/25 Check 1902 250.00 MAPERS reg. (1) 3. 4/25 Check 1903 39.20 AT & T phone bill – 4/16/13 4. 4/25 Check 1904 250.00 MAPERS reg. (1) 5. 4/02 Check 5244 114.96 Contract fee – Gurin & Gurin 6. 4/04 Check 5245 158.10 St. of MI UIA 7. 4/12 Check 5246 909.57 Contract Payment Nancy Duyck 8. 4/29 Check 5247 909.58 Contract Payment Nancy Duyck Electronic withdrawals (4) $1,603.63 1. 4/02 692.31 IRA contribution 2. 4/03 377.40 IRS Fed. tax w/h 3. 4/17 377.41 IRS Fed. tax w/h 4. 4/22 156.51 Michigan St. tax w/h Ending Balance $5,238.47 4/30/13 d. Transmittal of Checks 1. $150.00 Check received from Tammy Opalewski for a DRO actuarial calculation deposit. 9. FUNDS MANAGEMENT a. The current value of funds as of April 30, 2013 is detailed below: Clearing account $ 1,274,071.18 Intercontinental $ 9,089,751.40 McDonnell $ 16,226,874.86  Pimco $ 16,619,189.74 Wamco $ 16,731,765.86 Winslow $ 19,616,827.49 Janus $ 20,251,199.01 Eagle $ 20,172,662.35 Herndon $ 19,965,029.35 Earnest Partners $ 10,920,463.86 NFJ/Allianz $ 16,088,170.89 AIM/Invesco $ 15,177,737.12 Checking account $ 5,238.47 TOTAL FUNDS $ 182,138,981.58 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 4/11/13. The System has received $8,547,901.34 of the 2012/13 budget of $8,815,031.00, leaving a $267,129.66 balance. ? c. Benefit Register Listing as of May 1, 2013 from Comerica Bank showing 294 retirees/beneficiaries with a payout for May of $1,157,232.07 and a year-to-date of $6,104,447.41. d. The current Merrill Lynch Bond index for April 2013 is 1.54%. 10. BENEFITS & PLAN ADMINISTRATION a. Old Business 1. Abel/Noser Reports for March 2013 2. Abel/Noser has supplied the March 2013 report. REGULAR AGENDA 8. BILLS AND EXPENDITURES  a. Disbursements other than retiree benefit payments (bills) 1. Disbursement to McDonnell Investment Management in the amount of $8,146.90 for investment management fees for the quarter ended 3/31/13. 2. Disbursement to Eagle Capital Management in the amount of $39,555.98 for investment management fees for the quarter ended 3/31/13. 3. Disbursement to James Nash in the amount of $600.00 for a travel advance for the 2013 Spring MAPERS Conference in Bellaire, MI on June 2-4, 2013. Motion by Wellhausen, supported by Varney, to approve the bills as presented. Ayes: All. The motion carried. b. Disbursement to retirees/members other than monthly benefit payments 1. Stephanie VanSice – refund of contributions Police Officer Stephanie VanSice was hired on January 26, 2009 and terminated on January 7, 2011. Ms. Van Sice has requested a refund of her contributions and interest. Walt Hessell has calculated the amount of the refund in the amount of $7,247.02. All required paperwork is on file in the Pension Office. Motion by Wellhausen, supported by Nash, 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 2. Tammy Opalewski – DRO benefit resolution - discussion Tammy Opalewski, Alternate Payee of Joseph Opalewski, has supplied the necessary paperwork to start receiving her monthly benefit as stipulated in the DRO as of June 1, 2013. All required paperwork is on file in the Pension Office. After discussion, the following resolution was considered: L 13-5-16-1 Re: TAMMY OPALEWSKI v. JOSEPH OPALEWSKI MACOMB County CIRCUIT Court Case No. 12-2844-DO WHEREAS, the Board of Trustees is in receipt of a Domestic Relations Order (DRO) dated January 8, 2013, which purports to grant Tammy Opalewski, the Alternate Payee, with certain rights and claims regarding Retirement System benefits normally payable to Joseph Opalewski, the Participant, who is currently a retired member of the Retirement System, and WHEREAS, said matter has been discussed with Legal Counsel who has opined that the applicable terms of said court order are consistent with the provisions of the Retirement System and applicable law, therefore be it RESOLVED, that the Board of Trustees hereby acknowledges receipt of said court order and shall pay pension benefits consistent with said court order. Specifically, payment to Tammy Opalewski, the Alternate Payee, shall be in the amount of $688.54 per month with a corresponding reduction in the Participant’s retirement benefit, effective with the June 1, 2013 payment, and further RESOLVED, that the Board of Trustees shall pay Tammy Opalewski, the Alternate Payee, a portion of the DROP account of Joseph Opalewski, consistent with said court order, and further RESOLVED, that a copy of this resolution be immediately attached as the top sheet of the pension file and other appropriate records be kept for the Retirement System relative to this matter, and further RESOLVED, that copies of this resolution be sent to the parties. Motion by Wellhausen, supported by Solak, to adopt the resolution as presented and approve the disbursements. Ayes: All. The motion carried; the resolution is hereby adopted and the disbursements approved. 3. Pension liability insurance – discussion At the April regular meeting, Mr. Lamerato inquired about pension liability insurance. Motion by Solak, supported by Wellhausen, to direct the Treasurer to get a quote on pension liability insurance. Ayes: All. The motion carried. The Treasurer stated that the City insurance policy excludes fiduciary liability. 4. Account transfer for June 2013 benefit payments – discussion As of May 14, 2013, the Clearing Account had a balance of $264,111.37. An additional $990,000.00 is needed for the June 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 Eagle and Janus accounts equally, based on the asset allocation targets. Motion by Solak, supported by Wellhausen, to approve the transfer of the appropriate amount of funds from the Eagle and Janus accounts equally, based on the asset allocation targets, to provide for pension benefit payments and other disbursements on June 1, 2013. Ayes: All. The motion carried. 5. Michael Babisch – Termination of income withholding order - discussion  The Board is in receipt of a Termination of Income Withholding Order for Michael Babisch dated May 8, 2013. This Order terminates the Income Withholding Order of March 18, 2013 in which $963.50 was withheld monthly from Mr. Babisch’s pension benefit and forwarded to the Friend of the Court. After discussion, the following resolution was considered: L 13-5-16-2 Re: Michael R. Babisch – Termination of Income Withholding Order WHEREAS, the Board of Trustees previously approved the service retirement of Michael R. Babisch on May 20, 2011 wherein Mr. Babisch receives a monthly benefit in the amount of $7,697.97 and WHEREAS, the Board of Trustees pursuant to an Income Withholding For Support issued on March 18, 2013, withheld and paid to MiSDU the amount of $963.50 per month from the benefits normally payable to Michael R. Babisch, and WHEREAS, the Board of Trustees is in receipt of a Termination of Income Withholding Order issued on May 8, 2013 from the Macomb County Friend of the Court, with regards to Mr. Babisch, and WHEREAS, the Board has discussed this matter and has reviewed the Termination of Income Withholding Order with its Legal Counsel, and THEREFORE, BE IT RESOLVED, that the Board of Trustees acknowledges receipt of the Termination of Income Withholding Order re: Mr. Babisch, dated May 8, 2013, and further RESOLVED, that the Board of Trustees, in accordance with the Order, acknowledges that the Income Withholding For Support re: Mr. Babisch’s pension benefit issued on March 18, 2013, is terminated, and further RESOLVED, that the Board directs that Mr. Babisch’s monthly pension benefit of $7,697.97 be paid to him without any withholding for payments to the Friend of the Court commencing with the June 1, 2013 payment, and further RESOLVED, that copies of this resolution be forwarded to Michael R. Babisch.  Motion by Wellhausen, supported by Solak, to adopt the resolution as presented. Ayes: All. The motion carried; the resolution is hereby adopted. 6. Correspondence from Eagle Capital Management The Board received correspondence from Eagle Capital Management regarding section limits. Motion by Solak, supported by Wellhausen, to table this item until the Consultant does their due diligence. Ayes: All. 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, first quarter 2013 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 first quarter was -0.1%, ranking in the 82nd percentile of the BofAML Domestic Fixed Income Sample. It equaled the Custom Index (-0.1%), and the Barclays Capital Aggregate Bond Index (-0.1%). b. Their total portfolio return was 5.7% since inception (12/31/08). This exceeded the Custom (5.4%), and equaled  the Barclays Capital Aggregate Bond Index (5.7%). c. Cash on hand at first quarter ending was within guidelines. Pimco a. The total portfolio return in the first quarter was 0.1%, ranking in the 68th percentile of the BofAML Domestic Fixed Income Sample. It exceeded the Custom Index (-0.1%), and the BofAML Broad Market Bond index (-0.1%). b. Their total portfolio return was 5.3% since inception (6/30/11). This exceeded the Custom (5.0%), and equaled the BofAML Broad Market Bond index (5.3%). c. Cash on hand at first quarter ending was above guidelines. Western Asset Management a. The total portfolio return in the first quarter was 0.4%, ranking in the 40th percentile of the BofAML Domestic Fixed Income Sample. It exceeded the Custom Index (-0.1%), and the BofAML Broad Market Bond index (-0.1%). b. Their total portfolio return was 6.3% since inception (6/30/11). This exceeded the Custom (4.8%), and the BofAML Broad Market Bond index (5.3%). c. Cash on hand at first quarter ending was within guidelines. Herndon Investment Counsel a. The total portfolio return in the first quarter was 11.0%, ranking in the 67th percentile of the BofAML Domestic Large Cap Value Equity Sample. It trailed the Custom Index (12.0%), and the Russell 1000 Value Index (12.3%). b. Their total portfolio return was 11.0% since inception (9/30/12). This trailed the Custom (13.7%), and the Russell 1000 Value Index (14.0%). c. Cash on hand at first quarter ending was within guidelines. Eagle Investment Counsel a. The total portfolio return in the first quarter was 10.9%, ranking in the 70th percentile of the BofAML Domestic Large Cap Value Equity Sample. It trailed the Custom Index (11.5%), and the Russell 1000 Value Index (12.3%). b. Their total portfolio return was 13.1% since inception (9/30/12). This equaled the Custom (13.1%), and trailed the Russell 1000 Value Index (14.0%). c. Cash on hand at first quarter ending was within guidelines. Winslow Investment Counsel a. The total portfolio return in the first quarter was 9.2%, ranking in the 65th percentile of the BofAML Domestic Large  Cap Growth Equity Sample. It trailed the Custom Index (9.3%), and the Russell 1000 Growth Index 9.5%). b. Their total portfolio return was 6.0% since inception (3/31/12). This trailed the Custom (9.8%), and the Russell 1000 Growth Index (10.1%). c. Cash on hand at first quarter ending was within guidelines. Janus Investment Counsel a. The total portfolio return in the first quarter was 5.0%, ranking in the 99th percentile of the BofAML Domestic Large Cap Growth Equity Sample. It trailed the Custom Index (8.9%), and the Russell 1000 Growth Index (9.5%). b. Their total portfolio return was 11.4% since inception (12/31/09). This trailed the Custom (13.0%), and the Russell 1000 Growth Index (13.6%). c. Cash on hand at first quarter ending was above guidelines. Earnest Partners a. The total portfolio return in the first quarter was 9.9%, ranking in the 88th percentile of the BofAML Domestic Small Cap Equity Sample. It trailed the Custom Index (12.4%), and the Russell 2000 Index (12.4%). b. Their total portfolio return was 7.6% since inception (9/30/06). This exceeded the Custom (6.7%), and the Russell 2000 Index (5.7%). c. Cash on hand at first quarter ending was within guidelines. AIM/INVESCO Capital Management a. The total portfolio return in the first quarter was 2.9%, ranking in the 77th percentile of the BofAML International Equity Sample. It trailed the Custom Index (6.2%), and the MSCI EAFE Growth Index (6.8%). b. Their total portfolio return was 4.9% since inception (12/31/10). This exceeded the Custom (4.1%), and the MSCI EAFE Growth Index (4.5%). c. Cash on hand at first quarter ending was above guidelines. NFJ/Allianz Global Investors a. The total portfolio return in the first quarter was 3.7%, ranking in the 66th percentile of the BofAML International Equity Sample. It exceeded the Custom Index (3.1%), and the MSCI All Country World ex US-net (3.1%). b. Their total portfolio return was 5.9% since inception (12/31/10). This exceeded the Custom (1.7%), and the MSCI All Country World ex US-net (1.7%). c. Cash on hand at first quarter ending was within guidelines.  The following table details the Investment Performance Review for the first quarter ending March 31, 2013. Market value of the funds under management as of March 31, 2013 was $180,758,011. The total fund return for the first quarter was 5.0%, ranking in the 84th percentile, as summarized below: 12/12 3/12 3/10 3/08 12/91 to 3/13 to 3/13 to 3/13 to 3/13 to 3/13 Total fund* 5.0/56 9.4/47 8.3/51 3.8/98 7.2/N/A *Ranked against the BofAML Domestic Balanced Sample – Total Total Portfolio Returns - Equity Sample Domestic# 8.0/77 12.3/57 9.7/76 4.0/80 8.2/N/A #Ranked against the BofAML Domestic Equity Sample - Common Stock Total Portfolio Returns - Fixed Income Sample F.I.# 0.1/72 5.4/44 6.2/47 2.3/99 5.7/N/A #Ranked against the BofAML Domestic Fixed Income Sample - Fixed Income Real Estate -0.3 6.7 2.7 2.1 N/A The following manager specific return information is detailed separately from the other long-term data: 12/12 3/12 3/10 12/08 McDonnell to 3/13 to 3/13 to 3/13 to 3/13 Total Fund* -0.1/82 4.0/66 5.9/43 5.7/64 *Ranked against the BofAML Domestic Fixed Income Sample - Total 12/12 3/12 6/11 Pimco to 3/13 to 3/13 to 3/13 Total Fund* 0.1/68 5.5/42 5.3/56 *Ranked against the BofAML Domestic Fixed Income Sample - Total 12/12 3/12 6/11 Wamco to 3/13 to 3/13 to 3/13 Total Fund* 0.4/40 6.3/30 6.3/32 *Ranked against the BofAML Domestic Fixed Income Sample – Total 12/12 9/12 Herndon to 3/13 to 3/13 Total Fund* 11.0/67 11.0/81 *Ranked against the BofAML Domestic Large Cap Value Equity Sample - Total 12/12 9/12 Eagle to 3/13 to 3/13 Total Fund* 10.9/70 13.1/55 *Ranked against the BofAML Domestic Large Cap Value Equity Sample - Total 12/12 3/12 Winslow to 3/13 to 3/13 Total Fund* 9.2/65 6.0/92 *Ranked against the BofAML Domestic Large Cap Growth Equity Sample - Total 12/12 3/12 3/10 12/09 Janus to 3/13 to 3/13 to 3/13 to 3/13 Total Fund* 5.0/99 9.1/48 9.0/93 11.4/77 *Ranked against the BofAML Domestic Large Cap Growth Equity Sample – Total 12/12 3/12 3/10 3/08 9/06 Earnest to 3/13 to 3/13 to 3/13 to 3/13 to 3/13 Total Fund* 9.9/88 16.4/42 14.7/46 9.2/49 7.6/46 *Ranked against the BofAML Domestic Small Cap Equity Sample – Total 12/12 3/12 12/10 Invesco to 3/13 to 3/13 to 3/13 Total Fund* 2.9/77 8.5/73 4.9/43 *Ranked against the BofAML International Equity Sample - Total 12/12 3/12 12/10 Allianz to 3/13 to 3/13 to 3/13 Total Fund* 3.7/66 11.9/43 5.9/32 *Ranked against the BofAML International Equity Sample – Total The Board discussed the performance of Janus. They have lost a portfolio manager. The Board may have them come to a subsequent meeting after the consultant does their due diligence. The Board also requested that Janus supply monthly updates. 2. Allocation modeling study – discussion Merrill Lynch prepared an allocation modeling study for the Board’s review. After reviewing the report, the Board requested that the allocation modeling study be followed up with an 8.5% assumed rate of return and expanded ranges for the asset classes. 11. Trustee Comments The Treasurer requested and the Board concurred that going forward copies of checks will not be included as backup for the agenda package. 12. ADJOURNMENT Motion by Nash, supported by Wellhausen, to adjourn at 5:22 p.m. Ayes: All. The motion carried; the meeting is hereby adjourned. Mark Wellhausen Secretary