Police & Fire Retirement Board

REGULAR MEETING MINUTES OF THE STERLING HEIGHTS POLICE AND FIRE RETIREMENT SYSTEM, ACT 345 AUGUST 15, 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 3:30 p.m. 2. Board Members present: Solak, Wellhausen, Nash, Lamerato, Varney. Also present: Suzanne Valken, 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 Lamerato, to approve the consent agenda as presented. Ayes: All. The motion carried. The following item was added to the regular agenda: 10 a 7 Mark Ostin – partial DROP distribution - 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 July 18, 2013. Motion by Solak, supported by Varney, to approve the minutes as presented.  Ayes: Solak, Wellhausen, Varney. Abstain: Nash and Lamerato. The motion carried; the minutes of the regular meeting of July 18, 2013 are hereby approved as presented. 5. CITIZEN PARTICIPATION Suzanne Valken attended the meeting to discuss EDRO procedures and recoupment fees. 6. REPORT FROM LEGAL COUNSEL No formal legal report was presented. Mr. Michaud commented on Public Act 59 as it relates to EVIP requirements. Mr. Michaud commented on items of old business as they were considered. CONSENT AGENDA 7. CORRESPONDENCE a. Other correspondence received from: 1. Merrill Lynch – market value updates 2. P & I Conferences 3. Robbins Geller Rudman & Dowd LLP 4. University Conference Services b. Magazines received: 1. Pensions & Investments for July 22 and August 5, 2013. 2. Institutional Investor for August 2013 3. Plan Sponsor for August 2013 8. BILLS AND EXPENDITURES b. Disbursements to retirees/members other than monthly benefit payments There were no disbursements to retirees/members other than monthly benefit payments this month. c. Checking Account Summary Beginning Balance $7,363.28 7/01/13 Subtractions (8) $2,406.60 1. 7/08 Check 1910 20.28 JN – MAPERS travel expenses 2. 7/01 Check 1912 39.22 AT & T phone bill – 6/16/13 3. 7/09 Check 1913 384.00 Annual Workers Comp. premium 4. 7/26 Check 1914 39.54 AT & T phone bill – 7/16/13 5. 7/31 Check 1915 27.76 City of S.H. – printer charges 6. 7/10 Check 5255 76.64 Contract fee – Gurin & Gurin 7. 7/05 Check 5256 909.57 Contract Payment Nancy Duyck 8. 7/19 Check 5257 909.59 Contract Payment Nancy Duyck Electronic withdrawals (4) $1,320.68 1. 7/08 461.54 IRA contribution 2. 7/10 377.42 IRS Fed. tax w/h 3. 7/22 104.34 Michigan St. tax w/h 4. 7/24 377.38 IRS Fed. tax w/h Ending Balance $3,636.00 7/31/13 d. Transmittal of Checks 1. $69.12 received from ING Investment Management as a share in a settlement of securities litigation. 9. FUNDS MANAGEMENT a. The current value of funds as of July 31, 2013 is detailed below: Clearing account $ 1,988,585.52 Intercontinental $ 9,206,850.10 McDonnell $ 15,576,755.83 Winslow $ 20,254,360.42 Janus $ 20,304,456.73 Eagle $ 20,476,865.35 Herndon $ 20,127,563.97 Earnest Partners $ 11,478,759.49 NFJ/Allianz $ 15,710,596.55 AIM/Invesco $ 15,383,392.40 Pimco $ 15,804,279.97 Wamco $ 16,026,941.40 Checking account $ 3,636.00 TOTAL FUNDS $ 182,343,043.73 b. The Board received a copy of the Summary of Employer Contributions to the Police and Fire Retirement System for the 2013 tax year as of 7/25/13. The System has received  $871,200.00,of the 2013/14 budget of $8,095,472.00, leaving a $7,224,272.00,balance. c. Benefit Register Listing as of August 1, 2013 from Comerica Bank showing 297 retirees/beneficiaries with a payout for August of $1,174,508.41 and a year-to-date of $9,688,787.45. d. The current Merrill Lynch Bond index for July 2013 is 2.10%. 10. BENEFITS & PLAN ADMINISTRATION a. Old Business Abel/Noser Reports for June 2013 Abel/Noser has supplied the June 2013 report. REGULAR AGENDA 8. BILLS AND EXPENDITURES a. Disbursements other than retiree benefit payments (bills) 1. Disbursement to Rodwan Consulting Company in the amount of $300.00 for actuarial services rendered for an actuarial calculation for the Glenn French final EDRO calculation. 2. Disbursement to the City of Sterling Heights in the amount of $650.59 for accounting services rendered for the quarter ended 6/30/13. 3. Disbursement to Comerica Bank in the total amount of $2,988.46 for services rendered to the Clearing, Intercontinental, and McDonnell accounts for the quarter ended 6/30/13. 4. Disbursement to Eagle Capital Management in the amount of $40,360.57 for investment management fees for the quarter ended 6/30/13. 5. Disbursement to Merrill Lynch Private Client Group in the amount of $6,100.00 for consulting services for the period of 7/1/13 through 12/31/13. 6. Disbursement to McDonnell Investment Management in the amount of $8,262.26 for investment management fees for the quarter ended 6/30/13.  Motion by Wellhausen, supported by Nash, to approve the bills as presented. Ayes: All. The motion carried. 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, second 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 second quarter was -3.0%, ranking in the 79th percentile of the BofAML Domestic Fixed Income Sample. It trailed the Custom Index (-2.3%), and the Barclays Capital Aggregate Bond Index (-2.3%). b. Their total portfolio return was 4.7% since inception (12/31/08). This exceeded the Custom (4.6%), and trailed the Barclays Capital Aggregate Bond Index (4.8%). c. Cash on hand at second quarter ending was within guidelines. Pimco a. The total portfolio return in the second quarter was -3.6%, ranking in the 90th percentile of the BofAML Domestic Fixed Income Sample. It trailed the Custom Index (-2.4%), and the BofAML Broad Market Bond index (-2.4%). b. Their total portfolio return was 2.7% since inception (6/30/11). This trailed the Custom (3.1%), and the BofAML Broad Market Bond index (3.4%). c. Cash on hand at second quarter ending was above guidelines. Western Asset Management a. The total portfolio return in the second quarter was -2.7%, ranking in the 69th percentile of the BofAML Domestic Fixed  Income Sample. It exceeded the Custom Index (-2.4%), and the BofAML Broad Market Bond index (-2.4%). b. Their total portfolio return was 4.0% since inception (6/30/11). This exceeded the Custom (2.9%), and the BofAML Broad Market Bond index (3.4%). c. Cash on hand at second quarter ending was within guidelines. Herndon Investment Counsel a. The total portfolio return in the second quarter was 0.0%, ranking in the 98th percentile of the BofAML Domestic Large Cap Value Equity Sample. It trailed the Custom Index (3.1%), and the Russell 1000 Value Index (3.2%). b. Their total portfolio return was 11.0% since inception (9/30/12). This trailed the Custom (17.2%), and the Russell 1000 Value Index (17.7%). c. Cash on hand at second quarter ending was within guidelines. Eagle Investment Counsel a. The total portfolio return in the second quarter was 4.3%, ranking in the 30th percentile of the BofAML Domestic Large Cap Value Equity Sample. It exceeded the Custom Index (3.1%), and the Russell 1000 Value Index (3.2%). b. Their total portfolio return was 18.0% since inception (9/30/12). This exceeded the Custom (16.6%), and the Russell 1000 Value Index (17.7%). c. Cash on hand at second quarter ending was within guidelines. Winslow Investment Counsel a. The total portfolio return in the second quarter was 1.7%, ranking in the 64th percentile of the BofAML Domestic Large Cap Growth Equity Sample. It trailed the Custom Index (2.0%), and the Russell 1000 Growth Index (2.1%). b. Their total portfolio return was 6.2% since inception (3/31/12). This trailed the Custom (9.5%), and the Russell 1000 Growth Index (9.8%). c. Cash on hand at second quarter ending was within guidelines. Janus Investment Counsel a. The total portfolio return in the second quarter was 2.8%, ranking in the 23rd percentile of the BofAML Domestic Large Cap Growth Equity Sample. It exceeded the Custom Index (1.8%), and the Russell 1000 Growth Index (2.1%). b. Their total portfolio return was 11.4% since inception (12/31/09). This trailed the Custom (12.6%), and the Russell 1000 Growth Index (13.2%). c. Cash on hand at second quarter ending was above guidelines.  Earnest Partners a. The total portfolio return in the second quarter was 0.3%, ranking in the 92nd percentile of the BofAML Domestic Small Cap Equity Sample. It trailed the Custom Index (2.3%), and the Russell 2000 Index (3.1%). b. Their total portfolio return was 7.4% since inception (9/30/06). This exceeded the Custom (6.8%), and the Russell 2000 Index (6.0%). c. Cash on hand at second quarter ending was within guidelines. AIM/INVESCO Capital Management a. The total portfolio return in the second quarter was -1.3%, ranking in the 55th percentile of the BofAML International Equity Sample. It exceeded the Custom Index (-2.7%), and the MSCI EAFE Growth Index (-3.0%). b. Their total portfolio return was 3.9% since inception (12/31/10). This exceeded the Custom (2.2%), and the MSCI EAFE Growth Index (3.7%). c. Cash on hand at second quarter ending was above guidelines. NFJ/Allianz Global Investors a. The total portfolio return in the second quarter was -4.7%, ranking in the 80th percentile of the BofAML International Equity Sample. It trailed the Custom Index (-2.9%), and the MSCI All Country World ex US-net (-3.1%). b. Their total portfolio return was 3.3% since inception (12/31/10). This exceeded the Custom (0.3%), and the MSCI All Country World ex US-net (0.3%). c. Cash on hand at second quarter ending was within guidelines. The following table details the Investment Performance Review for the second quarter ending June 30, 2013. Market value of the funds under management as of June 30, 2013 was $177,261,655.00. The total fund return for the second quarter was 5.0%, ranking in the 84th percentile, as summarized below: 3/13 6/12 6/10 6/08 12/91 to 6/13 to 6/13 to 6/13 to 6/13 to 6/13 Total fund* -0.2/43 12.5/29 10.3/45 3.7/98 7.1/N/A *Ranked against the BofAML Domestic Balanced Sample – Total Total Portfolio Returns - Equity Sample Domestic# 0.7/75 19.3/61 14.6/80 4.1/85 8.1/N/A #Ranked against the BofAML Domestic Equity Sample - Common Stock Total Portfolio Returns - Fixed Income Sample F.I.# -3.2/83 -0.4/81 3.9/56 1.6/99 5.4/N/A #Ranked against the BofAML Domestic Fixed Income Sample - Fixed Income Real Estate 3.5 15.0 5.3 3.0 N/A The following manager specific return information is detailed separately from the other long-term data: 3/13 6/12 6/10 12/08 McDonnell to 6/13 to 6/13 to 6/13 to 6/13 Total Fund* -3.0/79 -1.3/93 3.6/60 4.7/65 *Ranked against the BofAML Domestic Fixed Income Sample - Total 3/13 6/12 6/11 Pimco to 6/13 to 6/13 to 6/13 Total Fund* -3.6/90 -0.8/87 2.7/72 *Ranked against the BofAML Domestic Fixed Income Sample - Total 3/13 6/12 6/11 Wamco to 6/13 to 6/13 to 6/13 Total Fund* -2.7/69 1.2/38 4.0/38 *Ranked against the BofAML Domestic Fixed Income Sample – Total 3/13 9/12 Herndon to 6/13 to 6/13 Total Fund* 0.0/98 11.0/94 *Ranked against the BofAML Domestic Large Cap Value Equity Sample - Total 3/13 9/12 Eagle to 6/13 to 6/13 Total Fund* 4.3/30 18.0/44 *Ranked against the BofAML Domestic Large Cap Value Equity Sample - Total 3/13 6/12 3/12 Winslow to 6/13 to 6/13 to 6/13 Total Fund* 1.7/64 16.3/77 6.2/92 *Ranked against the BofAML Domestic Large Cap Growth Equity Sample - Total 3/13 6/12 6/10 12/09 Janus to 6/13 to 6/13 to 6/13 to 6/13 Total Fund* 2.8/23 15.1/73 15.4/85 11.4/67 *Ranked against the BofAML Domestic Large Cap Growth Equity Sample – Total 3/13 6/12 6/10 6/08 9/06 Earnest to 6/13 to 6/13 to 6/13 to 6/13 to 6/13 Total fund* 0.3/92 21.7/75 17.9/73 8.2/69 7.4/53 *Ranked against the BofAML Domestic Small Cap Equity Sample – Total 3/13 6/12 12/10 AIM/Invesco to 6/13 to 6/13 to 6/13 Total Fund* -1.3/55 12.9/77 3.9/47 *Ranked against the BofAML International Equity Sample - Total 3/13 6/12 12/10 NFJ/Allianz to 6/13 to 6/13 to 6/13 Total Fund* -4.7/80 13.4/75 3.3/54 *Ranked against the BofAML International Equity Sample – Total REGULAR AGENDA 9. FUNDS MANAGEMENT e. Quarterly Performance Report Mr. Brice suggested bringing Herndon in at the September meeting to discuss performance. 2. Allocation modeling study – discussion Merrill Lynch prepared an expanded allocation modeling study for the Board’s review. Motion by Solak, supported by Lamerato, to adjust the ranges as presented.  Ayes: All. The motion carried. 3. Quarterly invoices – discussion The Board discussed the format on the quarterly Merrill Lynch invoices with Tim Brice. Mr. Brice supplied a revised report showing a breakdown of the fees for Merrill Lynch and the Money Managers. Mr. Brice will continue to supply the new format in the future. f. Review of Service Providers 1. Comerica The services of the Board’s custodian were reviewed. Their service continues to be satisfactory. 2. VanOverbeke, Michaud & Timmony The Board noted that its Legal Counsel, Thomas Michaud, continues to provide excellent service at reasonable fees. 3. The Brice Group The services of the Board’s performance consultant were reviewed. A RFI has been approved for consultant services and will be sent out in the near future. 4. Rodwan Consulting Company The services of the Board’s actuary were reviewed. Their service continues to be satisfactory. 5. Abel/Noser The services of the Board’s directed broker were reviewed. Their service continues to be satisfactory. 6. Gurin & Gurin Gurin & Gurin provides payroll service for the Pension Technician, with associated tax withholding, payments to the IRA provider, etc. related to payroll. Their service continues to be satisfactory.  7. Pension Technician The services of the Board’s Pension Technician were reviewed. Her service continues to be satisfactory. 10. BENEFITS & PLAN ADMINISTRATION a. Old Business 2. Anthony Jagodzinski - DROP retirement termination – discussion Fire Lt. Anthony Jagodzinski of the Fire Department terminated his DROP retirement as of July 16, 2013. All required paperwork is on file in the Pension Office. Motion by Wellhausen, supported by Solak, to approve the disbursement for the regular pension and process the retirement certificate as submitted. Ayes: All. The motion carried. 3. Michael Reese – retirement resolution – discussion Police Chief Michael Reese retired from the Police Department effective June 22, 2013. All required paperwork is on file in the Pension Office. After discussion, the following retirement resolution was considered: R 13-8-15-1 WHEREAS, Police Chief Michael Reese of the Police Department has submitted his request for a service retirement to the Police and Fire Retirement System with an effective date of retirement of June 22, 2013, and WHEREAS, Police Chief Michael Reese has served the City of Sterling Heights Police Department for 34 years, 8 months and 6 days, which included 5 years in the DROP program, and WHEREAS, Police Chief Michael Reese was allowed to continue working after his DROP terminated through a Memorandum of Understanding, and WHEREAS, the Trustees of the Police and Fire Retirement System, Act 345 have verified that POLICE CHIEF MICHAEL REESE meets all those requirements for a service retirement as established in both Act 345 and the applicable collective bargaining agreement, and WHEREAS, the Trustees have provided all the necessary personal and financial data to the Board’s Actuary as it relates to POLICE CHIEF MICHAEL REESE and his spouse, DARLENE REESE, and the necessary reports have been reviewed and completed by the Actuary, which includes a copy of his marriage license and his spouse’s full name, documentation re: date of birth, and social security number, and WHEREAS, POLICE CHIEF MICHAEL REESE has reviewed this data and has elected to receive his service retirement benefit in the form of a regular retirement pension with a potential benefit of sixty (60%) percent of the regular retirement pension being paid to his surviving spouse, who must also be his spouse on the effective date of retirement and death, and WHEREAS, the forenamed member requested an annuity withdrawal (total lump sum distribution from the defined contribution plan) under the provisions of the Retirement System and collective bargaining agreement, and WHEREAS, the Police and Fire Retirement Board is now in receipt of the necessary final average compensation amount. The Board of Trustees, on receipt of this data, forwarded it to the Board Actuary for the updated retirement data. The actuary has indicated to the Board, in writing, the retirement benefits due POLICE CHIEF MICHAEL REESE, as a result of this data, therefore be it RESOLVED, that POLICE CHIEF MICHAEL REESE‘s request for annuity withdrawal, authorizing a payment representing the total amount of his contributions plus interest to the date of his service retirement, be granted, and further RESOLVED, that POLICE CHIEF MICHAEL REESE shall be paid a total annuity withdrawal (total lump sum distribution from the defined contribution plan) of $126,228.43 ($94,973.25 at DROP date and $31,255.18 at termination date) and a yearly regular retirement pay in the amount of $88,655.04 or monthly benefits of $7,387.92. That the Treasurer shall immediately calculate and pay POLICE CHIEF MICHAEL REESE the appropriate amount effective from the first date of his retirement, June 22, 2013, and further RESOLVED, that POLICE CHIEF MICHAEL REESE after having been credited with 29 years, 8 months and 6 days of service credit, is hereby granted a service retirement in accordance with Act 345, as amended, effective June 22, 2013. Motion by Solak, supported by Wellhausen, to adopt the resolution as presented and process the disbursement and retirement certificate. Ayes: All. The motion carried. 4. Consultant RFI - discussion  The Board reviewed the draft Consultant RFI. The draft was approved. Motion by Solak, supported by Wellhausen, to authorize Legal Counsel send out the Consultant RFI and have responses returned by September 20, 2013. Ayes: All. The motion carried. 5. Fiduciary liability insurance update – discussion Ms. Varney reported to the Board that one fiduciary liability insurance quote was received. She will check with the City Clerk about other responses. Motion by Solak, supported by Wellhausen, to receive and file the one quote. Ayes: All. The motion carried. 6. Account transfer for September 2013 benefit payments – discussion As of August 12, 2013, the Clearing Account had a balance of $1,043,122.36. An additional $365,400.00 is needed for the September 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 Pimco account, based on the asset allocation targets. Motion by Solak, supported by Lamerato, to approve the transfer of the appropriate amount of funds from the Pimco account, based on the asset allocation targets, to provide for pension benefit payments and other disbursements on September 1, 2013. Ayes: All. The motion carried. 7. Mark Ostin – partial DROP distribution – discussion  Sergeant Mark Ostin of the Police Department terminated his DROP retirement as of June 23, 2010. He is requesting a partial DROP distribution from his DROP account. Motion by Solak, supported by Wellhausen, to approve the partial DROP distribution as presented. Ayes: All. The motion carried. 11. Trustee Comments Ms. Varney mentioned that the Pension Accountant has drafted a form per the FFA Collective Bargaining Agreement pertaining to the refund of service credit. Once Legal Counsel and Human Resources approve the form, it will be sent to those affected Fire Fighters. 12. ADJOURNMENT Motion by Solak, supported by Nash, to adjourn at 5:38 p.m. Ayes: All. The motion carried; the meeting is hereby adjourned. Mark Wellhausen Secretary