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HomeMy WebLinkAbout2014-02-11 NEERB MINUTESNONEMERGENCY EMPLOYEES RETIREMENT BOARD MEETING February 11, 2014 Chairperson Hagan called the regular meeting of the Englewood NonEmergency Employees Retirement Plan Board to order at 2:47 p.m. in the Public Works Conference Room of the Civic Center, 1000 Englewood Parkway, Englewood, Colorado. Members Present: Members Absent: Others Present: A quorum was present. Frank Gryglewicz, Director of Finance and Administrative Services Bradley Hagan, Chairperson, Employee Representative John Moore, Council Appointee (arrived 2:58 p.m.) Mahendra Patel, Secretary, Employee Representative James Phelps, Council Appointee Jim Woodward, Council Appointee Steven Yates, Council Member None Gordon Tewell, Innovest Portfolio Solutions Jerry Huggins, Innovest Portfolio Solutions Diane Hunt, Gabriel Roeder Smith and Company (GRS) (arrived at 3:40 p.m.) Joe Herm, Gabriel Roeder Smith and Company (arrived at 3:40 p.m.) ***** Seating of Re-elected Brad Hagan, Council Citizen Anpointees James Phelns and Jim Woodward, Reapnointed John Moore. and Welcome City Council Liaison Steven Yates The Board congratulated the new and reappointed Board members. Election of President/Chaimerson MR. GRYGLEWICZ NOMINATED BRAD HAGAN AS PRESIDENT/CHAIRPERSON. MR. PHELPS SECONDED. Ayes: Gryglewicz, Phelps, Patel, Woodward, Yates Nays: None Absent: Moore Abstention: Hagan The motion carried. Innovest Portfolio Solutions -Board Fiduciary Training Gordon Tewell and Jerry Huggins of Innovest Portfolio Solutions provided Fiduciary Training for the Board. John Moore arrived at 2:58 p.m. At 3:35 p.m. the Board took a five minute break. Joe Herm and Diane Hunt arrived at 3 :40 p.m. Anproval of Minutes MR. GRYGLEWICZ MOVED TO APPROVE THE MINUTES OF THE NOVEMBER 12, 2013 REGULAR MEETING. MR. WOODWARD SECONDED. Ayes: Nays: Absent: The motion carried. Gryglewicz, Hagan, Moore, Patel, Phelps, Woodward, Yates None None Innovest Portfolio Solutions, LLC A. Performance Evaluation and Capital Markets Report Mr. Huggins reviewed 2013 market conditions and highlighted factors impacting markets during the year. Mr. Tewell reviewed the Plan's investment performance and fund evaluations for the past quarter. He noted that there is a bit of concern with Harbor High Yield Bonds because as a high yield bond fund they are so conservative that they have underperformed relative to their peers and should not have had as great a loss during the market downturn. Innovest will continue monitoring the fund. PIMCO is also being monitored due to the recent departure of Mohammad El-Erain. This has created a minor concern for the organization. Mr. Tewell further commented PIMCO has responded very quickly to El-Brain's departure and Innovest will continue to monitor the situation. PIMCO and has appointed two employees as co-deputy chief investment officers to fill the temporary void. B. Discussion of changing the Wells Fargo monthly procedures Mr. Huggins explained that the Wells Fargo Relationship Manager has let us know that they are no longer willing to process the month-end transfers as it has in the past. After discussions with Wells Fargo, it was determined that it is possible for Innovest to provide Wells Fargo with wire transfer instructions and determine which funds will be sold to raise the cash necessary to cover the NERP month-end payroll and expenses. This is a service Innovest provides for other clients at no additional cost to the Plan. Mr. Moore asked if it is possible to obtain a projection of funds necessary to cover annual expenses and payments; is it strange to liquidate a long-term investment monthly as opposed to having a plan to anticipate cash needed over the next twelve to twenty-four months. Mr. Huggins said some clients hold cash in anticipation of those needs. The prior process was used by the City for a long time and if the Board chooses to change the process, more discussion is needed. Ms. Wescoat reminded the Board the current process also keeps the funds within their target range without having to move funds to rebalance. She also commented that lnnovest will be able to evaluate and adjust funds in their target range monthly. Mr. Moore inquired about transaction costs. The cost of the transactions is included in the quarterly fee so the transactions do not create additional costs. Innovest will continue to use the month-end wire transfer process as a means of keeping the funds in line with the targeted percentage for the allocation mix as well as process any fund transfers that may be needed within the fund lineup. The City's accounting staff will continue to receive notifications of any transactions initiated by Innovest. The City will determine the monthly amount necessary to cover expenses and Innovest will process the necessary transactions with Wells Fargo in a timely manner. MR. PHELPS MOVED TO ALLOW INNOVEST PORTFOLIO SOLUTIONS THE AUTHORITY TO SELL FUNDS TO COVER MONTHLY EXPENSES AND PENSION PAYROLL AS WELL AS THE ABILITY TO PROCESS NECESSARY FUND TRANSFERS TO KEEP THE FUNDS IN LINE WITH THE TARGETED RANGES. MR. MOORE SECONDED. Ayes: Nays: Absent: The motion carried. Gryglewicz, Hagan, Moore, Patel, Phelps, Woodward, Yates None None NonEmergency Employees Retirement Board Meeting 2of5 V Gabriel Roeder Smith and Company a. Discussion of Actuarial Assumptions Ms. Hunt reviewed the June 20, 2013 GRS letter illustrating potential cost impacts of the actuarial assumptions studies requested by the Board. The Board approved Study 1 from the letter at the November 2013 meeting changing the interest rate used to discount all future benefit payments to the valuation date and determine an actuarial accrued liability and normal cost from 7 .5% to 7 .0%. The remaining studies are as follows: Study 2 -Changes from Study 1 plus decrease the inflation assumption from 3.00% to 2.50%. For purposes of this study, the change in the inflation means a decrease in the salary scale assumption. Currently, the salary scale assumption assumes every member will receive an annual salary increase of 3.00% inflation plus an additional percentage merit increase based on their age. This change would decrease the inflation component of the salary increase but maintain the current merit increase assumption so every member would receive an annual increase of 0.50% less than under the current assumption. See Appendix B for a complete table of the salary scale with the current and proposed assumption. Lowering the assumed salary increases decreases the plan liabilities. Study 3 -Changes from Study 2 plus update the mortality assumptions to RP-2000. Currently, the post-retirement mortality for healthy retirees is based on the 1994 Group Annuity Mortality tables. This change would update the tables to the RP-2000 Combined Healthy mortality tables with generational improvements using Scale BB included. This means as of the 2013 valuation the tables would include an extra nineteen years of mortality improvement since 1994 and in addition the tables are dynamic, changing every year to model the small expected improvement in mortality each year. (The study also assumes the pre-retirement mortality and post-disability mortality assumptions would be updated to versions of the RP- 2000 mortality tables with generational improvements although these changes have significantly less impact than changing the post-retirement mortality for healthy retirees.) This change will increase the plan liabilities. Study 4 -Changes from Study 3 plus revise the retirement rate assumption. Currently, the assumption is that members will retire immediately when they reach eligibility for Special Early Retirement but no sooner than age 61. While actual experience is limited, there is evidence to support the idea that these members will wait until a later age, such as age 61, after they first become eligible for the Special Early Retirement Benefit. However, there is also evidence to suggest that not all of these eligible members will retire at age 61 and will in fact delay retirement to later ages up to age 65. For instance, for the period from January 1, 2005 through January 1, 2010, 65 members were under age 65 and eligible for the Rule of 88 on the valuation dates during that period and eight of the 65 members actually did retire or enter DROP. Of the 65 eligible members, 22 were at least age 61 and of these six retired or entered DROP. Clearly, less than 100% of the eligible members are electing to retire immediately. Therefore, we have analyzed the impact of revising the retirement assumption of those eligible from 100% retirement at first eligibility (but no earlier than age 61) to the following schedule: Current Proposed Age Rate Rate 61100%50% 62 100%50% 63 100%30% 64 100% 30% 65 100% 100% No changes were made to the other retirement rates. Generally speaking, delaying retirement decreases costs since the present value of the additional benefit earned is less than the present value of starting to receive a smaller benefit earlier. Therefore, this change will decrease the plan liabilities. NonEmergency Employees Retirement Board Meeting 3 ofS Ms. Hunt also noted the Board changed the amortization method at the November meeting to keep the NERP in line with upcoming Government Accounting Standards Board (GASB) requirements for the City. This change was not included in the June 2013 studies but follows the GASB's requirements. The Board discussed each of the assumption changes; hopefully, increased funding costs will be absorbed by past and future fund performance. MR. GRYGLEWICZ MOVED TO APPROVE THE ASSUMPTION STUDIES TWO THROUGH FOUR AS PRESENTED BY ORS. MR. MOORE SECONDED. Ayes: Nays: Gryglewicz, Hagan, Moore, Patel, Phelps, Woodward, Yates None Absent: None The motion carried. b. Discussion of Studies to include with the January 1, 2014 Actuarial Report Ms. Hunt commented that the interest rates used for the optional form of benefit calculations is at 7.5% and uses the 1994 mortality table. She suggested the Board consider reducing the interest rate to seven percent and using an updated mortality table. ORS can include samples of what the various employees benefit changes might be with a lower rate of interest and update mortality table. This is not a substantial cost to the Plan. The Board discussed the need to amend the Plan; noting the Plan has just gone through major changes. The Board agreed to reconsider the changes when other changes are made. Review of2013 Board Attendance The Board reviewed the 2013 attendance. Mr. Moore commented that he is was very happy to have all of the vacancies filled for the Board and how much he appreciates citizens' service to the Board. Retirement Agprovals and Notifications: a. Consideration of DROP Benefit for Mary Gardner (correction of date to 2/1/2014) b. Consideration of DROP Benefit for John Thomas (correction of date to 2/1/2014) c. Consideration of DROP Benefit for Jerry Cobb d. Notification of Retiree Kathryn Robert's Death e. Benefit Approval for the Beneficiary of James Kitsos MR. GRYGLEWICZ MOVED TO APPROVE THE BENEFIT APPROVALS AND NOTIFICATIONS WITH THE CORRECTED COMMENCEMENT DATES TO 2014 FOR GARDNER AND THOMAS. MR. PHELPS SECONDED. Ayes: Nays: Absent: The motion carried. Member Choice Gryglewicz, Hagan, Moore, Patel, Phelps, Woodward, Yates None None Chairperson Hagan thanked the citizens for volunteering for the NERP Board. NonEmergency Employees Retirement Board Meeting 4 ofS The next Board meeting w ill be May 13 , 20 14. The start tim e may be a djus te d based on the estimated time needed to complete the agenda. Th e Board adjourne d at 4:50 p.m. Carol Wescoat Recording Secreta ry Non Emerge ncy Em ployees Retirement Board Mee ting 5 of5