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HomeMy WebLinkAbout2015-05-12 NEERB MINUTESNONEMERGENCY EMPLOYEES RETIREMENT BOARD MEETING May 12, 2015 Chairperson Woodward called the regular meeting of the Englewood NonEmergency Employees Retirement Plan Board to order at 3:00 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 off inance and Administrative Services David Henderson, Employee Representative John Moore, Council Appointee Mahendra Patel, Secretary, Employee Representative James Phelps, Council Appointee Jim Woodward, Chairperson, Council Appointee Steven Yates, Council Member (No Notice) Wendy Dominguez, Innovest Portfolio Solutions Jerry Huggins, Innovest Portfolio Solutions Diane Hunt, Gabriel Roeder Smith and Company (GRS) Joe Herm, GRS Leslie Thompson, GRS * * * * * Notification of Brad Hagan's Board Resignation Brad Hagan, notified the Board he was resigning his position on the Board at the February meeting. Seating of David Henderson, Employee Elected Board Member The Board congratulated David Henderson as the employee elected Board member to fill the remainder of Mr. Hagan's term. Mr. Henderson's term ends February 1, 2018. Approval of Minutes The Board discussed an error on page 2, 8. Consideration of S&P 500 Index Fund Change. MR. GRYGLEWICZ MOVED TO APPROVE THE MINUTES OF THE FEBRUARY IO, 2015 REGULAR MEETING WITH THE CORRECTION OF THE Vanguard S&P 500 INDEX FUND TOTAL EXPENSE RATIO FROM "0.95" TO "0.095". MR. PATEL SECONDED. Ayes: Nays: Absent: Abstention: The motion carried. Gryglewicz, Moore, Patel, Phelps, Woodward None Yates Henderson Innovest Portfolio Solutions, LLC Performance Evaluation Mr. Huggins reviewed first quarter portfolio performance. He reviewed fund performance and some of the variables that impacted the performance. Mr. Huggins reviewed the Manager Report Card on page 18 noting changes that occurred during the quarter, the funds Innovest is concerned about and the reasons for the concern. There is a scoring error on the PIMCO Unconstrained Bond Fund scores. There should not be a minor concern for performance. It is performing better than its peer group and the overall should be unchanged from last quarter and shown as a minor concern. The Thornburg International and Harbor High Yield showed improvement from the prior quarter. Asset A/location Study Ms. Dominguez reviewed the Asset Allocation Study. Innovest provided projected rates of returns and their associated volatility, for various scenarios. The study provided allocation options with varying returns and risks. The projected return with no change to the mix is 6.2%. The Board discussed allocation options. Ms. Dominguez stated the Board can stay with the current mix with a slightly lower return expectation than the objective of 6.5%. The Board agreed to the lower 6.5% objective for a five year period. The actuarial assumption is 7.0% expected rate of return. Ms. Dominguez pointed out that the actuarial studies are for a much longer duration than the asset allocation studies. Ms. Dominguez explained that when evaluating projected portfolio performance, they look for asset classes that are not in the portfolio that might either boost returns or reduce risk. One possible investment opportunity is Master Limited Partnerships (MLPs.) She explained that MLPs are an asset class created in 1981 which invests in energy infrastructure. Ms. Dominguez reviewed four alternatives for the Board's consideration. She explained when the study was done in 2014 it was expected that the mix would produce a 6.50% return. The expectation for the 2015 study projects the current asset mix to return 6.20%. She explained that Mix 3 is projected to provide a 6.50% return with a higher standard deviation. She reviewed the differences between the current Mix and Mix 3. She moved to page 12 with similar scenarios and adding MLPs. The change mainly comes from reducing the fixed income allocation and adding MLPs. The downside risk is a bit higher than the current mix, but not as high as Mix 3 on page 11. The Board discussed the history of MLPs and the possibility of investing in MLPs. Mr. Moore confirmed that for a given target return, if the Board elects to add MLPs, it would lower the risk across the board. He stated that each mix would provide an improved rate of return and help lower expected risk. Ms. Dominguez reviewed two MLPs funds for the Board's consideration, Oppenheimer SteelPath MLP Alpha (an actively managed fund) and ALPS Alerian MLP Infrastructure Fund ETF (a passively managed fund). She explained differences between the funds and their history. Discussion continued regarding the funds' management, sector allocations, holdings and the impact of changing the asset allocation mix and the potential resultant return and risk increase. The Board compared the various mixes based on the percentage moved with each of the asset categories. Innovest reminded the Board that the asset allocation study is a best guess based on the current market conditions and not a guarantee of the projections. The Board discussed the choices of either a passive or active fund. Mr. Moore commented that the passive fund is made up of only about 25 MLPs and does not seem the better choice. The Board agreed on the active fund. Mr. Moore is supportive of Mix 2 because of his preference to be risk adverse. Mr. Gryglewicz said there is risk with being so heavily weighted in fixed income and prefers Mix 3. Mr. Moore said that Mix 3 does not relatively increase the equity exposure from where it is currently and when added to the asset allocations, the MLPs reduce the risks on all Mix levels. Following discussion the Board agreed on Mix 3. MR. PHELPS MOVED TO APPROVE CHANGING THE ASSET ALLOCATION TO MIX THREE AS DEFINED BY THE ASSET ALLOCATION STUDY AND ADD THE OPPENHEIMER STEELPATH MLP ALPHA FUND. MR. GRYGLEWICZ SECONDED. Ayes: Nays: Absent: The motion carried. Gryglewicz, Henderson, Moore, Patel, Phelps, Woodward None Yates Gabriel Roeder Smith and Company-January 1. 2015 Actuarial Report Ms. Hunt reviewed the draft January 1, 2015 Actuarial Report. The study indicates a total required contribution of23.8% of pay beginning 2016. The employer contributions will be 20.8% and the employee is 3%. This is up .1 % from the total required 2015 contribution of $23. 7%. NonEmergency Employees Retirement Board Meeting 2 of4 V She explained that this report has the new amortization schedule the Board adopted allowing a tiered amortization be added each year with the gain or loss of that year's report. ORS was also asked by the Board to provide a study with the report that included the new mortality table. She summarized investment return, mortality tables, salary increases, the increase of the average age of the population, change of amortization methodology and the decline of new participants in the Plan. She commented that the actuarial value and the market value are getting closer. The asset value is now 98% of the market value. The liabilities are expected to grow about $1.0 million per year and the report indicates a $1.0 million increase from last year. The current funding ratio is 82.5 % compared to 79.5% last year. Ms. Hunt reviewed the mortality table study the Board requested. The new mortality table was released by the Actuarial Society at the end of 2014. She said that if the Board chose to move to the new mortality table, the Total Retired Contribution would increase from 23.8% to 25.7%. Ms. Dominguez left at 4:45 p.m. The Board discussed the new RP-2014 mortality table. Ms. Hunt is unaware of any of GRS's government plans that have made the change to the new tables. The Board agreed to consider the new mortality table and any other assumption changes that may be presented prior to the next actuarial report. Ms. Hunt said the meeting during February is when the Board considers changes and additional studies for the January 1, 2016 report. MR. MOORE MOVED TO APPROVE THE JANUARY I, 2015 ACTUARIAL REPORT. MR. PATEL SECONDED. Ayes: Nays: Gryglewicz, Henderson, Moore, Patel, Phelps, Woodward None Absent: Yates The motion carried. Retirement Approvals and Notifications: a. Consideration of DROP Benefit for Thomas Cable b. Notification that Michael Renner has withdrawn his DROP application c. Consideration of DROP Benefit for James Denter d. Consideration of DROP Benefit for Michael Sax e. Consideration of Retirement Benefit for Danny Rhoden f. Consideration of Retirement Benefit for Rex Templeman g. Consideration of Retirement Benefit for Kirk Oviatt h. Notification of DROP Application for Ladislaw Vostry i. Notification of Retirement Benefit for Charlotte Pritchard j. Notification of DROP Application for Tara Micheli k. Notification of Retirement Benefit for Walter Withers 1. Benefit Approval for the Beneficiary of Douglas Jarred, Judy Walton-John m. Notification of DROP Application for Felix Tony Soto, Jr. n. Notification of Beneficiary Gene Irons' Death o. Notification of Retiree Donna Gottberfs Death p. Approval of Accumulated Contributions Rollover for Erin McGarry Ms. Hunt, Ms. Thompson and Mr. Herm left at 4:55 p.m. MR. GRYGLEWICZ MOVED TO APPROVE THE ITEMS LISTED ON THE BENEFIT APPROVALS AND NOTIFICATIONS. MR. PATEL SECONDED. Ayes: Nays: Absent: The motion carried. Gryglewicz, Henderson, Moore, Patel, Phelps, Woodward None Yates NonEmergency Employees Retirement Board Meeting 3 of4 Discussi on re sum ed rega rd in g changes to th e asset allocations. Th e Inves tment Po li cy Statemen t (IPS) will require re vis ion s to perm it the add it ion of MLPs and th e new Mix 3. lnn ovest will provide the revised IPS for Board 's fin al ap proval at th e August 11 meeting. Discussio n followed regarding th e IPS and what is necessary for lnnovest to proceed with th e fun d changes. The Board ag reed to prora te the withdrawals from th e fi xe d inc ome and reba lance any other ch a nges necessary to adjust to the new strategic target. MR . MOORE MOVED TO APPROVE C HA NGING THE FI XED rNCO ME TO EIGHTEEN PER CENT BY RED UC ING OPPORTUN ISTIC FIXED INCO ME TO FOUR PERCENT AND CO RE FIXED INCOME TO FOURTE EN PERCENT TO ALLOW FOR TH E PURCH ASE O F MLP s. MR. PH ELP S SECONDED. Ayes: Nays: Absent: Th e mo tion carried. Members ' Cho ice Gryg lewicz, Hende rso n, Moore, Pat e l. Phe lps , Wo odward None Yates The Non Emerge ncy Employees Retirement Plan Letter of Determin ati on was re ce ived; however, the Internal Reve nu e Se rvice (I RS) has required an amendment to the Plan document. Ms. We scoat presen ted a copy of correspo nd ence betwe en Mary Brauer, pensi on attorn ey, and the IRS stating th e necessary amendment to secti on 3-4 -16-3 . Th e amendment mu st be completed with in 90 days of th e IRS letter. MR. MOORE MOVED TO APPROVE TH E ADDITION OF THE LANGUAGE FOR SECTION 3-4-16-3 AS STATED IN THE LETTER FROM MS. BRAUE R DATED MA Y 15, 20 13 IN ACC ORDANCE WITH THE IRS DETERM INAT ION LETTE R. MR. PH EL PS SECONDED. Ayes: Nays: Absent: The motion carried. Grygl ewicz, Henderson, Mo ore, Patel, Phe lps , Woodwa rd None Yates The next me et in g will be Aug ust 11, 2015. MR . PH EL PS MOVED TO ADJOURN. MR . PATEL SECONDED. Th e Bo ard adjourned at 5: IO p.m. &A~ /t)L4<:lk/ Caro l Wescoat Reco rdin g Secreta ry C. Non Emcrgcncy Employees Retirement 13oard Meeting 4 of4