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MIAMI SHORES GE-MINUTES MEETING-6-15-2020.edited-9-2020-revised-9-21-20201 MIAMI SHORES VILLAGE GENERAL EMPLOYEE PENSION BOARD MEETING The Miami Shores Village General Employee Pension Board and Police Retirement Board jointly met on June 15, 2020, via web conference as follows: Please join my meeting from your computer, tablet, or smartphone. https://global.gotomeeting.com/join/602395333 You can also dial in using your phone. United States (Toll Free): 1 866 899 4679 United States: +1 (646) 749-3117 Access Code: 602-395-333. The General Employee Pension Board meeting called to order at 1:00 PM. The following individuals were present for the meeting: PRESENT: ABSENT: Tom Benton, Pro-Tem Chairman Angie Dorney, Trustee Averill Dorsett, Trustee Stephen Loffredo, Trustee Thomas J. Longman, Trustee Jim McCoy, Trustee Bob Williamson, Trustee Dina Lerner & Melissa Moskovitz, Gabriel Roeder Smith (GRS), Pension Plan Administrators, Doug Falcon, and Yolanda Shea FHA-TPA Benefit Administrators, Inc., Dave West, AndCo Consulting, and Pension Attorney Adam Levinson, Klausner Kaufman Jensen & Levinson. APPROVAL OF MINUTES The Pro-Tem Chairman asked if anyone had any questions regarding the minutes of the meeting held February 20, 2020, there being no questions, A motion made by trustee Williamson seconded by trustee Loffreddo to approve the meeting's minutes held February 20, 2020 motion passed unanimously passed. PUBLIC COMMENTS None ACTUARY – GABRIEL ROEDER SMITH (GRS) – Melissa Moskovitz & Dina Lerner Ms. Lerner presented the DRAFT Miami Shores Village General Employees Retirement System Actuarial Valuation Report as of October 1, 2019. The Valuation determines the annual Employer Contribution for the year ending September 30, 2021. She pointed out that this report does not reflect the effects of the pandemic COVID-19 since the report is through October 1, 2019. The next Valuation scheduled on October 1, 2021, will reflect the COVID-19 developments. Ms. Lerner advised the Board that this report reflects the following recommended changes in actuarial assumptions from the previous Valuation: 2 ▪ The investment return assumption was lowered from 7.5% per year to 7.0% per year, compounded annually (net of investment expenses). ▪ The inflation rate assumption was lowered from 2.5% per year to 2.25% per year. ▪ The rate of salary increase assumption was lowered from 5.5% per year to 5.0% per year. ▪ The mortality tables and improvement scales were updated to reflect the updated mortality assumptions used on July 1, 2019, Florida Retirement System (FRS) Actuarial Valuation. The proposed inflation and investment return assumption changes have been made to align better these assumptions with forward-looking measures of likely investment return outcomes (for the asset classes in the current investment policy) based on the capital market assumptions from fourteen nationally recognized investment advisors. The proposed lower salary increase assumption reflects lower inflation expectations described above, and the Plan's experience of lower than expected average salary increases over the past ten years. The proposed mortality assumption change has been made in compliance with Florida Statutes Chapter 112.63(1)(f), which mandates the use of the mortality tables used in either of the two most recently published actuarial valuation reports of the FRS. Trustee Benton asked how all these assumption changes affect the Village’s contribution. Ms. Lerner responded as follows: The net effect of all the assumption changes described above increased the total required contribution $53,780. The breakdown is as follows: Lowering the investment assumption rate from 7.5% to 7.0% increases the employer contribution requirement approximately $120,000 The rate of salary increase assumption 5.5% per year to 5.0% per year reduces the salary assumption by approximately $35,000. The mortality tables and improvement scales lowered cost assumptions by approximately $35,000. Mr. Levinson advised the Board that the Division of Retirement and FRS have brought cost savings from the new mortality table. For the assumed rate of return, FRS originally used 7.75% but aims to be at 7.2%. FRS decreased their rates in the beginning by 5 basis points, then 10 bases points and most recently by 200 basis points. In his opinion, the actuaries acted appropriately in recommendations to reduce assumed rate of return. Trustee Loffreddo asked the actuary what the change in normal cost means. Ms. Moskovitz reported there are two components to the required annual contribution. One component is the normal cost, and the other is the payment on the unfunded actuarial liability. The normal cost is the portion of the liability expected to prove by the current active members in contribution. 3 Trustee Loffreddo next asked the reason why the percentage of employer contribution has gone up from prior years. Ms. Moskovitz responded that part of the increase is due to the rise due to a level percentage of payroll. Payroll has increased from previous valuations. Trustee Williamson pointed out that the data in the last ten years do not support lowering the investment return to 7.0% as it appears the investment percentage is averaging below that amount. Perhaps they should look at reducing it from 7.0% per year. Ms. Lerner explained the reasons why they have recommended that percentage reduction. Mr. West commended the Board for having discussions in terms of lowering the investment return. However, he explained the variables that are involved in terms of the investment assumption rate. He does not now recommend reducing the investment assumption rate any lower than 7.0%. Trustee Benton asked whether or not lowering the investment assumed status of return results in an increase to the Village’s employer contribution; Ms. Moskovitz responded affirmatively. Trustee Longman advised the actuary that in looking at the Plan's history, it seems the salary assumed rate of return should be reduced from 5% to 4%. Ms. Lerner explained the various reasons why they have the salary taken the status of return percentage set at 5%; however, she agreed that a 1% revision would not be unreasonable. Ms. Lerner advised the Board that at the next Valuation they would consider this request. There being no further questions, A motion made by trustee Loffreddo seconded by Williamson to approve the Draft Miami Shores Village General Employees Retirement System Actuarial Valuation Report as of October 1, 2019, Annual Employer Contribution is Determined by the Valuation for the year ending September 30, 2021 motion passed unanimously. Ms. Lerner advised the Board that she would send the final signed report without the DRAFT watercolor mark on it. This concluded the actuary’s report. APPROVAL OF WARRANT – 2020-0008 The Pro-Tem Chairman asked if there were any questions regarding Warrant 2020-0008 for $1,500.00, there being no questions, A motion made by trustee Loffreddo seconded trustee Williamson to approve Warrant 2020-0008 in the amount of $1,500.00, motion passed unanimously. RATIFY PAYMENT OF WARRANTS – 2020-0005-2020-0007 The Pro-Tem Chairman asked if there were any questions regarding Warrant 2020-0007 for $5,364.00, there being no questions, 4 A motion made by trustee Loffreddo seconded trustee Williamson to approve Warrant 2020-007 in the amount of $5,364.00, motion passed unanimously. The Pro-Tem Chairman asked if there were any questions regarding Warrant 2020-0006 for $18,151.03 =there being no questions, A motion made by trustee Loffreddo seconded trustee Williamson to approve Warrant 2020-006 in the amount of $18,151.03, motion passed unanimously. The Pro-Tem Chairman asked if there were any questions regarding Warrant 2020-0005 for $5,463.64, there being no questions, A motion made by trustee Loffreddo seconded trustee Williamson to approve Warrant 2020-005 in the amount of $5,463.64, motion passed unanimously. Trustee Williamson suggested a simple budget analysis of warrants – plan by category, spent Year To Date (YTD), and what is being approved at this time. INVESTMENT REPORT Mr. West discussed the Investment Performance Review Period Ending March 31, 2020, and May 31, 2020. Below are some of the Market Environment observations for the portfolio through March 31, 2020:  Global risk asset class returns declined significantly during the 1st quarter of 2020 due primarily to the COVID-19 (Coronavirus) pandemic.  Both domestic and international equities experienced significant drawdowns as investors moved into perceived haven assets such as US Treasury bonds.  As measured by the VIX Index, equity market volatility reached its highest level since the Financial Crisis in 2008.  Through the quarter, global economic growth turned negative as counties responded to the pandemic by shuttering their economies.  In the US, as a result of the decision to institute social distancing and shelter-in- place orders, labor markets suffered significant losses as business closed or furloughed.  International returns also faced headwinds from a strengthening US dollar (USD), which appreciated most major currencies. Mr. West noted as expected during periods of rising volatility, high quality fixed income outperformed equities during the 1st quarter as investors looked for relative safety amid the equity market drawdown. The broad market Bloomberg Barclays Aggregate Index gained 3.1% as interest rates fell following rising concerns related to the Coronavirus and central bank stimulus from the Fed and other global central banks. US Government bonds were the best performing securities for the 1st quarter returning 8.1%. 5 US equity returns were significantly lower during the 1st quarter with varied results across both style and market capitalization. Concerns related to the Coronavirus, in combination with signs that the US economy could be entering into recession weighed on equities. Higher market capitalization stocks were down less than lower market capitalization stocks across the style spectrum during the quarter. In general, value stocks underperformed growth stocks across market capitalizations during the 1st quarter despite value stocks trading near all-time lows based on valuation metrics. Importantly, value indexes contain large exposures to such sectors as energy, consumer durables, and financials, all of which came under pressure during the quarter. Generally, sector performance was negative across large-cap sectors for the 1st quarter. The outlier during the period was the energy sector, which saw significant losses due primarily to the drop in oil prices because of demand destruction related to the Coronavirus and the inability of OPEC to agree on production cuts. Quarterly results for small capitalization sectors were generally worse than their large capitalization counterparts, with only utilities outperforming. All eleven economic sectors saw substantial losses during the period, with only three of eleven sectors outpacing the Russell 2000 Index return for the quarter. Like large- capitalization sectors, defensive sectors were less damaging as investors gravitated toward their relative safety and higher yields. Utilities were the least negative sector. Mr. West reported that the active managers across the Board, both stocks and bonds, did not perform well during the downturn and discussed the results in detail. He pointed out that the Domestic Index Fund is overweight by 4%. He recommends selling 4% of Total Assets Domestic Equity funds the S&P MidCap 400 Index Fund and allocating the funds to the Integrity Index fund. He explained the rationale behind his recommendation. Trustee Loffreddo asked if there would be costs associated with this transaction? Mr. West responded that there are no transaction costs associated with this action. It would involve instructing the custodian Salem Trust to move forward accordingly should the Board accept the recommendation. Trustee Loffreddo pointed out that some industries and businesses do not look like they are coming back any time soon. For example, the airline, airline manufacturers, cruise business, etc. asked if his investment advisors will be looking at those industries when reviewing the portfolio? Mr. West responded that businesses and companies are being re- defined, and they have the Boston Team and the Heritage Growth team under the Wells Fargo umbrella as active managers. That is why he suggests selling the passive index fund in this environment because they hope they will be getting that type of perspective coming from both the active equity managers. This may be a better time for active equity 6 managers to differentiate and address those issues or concerns you have discussed. They are looking to invest in durable companies. Trustee Longman asked if the rebalancing he is recommending normal. Mr. West responded this particular rebalancing is driven by the adopted investment policy. A motion made by trustee Loffreddo seconded by trustee McCoy to accept the investment consultant's recommendation to sell 4% of total assets from the domestic equity (S&P MidCap 400 index); then, those monies will be allocated into the Integrity Fixed Income, motion passed unanimously. ATTORNEY REPORT Mr. Levinson reminded the trustees that Form 1 disclosure is due July 1, 2020. The form can be sent by email and offered the trustees' assistance if needed. He reported that the Plan is required to change the IRS ordinance to include the CARES Act. However, it does not need to be done this time. This can be discussed at the next meeting. This concluded the attorney report. ADMINISTRATOR REPORT Mr. Falcon advised the trustees that a member entered the DROP in the Police plan and was a member for a short period in the General Employee Plan. The question that Mrs. Moskovitz asks is whether or not the member can also enter the DROP in the General Employee plan? Ms. Moskovitz stated that she is eligible to receive a retirement benefit from the General Employee plan; however, it does not reference entering the DROP. Mr. Levinson said that it is not uncommon for members who have membership in a dual plan to enter the DROP in both plans. Furthermore, there is nothing at a general matter that prohibits entry into the DROP in two plans. There are no legal objections. Ms. Moskovitz advised the Board that she would move forward and process a DROP calculation in the General Employee Plan. Trustee Loffreddo asked Mr. Levinson to clarify that the benefit this member will receive is based on benefits earned. Mr. Levinson confirmed that the member would receive the benefit entitled under each Plan, respectively. The Pro-Tem Chairman asked the next meeting to be scheduled by the administrator accordingly. This concluded the administrator’s report. ADJOURNMENT There being no further business, A motion made, seconded, and passed unanimously to adjourn the meeting at 3:08 PM. Approved: Meeting held 9/22/2020