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05-09-1996 Regular MeetingMIAMI SHORES VILLAGE PENSION BOARD MAY 9, 1996 The regular meeting of the Miami Shores Village Pension Board was held on Thursday, May 9, 1996 in the Chamber of the Village Hall. The meeting was called to order at 8:15 A.M. by Mr. Louis Imburgia, Jr. with the following members present: Present: Louis S. Imburgia, Jr., Chairman Michael R. Couzzo, Jr., Secretary Joseph Charles Officer Timothy Dearden Walter Latimer Richard Trumble Absent: Councilman William Heffernan Also Present: Mark Ulmer, Village Attorney Patricia Varney, Plan Administrator 1. DISCUSSION AND POSSIBLE ACTION REGARDING THE STATEMENT OF INVESTMENT POLICY Mr. Jeff Swanson, Merrill Lynch was present to explain the changes made to the Statement of Investment Policy. He stated that essentially the policy has remained the same. The major change was to Page 4, Item 2 regarding the Collateralized Mortgage Obligations (CMO's). This limits the amount allowed in the portfolio to 25% of the market value of the fixed income managers portfolio. There are currently no restrictions. The CMO must also pass a "stress test". A list of "bad" CMO's is also contained in the policy. Another minor change was made to the secondary objective on page 2. This was altered to provide a rate of return that would beat the actuarial assumption of 8%. Mr. Charles asked what would happen if the outlined objectives were not met by the investment managers. Mr. Swanson replied that over any business cycle, a 3-5 year period, the managers should meet the criteria. Mr. Charles stated that asset allocation determines the success of an investment policy. Since the Miami Shores Pension Plan is young, the plan could be more aggressive in its allocation mix. Mr. Swanson recommended that small cap and international stocks as well as asset allocation be discussed at the next Pension Board meeting. Mr. Ulmer asked if CMO's were an authorized investment under State Statutes. Mr. Swanson stated that it is not mentioned in the State Statutes and is therefore the opinion of many attorneys that if it is not addressed, it may be bought. Mr. Ulmer stated that the Council would have to determine whether or not they would authorize investment in CMO's. He asked that the item be deferred until he has time to review the policy. Pension Board May 9, 1996 Page 2 Mr. Couzzo asked that the item be deferred to the next meeting for discussion regarding asset allocation and for the Village Attorney to research CMO's. It was the consensus of the Board to table this item to the next meeting. 2a. INVESTMENT REPORT FROM MR. JEFF SWANSON, MERRILL LYNCH Mr. Swanson stated that the total fund quarterly return was 2.3% while the target index returned only 1.5%. The fund has a total market value of $11,709,438, an increase of $176,310 from the previous quarter. The equity portfolio had a return of 5.6% for the quarter. The fixed income return was -1.9%. The fund was more aggressive in equities investing 58.4%, while the average fund sample invested only 52.9%. The fund ranked 52 relative to other funds. The total return for the fiscal year-to-date the return was 6.9% close to the target index of 7%. Barnett Bank had a solid quarter with a return of 2.2% versus the target of 1.5%. The equity portfolio returning 5.9% beating the S&P by 0.4%. The bond portfolio was down 2.1% compared to -2.3% of Lehman G/C. STI portfolio was valued at $6,007,540. The total fund returned 2.5% for the quarter. The equity portfolio met the S&P at 5.4%. The bond portfolio was less than the Lehman G/C at -1.8%. Mr. Ulmer referred back to the State Statutes stating that plans may not invest in foreign stocks. He noted that a variance may be obtained from the list of allowable investments in the State Statutes through a City Ordinance. Mr. Charles stated that the policy had been deferred to the next meeting. Mr. Latimer noted that it may be premature as the Board would like to discuss asset allocation. 2b. INVESTMENT REPORT FROM MR. DON BRYANT, BARNETT BANK Mr. Don Bryant reported that the year-to-date return was up 5.75%. He discussed the bond market noting the 2.8% growth during the 1st quarter. Mr. Bryant stated that interest rates rose, while bond prices decreased. He noted that the equity market has been strong in the last five quarters and that there is an increase in volatility. Mr. Latimer asked if a change in asset allocation would affect fund investment or would it give the fund managers more flexibility. Mr. Bryant stated that he believes stocks will return more over a long period. Pension Board May 9, 1996 Page 3 2c. INVESTMENT REPORT FROM MR. PHILIP ROBERT, STI Mr. Philip Robert noted that the yield will be very important in the bond portfolio. He stated inflation is a concern, in particular with commodity price inflation. Consideration must also be given to the possibility of an increase in the minimum wage. An increase in labor prices is a major component of inflation. STI has been more conservative on the fixed income portfolios. There has been more volatility in the stock market. Mr. Robert noted that STI believes in buying stocks for the long term. Discussion regarding asset allocation ensued. Mr. Charles asked what the impact would be with a change in the assumption and a change in asset allocation. Mr. Palmquist stated that the two are tied together. The eight percent assumption is justified only if roughly half of the fund money is invested in the stock market. Mr. Ulmer requested a list of all portfolio investments from the investment managers. 3. DISCUSSION REGARDING DEFINED BENEFIT PLAN AND DEFINED CONTRIBUTION PLAN - MR. STEPHEN PALMQUIST Mrs. Patricia Varney stated that Mr. Heffernan had requested information regarding the differences between a defined benefit and defined contribution plan. Mrs. Varney and the Village Manager had a meeting with Mr. Palmquist, the actuary. Mr. Palmquist is here today to report on that meeting. Mr. Couzzo noted that Mr. Heffernan had requested the information. As he is not present today, Mr. Couzzo recommended that the item be deferred to the next meeting. It was the consensus of the Board to table the item to the next meeting. Mr. Charles asked if a summary could be given for the benefit of the Board. Mr. Couzzo stated that Mr. Heffernan was concerned with the long-term effects of both plans. Mr. Palmquist stated that a defined benefit plan is what is currently used by Miami Shores. The definition is in the Code of Ordinances and it states that a person's pension is a function of three items: salary, years of service and a multiplier giving an end product. For general employee's, the multiplier is two percent. If an employee retires with twenty years of service, he will receive forty percent of his pay (20 x 2) as an annual pension for life. In a defined contribution plan, you consider the present. A fixed percent of salary is used to define a yearly contribution. Whatever that amount grows to at the time of retirement is what pension benefits will be. Mr. Couzzo asked Mr. Palmquist to provide the Board with a summation of the information before the next quarterly meeting. Mr. Palmquist stated he would provide a copy of the company newsletter which highlighted both plans prior to the next meeting. Mr. Couzzo asked that Mr. Palmquist be prepared to discuss the actual contributions of all employees and the impact to the Village. Pension Board May 9, 1996 Page 4 4. DISCUSSION AND POSSIBLE ACTION REGARDING CONTINUATION OF DISABILITY BENEFITS FOR SGT. GEORGE MANOS Mrs. Varney explained that when the Board approved disability benefits for Sgt. Manos, there was some concern as the disability was not job related. It was the request of the Board to bring the item back in one year for review. According to the Ordinance, Article 18-51, any disabled police officer receiving benefits under this section shall be required to submit to an examination no more than once each year. Mrs. Varney stated that if the Board still has concern regarding Sgt. Manos' disability, he has to submit to another physical examination. Depending on the result of such an examination, benefits may or may not continue. She noted that the two other police officers receiving disability benefits had job related disabilities and have not been required to have a re-examination. Mr. Latimer stated that his concern was that Sgt. Manos never considered surgery on the rotator cuff tear which is generally repairable. Mr. Latimer noted that the examination should specifically ask if surgery would repair the injury. Mrs. Varney stated that should Sgt. Manos choose not to have surgery, the Board must still consider him disabled. Mr. Couzzo moved that re-examination of Sgt. Manos not be required this year and that disability benefits be continued. Mr. Trumble seconded the motion. Mrs. Varney asked if the Board would like to review the disability again next year. It was concluded that yearly re-evaluation be considered at the Board's discretion. Mr. Latimer stated that this case exposed a problem in Village policies dealing with non -service related injuries. Mr. Couzzo stated that disability benefits must be a negotiated item with the PBA. The vote was called and was unanimous in favor. 5. DISCUSSION AND POSSIBLE ACTION REGARDING REV. RUL. 85-105. Mrs. Varney explained that in order for a disabled employee to take advantage of the "non- taxable" status, the participant must obtain a letter from the Board that their disability was service incurred and how the disability benefit was calculated. There are currently two disabled police officers receiving benefits. Mrs. Varney requested that the Board authorize her to draft the letter to Barnett Bank as required in the Revenue Rule. Mr. Ulmer noted that the two employees receiving disability have not requested such a letter from the Board. Mr. Dearden stated that whenever an employee requests disability benefits, a letter should be sent to Barnett Bank. Mr. Uhner stated that if the disability has been determined by the Board, then the Plan Administrator has the power to send a letter regarding the disability status of the employee. • Pension Board May 9, 1996 Page 5 6. REQUEST APPROVAL OF PLAN ADMINISTRATOR ATTENDANCE AT FPPTA CONFERENCE. Mr. Charles moved for approval of attendance by the Plan Administrator at the FPPTA conference. Mr. Tremble seconded the motion. The vote was unanimous in favor. 7. REQUEST APPROVAL FOR THE RENEWAL OF FIDUCIARY INSURANCE AND FIDELITY BOND. Mr. Latimer moved for approval for the renewal of fiduciary insurance in the amount of $8,153.00 and fidelity bond in the amount of $171.00. Mr. Trumble seconded the motion and the vote was unanimous in favor. 8. REQUEST APPROVAL OF PAYMENT TO BARNETT BANKS TRUST COMPANY, N.A. Mr. Latimer moved for approval of payment to Barnett Banks Trust Company, N.A. in the amount of $9,550.68 for quarterly management fees ending March 31, 1996. Mr. Trumble seconded the motion. Mr. Latimer asked that the Board consider renegotiating the fees paid to fund managers. Mr. Charles asked that Mrs. Varney check on the fees charged to other cities. The vote was called and was unanimous in favor. 9. REQUEST APPROVAL OF PAYMENT TO BARNETT BANKS TRUST COMPANY, N.A. Mr. Latimer moved for approval of payment to Barnett Banks Trust Company, N.A. in the amount of $407.00 for quarterly administrative services ending March 31, 1996. Mr. Trumble seconded the motion and the vote was unanimous in favor. 10. REQUEST APPROVAL OF PAYMENT TO SUNTRUST • Mr. Latimer moved for approval of payment to SunTrust in the amount of $11,889.14 for quarterly management fees ending March 31, 1996. Mr. Trumble seconded the motion. The vote was unanimous in favor. 11. APPROVAL OF THE FEBRUARY 8,1996 MINUTES. Mr. Charles moved for approval of the February 8, 1996 minutes as submitted. Mr. Trumble seconded the motion and the vote was unanimous in favor. Pension Board May 9, 1996 Page 6 12. REPORT FROM THE VILLAGE ATTORNEY Mr. Ulmer stated that there were two requests to obtain information at the last meeting. The first was an ordinance regarding actuarial expenses paid from the Pension Fund. His interpretation of the ordinance was that all expenses for administration of the Pension Plan be paid out of plan • assets with the exception of actuarial expenses. It was the decision of the Village Council that all expenses including actuarial would be paid out of plan assets. Mr. Couzzo noted that the question arose due to a change in the structure of the pension ordinance during negotiations and asked if expenses incurred due to such a change should be paid out of plan assets. Mr. Ulmer stated that since the expense of the negotiations led to a revision of the pension plan, the expense should be paid out of plan assets. • The second request was in regards to the Board's options to recover administrative fees related to the NCNB real estate investment. Mr. Ulmer stated that the Trust agreement has a provision that allows for reimbursement to NCNB for any reasonable expenses incurred in the administration of the Trust. Therefore, it was the recommendation of the Village Attorney that litigation to recover the administrative fees not be persued. 13. BOARD COMMENTS Mr. Imburgia inquired as to the feasibility of in-house financing such as the Pension Plan financing the Police Building project. Mr. Couzzo informed the Board that there were two bills in the State Legislature, SB 2484 and HB 1951 regarding funding for police and fire pensions. There would have been a financial impact of approximately $100,000 to the Village. The bills passed in the House, but failed in the Senate. A copy of the '96 Legislative Bulletin was given to the Board for informational purposes. 14. ADJOURNMENT The Pension Board meeting of May 9, 1996 was adjourned at 9: 0 A.M. 0 uis S. Imburgia, Jr., Chairman