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08-08-1996 Regular Meeting• MIAMI SHORES VILLAGE PENSION BOARD AUGUST 8, 1996 The regular meeting of the Miami Shores Village Pension Board was held on Thursday, August 8, 1996 in the Chamber of the Village Hall. The meeting was called to order at 8:05 A.M. with the following members present: Present: Louis S. Imburgia, Jr., Chairman William Heffernan Joseph Charles Officer Timothy Dearden Walter Latimer Richard Trumble Absent: Michael R. Couzzo, Jr. Mark Ulmer, Village Attorney Also Present: Patricia Varney, Plan Administrator EMERGENCY AGENDA ITEM - APPOINTMENT OF ACTING CHAIRMAN Due to the late arrival of Mayor Imburgia, Mr. Trumble nominated Mr. Heffernan as Acting Chairman. Mr. Charles seconded the motion and Mr. Heffernan was so nominated. ITEM #1 APPOINTMENT OF ACTING SECRETARY FOR TODAY'S MEETING Mr. Trumble moved that Mr. Walter Latimer be appointed as Acting Secretary for today's meeting due to Mr. Couzzo's absence. Mr. Charles seconded the motion and the vote was unanimous in favor. ITEM #2C INVESTMENT REPORT FROM MR. PHILIP ROBERT, SUNTRUST Mr. Philip Robert reported that the total return for the quarter was 3.16%. The equity portfolio . rose 4.84% compared to 4.49% by the S&P 500. Fixed income had a return of 0.51% compared to the Lehman GovtlCorp with 0.47%. Mr. Robert noted that there has been continued volatility in the market with interest rates remaining stable. Mr. Heffernan inquired as to how asset allocation between the High Grade Equity and the High Grade Equity Income is determined. Mr. Robert replied that there is an even split between the two stock funds: the growth and value fund. The equity fund has performed better than the value fund this year. Pension Board August 8, 1996 Page 2 Mr. Charles asked for an explanation regarding the statement in the growth philosophy which states that, "Stocks exhibit classical P/E ratio ranges for given P/E ratios of the market." Mr. Robert replied that when the price to earnings ratios increase, stocks should show similar characteristics. When the stock's current price to earnings ratio is below the historical range, it is considered a buy candidate. ITEM #2B INVESTMENT REPORT FROM DON BRYANT, BARNETT BANK Mr. Bryant reported that the total return for the quarter was 1.83%. The fixed income account was up 0.81% for the quarter compared to 0.47% of the Lehman Govt/Corp. The equity portfolio had a return of 2.76% for the quarter compared to 4.48% of the S&P 500. Mr. Bryant stated that because of rising interest rates, bond rates have fallen. The bond outlook is better for the second half of 1996. Mr. Bryant noted that over the next quarter, Barnett Capital Advisors, Inc. will be taking over the investment structure at Barnett Bank. ITEM #2A INVESTMENT REPORT FROM KAREN COLE, MERRILL LYNCH Ms. Cole reported that both investment managers had positive returns. Ms. Cole gave the Board information regarding asset allocation of the portfolio. She recommended that the Board keep the current asset allocation until such time that the portfolio managers are allowed to invest internationally. Ms. Cole stated that small cap and international investments have a better rate of return over the long term. However, it is not yet allowable. Mr. Charles inquired as to asset allocation in relation to performance. Ms. Cole noted that the risk/return comparison shows that the minimal increase in returns is not justified because the risk involved is much greater. Increasing investment in stocks brings undue risk to obtain an incremental higher rate of return. ITEM #3 STATEMENT OF INVESTMENT POLICY - KAREN COLE Mr. Heffernan noted that the secondary goal of the investment manager is to provide a rate of return greater than the actuarial assumption and they should rank in the top 33% of similarly managed portfolio. Barrett's performance has been in the bottom 41% and 3% below the S&P and their return misses the target. Ms. Cole noted that the total return is only slightly behind over the four year period and is not a major concern. Mr. Charles asked that rules for cause of dismissal be added to the policy. Ms. Cole stated the following addendum could be added to the policy: If the manager is below the index over a two year period, he is subject to no additional funding. The manager could be fired if the return is below the index over a five year period. • Pension Board August 8, 1996 Page 3 Mr. Charles asked why the investment policy judges managers on a 50/50 allocation instead of the 60/40 that is allowed. He noted that the managers should be compared to those with the same allocation. Ms. Cole stated that would be changed to reflect 60/40. Mr. Heffernan noted that Merrill Lynch's obligations should also be included in the policy. Ms. Cole agreed. The issue of CMO's was discussed. Reference was made to a memorandum from Mark Uhner to the Board. Mr. Heffernan stated that a recommendation should be made to the Council to adopt an ordinance that would allow the purchase of CMOs. Ms. Varney asked the revised policy be approved by the Board before sending it Council for approval. At that time, the issue of CMO's can be addressed. Mr. Charles asked that the volatility investment objective have some consequence attached to it. It was the consensus of the Board to defer the item until the next Pension Board meeting. Mayor Imburgia arrived at this time. The gavel was passed back to Mr. Imburgia. ITEM #4 DISCUSSION AND POSSIBLE ACTION REGARDING DEFINED BENEFIT AND DEFINED CONTRIBUTION PLAN - Stephen Palmquist Mr. Heffernan stated that he was interested in the cost difference between the two plans. He noted that there is a major movement out of defined benefit into a defined contribution plan especially in the private sector. Mr. Palmquist noted that the actual cost of the Village defined benefit plan is approximately 1 percent of assets. These costs are paid indirectly by the Village. With the defined contribution plan, the normal cost is 100-200 basis points for administration costs paid for by the employee out of their account balance. Mr. Palmquist stated that there are three factors that have caused companies to deter from establishing a defined benefit plan. One is the percent of payroll contributed to an employee's pension. Second, the IRS, the Department of Labor and the Pension Benefit Guarantee Corporation regulations are overwhelming especially for the private sector. Third, with a define benefit plan the employer cost varies. However, in a defined contribution plan, the cost is known in advance. Mr. Heffeman noted that in a defined contribution plan, any monies contributed are tax deferred and asked if it was the same with the defined benefit plan. Mr. Pahnquist stated that it was. Mrs. Varney noted that currently, employees are taxed on their contributions. Mr. Heffernan stated that employees should benefit from the pretax contribution. Mr. Pahnquist said he would work on converting to pretax contribution. Mr. Palmquist noted that with a defined contribution plan, the employee takes all the risk and with a defined benefit plan the employer takes the investment risk. Mr. Palmquist referring to a handout stated that you can do the most good for the most people with the least amount of dollars with a defined benefit plan. He stated that currently the City cost is approximately 8 Pension Board August 8, 1996 Page 4 percent of payroll. Should the Board consider a defined contribution plan, the Village would lose the state revenue. The disability benefits in the plan would be lost. Mrs. Varney noted that the 8 percent is a combined total as the police contribution is 14 percent and the general employee contribution is 2 percent. She also acknowledged that the Village would have to renegotiate the PBA contract to switch to a defined contribution plan. Mr. Heffernan stated he is concerned due to the number of cities across the United States that are and will be faced with enormous pension costs for which funding will be onerous. Mrs. Varney noted that the Code caps pension contributions at one mill. Mr. Heffernan noted that the pension plan is very volatile. Mr. Palmquist stated that the asset smoothing method will soften the volatility. Mr. Heffernan asked that someone who is pro defined contribution plan provide their view to the Board. He would also like to have more information regarding the 457 plan offered to employees. Mr. Palmquist noted that this plan is not utilized by many employees because although the employee makes the contribution into the plan, the money is owned by the Village and is subject to Village creditors. However, the minimum wage bill has a provision that will allow the money contributed into a 457 plan to be placed in a trust as in the current pension plan. Mr. Heffernan left at this time. ITEM #5 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 $9,632.56 for quarterly management fees ending June 30, 1996. Mr. Trumble seconded the motion and the vote was unanimous in favor. ITEM #6 REQUEST APPROVAL OF PAYMENT TO SUNTRUST Mr. Latimer moved for approval of payment to SunTrust in the amount of $12,244.23 for quarterly management fees ending June 30, 1996. Mr. Trumble seconded the motion. The vote was unanimous in favor. ITEM #7 REQUEST APPROVAL OF PAYMENT TO BARNETT BANKS TRUST COMPANY, N.A. Mr. Latimer moved for approval of payment to Barnett Banks Trust, N.A. in the amount of $378.00 for quarterly administrative services ending June 30, 1996. Mr. Trumble seconded the motion. The vote was unanimous in favor. • • Pension Board August 8, 1996 Page 5 ITEM #8 REQUEST APPROVAL OF REIMBURSEMENT TO MIAMI SHORES VILLAGE Mr. Latimer moved for approval of reimbursement to Miami Shores Village in the amount of $721.80 for Plan Administrator attendance at the FPPTA conference. Mr. Trumble seconded the motion and the vote was unanimous in favor. Mrs. Varney noted that at the request of the Board, she spoke to Ms. Karen Cole who renegotiated the management fees for SunTrust. The fees will be reduced to 75 basis points for the first million dollars effective July 1, 1996. ITEM #9 APPROVAL OF 1. HI, MAY 9,1996 MINUTES Mr. Charles moved for approval of the May 9, 1996 minutes as submitted. Mr. Trumble seconded the motion and the vote was unanimous in favor. ITEM #10 BOARD COMMENTS There was discussion regarding the 457 plan. Mr. Trumble showed some concern regarding the City's ability to take the money. Mrs. Varney explained that the new bill passed by legislature would put the money into a trust which would not allow city access. ITEM #11 ADJOURNMENT The Pension Board meeting of August 8, 1996 was adjourned at 9:40 A.M.