Fort Walton Beach Council minutes — 08-22-07 special minutes — reading text

has Employees Pension Advisory Committee. The City Manager explained that the Advisory Committee not in the past acted on it and Council is the Boad of Trustees for the Pension Plan. The City Manager commented if Council does not accept staff' s recommendation to use the payment delay methodology then staff would need to know because there is no other alternative to fund the pension planand would need to direct Mr. Tierney to provide another methodology because the budget is predicated on the delayed payment methodology. It was further explained that the Advisory Committee has not traditionally made recommendations with regard to funding the ARC, it is not one of their roles and has not been one of their roles in the past. It was noted the role of the advisory committee is on the list as an item of discussion. Mr. Linn went over the pros, cons and the risk to the employees on five options the City may wish to consider for reducing retirements costs by restructuring or replacing the existing City defined benefit plan. Options include: 1) close the existing City plan to new members and establish a defined contribution plan for future hires; 2) close the existing City plan to new members and join the Florida Retirement System ( FRS); 3) terminate the existing City plan and join FRS or establish a defined contribution plan for allemployees; 4) close the existing City retirement plan to new members, and create a new defined benefit plan with benefits based on a target contribution rate; or 5) freeze existing plan benefits for current members; adjust benefits for future hires. 1 00 Special Council 8- 22- 07 GENERAL EMPLOYEES PENSION FUND conl Further discussion was held on the payment delay method for future actuarial valuations. Dr. Pullen moved to accept the payment delayed methodology for the budget. Mr. Minich seconded motion. Mr. Tierney explained if this particular election is made now and the method is changed again the City will have to ask the State for approval to change it again and have a reason on why they want to go back .... to another methodology. He said it can be changed but the City would not have an automatic ability to change it like they can now. The Mayor called for the vote on the motion and it carried unanimously with Holmes, Miller, Reeves, Garvie, Pullen, Hartwell, and Minich in favor. Mr. Linn next went over the six recommendations made by the Finance Director concerning the retirement plan. He addressed the first two recommendations that the roles of the City Council as the Board of Trustees vs. the General Employees Pension Plan Advisory Committee should be re-evaluated and that the Advisory Committee membership should be changed. He mentioned the fundamental policy question for Council is whether the City Council wants to retain its responsibility as trustees of the Pension Fund. He noted by law the Council is ultimately responsible for the liabilities of the pension fund and to make sure that the benefits are properly funded. He noted if Council determines they do not want Council to be involved in having direct control over decisions of the pension fund, then they can go in another direction. He said the model suggested by the Finance Director, the police and fire pension board model, has to be balanced where two members are appointed by Council, two members are elected, and the fifth member is selected by the other four, and it has been his experience the fifth member has been someone who is leaning toward the employees. He said in a number of cities that has pension board the cities essentially have very little control over the decisions of a result of that mix on the the board. He said the first decision is whether Council wants to, or thinks it would be beneficial to, delegate some of the authority they have now as trustees. During discussion comments included that the advisory committee act along the lines they are supposed to act, but Council needs to accept full responsibility of overview and oversight of the general employee' s pension fund; clarification that the Actuary provides a number for the police and fire pensions that is put in the budget, and they do use the payment delay; that the Charter is clear on the responsibility of Council and Council should remain the Board of Trustees for the pension plan; that the over time the committee has become actively involved in knowing the investments of the funds and is performing more investment related functions; that Council needs continuity with the advisory committee filtering the information; and that the advisory committee can make no changes with respect to investment decisions or make any benefit provisions. The Finance Director commented she did not think everything she mentioned in items 1 and 2 is to recommend they change the model to a police and fire model. She disagreed with Mr. Linn' s opinion in regards to how a police and fire model lean towards. She commented that recommendations 1 and 2 do not really discuss whether or not City Council would retain control, but is attempting to focus on a very clear understanding by all parties of what exactly the committee is supposed to be doing vs. what City Council is supposed to be doing. Mr. Linn expressed it appeared from the discussion that consensus of Council is to continue with the current structure. He mentioned there are other things Council might want to consider in terms of how they are advised. Mr. Tierney expressed his disagreement with the current structure. He stated there are two functions Council needs to focus on; once the Council is to be the Board of Trustees there are two major responsibilities, one is investment and the other is administrative. He said the current ordinance has designated the administrative responsibilities to an advisory committee to deal with administrative aspects, such as approving benefits and dealing with disabilities. He said that is in place and as far as he can tell it is \MJrking. Special Council 8- 22- 07 101 GENERAL EMPLOYEES PENSION FUND conl Mr. Tierney said he did not believe Council should be asking that type of advisory committee to take significant roles in providing investment advice. He said if Council wants to have someone give advice and recommendations with regard to investment they should set up an investment committee. His professional recommendation is that there be two committees then there would be employees to deal with administrative issues and people with more financial experience to deal with investment recommendations. He thought the next step would be how Council wants the investment interaction to work. He said if Council is relying on Merrill Lynch to provide the expertise, which is in a sense delegating responsibility to Merrill Lynch to give recommendations, that works and there would be no need for an investment committee. He said from his perspective it is hard to know what Council is expecting the current advisory committee to do VI.1th regard to investments. the During discussion on the role of the advisory committee, comments included that the makeup of committee is critical in order for Council to feel comfortable with any recommendations; that Council relies on the advice of professionals; that the advisory committee has never recommended anything the against the Merrill Lynch advisor; that Council has followed the advice of Merrill Lynch for years and advisory committee only keeps an eye on investments. Mr.Tierney noted if Council is already interviewing investment managers then Council is already serving as the investment committee and the question is, does Council want to be their own investment committee or do they want to delegate that part of it. He stated if they delegate it to people that in that are not the same people as the people that might administer the plan. He specialize they recommended if Council is going to take any recommendations from an advisory committee that it should be put in the ordinance in order to make sure people understand what responsibilities Council is accepting and what responsibilities they are delegating, as there is potential for misunderstanding about who is accepting responsibility for these decisions. Further comments included that before creating another committee that Council not take any financial advice from the advisory committee as Council has a Merrill Lynch financial advisor they have worked with for years and it has worked well; that if there were financial advisors it might broaden the base for Council to make a decision. The Finance Director explained the reason she made recommendation 5 that the Plan should retain professional experts who act in a fiduciary capacity is because if there is no option of having someone who is giving a higher level of fiduciary responsibility in regards to giving advice, double check on investment advisors or disagreeing with the investment advisor or is educated to the level where they could disagreewith the investment advisor, then Council needs to be assured that the contract with Merrill Lynch has a fiduciary capacity in it. She did not \ it beliee currently does. Mr. Linn was unsure if there is a fiduciary clause but Merrill Lynch is serving as a fiduciary for the plan. He will review the contract and if it is not in there he agreed it should be in there because by law they are functioning in a fiduciary capacity, as are all of the pension advisors. The question was asked on what pool Council would draw from to set up a committee on recommendation number 5. The Finance Director clarified that recommendation 5 describes the experts in terms to hire outside experts such as the investment advisor. She explained on the membership of the actual committee the possibility would be to add two members to the existing committee with outside expertise. She said the Human Resources Director and herself have to attend every meeting whether they voting are a member or not and in some situations she is voting on her own advice she is giving the advisory committee and she feels that is a conflict. The question was asked on recommendation 5 whether the City would have to hire professional experts. The Finance Director clarified the City has the professional experts already but there are some improvements that could be made in regards to the arrangements or agreements. Mr. Linn confirmed he would check the contract with Merrill Lynch to see whether it states they are fiduciary, which is typical in an investment advisors contract. 1 02 Special Council 8- 22- 07 RECESS The meeting recessed at 7: 37 p. m. RECONVENE The meeting reconvened at 7: 49 p. m. GENERAL EMPLOYEES PENSION FUND conl Discussion continued on composition of the advisory