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

committee and whether or not to expand the role on .- investment advice. Comments included that one of the functions of the advisory committee is to perform other duties as assigned and that Council should not assign the committee investment decisions; the belief was expressed that Council has not assigned that to the committeeand that Council should not assign that to the committee; that the committee needs the experts to ask the right questions so when .""" they come with a recommendation, Council would be confident they are getting a filtering of the information from Merrill Lynch. Mr. Tierney explained if Council wants investment advice from someone other than the current investment advisor, who is independent, he recommends it not be part of the committee. He did not think Council needs to have that. He said the key decision is whether Council wants to listen to Merrill Lynch or whether Council wants to have someone else listen and give a recommendation. He said if Council would rather hear it from Merrill Lynch, they are the independent expert; if Council wants a filter, they probably want to listen to the filter; if they want to listen to both, it maybe redundant. He thought Council might want to have a periodic second opinion about the financial advisor, which is a way to feel comfortable with the advisors being used to make sure they are on track rather than setting up a separate committee. He said that is assuming Council still wants to listen to the Merrill Lynch financial advisor to give recommendations on action. He said Council is using that expert already to provide the advice and if that is the model they want to continue rather than have someone else listen to Merrill Lynch, then what they are doing is fine and maybe just get periodic second opinions. During further discussion on the composition of the current advisory committee, comments included that a decision did not need to be made at this time, and that Council can think about it for a later discussion; that there is no problem with the composition of the committee but they should not have responsibility for financial matters relating to the pension fund; confidence was expressed on the actions of the committee in reaching decisions about benefits, but they have somehow gotten in too deeply into the pension fund; that it is Council' s responsibility to be the overseers of the fund and not delegate it to someone else; and that it is not seen as delegating responsibility, that it is getting the absolute best advice and more information. The question was asked of the City Attomey whether there is anything that would prohibit Council from bringing in outside advisory committee members from different investment groups when Merrill Lynch is already on contract and whether there would be an issue with it. The City Attomey advised Council can set up any board or committee they want but the question is vA1ether or not the current ordinance that has set up the Pension Board would be in conflict, and they just need to make sure that those are clarified if Council chose to do that. j'''' Mr. Linn stated if the decision is made to have an investment committee, his recommendation is that it be j put into the pension ordinance so that it is very clear on the intent with respect to that committee. The City Manager mentioned that the role of the Finance Director is to be actively involved with Merrill Lynch and Ms. Absher has the skills and the ability to be actively involved with Merrill Lynch and ask the questions. She also said that the investment policy approved by Council is periodically reviewed and is updated, dictates the types of investments permitted to invest in and sets out parameters, asset allocations, etc., so there is a framework in which to operate. During further discussion comments included that closure is needed on the issue; that the Finance Director is the person to oversee the pension; that another committee is not needed; and that it is not the role of the committee to oversee the investments. Special Council 8- 22- 07 103 GENERAL EMPLOYEES PENSION FUND cont Discussion tumed to recommendation 3 that a second- opinion of the Actuarial information should be obtained. Mr. Tiemey mentioned all advisors agree that is a good thing to do periodically of the advisors. The question was asked on how often a periodic evaluation should be conducted. The Finance Director mentioned it had never been done and recommended every five years. Mr. Minich moved to approve the recommendation that a second- opinion of the Actuarial information should be obtained every five years. Mr. Reeves seconded motion. The Human Resource Director reported that the advisory committee did undertake a review and received quotes on doing a peer review. He said if it is the pleasure of Council to proceed, everything is in motion toproceed at a cost of approximately $9, 200 for a peer review and the competitive survey. He said it can be placed on the next Council agenda for consideration. Mr. Tiemey mentioned that second- opinions do not have to be complete valuation reports, they can be a review of the work, the methodologies, including the work paper and give an opinion about whether or not they are good with that is a much lesser cost version of a peer review. The Mayor called for the vote on the motion and it carried unanimously with Holmes, Miller, Reeves, Garvie, Pullen, Hartwell, and Minich in favor. Discussion tumed to recommendation 4 that the City contributions should be fixed and promptly remitted. Mr. Linn commented he was unsure of the intent of the recommendation but the law requires the City contribute the annual required contribution (ARC). He commented to decide to have a fixed contribution above the ARC is fine but the idea to have a fixed contribution without regard to the ARC would not be, in his opinion, consistent with what the law requires. It was commented that the earlier vote on using the delayed payment method makes the issue a moot point since now there will be an established amount for the budget. Mr.Tiemey noted the intent is to get stability of contributions and reduce volatility. He said technically it cannot be fixed but they can have stability if funds are set up to cushion the amortization fluctuations. He said the normal costs has its own built in stability and they only have to manage the volatility of the amortizations so that is the key is to set up a stabilization fund so when the amortization charges go up they can take from the stabilization fund to pay that years payment rather than increase the cash requirement from the City. The question was asked about the suggestion in the recommendation that contributions should be directed to investment 26 times per year. Mr. Tiemey explained that the suggestion has to do with the timing of when the money is put in and to put it in consistently over the year. The question was asked on how much should be invested to build up stability. Mr. Tiemey stated his first recommendation would be to always pay at least the normal cost. He explained the City is currently paying normal cost plus amortization so in years when there is no amortization; they would pay normal cost and in years where there would be a surplus credit instead of reducing the normal cost, put that in the stabilization fund. He said that can be set up in the policy currently even though nothing happens currently because now there would be a plan; and every year there is a little extra money in the budget, think of the pension stability fund also. The City Manager mentioned a reserve fund of sorts was established in 2004 for the pension where 500, 000 or $ 600, 000 was designed for pension costs. She said that is when the fund balance was growing and there was extra money at the end of the year so it was designated in the fund balance of the it was general fund, but the only difference is that it did not go directly to the pension fund to be invested, invested more conservatively with other city funds. 1 04 Special Council 8- 22- 07 GENERAL EMPLOYEES PENSION FUND conl Ms. Balent was requested to explain the comment in her report that the contributions are currently being directed as required by the Plan documents. She e)( jJlained if the timing is changed they may receive more investment retums on the contributions but the city may lose interest earnings in the general fund. Mr. Tierney stated his recommendation is let the Finance Director and City Manager make the decision on how best to put the money into the plan. The question was asked if contributions are placed in a separate account from where the retirees are paid. Mr. Tierney stated when the city puts the money in and when the checks are put out is independent. The Finance Director explained it has been past practice to use the contributions to fund the outgoing payments and a very small amount, if any, of the current contributions goes toward investment. The City Manager clarified that all of the city' s free cash is invested in CD' s or state investment, so it does eam some money but it is not being in\13sted in the sense of the asset allocation for the pension fund. She said it goes to the full aspect of cash flow purposes. The Finance Director explained the City sends all the quarterly and bi- weekly amounts to Salem Trust, the Third Party Administrator ( TPA); then Salem cuts the retirement pay checks and takes care of retirement payment. She is trying to improve the contract and the investments with Salem Trust. Mr. Tiemey explained that Salem Trust is the custodial trustee, serving administrative functions in terms of making the payments. Mr. Miller moved that the Finance Director investigate and retum with a recommendation for Council. The City Attomey expressed her concern that the Charter clearly says that the administrative issues are left to the City Manager so Council would have to be careful how far into the administrative issues they are getting. The City Manager stated the Finance Director is already working on revising the contract and if it is revised then staff will bring it to Council for approval. Mr. Miller withdrew the motion. The Finance Director stated she will revise the contract, give them less money, or choose a custodial trustee. Mr. Linn expressed his belief on recommendation 5 that the Plan should retain professional experts who act in a fiduciary capacity that is already being done. He stated he checked the Merrill Lynch contract and it does not say that Merrill Lynch is acting in a fiduciary capacity, but he expressed his opinion there is no question that anyone who acts as investment advisor to the fund is a fiduciary. He did not believe there is any issue about Merrill Lynch acting in a fiduciary capacity and he would recommend it be put in the contract. He expressed the other professionals fall under the same category. He mentioned that the sub- parts of the recommendation are Council' s call. He said on 5a