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HomeMy WebLinkAboutRetirement Committee - Minutes - 09/04/1997Retirement Plan COLLINS GENERAL EMPLOYEES RETIREMENT COMMITTEE SEPTEMBER 4, 1997 MEETING MINUTES COUNCIL LIAISON: Mayor Ann Azari COMMITTEE MEMBERS PRESENT: Jim Hume, 221-6776 Dave Agee, 221-6770 Alan Krcmarik, Member/Staff Support, 221-6788 Kevin Westhuis, 224-6156 Patti Teraoka, 221-6715 OTHERS PRESENT: Russ Proctor, Watson Wyatt Worldwide, the City's actuarial firm Laurie Harvey (Staff Support - Human Resources) Greg Tempel (Staff Support - Legal) Bob Eichem (Staff Support - Investments) Sue Wilcox (Staff Support - Secretary) CALL TO ORDER: Chairperson Kevin Westhuis called the meeting to order at 1: 45 p.m. in the Council Information Center of City Hall West. ITEMS OF NOTE: On behalf of the Committee and staff members, Kevin thanked Russ Proctor for the luncheon for outgoing member Jerry P. Brown and incoming member Patti Teraoka. APPROVAL OF MINUTES: Alan Krcmarik had requested additional time to review the minutes of the special GERC meeting on July 22, 1997. These were now presented for review and Alan moved that they be approved as presented. Patti Teraoka seconded the motion, which passed unanimously. The minutes of the August 14th meeting were also presented for review. Alan moved and Jim Hume seconded his motion to approve the minutes as presented. The motion passed unanimously. DISCUSSION TOPICS: 1. GER PLAN MEMBER(S) COMMENTS/CITIZEN PARTICIPATION: There were no member or citizen comments. 2. REVIEW OF AUGUST 26TH TEST FOCUS GROUP - PREPARATION FOR SEPTEMBER FOCUS GROUP MEETINGS MAIN POINTS: The GERC, support staff members, and several GER Plan members served as a "test" focus group on August 26. Jeff Kraft of Watson Wyatt Worldwide gave a slide presentation of the material to be covered in the focus groups and the test group provided 300 LaPorte Avenue • P.O. Box 580 • Fort Collins, CO 80522-0580 • (970) 221-6788 • FAX (970) 221-6782 GERC Minutes - September 4, 1997 M suggestions and changes, which were incorporated into the final presentation. Russ Proctor distributed copies of the revisions and the group discussed summarizing the presentation by showing the initial slide which stated the issues. One or two GERC members signed up to attend each of the focus group sessions. Laurie Harvey sent invitations to 25 people for each of the 8 sessions. Anyone unable (or uninterested) in attending would be replaced. Laurie stated that she used about every 4th name from a list of members and tried to balance each group between male/female, years of service, and a variety of different job categories. CONCLUSIONS/NEXT STEPS: Sue will provide snacks for each session, which will be held at 8 and 10 am and 1 and 3 pm on Wednesday, September 17th in the Police Training Room, City Hall East and the same hours in Human Resources Conference Room on Thursday, September 18th. 3. INVESTMENT REPORT, 2ND QUARTER & 1ST HALF OF 1997 & INVESTMENT POLICIES DISCUSSION MAIN POINTS: Alan reported that the second quarter of 1997 was a good one for the economy and for investments, with a surprise drop in interest rates. For the first half of the year, the 5 year treasury note yield was 6.46%, with the City's yield for fared income investments was 6.78%. The GERC's target for the bond component of the portfolio is 5016, but it currently comprises 52.2%. Domestic mutual funds in the portfolio had a 10.65% rate of return, while the benchmark Standard and Poor's 500 Index rate of return was 20.6%. (It should be noted that the S & P 500 Index outperformed 95% of all domestic mutual funds this year.) The international mutual fund component returned 6.74% for the first quarter, while the second quarter was 8.38%. The EAFE, its benchmark index (European, Asian, and Far East Index) rose 10.35% in the first quarter and 13.0% in the second quarter. Alan reported that after researching the Plan document and City Code, It appears it is not necessary to take the GERP investment policies to City Council. Greg Tempel will take a closer look at this issue and provide some direction at the next meeting. Greg suggested changes to make the policies consistent with State law and removing references to ERISA, which only applies to private sector retirement plans. Russ commented that the policies were more detailed than is usual in his experience. He was concerned that the use of "will" rather than "may" might limit the options available to the GERC and the Plan. Alan asked whether the Committee wished to change the asset allocation formula in the policies by increasing the percentage of mutual funds and using a + or - 10% flexibility factor to accommodate the extreme volatility of the stock market. Alan explained that without the flexibility factor, it would frequently be necessary for the Committee to authorize staff to increase or decrease the mutual fiord portion of the portfolio in order to comply with the approved percentages. For example, the current 52.2% would be in excess of the 50% allowed, requiring that investments be sold to achieve a strict 50% component. Frequent buying and selling defeats the long-term investment philosophy that the Committee has adopted. There followed a lengthy discussion of what the new limits should be, whether this should be a part of the policy, and the difference in reporting the "book value" of stock, versus the current "market value" of the stock. .2- GERC Minutes - September 4, 1 • It was pointed out that the Plan currently has about $17 million in stocks, with about $730,000 a year required for benefit payments and $1.2 - $1.3 million being contributed to the fund yearly for current employees. Russ estimated that it would be about 2004 before the Plan's benefit payments would equal the amount being contributed yearly. Also discussed was appropriate actions for those mutual funds which were initially approved, but have underperformed over time. Tim Hume pointed out that a rolling 3-year average of one of the international funds shows it consistently performing below expectations. It was noted that long- term investments are at least 5 years, and one or two low performance years can throw the average off, even though it is a valuable investment. Alan discussed a "J" curve which shows that greater diversity produces a greater return while overall risk actually decreases. Several options are possible: 1) Continue investing in an under -performing stock as part of the dollar -cost -averaging concept. The idea is that if the long-term (5+ years) track record has been good, that this is an opportunity to accumulate more shares so that when the fimd's value climbs, the Plan will benefit. The risk is that the fund's performance will continue to underperform. 2) Cap the investment at current levels and continue to hold the shares purchased. This policy would limit possible future losses to the stock already owned, while maintaining a diversity of investments. 3) Discontinue fund purchases and divest the fund of all shares it currently owns. This eliminates the risk of possible future loss in a declining stock, but may result in a loss to the Plan when the shares are sold. It also reduces the diversity of the portfolio and dilutes the benefits of dollar - cost -averaging. CONCLUSION/NEXT STEPS: Russ Proctor indicated he would provide Alan and Bob with a copy of the "Wilshire Report", which is a summary of public retirement plans showing investment percentage breakdowns for other public funds. Other sources of information were discussed. Tim Hume moved to set a limit of 55% of GERP investments in equity investments while more information is gathered and the Committee will reconsider changing the limits at a later date. Patti Teraoka seconded the motion, which passed on 4-1 vote. (Hume, Krcmarik, Teraoka, and Westhuis voting for and Agee against.) Kevin then moved that the GERC set a strategic target for equity investments not to exceed 55% of total investments, with no more than 10% of that amount to be in international equity investments. Before taking action at a future meeting, the GERC will hear comments and recommendations from Bob Eichem, Alan, and Russ about setting a flexibility factor (+ or - 10% or + or - 5%) on the investment target percentages to allow for market fluctuations. Patti Teraoka seconded the motion, which passed 4-1. (Hume, Krcmarik, Teroka, and Westhuis voting for the motion and Agee voting against it.) Bob, Russ, Alan, Greg, and Dave will stay after the regular meeting and discuss possible policy changes. -3- GERC Mirwtes - September 4, 1997 4. WEB PAGE UPDATE MAIN POINTS: Jim provided a copy of the GERP Web Page he prepared and asked for comments. He still would like to get the full investment report on the system, but is limited by the format the report is created in. He is looking for a retirement needs calculation sheet to include. Jim said not to expect the web page to be on the Intranet anytime soon, as it is still in the process of development. A request for larger type size was expressed. CONCLUSION/NEXT STEPS: Tun will meet with Bob Eichem and Sherrie Temple, who prepare the investment reports, and work out a format that will "translate" onto the web page more easily. Kevin Westhuis has a retirement calculation sheet he thinks will work and will send Jim and Russ a copy. The committee members thanked Tim for doing the work to get the web page off the ground. Greg Tempel also thanked Tim for the information he provided about conflict of interest, which was very helpful. 5. ELECTION OF OFFICERS MAIN POINTS: According to the GERC bylaws, September is the month for election of a chairperson and a vice chairperson. CONCLUSIONS/NEXT STEPS: Dave Agee nominated Kevin Westhuis to continue as chairperson and Tim Hume seconded the motion. Alan Krcmarik moved that Dave Agee also continue as vice -chairperson for the 1997-98 term. Patti Teraoka seconded the motion, which passed unanimously. 6. CHANGES IN 1998 MEETING SCHEDULE MAIN POINTS: Sue Wilcox noted that the January, 1998 GERC meeting would fall on New Years Day. She also said that since the 4th of July falls on a Saturday, it will be observed on Friday, July 3rd. The regular July meeting would be the day before that 3-day weekend, so it was suggested that these two meetings be changed. CONCLUSION/NEXT STEPS: Dave Agee moved and Patti Teraoka seconded his motion to move the January meeting one week to Thursday, January 8th and the July meeting one week later to Thursday, July 9th at the regular times. The motion passed unanimously. 7.OTHER BUSINESS MAIN POINTS: The wording on slide 15 of the Focus Group presentations was clarified. CONCLUSION/NEXT STEPS: Russ will take the corrections back to Jeff Kraft. AGENDA & SCHEDULE FOR NEXT MEETING The next meeting will be Thursday, October 2nd at 1:15 pm in the Council Information Center (CIC) of City Hall West. The agenda will include: -4- GE RC Minutes - September 4, is 1. Plan Member Comments/Citizen Participation 2. Report on Focus Group Meetings & Questionnaire 3. Draft Work Plan for 1998 4. Approval of Investment Policies 5. Other Business ADJOURNMENT The meeting was adjourned at 3:21 p.m. FUTURE MEETING SCHEDULE: The General Employees Retirement Committee normally meets at 1:15 p.m. on the 1st Thursday of each month in the Council Information Center, City Hall West. THURSDAY, OCTOBER 2, 1997 THURSDAY, NOVEMBER 6, 1997 THURSDAY, DECEMBER, 4, 1997 THURSDAY, JANUARY 8, 1998* THURSDAY, FEBRUARY 5, 1998 THURSDAY, MARCH 5, 1998 THURSDAY, APRIL 2, 1998 THURSDAY, MAY 7, 1998 THURSDAY, JUNE 4, 1998 THURSDAY, JULY 9, 1998** *Because the January meeting fails on New Years Day, it was moved to the next Thursday, January 8, 1998 **Because the July meeting falls so close to the observance of Independence Day (on July 3rd), it was moved to the next Thursday, July 9 th, 1998 -5-