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HomeMy WebLinkAboutRetirement Committee - Minutes - 04/03/1997FORT COLLINS GENERAL EMPLOYEES RETIREMENT COMMITTEE APRIL 3, 1997 MEETING MINUTES COUNCIL LIAISON: Mayor Ann Azari COMMITTEE MEMBERS PRESENT: Jerry P. Brown, 221-6350(w), 226-0800(h) Tun Hume, 221-6776 Dave Agee, 221-6770 Kevin Westhuis, 221-6156 Alan Krcmarik, Member/Staff Support OTHERS PRESENT: Sue Wilcox (Staff Support - Secretary) Russ Proctor - Watson Wyatt Worldwide, the City s actuarial firm Laurie Harvey (Staff Support - Human Resources) Bob Eichem (Staff Support - Treasury) CALL TO ORDER: Chairperson Jerry P. Brown called the regular meeting to order at 1:23 p.m. in the Council Information Center of City Hall West. ITEMS OF NOTE: Jerry noted that the disability verification request agenda item has been moved to the next meeting.... Greg Tempel was not present due to the City Attorney's office clean-up day .... Jerry received a positive response from the City Manager about the GERC budget request for a COLA for the current GERP retirees. He liked the way the issue was presented and thanked the group for the request.... Jerry also noted that his term will be up on June 30th and the City Clerk's office will accept applications for the position until April 16th. He urged any GER Plan member who is interested to complete an application. APPROVAL OF MINUTES: At the last meeting, the members agreed to a new procedure for revising and approving the GERC minutes. As a result, the March 6th meeting minutes were only sent electronically to GERC members, the actuary, and staff members who were present, for their review. Suggested revisions were received from those same people, and the corrected minutes will be voted on at this meeting. Greg Tempel had requested wording changes to clarify the MAIN POINTS of item 94 and Tim Hume suggested a clarification in the last paragraph of item #9. Kevin Westhuis moved and Tun Hume seconded his motion to approve the minutes as revised. The vote was 5-0 in favor of the motion. (Sue will see that the final minutes go to the City Clerk's office and the usual distribution.) DISCUSSION TOPICS: 1. GER PLAN MEMBER(S) COMMENTS/CITIZEN PARTICIPATION: There were no member or citizen comments. -1- GERC Mirwtes - April 3, 1997 2. DRAFT OF ANNUAL VALUATION REPORT MAIN POINTS: Russ Proctor distributed copies of the draft executive summary of the annual valuation report (1/1/97) for the Committee to review. There was discussion of the contribution rate, which is 4.3% for 1997. The projected rates for 1998 and 1999 were outlined, but because these are only projections, it was agreed to use 4.5% for the two-year budget cycle currently in preparation. CONCLUSIONS/NEXT STEPS: Russ will send the final, complete report in the next two weeks and the GERC will officially accept it at next month's meeting. 3. CREDIT FOR PART-TEME SERVICE MAIN POINTS: A former employee brought to the GERC's attention that an employee who has worked full-time for the City for several years and then moves to a part-time position, potentially could see their retirement benefit reduced because the formula used to calculate the benefit uses the. five highest salaries out of the last ten years. If the benefit is based on years of part-time work, the reduction could be significant. Russ Proctor had previously provided some background on this situation and Laurie Harvey was asked to provide some research. Laurie looked at how benefits would be calculated under the current plan compared with the benefit if the pay were annualized and the years of service were pro -rated. She researched and calculated four examples, using both employees who moved from full-time to part-time (the most common circumstance) and those who went from part-time to full-time, showing the benefit at age 65. The examples of FT to PT showed a small loss in monthly benefit using the Annualized Pay/Prorated Years of Service (AP/PYS) method of calculation. If this method were used, it would require a great deal of manual research, as payroll history may not be on the computer system. Russ commented that the computer program Laurie uses to calculate the projected benefit could be adjusted to calculate annualized pay and pro -rated years of service, but these status changes would need to be communicated to Wyatt as they occurred throughout the year. The current actuarial tape and report provided to Wyatt annually does not capture this information; nor could it be modified easily within the next two years due to the moratorium on payroll system changes and the reallocation of resources to the Year 2000 Project. Issues discussed: time required to research and calculate benefit using AP/PYS; some "half-time" people actually work much more than 20 hours per week; 21-40 hours per week worked by part-time employees is still paid as straight time and is not included in base pay which is used in the calculation of retirement benefits; majority of part-time workers are women; using AP/PYS system from a future date forward; the current payroll system cannot be modified because a new financial system probably will be purchased within 1-2 years; and would the AP/PYS method used retroactively involve taking away a benefit? Kevin Westhuis moved that credit for part-time service be tabled until 2/98 because of the implementation of the new financial system. This would allow time to check on the practicality of using the AP/PYS method on a new financial system and to check on the legal questions also. Alan Krcmarik seconded the motion, which passed unanimously 5-0. A "friendly amendment" was offered -z- GERC Mimtn - April 3, 19970 • to include this topic in the 1998 Work Plan and was accepted unanimously. Bob Eichem suggested that many women would be affected by this issue and their input should be sought when the Committee picks up the topic again. In addition, half-time employees who are required to work more than half-time hours are only credited for half-time service. Managers should be educated about this matter. Tun Hume noted from personal experience that many employees who are hired as part-time, frequently end up working 40 or more hours each week. CONCLUSION/NEXT STEPS: Jerry will contact Greg Tempel for legal advice about this topic. Laurie, Dave, and Alan will keep this topic in mind when determining the capabilities needed on the new Finance computer system. 4. INVESTMENT STRATEGIES MAIN POINTS: The current asset allocation strategy for the GERP's investments is 50% Fixed Income and 50% Equities, with 100/6 in international funds. Through 1997, we have scheduled monthly investments that should attain the desired allocation by December. The investments will be "dollar cost averaged", which means that we will make investments on a regular basis, regardless of whether the market is up or down. If the market is down, we thus acquire more shares of the mutual funds at a lower cost. When the market prices are high, fewer shares are acquired. Currently, the GERP has investments in I 1 different mutual funds. Alan noted that Poudre Fire Authority's Pension Board recently commissioned a fiduciary and investment review of their 401 deferred contribution plan. The review demonstrated that the PFA plans allowed participants to invest in funds that had higher than average fees and that several of the funds had underperformed other funds in their respective peer groups. In addition, the review showed that some fund managers were changing their investment styles, so the participants might not be getting the level of diversification they thought they had. The review also provided some ways in which the fiduciary requirements could be improved. Alan suggested that the same type of review may be appropriate for the GERP. During the 1 st quarter of 1997, the stock market experienced a substantial downward move. This influenced the performance of all of the mutual funds. Alan forewarned that the first quarter report would show the extent of the drop. The GERC may want to consider adding index stock funds once the investment policies for the City are changed. In some instances, index funds buffer downturns in the market. Currently, there are no 5-star index funds and the investment policy requires a 5-star rating. The new investment program should have a section better tailored to the needs of the GERP. Alan advised that this would likely take some time and not go to Council for consideration until the 2nd or 3rd quarter. Colorado recently enacted legislation which requires police and fire pension plans to follow the "prudent expert" standard in conducting investment activities. This certainly raises the standard for police and fire plans. Alan suggested that the GERC discuss the possibility of hiring a professional external investment manager. A performance review of the mutual funds and their fee structure could provide the starting point for a request for proposals (RFP) for an external money manager. Finance Department support staff will do an in-house performance review and provide the information to the GERC. -3- GERC Minutes - April 3, 1997 CONCLUSION/NEXT STEPS: Finance Department support staff members have begun working on the investment policy revisions and will review the fees and performance of the mutual funds. 5. PHILOSOPHY DISCUSSION MAIN POINTS: Russ Proctor had advised the Committee of the costs for studying the possibility of converting to a Defined Contribution plan, with three optional studies (and costs). The members agreed that a study needed to be done, and Russ explained that the $5,000 option would include all the elements needed, but would not include all the individual calculations used to estimate which employees would likely benefit most from each plan. Instead, they could assume employees would split approximately 50% DB - 50% DC and base calculations on that. Russ said they could also run reports for a 40% DB - 60% DC split or a 60% DB - 40% DC split. Dave Agee moved to accept option 2 to conduct a study of conversion from a DB plan to a DC plan, using the three scenarios outlined above. Jim Hume seconded the motion, which passed 5-0. CONCLUSIONS/NEXT STEPS: Russ will begin the process of studying possible conversion from the DB to a DC plan for $5,000. He will give an update at the May meeting. A recent broadcast of "Nrghtline" discussed the movement to DC plans nationwide. Dave Agee has ordered a video of the program and the GERC expressed interest in seeing it. 6. CONFERENCE ON CONVERTING A DEFINED BENEFIT PLAN TO A DEFINED CONTRIBUTION PLAN MAIN POINTS: Earlier this year, Alan attended a pension conference where the ICMA Retirement Corporation showed him a spreadsheet program that would calculate both a DC and a DB benefit for individuals in order to determine which would be more beneficial to the participant. While most of the consultants and many of the presenters at the conference tended to prefer and advocate for defined contribution plans, most of the attendees represented defined benefits plans, like the GERP. Much of what Alan heard echoed what our actuary has advised: most individuals who convert their fiords to a DC plan do not match the investment returns of DB plans, frequently because they choose guaranteed investments and lack the knowledge, time, and/or interest in investing. Most consultants can set up a DB plan to achieve DC plan objectives. The major difference is that in a DB plan, the Board controls the investments, while for a DC plan, the individual makes the investment choices. CONCLUSIONS/NEXT STEPS: Alan has developed an Excel spreadsheet that mimics the one done by ICMA RC. While not as thorough as the real one, it provides very similar results. He will clean it up and upload it through Groupwise for other GERC members. NOTE: ICMA-RC is continuing to improve their model and expects it will be available later this year. 7. DISCUSSION OF RESTATING THE GER PLAN & DRAFTING A POLICY MANUAL MAIN POINTS: The General Employees Retirement Plan was last restated on January 1, 1992. This means that all changes in the Plan approved by City Council since that time are not included in the official printed document, although they are appended to it. Restating the Plan would include these changes and any others in the appropriate section and would also give an opportunity to remove obsolete language and check for inconsistencies. Since Greg Tempel is the new legal advisor to the Plan and Committee, his review of the document would be beneficial. Mark Sanford of Watson .4- GERL Nimtes - April 3, 19974' • Wyatt Worldwide also has some changes to propose. As part of this review, the creation of a policy manual would be beneficial. CONCLUSIONS/NEXT STEPS: Jerry will talk to Greg about working with Watson Wyatt and Laurie to review the Plan document, with a target date of 1/l/98. The GERC would first review any changes and then recommend that City Council adopt the restated Plan. By consensus of 3-1 (Kevin Westhuis having left), it was agreed that Dave Agee should head up drafting a policy manual. S. PERSONAL RETIREMENT PLANNING STATEMENT (PRPS) MAIN POINTS: Russ handed out sample PRPS statements to be checked before the rest of the statements are run. Mark Sanford has some questions about information to be used on them and will work with City staff to clarify some inconsistencies. The target date for distribution is with paychecks on April 25th. CONCLUSIONS/NEXT STEPS: The printed statements will be sorted by location code and sent to Finance and Sue will see that they are inserted in envelopes for distribution. AGENDA & SCHEDULE FOR NEXT MEETING The next meeting will be Thursday, May 1 at 1:15 pm in the Council Information Center (CIC) of City Hall West. The agenda will include: 1. Plan Member Comments/Citizen Participation 2. Disability Verification Request from Former Employee 3. Investment Report: First Quarter, 1997 4. Annual Valuation Report 5. Draft GERP Investment Policies/Strategies 6. DB/DC Study Update & Details of Design of Retirement Philosophy 7. Feedback on PRPS Statements ADJOURNMENT The meeting was adjourned at 4:30 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, MAY 1, 1997 THURSDAY, JUNE 5, 1997 THURSDAY, JULY 10, 1997"Date changed because of holiday' THURSDAY, AUGUST 7, 1997 THURSDAY, SEPTEMBER 4, 1997 THURSDAY, OCTOBER 2, 1997 THURSDAY, NOVEMBER 6, 1997 THURSDAY, DECEMBER, 4, 1997 -s-