General Employees Retirement Board - Regular Meeting

Recording in progress.

We're going to call the meeting to order.

This is the meeting of the General Employees Retirement Board. Roll call, Mr. Clerk. Yes, roll call. Mayor Fremark. Here. Vice Mayor Salver. Here. Councilman Levy.

Here.

Councilman Sklar. Here. Councilman Wolfe. Here. Brian Cochran. Not here yet. Lourdes Rodriguez. Here. And we have quorum. Thank you. Please rise for the pledge. United States of America and to the republic for which it stands, one nation under God, indivisible, with liberty and justice for all.

Thank you. We have the board minutes from the September 17th meeting. I'll move in. We have a motion. Do we have a second? We have a motion and a second. All in favor? Aye. Aye. Aye. Any opposed? Motion carries. The investment consultant presentation.

Mr. Mayor, as you know, Scott Owens is here with Greystone Consulting to present on the performance for the past quarter as well as a proposed investment policy amendment that needs to be added to the agenda to be considered. Thank you very much. Scott?

Thank you. I appreciate it. Appreciate the opportunity to be here and see everyone live and in person. For the quarter, the market was a little bit flat, down about a half. The portfolio did a little bit better than the market. There was a significant capitulation in the market since the last quarter. Value did better. Smaller companies did better. International did better. For the fourth quarter, it's exactly the opposite. So it was a very concentrated market, and the only thing that did well was growth, and the larger the companies and the growthier the companies, the better it's done. And then, of course, with the new regime change, there's a lot of discussion regarding tariffs and international stocks. And so it's wreaking havoc with the value of the dollar right now, that, along with interest rates. So we're cautiously optimistic. Last Wednesday, for example, the news, the headline news was the S&P is at all-time high. And on Friday, the Dow was down 700 points. So there's a lot of volatility in the market. With all of the things that are going on geopolitically, we think that volatility is going to continue. But we also think that a year from now, we're going to be higher than we are now. So I think it's going to be a little bit of a bumpy ride, a lot different than what we've seen the last two years. Over the last 12 months, we've gotten over 12%. And since we all started working together, we've been able to beat our benchmark significantly. uh, slightly. And, and as a reminder, we invest passively. So there's only two ways to beat the benchmark through asset allocation and through manager selection. And so with passive, we, we don't have that manager selection process. So we've been able to do it with asset allocation. One of the things that we've had is a little bit of an underweight, the international. And I think we should maintain that. That's helped us out quite a bit. We've had a little bit of an overweight, the large, so that's helped us out quite a bit as well. So, um, yeah, Unless there's any questions, I know you all have a long agenda. Unless there's any questions regarding the portfolio, I can move right to the investment policy statement.

Are there any questions on the part of the committee? Seeing none, Lourdes, any? No? Please proceed, Scott.

Thank you. So on page nine, there should be an investment policy statement in front of you, a marked up copy. It's under investment guidelines under the general category. And there's a sentence in there that says the manager, and this is for an active manager, so it says that the manager cannot purchase itself. So if we invested in a BlackRock fund, that fund couldn't purchase BlackRock as a company. Well, you all have passive investments. So we have no discretion of what to buy or what not to buy. And so that could put us out of compliance. So I'd like to strike that sentence from the investment policy statement. We have an updated copy for you to sign. So if there's a motion made, we can get that executed tonight and take care of that.

And in the future, should there be a change in the investment approach that would require this, we would go back and review the investment policy at that time and make the appropriate revision.

Absolutely right. Yes, sir.

Discussion on the part of the committee?

Makes sense.

All right. Is there a motion? I think you should move to add it to the agenda, right? What's the process? Move to add it to the agenda and then move to... All right. So I'll move to add it to the agenda. I'll second it. We have a motion and a second to add it to the agenda. Any opposed? No. Nobody's opposed. Then there will need to be a motion to adopt the revision to the investment policy. I'll make that motion as well.

I'll second it.

We have a motion and a second. Any opposed?

No.

The motion carries.

Thank you all. That concludes my prepared remarks. I'm here to answer any questions if you'd like.

Thank you for the brevity.

My pleasure. Thank you, Scott.

Find actuary presentation, Mr. Manager.

Mr. Mayor, thank you. This item is the annual valuation report that we received from our actuaries, GRS. Peter Krakora is here to walk us through this. This is kind of we will set the tone for our budget next year. This is kind of where we get the minimum required contribution for next year established. Tell that Peter. Thank you.

It's a bit of ambush. I kind of got used to getting a little bit farther into the report before we turn it over. I'll let you do it.

It's good news.

Yeah, it's great news, so you leave it to me. Thank you. Let's go to page A1, which is 7 on the PDF, if anybody's looking at the PDF. And the headline is at the top in the table that shows... A1 is like after three or four pages of the table of contents and disclaimers.

Executive summary, right?

Yes, that's right. So the headline news is that contribution coming up is about $45,000, $46,000 lower than we determined last year, and it's an even more indented decrease when expressed as a percent of wealth. Okay, let's skip to the next page. In the middle of the page, there is a little reconciliation of that contribution as a percent of pay. So we've got an increase on the payment towards unfunded liability. That's counterintuitive, but that's mainly because the payroll didn't go up. We are amortizing unfunded on an increasing schedule, 3% per year, but because the payroll was relatively flat from last year to 2020, this year, on this valuation year. That's why it looks like it's an increase. But we more than made up when looking at the experience gain, 1.5% down, and then the change in normal cost, 0.87%. That's because we are replacing the Tier 1 employees with Tier 2 employees who have lower normal cost accrual rate, cost of the accruals. Quick look at the experience. I'm quarter behind. You already know that the fund performed perfectly great, almost 24% using actuarial shortcut calculation. But after smoothing, it's only about 7.9%, and that's because we are dragged down by the terrible 22 experience. We're still facing that loss from 22. We'll have a quick discussion on that. So this is a reminder that future contribution will be volatile. We can't assume that it's going to be great every year and improvement every year. We have a quotient of about $2 million. That means that our market value is $2 million above actuarial value. So we have a quotient of $2 million against any losses on the investment side. The other thing that's coming up our way is the change in the assumed mortality rates. This is something that's mandated by the state. Some of you who have been long enough may remember we do it every five years. Every time FRS changes their mortality assumption, we have to follow the suit. We have two years. Well, they call it two years to do it, but in reality, it's only one year. We have to do it, but you have a choice whether you want to implement it this year or wait another year. And we did not measure the impact. It's going to be an increase. There is an insert at the end of our report. I just pulled up a couple of exhibits. I didn't want to spend time on it unless there are questions about it. But we expect an increase in liability in about 1%, 1.5%. We are in the far right column. We follow the other than teachers. regular class employees of the FRS. This is the most closely matching the demographics characteristics of us. So it's going to be about one, maybe one and a half percent increase in liability, and I'm guessing about $50,000 increase in the So this is what we are up against next year. So hopefully Scott can make it up to us in investment returns and we can hop over. Okay, we're going to skip forward to B3. That's a few pages. Be like a boy. And I wanted to point out the line F here in this table. And what I wanted to highlight that unfunded liability came down by about a million. So we were sitting at about 6.7 unfunded liability last year. Now we are 5.6, so 1.1 million reduction in the unfunded liability. On the next page, we have what we sometimes call soundness or financial position. And this is market-like basis, so we are looking at market value of assets as a proportion of all value of all accrued benefit to date. No projecting into the future. And the percentage at the bottom, you look at it, it looks great. 73% two years ago when we had this terrible loss. Now we are at 93%. Very nice recovery. On the next page, it's a longer historical view in a graphical form. And you'll see that 2022, that was a... We had a nice... recovery, right? We had a little of a plateau when we were pulling back on the expected rate of return. That's in the middle, if you look at the line. Then when we finally stopped changing assumption, it looked like we started taking cough, but then 22 came around, and that's a big dip. We leapfrogged one page over to the graph that is very similar on page B7, boy 7, or 20 on a PDF. And That is an illustration of how the funding assets perform against funding liabilities. So we have slow increasing trend, and this is something I like because this is balancing of getting the fund to a really sound, well-funded basis without putting too much constraint on an annual budget. We don't want to overshoot the runway. We want to asymptotically approach that 100% funded rate ratio. I have several details and one more page to talk, so I'm ready to skip forward unless there are questions to those few pages that we just discussed. Okay, skipping forward to page 38, or C, Charlie 5. And that's the, I wanted to show you the volatility in the next upcoming contributions. So next year we are looking at extra 400, recognizing some of the deferred gains from 21, 22, I'm sorry, 21, 23, and the loss from 22. So this is a net positive on the recognized basis, but if you go one year ahead, we are looking at a very small loss, so almost a flat year. So that's what I wanted to say, that we may have two more million dollars to recognize and phase in, but it's not going to be a straight line. It's going to be a little bit good year, not so good year, and then again a good year a couple years down the road. So this was the highlight for the liability. And this is pretty much it. If you're curious what the second insert is, that's a few things about GRS that we don't really publicize very loudly, but if anybody wants to talk about these things, you can reach out to us and we can elaborate a little bit. And an online calculator that is not here, but that's also something that Rick can, if you wish so, Rick can explore. So now I'm turning to Mr. Chairman.

Mr. Manager, do you have any comments beyond?

Simply to say that at 80% funded, that's a pretty standard target. Being 100% funded is kind of the goal, but you'll never get there. Remember, you've got advertising over 30 years. So that we're sitting at 80% on the funded liability is right where we should want to be.

Well, I prefer to phrase it that, you know, being over 80% is not bad. No, of course not.

I'm not saying it's bad.

No, I'm saying the same thing. I'm saying it in a reverse way because the way you said it is, okay, fine, we did it, we've done it. No, no, no, we're not done.

We're not done, but we're in a good place.

Yes, we are in a good place.

I would agree we're not done. it can flip the following year as well. So this is a year-to-year test in terms of that.

Yeah, but the trend, even if I, you know, sped through it, the trend is slowly going up.

Well, I think that we've been prudent in terms of the assumptions, in terms of the results, and in terms of the treatment. Are there any recommended – I'm sorry, were you finished? That was it, sir. Are there any recommended revisions –

Well, at this point, I don't see any need because we are sitting at a relatively good assumed rate of return of 575. So unless you want to change allocation a little bit to get a little bit more aggressive, we don't see really a big need to revise that given a lot of uncertainty. Lucky for us, we have 2 million cushion to protect us against any volatility in market in the investments. We are pretty high on the valuations, and this is compared, so the expectations are coming down a little bit. I mean, we can't hit home runs every year. We know that. We know that we need to be going up because that's what the expanding economies do. We keep going up, but the pace that we did it in the last couple of years, I don't want to be encroaching on Scott's territory, but what I'm trying to say, yeah, there is no need to tinker.

Okay. Are there any questions on the part of anybody else on the committee? Seeing none, thank you very much. Thank you for being here this evening. Thank you, Peter. Item 6, lump sum distributions for approval. Who's going to handle?

Do you need to vote on receiving that document or anything like that?

Just accept it by... You want us to accept it? Okay. Do we need a motion?

Motion to accept.

I'll second the motion to accept, so we have the motion in a second. Any opposed? Motion carries. Anything further on that? No? All right. Thank you very much. Want some distributions for approval, Mr. Manager?

Okay, Mr. Mayor, this is members who have separated from the village who contributed to the plan and either were vested or not, but are no longer participants in the plan, and they're entitled to a refund of the amounts they put into the plan as part of their employee portion. So this is monies they put into the plan. They don't want to leave it there for future retirements. They just want to take it. So you have, I think it's three or four, one, two, three, four, five.

Can we do them as one group? All right, so I'll make the motion.

I'll second it.

We have a motion and a second. Any opposed? Motion carries. Thank you. Drop exit distribution, Mr. Manager?

Okay, in this instance, this is a member of the plan who retired, participated in the drop, and has since left his service with the village. So this is now allowing him to elect to receive his drop, which is part of the plan as well. And so Carl Smith, who served multiple decades with us, retired from the village, and this is his drop contribution.

I'll make the motion. Is there a second? Seconded. We have a motion and a second. Any opposed? Nobody's opposed. Motion carries. There being no further business of the Retirement Board,