Pension Board - meeting_joint_regular

Perfect. All right. Should we start the meeting? All right. Great. Welcome everyone. Welcome two of you. Um, let's start with the approval of the minutes. Is there a motion to approve? I move. Is there a second? All right, Josephine. Is there any discussion, changes, anything? Nope. All in favor? I.

Any opposed? Excellent. All right. Since we have a big agenda, which one is going to come up and talk? I know. I'm joking. And by the way, just so you guys are aware, we don't really go over a lot of the nitty-gritty of the information in the front part. if you have, we always do that if you have questions to ask because we're all sort of in the investment world and don't need a a refresher course. Um, and actually the whole report is pretty much bogus because the markets did so much in April, it's sort of irrelevant talking about March 31st numbers. Exactly. So, you can sort of do what you want, but

be quick for me. Well, yeah. No, I mean it I was looking at it because the S&P 500 was down on March 31st in your report and now it's up down 4%. Now it's up eight. So that's a 12 point delta 1 1200 point delta. Yeah. Right. Yeah. So base point, right? We did some back of the napkin math and and got you an April and year to date return, but it's just not in the report. Well, you can talk about that if you want. Well, sure. Yeah. Anyway, forget all the bad stuff and focus on So, I mean, so anyway, I just wanted to preface that that Yeah, sure. that yet you don't have to bore us with too much of the 331 stuff. Yeah, we we'll be brief. That's fine.

So, um as you scroll to exhibit one, uh that's where that's where the performance is and Jonathan will run through that. So uh obviously you know saw a huge rebound and see markets have been kind of I guess more focused on earnings which is what markets I guess should and should look through uh hopefully shorter term geopolitical things here. Uh but we coming off a very strong uh quarter from a from an earnings uh standpoint. So despite everything going on in the world, uh we are powering through that and obviously you know this is not money we're stocking away for a vacation in 3 months. This is perpetuity hopefully. We'll see. Um so we obviously have a long-term long-term investment focus. If uh you know markets would have been down significantly, we would have been talking to you about replenishing some of the equities and doing rebalancing. The markets took care of that. So, we don't have to be adding more funds to to equities. But with that, I'll pass off to Jonathan.

All right. Thank you, Tom. So, in exhibit one, you'll uh flip from the cover page to it's page one in the report. This is our manager status page. We just monitor all the managers to make sure there's no issues with them. As you can see there, status wise, they're all in compliance, so no issues there. Flip again to uh page three. I'd say this I call this our snapshot page. uh you know we'll go into much more detail here than this page but if you just had one page for one minute you wanted to look at and explain to someone what's going on with the plan this would be the page to do it with page four and five this is detail regarding the the values of all the assets and the underlying uh composits and investments. So on this page you see all the underlying investments what asset classes they they relate to what they started with at value-wise for the quarter cash flows in and out ending market values for the quarter uh weightings compared to the total value of the fund and then what their target waitings are what you're trying to maintain over time. Uh so ended the quarter with uh $24,281,185. Uh, and as you go to the right of that number and down the page, you'll see the waitings compared to the targets for all your your asset class composits are are pretty close to targets. So, no issues there. Page um, sorry, six shows how uh, the plan looks like from an asset allocation perspective compared to other public defined benefit plans. This is just a reference point. Uh, not a ton of information here that's useful to us, but just shows how you look compared to other plans in your universe. Page seven is how the plan has changed from an asset allocation perspective over time. This is going back five years. Again, just flip to eight page eight. I will spend a moment here. This shows how the the plan's value has fluctuated over the last 10 years. The top of the page, bottom of the page is what we call a summary of cash flow. So it shows you varying time frames what the value was

at the start of the time frame what was the cash flows in and out um what was the overall investment change for that time frame and that's and how we arrived at the current ending market value for uh Q1 2026. So over time you see um negative cash flow out but it's a mature plan that's to be expected. Uh thankfully uh over most of these time frames uh investment returns have more than made up for that negative cash flow. Page nine is a look at all the different uh composite returns. Uh this is uh repeated in later pages, so I'll just go ahead and skip past that. Page 10 shows the uh the total fund return uh on a graphical basis. Page 11 is uh calendar year returns. So we won't waste any time there. So on to page 12. I will spend a little bit of time here. Uh and these are annualized returns, all net of fees. Um you see one month all the way back to that SI which is since inception and you'll see to the right of that what the inception date was for varying investments and composits. Uh so focus on the quarter um just to show where we were you know obviously it's been negated as you mentioned Ted but uh did outperform for the quarter thankfully so it you held your ground you only returned negative.8% versus your benchmark of negative1 and that 39 number there is is the 39th percentile. It means you're in the top 39% of your universe. Uh going back uh ahead for one year, just slightly ranked high. Uh three years, five years, and seven years in line with your benchmark rankings more toward the middle. Uh 10 years a little bit ahead, ranked in the middle. And then since inception, uh underperformed and ranked low in the universe, but I will mention that goes back to 2003. So that's quite a long time frame. Uh underlying uh we'll start with the fixed income composite. Overall returns there have been positive and you've you've ranked high there. Uh

looking under the hood for that composite you have principal core fixed income that is your core manager. Uh overall they've outperformed or at least been in line with the benchmark for the most part. Rankings kind of mixed uh in some periods high and then in some periods more in that that middling uh area of 3 to seven years more on the low side. Principal core plus bond. This is the one that we've been shifting away from to your new manager bar. Um, so there's a little bit there uh left at principal. We can't take it all out yet. We need to kind of do it incrementally. Uh, but you can see the returns there have have not been very impressive going back the last 5 years, which is part of the reason why we made that shift. Long-term though, it is outperforming its benchmark. Barcore Plus started in September 2025. Uh, just slightly behind its benchmark for the quarter, ranked in the middle. since inception. Slightly behind as well, but ranked above the median. So, they're not off to a bad start, but there just isn't a lot of data there yet. Uh, next, principal high yield. This one is a little confusing because you had another you had another principal investment that was called the principal high income investment. Uh, and then principal decided to shutter that and shift all those assets from that investment to the principal high yield fund. Uh, we actually don't mind the principal high yield fund. We do have other clients in it. uh and we would have preferred to be in it from the start. Um but because that shift occurred, there's not as much data there as we'd like. And since that shift occurred, you do see it is underperforming and ranked fairly low, but was in line with the benchmark for the quarter and uh ranked slightly above the median. Airle Pacific is your bank loan manager. They've done well, outperforming pretty much all time frames except the quarter, ranked mostly in the top 20th percent of their universe since you hired them. So they're doing a good job. If you look at the one month column for fixed income, you see a lot of negatives and then you see that one positive. So you had equities, you'll as Jonathan will go through, equities sold off and rates

also went up and Aristotle Pacific is your buffer on that that they will they will ride it up. So they did what we would want them to do.

Yeah. Because it's floating rate debt. So it adjusts as interest rates adjust. So on uh page 13 as a look at your US equity composite, you're all indexed here. So you have money with the Vanguard 500 index fund. That's your large cap exposure. Vanguard midcap, which is your midcap exposure, and the isshar's core S&P small cap, which is uh trying to uh replicate the S&P 600 uh index, and that's your small cap exposure. So over time, you see this has been the big thorn in the side for quite a while. uh that mid and small cap tilt the plan has historically had to try to achieve its target return of 7% has hurt uh as large caps have really dominated the market. So you see returns below um the benchmark going from one years out to since inception but that changed this past quarter. You see you actually outperformed mid and small cap actually outperformed large cap. So the large cap areas where the uh Magnificent 7 companies reside and that's really what's driven returns over the last 5 years now at this point. Uh so it is nice to see midcap and small caps coming back a little bit more rotation out of large caps into small caps and midcaps and also out of growth into more valueoriented sectors. Uh the investments themselves ranking wise they're getting you the index returns. Uh the five S&P 500 index is doing just fine. rankings are pretty high because active managers have just really had a tough time in that space. So, typically it's in been in the top third of its universe. Uh Vanguard Midcap, we actually um terminated a midcap growth and value uh midcap fund with Vanguard and just decided to marry the two and that's where the midcap index fund came from. Uh rankings uh more recently on the low side since inception uh top third though roughly. uh iShares S&P uh 600 index that has ranked pretty high. I tell you at the end of the fourth quarter this looked pretty rough uh

because there was a massive junk rally in small cap stocks and that since has completely reversed uh as more of a flight to quality occurred in the first quarter. Um so good to see that coming back and good to see mid and small cap uh kind of doing their their part finally at least for now. the yeah the as a reminder the S&P small cap 600 kind of has a quality bias towards it versus the Russell 2000 which is kind of the more commonly used one. So last year the ranking for just this strategy was in the 67th percentile because of all these companies that were not necessarily making profits. Some of them weren't even making revenue uh and they were up hundreds of percent last year. So this year you see kind of a little more return to sanity. you see that ranking number uh much much lower which is better.

Then on to uh page 14 at the top you have your non- US equity composite. This one is a bit more of a rosier picture um outperforming most time frames except 5 years and since inception rankings is a lot better as well typically in the uh the top half of the universe except for uh the since inception time frame. uh and the underlying there you have your Vanguard total international stock fund that's more of a large cap oriented uh non- US index and uh you'll notice I'll say index but uh indexes in the non- US equity space typically have a very tough time replicating exactly the return uh for a few reasons uh one there's a lot of companies in these indexes and two in some cases um you there is actually a a gate where you can't always buy all the companies in in these these countries. So you can't fully replicate the index properly. So that's why you might see some variance there. Uh but overall uh it's done well stayed pretty close to the benchmark ranked at least at the median or above. Uh Vanguard Footsie All XUS small cap fund. That's just a small cap international fund. Uh similar story here getting you indexed like returns. Um rankings are above the median in the short term. Longer term they're a little bit more below. Uh Vanguard emerging markets. This has uh been more of a detractor for the non- US equity composite, but it has shifted again with everything that's happened in April. Uh emerging markets are are kind of one of the big winners in the non- US space. So I'm sure that'll change uh once we have the full April data. Uh overall though, uh again, similar returns to the index rankings more toward the low end though for the uh emerging markets fund. Then you have real estate. Uh it's the principal US property fund is the only investment in that composite. Uh that's doing well. It's outperforming for all time frames was in line for the quarter. Uh overall though, real estate um it had

a pretty tough time 2022 through uh mid 2024. Uh it has since turned around. It's had six consecutive positive quarters of returns. Um before that it had trough. Um, so good to see it uh coming back and most likely we will continue to see positive returns going forward. At least that's what uh history's told us. Whenever you've had a a huge draw down in real estate, it tends to be positive for the next decade or so. And then uh you have your private equity composite, just one manager here as well, partners group uh private equity fund. So it's an open-ended private equity fund. You can request money out or you can put it in. Uh it's not it's not um what most people are used to when they hear about private equity where you know you give the money and it's it's shut until they give it back to you. Um long term um it's a little tricky to to do this because it's always lagged. Um we're missing the March statement I know for this and the index we did not have as well for Q1. Um so take these returns versus the benchmark with a grain of salt but long term you do see 6.2 versus 2.8% 8% for the benchmark. So long-term it's done well. Uh more recently slightly lagging the benchmark at least with the data that we have. Below that uh cash composite you have a little bit of cash at regions. Uh and by cash I mean a money market. Um that has had great returns but we tend to not keep a lot of cash on hand because we're we're trying to achieve a certain rate of return. So we don't want to keep keep too much there and have a major cash drag on the portfolio. With that, we have a bunch of calendar year returns which which I won't delve into. Um, and some risk statistics as well which we won't delve into. I will take a moment on page 20. This is what we call the uh the quadrant chart. Uh, and what this does is it compares the it shows you the plan from a risk return perspective and this is going back five years. So the plan is the blue square on the page. The benchmark is the

black diamond. The crosshairs is the median of the universe. Uh, and all those little dots all over the page are other public defined benefit plans. So you see you're in the bottom left quadrant, meaning you have a little bit you have less return than the median of the universe, but less risk. Uh, compared to the benchmark, you're right in line with the benchmark, but with less risk. We like over time to see that drift up toward the top left quadrant. So we're we're yep, we're in a good place from from a risk perspective. We just want to see that return elevate a little bit more. And hopefully with all the the changes we've made recently, we'll see that start to to drift upward in that in that quadrant chart. And lastly on the quarterly report, we on page 21, we we always like to look at the plan from a fee perspective as well. Um so we look at all the fee schedules for your managers, estimate what you're paying them on an annual basis, just based on the information we had at the end of the quarter. Uh we estimate that you're paying all your investment managers about $86,842 annually. that equation to expense ratio of 36 basis points and is in line with the industry median of 36 basis points. So, right in line uh we'd like to see that get get a bit lower, but uh you can see the where the fees are higher is on the principal end of things. And I know we've talked about that in the past. And then on the very bottom of the page, just for transparency purposes, we we put down our fee, Marquette's fee, uh as well as the uh the custodial fee. After that, there's some benchmark information and what I call characteristics pages for underlying investments. Uh just for sake of time, we don't tend to go into those. Uh but with that, I'll open it up for any questions on the first quarter report. All right. Um without further ado, we'll we'll get to exhibit two. And this one's only a two-page deal.

So, every quarter, uh, we always like to to come in with recent values. So, you'll notice at the top of the page, it says 43026. So, what we did is we we took all the the real time values that we could and and put them down and aggregated them. So, you'll see on the bottom of the page there, um, a total plan value of 25 million and and 25.5 million. Let's say it's it's it's off by a couple thousand. Um but you can see quite the reversal from where we were at at the end of March. Uh at the end of March we were at 24.3 million roughly. Um and just to give you an estimate on return, we estimate that the plan returned 5% in April. I don't have the benchmark to compare to for that year to date means you're we have an estimate of about four 4.2% return through the end of April. Um so that's not finalized of course. We have some other investments that are a little bit more lagged. uh but a good reversal and you're actually higher than where you were at the uh to start the year. Um and you'll notice uh third column uh from the left it says current mix. That's the current waiting of different investments and composits in the portfolio compared to the total value of the fund. Uh you'll notice we're overweight in equities, underweight fixed income. So, we always typically come in and we we replenish your your fixed income portfolio from equities because typically equities are up. That's usually the source for cash. So, uh I'll get into more detail, but recommending we take $400,000 out of equities um and put $400,000 into um principal uh sorry into uh fixed income. And more specifically where that'll come from is uh 110,000 from the Vanguard S&P 500 index fund, 40,000 from the Vanguard Midcap fund, 85,000 from the small cap fund, 65,000 from Vanguard Total International, 30,000 from Vanguard

Emerging Markets, 70,000 from International Small Cap and 100,000 from Principal Core Plus Fixed Income. And that will all get funneled to the principal core fixed income investment because that is the account that you guys use to pay benefits and expenses. So that tends to wind down as the quarter drags on. We have to come back in and and just top it up. Do we need um you don't technically need to, but the way it draws down it will most likely be below target at the next meeting. Okay. Anyways, so we kind of top it up a little more than we have to. Let me make a motion.

Sure. Does Yeah, go ahead and make a motion. I move that we accept the recommended changes to the allocations as stated. Is there a second? Just me. Great. Uh discussion, questions, anybody? All right. All in favor? I any opposed? Great. Thank you. Just one one more thing. And I will correct you on one thing. Mhm. All right. The uh beginning value of the fund was 249. Oh, yeah. Sorry. I meant Well, I had it in my mind, but you you you are higher than that now. That's what I meant.

Yeah. So, we're not we're not back there yet. If Darren would stop sending the money out, we would uh Oh, we're actually we're actually we're at 25 and a half end of April. Are we? Yep. Oh, I'm sorry. My bad. Okay, you're right. I messed up. No. Hey, no worries. I was looking at that 24 and a half. Usually we don't focus on a, you know, a thing that happened in April, but yeah. My bad. All good.

And we had one more thing. Uh this the very very last page we call it the um benefit index uh page. And we do this on a monthly basis and we always bring in the most recent one for the meeting. Um this just shows you there there's a calculation that occurs um on the principal platform because you're you're in that annuity. You have to keep a certain amount of money there. Um so we just make sure we're we're not breaching that level where they'd say, "Hey, you need to send some more money our way." Uh so we're keeping a cushion of about between$1.1 and $1.2 million. We do our own calculation and we we also get their calculation. So we just kind of take the median there. Um but overall we've been trying to keep about a cushion of about a million dollars. We've taken a lot recently to funnel from the the principal core plus fixed income account to the new manager bar. Um so we've done that the last couple quarters. We figured let's just give it a break with all the volatility that's occurred the last you know couple months. Um you know if that if that drifts upward um we'll come back in next uh quarter and recommend we we funnel some more out to bear from the core uh core plus uh principal account.

You understand? So you got about 993,000 and that the liquidity volatility factor whatever is 90 95% of that. So each dollar you take out is almost a one to one. Mhm. So, just keep keep monitoring. Eventually, we'll take more. Yep. Keep it going the right way. Yeah, I know. I know. Great. We'll get there. Super. All right. Wow. Do we have questions? Does Do you have Yeah.

Okay. Do you have questions about what we just talked about? like the history of the annuity predates once upon a time. Yeah. Do you want to try the the history of Once upon a time back in the 60s they signed it. Yeah. Uh you want Okay. I'll start.

So the um the numbers we have here the benefit values are here. Uh what it really comes down to is uh we have a contract with principal that uh we cut off part of it in O2. So anybody that retired before O2 has a guaranteed contract. Uh principal guarantees their payments for their life. And in exchange for that we have to have uh certain assets inside of principal and uh the coverage that they need is based on these. There's a 10% plus this volatility factor. uh there's an interest rate component that comes into it and that's what you guys they figured it out. Marquette has figured it out and that's why you see these two numbers. One's green and one is uh in black. The green one is theirs or ours

ours and theirs is the black. So they're they're close and that's kind of how I monitor what the what that to make sure we're kind of looking at apples to apples. Uh I guess in a broad sense why are we doing this? Why are we still here? And that's what we've I've been here 12 years and we've tried to explore getting out of this and uh twice and the answer has been uh it's you can't you can't uh when we sign these contracts with the the people they guaranteed these for life and they're not going to give that up easily. So until they die we cannot get out of it. Yeah. Well we can we could have we've never approached Right. So the the we'd have toize the contract.

That's right. And the roughly value would be something about uh in one of these numbers down here roughly uh econ our actuary provides a little bit better you know kind of color on that about what kind of in the end though uh what we've worked with Marquette a lot with is to have just a number with one two three four investments you know in here just to pay benefits and to get good returns. So we picked the best ones that we wanted which we've wanted the uh real estate y

and then the one we have to have to for payment and then the other ones that's why we use these ones with the 95 factors. The reason they do these factors is this is the volatility factor associated with the risk inside of these funds and so the fixed income doesn't vary very much. So they give you 95 cents on the dollar. How many people do we have drawing from the pension total? Yeah. uh 70 something uh associated with this specific contract is the number 2002 from it's like 10 or 11. Yeah. Okay. Uh unfortunately for people that live here, they that work here, they live here long they live a long time too. We've only had that number drop at just a just a handful uh since I've started.

But we were going to get numbers to see. Did they ever give us numbers to what the annuities contracts would look like? No, we haven't gotten those yet. Are they working on it or are we sort of Is it radio silence? Um, it's a little bit of radio silence from principal. No. Well, from I think we were going to ask principal for the numbers. Yeah. Okay. Yeah. I've never Which I think we should. Yeah. I I think we should and see what it looks like. So, the the components that go into this are interest rates and uh the longevity of the people inside of that expectancy.

Yeah. he had the actuarial life the mortality table of of these people. The strange thing, one thing I looked at, we went through this about a year, year and a half ago with the Monte Carlo with, you know, talking with all these folks. Uh, that number hasn't changed very much. As interest rates went up, so do these numbers. So the actuarially, you know, every month these people get a little bit actuarially closer to the end of the contract, but as interest rates go up during that time, then their actuarial value goes up. And so that number of the benefit value hasn't changed very much in 10 years. Yeah. But there that time period going up every month normally you just kind of see the expected value of the future outputs go down just ever so slightly.

Yes. And over 10 years you'd expect it to kind of you get to this little matching spot where we got a little extra money. We want to get out of this contract. We can get return better somewhere else. But as interest rates have went up over this last four or five years. Um that benefit value doesn't change. But if we ever got to a point where it went up to like what it was in the late 70s um early 80s actually early early mid 80s you should be we should be able to get out of contract but I don't ever expect to see well the only way to get out of the contract is to annuitize or have the 11 people go away right I'm saying is if the interest rates go high enough that means that the amount that you'd have to put in the contract is going to be less appreciate that but it but the contracts

so you have to annuit you have Right. You have to give them x amount of dollars. The best thing I think we could do now is get the number. Yeah. And compare that to what our actuary would estimate. And if they're close, then our our actuary would be able to estimate this at about any given time. And then we go back to principal with this amount of money and say, "Hey, can we get out of this thing?" Because what they're keeping in there is is what is probably needed to from what they said when we spoke to them is what's needed to annuitize the contract. And they're not performing poorly. You know, that's kind of the thing, you know, are they that Yeah, that's that that's it. It's Yeah, but if you had freedom to do what you wanted to do, it would be right. I don't have my hand side tied, but at least tied loosely. Sure.

We need to we need to see those numbers from principal to see what it looks like. So, you guys could have done that. If we do that, I'm happy to answer any any questions and more like an education piece on this broadly. It'd be really nice if we just get rid of it and then no more education, no more sheets and no more calculations. get rid of principal because if we leave principal, they will annuitize the contracts automatically. They'll keep paying the people and they've guaranteed them. Yeah. We then would also have to find somebody to administer the pension. Well, that's easy. A paying agent. We need a paying agent. Paying agent. You could do that. You No, but then you could look at all kinds of options. Yeah. And I we we can find those people, too. Yeah.

Yep. Good. Anything else? All right. Anything? Uh, I move for German. Oh, hang on a second. Does anybody have anything else? New business, old business. Um, the only other thing I would say is we did get the actuarial report. Um, it did have some good news. Um, our required contribution went down because, uh, investments were so good. Uh, and we are certainly able to have somebody from Econ AJ here in August to kind of go over that actuarial report. if you desire

even even though even though that it went uh the contribution needed went down I think we should discuss not reducing the contribution because then we're going to get ourselves behind that's not our that's not our play say yeah we we are still putting forward you know all of the okay property tax money that we get right so one thing that really varies our plan is we put in what we collect has nothing to do with the actual arc right? It's whatever we get we put in. If it's not enough, then it's just not enough.

What really provided a really good uh coverage this time is we got out from remember how they would go down the thing and when we ran out of money, they had this blended hybrid rate that they had to use once the uh the princ the principal once the pension ran out of money that was no longer with the good investment returns. It became solivan over this the life of everyone inside of the pension today. And so that discount rate went to 4% which is that historical rate versus the municipal rate. So that helped out tremendously. It puts us in the 90% 90th per 90 uh 90% uh funded from 70 something. So that's very positive news on on good returns. So we're under unfunded liabilities only about 10% then that I don't know.

Yeah. See if you want to look at it. Yeah. That way. Yeah. Correct. That's got to be you guys always got it just a little bit different than what but yet that is right. Well, I mean that that's much better than what other municipalities have been dealing with. That would only I'm just talking about from a general standpoint. They've improved the past couple of years, but you know 80 90% is great. It's is good. I mean it's in a way better shape than it was for through because uh investment return. So good. But yeah, we'll have him here. what they contribute is is above our pay grade. That's not above our pay. It is can't make a decision.

We have no plan to bring to you any change in our contribution lesson. Contribution. Good. All right. Anything else? Any questions? I I got a question. Is there any availability in the tax rate to increase the amount that goes to increase either the tax rate or the amount that we're if we're getting the maximum amount that we're supposed to get there obviously but I'm saying what if do we have the ability to increase okay

yeah I mean you got the ability to increase but that's either a board vote or a people vote a people vote Okay. I was that was my second thing. I was going to say board vote or a people vote. So I know people vote. You will need to submit questions to Darren before each meeting now and you have to approve them. Any other questions from anybody but Allan? Now you can a motion to adjurnn. I don't want to. I move that we adjourn the meeting. I second. meeting agenda. All right. Thank you, gentlemen.