General Employees Retirement Board - Regular Meeting

place. Let's try to keep this economy on steady foot. So looking forward to 2026, we still think it could be a strong year, but with some volatility. You look at the news today, there's political unrest, there's uncertainty. Investors do not like uncertainty. So we think there could be some bumps in the road, some downs, but we think overall earnings should be good this year, as long as there's something that we haven't, things that we can't foresee. Page three, international. International has done better than U.S. for the last 12 months. It's been a long time since we've seen international investing be better than domestic. If we look at the MSCI, IFA, the first benchmark, positive for the quarter, up 4.86. Year-to-date over the last 12 months, up 31%. The S&P was up 17. So strong outperformance in international markets. We have some international holdings. So that was some good tailwind for us and our portfolio. We thought some of that was early in the year. The dollar declined. There was some rebalancing of portfolios with the uncertainty about the administration, and that's continued. Now, we think some of that might go by the wayside, and that could be a headwind in international in our portfolio, but still have had strong performance. The outlier, though, over the last year or the last three years now is in fixed income on page 4. We've seen fixed income markets start to settle down. The first benchmark is 90-day T-bills. That's your savings rate. That's your money market rates. The second benchmark down is the Bloomberg U.S. aggregate. Those are the broad benchmark or the broad benchmark for fixed income. We are now seeing bonds do better than cash. For a while, it was the reverse, but we're starting to see rates settle down. We started the year 2025 at 4.5%. Rates came down to 4.2% at the end of last year, and they've settled right around 4.2%. And that's on the 10-year Treasury. So we've seen fluctuations slow down a little bit. We've seen the short end of the curve come down, meaning... money market is now at three and a half three and a quarter so we're starting to see what we call a normalized yield curve where we're getting paid to take some risk or take some duration in the portfolio we don't think it's warranted to increase our duration or go out longer with our bonds at this point but that is something we're monitoring and will be a recommendation we do make if we see interest rates come down further than where they are today uh Again, looking at the news and Powell and Trump, Fed Chair Powell and Trump, Powell has been indicted by the Department of Justice and we know looking forward that he's no longer going to be the Fed Chair come middle of this year and possibly having a new Fed Chair come in could reduce rates quicker. Our view is that it is still a committee and that they still want to hold their independence from the presidency and that we think it's going to be a measured reduction in rates rather than a straight down 1%, 2% reduction in rates. So we think it's still going to be a pace timing throughout the year unless something pops up that's unforeseen and we need to interject and reduce rates quicker. But putting it all together, how did our portfolio do on page 5? For the quarter, we were up 1.79%, above our benchmark, and for the 2025, we were up 13.7%. So strong year above our benchmark. What does that mean in dollars? We started 2025 with $28,400,000. We added $1.6 million to the portfolio. We had income of 261 with gain and loss of $272,000 to end at $30,684,000. So strong year. Peter's here. He's going to give the good news on the fiscal year, give an update on funding ratios and all that. So I won't steal his thunder, and I'll move quick from here. If we go to page 9. The biggest decision we make is asset allocation. How much risk do we want in the portfolio? Risk being stocks. How much fixed income or bonds do we want in the portfolio? And then diversifiers, alternative investments. Well, we've made the decision to have 60% in equities. We're right on top of that target, just below. That box is our allowable range. Our target is the blue line, right below that blue line. We're a little bit overweight fixed income. Our target's 25. We're close to 27%. A little underweight alts and a little bit in cash right now. If we look at our plan design, I was talking with Peter from GRS a little bit ago about what we're trying to accomplish. What do we see the market looking forward? And as investors, we can't tie markets. We can't say this go to cash or this increase fixed income because we think the next quarter is going to be volatile. We have to look over the long term. And with a plan structure being an open plan, with assets still coming into this plan, with us having a long-term time horizon, and he's going to give great news on the last four or five years of funding status changes and being pretty well funded, we don't see a reason to increase or decrease stocks at this point, increase fixed income. We think we're still well allocated to given the plan design. Now, we're going to update our capital market assumptions. We bring those to you guys maybe once a year or every 18 months. That looks forward. What do we think the forward expectations are? When we get that update in March, we'll bring it next quarter. That will spend some time going through that and just say, hey, are we still comfortable with this asset allocation? But as of today, we're still comfortable with this, but we'd like to have a discussion just about the portfolio structure, and we'll spend a majority of the time at the next meeting going through that. To summarize, going back to page 11, most of our portfolio is passive. We don't have to make decisions on the manager level. There's no one to hire or fire. On the passive side, low cost, follows a benchmark. Same thing on page 12 for fixed income, but our alternative section, halfway down page 12, the alts have been above their benchmark. If we look at the third one down on the left under that alternative investment section, Aries Private Real Estate, the benchmark's negative, it's positive. So we've had really good results with the selections we've made. It diversifies the portfolio, and if we did see volatility, these would be protective assets for us, and we would talk about rebalancing the portfolio at that point. And then the good news on page 13, If we look at five years, now this isn't our fiscal year, but this is a rolling five-year number for our actuary. We look at a five-year smooth number. We're at 7%. And in that 7% on page 13 under five-year column, that still includes 2022, which our portfolio is down 17% in 2022. So we have another fiscal year with that number in there. Then that falls off, and hopefully, fingers crossed, knock on wood, we have two years. at least decent years to replace that negative 70%. So I think we're in a good spot, good position, no recommendations today. Next meeting we'll spend less time on the report and give an update on asset allocation.

Excellent. Thank you so much.

Any questions?

Not a question. Peter, what's our, or Rick, the assumed rate is what, 5.25? 5.25? 5.75. So that number compares to your 7.1 number. So we assume a year-over-year 5.75 assumption rate on our income, and he's hitting us at 7. So we're seeing that.

And Peter's even going to give a better number here in a minute. Correct. So really good. Good spot. Thank you.

Okay.

Good to see you. Thanks, C.J.

Okay, now we'd like to hear from our actuary. Actuary evaluation report.

This last one is just a report. This one does require an acceptance at the end. Peter, as you know, is our actuarial. We're required to do... an annual required contributions, what they used to be called, it's an actuarial evaluation now, I guess, every year as part of our requirement. This sets the stage for what we have to budget for every fiscal year going forward. So the number he tells us now is what we put into place for the 2026-2027 fiscal year.

Thank you, George. Good afternoon. Piotr Krakora with Gabriel Rother Smith & Company. We'll start with page A1, where the headline at the top is somewhat similar to what we saw last year. We have a bifurcated result, meaning that the dollar amount is going up from last year by about 150%, but when we express the contribution as a percent of payroll, we're down by about half a percent. Further down the page A1, we have first reason for the increase. There's the change in the assumed rate of mortality. You may recall I warned you about this was coming because by statute we are required to adopt the same mortality rates as the Florida retirement system within two years. And because they adopted theirs in 2024, we have to do it now. Well, we can't wait until the next year. So that increased the contribution by about $50,000. I mean, in the bigger scheme of things, it's not a huge increase, but when you add a few things together, it adds up to $150,000. On the next page, we have a little bit of a discussion on the gains and losses, the other reasons. So this is an open plan. We have new active employees accruing benefits, so the liability is expected to keep going up. The contribution as a dollar amount And the normal circumstances would be going up, but we have a few factors going in here. And on this page B2, we have a little breakdown. So number one, the payment to amortize unfunded liabilities is down by about 1.35%. This is primarily a function of the increasing payroll. Then we have change in the normal cost. That's the cost of new benefit accruals is down by half a percent of payroll. And that's because we have two tiers of benefits. The new tier two is replacing tier one. So we're going slowly down on the new cost of accruals. And then finally, the last line at the bottom is the increase due to the new assumption on the mortality in the future. Somewhere in the middle, we have experienced gain loss, which is only a quarter of a percent of payroll. We had a few things going on. On the positive side, we have great returns. On the cost side, we had a few things that, you know, good things never come free. We always have to pay for it. And the good things coming this year were, like, Employees got retroactive pay increases. They had salaries frozen last year. This year we had some retro catch-up salaries. So this shows up as a gain for the plan, right? Because we are just comparing ourselves to the last year. The second thing is we had no death in the plan. Another good thing, but it comes at the cost of the plan. So we're going forward. All right. Let's, you know what, I wasn't going to skip, stop on this page, but on page A5, we have a little table illustrating the maturity measures. And one thing I wanted to point out is to highlight something that TJ said. We have positive cash flow. That means we have more money coming into the plan than going out of the plan right now. So that kind of gives him a little bit more flexibility on playing. He doesn't have to worry about liquidating good assets at the wrong time. Let's fast forward.

Yeah, we like that.

Let's fast forward to page C5. Page C5, we are talking about this asset smoothing. TJ mentioned that we have one more year to fully phase in the 2022 losses. But if you look at page C5 right now, the combined experience from the last five years is we are going up. Each year we're going to have a little bit of a gain from recognizing past losses, the 2022, is fully offset by 23, 24, and 25. So for the next five years, we are looking for the recognition of assets lifting us up. We have 2.7 million unrecognized yet in our plan funding. So we have 82% funded plan right now using that smooth value of asset. If we were to fully phase in the extra 2.7, we would be in the lower 90s. So this is a very good place to be combined with the conservative assumptions. All right.

I can talk another 20 minutes, but I'd rather see if you have any questions. Any questions for our actuary? Okay. So motion, do I hear a motion to accept the report?

I'll make a motion.

Okay. Is there a second? Second. Okay. It's been moved and seconded. Do we need public comment on this? Yes? No? Susan's saying yes. Any public comment on the actuarial report acceptance? Seeing none.

There's a public comment section.

Okay. Seeing none, all those in favor of accepting the report say aye. Aye. Okay. None against, so it passes unanimously. Thank you. Peter, thank you.

Thank you.

Okay, so that will adjourn our public, oh, any general public comment, I guess? Seeing none, okay, motion to adjourn the General Employees Retirement Board meeting. Okay. I'd like to take, Dwight, I'd like to take the presentation PA1, sorry, PA2. Okay. Next, so there are some folks.

Give me a second to get it going. Before the LPA?

Yes, yeah, because...

Yeah.