Pension Trustees - Regular Meeting

Adjourn the June 2 CRA meeting and call to order the 06/02/2025 pension trustee meeting at 02:09. Item 2.1.

Approve the minutes of the 04/14/2025 pension trustees meeting.

Is there a motion to approve the April?

Move to approve.

Is there a second? Second. All in favor?

Aye.

Aye. Unanimous. Item three. Is there anyone in the audience who wish to speak under the citizens to be heard? Please go ahead and submit a comment card and approach the podium. Individuals will have three minutes. Seeing none, item 4.1.

Approved contract with State of Florida Division Administrative Hearings pursuant to Clearwater Code of Boards to Section two point five six three point one point one legal and authorize the appropriate officials to execute the same.

Thank you. This is actually my item from the city attorney's office. This is to implement the latest changes in the collective bargaining agreement. I know some of those have already come to the trustees and this is the second part of it where the pension advisory committee will be transitioning out of the role of handling disability pensions, and instead we will have a special magistrate handle that, again pursuant to the union contracts that have already been approved. Happy to answer any questions.

Any questions? Okay. Is there anyone in the audience who wishes to speak to this item? Seeing none, is there a motion to approve agenda item 4.1?

Make a motion to approve agenda item 4.1. Second.

All in favor?

Aye.

Item 4.2.

Approve the termination of fixed income money manager Manning and Napier and authorize appropriate official to execute the same.

Good afternoon trustees, Jay Ravens, finance director. This item is requesting approval to terminate an underperforming pension investments money manager. Manning and Napier was hired in 2012 as a domestic equity large cap value money manager. Over the last two point five years, the Pension Investment Committee has reduced the investment allocation to Manning and Napier from in excess of $50,000,000 to the current level of just under $10,000,000 due to underperformance. At this time, the committee is requesting approval to terminate in conjunction with the hiring of a replacement manager for the large cap value allocation.

Be happy to answer any questions.

Any questions or comments? Is there anyone in the audience who wishes to speak on this item? Seeing none, is there a motion to approve item 4.2?

Move to approve agenda item 4.2. Second.

All in favor?

Aye.

Yes. Item 4.3 please.

Approve participation agreement addendum with Bank of New York Mellon and as trustees for investment in the BNYM Newton NSL U. S. Dynamic large cap value fund and authorize appropriate to execute the same.

Good afternoon, trustees. Jay Ravens, Finance Director. The pension plans investment consultant, CapTrust Advisors, conducted a manager search for a domestic equity large cap value money manager to replace Manning and Napierre, a money manager recommended for termination by the Pension Investment Committee. The committee unanimously chose Newton Investment Management Group as the recommendation for replacement. I'd be happy to answer any questions.

Seeing none, is there anyone in the audience who wishes to speak on this item? Seeing none, is there a motion to approve Item 4.3?

Move to approve agenda item 4.3. Second.

All in favor?

Aye. Unanimous. Item 4.4. Accept the 01/01/2025 annual actuarial valuation for the employee's pension plan.

Good afternoon, trustees. Jay Ravens, Finance Director. This item is requesting your acceptance of the plan's annual actuarial valuation dated 01/01/2025, which determines the city's required employer contribution for fiscal year 2026. I would like to introduce the plan's actuary, Pete Strong, with Gabriel Rovschmidt, who will review the valuation report with you.

Good afternoon, trustees. For the record, my name is Pete Strong. I'm with Gabriel Ritter Smith, and we are the plant's actuary. So we come once a year to present the actuarial valuation results. Rather than go through a whole 80 page valuation report, I compressed the highlights into just a nine slide PowerPoint presentation, which I'd like to go through briefly.

So first of all, the demographics on average of the plan are fifteen seventy two active members in the plan. That's a little up from last year's fifteen fifty six. The total covered payroll in the plan earning benefits or eligible for benefits is $119,000,000 up from 112,000,000 And so that converts to an average annual pay of a little over $75,000 per participant in the plan. There are fifteen twenty three retirees and beneficiaries. That's a little higher than last year's $14.96 And the total pensions that are in payment status is a little over $63,000,000 which is an average of about $41,591 per person.

Primary assumptions we use to value all the liabilities in the plan include mainly the 6.5% investment return assumption. That's the most important assumption. That's the rate at which we discount all future benefits back to the valuation date. Also, mortality rates, those have to be those are required to be the same as the Florida Retirement System, which were recently updated as of sevenonetwenty four by FRS. Just a little background on those assumptions.

There are different assumptions for special risk employees, police and fire, and general employees. But on average, for a 65 year old non hazardous member or general employee, the life expectancies are 86 or 88, depending on whether you're a male or a female. For retired police officers and firefighters, it's a little bit less than that, 85.3 for males from age 65, and 88.1 for females. The other assumptions that we use are experience based tables for retirement, termination, disability, salary increases,

and those vary by status,

police officer, firefighter, or general employee, age, service or sex. And those were recently updated a couple of years ago from experience study. So looking at actual 2024 experience, the net return on the market value of assets in the plan was 9.9%, but with smooth returns over a five year period. So on a smooth value basis, the return was 6.51%, which is

right in line with the 6.5%

return assumption. The five year average return on market value was 6.9%, and the ten year average was 7.3. Average salary increases during the year were 7.85, so that was a little higher than our 5.74. I know that sounds like a weird assumption, but that

varies by age of service and by type of employee. So overall,

the weighted average assumption was 5.74, and the actual increase was average 7.85. Also, mortality experience was quite a bit lower than expectations. We saw a reduction in retiree payroll of $746,000 versus an assumed amount of almost $1,400,000 So a little bit more than just half of what was expected to happen during the year in terms of mortality amongst retirees. So those two items, those last two bullet points contributed to an experienced loss, meaning the liabilities were higher at the end of the year versus where they were expected to be of just shy of $4,000,000 But it's only about 0.34% of the actuarial liability. So the required city contribution for next year is $7,320,000 Quite a bit lower than last year's 16,200,000.0 and that's mainly because of the funding method change that was approved in April from entry age normal to the aggregate funding method.

Prior to that change in the aggregate method, the city contribution would have been 17.3, or 14.56% pay. Now, is a 7% minimum city contribution by ordinance. So that will be the actual amount that has to be paid this year. The city does also have the plan has a $40,000,000 credit balance that's from past contributions exceeding the required amount over the last twenty plus years. It's built up to 40,000,000 That can be used at any point in time, this year or next year or the year after, to offset the required contribution.

It helps to offset volatility spikes if there's ever a recession, you know, that makes the contribution quite a bit higher. So the liabilities in the plan, the present value of all future benefits, including benefits to be earned in the future by all current members, is $1,470,000,000 The actuarial liability is benefits earned through oneonetwenty five, is $1,230,000,000 And the low default risk, started last year having to put this in our reports, kind of a termination liability or an annuity placement liability, is about $1,700,000,000 using a 3.8% average municipal bond interest rate. Compare those to the asset values. The market value of assets is 1,340,000,000 as of the beginning of the year. The smooth actuarial value, for once, is very close to the market value of 1.35, and the actuarial value net of the credit balance is 1.31.

So we compared those two slides together to come up with our funded ratios. Based on the market value, the funded ratio was 109%. Based on the actuarial value, it's 110%. And the net of the credit balance is 106.7%. So very, very strong funded ratios.

In fact, this is one of the only plans in Florida that has over 100% funding ratio of a meaningfully large plan. Amongst 60 plans in Florida that have above 200,000,000 in assets, Clearwater's funding ratio is number one. And if you compare it to the Florida Retirement System, Florida Retirement System as of sevenonetwenty four had an 80.7% funding ratio using a 6.7% investment return assumption, with $198,000,000,000 in assets. So quite a lot of assets there. They have about 1,000,000 participants in the plan.

But Clearwater's funding ratio is 27%, 28% above that and with only a 6.5% return assumption, so even lower, which makes the liabilities higher. So with that, I'll pause and see if there are any questions.

Any questions? No. Thank you. Okay.

Well, thank you very much, and it's a pleasure being here.

Thank you so much.

Thank you.

Appreciate the condensed version.

Yes. Is there anyone in the

audience who wishes to speak on this item?

Seeing none, is there a motion to approve agenda item 4.4?

Make a motion to approve agenda item 4.4. Second.

All in favor?

Aye.

Unanimous. Item 4.5.

Approve the new hires for acceptance into the pension plan as

listed. Oh.

Sorry about that. Determine the trustee's expected rate of return for pension plan investments for current year, each of these next several years, and for the next for the long term thereafter in accordance with Florida Statutes 1.12-66.1-nine.

Good afternoon again, Trustees. Jay Ravens, Finance Director. This item is requesting the trustee's determination of an expected rate of investment return for the current year, each of the next several years, and for the long term thereafter, as required by Florida statutes on an annual basis. Staff is recommending the plan's actuarial assumption of a 6.5% rate of return net of investment fees as the trustee's expected rate of return for the current year, next year, and all years thereafter. Be happy to answer any questions.

So this was that refigured actuarial assumption, so it would bring it down where we're not every year being so far over the 100%?

Mr. No, that was the change in the funding method. This is just the actuarial assumption for the investment rate of return. Florida statute requires that the trustees basically affirm, more or less, the investment rate that's used in the actuarial valuation. Came about years back when a lot of plans had very high inflated assumptions that lowered their liabilities and made their plans better funded artificially with investment returns that weren't reasonable.

I see. Okay.

Okay. Now I'm not going say it because Jay already said it. Was literally almost word for word what I was going to say is the kind of how got there is exactly as Mr. Abrams just said, which is that there is a lot of variation in the plans. And some people were some cities were predicting unreasonably high returns saying, Oh, yes, our pension plan is super healthy. We're going to get 10%, 11%, 12% returns, no problem. But that was not realistic. And finally, the legislature said, Listen, every so often, like you got to look at this as trustees and say, what do you think your returns are actually going to be and it forces you to take a look at it to Jay's point. That's all.

Okay. Anyone else? Okay. Thank you. Is there anyone in the audience who wishes to speak on this item? Seeing none, is there a motion?

Motion to approve agenda item 4.5. Second.

All in favor? Aye. Unanimous. Item 4.6. Approve the

new hires for acceptance into the pension plan as listed.

Afternoon. Tiffany Macraes, human resources director. I am here for the next items 4.6 through 4.11 if you have any questions.

Do we have any questions? Does anyone in the audience would like to just wish to speak on any of those items? So can we make a motion to accept all those or does it have to be done separately? That's fine. Okay. So do we have a motion to accept 4.6 through 4.11. 11.

Move to approve agenda 4.6 through 4.11. Second.

All in favor?

Aye.