Pension Board - Regular Meeting

Okay. Review of 2024 to 2025. Readers digest highlights, please. Um, will you turn the mic on? There you go. Absolutely. Okay. All right. Should we dive in? Yes.

All right. Excellent. So, we've got today in front of you all the January 1st, 2025 actuarial valuation report for the uh city of Olivet salaried employees retirement plan. Um overall I think what the uh report is going to show you is that the investment return outperformed expectations. The investment return was a 9.75% investment return compared to a 7% expected return. So that's going to be uh fueling funded status improvement. Um there were a few items that kind of pulled the funded status back. primarily our uh review of the annual demographic changes when we collected census information. Uh we noted that there was a higher than expected compensation growth fueled by recent inflation. Um and so the liabilities had a liabil liability loss generated from the higher than expected compensation increases. So uh that took a little bit out of the funded status improvement. Um, one thing to note is we're going to show multiple versions of funded status throughout this report. Um, there's a funded status measure that's dictated uh that we report to JPERS. Um, and they use an interest rate that's a blend between our long-term investment return assumption of 7% and and short-term corporate bond rates, which are closer to 5%. Um, and so that blend uh resulted in an interest rate of 6.28% 28% this year, which was an increase from the blended rate last year of 6.06%. Um, as long as that funded status continues to improve, we'll work again towards getting back to using a 7% return assumption for both our long-term asset expectations and discounting those liabilities. But as long as that funded status kind of stays below 80% or so, we're going to have to continue to use that blending approach. So are the

benefits that retirees receive is tied into inflation? Uh the is that what you're saying? The benefits that active participants are earning are tied to their compensation, right? And so the compensation increases over the last two years kind of reflect the high level of inflation that you know years payout. It's it's the people that are in the plan. The people in the plan.

Okay. Um, so overall we're going to see funded status improvement from a variety of sources. Um, again at a high level the funded status of the plan is kind of in a similar range that it's been in over the last 10 years. We've seen that this plan is heavily reliant on investment return. As investment performance outperforms the expectation, we see funded status improvement and then when we see a correction in the market, we end up kind of, you know, reverting back down. And so when we look at some of the historical trends, you'll see that we're in a similar place that we were about 10 years ago in terms of the funded status um just from all the swings in investment returns. Uh moving to page four, we'll go through the the slides quickly to get to the main points. This is our asset development. January 1st, 2024, we started the year at 21.98 million and uh throughout the year we ended at 23 million. We can see that there was 1.2 2 million of contributions both from um individuals and from the city tax uh collections. Um benefit distributions totaled 2.26 million and administrative expenses were 14,000. Um the investment return again noting that the investment return of 9.75 favorable investment return year uh had a 2.090 investment return uh fueling that investment growth to the 23.0 0 million ending asset value. Uh moving to slide five, this is our review of our recommended contribution analysis and we've got 2025 on the left compared to 2024 on the right. Um we look at uh when we look at the the contribution recommendation, there's two components of that recommended contribution. There's the normal cost that is the value that your active participants are acrewing for one year of service and compensation growth within the plan. So that's the cost of providing one year of

benefit growth to your active participants. And then the amortization component is funding up the unfunded liability that currently exists for the pension plan. And we show it over three different time periods. a 10-year, a 20-year, and a 30-year amortization period. Um the normal cost component for 112025 was 65,513. Um and then when we look at the 20-year amortization schedule, which is the recommended contribution schedule for the plan, the amortization component was 808525. So that leaves a total beginning of year recommended contribution of 1.4 million. When we apply interest to the end of the year to reflect timing of those tax contributions being made um that uh grows out to 1.5 million and when we reduce the employee contribution expected portion of that the uh remaining 1.266 is the recommended uh tax revenue or employer contribution uh that we would recommend. We can see that's similar in level to the 2024 amount. Um and so there are two things going on. We saw funded status improvements which reduced the amortization component because your unfunded liability improved. Uh but that was offset by growth in the normal cost for your participants and that was from two components. One slightly more active participants during 2025 than 2024 and that compensation growth that we talked about uh grew the expected annual cost for the active participants. So we saw a substantial growth in that normal cost from 500 to 600,000 which offset the deterioration of that amortization component. So we'd expect that amortization component to kind of draw down over time as you pay the unfunded liability off. Um but it was offset by that normal cost leaving a flat recommended contribution.

Why is there a $300,000 decrease of estimated tax revenue cont? Yeah, so there was timing difference in 2024. or I think there was a $300,000 timing um difference that that the contributions that were reflected for 2024 just happened later and so we reflected a $300,000 additional contribution for the 2024 plan year than 2025. Oh, okay. It's all good. the beginning. So which is the which is the normal amount is 700,000 700,000 is normal. That would be what we would see from property tax revenue. Okay.

Right. Would you agree with that? And that's an estimate obviously. Correct. Yeah. Nice and rounded. Yeah, that's what I was going to say. Okay. Maybe a question for Darren. Have you seen much of a difference with the senior tax freeze in terms of like Okay,

cool. Moving to page six. Uh this will be the first funded status measure that we will note today. Um and here we've got the present value of vested acred benefits and the present value of acred benefits. So, if we go to the bottom line, we see an improvement year-over-year on the present value of acred benefits from 79% to 82%. Um, again, this is using a uh 6.28% interest rate for purposes of valuing those liabilities. The liabilities are 28 million compared to the assets of 23 million, leaving a $5 million shortfall on this present value of acred benefits basis. Um what the present value of acred benefits bas uh basis is measuring is your liabilities only considering pay and service through 112025. So we're not doing any projections forward. This is the benefits that have been earned to date through 112025 on a present value basis. Um so we saw again improvement there driven mostly by that outperformance in the investment return compared to the 7%. um Jennifer and that's when we talked with um the attorneys and they said that principal was 100% funded. That's why I was very confused when they said that. Um not to get into it right now, but that's that was why it was very confusing when they did say that because we're underfunded. So,

we'll see if the attorneys really knew what they were talking about.

Exactly. On page seven, uh this is the demographic review of of participant counts. We can see that the active participant count increased from 53 to 58 participants uh from 1124 to 112025. Uh the retiree headcount increased from 73 to 77. And then the terminated vested participants increased from 31 to 33 participants. On page eight, uh we're going to look at a second view of funded status. And this does what I call more actuarial gymnastics. So we are no longer just looking at uh compensation and service through 112025. We're now going to project out through a participant's career what we expect their liabilities to be and then discount back and create an acred liability as of 112025. But what we're doing is because your pay uh kind of grows in a in a almost an exponential shape towards the end of your career, you grow more of your pension benefit in the last 5 years of of service than you do earlier in your career. So, we're going to pull some of the cost associated with those years earlier into a participant's career and make a a more level funding approach. So the liabilities here a little bit higher because we're trying to reflect a little bit more levelfunded approach um over a participant's career and not letting it backload like it does on the present value of acred benefits basis. So you'll see here that the acred liability at the bottom is 32.166 million compared to the present value of acred benefits which is 28.0 million. So that $4 million difference is really associated with that actuarial gymnastics and accounting for those costs earlier in a participant's career and not just waiting until the most

expensive time to start funding those benefits. Um this is a development from 112024 down through 12312024. Line items 1 through 4 are expected um natural occurrences that we expect each year. Um, so we can see that the interest is going to both grow your liabilities and your assets. We expect both of those to grow at the same 7% assumption. Um, we expect that participants are going to grow a benefit with that normal cost. We expect contributions to come into the plan and benefit payments to be paid out of the plan. So just through those expected occurrences, we expected the unfunded acred liability to decrease from 10.174 million to 9.8. 887 million and that would be if all of our assumptions came true, you would achieve a 7% investment return. Um the contributions are are listed and the benefit payments are listed. Number six are things that happened that we weren't expecting. Uh first is the change in the actuarial assumption. So this is increasing that blended discount rate from the 6.05% that was used last year to the 6.28% 28% that is used this year. So that decreased our liabilities because we're using a higher interest rate. Um we're trying to get back to 7%. So we're expecting anywhere from a $ 1.5 to $ 1.7 million reduction in liabilities as we continue down that path. Um the second item is the actuarial gains and losses that occurred. And this is a liability loss of 624,000 that represents additional compensation increases above what we were anticipating uh in our in our salary assumption. Um and then on the value of assets, the asset outperformance was 588,000 compared to our expectations. So

the net is that you improve your funded status a little bit more than we were uh expecting. Um, and you your unfunded liability at the end of the day is 9.165 million. Um, so we'll keep going. We're going to skip past slide uh page nine and go to page 10. Um, I like page 10 and 11. It provides that historical context for where has the plan been and why. Uh, we can see here on page 10 a review a 10-year history of our actuarily determined employer contribution. Um and we can see from 2015 to 2019 a continual decline in that actuarily recommended contribution. Um and that aligns well with the investment performance which is summarized in the bottom. You can see some outperformance during that period until you get to the 2018 plan year where there was a negative 5% investment return. So the following year 2019 we see a pop up in that actuarily recommended contribution to start funding that deficit that was created from the under uh investment performance. And then 2020 2122 again really positive investment years phenomenal years 19.5% investment return in 2019 2020 and 2021. Um, and we can see that actuarily determined employer contribution dip down again until you hit 2023's recommended contribution, which is a huge spike reflecting the negative 13.3% investment return. So, we're seeing these kind of same cycles, three four year cycles of three good years followed by a market correction and we see the recommended contribution following suit.

Um, if you look on slide, okay, we're gonna have a bad 2026. So AJ, before you move through um page 11, I'm looking at our actual employer contributions, right? That third column. Um and then I'm back on page five. There's an estimated tax revenue contribution of 700,000. Is that just a an average of the last five years? Is that So 700,000 is our estimate of the contributions based on tax. How did you get to the estimate? Um, so, so generally it's based on tax revenue, but we coordinate with Darren on on expectations. Okay. So, it's Darren's fault. Again,

it would align closely with what we would see on the property tax assessment, the auditor's report on what uh I would rather Darren uh underestimate than overestimate.

I agree. On page 11, what we can see is that full uh reconciliation of liabilities and asset developments going back 10 years. So, a few items that I'll call out from this page. Um, this will help again just provide context of where you've been historically compared to where you are today. Um if we look at the 2015 column all the way to the right the funded status position um was 74.93% funded as of uh that that date. And we can see here as of uh 11 12 uh 2025 you're now 71.51%. So a similar place funded status wise that you were from 2025 all the way back to 2015. Um, and we can see the funded status improve again as those investment performance outperform expectations. You went from 74.93 in 2015 up to 82.52. And then with that underperforming year, back down to 73 and you've came up all the way to 2021 where you hit 93% funded and fell to 66.95% in 2022. So, we're seeing these kind of natural es and flows with with the investment returns. Um, one other item that we can call out is that the service cost component of the liabilities is elevated compared compared to where it's been historically. So back in 2015 the normal cost the cost of those benefits providing to participants was 241, uh817 and now it's double that you know more than double that at 525,000. So again that's tied to compensation. So as compensation increases and we expect compensation to increase we'll see that service cost component also increase. Um and you know just to note a lot of times

in in the governmental plans where tax revenue is improving at a 2% or 2.5% rate and compensation growth is growing at a 4 to 4 and a.5% rate. There's a disconnect and that compensation is going to eat up more and more of that tax revenue budget that'll need to be re you know rectified in the analysis. So, um, we're seeing that play out here because we can see the contributions, we can see the service cost. Um, and and there's a disconnect there. So, eating up more of that cost. Feel like we ask this every year. Maybe I'm just imagining it, but what what would that percentage of funded fiduciary net position percentage total pension liability need to be to consider like freezing a pension?

Um, so in terms of you can make the decision to freeze the pension at any point, right? and and move to a different form of of compensation. Um, you want to terminate the plan, that would be paying out all benefits and and kind of getting out of the pension space altogether. Um, you would need to be closer to 130% funded on that basis. Um and and currently you're 71% funded. Yep. Because you'd be you'd have to pay out lump sums which are generally valued more at that 5% uh discount rate or purchase annuities which is a more expensive option. Yep.

So to to fully terminate you would be north of 130% or so. So just double where we're at right now, right?

That worries. But if you were to maintain at about, you know, you you a healthy plan would be somewhere in the 90 to 110% funded status range. So that when you get to 110% the market corrects, you kind of bounce down to the 90s and and find yourself kind of in that 90 to 110% range as opposed to the 60 to 80% range. Because as we'll see in a couple of slides, the interest on that deficit is really eating away at your ability to fund up and improve the funded status of the plan. So we'll skip ahead then to page 16 which will be my final page. Um and so this is kind of the health of the plan and the trajectory moving forward. Kind of again getting to that uh that that question. This is going to be yet again a third funded status measure. All right. So this is a funded status using 7% but it's using that actuarial gymnastics approach. So we're still pulling in costs that are accured later in a participant's career uh but but funding them on a level approach. On this basis you're 77% funded. And so that basis would be more consistent with your historical funded statuses on page 11 because you know before 2021 we've always used 7%. So that's kind of where you would rank using a 7% assumption. Um down below using the expected contributions that are coming into the plan of 947,000 the benefits that participants are acrewing again on that 7% basis 501,000 you're contributing $445,000 excess over the participant acrruals to help fund the deficit. Um but the deficit which is currently at 6.876 876 million from above. Uh the 7% growth on that deficit uses up all of those excess

assets. So you're essentially treading water at this contribution level. Um and you're relying on investment returns to continue to push the funded status forward. And we expect 7%. So in order to move that funded status up, you need to perform above 7%. Um now year-to- date again in 2025 markets have been favorable. Um, I won't steal all the thunder, but year to date, you're probably, you know, close to 12% return. So, that's about a 5% outperformance. Who knows where the the assets will end at the end of the year, but that's going to further, you know, buoy those returns, get that funded status up an additional 5%.

But in general, a interest rate environment where we're decreasing is not good for the pension. Correct. Or not necessarily. Not necessarily. I think uh it has a couple of components. Uh in your investment portfolio, you've got fixed income assets. So, as interest rates decline, those fixed income assets have a gain in this year. So, you're going to have a little bit outperformance, but that means that your interest on those in the future is going to be deteriorated. So, it's going to be harder for you to achieve 7% if your bond portfolio is only getting you 4% versus four and a half or five. But then the expected spread of equities to the to a lower interest rate environment would also be projected to be lower essentially,

right? And I think that the market is a little slushy, right? Where are we going with equities? We've had three really great years. Um I think that what I've seen is it's really been fueled by AI development and the growth. Uh the GDP growth numbers have been great. Um really fueled again by AI development. Some people think that maybe that's a bubble. I think that that's probably not as transitory. I think there's still going to be a lot of money being pushed into that space um to to get, you know, industry moving forward and adopting those AI uh tools and techniques. But there is, you know, there is a little bit of slush in the market and and I'm not super bearish on it, but I think 7% is still a long-term expectation for the for the asset allocation that you have. We do see continued push down on capital market assumptions. Um, two years ago, right after the negative return, we saw our capital market assumptions supporting 7 and 12 8% return numbers and now we're back to the 7% and we've kind of stayed at that 7% expectation over that period.

So, I think my closing message would be you're you're treading water. the the investment return year-to date again is going to help fuel improvement when I'm here next, you know, September, maybe a little bit earlier. Um, we'd love to see this plan get back up north of 90%. And see that this line item here on page 16, um, get closer to about a 1% improvement level. Um, so that you've got you can start to really see the tangible improvements for that contribution exceeding those benefit acrals. Um, so again, you know, I think the markets will keep pushing this plan forward for the time being. Perfect. Any questions? Anything? We appreciate it, AJ. Excellent.

Thank you very much. All right, Jonathan, you got big shoes to fill. You said you got to get 25% return. You're over yours. Um, probably not going to happen, but we can try. Not with that attitude. Yeah, I know. Okay, you're pulling it up, Jennifer. All righty.

H All right. So, for uh for today, we have your standard reporting. We have your third quarter report as well as a rebalancing recommendation. As AJ mentioned, you know, markets have been hot. Want to always kind of take the wins when we can get them. Kind of trim trim from equities and such, but more on that later. Um, as usual, we'll go ahead and skip the market environment for sake of time because I know you guys are all familiar with what's been going on. Uh, we'll go ahead to it's exhibit one, sorry, of the report. Page one of the report is your manager status page under

uh exhibit one. Sorry, it's that's fine. Given way pretty much halfway through the book now. That's good. No, you're good. You're good. Uh so uh this is all your manager lineup. Uh all managers are currently in compliance. So no issues here. Go ahead and flip to page three. This is uh we call your performance summary. It's just a kind of a good snapshot of you know, hey, one page. How's how did the plan do for the quarter? How is it done over time? Cash flows, asset allocation. That kind of gives you everything all that in a nutshell. Next on page four, I'll spend a moment here. Teed them up. He said you probably right around right around 12% though. Yeah. On the dot. Yeah.

So page four, uh this is your market value page. shows you all your managers, all your different uh composits, uh what asset class they correspond to, what your beginning market value was for the quarter for all those net cash flows in and out for all those line items, ending market value as of September 30th, and then to the right of that on the right side of the page, you have percent of portfolio. So that's the current waiting for that comp the composits and the underlying investments compared to the total value of the fund to that to the right of that is your target allocation. So that's kind of the target you're trying the waiting you're trying to maintain for those those assets. So end of the quarter with $24,524,942. Uh overall mostly in balance but markets have been hot. So equities have run up quite a bit. Uh on top of that you do have quite a bit of cash flow out of uh that PR especially the principal core fixed income investment there. So that has ate away at that waiting for your fixed income allocation. So underweight fixed income, overweight US equities, non- US equities in balance for real estate and priv private equity for the most part. So later on, like I said, we will have a recommendation to trim from equities and contribute back to fixed income. Uh page six just shows you how your plan looks like graphically compared to other public defined benefit plans. So uh one for instance would would mean that you are the highest you have the highest waiting in that asset class for your universe. So public defined benefit plans 100 would be the lowest. So you know not going to spend any time here but just just for sake of explaining the page there. Uh page seven is a historical asset allocation only goes back four years uh but shows you kind of how the plan has changed over time from an asset allocation perspective. Page eight I will spend a moment on. This shows you the market value over time specifically over the past 10 years on

the top p uh top part of the page. Bottom part of the page shows summary of cash flow. So it just shows you different time frames. Where do you start at? What were your cash flows in and out for that time frame for the total plan? What was your net investment change and what was the ending market value? Uh so for the quarter start out with just under $23.9 million. had negative cash flow out of roughly $545,000. Positive net investment change of 1.2 million and uh that's how we ended up at that value of just o over 24.5 million. And as you go back in time, you see that same information going back to uh 10 years. Uh negative cash flow out for the most part because it's a mature plan. You have it you have a lot of benefits going out. Uh but as AJ mentioned, you know, really what's kept us afloat is your uh the income and appreciation of the assets in the plan. Page nine, uh I'll just focus on the top line item here because everything else is for the most part repeated. Uh so for the total fund for the quarter, we had a return of 5.2%. So just slightly ahead of the benchmark. Year-to date, a return of 12% as AJ mentioned. uh just in line with the benchmark rankings uh almost in the top third of your universe. So that's that's kind of where you want to be at least above the median. One year, you're ahead uh above the median. And then past that, it's a little more mixed. For the three-year time frame, you're a bit below the benchmark, ranked fairly low. 5 years ahead of the benchmark, ranked right around the middle. Uh 7 years, just a little bit behind the benchmark, ranked low. 10 years at the benchmark, ranked in the middle. So, like I said, kind of mixed since inception. We are uh below the benchmark and ranked fairly low, though. But that goes back to 2003, so it's quite a long time frame. As I mentioned, we'll skip ahead. Uh page 10 just shows you what I just went over uh graphically. Page 11 is your calendar year returns going back about 10 years. And then, uh page 12 is where we'll peek under the hood here and look at the

different composits and underlying investments. So, already hit the total fund. Fixed income composite has done well outperforming for most time frames just behind year-to date slightly uh since inception matching the benchmark rankings recently kind of mid to low-term though mostly above the median uh uh principal core fixed income has done well over time outperformed for most time frames uh matching the benchmark for seven years uh rankings good recently going out to one year past that more mixed below the median at some points at the median or above uh depending on which time frame you look at. So kind of mixed going back in time for the rankings. Principal core plus bond uh not doing as well as core um outperforming more recently underperforming uh for one and three years. Uh long-term outperforming but rankings in that core plus universe pretty low uh mostly almost in the bottom decile in a lot of cases. Um and thankfully though we did move half we kind of cut that in half at the last meeting and split that core plus mandate between principal core plus and barcore plus which you'll see as the next item here is barcore plus uh only have one month of data there. We uh that was their first full month of performance was in September. Match the benchmark no complaints. We're going to give them some time of course and see how they do but overall they've they've been a good manager for a lot of the other clients that I work on. So wouldn't expect any different here. principal high yield. This is the your your high yield allocation. And this was the manager or the strategy that they actually forced a transition to at principal cuz they uh they stopped uh and liquidated the uh the high income strategy. So it went from high income to high yield, which is kind of funny that they uh you know how they named those. But uh that's only been funded since

March. That was their first month of perh full month of performance. uh so far underwhelming um but this is part of that principal allocation and we decided to to split the core plus mandate and shift that out to get more away from principal. So for now I'd say you're kind of stuck with this at least for the moment till uh till that benefit index ticks down a little more. Aristotle Pacific is your floating rate bank loan manager. They had a really good quarter uh and that's actually helped their long-term numbers now outperforming for most time frames ranked pretty high in their universe. uh for all time frames as well. Uh I I attribute this a lot to the fact they did not have any first brands brand exposure one of that I'm sure you all saw that in the news when that uh car manufacturer was lying about the receivables and probably some other things. Um but that helped them relative to the benchmark cuz some other players in that space did have exposure to that deal. Uh first brands uh page 13 and this is not as rosy of a story but this is you know I I kind of keep hitting it. It's uh you know it's like beating a dead horse. Uh US equity uh allocation has been underperforming for all time frames here. Uh import improving more recently from a rankings perspective above the median for the the quarter and year to date. Uh attribute a lot of that underperformance to overallocation toward uh midcap and small cap stocks. Last going back 10 years just they've been unable to to outperform large caps. and that's weighed down on them. Long-term expectation is that small caps, midcaps should outperform large caps. Um I know we had this discussion last time, but uh

I mean I hope you're right, but I do too, but I'm not so sure. Yeah, it did improve recently though, but it's I will say that rally in small caps was very junky. A lot of unprofitable companies really leading the way. There's not a lot in there. Yeah. and it's like nuclear companies, Bitcoin related cryptocurrency company, things like that. So, you know, that that seems to uh have evened out a little bit. Uh but we are exp our small cap exposure is in the S&P 600 which does have a higher quality bias. So, long term that should I think be be beneficial.

But, uh yeah, underperformed for the quarter. Um everything's indexed here. So, they're all all these managers are doing their job. They're matching the index. uh midcap was the main lagard for the quarter. Uh small cap exposure was actually your highest uh returning US equity allocation for the quarter, but long-term it's another story. Um so we we've done we've done some work to trim back those overexposures to mid and small cap. We'll see if the story turns around, which what many expect it will with rates coming down, but it's it's a you know that's a question that we'll have to answer at a later date to see if you know going forward are small caps and midcaps where you want to have this kind of bet in. Next on page 14, we have your non- US equity exposure that has improved recently because you do have an an overweight to emerging markets. So emerging markets was the best performer for the quarter at least out of our lineup which is just a broad non- US equity index and then a small cap non- US equity index. Um but long-term that has been a detractor for the non- US equity uh allocation. Uh overall these managers like I said with US equities they are trying to copy replicate the index essentially but in the non- US space it's a little trickier than that. um more tracking are involved, higher costs usually and in some cases you there are some companies you can't even buy that are in the indexes which you know you'd think that wouldn't be the case these days but it is um so overall they're doing fine if they are if they are ahead or if they are behind they're not too far ahead of far behind so within expectations I would say the the deviations from the benchmark from these managers real estate has actually had a quite a turnaround um after two really rough years. It does look like the trough has been made and they are

starting to to come back and most likely when you do see that happen in the uh private real estate space uh it's typically about a 10 10ear time frame where you see positive returns. So it looks like they've shot out of the hole. Principal has had a really good quarter and it's actually made up for their underperformance uh in the long term. So now for all time frames real estate is positive. Uh private equity, we just have one manager as well, Partners Group. Um we only have them through August and the benchmark has always lagged by a quarter or so. Um so we don't have that either, but long-term they've done well. Uh year-to- date one year, they are a little bit behind. Um not unexpected. It's an open-ended uh private equity fund. Um as closed in funds did poorly 2022, 2023, they did well. Now it looks like the closeman funds are coming back and they're not keeping up as much. So not unexpected there. And then you have your cash composite which is just invested money market fund and that's that's done its work there and we don't really have much exposure uh or much of an allocation to uh to cash. After that we just have a bunch of calendar year returns for all these managers and composits. Then we have some risk statistics but we'll skip those. Page 20. always like to look at the fund from a risk return perspective. And this is just over a five-year time frame. Uh the fund is the blue square on the page. Your benchmark is the black diamond. The crosshairs is the median of the universe. So the public defined benefit plan universe. All the little dots all over the the page there uh are other public defined benefit plans. So you see the fund is uh is outperforming its benchmark but not outperforming the median of the universe but it does have less volatility as measured by standard deviation compared to the benchmark and the median of the universe. So overall not in a bad spot. Would like to see it get bumped up a little bit into the uh

the top left quadrant there. And we're getting close. Um but it is it it is a tough task as I've seen across a lot of our plans. Page 21. Also like to look at fees here. And we do have some good news to report here with that change uh from uh by having that principal core plus allocation and and giving that to be barcore plus. So you see um you know we have the fee schedule for all the investments. Uh we we take the values as of the uh date of the report. So as of 9:30 2025, estimate what that annual expense would be based on that for each manager. Equate that to an expense ratio and and put that up against what what the industry median expenses for for all these mandates or similar mandates would be. Total that up on the bottom. So that that middle blue line on the page there, we estimate you're paying all your investment managers $85,646 annually. uh that equates to 35 basis points and that is actually right in line with what the industry median is. Uh last quarter you were above that and that was because of that higher allocation to principal core plus because that fee is just astronomical.

Um and we'll we'll start to shift more away from there as your cushion builds back up uh with your benefit index. Uh any questions on the quarterly report? All right, cool. Uh, exhibit two, which is just the the last second to last page in the report, is a rebalancing recommendation. As I mentioned earlier, markets have been really really hot. And, you know, we don't want to get too far over our skis. Uh, even though I'm sure there are a lot of nice stories out there saying the the AI story is never going to end and, you know, we'll we'll have 5% GDP growth every quarter for perpetuity. Um, so recommending uh we sell $350,000 of the Vanguard S&P 500 index fund, 60,000 of the EyesShares Core S&P Small Cap Fund, 210,000 of the Vanguard Total International Fund, 90,000 of the Vanguard Emerging Markets Fund, 65,000 of the Vanguard International Small Cap Fund, and contribute 675,000 to Principal Core Fixed Income and 100,000 into principal core plus. Uh and this is just primarily because principal core is where you have those distributions come out of for benefit payments. So that gets drawn down quite a bit over the course of the quarter. And uh with equity markets rallying on top of that, that kind of makes that uh their underweing look even more uh overexposed I guess I would say uh compared to if markets were a little more even.

Question for you, Mike. that I looked at this. Your total plan is 245 and your when you do the principal assets, regions assets, other assets, it's 23. Oh, yeah. Sorry, I noticed this after we sent it out. Okay. Is is just an error? It's because we added in Bar Core Plus and forgot to add it in. Oh, okay. Yeah, but it's not affecting the uh No, I I just was wondering if that was if there was a method of the madness or was No, I I saw I saw that yesterday and I was like, you know what? They're going to catch this, but I didn't want to send something else out again or reprint everything. So, you know. Okay. But I I double checked after I fixed it and it it matches now.

Good. Okay. That's all I wanted to know. Um and our cushion, we're good. Yeah. So, cushion is on the next page. Yeah. Yeah. Yeah, I guess. Yeah, you're already there. So, cushion is So, there's two numbers here. The the green one is what they provide us as of 10:31. Mhm. The top one is actually as of November 1st because that's the day they take out the the benefits from the principal C core fund. Uh so, the cushion actually decreased from 10:31 to 111. So, I wanted to include that. Okay. just so we had a more I consider a more realistic measure because you know they took it out.

So okay, not not bad. We're still over half a million, but definitely want to bump that back up. And that's what we're doing here. Mhm. Okay. All right. Good. All right. Any questions? So the motion is to do the recommended changes that Jonathan has made on the rebalancing for the what? For the rebalancing spreadsheet for the Thank you. That was a big word for me for the rebalancing spreadsheet. That's the motion. We have a second. Second. All right. Any discussion? Any questions? Anything? Anybody? All right. All in favor?

I. Any opposed? Any abstensions? Awesome. All right. Thank you. We'll work with uh Jennifer and Darren to get it executed. Right. Darren, make sure you do it before January. Okay. Sorry. Yeah.

Awesome. Thank you. All right. Um

Um do we want to discuss the principal contract? Go ahead. I don't know if there is there an update. I don't have an update. I mean the update is that um we met with the lawyers and there isn't a um we can't get out of the contract. correct without buying the annuities. Yes. So, um they wanted to do just a little more research.

Um we can choose to approach principal to see what you know what it would cost. Um but there isn't a there's no legal basis to say that because this is an old contract and and um a method that is generally not used in pensions uh currently um to be able to get out though

that we we hired we looked at had a contract attorney not an ORISA attorney to do that and unfort unfortunately as Jennifer said it's even though it's 50 plus years old were locked. Um, at least in their feeling. They also said, and to reiterate what Jennifer and I were talking about, that they can't believe that principal doesn't have this over 100% funded of their portion. So, it wouldn't they think it's not going to it would not cost us anything to get out of the contract and annuitize it. What does that look like? What does that mean? We have no idea. And that's what they were looking into. So,

so no decision points from the pension board at this point. Um, if we get more information to bring back to you as a decision point, then then we will. Correct. So, questions, anything. Good. All right. Anything else? Any new business or old business we need to discuss? I don't have anything. Okay. Uh, motion to adjurnn. Second. Perfect. Meeting adjourned.