Columbus, Georgia

MINUTES OF THE

BOARD OF TRUSTEES SPECIAL MEETING OF THE

COLUMBUS GEORGIA EMPLOYEES' PENSION PLAN



June 2, 2004





A special conference call meeting of the Board of Trustees for the Columbus

Georgia Employees= Pension Plan was held June 2, 2004 at 2:00 P.M. in the

Mayor=s Conference Room.



PRESIDING: Mayor Robert S. Poydasheff, Chairman



PRESENT: Angela D. Cole, Morton Harris, Jack Nowell, Mary Strozier-Weaver,

Alan Rothschild, Harvey Milner, Joe Smith, Dan Gray, Carmen Cavezza, and Capt.

John Starkey



ABSENT: None



GUESTS: Henry Swift, (Salomon Smith Barney); Richard Swift, (Salomon Smith

Barney); Tom Barron, Director (Human Resources); Craig Strain, (Revenue

Division Manager); Denise Baxter, (Investment Manager); and Mike Reed,

(Columbus Water Works)







Mayor Robert S. Poydasheff, Chairman called the meeting to order. Those in

attendance signed in for the roll call.



The call was placed to William M. Mercer, Mayor Poydasheff and Mr. Samples

established the parties to the conference call meeting. He then turned the

meeting over to Mr. Alan Rothschild who confirmed that Mr. Samples had a copy

of the questions he had prepared regarding the actuarial evaluation for 2003.



Mr. Rothschild began by stating that he understood the responsibility of the

pension board trustees was to monitor the investments as well as make

recommendations to the City Council regarding the actuarial assumptions. His

concern is with the actuarial assumption of 7.5% and feels that the board would

be neglecting their fiduciary responsibility if they fail to raise concerns

about the actuarial assumption and present a recommendation to the Council for

their final determination.



Mayor Poydasheff responded by saying that there seemed to be an implication

that the members of the committee aren?t exercising their fiduciary

responsibilities. Even though there may be other vectors interplaying, the

fiduciary responsibility of the pension board is to the employees and the

overall welfare of the pension fund.



Mr. Cavezza commented that within the past two years Council approved lowering

the assumption rate from 8.0% to 7.5% and after looking at the additional $2

million for this year, that this is an issue that needs to be reviewed by the

board and possibly discussed before Council.

Mayor Poydasheff suggested that the questions from Mr. Rothschild be addressed

at this time.



Question One: Isn?t it correct that we use some type of three year leveling,

so that, even if 2004 is a decent year, the sub par returns for 2002 and 2003

will still have an impact on our returns in the actuarial valuations for the

next year or two? Can you explain how this works?



Mr. Rothschild stated that as a one-sentence background, that from 1999 through

2003, the assumed rate of return was not met. And, that the 7.5% assumed rate

of return based on the information on page 18 of the actuarial report would be

somewhere in the 68 percentile, meaning that 67% of the agencies that invest

the same as this pension plan will not achieve that number?



Mr. Samples responded that chart on page 18 is a Mercer methodology for showing

a range of returns based upon equity allocations and is used in a particular

Mercer model that some would say is somewhat conservative. Looking at the

assets themselves, the duration of the liabilities, and the active management

of the plan itself, they then arrive at what they consider a reasonable

long-term rate of return to use in the assumptions to discuss with their

clients. The chart on page 18 is used simply as a barometer to see if the

assumption number falls within what Mercer considers to a reasonable rate of

return based upon actuarial principles and standards.



Question Two: What, about our plan convinces you to be comfortable with a

number that is so tilted toward the upper end of the comfort zone versus

something right in the middle or arguably even lower based on recent returns?



First of all, the chart on page 18 does not take into account any active

management of the assets themselves. It would be as if the assets were an

index fund. So, there?s no premium in the numbers on page 18 to represent

active management. Their understanding is that the fund does have some active

management of the assets. If they had been told there was not active

management of the assets, then they would probably come back and say that 7.5%

is still within a reasonable range using their standards but that the board may

want to trim down toward the 50th percentile.



Secondly, looking at the past five years returns, the pension trust has not

earned the assumed rate of return. But, if we were standing in the same place

in 1998, and looking back at the past five years, we would be asking ourselves

why aren?t we at double-digit returns because the returns were significant as

with most pension funds. What they try to do, if they think the most recent

past is an aberration, is not let it influence, too heavily, what they think

may happen in the future. They not only look at the last three or four years

but also, at the average returns over a long period of time such as the

annualized ten year returns of the pension plan itself, and that?s how we come

up with the assumption. Based on the historic returns, and based on the fact

that the fund is actively vs. passively managed through an index, they are

comfortable with the assumption of 7.5%.



Question Three: Mr. Harris asked on what they based the idea that because the

fund is actively managed it?s going to have a better crack at the market than

with the index funds. That certainly has not been the experience of this fund.



Based on experience, comparing the fund to the S&P 500 and the Lehmann Bros.

Indexes. Over the past ten years, even though there?s not a large margin,

there are only four years that the fund did beat the average index.



Question Four: Mr. Harris asked; going forward on what available information

regarding investments, are you advising that it?s still reasonable to stay at

7.5% on a defined benefit pension plan?



In a very common market, the ranges are anywhere from 6.5% to 8.0%, but if the

pension board wants to drop to 7.0% then they would be comfortable with that

assumption.



Question Five: Mr. Rothschild asked whether they differentiate between

municipal clients who have less flexibility and for-profit entities, having

much more flexibility on where they obtain funding for their plans



There usually isn?t that much of a difference. What they look at is the equity

allocation and their experience has been that municipal plans will have a lower

equity allocation than will a private sector plan.



Discussion between Mr. Rothschild and Mr. Samples continued over what

assumption should be used for the investment returns considering the historic

returns of the investment fund over the past ten years.



Question Six: Mr. Harris asked, knowing the specifics of the plan, what is

your recommendation other than a widespread range of 6.5% to 8.0%?



If the fund is not expected to be aggressively managed, and maybe won?t beat

the index, a conservative approach should be exercised to stay at the lower end

of the range. To better fund the plan and increase the funding ratios more

rapidly than projected, the lower end of the range would be recommended,

causing more contributions to be put into the fund to increase the security

ratio. If the board understands and is willing to except the fluctuation of

the gains and losses that hopefully balance out in the long term, then a

recommendation for the middle to the higher point of that range would be made.

There is not a specific number or rate of return that is recommended to be the

exact number for the plan. The goal is to work with the plan sponsors to pick

a number within that range that feels comfortable and can meet their

obligations as calculated for them over the years.



Mercer uses internal numbers that are based upon equity allocations to produce

a range of assumptions that are used to value a plan that will fall within

Mercer?s standards and actuarial standards.



Discussion continued on how the pension fund will be affected if the current

actuarial assumption of 7.5% is not achieved. Mr. Rothschild again expressed

concern and reiterated that the issue really needs to be addressed presently or

later.



Question Seven: Mr. Rothschild asked what would happen if the actuarial

assumption was dropped to 6.5%?



Those numbers are not readily available but the minimum contribution would be

at least 2 million dollars for each plan and could go as high as 3 million per

plan.







Question Eight: What is the actual contribution for ?04 and is it based on the

current year or on the past three years?



It?s based on what happens during the current year and having it factored into

the smoothing of the assets. If the rate of return for the fiscal year ?04

were greater than 7.5%, then the minimal contribution would probably go down.

Only the current year?s return would alter the minimal contribution because the

prior years returns are already factored into the calculation. It?s like a

rolling projection, which factors in the current year along with the prior and

past years.



As a closing statement, Mr. Rothschild summarized that his concerns are,

because there are no resources to deal with the possibility that the

assumptions are not correct, the plan should not be taking risks with higher

assumed rates of returns.



Mr. Samples, again, responded that this is a decision that the city will have

to make and if the board is not comfortable with a 7.5% assumption then a

recommendation needs to be made with the assumption that would be acceptable.



Mr. Harris commented that he felt the issue had been put in perspective and

it?s now up to the board to make a recommendation to the City Council who, in

turn, will have to make a final decision on whether to change the actuarial

assumption or leave it at it?s current rate.



Following some discussion on the equity allocation percentage rate, Mr. Samples

stated that if they had the equity allocation for each year they could adjust

the index accordingly.



The discussion continued on what the minimum contribution should be depending

on the rate of return for the next few years. Referring to the actuarial report

on page 17 and assuming there are no major changes going out to 2008, the

minimum contribution will be 14.5 million dollars. This would be insignificant,

comparatively, because the big jump apparently took place over the last two

years, indicating that if the city can handle the 14 million dollars

contribution this year then it should be good for the next half a decade.



Mr. Harris stated that the board should consider dropping the actuarial

assumption at least .25% in light of what?s going on in the economy. He

suggested that the board wait until the city is through this political summer

and not do something now that forces the Council into a debate that doesn?t?

need to be handled right now.



The Mayor confirmed his concerns but also suggested that the considerations be

deferred until mid-year to see where the economy is at that point.



Mr. Cavezza reiterated the city has a major pension plan problem and that board

is compelled to look at alternatives. He also stated that the City paid in 2

million dollars more than anticipated this past year, which caused a major

debate over the fund balance. He feels the board has the responsibility to

make a recommendation to the Council and that the city in conjunction with the

board needs to look at alternatives to the pension plan. The City can not

sustain this continued input every year and even with the LOST, if it is

passed, if not careful the city could be back up at the 9 mil cap so he?s not

wanting to weigh too much on the LOST to pull the pension plan out.





In closing, it was decided that the Mayor should choose a time and date some

time in the fall, October or November, to discuss this issue further and take

another look at the actuarial assumptions for fiscal year 2005.



The Mayor asked if there was a motion to adjourned. Mr. Harris made the motion

to adjourn, the motion was seconded and the meeting was adjourned.









_____________________________

Julia A. Rasch

Recording Secretary