Columbus, Georgia

MINUTES OF THE

BOARD OF TRUSTEES MEETING OF THE

COLUMBUS GEORGIA EMPLOYEES' PENSION PLAN



Special Called Meeting



March 2, 2005







PRESIDING: Mayor Robert Poydasheff, Chairman



PRESENT: Isaiah Hugley, Angela Cole, Morton Harris, Mary

Strozier-Weaver, Alan Rothschild,

Harvey Milner,



ABSENT: Joe Smith, Dan Gray, and Capt. John Starkey



GUESTS: Henry Swift, Vice President (Salomon Smith Barney), Richard

Swift, (Salomon Smith Barney), Tom Barron, (Human Resources), and Gwen Ruff

(Columbus Water Works)





A special called meeting of the Board of Trustees for the Columbus Georgia

Employees? Pension Plan was held March 2, 2005 at 2:00 P.M. in the Mayor?s

Conference Room. This meeting was specifically held to discuss the actuarial

assumption rate of return and to decide what the rate should be set at to best

benefit the fund asset stability.



Mayor Poydasheff, Chairman called the meeting to order. The attendance was

taken and the meeting was officially opened for discussion.



Ms. Cole opened the discussion. She presented to the board a letter from the

actuaries indicating the impact on the pension fund if the assumption was

reduced to 7.0%. Basically it will cost the city 1.2 million more in

contributions, plus be increasing the cost on the major income disability and

the death plan.



Secondly, she presented an article from the pension magazine which described

the state of Georgia Plan?s current assumption of 7.0% and the teacher?s plan

at 7.25%. She stated that she felt this should be of interest to each of the

board members.

At the February meeting, Mr. Harris asked if Mr. Swift would poll the current

managers for their best estimate of what they thought the returns in their

specific areas would be for the next ten years. Mr. Swift presented a report

with the understanding that the information given by the manager?s is clearly a

?best guess? on their part going out ten years. The fixed managers came up

with an average fixed rate of 4.9%. The equity managers, all seven of them;

the combined six domestic managers and Lazard came up with an average equity

return of 8.7%. The asset allocation has consistently been about 55% equities

and 45% fixed income. 55% of 8.7% (average equity return) is 4.8% and 45% of

4.9% (average bond return) is 2.2%. If these two are added together, then the

asset allocation could expect to be about a 7.0% before expenses. The manager

fees would reduce this figure to approximately 6.6% and the transaction fees

would lower them approximately 10-13 basis points bringing the expected return

to 6.47% to 6.50%.



Going back over the last 60 years, the average equity return has been somewhere

in the area of 9.5% to 10.0%. Applying this 60-year, 10% average return to the

above formula, the average return, hypothetically, could be about 7.7%.

Pension Board Special Called Meeting

March 2, 2005

Page 3



Mr. Barron stated that at the last meeting the topic of the mix on the equity

side was discussed and that after the meeting Mercer, in a subsequent

conversation, agreed that we should probably have a better mix, in fact their

thinking is that we may be experiencing more volatility than if we did have a

broader market exposure.



Mr. Swift responded by stating that he agreed that the board definitely should

examine the possibility of trying to hire a small cap or a mid cap manager or

one that does both. The problem with doing it today is that for the last two

years that has been the hot spot. He thinks it?s something to look at and plan

for maybe six months or a year from now. The thing to remember is that when

the investment policy was drawn up in 1987 the pension plan was 100% bonds and

since then has been amended probably fifteen times. Since 1987 the plan has

gradually gone from 100% bonds to what it is today, approximately 55% equities

and 45% bonds.



Mr. Barron continued by saying that he certainly needed to learn more about the

pension plan and the inner operations of how the plan works. He said he had

several conversations with Mercer personnel to help him understand the

actuarial report and also did some in-dept research to assist him in preparing

a report, which he presented to the board. (Valuation Report Observations).



When looking at the assets and liabilities of the plan and comparing the 2005

and 2004 valuations it looks like the assets were growing fairly slowly at 3.4%

whereas all the liabilities were, for the most part, in double digits. Which

is a good indicator of why the plan is where it is today.



Next, looking at the future liabilities, this explains the number of employees

within five years of normal retirement and how that percentage has increased

since 2000; again these are in double digits.



The next section explains what is normal cost. ?Normal cost being the present

value of benefits that have accrued on behalf of members during the valuation

year?, which is just this year?s share of the cost. This is significantly

influenced by the asset growth. Normal cost has increased by 5.2 million

dollars per year or 395% since 2000. It will continue to increase, but the

rate of projection will slow to 369,000 or 5.6% annually over the next five

years, this is Mercer?s projection.



The un-funded liability is the excess of the liabilities over the value of the

plan assets, including normal costs (until paid), plus interest on both at the

current plan assumption rate of 7.5%. And the amortization is simply a

schedule for the payment of this liability over a number of years. The pension

plan?s amortization period is an average of several bases with different

requirements, currently about 11.5 years.



The next chart showed the un-funded liability, for the general government,

public safety and then the combined for evaluating 2003 and 2004, how much was

required to be paid against that un-funded liability in 2004. The reduction

percentage in the liability that was expected and the percent of actual

attainment of that reduction is not very good.



The next chart actually explains why that occurred. The amortization reduction

was less than expected due to granting the 1.5% retiree COLA. That was a 1.4

million dollar hit to the amortization. The amortization interest on that

un-funded liability was 4.3 million dollars in 2004. By reducing the earnings

assumption to 6.5% it would reduce the amortization interest as well, but it

would also increase the normal cost by 54 million, therefore gain on one side

but loss on the other. Observations were made at the last board meeting that

issuing bonds would be attractive due to the low interest rates. A one-time

contribution of 50 million dollars from a bond issue would eliminate the 6.2

million dollar amortization cost and offset the interest factor charged for

un-funded liabilities.



At this time, Ms. Cole said she would like to speak on the bond issue. She

said she had spoken with our bond person early this morning and he said that

there are a couple of different things that need to be considered; first of

all, these would be taxable, if the money was borrowed for what they call

pension obligation cost and that they are being done right on variable rates.

Which does not make them very attractive in this environment.





Mr. Harris stated that Mr. Barron had developed this information and had

presented it in a way that the board had never seen and made it very easily

understood.



Mayor Poydasheff stated that he wanted Mr. Barron and Ms. Cole get together

with Mr. Swift so that Mr. Barron could be better briefed on the functions of

the pension fund and the overall operations of the plan.



Mr. Barron is to be put on the list of attendees to the pension board meetings.



Mayor Poydasheff asked that all the members be thinking about possibly going

into a 401K plan for the city government.



At this point the discussion turned back to the possibility of reducing the

actuarial assumption rate. The discussion basically was at what rate to reduce

the actuarial assumption rate of return. Following several minutes of

discussion, Mr. Harris made the motion that the recommendation be to reduce the

actuarial assumption rate to 7.0%, the motion was seconded by Mr. Rothschild

and subsequently ratified by all the board members present at the meeting.



Mr. Harris stated that the council may decide to do something else but at least

the board has met their fiduciary duties by recommending what the board thinks

is best.



Ms. Cole said the recommendation would be incorporated into the budget process.



A motion to adjourn was made and seconded.



With no further business for discussion, the meeting was adjourned.



The next meeting is scheduled for April 13, 2005 at 2:00 p.m. in the Mayor?s

Conference Room. The guest speaker will be from Trusco.









_____________________________

Julia A. Rasch

Recording Secretary