MINUTES OF THE
BOARD OF TRUSTEES MEETING OF THE
COLUMBUS GEORGIA EMPLOYEES' PENSION PLAN
March 7, 2007
A meeting of the Board of Trustees for the Columbus Georgia Employees? Pension
Plan was held March 7, 2007 at 2:00 P.M. in the Mayor?s Conference Room.
PRESIDING: Mayor Jim Wetherington, Chairman
PRESENT: Isaiah Hugley, City Manager; Pamela J. Hodge, Finance Director,
Morton Harris Trustee; Omagene Holland, Trustee; Mary Strozier-Weaver, Trustee;
Col. R. George Plummer, Trustee; Chief Robert Futrell, Trustee; Richard Swift
and Henry Swift, (Smith Barney); Tom Barron, Human Resources Director; Reather
Hollowell, Human Resources; Denise Baxter, Revenue Division (Investment Officer)
ABSENT: Alan Rothschild, Trustee; Joe Smith, Vice-Chairman; Harvey
Milner, Trustee
GUESTS: James J. Donofrio, FSA and Ben Law, Project Manager (Buck
Consultants, Actuaries)
Mayor Jim Wetherington called the meeting to order. Ms. Julia Rasch, Recording
Secretary, recorded the attendance.
MINUTES OF THE PREVIOUS MEETING:
The minutes from the February 7, 2007 meeting was presented for approval. A
motion was made and seconded to accept the minutes as submitted. The vote was
unanimous.
INVESTMENT UPDATE: Interim Report (Mr. Richard Swift)
Mr. Swift began with the interim report covering the period since the last
pension meeting on 02/07/07. Beginning with the S&P 500, there was a
substantial drop in the market place, 1446 to 1395. Normally, this amount of
volatility is not seen in a month?s time but there were a lot of factors that
contributed to this, which was outlined in the memo sent out to each of you.
Just to mention a few, in China, the overseas markets were down about 8.5%.
Freddie Mac tightened their rates on some of their customers, which brought
about a fear that a real estate weakness may re-emerge. Plus the computer
glitch, when the capacity of activity became so large the computers could not
compensate and caused a huge drop in the market place in just a few seconds.
When that happened a lot of investors anticipated real panic selling and
trading more, causing more of a domino effect.
On the Ten Year Treasury Bond, the yield dropped from 4.80% to 4.52% during
this period of time and that indicates a stronger bond market. Officially when
the stock market is weaker, bonds generally do rally some, rates will drop and
bond prices will go up.
The fixed managers, Synovus, Tattersal and Madison went from $76,651 million to
$77,804 million, slightly up about 1.50%. Unfortunately that?s where the good
news ends because the equity managers had a really tough time during this
period because of the sell-off.
The growth managers, Santa Barbara, Rittenhouse and Trusco went from $35,860
million to $34,783 million, down -3.00% compared to their benchmark, the
Russell Growth at -3.52%, better than the benchmark although an absolute tough
period.
Deutsche Asset and Spears, in the value space, went from $44,500 million to
$42,804 million. Their combined value was down -3.81% vs. the Russell Value
-3.63%, which is more or less in line with the market place.
Knott and Madison, the Core Managers, their combined values went from $29,781
million to $28,847 million, down -3.14% vs. the S&P 500 at -3.59%.
Lazard also had a tough period of time. The overseas market was little bit
more volatile than the U.S. market place. They went from $16,748 million to
$15,802 million, down -5.65% and the ACWI was down 3.05%. This is surprising
from Lazard, generally in a down market they will hold up better than the
market place. Contact has been made with them, currently, about their
performance during the market sell-off.
All in all the combined fixed was up 1.50%, the combined equity was down -3.67%
and the total city account down -1.72% but holding to the $200,040 million mark.
Mr. Hugley stated that he was stuck on the previous report and the drop in the
performance of the managers. Mr. Swift explained that for the equity market to
fall 461 points in one day and then to fall again the next day and for this
portfolio to be down only -1.72% is absolutely fantastic.
There was a few minutes discussion between Mr. Henry Swift, Mr. Hugley, and
Mayor Wetherington about the sell-off in the market and how the fund sustained
itself.
Mr. Richard Swift reminded the board that the interim report is for only 30
days and that, truthfully it is too short a period of time to start judging
managers or the market place. This report is given each month so that the
board can see how the fund is performing compared to the index.
Next, Mr. Swift presented a report on the Fiscal Year End Returns Since 1993.
He stated that with the actuaries being here they felt it would be prudent to
keep perspective on what has happened in the market place. First, was a graph
showing a ten year history of the market place with the three indexes, the
Russell 2000, the small cap index, the Russell Mid-Cap Index which is the
mid-cap stock or medium size companies, the S&P 500 which is primarily the
large cap companies, the larger companies that are followed from an index
perspective. What the graph showed is that for the first five years the S&P
500, the large-cap stocks, showed the best performance in the market place. In
contrast, the last five years showed that the Russell mid-cap stocks held the
lead in performance with the Russell 2000, small-cap stocks also holding a
steady incline in performance and the S&P 500 showing a steady drop in
performance. Therefore, the mid-caps and small-caps over the past five years
have taken over the leadership in the market place. The point is that the last
five years have been pretty tough on large-cap stocks and this chart kind of
outlines what has been leading the market place and it?s been in an area that
the fund really has not participated in.
City of Columbus Annual Returns Gross of Fees ? This chart basically shows the
year since the restructuring in 1993 to 2006 and the June 30th returns for each
year. The first six years or so the returns were ahead of the actuarial
assumption but the last six years has been a tough market place. Not having
securities that are risky and speculative like mid-cap and small-cap that has
been leading the market place and it being a tough market for large-cap stock,
for the last five or six years the returns have missed the actuarial assumption
more times than beat it. But, the long-term picture, going all the way back to
1993, the average is 8.33%; the actuarial assumption is 7.0%. This is
pre-manager fee, it includes Smith Barney?s fee but does not include the
manager fee. The average manager?s fee is about 50 basis points and if that is
backed out the average is at 7.9%, well above the actuarial assumption.
Referring to a chart entitled TOTAL FUND, it was reiterated that over the past
few years the returns on a short-term basis have been tough but, looking at the
long-term picture, the returns have been well above what was needed to make the
plan work with the actuarial assumption.
The Sub-Committee Report-The investment sub-committee met with the focus of
discussing two things. First, was the replacement of the large-cap value
manager Deutsche Asset, formerly under the management of Tom Sassi. Mr.
Sassi, basically, was asked to retire by Deutsche and they have a new product
that they are moving their assets to called the Deutsche Relative Value
product. A manager search was done and was narrowed down to three candidates
to interview, one was TCW, another was CAMBIAR(sp) and after reviewing the
report from the replacing managers from Deutsche, looking at their numbers,
their history, their consistency, the committee felt like they were a good
candidate and as good as the other two that had been selected and therefore,
invited them to be interviewed as well. At the end of the three interviews with
TCW, CAMBIAR and the new DEUTSCHE, the sub-committee felt most comfortable with
the new Deutsche. There were several reasons for that, number one, their
numbers were excellent, number two, their numbers were very consistent, much
more than the other managers that they looked at and number three, they are
very different from the manager currently in the value space, Spears, Grisanti
& Brown. They?re much more driven by what?s in the index than Spears, Grisanti
who is very different from the index. The new Deutsche is very similar to the
index but they?ve been beating the index and their returns are in the top
quintile all across the board, so, very good, consistent numbers, a
quantitative model that?s computer driven and different from the current
manager, and different from what has been hired in the past and the committee
felt like it was a good opportunity.
Ms. Hodge commented that she felt Mr. Swift had explained it well; one of the
things the sub-committee looked at was their method and their presentation.
Also the figures that were provided for their returns over the last five years
were ahead of the other two candidates and that?s why the sub-committee
selected to continue with Deutsche. The motion was made, seconded and the vote
was ratified to accept the new Deutsche Asset Manager.
The second item discussed by the sub-committee is the asset allocation.
Referring another spreadsheet, he began to explain. At the current time, the
old Deutsche Asset Management has $26 million dollars, $9 million dollars will
be taken from them and the new Deutsche manager will start with $17 million
dollars. Of the $9 million dollars taken from Deutsche Asset, $1 million of
that will go to Spears, the other value manager. Two million will go to
Large-Cap Core, two million in international and four million into the fixed
income portfolio. The first column shows the current percentage held in each
asset class, large-cap value (21%), large-cap core (15%), and large-cap growth
(18%). The intention with this asset allocation shift is to balance these
asset classes as closely as possible; large-cap value (17%), large-cap core
(16%), and large-cap growth (18%). By this action there is no over-exposure in
any one particular asset class and their performance is more diversified. Also
with this move a one percent increase will be added to the international
position and the bonds will go from 62% to 60%, that?s why money is be added
money to the fixed income space. There were two objectives with moving the
monies around, one was to balance the asset allocation and the other was to
balance out the managers with the asset classes. Therefore, if they have a bad
quarter, they won?t hurt the plan and if they have a good quarter, they won?t
affect the plan quite as much. A motion was made and seconded to accept the
rebalancing of the asset plan and was ratified by the vote of the board.
PRESENTATION(S): Buck Consultants, Actuaries
Mr. Richard Swift introduced Mr. James J. Donofrio and Mr. Ben Law from Buck
Consultants (Actuaries). Buck Consultants were awarded the contract to replace
William M. Mercer as the actuary for the Pension Plan.
Mr. Donofrio stated that the valuations have been completed at this point in
time, they have delayed the completion of the detailed report documenting the
results pending a decision on a possible change in the way the pension
contributions are determined and formulated for the city?s consideration. This
report is at a very high level and it differs from the kind of report that the
preceding actuary had been providing, statistically oriented, so they have a
lot of backup material. He stated that if there were any specific questions,
they?ll try to answer them today or they will get back to the board with
answers to their questions. They would appreciate feedback as to whether this
type of report meets the boards? needs or whether they should focus on the more
statistically oriented results that their predecessor had. He stated that the
agenda is shown on page one, and that he will be going through the key results
and some of the supporting information. The focus of this presentation will be
on discussing the elements and financial status of the plan, which have a
bearing on determining the contribution amount. They are developing an
alternative contribution policy for the City?s consideration.
Overview
The plans are well-structured and appear to be in compliance with
--Georgia state funding standards, and
--GASB accounting standards
Benefit liabilities are being measured on a reasonable and appropriate
basis
The plans are 78% funded (financial statement basis)
There are certain adverse trends that will need to be addressed if
they persist
We have developed an alternative contribution policy for the City?s
consideration
Mr. Hugley asked the question ?what did they consider average?? Mr. Donofrio
explained that it varies a lot depending on how often the plan sponsor reduces
benefits and how successful is the investment program. Mr. Hugley wanted to
know when they would be coming back to the board with their report on the
alternative policy and the effects of reverting back to 2% vs. the current 1.5%
for new employees. Mr. Donofrio stated that their report would be completed as
soon as they receive the feedback from Human Resources and the Finance
Department.
Ms. Hodge explained that what they?ve been asked to do is, they have proposed
two different alternatives, one is the same contribution policy that the board
as followed to date and the other is an alternative policy that they have
provided and she thought the group needed to hear.
Key Results
Total Contribution
(See Page 3 in booklet for figures)
Financial Statement Funded Status
(See Page 3 in booklet for figures)
Covered Population as of July 1, 2006
This section describes the number, average age, service and earnings for both
General Government and Public Safety. The number of pensioners and
beneficiaries, and their average monthly benefit. The number of terminated
vested and disabled members and their average monthly benefit.
These results are based on the covered population, the employee group as of the
beginning of the fiscal year, July 1, 2006. They found very little change in
comparing last year?s population to this year?s population with one exception,
the average compensation increase by 6.1% for the general employees and 6.5%
for public safety. With the new pay plan that came into effect, which is
greater than 3.24%, this creates a great influence in the increase in
contributions.
Mr. Hugley, at this time, instructed Mr. Barron that when Mr. Donofrio and Mr.
Lawh come back to present their second report , he would like to coordinate it
so that the Pension Board would be briefed on their recommendations and then
follow up with a presentation to the members of Council.
Plan Assets
This gives a breakdown as of July 1, 2006 of the plan assets of $188.6
million and the allocation of stock, fixed income, cash and short-term
investments and receivables. It also shows the market value rate of return and
the assumed interest rate for the years from June 30, 2000 through June 30,
2006.
Funded Status
In this section is described the projected, accrued and financial
statement funded ratios for both general government and public safety employees
as of July 1, 2005 and July 1, 2006.
Contribution
Determined Under Current Policy
(See Page 7 in booklet for details)
Actuarial Assumptions
--Describes the economic and demographic assumptions and shows the average
retirement age for General Government and Public Safety Personnel
Reduction in Assumed Interest Rate
--Fund performance suggests that a reduction in the assumed interest rate may
be indicated (7.0% to 6.50%)
Policy Contribution ? Current Method
(See Page 10, 11 & 12 of booklet for details)
Policy Contribution ? Alternative Method
(See Page 13, 14, 15, 16 & 17 of booklet for details)
Following the dismissal of the representatives from Buck Consultants there were
a few minutes of discussion on whether to accept their recommendation for the
alternative plan or to keep the plan as it is. It was agreed to keep the plan
as it stands until further examination by the Mayor, City Manager, Finance
Director, Human Resources Director and Henry and Richard Swift of Smith Barney.
A meeting was held following the pension board meeting and it was agreed to
maintain the current method for the policy contributions.
A copy of the evaluation reports and the other information presented to the
board is retained in the Finance Director?s Office by the Board Secretary and
is available for review upon request.
OLD BUSINESS:
a. None
NEW BUSINESS:
None
With no further business for discussion, the meeting was adjourned.
The next regular meeting is scheduled for April 11, 2007 at 2:00 p.m. in the
Mayor?s Conference Room. The guest speaker(s) will be from Santa Barbara.
_______Julia A. Rasch ____
Julia A. Rasch
Recording Secretary
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