City of Grand Forks, North Dakota

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	PENSION AND INSURANCE COMMITTEE MINUTES December 10, 2008 - - 3:00 p.m. - - A101 Present: Richard Duquette, Doug Christensen, Mike Flannery, Mike McNamara, Maureen Storstad. Absent: None. Duquette called the meeting to order at 5:00 p.m. Matter of Asset Allocation for Defined Benefit Pension Plan. John Schmisek, Director of Finance, distributed a packet of information that the committee had requested at the last meeting. Included in the packet were Exhibit A Scenario 4 Candidate Portfolios from the recently completed Asset Liability Study, Exhibit B Alerus Financial Proposed Enhanced Index Fund Portfolio, Exhibit C email from ND State Investment Board, Exhibit D email from State Investment Board including sample contract documents, Exhibit E-1 email from State Investment Board, Exhibit E-2 email from State Investment Office, Exhibit F State Investment Board Fee estimate, Exhibit G Notes regarding process for implementing a change to the State Investment Board. Schmisek noted that the fees associated with Alerus Financial’s portfolio would be 30 basis points, while the State’s fees would be around 64 basis points. The group discussed the historical rates of return achieved for each of the portfolios and noted that the state does manage the assets of the plans for the City of Bismarck, City of Fargo and NDPERS plan and they have a allocation similar to what the City is looking at adopting and performance has been excellent even over the last several years when our returns from the managers have been much less. It was noted that the portfolios from Alerus Financial did have a positive return over the year return period, it was significantly less than the returns that the state had achieved. Schmisek stated that if the state performed 3/10% better than Alerus they have made up the difference in the higher fee that they charged and seems to be that is more than achievable based on their historic returns. Schmisek reviewed the process for a transition to the State if the City would decide to make that decision. He explained that besides being approved by our Council, the matter also must be approved by the State Industrial Commission which oversees the State Investment Board, but anticipate that approval. The State Industrial Commission would hear the item at its January agenda. The group discussed each proposal and the performance information provided and the need to decide on an allocation that the committee was comfortable should meet the assumption that we are setting over the long-term. Based on uncertain market conditions and the desire to not want to have to keep revising the rate of return assumption, the group discussed making an amendment to it at this time to go lower than the previously discussed 7.75% to perhaps 7.25% or maybe even 7%. The committee discussed that this will increase the unfunded liability, but since the actuary will know the rationale for the change, will not be an issue for them. Schmisek stated that the decrease could increase the annual recommended contribution between $150,000 to $300,000 for 2010, of which 65% would be allocated to the General Fund and the rest spread to the other funds of the City. The group discussed that the hope had been to see lower fees from the State, but that they are exhibiting performance that is desirable and still are about half what we have been paying in the past. The group discussed that they are very comfortable with the performance of the state and in information obtained earlier from other cities that utilize the State they have all been very happy with the level of service that they have received. Motion by Christensen, Second by Storstad, to recommend that the City contract with the ND State Investment Board for management of the Defined Benefit Pension Plan assets and to authorize staff, in consultation with the Pension Committee, to proceed with contract negotiation. The group discussed that the anticipated fees will be approximately 64 basis points, with actual fee dependent on the actual portfolio finalized in the contract. That the 64 basis points would result in fees of approximately $214,000 per year, which is a savings of approximately $216,000 from our current fee expenses. This savings will offset partially the increased contribution requirements resulting from the decrease in the rate of return assumption. Schmisek stated that a potential source for funding the increased contribution required from the General Fund to the Loan & Stabilization Fund and that the other funds should be able to absorb the increase attributed to them within their budgets. He noted that the largest increase would come in 2010, as the change will be effective January 1, 2009. Upon call for the question, Aye: All. Motion Carried. The group discussed the Asset Allocation portfolios and perhaps whether there is a comfort level to go slightly more equities given the track record of the state, perhaps 65:35 or 70:30 in order to take advantage of being able to buy in low and make some gains as the market begins to come back. Schmisek pointed out that if the group went with the 70:30 portfolio from the study, net of fees return would expect just under the 7.5% rate of return for the longterm, but given past history seems more likely that the return would come in closer to 9% in the long term. The group discussed that the amount needed to fund the unfunded liability will either need to be made up in market gains or paid in by the City and need to be cautious that are not too conservative or too aggressive when setting the portfolio. The Committee requested that Schmisek get information from the State as to the portfolios used by the NDPERS plan, City of Fargo and City of Bismarck for comparison. The group discussed the rate of return assumption and that perhaps would be better to be more cautious and lower to 7.25%. This would be more conservative than the previously recommended level of 7.75% and will increase the unfunded liability and as a result the recommended contribution for the plan, but that seems to be a better fit. Motion by McNamara, Second by Flannery, to amend the rate of return assumption to 7.25% in the Defined Benefit Plan. Aye: All. Motion Carried. Schmisek stated that Finance will contact the State to let them know of the recommendation and make sure the appropriate staff reports are updated and ready for the Council Meeting on December 15. He stated that they will also send correspondence to the State and to Alerus Financial informing them of the action of Council following the December 15 meeting. In addition, Finance will forward to the Pension Committee the portfolio asset allocations for other funds managed by the State as soon as they are available. Meeting adjourned at 5:50 p.m. Respectfully submitted, John M. Schmisek, CPA Director of Finance and Administrative Services SLL