Committee Minutes

PENSION AND INSURANCE COMMITTEE
Wednesday, June 9, 2004
Council Chambers


The meeting was called to order at 1:30 p.m.

Committee Members Present: Richard Duquette (Mayor’s Designee), Curt Kreun,
Maureen Storstad.
Committee Members Absent: Vince Liddy
Staff Present: John Schmisek, RaeAnn Burger, Sherie Lundmark

Duquette announced that if anyone wishes to speak to any issue to please do so
before the vote is taken on that item by asking to be recognized by the chair,
coming to the front podium, and giving their name and address for the record.

Matter of Approval of Minutes from March 16, 2004 meeting.

Motion by Storstad, Second by Kreun to approve the minutes as submitted. Aye:
All. Motion carried.

Schmisek stated that the agenda would be altered, as the presenter for item
number 3 has not yet arrived, most probably due to weather related flight
problems.

Matter of Aeltus Presentation.

Al Haberern of Aeltus introduced Adrianne Potwora, who has recently joined him
in working with our account. Haberern gave a brief overview of Aeltus and
recent corporate changes they have seen as a result of their merger with ING.
He stated that the merger has led to an increased global presence with offices
in 29 countries and over 641 invesment professionals. He stated that the
merger has increased their investment capabilities in all areas.

Haberern explained to the Committee that they have added a new investment
category of Alternative and Structured Products. He stated that they now have
an individual that looks specifically at the investment allocation model and
makes recommendations for ways to improve performance and decrease risk.

In reviewing markets of the past year, Haberern stated that small cap markets
were king in 2003 and they expect this trend to continue into 2004. He further
stated that they believe that upcoming meetings of OPEC will lead to an
increase in production, which will lead to a decrease in gas prices that will
help to keep the market moving. He stated that they do expect that Greenspan
will raise the interest rates later this year, but the increase will be
moderate and not have a large impact on the market. In the international
market, he stated that they continue to remain optimistic with the Japanese
market and they still have concerns with the European market and its
instability. He directed the committee to page 29 of the presentation, which
details the matrix used to determine sector weights.

Haberern stated that overall the portfolio has increased by $2.5 million in
2003, which is a 34% increase.

He discussed with the committee the allocation options that are available.
Last year the committee added the SMID cap fund to its allocation by splitting
the mid cap allocation. He stated that he would recommend that the SMID cap be
split this year into SMID cap and Small Cap. He stated this should not
increase the risk to the fund, but would further diversify our holdings.

Matter of PMG Presentation.

Kris Andersen, PMG, was present to discuss the firm’s performance over the last
year. Andersen gave a brief overview of the corporate restructuring that
continues at PMG. She noted the most recent change took place in 2003 with the
acquisition of the Threadneedle firm, a strong investment performer,
particularly in the international market. She further informed the committee
that Threadneedle is ranked as one of the best asset management organizations
in Europe and the second largest retail investment fund manager in the U.K.
She stated that with the restructuring, some of the direct fund management
duties have been shifted out of the Minneapolis office to other branches where
professional talent for that sector is located, with Growth now headquartered
in San Diego and International now in London.

She highlighted for the committee how their policy of sector diversification is
implemented and showed examples to the committee of weightings in our
portfolio. She stated that while some sectors had underperformed the benchmark
in 2003, the first quarter of 2004 has seen a gradual increase in performance.
They remain cautiously optimistic on the remainder of 2004, with an eye on
Small Cap technology and energy sectors for highest growth in the remainder of
2004. In the large cap arena, they have underweighted in financials and
overweighted in technology and industrials, as they feel those will be the
areas of highest growth.

Andersen stated that overall plan returns for 2003 were 16.40%, with a since
inception annualized return of 6.6%

Matter of Actuarial Valuation Report.

Eric Roling and Rebecca Galioto of Deloitte & Touche addressed the committee to
give the annual actuarial valuation report. Roling briefly reviewed with the
committee the process that they use to determine the total recommended
contribution. He stated that the plan continues to see a decrease in total
plan and active plan participants, which is expected, as in 1996 the City
established the DC Plan for all new employees of the City. He reviewed with
the Committee the assumptions that are being used in the actuarial process. In
particular he highlighted the expense load, which is up from $240,000 last year
to $360,000 this year. He stated that this factor is directly tied to actual
expenses of the plan, which are up due to the increased value of the plan
assets.

Roling stated that the current actuarial value of the assets is $37.60 million
and the funding ratio is 75.7%. He reminded the Committee that they had
adopted a smoothing method, which evens out gains and losses that the plan may
see over a five year period, thus minimizing the effect on the plan that one
substantially bad or good year may have on the report. He stated that as the
committee looks at the report and sees that the funding % has decreased,
despite the good returns of 2003, that this is due to the continued recognition
of portions of the losses from the last couple of years, coupled with only
partial recognition of the gain from this year.

Roling commented that on page 9 of the presentation the committee can see that
the 13-year amortization of unfunded liability leads to an amortization amount
payable of $1,427,304. Schmisek stated that the Committee had at the end of
2003 adopted a change to a 30-year amortization and inquired what that would
show. Roling stated that he should have calculated using 30, not 13 year and
informed the committee that the effect would be a $400,000 decrease in the
amortization amount payable. Roling stated that he would make the correction
on the report and the presentation handouts and forward them to the committee
as soon as possible.

Roling stated that based on the revised calculation, the total recommended
contribution is $1.9 million or approximately 17% of considered payroll.

Roling then stated that he would like the Committee to begin considering a
change in the mortality table that is used in the assumptions. He stated that
in private plans, most are moving to the RP-2000 Combined Healthy Mortality
Tables for Males and Females. This is the most up-to-date mortality tables in
wide circulation and incorporates experience from surveys of actual pension
plans, whereas the 1983 GAM which we currently use, drew its experience from
insurance companies data. The newer table shows an increased life for both
males and females over the 1983 table, and as such a change to the newer table
would increase the amount of the liability that the plan reports. He stated
that there are still many plans using the 1983 GAM, but believes that within
the next couple of years the City should strongly consider making a change to
the newer table.


Other.

Schmisek stated that the Committee today received a handout which details an
option that the State of ND has in its pension plan. He stated that the option
allows an employee, at retirement, to use any sick leave pay out that they have
coming to purchase additional years or portions of years of service. He stated
that this information was being provided to the Committee at the request of an
employee, who would like the Committee to consider discussing this at a future
meeting, and possibly adding it to our plan.

Duquette thanked everyone for their contributions and attendance at today’s
meeting.

Motion to adjourn by Storstad, second by Kreun.

Respectfully submitted,



John M. Schmisek, CPA
Director of Finance and Administrative Services