Committee Minutes

PENSION AND INSURANCE COMMITTEE
Wednesday, June 30, 2004
Council Chambers


The meeting was called to order at 12:00 p.m.

Committee Members Present: Richard Duquette (Mayor’s Designee), Vince Liddy,
Maureen Storstad.
Committee Members Absent: Curt Kreun.
Staff Present: John Schmisek, RaeAnn Burger, Dawn Wilkie, 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 9, 2004 meeting.

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

Matter of Alerus Presentation.

Mark Hall, Alerus Financial, appeared as trustee for the plan, to discuss the
management performance reports that were given at the last meeting. He
informed the committee that Shari Hensrud-Ellingson who has been working with
him in providing analysis on the City plan, has resigned from Alerus Financial
to return to a teaching position. He stated that at present Alerus is
conducting a search for a replacement with interviews scheduled within the next
couple of weeks. He stated that due to the personnel change, some of the
analysis on the management performance is still in progress, and he will bring
back to the committee a full report at the next meeting.

Hall stated that one area that will be addressed is the continued
underperformance of PMG. Hall stated that he was not able to attend the
meeting on the 9th, but he reviewed the information forwarded to him by
Hensrud-Ellingson, and it is apparent that PMG is still performing at a lower
level than Aeltus. The committee discussed that over the last several years
they have had concerns with the performance and, following the 2003
presentations, had decided to give PMG one final year to bring their
performance around before making a decision on a management change. The
committee discussed that the contributions to the plan go 50% to each manager,
but Aeltus ends up managing a lower amount, as the payouts to retirees come
from their portion.

The committee inquired whether the market was at a point where the plan would
not be adversely affected by a management shift. Hall stated that as long as
there wasn’t a large lag between the sell and buy dates, there should not be a
large effect on the plan. Hall stated that Alerus would be available to work
with the Committee in all phases of the shift, from building the RFP, through
evaluation and interview of the respondents, to final implementation
assistance. The committee inquired whether Alerus would be able to serve in
that capacity if they were a respondent. Hall stated that in that case they
would have to remove themselves from the evaluator role, but at this time, it
was his feel that Alerus may choose to remain in their current role as advisor,
rather than seek a role as a manager.

He stated that in moving away from PMG there are several routes that the City
could choose to go and he will include in his presentation at the next meeting
information on all of these paths. A brief overview of some of the options
that he will be bringing info to the committee on are:

1) Picking several companies, one in each of the sectors that we wish to invest
in. He stated that this could have advantages as each will have an expertise
in their area, but will lead to more record keeping and reporting as you will
have several coming to you instead of just the one.
2) Allowing Aeltus to handle all of the funds.
3) Using a mutual fund approach rather than an active manager.

Hall stated that more information on these and other options will be provided
to the committee. Liddy inquired as to whether the committee had talked about
having some of the funds go to the State of ND Plan. Schmisek stated that the
committee had talked about allowing the state to manage some of the funds, but
no investigation into that option was done at that time.

Hall stated that he would also bring a proposed timeline forward to the
committee showing how an RFP process would proceed.

In regards to the item brought up by Aeltus about making a split in the SMID
cap allocation to be half SMID cap and half Small Cap, he stated that upon
initial review, Alerus would not see any problems with the change. He stated
that his investment department is looking at it in depth and he will provide
further information at the next meeting.

The committee discussed the timing for the next meeting. The meeting date was
set for Tuesday, August 10, 2004 at 12:00 p.m. in room A101 at City Hall.

Other.

Liddy stated that at some point in time he would like to see the committee
discuss the possibility of returning to the 5 year final average salary, rather
than the 7 that we currently have. The committee discussed that the change to
7 years final average salary due to the funding status of the plan. Schmisek
stated that we are currently 85% funded, making a change back to the 5 year
would bring us down to about 70% funded. With the market now making a
comeback, and the implementation of the smoothing method, he recommended that
the committee may want to give the plan a couple of years prior to making any
changes that would increase liabilities.

Liddy inquired how the Defined Contribution Plan was going, now that the
transfer to Alerus has been in place for a few months. Hall stated that all
appears to be running smoothly, participants seem to be accessing their
accounts on-line, quarterly statements have been sent out through the mail to
participants homes, some questions have come in and been handled. Wilkie asked
Hall to explain to the committee that rebalancing feature. Hall explained that
when a participant signs up they choose an allocation mix for their funds, they
then can elect to have the system keep this allocation in balance for them.
For instance, if a participant elects a 50-50 allocation, over time it may
actually grow to be 60-40 or 40-60 due to market conditions. If they elect the
rebalancing option, then the computer will automatically review the account and
make any changes necessary to keep the allocation at a 50-50 level.

Burger inquired as to when the employer contribution would be made into the
Defined Benefit Plan. Schmisek stated that it is in progress now.

Burger stated that she had a call from an employee regarding his pension. He
had been a Police Department employee prior to 1970, and as such had an age 55
retirement. He transferred to the Fire Department, and his retirement age was
changed to 62, as at that time the retirement age was determined on a
departmental basis, with the Fire Department being at age 62. He now has a
question as to whether his change from age 55 to age 62 was appropriate. He
did not elect the buy back option when it was offered in 1992. She stated that
there may be two other employees who would also be effected by this situation.
Schmisek stated that it appears that we followed the plan as it was written at
that time, but we will refer the matter for an opinion from Dorsey & Whitney,
pension counsel.

Meeting adjourned at 1:04 p.m.

Respectfully submitted,


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

SLL