Committee Minutes
PENSION AND INSURANCE COMMITTEE
May 15, 2006 – 2:30 p.m.
A101
The meeting was called to order at 2:30 p.m. by Mayor Brown.
Committee Members Present:
Mayor Brown, Mike Flannery, Maureen Storstad.
Committee Members Absent:
Gerald Hamerlik, Curt Kreun.
Matter of Approval of Minutes from March 20, 2006 Meeting.
Motin by Storstad, Second by Flannery to approve the minutes as presented. Aye: All. Nay: None. Motion Carried.
Matter of Update on Early Retirement Proposal/Request from Mastor Police Officer Don Beck.
Hovland reported that following the last meeting Human Resources had sent a letter to MPO Beck requesting the information that was discussed at the last Pension Committee meeting. He stated that they had no response to the correspondence until this afternoon when they received an e-mail from MPO Beck withdrawing his request.
Matter of Introductory Presentation from Voyageur Asset Management.
Mark Hall introduced Jim Roberts, Managing Director and Craig Zuelke, Vice President, Portfolio Manager, of Voyageur Asset Management. Roberts began the presentation by giving a brief overview of the corporate structure and history of Voyageur Asset Management including full contact information for the representatives that will be handling our account. He encouraged staff and committee members to call with any questions of concerns throughout the year. Roberts reviewed the investment policy statement of the City and reported that the holdings of Voyageur are in compliance with the policy.
Zuelke reviewed the portfolio and performance through April 30, 2006 with the group. He stated that since inception, which occurred in February 2006, the asset performance gross of fees is 0.29% and the benchmark of the S&P performed at 2.88% for the same period. He noted that this is due to the fact that our portfolio is more growth oriented and the market is still in the process of swinging to where growth will outperform value. He continued that most had expected this swing to have already taken place, but that we are in an excellent position for when the market change occurs. Zuelke added that they focus on carrying high quality investments in our portfolio which will be good long-range performers, even though in the short-term the performance has not been where they would like it to be, and that currently lower quality stocks have been showing better short-term performance. Zuelke provided more market related information to show the rationale for the selection of the holdings in our portfolio. He continued that for their public sector clients they tend to try and keep a broad base in the investment selection and are on the conservative side. He added that their portfolios usually capture about 9/10 of the up market performance of the benchmark, while only absorbing 6/10 of the loss of a down market.
Schmisek commented that we will be continuing to monitor the performance, as one of the reasons for selecting a new manager for these assets was the lack of performance with the other firm and that we would hope to see the performance improve prior to year-end.
Hall inquired whether the transition of the assets had any effect on the performance. Zuelke responded that they did not believe so, that they believe the lagging performance is due to the structure of the portfolio and that it will turn around over time as the market swings.
Matter of Change in Contribution Distribution Between Investment Managers.
Schmisek stated that the current split has been 50/50 between Aeltus and Riversource and that as discussed at the previous meeting, benefit payments are made from the Aeltus portion, thus leading them to actually be managing less than 50% of the assets, irrespective of performance. He continued that the committee had discussed making a change to have all the contributions go to Alerus, who would then review the current breakdown between the managers and distribute the contributions as appropriate to keep them ratio at a more constant level between the managers.
Hall provided a handout showing the distribution as of 03/31/06 and noted that overall the holdings are within the investment policy guidelines for allocation. He continued that Alerus would be able and willing to receive the contributions and then distribute them to the managers after reviewing the monthly statements from the managers so as to avoid the skew that has taken place in the past which led to more of the assets being held by the poorer performing manager.
Schmisek stated that the goal has always been to allocate the contributions equitably between the managers and that if the Committee wishes to make the change and have Alerus begin doing this for us it would only require committee action.
Motion by Storstad, Second by Flannery to have all contributions directed to Alerus Financial, who will then distribute them to the asset managers following a review of the monthly statements, so as to keep the contribution distribution equitable and within investment policy guidelines. Aye: All. Nay: None. Motion Carried.
Schmisek inquired whether or not Swami will be reviewing the performance of Voyageur and monitoring it. Hall responded that he would and would also provide a report to the Committee once he has reviewed it.
Other.
Hall reported that he has worked with RaeAnn Burger, Human Resources, to set some meetings up for Defined Contribution Plan participants to have an opportunity to come in and ask questions about their account. He stated that these meetings will take place over the course of the next week and will be at a variety of City buildings to make it easy for the participants to attend. He continued that he will also address the SEC manadated changes in trading ability between portfolio holdings as well as go over the changes made on the web site and the new features that are available to participants through the website.
Schmisek reported that there will be a revised actuarial report coming from Deloitte & Touche, as we had discovered an error in the one that was previously distributed. He stated that the report presented earlier had been calculated using 2.3% multiplier for age 62 participants and that the correct multiplier for those participants is 2.0%. He added that this will affect the plan in a positive way, as it should lessen the unfunded liability by a couple of million dollars and our employer contribution will also decrease by a couple of hundred thousand dollars.
Motion to adjourn by Storstad, Second by Flannery.
Respectfully submitted,
John M. Schmisek, CPA
Director of Finance and Administrative Services
SLL