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PENSION AND INSURANCE COMMITTEE MINUTES
Tuesday, June 24, 2003
Council Chambers

The meeting was called to order at 3:00 p.m.

Committee Members Present: Richard Duquette (Mayor’s Designee), Gerald
Hamerlik, Vince Liddy, Maureen Storstad.
Committee Members Absent: Eliot Glassheim
Staff Members: John Schmisek, Charlie Bunce

Hamerlik 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 June 4, 2003 Meeting.

Motion by Duquette, Second by Liddy to approve the minutes as distributed.
Aye: All. Motion Carried.

Matter of Presentation by Retirement Working Group.

Hamerlik stated that a group of employees have been meeting to explore options
that could be made available to City employees that are at or above their
elected retirement age and continue to work, so that they are able to retire.
Bunce stated that the group discussion began after approval of Senate Bill
1776, which allowed for the employees of public entities to remain in the
NDPERS insurance program after retirement.

Gary Goetz, member of the Retirement Working Group, presented for the committee
the results of a survey that was conducted of all employees and the number one
concern was being able to afford health care coverage after retirement. After
discussion within the group, a list of suggested options was developed by the
group. They are:

1. Before an employee reaches retirement age (55, 62, or 65) an offer is made
to retire with a time line to decide. If the employee chose not to retire, the
offer is void.
2. Pay an employees health plan at a rate of one years health insurance for
each 5 years of service.
3. Pay $4.85 for each year of service. (This is currently done by the State.)
(ex. 30 years of service = $145.50 credit toward insurance premium.)
4. Pay 100% of unused sick leave as an incentive to retire early.
Guidelines to follow:
5. City would propose an offer and the employees would need to apply.
6. A savings to the City would need to be shown to implement the program.

Lt. Bob Johnson, member of the Retirement Working Group, presented for the
committee a power point presentation that detailed another option that would be
little or no cost for the City to offer to employees. He stated that the
concern has been that employees do not retire as early as they would like due
to the cost of post-employment health care. In an effort to assist employees
in this area, Johnson stated that they contacted Nationwide Retirement
Solutions, which currently administers our deferred comp program and our
existing Post Employment Universal Plan, to see if they had any other options
to deal with the cost of health care. Nationwide gave them a list of
communities in our area that offer some type of program for placing the cash
equivalent of either sick or vacation leave into an account that can be used
for payment of insurance premiums. The account requires 100% participation
from the employees. After visiting with all of the communities on the list,
Johnson developed a proposal that was presented to the Employee Reps last
Wednesday.

The proposal is that at retirement the following would be placed into an
account to be used to pay insurance premiums:

1. Cash Value of employee’s unused vacation leave, at retirement will be placed
in the PEHP.
2. When an employee’s balance of sick leave reaches :
400 hours balance: 1 hour per month goes into the PEHP
800 hours balance: 2 hours per month goes into the PEHP
1200 hours balance: 3 hours per month goes into the PEHP
3. Upon retirement, one third of sick leave payback’s cash value will be placed
in the PEHP.

Duquette inquired whether there is mandatory participation in the program.
Johnson stated that Nationwide requires that there be a set policy that is for
all employees. He has a call into an IRS officer for a final determination.
Bunce stated that it could be mandatory on sick leave, but not on everything.
Schmisek stated that research should be done about what saving there would be
to the City by adopting this plan, there is currently a sick leave payback
policy available for employees at 960 banked hours, and it appears that the
hours that would go into the plan under section 2 would be 100% hours, not the
50% that the employee receives in a cash payback.

Hamerlik stated that this plan will be given to the Committee of the Whole
tomorrow afternoon.

Carol Diamond Gierszewski, president of the employee reps group, addressed the
group and stated that this proposal has been heard by the employee reps last
Wednesday and they voted to support the plan with one change, under item 2 they
would like to see an increase of the 1, 2, and 3 hours to 2, 4, and 6 hours
respectively. Schmisek inquired whether the vote was of all employees or just
the members of the employee reps group. Diamond stated that it was a vote of
the employee reps group, there has not been a vote of all employees on this
proposal.

Hamerlik stated that this is only a preliminary plan for discussion purposes
and expressed thanks to the members of the Retirement Working Group Committee,
Gary Goetz, Bob Johnson, Dwight Wurzbacher, RaeAnn Burger, Kay Patron, Vince
Liddy, Charlie Bunce, Carol Diamond Gierszewski , and Jerry Moran.

Duquette made motion, second by Liddy to receive and file. Aye: All. Motion
carried.

Matter of Request from Employees for Calculations on Cost of Years of Service.

Schmisek called on Eric Rolling of Deloitte & Touche was here to discuss the
calculations with the Committee. Rolling distributed to the Committee copies
of the calculations that he had done for the cost of years of service prior to
the classified hire date for the ten employees in the group. He noted for the
committee that there were two employees that still have not met the eligibility
requirement of being full-time and work less than 1025 hours and therefore no
calculations were done for those employees. In addition, the calculations for
the remaining employees were only done for those years that they met the
eligibility for the plan, without considering the classified status. He stated
that calculations were done based on age 55 retirement as that was the election
of these participants. The employee required contribution would be
$112,850.29, with the increase in accrued liability at $479,087 and the
increase in normal cost at $4,447. Hamerlik inquired how long these figures
were good for. Rolling stated that these calculations were for a lump sum
payment in at this time and if a phased in contribution was desired, he could
make further calculations that would include an interest amount.

Schmisek added that in the past participants were required to make substantial
payments into the plan to secure a buyback for age 62 or 55 retirement and
these employees did not have to make such buy back when they were able to
select the age 55 retirement. He stated that when the original buy back was
done the participants had to pay not only their share, but also the employer
increased cost, and most had to make substantial payments. They were allowed
to spread part of the cost out over a five year time, with interest calculated
each pay period.

Schmisek also directed attention to a copy of an e-mail that was in the
committee member information packets. He stated that on November 19, 2001
Council Meeting the Council had discussed the matter of benefits for these
positions at the time that they went from temporary positions to classified
positions and at that time had explicitly stated that the pension benefit would
not begin until the classified date. This was a part of the ordinance that
classified the positions.

The committee discussed the calculations and the amounts that participants
would be required to contribute if the same policy were used that had been used
in the past.

Hamerlik inquired whether there were any employees in the group that had been
previously classified. Bunce stated that all positions were temporary
positions and became classified by the ordinance in 2001. RaeAnn Burger,
Compensation and Benefits Specialist, stated that there is one employee in the
group that had been in a classified position, resigned and left the City for a
number of years, then returned in a temporary position for a number of years
that was one of the newly classified positions. She stated that at the time
that the employee was classified years ago, the employee had participated in
the Defined Benefit Plan, but upon resignation, had withdrawn her money from
the plan.

Gierszewski addressed the committee and stated that as president of the
employee reps group she would like to see the committee support the employees
in their request and further that the City would pay the money into the plan on
the employees behalf, since it was through no fault of their own that they were
not able to participate earlier in the plan. Schmisek stated that according to
the plan document and the ordinances in place, the employees are not entitled
to participate until classified, so they have been placed in the plan at the
appropriate place and that to give them the credit they are asking for will
require a plan amendment. Duquette clarified that they were only entitled to
be in the Defined Benefit Plan due to the fact that they had at least one year
of service prior to January 1, 1996.

Liddy stated that at least some if not all of the individuals have been long
time employees of the City and have never been offered pension, despite being
granted other benefits in the past and wondered who made that decision.
Schmisek stated that the decision was made by the plan document which is
adopted by this committee and the City Council and has been reinforced that
this plan is only for Classified employees in 1995 and again in 2001 when the
positions were classified. Terry-Lynne Lastovich, Dorsey & Whitney, stated
that the plan document was drafted based on ordinances and prior plan documents
and it was clearly the City’s intent to only cover the classified personnel.

Bunce stated that these employees, by virtue of their position, have not
qualified to be in any plan. He further stated that the history of the buyback
procedure given by Schmisek is accurate and that some of those employees also
paid in $25,000-50,000 to secure the earlier retirement age, while these
employees did not have to do that when they entered the plan.

Liddy inquired whether the department heads that participate in the plan are
all classified. Schmisek stated that some of them have recently been made
contracted positions, but in the decision that established their contract City
Council stated that they were members of the Defined Benefit Plan and that they
should remain in the plan even after becoming contracted, and that part of the
current plan amendment makes a change in the plan to grant this.

Duquette stated that perhaps the committee should take this information and
review it, then plan for more discussion. Bunce stated that perhaps staff
should work on some options for how to handle the pay-in. Schmisek stated that
any work should include an interest amount and perhaps be based on the same
formula that was used for the prior buyback over the five year time.

Duquette motioned, Storstad seconded to receive and file. Aye: All. Motion
carried.
Matter of Increase in Contribution Percentage for Defined Contribution Plan.

Ed Grossbauer, Fire Department, stated that he had received no new information
on this item since the last meeting. Schmisek stated that as previously
discussed, the cost of a 1% increase, based on current salaries for
participants in the plan, is $52,000. He added that if this were going to be
considered, it should also be a part of the budget process.

Grossbauer stated that as previously discussed, the 4% contribution levels were
set as a temporary starting point with the intent to revisit them and increase
them as the plan grew. He added that the City has consistently contributed a
larger percent to the Defined Benefit Plan and also pays all fees in that plan
and bears all the risk, versus the Defined Contribution Plan where the
participant pays all fees and bears all risk.

Rolling stated that he is working on a model for comparative calculations and
should have it available for the next meeting.

Matter of Amendment to Defined Benefit Plan.
Matter of Amendment to the Defined Contribution Plan.

Terry-Lynne Lastovich of Doresey & Whiteny, LLP, was present to answer any
questions on the draft amendments. She stated that she met earlier today with
staff and had a couple of more wording changes that would be made, but the
content of the document will not be changed. She noted that there was one
change made to the amendment that was not discussed at the last committee
meeting, and that was in regards to Grand Forks Public Library employees that
participate in the plan. She stated that in April of 1988 the City had
approved allowing the Library employees to enter our DB Plan. In order to
allow this, the Library needs to be added as an employer under this plan.

She stated that in the Defined Contribution Plan, the same language has been
added for the Library to be an additional employer, as well as language that
names the MPO as an employer. She stated that the City had approved the
participation of the MPO employees in 1996, but had not made the change in the
plan document. She stated that other changes to this amendment were as
discussed at the last meeting.

Following discussion, the committee decided to hold action on this item until
such time as a decision is made on the previous items discussed, since then one
amendment could be made to the plan encompassing all items.

Matter of Alerus Financial Presentation.

Mark Hall and Shari Hensrud-Ellingson of Alerus Financial, trustee of the
Defined Benefit Plan, were present to discuss with the Committee the
performance of asset managers in the DB Plan. Hall stated that as trustee one
of their responsibilities is to evaluate the performance of the managers for
plan assets. He stated that markets are continuing to improve, with assets
increasing about 9% since the end of the 1st quarter.

Hensrud-Ellingson stated that in evaluating the managers they look at a number
of factors. These factors are: how the funds are performing in comparison to
the benchmark, how the fund is performing through market cycles, how the fund
is performing relative to its peers, and is the fund maintaining a constant
style.

Hensrud-Ellingson stated that first to review PMG, their initial review after
year end had been negative, however as Kris Anderson explained to the committee
at its last meeting, they have changed their style and since year end the
change has seemed to be positive. She stated that the report in front of the
committee can only compare the prior years, and due to the change in style, is
not a valid indicator of what may happen in the future. She stated that in the
past there have been concerns with this manager and whether they are adding
value. The committee inquired how long should be allowed to see if the change
that was made in management and style would have a long term positive effect.
Hensrud-Ellingson stated that usually you need at least a year if not a couple
of years to get a true sense of the effectiveness of the manager and it would
be the City’s decision if they wanted to give PMG an opportunity to show that
they have sufficiently adjusted their style.

She stated that the other area that they are working on a review in is fees.
They have not received all of the fee information from PMG at this point, but
hope to have this review done for the next committee meeting.

In reviewing Aeltus, she stated that they continue to be a stable manager as
has been evident in past reviews. She stated that the committee needed to keep
in mind that the Aeltus returns that are evaluated are all pre-fee returns, so
post fee would be slightly less. She stated that the fees for Aeltus average
75 basis points.

She stated that if the Committee has some continued concerns with PMG, they
could consider changing the allocation of assets between PMG to move more funds
to Aeltus.

Schmisek inquired whether the 75 basis points was a market price for the size
of funds that we have with Aeltus. Hensrud-Ellingson stated that it is
somewhat high and that you could find some vendors with 30 or 40 basis points
for managing a similar size portfolio. Rolling stated that in the valuation
report this year they had increased the fee assumption this year substantially
to better reflect the higher fees that we have had. Both expressed that the
City may be able to negotiate a lesser fee, at least to 50 basis points,
especially if the manager is aware that the alternative may be the loss of the
account. Schmisek stated that he would contact Al Haberern to discuss the
fees.

Liddy inquired if the change seen in PMG since the end of the year when their
internal changes were completed enough to reconsider replacing them as a
manager. Hensrud-Ellingson stated that at least one to two years of
performance is needed to really evaluate how the manager is performing in the
market. Schmisek stated that the committee may want to consider reallocating
the assets and then delaying any action on a manager search to allow time for
PMG to demonstrate their abilities.

Matter of Aeltus CORE Account.

Hensrud-Ellingson stated that the proposed additional fund is not an index
fund, it is a hybrid of the growth and value funds. She stated that it appears
to be a stable fund, and while it would not bring significant growth to the
plan assets, the hybrid nature would reduce volatility in the investment
portfolio. She stated that there would be no detriment to the asset allocation
from including it. The committee will discuss this matter further at its next
meeting.

Other Items.

Matter of Change in Amortize of Unfunded Liability.

Rolling stated that he had prepared for the committee a comparison between the
current policy of spreading the unfunded liability over 14 years and changing
to a 30 year amortization of the unfunded. He stated that the annual
recommended contribution would decrease by 14% if the change to 30 years was
made. He stated that the committee had before it a graphical comparison
between the two that was based on our current plan assumptions including 8.25%
returns in each future year. He stated that he also showed both timelines with
a declining time period and without.

Schmisek asked him what is a normal time to amortize unfunded liability over.
Rolling stated that for municipalities there is a wide range with anywhere from
15 to 30 years being in accepted use. He stated that there are some plans that
tie it to the working life of employees and some are bound by statutory
requirements. There are no statutory requirements in North Dakota. He stated
that the norm was to not use a fixed time, and not the declining approach.

Other Comments.

Dawn Wilkie addressed the committee. She stated that she wanted to thank the
committee for commissioning the calculations for the additional years of
service for the group of employees. She also inquired whether money that some
of the employees had erroneously contributed to the DC Plan could be rolled
into the DB Plan should the additional years of service be approved. Lastovich
stated that they can not be directly rolled over.

Hall stated that Alerus could work with Dorsey & Whitney on ensuring that the
money that is due could be returned to the participants without tax
consequences. Wilkie inquired whether this would include interest. Lastovich
stated that it would. Bunce stated that they could also check on rolling into
Deferred Comp. Lastovich stated that these dollars could not be rolled, as
they should have been taxable income to the employee and as such should be paid
out as wages. She stated that one way an employee could avoid the same amount
of tax would be to increase their deferred comp contribution for the amount of
money that they are receiving back from the DC Plan and thereby recognize the
tax saving on it.

Burger stated that the money will also need to be paid out with out FICA, since
that was taken out already on the dollars before they went into the DC Plan.

Meeting adjourned.

Respectfully Submitted,


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


SL