CITY OF KNOXVILLE PENSION BOARD
MINUTES
Thursday – February 11, 2010
8:15 A.M.
917B E. 5TH AVENUE
The regular meeting of the City of Knoxville Pension Board was held in the Pension board conference room at 917 E. 5th Avenue at 8:15 a.m. on February 11, 2010.
Present were: Ms. Barbara Pelot, Mr. Greg Coker, Mr. Joe Hackney, Mr. Jim Hutchens, Ms. Robin Shelton, Mr. Jim York and Mr. Michael Cherry.
Also present: Mr. Ted Hotz and Ms. Kristi Paczkowski, Pugh and Company; Mr. Dan Holmes, Summit Strategies
CALL TO ORDER:
Ms. Pelot presided and called the meeting to order at 8:18 a.m.
Audit Presentation
2008 – 2009 Audit Report and Financial Statement
Ms. Kristi Paczkowski of Pugh & Co. made a presentation to the Pension Board of the annual audit for fiscal year July 1, 2008 through June 30, 2009. A copy is on file in the Pension Office.
In their audit of the Pension System the auditors made the Board aware of two findings as follows:
1) The Board’s need to establish a written policy addressing any conflicts of interest of the Board’s money managers; and
2) Hire an additional accounting staff member.
Motion: Mr. York made a motion to accept the Audit Report – June 30, 2008 and June 30, 2009. Mr. Hutchens seconded the motion. The motion carried unanimously by the members present.
APPROVAL OF REGULAR MEETING MINUTES FOR January 14, 2010:
Mr. Coker made a motion to approve the January 14, 2010, meeting minutes. Mr. Hackney seconded the motion. The motion carried unanimously by the members present.
APPROVAL OF REVISED AGENDA: - Exhibit 1
The Revised Agenda was approved without objection.
CONTRACTS:
Audit Contract
Mr. Cherry inquired of the Board their preference for a request for proposals for next year’s audit contract. Mr. York cited the advantages of having the proposals performed simultaneously with the City’s and noted to the Board that the City had just contracted with Pugh and Company. In their discussion it was noted that per the Board’s authority, they do not have to contract with the same firm that the City uses and the Board has the authority to contract with whomever audit firm it prefers.
Mr. York then recommended that if the Board decided to contract with another auditor besides Pugh and Company, it choose one of the three firms that the City interviewed, which were Pugh and Company, Decosimo and Rodefer Moss. Mr. Hutchens inquired, and it was affirmed, that any contract entered into by the Pension Board contains a termination clause. The contracts typically require a 30 day written notice.
Motion: Mr. York made a motion to enter into a three year contract with Pugh and Company with two, one year option extensions. Mr. Hackney seconded the motion. The motion carried unanimously by the members present.
Mr. Cherry will contact Pugh and Company regarding an engagement letter with a targeted completion by the March or no later than the April meeting.
ADMINISTRATIVE MATTERS:
Schedule Pension Board Meetings for Second Quarter 2010
Thursday, April 8, 2010 – 8:15 a.m.
Thursday, May 13, 2010 – 8:15 a.m.
Thursday, June 10, 2010 – 8:15 a.m.
The Pension Board meeting schedule was accepted without objection.
EXECUTIVE DIRECTOR COMMENTS:
Federal withholding changes
Mr. Cherry informed the Board of the new federal withholding tables which went into effect in March 2009 per the Making Work Pay tax credit, which reduced the withholdings during the year. This has resulted in many retirees owing federal income tax when filing their returns for 2009.
State Street Settlement
Mr. Cherry informed the Board that Mr. Holmes would update the Board about the settlement of the State Street bond funds litigation later in the meeting.
Personnel Committee
Mr. Cherry advised the Board that the salary adjustment for Nancy Curnutt approved by the Board with a retroactive date of July 1, 2009, had been applied to her check dated February 12, 2009, with a small retroactive adjustment back to the date of the Board’s approval. Civil Service Director, Vicki Hatfield, advised Mr. Cherry that Civil Service Rules preclude any retroactive pay increase authority.
Ms. Shelton inquired as to whether or not retroactive difference could be applied through a bonus payment. Mr. Cherry advised that it could and that he would meet with the Personnel Committee on the matter.
ATTORNEY COMMENTS: None
ENROLLMENTS:
The following General Government employees have filed applications to become members of the Plan G1 pension system.
Tom Kelly
Gary Sands
Lisa Diane Wood
Motion: Mr. Hutchens made a motion to approve these applications for enrollment in the Plan G1 pension system. Mr. Hackney seconded the motion. The motion carried unanimously by the members present.
WITHDRAWALS:
The following employees have filed an application to withdraw employee pension contributions plus 4% interest and the supplemental retirement account as applicable in Plan G Option 1.
Nancy C. Dilworth, Schools – Plan A, non-vested
Mark E. Eslinger, Police Dept. – Plan C, vested
Christopher R. Stapor, General Govt. – Plan G1; non-vested
Motion: Mr. Coker made a motion to approve this application for withdrawal of employee contributions. Mr. Hackney seconded the motion. The motion carried unanimously by the members present.
APPLICATION FOR RETIREMENT: PLAN A
CHARTER SECTION 1360.12
William E. Warwick, Schools Certified Option A-9
100% with reinstatement
Date of birth, December 12, 1947: 62 years of age
Total City credited service: 12 years
Total County credited service: 22 years 7 months
Total credited service: 34 years 7 months
Last date of employment with City: June 1987
Last date of employment with County: January 2010
Average base earnings for 4 years, $400.00 x 75% = $3.00
Average excess earnings for 4 years, $1,330.90 X 1.50% = $19.96
making a total of $22.96 benefit per year of service. $22.96 x 12 =
$275.52. Mr. Warwick chose Option A-9 – 100% with reinstatement to Sleta F. Warwick, spouse. $275.52 x .8186 =
$225.54 pension effective February 1, 2010.
The City benefit payment is determined using City only salaries and City service time.
The City benefit does not include any County service.
The total amount of the combined City and County benefit is $1,910.07.
Motion: Mr. Hackney made a motion to approve this application for retirement payable under Option A-9. Ms. Shelton seconded the motion. The motion carried unanimously by the members present.
APPLICATION FOR RETIREMENT: PLAN G1
CHARTER SECTION 1360.12
Dale A. Taylor, General Government No Option
Date of birth, January 7, 1948: 62 years of age
Total credited service: 8 years 2 months 21 days
Average monthly salary for 2 highest 12 month periods, $1,973.14 x .0115 =
$22.69 x 8.2242 = $186.61 pension (defined benefit) effective February 1, 2010
Mr. Taylor chose to receive a one time lump sum payment of the supplemental retirement account applicable in Plan G1.
Motion: Mr. York made a motion to approve this application for retirement. Mr. Hutchens seconded the motion. The motion carried unanimously by the members present.
APPLICATION FOR PARTICIPATION IN THE DELAYED RETIREMENT OPTION PROGRAM (DROP): PURSUANT TO CHARTER SECTION 1371.8 – PLAN G.
The following employee has chosen a Delayed Retirement Option and will receive a one-time payment of the accumulated monthly benefits on termination of employment with the City of Knoxville.
John I. Harmon, General Government – Plan G2 Option A-5
75% without reinstatement
Date of birth, May 30, 1948: 61 years of age
Total credited service: 20 years 3 months 10 days
Average monthly salary for 2 highest 12 month periods, $4,657.82 x .021 =
$97.81 x 20.27740 = $1,983.33. Mr. Harmon chose Option A-5 – 75% without reinstatement to Carolyn Jane Harmon, spouse. $1,983.33 x .8646 =
$1,714.79 pension effective February 1, 2010.
DROP complete January 31, 2012.
Motion: Mr. Hackney made a motion to approve this application for DROP retirement payable under Option A-5. Ms. Shelton seconded the motion. The motion carried unanimously by the members present.
Lou Ann Manning, General Government – Plan G2 No Option
Date of birth, November 20, 1954: 55 years of age
Total credited service: 24 years 11 months 18 days
Average monthly salary for 2 highest 12 month periods, $3,532.72 x .021 =
$74.19 x 24.96598 =
$1,852.23 pension effective February 1, 2010.
DROP complete January 31, 2012.
Motion: Mr. Hackney made a motion to approve this application for DROP retirement. Ms. Shelton seconded the motion. The motion carried unanimously by the members present.
APPROVAL OF INVOICES FOR PROFESSIONAL SERVICES:
Bryan, Pendleton, Swats & McAllister – Actuary (December 2009) $ 9,462.00
State Street – Trustee (December 2009) 3,471.13
State Street Global – Money Manager (3rd Qtr – 2009) 979.31
Aberdeen Asset Man. – Money Manager (4th Qtr – 2009) 32,294.81
AQR – Money Manager (4th Qtr – 2009) 67,113.00
Calamos – Money Manager (4th Qtr – 2009) 34,662.00
INTECH – Money Manager (4th Qtr – 2009) 6,117.04
Pinnacle – Money Manager (4th Qtr – 2009) 49,662.00
STW – Money Manager (4th Qtr – 2009) 34,585.18
Mr. Cherry, Executive Director, has reviewed the bills and certifies that they are consistent with the services provided and are within the budgeted figures of the system’s financial plan.
Motion: Ms. Shelton made a motion to pay these invoices. Mr. Hackney seconded the motion. The motion carried unanimously by the members present.
INVESTMENT MATTERS:
Dan Holmes – Summit Strategies
Housekeeping Items
- IRM (TIPS Manager)
Mr. Holmes advised the Board that he had negotiated a flat 5 basis point fee for the Tips account with IRM and that Attorney Gilbert is ready to complete that contract.
- CastleArk
Mr. Holmes advised the Board a flat 45 basis point fee for Summit
Strategies’ clients has been reached with CastleArk.
- State Street
Mr. Holmes informed the Board regarding a suit against State Street brought by clients in the some of their short term bond funds was settled. The proposed settlement is within the reserves which State Street had established for this matter. The Pension Board did not have any investments in the funds involved.
- UBP Hedge Fund
Lastly, Mr. Holmes informed the Board of a personnel change at Union Bancaire Privee, the hedge fund at which a redemption request had been submitted by the Board in December 2008. Mr. Holmes advised the Board that approximately 60% of the fund’s assets had been paid out to date.
- Principal Global Investors
Mr. Holmes advised the Board that Principal was now in a position to resume distributions to investors in their core real estate program. The Pension Board had approved a redemption request on the advice of Summit to Principal some time ago. The deadline for affirming or rescinding the distribution to the Pension Fund is February 24, 2010. Mr. Holmes indicated Summit Strategies is reviewing its prior advice to clients regarding the redemption recommendation. Mr. Cherry requested the Pension Board authorize him to act on a final recommendation from Summit Strategies prior to the deadline and advise the Pension Board of the action taken.
Motion: Mr. Hackney made a motion authorizing the Executive Director, Mr. Cherry, to take any necessary action relative to the Pension Board’s pending redemption request before the deadline outlined by Principal Global Investors, based on Summit’s recommendation on the same. Mr. Coker seconded the motion. The motion carried unanimously by the members present.
4Q 2009 Performance Report
Mr. Dan Holmes made a presentation of the 4th Quarter 2009, Performance Report and advised the Board that he would be focusing on replacing a few money managers in the first quarter 2010. He also advised the Board that Acadian had been funded. Copies of the reports are on file in the Pension Office.
Additional Meeting Materials
Mr. Holmes also gave an additional materials presentation to the Board that included the following topics:
Tab I - 2010 Economic Scenario Considerations
- The Board may take an approach of liability driven investing.
- Mr. Holmes recommendation to the Investment Committee of an $11 million allocation to TIPS portfolio; the funds would come from the small cap allocation. Funding of the emerging market allocation will continue from the international allocation.
- Mr. York made an inquiry as how to limit volatility and Mr. Holmes indicated the additional asset classes being recommended have a lower correlation to stock and bond allocations and increased emphasis on yield which will help in this regard.
Tab II – Private Equity
- $4 million funded with Adams Street last year.
- Build a model of commitment to private equity.
Tab III – Energy Master Limited Partnership (MLP) Overview
- Mr. Holmes discussed the structure, legal aspects, and various methods to invest in Master Limited Partnerships. Additional discussions with Mr. Gilbert on legal concerns will follow to determine the recommended method of investment.
Motion: Mr. Hutchens made a motion to have Summit Strategies conduct a Master Limited Partnership manager search. The search will be concurrent with discussions regarding the potential legal implications of the methods of investment between Summit and the Pension Board’s counsel, Mr. Gilbert. Mr. Hackney seconded the motion. The motion carried unanimously by the members present.
Lastly, Mr. Holmes advised the Board about a potential scheduling conflict he had regarding the March meeting, but committed to meeting with the Board in April.
Mr. Cherry reminded the Board of the special meeting with the Board’s Actuary, Alan Pennington, on March 10, 2010 at 2:00 p.m. The regular meeting is scheduled for Thursday, March 11, 2010 at 8:15 a.m.
OTHER:
City Council Workshop
Ms. Pelot reminded the Board of the need to have a workshop with City Council. Mr. Cherry indicated he follow up with Attorney Gilbert on the scheduling.
PUBLIC COMMENTS: None
ADJOURNMENT:
Motion: Mr. Hutchens made a motion to adjourn the meeting at 11:28 a.m. Ms. Shelton seconded the motion. The motion carried unanimously by the members present.
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Chair
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Date