Owosso Employee's Retirement System Minutes

February 17, 2005 - 8:00am
City Council Chambers

PRESENT:       CHAIRPERSON LINDA ROBERTSON, TRUSTEES WILLIAM BLANCHETT, JOHN C.M. DAVIS, WILFRED A. FARRELL, FRANCES KUKULIS, MARK MITCHELL, AND JAMES TREADWAY.

ABSENT:         NONE.

ALSO PRESENT:  Marie Vanerian, Merrill-Lynch; Jim Koss, Gabriel, Roeder and Smith; City Attorney William C. Brown, City Treasurer Ronald Tobey, and City Finance Director Richard Williams.

CALL TO ORDER

Chairperson Robertson called the meeting to order at 8:07 a.m.

APPROVE AGENDA

Motion by Trustee Treadway to approve the agenda as presented.

Motion supported by Trustee Davis and concurred in by unanimous vote.

APPROVE MINUTES OF DECEMBER 16, 2004 REGULAR MEETING

Motion by Trustee Farrell to approve the December 16, 2004 Regular Meeting minutes as presented.

Motion supported by Trustee Kukulis and concurred in by unanimous vote.

APPROVE PENSION CHECK REPORTS

Motion by Trustee Davis to approve the following Pension Check Reports:

December, 2004                                    $88,278.68
January, 2005                                       $93,277.73

Motion supported by Trustee Treadway and concurred in by unanimous vote.

APPROVE STATEMENTS

Trustee Kukulis questioned the outstanding expenses listed on City of Owosso Employees Retirement Fund Report from City Treasurer Ronald J. Tobey.  Mr. Tobey will provide an itemization of the outstanding expenses to the Board at the next meeting.

Motion by Trustee Davis to approve the following statements:

Chemical Bank and Trust Company

December, 2004 and January, 2005

Fifth Third Bank

December, 2004 and January, 2005

Tom Johnson Investment Management, Inc.

Period ending December 31, 2004

City of Owosso Employees Retirement Fund

December, 2004 and January, 2005

Motion supported by Trustee Farrell and concurred in by unanimous vote.

PAYMENT AUTHORIZATIONS

Motion by Trustee Kukulis to authorize the following payments:

Fifth Third Bank

Administrative Fees
For Period 10/01/04 through 12/31/04                                   $6,682.41

Tom Johnson Investment Management, Inc.

Management Fee
For Period 10/01/04 through 12/31/04                                   $9,378.19

Gabriel, Roeder, Smith & Company

Fee for conducting an Experience Study
For the Employees Retirement System for
The 5 year period 1999 through 20003.                                 $8,000.00

Motion supported by Trustee Farrell and concurred in by unanimous vote.

COMMUNICATIONS:

The following communications were received for file:

Ronald J. Tobey, City Treasurer:  Report of Checks Written – December, 2004 & January, 2005

Ronald J. Tobey, City Treasurer:  2004 Done Away Fees Report

William C. Brown, City Attorney: Copy of letter to Merrill Lynch re: SEC Fair Fund Distribution Notice regarding Worldcom, Inc.

William C. Brown, City Attorney, and Gail L. Schultz, City Clerk:  Copy of letter to Brian T. Lee, Fifth Third Bank re: Trades

William C. Brown, City Attorney, and Gail L. Schultz, City Clerk:  Copy of letter to Kirk W. Fisher, Chemical Bank and Trust Company, and Steven G. Schenk, Tom Johnson Investment Management, Inc. re: Trades

Gail L. Schultz, City Clerk: Copy of letter to investment managers re: 2005 Meeting Schedule.

Brian T. Lee, Fifth Third Bank: Biography – John Schimitz, Managing Director-Income Strategies

Gail L. Schultz, City Clerk:  Copy of PA 314 of 1965 re: Public Employees Retirement System Investment Act

TJIM Quarterly Insight – 4^th Quarter 2004

Gabriel, Roeder, Smith & Company: December 2004 News Scan

MAPERS:  Pension Scope – Winter 2004

MAPERS:  One Day Seminar Series announcement

City Clerk Schultz announced MAPERS spring conference.

Motion by Trustee Davis to send Trustees Kukulis, Mitchell and Chairperson Robertson to the upcoming MAPERS conference.

Motion supported by Trustee Farrell and concurred in by unanimous vote.

Trustee Farrell questioned Ms. Vanerian regarding the status of the World Com class action suits.  She commented that Merrill Lynch handles the necessary activities as it is their responsibility.

The following publications and conference announcements are on file with the City Clerk:

• Merrill Lynch: Semi-Annual Report – October 31, 2004
• Lerach, Coughlin, Stoia, Geller, Rudman & Robbins: Corporate Governance Bulletin – First Quarter 2005
• S & B Bulletin: Winter 2004
• PlanSponsor: November-December, 2004 and January, 2005.
• Miscellaneous Conference Announcements

OLD BUSINESS

Done Away Fees Status Report-          Marie Vanerian, Merrill Lynch

Ms. Vanerian expressed concerns with who should be paying the done away fees.  Trustee Kukulis asked how many should occur on a monthly basis.  Ms. Vanerian commented regarding Fifth Third Bank not living up to the agreement regarding done away fees and that she does not believe the Retirement System should pay these fees.  There was general discussion regarding the Board’s need to decide who pays these fees – Fifth Third Bank or Merrill Lynch.  Trustee Farrell commented that he felt that Fifth Third Bank should bear responsibility.  Ms. Vanerian said that she would take whatever responsibility she owes to the System.  Trustee Kukulis commented that she felt that Fifth Third Bank and Merrill Lynch should work this out and that the Retirement System should not be charged.

Ms. Vanerian indicated that the working relationship with Fifth Third Bank is much better.  Fifth Third Bank and Merrill Lynch will come to the April meeting with a resolution of the done away fees issue.

Disclosure of fees and difference between soft and hard dollars Report:

Marie Vanerian, Merrill Lynch, commented regarding Merrill Lynch providing an ongoing third party independent appraisal on an on-going basis of the system.  She presented the following chart to the Board outlining the total cost on an annual basis:

Portfolio                                    Annual Hard Dollar Cost

Composite                                 $2,850
86023             

Chemical                                  $2,000
17252

Fifth Third                                 $2,000
86022

Tom Johnson                            $2,000
86785

                                                $8,850*

*soft dollar conversion ($8,850 x 1.6 = $14,150)

Consideration of investment strategy change as proposed by Brian T. Lee, Fifth Third Bank at December meeting

Motion by Trustee Kukulis to approve Fifth Third Bank investment strategy as discussed at the December 2004 meeting.

Motion supported by Trustee Farrell and concurred in by unanimous vote.

NEW BUSINESS

Application for Retirement:  William K. Wisner

Motion by Trustee Mitchell to approve the Application for Retirement for William K. Wisner effective November 15, 2004.

Motion supported by Trustee Kukulis and concurred in by unanimous vote.

Application for Retirement: Daniel J. Talbot

Motion by Trustee Davis to approve the Application for Retirement for Daniel J. Talbot effective November 12, 2004.

Motion supported by Trustee Treadway and concurred in by unanimous vote.

The Report of an Analysis of the Experience of the City of Owosso Employees Retirement System – January 1, 1999 through December 31, 2003:  Presentation of Report by W James Koss, Gabriel, Roeder, Smith & Company

W. James Koss introduced himself.  He commented that it is important to remember that the benefits and expenses are paid out of the trust fund by contributions and investments to the fund.  His written report is on file with the City Clerk

Mr. Koss commented regarding assumed age of retirement at 65, increasing costs to the system (because the system will be paying for a longer period of time) and thus increases the General City contribution rate; expecting Police and Fire groups to retire later than expected, thus less expensive to provide benefits; higher withdrawal rates due to termination is less costly to system; plan over funding impacts; importance of expressing rate of wage increases versus inflation.  He recommends that demographic assumptions to be changed to 2.5% with investment return of 7.0% and wage inflation of 4.5% with proposed demographic assumption.

Motion by Trustee Kukulis to approve the following economic assumptions:  Proposed Demographic and Alternative 1:  An increase in the spread between assumed net investment income and wage inflation by increasing the investment return assumption by 7.5% and keeping the current wage inflation of 4.5% (spread=3.0%).

Motion supported by Trustee Farrell and concurred in by unanimous vote.

System Compliance with IRS Regulations

Review of response from Gabriel, Roeder, Smith & Company regarding the IRS Section 401(a) (9) compliance study

City Attorney Brown addressed the Board regarding the response from Miller, Canfield, Paddock and Stone relative to an ordinance amendment to comply with IRS regulations.   Mr. Brown felt, based upon $4,000 for a partial rewrite and $2,000 for a complete rewrite, that the Board should ask for a total rewrite of the ordinance

Motion by Trustee Kukulis to forward to the City Council a request that it endorse a rewrite of the ordinance as recommended by Miller, Canfield, Paddock and Stone to bring the plan into IRS compliance.

Motion supported by Trustee Treadway and concurred in by unanimous vote.

Discussion:  Consideration of time limit on presentations

Motion by Trustee Farrell to limit regular presentations to the Board to fifteen (15) minutes but under special circumstances additional time can be allowed by the Board.

Motion supported by Trustee Mitchell and concurred in by unanimous vote.

Merrill-Lynch:  Fourth Quarter 2004 Executive Summary Report

Ms. Vanerian commented that it was time for the money managers to make an annual presentation.  She will schedule Chemical Bank and Trust Company and Tom Johnson Investment Management Company for upcoming meetings.

She reported the following:

Total Portfolio Performance Summary for Period Ending 12/31/2004

Ms. Vanerian commented regarding 4% growth, corporate earnings, and federal rates assisting in a positive outcome.  She projects a 3.5% growth rate for 2005.

She also commented regarding the “not so positive” – unprecedented debts and deficits, dollar value, rising interest rates, and inflation.

Ms. Vanerian proposed looking at small cap performance and exploring other options.  She will review alternatives to small cap and international investments and present a proposal to the Board.

Merrill-Lynch:  Investment Policy Update Proposal

Ms. Vanerian presented a proposed Investment Policy for consideration.  Discussion regarding the proposed Investment Policy will be placed on the agenda for the April meeting.

NEXT BOARD MEETING          April 21, 2005

OTHER BUSINESS

City Treasurer Ronald Tobey reported on a Gabriel, Roeder, Smith and Company proposal for employee benefits statements.  The Board asked that this be included on the April meeting agenda with copies of proposed forms from Gabriel, Roeder, Smith and Company and our current employee statement.

ADJOURNMENT

Motion by Trustee Kukulis for adjournment at 10:28 a.m.  Motion supported by Trustee Farrell and concurred in by unanimous vote.

_____________________________________________                                                                         Gail L. Schultz, Owosso City Clerk