Owosso Employee's Retirement System Minutes

June 16, 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, representative from Merrill-Lynch; City Attorney William C. Brown, City Treasurer Ronald J. Tobey, and City Finance Director Richard C. Williams,

CALL TO ORDER

Chairperson Robertson called the meeting to order at 8:00 a.m.

APPROVE AGENDA

Motion by Trustee Davis to approve the agenda as presented with the addition of a communication from Kirk Fisher, Chemical Bank and Trust Company, regarding the Ford Motor Company stock rating.

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

APPROVE MINUTES OF APRIL 21, 2005 REGULAR MEETING

Motion by Trustee Davis to approve the April 21, 2005 Regular Meeting minutes as presented with the following corrections: 1. Mr. (corrected from Ms.) Koss explained what the actuarial service is, and 2) Mr. Fisher commented regarding the highlights of economic and financial markets; equities are at the place to overweight; rising interest rates make bonds look good (corrected from rising interests make bonds looks); earnings growth is slowing to 7%; and overall US economy is at a plateau, not seeing growth.

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

APPROVE PENSION CHECK REPORTS: 

Motion by Trustee Kukulis to approve the Pension Check Reports as follow:

1. April, 2005                                            $92,559.06
2. May, 2005                                             $91,767.28

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

APPROVE STATEMENTS:

Motion by Trustee Kukulis to approve the Statements as follows:

1. Chemical Bank and Trust Company
   April and May, 2005
    

2. Fifth Third Bank
   April and May, 2005
    

3. Tom Johnson Investment Management, Inc.
   March 31, 2005
    
4. City of Owosso Employees Retirement Fund
   April and May, 2005

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

PAYMENT AUTHORIZATIONS: 

Motion by Trustee Farrell to approve Payment Authorizations as follows:

1. Chemical Bank and Trust Company
   Investment Management Services
   For Period 03/01/05 through 05/31/05                             $7,945.92
    

2. Fifth Third Bank
   Investment Management Services
   For period ending March 31, 2005                                  $6,626.10
    

3. Tom Johnson Investment Management, Inc.
   Investment Management Services
   For Period 01/01/05 through 03/31/05                             $9,349.87
    

4. Gabriel, Roeder, Smith & Company
   2004 Annual Actuarial Services                                      $9,400.00

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

COMMUNICATIONS:

Trustee Kukulis asked that the Report of Checks Written Report (submitted by City Treasurer Ronald Tobey) be listed on the Agenda under the Payment Authorizations section for future agendas.

Ronald J. Tobey, City Treasurer:  Report of Checks Written – April and May, 2005

Motion by Trustee Kukulis to approve the April and May 2005 Reports of Checks Written as follows:

April 2005 Checks Written

Reimbursed               4,431.22         Blue Cross
                              89,215.57         Pension + State/Fed Withholding
                                7,967.54         Chemical Bank Management Fees
                            $101,614.33        Total checks for April 2005

                  May 2005 Checks Written

Reimbursed               4,431.22         Blue Cross
                              88,423.79         Pension + State/Fed Withholding
City Obligation                50.40         Mileage Reimbursement/Mapers Conference
                              $92.905.41        Total checks for May 2005

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

The following communications were received and placed on file:

• Gail L. Schultz, City Clerk – Non-Supervisory Police Representative Election Results
• Tom Johnson Investment Management, Inc.:  Letter of notice regarding Ford Motor Company credit rating downgrade
• MAPERS One Day Seminar Announcement
• MAPERS PAC Golf Outing announcement
• Chemical Bank regarding Ford Stock (added at meeting)
• Gabriel, Roeder, Smith and Company: May 2005 News Scan
• Grant’s Interest Rate Observer
• Lerach, Couglin, Stoia, Geller, Rudman & Robbins, LLP: Corporate Governance Bulletin
• Navellier Calculated Investing
• PlanSponsor: April and May, 2005.
• Schiffrin & Barroway, LLP, Attorneys at Law: letter of introduction.
• Miscellaneous Conference Announcements

OLD BUSINESS:

Expense Account Detail Report:  Richard C. Williams, Finance Director

Richard Williams, Finance Director, addressed the Board regarding his position and responsibility to the City for review of the Investment Manager’s reports and the annual actuarial reports.  He also commented regarding the hiring of three money managers and an investment manager (Merrill Lynch).  He reported that he did not become involved in the financial reporting or accounting; that the City Treasurer was responsible for those activities. 

Mr. Williams spoke about his role in securing the investment manager and three money managers.  He reported that at the time that Merrill Lynch was hired as the investment manager that they said they would custody the assets at no charge.  He also said that the City continued to pay the custodial fees, even though the City and the Board knew that this service was available at no charge to the board.  He said that they (the City) let that go until a point when he came back to the board and put them on notice that if in fact that if you (the Board) want to continue to use one of your money managers to custody the assets and pay this fee when an alternative is, at no fee, available, then the City was not going to reimburse the Board for the custodial fees. 

He reported that the custodial fees should have been net of the portfolio income.  It was Mr. Williams’ opinion that the discrepancies were due to differences in accounting methods.

Trustee Kukulis asked when the Board was put on notice regarding the custodial fees and what part of that amount is in question.  Mr. Williams did not know when the Board notice was given.  There was further Board discussion regarding the date of the Board notice.

Chairperson Robertson asked why the audit fees would remain unpaid.  Mr. Williams explained the procedure for paying the bills and how the City Treasurer documented the invoices.

Trustee Kukulis asked how the Board would get their budget amended.  Mr. Williams explained how the budget is amended in June after asking Department heads about expenses not budgeted for.

Mr. Williams commented that the only objection that the city had after putting the board on notice was that the Board had someone custody the assets and pay fees when there was that service available at no charge.  The current Board acted and gave custody of the assets to Merrill Lynch who does not charge fees for custodial services.

Chairperson Robertson inquired about a requirement for support documentation to pay bills.  Mr. Williams said that the City relies on the City Treasurer to maintain documents and that the City Treasurer is subject to audit. 

Chairperson Robertson inquired if the Auditors ever found any discrepancies or concerns in the work of the prior Treasurer.  Mr. Williams commented that no discrepancies had been identified and that their work papers reflected the fact that there was notice to the Board that city was not going to reimburse for custodial fees.

Mr. Williams commented further that the Treasurer should have made the entries regarding the custodial fees against net income from the time that the notice was given and that the City should make reimbursement for other costs that are unpaid.  Mr. Williams recommended that he and the City Treasurer work together to review the entries made from 1991, and make sure that they were applied properly and not just the custodial fees.

Trustee Kukulis commented regarding the line item budget.  Trustee Farrell felt that it would be a good idea for the City Treasurer and Finance Director to determine if there are any expenses the city owes that have not been reimbursed.   

City Treasurer Tobey commented regarding the list of expenses submitted to Finance Office each year.  He also commented that in the years 2001-2002 and 2002-2003 custodial fees were submitted and paid.

Chairperson Robertson asked Mr. Williams why some custodial fees had been paid in recent years.  He commented that there had been a change in the makeup of the Board and he was optimistic that the Board would be receptive to making the changes.  He also commented that the there is still a disparity between the Funding value of assets versus the market value and the City obligation to make contributions for the year just ended.  He also said that he fully expects that the City will have to make contributions in the not too distant future.

There was discussion regarding the fund returns during the years 1999-2001.

Mr. Williams and Mr. Tobey are to report back to Board at August meeting with their findings.

Done Away Fees Resolution Report: – Marie Vanerian, Merrill Lynch

Marie Vanerian, Merrill Lynch representative, reported that as of June 15^th, 3:48 p.m. she had received confirmation from Fifth Third Bank that the fees will be reimbursed.  She also reported that our Fifth Third Bank representative had changed to Dennis Mullins in Cincinnati. 

Ms. Vanerian will correspond with City Attorney Brown and City Treasurer Tobey when this reimbursement transaction happens.

Ms. Vanerian reported that Steve Schenk, Tom Johnson Investment Management, Inc. representative, will be in attendance at the August 18^th meeting.

Trustee Kukulis inquired as to the availability of a money manager in Cincinnati.  City Attorney Brown responded that the money manager would be available to the Board as needed.

Discussion: Investment Policy Update Proposal

City Attorney commented regarding meeting to discuss revisions with Ms. Vanerian.  He suggested the Board review the proposal and be prepared to discuss it at the August meeting.

Trustee Farrell asked the City Attorney his opinion of the proposed policy.  He suggested further review and discussion at the August meeting.  Trustee Kukulis inquired about getting the money managers’ input.  Ms. Vanerian will submit the proposed policy after the Board has the initial discussion.

NEW BUSINESS:

Adopt 2005-2006 Budget - $19,400.00

There was Trustee discussion regarding Board notification if the budget is amended, ordinance rewrite charges not included, and manager fees not submitted for city reimbursement.

Trustee Farrell asked to have a copy of the budget report which would include the 2002-2003 and 2003-2004 Actual Budget figures.

Motion by Trustee Kukulis to adopt the proposed 2005-2006 budget for the Retirement System as follows:

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

Consideration of Interest Rate (5%) on Employee Contributions

There was Trustee discussion regarding the origination of the 5% rate; how interest is paid on active accounts and accounts of employees who have left the plan; passbook savings rate amount versus 7.5% amount desired by fund; IRS mandates; and minimum interest rate required by IRS regulations.

Motion by Trustee Blanchett to approve the 5% interest rate on employee contributions with a review of the rate for next year.

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

2004 Summary Annual Report and List of Expenses Paid by Soft Dollars Report

There was Trustee discussion regarding non-soft dollar expenses (investment manager fees, budget expenses) versus soft dollar expenses ( Merrill-Lynch fees covered through transactions).

Motion by Trustee Kukulis to approve the 2004 Summary Annual Report and List of Expenses Paid by Soft Dollars as follows:

CITY OF OWOSSO EMPLOYEES RETIREMENT SYSTEM

2004 Summary Annual Report and List
of Expenses Paid by Soft Dollars

The Public Employees Retirement System Investment Act requires the City of Owosso Employees Retirement System to prepare and issue a summary annual report and to publish and make available annually a list of all expenses paid by soft dollars.  The following information is provided for the year 2004.

The name of the retirement system is the City of Owosso Employees Retirement System.  The Retirement System’s investment fiduciaries are:

BOARD OF TRUSTEES:         William Blanchett
                                               John C.M. Davis
                                               Wilfred A. Farrell
                                               Frances Kukulis
                                               Mark Mitchell
                                               Linda Robertson
                                               James Treadway

INVESTMENT MANAGERS:      Fifth Third Bank
                                                Chemical Bank and Trust
                                                Tom Johnson Investment Mgt. Inc.

As reported in the actuarial valuation for the annual period ending December 31, 2004, the Retirement System’s valuation assets were $32,090,371 and its actuarial accrued liabilities were $25,762,080, which produced a funded ratio of 124.6.

For the annual period ending December 31, 2004, the Retirement System’s investment performance on a mark to market basis (net of manager fees and transaction costs) was 7.3%.  On December 31, 2004, the market value of the assets was $29,891,106.

For the annual period ending December 31, 2004, the Retirement System’s non-soft dollar expenses were $131,011 and benefit payments and member refunds were $1,497,245.  Expenses paid by soft dollars totaled $8,850.  There are no employer contributions required for the year covered by the report.

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

Consideration of Eligible Domestic Relations Order:  Marcie v Arthur Hart

City Attorney William Brown commented regarding an Eligible Domestic Relations Orders.  He told the Board that Statue dictates what has to be in the order.  He reported that in his opinion the Second Amended Order complies with the appropriate Statue and is ready for approval.

Motion by Trustee Kukulis to approve the Second Amended Eligible Domestic Relations Order – Marcie v. Arthur Hart dated May 23, 2005 as presented.

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

*A copy of the above referenced order is maintained in the City Clerk’s June 16, 2005 Board meeting file and in the City Treasurer’s file for this employee.

INVESTMENT MANAGER REPORT:

Merrill-Lynch:  First Quarter 2005 Executive Summary Report

Ms. Vanerian commented regarding the first quarter stock market, stronger economic growth, corporations “friendly” mergers, S & P down 2.5% in first quarter, and Ford/GM bond ratings.

Ms. Vanerian presented an overview of the following:

Total Portfolio Performance Summary for Period Ending 03/31/2005

There was discussion regarding a manager review/search. Ms. Vanerian recommended giving the “fixed” funds to one manager and the “equity” funds to others.  Ms. Vanerian also recommended that the whole Board spend time looking at the different styles of managers and methods.

Motion by Trustee Davis to start the process for an investment manager review.

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

There was further discussion regarding Fifth Third Bank’s performance being below the benchmark, concerns about investments in their banking company, and if there is any prohibition in our policy that restricts this type of activity.

Ms. Vanerian will provide the Board a complete picture of the portfolios showing what stocks and bonds that the companies hold.

City Attorney Brown commented regarding the status of the ordinance rewrite.  Staff will report to the Board at the next meeting.

NEXT BOARD MEETING:  The next Board Meeting is scheduled for Thursday, August 18, 2005 at 8:00 a.m.

ADJOURNMENT:

Motion by Trustee Kukulis for adjournment at 10:15 a.m.  Motion supported by Trustee Farrell and concurred in by unanimous vote.

_____________________________________________
Gail L. Schultz, Owosso City Clerk