Minutes - 01/30/2013 - Police Pension Fund BoardVILLAGE OF OAK BROOK
BOARD OF TRUSTEES OF THE POLICE PENSION FUND - Minutes
January 30, 2013
UNOFFICIAL UNTIL APPROVED AS WRITTEN X
OR AS AMENDED BY BOARD OF TRUSTEES OF THE
POLICE PENSION FUND ON March 21, 2013
1. CALL TO ORDER:
The Regular Meeting of the Board of Trustees of the Oak Brook Police Pension Fund was called to order
by President Torlo at 7:02 p.m. in the Upper Level Conference Room of the Samuel E. Dean Board Room
of the Butler Government Center, 1200 Oak Brook Road, Oak Brook, Illinois.
2. ROLL CALL:
The roll was called with the following persons
PRESENT: President Val Torlo, Vice President
Hitesh Patel, Trustee Benjamin Kadolph
ABSENT: None
Alan Feldman, Secretary Edward Caspers, Trustee
IN ATTENDANCE: Finance Director Sharon Dangles, Todd Schroeder from Lauterbach & Amen, LLP,
Terese Krafchek and James Hrabak from MB Financial, Bill Lowery, Jeff Kowalczyk and Courtney
Cervantes from Lowery Asset Consulting, LLC
3. PRESIDENT'S COMMENTS:
4. APPROVAL OF MINUTES:
a. Approval of Board of Trustees Regular Meeting Minutes of October 24, 2012
Motion by Secretary Caspers, seconded by Vice President Feldman, to approve the Minutes of the
October 24, 2012 Regular Board Meeting as amended. VOICE VOTE: Motion carried.
b. Approval of Special Meeting Minutes of December 4, 2012
Motion by Trustee Kadolph, seconded by Secretary Caspers, to approve the Minutes of the
December 4, 2012 Special Board Meeting as amended. VOICE VOTE: Motion carried.
5 CONSENTAGENDA:
All items on the Consent Agenda are considered to be routine in nature and will be enacted in one motion.
Motion by Trustee Patel, seconded by Secretary Caspers, to approve the Consent Agenda.
ROLL CALL:
Ayes: 5 — Vice President Feldman, Secretary, Caspers, Trustee Patel, Trustee Kadolph, President Torlo
Nays: 0 — None
Absent: 0 — None. Motion carried.
a. Approval of October 1 -31, 2012 checks in the total amount of $ 172,692.91
b. Approval of November 1 -30, 2012 checks in the total amount of $168,291.91
c. Approval of December 1 -31, 2012 checks in the total amount of $166,742.91
d. Approval of Lowery Asset Consulting, LLC's invoices in the total amount of $14,000.00, dated
September 26, 2012 and December 14, 2012, for Third and Fourth Quarter 2012 services, respectively
e. Approval of Lauterbach & Amen, LLP's invoices in the total amount of $5,025.00, for services rendered
August through December, 2012, including preparation of Municipal Compliance Report for year ended
December 31, 2011
f. Approval of Illinois Public Pension Fund Association's 2013 membership dues invoice in the amount of
$775.00
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g. Approval of Pension Clerk Kane's timesheet in the total amount of $612.50 for services rendered July
to December, 2012
h. Approval of Village Clerk Pruss' timesheet for clerking at the December 4, 2012 meeting, in the amount
of $31.25
6. ITEMS REMOVED FROM CONSENT AGENDA— None presented.
7. UNFINISHED BUSINESS:
a. Ratification of Lowery investment recommendations from December 4, 2012 meeting
Motion by Vice President Feldman, seconded by Trustee Patel, to ratify the Lowery investment
recommendations from December 4, 2012 meeting.
ROLL CALL:
Ayes: 5 — Secretary Caspers, Trustee Patel, Trustee Kadolph, President Torlo, Vice President Feldman
Nays: 0 — None
Absent: 0 — None. Motion carried
8. NEW BUSINESS
a. Lowery Asset Consulting, LLC Report on Fourth Quarter, 2012
Mr. Lowery discussed the different sectors of the overall stock market (page 9 of the report) and stated that
the Fourth Quarter finished stronger than originally thought. He also talked about the events of 2012 and
referred to the Manager Performance by Strategy with Peer Rank spreadsheet on page 14.
The Executive Summary of Lowery's report stated that the Fund's investment assets had a value of
approximately $29,518,079 as of December 31, 2012, with the current allocation at 43% Equity and 57%
Fixed Income and Cash. It was also stated in the report that the Fund was up 1.9% for the quarter, with the
Fund's international exposure currently at 13.2 %, representing a majority of the gain this quarter,
maintaining momentum at nearly 6% increase. It further stated that domestic equity markets were down
9.38% with favoritism leaning towards large cap, high quality stocks and that real estate saw some
improvement at 2.48% gain and the fixed income markets increased a slight .22 %. Per the report the Fund
has produced annualized returns of 7.7 %.
A monthly update was distributed listing performance as of January 28, 2013.
Mr. Kowalczyk referred to an e-mail he had received regarding how the Acting Chief Compliance Officer for
the Public Pension Funds is now interpreting things. Mr. Kowalczyk referred to Kinetics Mutual Fund which
has derivative exposure, and that the Acting Chief Compliance Officer is now deeming this fund illegal. He
stated this necessitates a look at the "put" strategy. Discussion ensued regarding this matter. Consensus
to have Lowery find out more about this issue and it was suggested that the Board be informed of status
and to have a backup plan prepared. In response to an inquiry about whether some pension funds will be
facing a dilemma of this nature in the future, Mr. Kowalczyk replied that all pension funds will be facing this
type of dilemma.
Vice President Feldman inquired as to whether there are any charts which would coordinate the amount of
dollars pumped into the economy this last year versus the rising stock market. Mr. Lowery stated they can
get some information on this. Discussion ensued regarding this and regarding a strategy for when interest
rates start to rise.
b. MB Financial Investment Management Performance Report on Fourth Quarter, 2012
A performance report was distributed. Mr. Hrabak referred to page 2 in his discussion of the fixed income
portfolio and stated that they are thinking hard about significantly shortening the duration of the portfolios.
He stated the reason is that even with the potential of giving up some opportunities and seeing below
benchmark returns, the opportunity cost is much less than the downside if rates pick back up. Trustee
Patel requested a table which makes a prediction regarding this discussion. Discussion ensued regarding
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the average yield on the corporate bonds. Mr. Hrabak stated that in a persistently low interest
environment, they want to grab as much of the total return in the form of coupons as they possibly can
because the coupon payment is certain. Trustee Patel inquired regarding the costs of trading and Mr.
Hrabak stated that they are always trying for best execution. Discussion ensued regarding peer analysis
and the market being opaque. Mr. Hrabak agreed to provide the total return shapes for the existing
portfolio for the benchmark in regarding to the opportunity costs if they shorten duration.
Ms. Cervantes inquired regarding approving the remaining investment shifts recommended at the
December meeting and Trustee Kadolph stated he believes that was covered under the ratification motion
under Unfinished Business and there was consensus opinion.
Mr. Hrabak exited the meeting at approximately 7 57 p.m.
c. Approval of Investment Transactions for Fourth Quarter, 2012
Motion by Vice President Feldman, seconded by Trustee Patel, to approve the Investment
Transactions for Fourth Quarter, 2012.
ROLL CALL:
Ayes: 5 — Trustee Patel, Trustee Kadolph, President Torlo, Vice President Feldman, Secretary Caspers
Nays: 0 — None
Absent: 0 — None. Motion carried
d. Ratification of 2013 Pension Increases
Motion by Secretary Caspers, seconded by Trustee Kadolph, to ratify the 2013 Pension Benefit
Increases as presented.
ROLL CALL:
Ayes: 5 — Trustee Kadolph, President Torlo, Vice President Feldman, Secretary Caspers, Trustee Patel
Nays: 0 — None
Absent: 0 — None. Motion carried
e. Discussion of 2013 Actuarial Assumptions
Mr. Schroeder recapped the discussion from last year regarding the long -term expected rate of return on
the Plan's assets (6.75 %), the long -term projected salary increases (4 %) and the mortality assumptions.
He discussed the mortality assumptions and stated that Lauterbach had prepared a study over the
summer. He stated that the results of the study shows improvement in the health of police officers and that
because there are stress differences between police officers and firefighters they separated them in their
assumptions. He stated that regarding the mortality assumptions, the increase range would be closer to
$170,000 rather than the $200,000+ impact. He expressed that the key thing is that the contributions are
not paying for some additional benefits that are potentially out there, specifically, someone retiring at age
50 the Fund would be looking at 10 -15% more in expected payments to be made to that individual than
previously assumed. He stated that the 10 -15% in additional benefits are not going to be funded for
through the individual's working career and added that they are looking for about a 5% increase in actuarial
which relates to a 20% unfunded liability. Mr. Schroeder stated that they also performed a demographic
study regarding disabilities and people terminating employment, but it is probably offset by people retiring
earlier. He stated that disabilities are causing probably a $10,000 increase in contributions. He also
discussed how the pay increases affect the contributions. He stated that by throwing it all together it would
be between a 1.1 million and 1.2 million contribution recommendation per the hand -out he distributed.
Finance Director Dangles stated that Tim Sharpe uses the 1984 Actuarial Table and that Lauterbach had
created a different table to reflect their recommendation. In response to an inquiry, Mr. Schroeder affirmed
that the Lauterbach table is unisex and also that they have included a spouse mortality study, believing that
females and non - police officers would live longer. He stated that he just needs final audited assets to
finalize his recommendations.
Mr. Schroeder recommended staying at 6.75% for the investment rate and discussed his reasons for same.
He affirmed that it would be about $170,000 less under the 1984 Actuarial Table and also affirmed that the
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losses are factored in over a five -year period. Regarding salaries, he is estimating about a 2.5% increase
with an additional 1.5% merit increase and Finance Director Dangles added that promotions would also
factor in to the 4 %. Mr. Schroeder explained that there are two main inputs into calculating the data — the
actuarial assumption, which reflects what is really going to happen, and the other input is the funding policy
items, for example, how to fund the unfunded liability. He affirmed that he has also factored in Tier II
members for a lower benefit assumption.
There was discussion regarding the Illinois Department of Insurance Mortality Table — RP2000, which has
a blue collar adjustment, and Mr. Schroeder stated that using that table for the Board's assumptions would
make the contributions higher and that the RP2000 combines police and fire.
Discussion ensued regarding the need for a special meeting to finalize the recommendations. Agreement
to meet on Thursday, March 21s`, at 6:00 p.m.
Mr. Schroeder, Lowery representatives and Ms. Krafchek exited the meeting at approximately 8:40 p.m.
f. Discussion regarding upcoming out -of -state and other pension conferences
Pension Clerk Kane explained that this item was placed on the agenda to answer questions regarding
remittance for out -of -state pension conferences. She affirmed that when trustees have gone to the Lake
Geneva conference, the Fund has covered registration, lodging and mileage. Consensus for the Fund to
pay for conference registrations and a per diem of $200 towards lodging.
Pension Clerk Kane discussed the reply from Attorney Reimer regarding providing training. She stated that
he would be willing to attend the Board meetings for educational training for the Board only, and also
agreed that Trustee Patel could present topics for training credit.
9. INFORMATION & UPDATES
a. Scheduling of second quarterly meeting in 2013
Agreement to set second quarterly meeting for 7:00 p.m. on Thursday, April 18, 2013.
9. ADJOURNMENT:
Motion by Trustee Kadolph, seconded by Vice President Feldman, to adjourn the Board of Trustees
of the Police Pension Fund meeting at 9:02 p.m. VOICE VOTE: Motion carried.
ATTEST:
Edward Casoers /s/
Edward Caspers, Secretary
Board of Trustees of the Police Pension Fund
BOARD OF TRUSTEES OF THE POLICE PENSION FUND
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