Minutes - 02/02/2006 - Police Pension Fund BoardMINUTES OF THE FEBRUARY 2, 2006 REGULAR
MEETING OF THE BOARD OF TRUSTEES OF THE
OAK BROOK POLICE PENSION FUND APPROVED AS
WRITTEN ON APRIL 27, 2006.
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 Birdsall at 7:10 p.m. in the Upper Level
Conference Room of the Butler Government Center, 1200 Oak Brook Road,
Oak Brook, IL.
2. ROLL CALL
Recording Secretary Gonnella called the roll with the following persons
PRESENT: President Robert Birdsall, Secretary Alan Feldman, Assistant
Secretary Clingen and Trustee Richard Badowski.
ABSENT: Vice President Michael Hall.
IN ATTENDANCE: Therese Krafcheck, Vice President; Douglas Madigan,
Vice President and Chief Investment Officer; John Falduto, Vice
President, Oak Brook Bank and Actuary Timothy Sharpe.
3. APPROVAL OF MINUTES
a. Regular Meeting Minutes of October 27, 2005
Motion by Assistant Secretary Clingen, seconded by Trustee Badowski, to
approve the Minutes of the October 27, 2005 as presented. VOICE VOTE:
Motion carried.
4. CONSENT AGENDA
All items on the Consent Agenda are considered to be routine in nature and will
be enacted in one motion.
Motion by Assistant Secretary Clingen, seconded by Trustee Badowski, to
approve the Consent Agenda and authorize expenditures as amended. ROLL
CALL VOTE:
Ayes: 4 - President Birdsall, Secretary Feldman, Assistant Secretary Clingen
and Trustee Badowski.
Nays: 0 - None.
Absent: 1 - Vice President Hall. Motion carried.
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a. Approval of October 1 -31, 2005 checks #3152 -3165 and #6172 -6190 in the
total amount of $108,654.62
b. Approval of November 1 -30, 2005 checks #3166 -3179 and #6191 -6209 in
the total amount of $104,942.38
c. Approval of Illinois Public Pension Fund Association (IPPFA) Membership
Dues in the amount of $750.00
d. Approval of Pension Clerk hours for the month of October in the total
amount of $172.76
5. ITEMS REMOVED FROM CONSENT AGENDA - None presented.
Finance Director Langlois recommended deferring the next Agenda Item,
Unfinished Business 6. a. Approval of Edward Gabes Service Credit Transfer to
later in the meeting when the Board discusses Agenda Item 7. New Business, f.
Discussion of Donald Schweihs Service Credit Transfer.
6. UNFINISHED BUSINESS
b. Approval of Investment Policy Revision
Finance Director Langlois indicated, that at the last Board meeting, he was
directed to change the allocation for callable securities in the Investment
Policy from the amount normal allocation to 15% + or — 10. He indicated
that Oak Brook Bank may have some other recommended changes. Therese
Krafcheck, Oak Brook Bank, noted that on page 4 of the Investment Policy
that under Benchmark it should read the Merrill Lynch Treasury Agency
Index rather than Merrill Lynch Government /Corporate /Mortgage Index.
On page 5, under the allocation guidelines, U.S. Government Agency
MBS's should be 10% rather than 30 %, U.S. Government Agency "Non -
Callable" Securities should be 40 %.
Assistant Secretary Clingen asked what the Fund's current allocations are at
this time. Ms. Krafcheck indicated that Treasury Securities are 25 %, the
Agency Non - Callable Securities are 42 %, the Agency Callable Securities
are 22 %, Taxable Municipal Securities at 6 %, U.S. Government Agency
MBS's at 4% and The Fund's Certificate of Deposit at 1 %.
Finance Director Langlois recommended that this continued to the next
quarterly meeting.
7. NEW BUSINESS
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7. a. Discussion of Actuarial Study
Actuary Sharpe addressed the preliminary actuarial results, investment
performance summary and the salary history for The Fund. This year the
investment return was less than expected and salaries increased more than
expected. Thus, the percent funded decreased and the Village's contribution
increased. The Village's contribution as a percentage of payroll also
increased. The investment return was 4.68% with the annual payroll increase
of 6.3 %. There were no new members, no terminations, no retirements and
no incidents of disability. The percent funded decreased from 88.9% to
86.3 %. The Village's contribution increased from $496,121 to $554,767
(11.8 %) and the Village's contribution percentage increased from 17.66% to
18.59 %. He recommended that a good assumption is 7.5% Village
assumption rate.
Secretary Feldman voiced his concern that events such as 9/11 have changed
this country and caused a major impact on the rates of returns, as well as
benefits have been imposed upon municipalities to be increased. He
dispersed information to the Board of an analysis he performed on The Fund.
Earnings from inception of The Fund management by Oak Brook Bank are
6.11%. The seven year average earnings of all municipal accounts managed
by Oak Brook Bank are 5.87 %. He remarked that in the last seven years
there has been a rate of return of the different indexes below 6 %.
Assistant Secretary Clingen suggested if this was measured over the last 30
or 40 years, there would be a higher rate of return and to view this time
frame rather than a seven year measure. He recommended considering the
percentage of funding by the Village that provides a reasonable, responsible,
fiscally conservative number for the pension and the Village.
Finance Director Langlois explained that one of the factors of why the
percentage funded of The Fund has decreased is not just the investment
returns but there have been changes in benefits. The liabilities have changed
which has driven the pension funding lower and it has been potentially more
significant than the investment returns.
Doug Madigan, Oak Brook Bank, suggested that long term normal returns
will occur. He believes that 7% or 7.5% would not affect the Village.
Actuary Sharpe explained that a few years ago there was a large salary
adjustment of 12% and two market returns which caused the percent funded
of The Fund to drop from 100% to 86 %.
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7. a.
Secretary Feldman recommended an interest assumption 7.25% and a salary
assumption of 5.25% and review this closely next year.
Motion by Secretary Feldman, seconded by Trustee Badowski, to use an
assumption of 7.25% for the interest rate and a salary assumption of 5.25%
for the Actuarial Study. ROLL CALL VOTE:
Ayes: 4 - President Birdsall, Secretary Feldman, Assistant Secretary Clingen
and Trustee Badowski.
Nays: 0 - None.
Absent: 1 - Vice President Hall. Motion carried.
Motion by Trustee Badowski, seconded by Secretary Feldman, to direct the
Actuary to prepare the Actuarial Study with an interest rate assumption of
7.25% and a salary assumption of 5.25% with the financial report being
presented at the April Village Board meeting. VOICE VOTE: Motion
carried.
b. Discussion of Public Act 94 -0079 Prohibition on Sudan Investments
John Falduto, Oak Brook Bank, explained that there was recent legislation
passed that prohibits Illinois police and firefighter's pension funds from
investing in funds that utilize companies or investments in Republic of
Sudan. There is some compliance that the pension board is required to
participate in by requiring our investment managers to certify that they are
not investing in any investments in Sudan. Oak Brook Bank will research
the mutual funds that they own to determine that the underlying companies
do not have any holdings in Sudan. They have forms they that will submit to
the Board once they have completed the process.
Mr. Madigan indicated that there may be a lawsuit filed against the State of
Illinois in that the passage of the act may be unconstitutional. A similar act
was passed in Massachusetts that involved Burma and was overturned. It
involves whether the state can participate in national and federal issues.
c. Oak Brook Bank Investment Management Presentation
John Falduto, Oak Brook Bank, gave the investment management
presentation. The valued added from investments for the fourth quarter of
2005 was $368,561 with a year -to -date of $1,130,339. The portfolio
performance review indicated that the money market return was 0.95% for
the fourth quarter, fixed income return of 0.30 %, equity return of 3.12% and
a total return of 1.52 %. The year -to -date money market return was 3.03 %,
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7. C.
fixed income return was 2.11%, equity return was 8.76% and the total
account return was 4.77 %. Since inception the annual performance is 6.11%,
stocks 4.79 %, bonds 5.86% and T -bills 3.49 %. The current allocation is
59% large capitalization US stocks, 21% small capitalization US stocks, 15%
international stocks and REIT Fund 5 %. The bank has shifted the allocations
more to the international stocks at this time rather than the large
capitalization US stocks but they are monitoring to determine if it should
change. The current allocation of the fixed income sector allocations are
25% US treasury securities, 42% US government agency notes /bonds non -
callable, US government agency notes /bonds callable 22 %, taxable
municipal bonds 5 %, US government agency mortgage backed securities 4%
and certificates of deposit I%.
Mr. Madigan gave an economic, fixed income and equity commentary of the
market. Therese Krafcheck asked if the Board is comfortable with the
equities going to 45 %. The Board indicated that if it continues to remain at
45 %, then they will address this.
d. Approval of Investment Transactions
President Birdsall requested a motion to approve the investment transactions
as presented by Oak Brook Bank.
Motion by Assistant Secretary Clingen, seconded by Secretary Feldman, to
approve the investment transactions as indicated in Tab 5 of the Oak Brook
Bank's Investment Report from October 1, 2005 through December 31, 2005
as presented. ROLL CALL VOTE:
Ayes: 4 - President Birdsall, Secretary Feldman, Assistant Secretary Clingen
and Trustee Badowski.
Nays: 0 - None.
Absent: 1 - Vice President Hall. Motion carried.
e. Discussion and Approval of 2006 Pension Increases
Finance Director Langlois explained that, provided by State Statute, there is
a 3% increase. President Birdsall requested a motion to approve the 2006
proposed increases.
Motion by Assistant Secretary Clingen, seconded by Secretary Feldman, to
approve the 2006 pension increases as presented. ROLL CALL VOTE:
Ayes: 4 - President Birdsall, Secretary Feldman, Assistant Secretary Clingen
and Trustee Badowski.
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7. e.
Nays: 0 - None.
Absent: 1 - Vice President Hall. Motion carried.
President Birdsall requested that the Board address Agenda Item 6. a., Approval
of Edward Gabes Service Credit Transfer as it related to Agenda Item 7.f.
f. Discussion of Donald Schweihs Service Credit Transfer
6. a.
Finance Director Langlois explained that the issue involves portability
between public pension funds and IRMF. There was a six month timeframe
in which people that are in police pension funds and work for IMRF
employers, could move some of their service credit between IMRF and a
police pension. Two former police pension fund members who now work
for IMRF employers want to move their funds.
Donald Schweihs and Edward Gabes who worked for the Village in the
1970's and early 1980's want their Oak Brook years to count toward their
IMRF employment. It requires that they repay their contributions with
interest and the Village has to match their contributions and those funds are
forwarded to IMRF. Two letters detailing the calculations of the cost to the
pension fund were given to the Board members of each former police officer.
The cost is less than $5,000 per former member.
Director Langlois explained that the State law was changed this past summer
and Mr. Schweihs did not contact the Village of Oak Brook until December.
Director Langlois indicated that he responded in a timely manner to Mr.
Schweihs request. IMRF extended the deadline to January 31, 2006 as the
transfers were to be done by December 31, 2005 but IMRF was behind in
their processing of these requests. Mr. Schweihs was late sending his funds
as they were not received until January 31, 2006. Therefore, IMRF did not
receive the payment until February 1St or 2nd and that is an issue that Mr.
Schweihs will have to handle with IMRF. The Finance Department sent the
funds the very next day after they were received.
Motion by Assistant Secretary Clingen, seconded by Trustee Badowski, to
approve the service credit transfer of Edward Gabes to the Illinois Municipal
Retirement Fund in the amount of $17,926.65 and a pension fund match of
his contributions of $4,865.17. ROLL CALL VOTE:
Ayes: 4 - President Birdsall, Secretary Feldman, Assistant Secretary Clingen
and Trustee Badowski.
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6. a.
7. f.
Ell']
Nays: 0 - None.
Absent: 1 - Vice President Hall. Motion carried.
Motion by Assistant Secretary Clingen, seconded by Trustee Badowski, to
approve Donald Schweihs service credit transfer in the amount of $23,555.27
to the Illinois Municipal Retirement Fund which involves funds of
$18,863.82 and a pension fund match of his contributions of $4,691.45.
ROLL CALL VOTE:
Ayes: 4 - President Birdsall, Secretary Feldman, Assistant Secretary Clingen
and Trustee Badowski.
Nays: 0 - None.
Absent: 1 - Vice President Hall. Motion carried.
g. Approval of Lauterbach & Amen Professional Services Contract
Motion by Secretary Feldman, seconded by Trustee Badowski, to approve
the Lauterbach & Amen Contract for accounting services of the Oak Brook
Police Pension Fund for 2006. ROLL CALL VOTE:
Ayes: 4 - President Birdsall, Secretary Feldman, Assistant Secretary Clingen
and Trustee Badowski.
Nays: 0 - None.
Absent: 1 - Vice President Hall. Motion carried.
h. Discussion of April, 2006 Election of Board Members
The Board discussed that the terms of office must be staggered. President
Birdsall explained that two Trustees supervise the election who are appointed
by the municipality. The term office for the Trustees begins on the second
Tuesday in the month of May. March 1St the notice of election and
nomination forms are sent to all members of The Fund. They are returned to
the Trustee supervising the election. Then the official ballots are mailed out
April 1St and returned to the supervising Trustee before the third Monday in
April when the election is held. The notice of the results of the election is to
be posted in the Police Department and Village Hall.
Assistant Secretary Clingen indicated that he would be out of town on April
17th for the election. The Board recommended that Secretary Feldman
supervise the election. A representative from the active officers will be
attendance of the election on April 17th to count the ballots.
UPDATE AND INFORMATION
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8. a. Update of Donald Malec's Creditable Service
President Birdsall explained that Board Attorney Reimer sent a letter to the
Illinois Department of Insurance requesting their opinion of Donald Malec's
creditable service and whether he is eligible for service between the years
when he was relieved of active duty February 22, 1999 and when he returned
to active duty on June 30, 2003. The Board is waiting for their opinion as to
whether he is eligible and needs to contribute to the pension fund during that
time. When the opinion is received by the Board, then the Board will make a
ruling. President Birdsall commented that Officer Malec was involved in a
serious car accident when on duty and he has not returned to duty. If he does
not return to active duty, the pension board will be receiving his 65% on duty
disability application. If he does return to duty, the Board will be waiting for
the opinion from the Department of Insurance which may take six to nine
months for the Board's request.
Finance Director Langlois noted that the Illinois Department of Insurance
still has not finalized their audit of the Oak Brook Police Pension Fund. He
has contacted them five times regarding mistakes they listed on their audit
and that the Board would not approve the audit until they were corrected.
b. Status Report Update
President Birdsall remarked that most of the Status Report Updates have
been received from members of The Fund. A few active duty members still
need to submit their forms.
President Birdsall noted that the Board should set a date for the next
quarterly meeting. The Board recommended the date of April 27, 2006 for
their next meeting. The Board then discussed the annual membership
meeting of The Fund and locations for the meeting. The Board agreed upon
the date of May 18th for the annual membership meeting.
9. ADJOURNMENT
Motion by Trustee Badowski, seconded by Secretary Feldman, to adjourn the
meeting at 9:17 p.m. VOICE VOTE: Motion carried.
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9. ATTEST:
Alan Feldman
Secretary
Linda K. Gonnella
Recording Secretary
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