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Minutes - 04/29/2020 - Police Pension Fund BoardBOARD OF TRUSTEES OF THE POLICE PENSION FUND Minutes Page 1 of 9 April 29, 2020 VILLAGE OF OAK BROOK BOARD OF TRUSTEES OF THE POLICE PENSION FUND - Minutes April 29, 2020 UNOFFICIAL UNTIL APPROVED AS WRITTEN √ OR AS AMENDED BY BOARD OF TRUSTEES OF THE POLICE PENSION FUND ON July 21, 2020 NOTE: This meeting was conducted via teleconference due to the Covid -19 Pandemic. The public was provided the opportunity to participate in the audio meeting and/or submit questions beforehand. 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 Vel Torlo at 7:00 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 Vel Torlo, Vice President Alan Feldman, Secretary Ed Caspers, Trustee Hitesh Patel, Trustee Ben Kadolph ABSENT: None IN ATTENDANCE: Phil Kosmala and Zach Pearsall of Taiber Kosmala and Associates, Bob Thompson and Alex Garber of Fifth Third Bank, Bob Rietz of Lauterbach & Amen, Village Finance Director/Treasurer Jason Paprocki, Pension Clerk Rose Kane 3. PUBLIC COMMENTS a. 2020 Election Results Vice President Feldman read the Notice of Election Results for the Pension Board Trustee Election on April 20, 2020, and the results were as follows: Velia Torlo was re-elected as an Active Member, Reid Fotyniewicz was elected for the first time as an Active Member, and Edward J. Caspers was re-elected as the Retired Member. 4. APPROVAL OF MINUTES a. Approval of Regular Meeting Minutes of January 21, 2020 Motion by Secretary Caspers, seconded by Vice President Feldman, to approve the Meeting Minutes of the January 21, 2020 Regular Board Meeting as presented. VOICE VOTE: Motion carried. 5. CONSENT AGENDA All items on the Consent Agenda are considered to be routine in nature and will be enacted in one motion. a. Approval of January 1-31, 2020 expenditures in the total amount of $266,549.73 b. Approval of February 1-29, 2020 expenditures in the total amount of $254,968.37 c. Approval of March 1-31, 2020 expenditures in the total amount of $257,807.29 d. Approval of Taiber Kosmala 4Q19 invoice in the amount of $7,000.00 e. Approval of Lauterbach & Amen, LLP invoices in the total amount of $5,000.00, for FYE18 MCR, September 2019, FYE19 1099s, January 2020, and February 2020 invoices f. Approval of Pension Clerk Kane’s timesheet in the total amount of $225.00 for administrative services rendered between July and December 2019 g. Approval of reimbursement to Pension Clerk for election envelopes in the amount of $39.14 BOARD OF TRUSTEES OF THE POLICE PENSION FUND Minutes Page 2 of 9 April 29, 2020 Motion by Trustee Kadolph, seconded by Trustee Patel, 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. 6. ITEMS REMOVED FROM CONSENT AGENDA – None presented. 7. UNFINISHED BUSINESS a. Discussion/Action regarding Actuarial Assumptions Mr. Rietz stated that no changes had been made since the draft report was discussed at the January meeting. He discussed page 2 of the tax levy report prepared for this meeting per the table below. CONTRIBUTION RECOMMENDATION & FUNDED PERCENTAGE Last Year Current Year Recommended Contribution $2,026,000 $2,411,000 Normal Cost $923,000 $1,041,000 Market Value of Assets $35,165,000 $41,183,000 Actuarial Value of Assets $38,228,000 $39,827,000 Actuarial Accrued Liability $61,407,000 $65,925,000 Unfunded Actuarial Accrued Liability $23,179,000 $26,098,000 Percent Funded Actuarial Value of Assets 62.25% 60.41% Market Value of Assets 57.27% 62.47% He talked about preserving the market gains to offset future losses. He then referred to the table on page 3 of the report. CHANGE IN CONTRIBUTION Actuarial Liability Recommended Contribution Prior Year $61,407,000 $2,026,000 Expected Changes $2,115,000 $76,000 Salary Increases Greater than Expected ($273,000) ($28,000) Demographic Changes $1,049,000 $91,000 Assumption Changes $1,490,000 $175,000 Plan Changes $138,000 $49,000 Asset Return (Greater)/Less than Expected $0 $23,000 Contributions (Greater)/Less than Expected $0 ($1,000) Net (Decrease)/Increase $4,519,000 $385,000 Current Year Recommended Contribution $65,926,000 $2,411,000 Discussion ensued regarding new retirements reflected an increase in liability. Mr. Rietz explained that 10% of the time members will retire at age 50, and that they determine a 15 -year period between age 50 and 65 to calculate a present value. He stated that when members retire earlier, the Fund will typically experience a loss in that regard, because it expected 90% of the time retirements will be deferred to the future. He explained that bringing in new members may also result in a shortfall due to the increase in contributions and liability. Mr. Rietz discussed other probabilities that would affect the liability such as, a disability, which would reflect a loss to the Fund, which would be demographic change, what the actual experience compared to what was assumed previously. He referred to page BOARD OF TRUSTEES OF THE POLICE PENSION FUND Minutes Page 3 of 9 April 29, 2020 37 of the full actuarial report and stated the average age of retirement over the past 5 years is 53.7. In reply to a question, Mr. Rietz stated that based on all the assumptions, all the retirements, it is expected that on average everyone would retire at age 55.8, so the Fund’s population is a little bit ahead of that, historically, based on 6 retirements in the last 4 years. He exp lained that this is why a large scale study is done, gathering data from all the police and fire funds because there is more credibility based on a larger set of data, than just using the occurrence seen within the Fund itself. Regarding anticipating retirements, he remarked that if the Fund has 10 eligible to retire in a year, it would be expected that 1 to 2 of them would retire. DEMOGRAPHIC CHANGES:  7 members hired during the year, 1 of whom terminated employment within the current year  2 members retired during the year  4 non-vested members terminated service during the year, 1 of whom was hired with the current year, 3 members took a refund of contributions  Salary increases were less than expected. Most active members received an increase of 2.75% or less CHANGE IN MARKET VALUE OF ASSETS Current Year Beginning Market Value of Assets $35,165,000 Employer Contributions $2,057,000 Member Contributions $379,000 Return on Investments* $6,529,000 Benefits and Refunds ($2,905,000) Other Expenses ($41,000) Ending Market Value of Assets $41,184,000 Change in Market Value of Assets $6,019,000 *The Rate of Return on Investments on a Market Value of Assets Basis was approximately 18.57% net of administrative expense. EXPECTED BENEFIT PAYMENTS Current Year Active Member Count 40 Inactive Member Count 42 Current Benefit Payments $2,890,000 Expected Benefit Payments in 5 Years $3,795,000 Expected Benefit Payments in 10 Years $4,910,000 Mr. Rietz stated that it is expected that there will be an increase of $900,000 in 5 years and another $1.2 million in 10 years, taking into account of members who will be close to retirement. RISK MANAGEMENT: Benefit Payment Risk exists when the annual retirement benefits paid to members exceeds the cash inflows due to contributions and investment returns.  The current ratio of benefit payments to the Market Value of Assets is 7.02%, compared to an Expected Rate of Return on Investments of 6.50%.  Contribution Risk is the potential for actual future contributions to deviate from expected future contributions.  Cash Flow Risk is the potential that net cash flows do not exceed the growth in plan liabilities.  Typically, when cash flows are insufficient to cover the growth in liabilities, the Funded Percentage will decline, while future Recommended Contributions will increase. BOARD OF TRUSTEES OF THE POLICE PENSION FUND Minutes Page 4 of 9 April 29, 2020 Mr. Rietz stated that no action is necessary at this time because this is a draft document and a final document will not available until after the audit is completed. He stated that there would have to be substantial change from the audit to make a difference in the recommended contribution amount of $2.4 million. Mr. Paprocki concurred that he did not anticipate any major changes. Motion by Vice President Feldman, seconded by Trustee Patel, to approve the actuarial report as it stands pending any other changes that might come in from the Illinois Department of Insurance. ROLL CALL: Ayes: 5 – Vice President Feldman, Secretary Caspers, Trustee Patel, Trustee Kadolph, President Torlo Nays: 0 – None Absent: 0 – None Motion carried. 8. NEW BUSINESS a. Taiber Kosmala and Associates, LLC Report on First Quarter, 2020 Mr. Kosmala and Mr. Pearsall summarized the First Quarter, 2020 as follows: Oak Brook Pension Performance On page 6 of the Taiber Kosmala Report, the portfolio activity was listed as follows: On the back of three Fed rates cuts, low inflation, a strong labor market, robust housing fundamentals, a competed Brexit deal, and a long-awaited U.S.-Sino trade deal – market conditions were very encouraging in January. The S&P 500 closed at a record high on February 19th, but equity prices lost momentum when CoVid-19 set in motion travel bans, school closures, and event cancellations; the U.S. economy contracted as social distancing measures quickly became widespread. March achieved the dubious distinction of the most volatile month in U.S. stock market history and ended a historic 11 - year bull market. Key takeaways for the quarter:  Inflation expectations declined meaningfully by quarter end. The 10-year “break-even” inflation rate fell below 1.0% in March, a level not seen since 2008. The dramatic decline in oil prices and spike in unemployment suggest that inflationary pressures are unlikely to appear in the near-term.  Policy responses to the Coronavirus pandemic pushed global balance sheets to record levels. By the end of April, the U.S. Fed balance sheet expanded to a record $6.7 trillion, well above the previous peak of $4.5 trillion and slashed Fed Funds rate to 0%- 0.25%. The Fed has affirmed its “whatever-it-takes” commitment to soften the blow of the coronavirus with Wall Street anticipating its balance sheet could easily reach $9 to $11 trillion (50% of GDP) in coming months, dwarfing the $3.7 trillion increase during and after the ’08-’09 financial crisis.  On March 25th Congress passed the $2.2 trillion CARES Act authorizing payments to more than 150 million American households. The CARES Act enhanced unemployment insurance programs, and established a $500 billion loan program for businesses, cities, and states, including a $349 billion employee retention fund for Summary of Cash Flows First Quarter Beginning Market Value $41,072,623 Net Cash Flow -$295,965 Net Investment Change -$5,904,392 Ending Market Value on 3/31/18 $34,872,265 BOARD OF TRUSTEES OF THE POLICE PENSION FUND Minutes Page 5 of 9 April 29, 2020 small businesses. After the initial bill, an additional $484 billion package was provided to replenish the CARES Act for small business loans, provide capital to hospitals and testing programs. The S&P 500 reached a near-term low on March 23rd, having dropped 34% from its February 19th high water mark. The pull-back was excessive, U.S. equity prices dropped 32% in 22 trading days, 6.5x worse than the average initial 22 days of all post-war bear markets. Looked at another way, at this point in 2008 the stock market had only declined by about 10%. By quarter -end, large-cap stocks finished almost exactly 20% lower than year -end levels. Cyclical sectors, such as Industrials (-27%), Materials (-26%), Energy (-51%) and Financials (-32%) all lagged the broader market. Small-cap and mid-cap stocks fell even more, ending the quarter approximately 30% lower than their 2019 year -end levels. International and emerging market stocks declined by 23% during the first quarter. Among developed markets, Japan and the U.S. were somewhat resilient, whereas Europe generally lagged. Value- oriented stocks around the world fell dramatically more than Growth stocks. The U.S. Treasury yield curve made a dramatic shift downward an d became steeper over the course of the quarter. Every point on the curve declined by a minimum of 104 bps. During the quarter, 10 - year yields declined 122bps from 1.92% to 0.70% and 2-year yields fell 135 bps from 1.58% to 0.23%. Liquidity-driven dislocations occurred in almost every segment of fixed-income markets. Credit spreads widened tremendously but stabilized after the Fed indicated it would purchase both investment grade and high yield corporate bonds as part their liquidity programs. The pension underperformed in the first quarter mostly due to an overweight allocation to risk assets. The portfolio declined 14.4% in the first quarter, relative to a 12.2% decline for the policy benchmark. Performance for active managers was mixed; growth-oriented managers such as WCM and MFS outperformed their benchmarks and their respective peer groups. Virtus Ceredex & Polaris both underperformed on the value side. The portfolio under performed in fixed income, the satellite position in PIMCO Income declined 7.7% during the trailing three-months as credit spreads in both corporate and securitized bonds blew out over concerns of an economic collapse. The core fixed income holding also underperformed broader fixed income due to a shorter duration posture a nd higher exposure to credit relative to treasuries. Discussion ensued regarding the economic effects of Covid-19 and its resulting shutdown of businesses for months. b. Fifth Third Report on Fourth Quarter, 2020 Mr. Thompson referred to page 6 of the Fifth Third report and the lagging Real Estate Investment Trusts (REITs), especially the hotels and regional malls. REAL ESTATE AND ALTERNATIVE INVESTMENTS OVERVIEW Index 1-Month 3-Months YTD 1-Year 3-Years* 5-Years* S&P US REIT -21.53 -26.90 -26.90 -21.42 -3.17 -0.61 HFRX Global Hedge Fund -5.88 -6.85 -6.85 -1.39 -0.54 -0.65 S&P Global Infrastructure -22.96 -29.17 -29.17 -21.19 -3.27 -0.40 S&P GSCI Gold Total Return 1.91 4.83 4.83 22.96 8.46 6.17 Thompson Reuters/Core Community -23.58 -34.25 -34.25 -32.50 -11.62 -9.44 *Annualized Return BOARD OF TRUSTEES OF THE POLICE PENSION FUND Minutes Page 6 of 9 April 29, 2020 Mr. Garber discussed page 5 of the Fifth Third report. FIXED INCOME MARKET OVERVIEW Index 1-Month 3-Months YTD 1-Year 3-Years* 5-Years* BC U.S Intm Gov/Credit -0.44 2.40 2.40 6.88 3.79 2.76 BC Global Agg excl. USD -3.22 -2.68 -2.68 0.74 2.57 2.03 BC U.S. TIPS -1.76 1.69 1.69 6.85 3.46 2.67 BC U.S. Municipal Bonds -3.63 -0.63 -0.63 3.85 3.95 3.19 BC U.S. High Yield Bonds -11.46 -12.68 -12.68 -6.94 0.76 2.77 *Annualized Return Page 8 of the Fifth Third report shows the marketable holdings: ALLOCATION SUMMARY: ASSET CATEGORY % Holdings Market Value Estimated Annual Income Current Yield Marketable Holdings Traditional Asset Classes 100.00% $11,847,366.90 $419,291.51 3.54% Cash and Equivalents 5.33% $ 631,566.14 $ 5,178.84 0.82% Fixed Income 94.67% $11,215,800.76 $414.112.67 3.69% Total Marketable Holdings 100.00% $11,847,366.90 $419,291.51 3.54% Total Holdings $11,847,366.90 $419,291.51 3.54% Mr. Thompson then referred to page 9 of the Fifth Third report and stated that in regard to total earnings, the portfolio is up. Mr. Garber stated that current month fixed income has done particularly well. RECONCILLIATION SUMMARY Total Holdings on 01/01/2020 $12,068,647.97 Beginning Marketable Holdings on 01/01/2020 $11,974,007.69 Beginning Accrued Income $ 94,640.28 Beginning Value $12,068,647.97 Contributions Cash Contributions $477,141.46 Asset Receipts $ 0.00 Other Contributions $ 0.00 Total Contributions $477,141.46 Withdrawals Cash Withdrawals ($765,855.13) Asset Delivery $0.00 Fees ($5,274.78) Total Withdrawals ($771,129.91) Income Earned Interest Collected $ 88,368.82 Dividends Collected $0.00 Other Income $0.00 Net Accrued Income $ 19,214.68 Total Income Earned $107,583.50 Net Change $ 78,978.84 Ending Marketable Holdings on 03/31/2020 $11,847.366.90 Ending Accrued Income $ 113,854.96 Ending Value $11,961,221.86 Total Holdings on 03/31/2020 $11,961,221.86 Total Earnings $186,562.34 BOARD OF TRUSTEES OF THE POLICE PENSION FUND Minutes Page 7 of 9 April 29, 2020 Mr. Thompson stated that as of April 28, 2020, $12,041,698 is the valuation for the bond portfolio, definitely rebounding. Mr. Garber discussed the Performance Summary: Asset Category on page 10. Mr. Thompson discussed the page 11 of the Fifth Third report. FIXED INCOME: INDIVIDUAL HOLDINGS Category % Total Fixed Income Market Value Estimated Annual Income Current Yield Domestic Fixed Income Government Bonds 46.68% $5,235,132.05 $215,677.54 4.12% Domestic Fixed Income Corporate Bonds 41.11% $4,610,328.70 $157,477.98 3.42% Intl Developed Mkt Bonds 5.75% $644,834.50 $24,375.00 3.78% Domestic Fixed Income Savings Instruments 5.60% $628,420.00 $14,062.50 2.24% Domestic Fixed Income Mortgage Backed 0.00% $153.26 $11.45 7.47% Total Indiv Fixed Income Holdings Total Pooled Fixed Income Holdings 99.14% 0.86% $11,118,868.51 $96,932.25 $411,604.47 $2,508.19 3.70% 2.59% Total Fixed Income Holdings 100% $11,215,800.76 $414,112.66 3.69% Trustee Kadolph remarked that some Oakbrook Center stores will be offering curbside service. c. Approval of Investment Transactions for First Quarter, 2020 Motion by Trustee Kadolph, seconded by Secretary Caspers, to approve the Investment Transactions for First Quarter 2020. ROLL CALL: Ayes: 5 – Secretary Caspers, Trustee Patel, Trustee Kadolph, President Torlo, Vice President Feldman Nays: 0 – None Absent: 0 – None Motion carried. Mr. Thompson, Mr. Garber, Mr. Kosmala, and Mr. Pearsall all exited the teleconference at approximately 8:12 p.m. d. Approval of Application for Membership in the Oak Brook Police Pension Fund of Christian A. Bartnicki (hired 2/24/2020) e. Approval of Application for Membership in the Oak Brook Police Pension Fund of Tanayry Campos-Perez (hired 2/24/2020) Motion by Secretary Caspers, seconded by Trustee Kadolph, to approve the Applications for Membership in the Oak Brook Police Pension Fund of Christian A. Bartnicki and Tanayry Campos-Perez, hired February 24, 2020. BOARD OF TRUSTEES OF THE POLICE PENSION FUND Minutes Page 8 of 9 April 29, 2020 ROLL CALL: Ayes: 5 –Trustee Patel, Trustee Kadolph, President Torlo, Vice President Feldman, Trustee Caspers Nays: 0 – None Absent: 0 – None Motion carried. f. Approval of Adjusted Transfer of Creditable Service for Thomas Russell from the Oakbrook Terrace Police Pension Fund to the Oak Brook Police Pension Fund Pension Clerk Kane explained that this item reflected a correction in the last date of Mr. Russell’s Oakbrook Terrace creditable service. Motion by Trustee Kadolph, seconded by Trustee Patel to approve the Adjusted Transfer of Creditable Service for Thomas Russell. VOICE VOTE: Motion carried. g. Approval of Transfer of Creditable Service for Justin Pearce from the Posen Police Pension Fund to the Oak Brook Police Pension Fund Motion by Trustee Kadolph, seconded by Secretary Caspers, to approve the Transfer of Creditable Service for Justin Pearce. VOICE VOTE: Motion carried. h. Approval of Service Retirement Pension Benefit Request and Calculation Worksheet for Robin J. Froehlich Motion by Trustee Kadolph, seconded by Secretary Caspers, to approve the Service Retirement Pension Benefit Request and Calculation Worksheet for Robin J. Froehlich. VOICE VOTE: Motion carried. i. Ratification of Pension Calculation Worksheet for Donald Jacobs Motion by Trustee Kadolph, seconded by Secretary Caspers, to ratify the Pension Calculation Worksheet for Donald Jacobs. VOICE VOTE: Motion carried. 9. PENDING BUSINESS a. Discussion/action regarding consolidation of pension funds Mr. Rietz stated that in light of the pandemic, the schedule has not changed, it is still the 30 -month time frame, a temporary board is in place, and the next thing is to determine how to do the voting for the actual boards in addition to hiring on executive directors, etc. He said there has been some discussion about extending the amortization period for the statutory municipal contributions from 2040 to 2050. He discussed other things which have been done to put this in place. Mr. Rietz exited the teleconference at approximately 8:23 p.m. b. Discussion/action regarding disability matter Discussion ensued regarding the next steps, if any, and that Covid-19 has forced a delay in any other medical reports. It was suggested that the Bylaws be amended for future disability matters. 9. INFORMATION & UPDATES a. Scheduling of third quarterly meeting 2020 Consensus to meet for the third quarterly meeting on July 21, 2020 at 7:00 p.m. BOARD OF TRUSTEES OF THE POLICE PENSION FUND Minutes Page 9 of 9 April 29, 2020 10. ADJOURNMENT Motion by Trustee Kadolph, seconded by Vice President Feldman, to adjourn the Board of Trustees of the Police Pension Fund meeting at 8:29 p.m. VOICE VOTE: Motion carried. ATTEST: Edward J. Caspers /s/ Edward J. Caspers, Secretary Board of Trustees of the Police Pension Fund