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HomeMy WebLinkAboutMinutes - 01/30/2018 - Police Pension Fund BoardBOARD OF TRUSTEES OF THE POLICE PENSION FUND Minutes Page 1 of 5 January 30, 2018 VILLAGE OF OAK BROOK BOARD OF TRUSTEES OF THE POLICE PENSION FUND - Minutes January 30, 2018 UNOFFICIAL UNTIL APPROVED AS WRITTEN √ OR AS AMENDED BY BOARD OF TRUSTEES OF THE POLICE PENSION FUND ON April 17, 2018 1. CALL TO ORDER: The Regular Meeting of the Board of Trustees of the Oak Brook Police Pension Fund was called to order by Vice President Alan Feldman at 7:01 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: Vice President Alan Feldman, , Secretary Ed Caspers, Trustee Hitesh Patel, Trustee Ben Kadolph ABSENT: President Vel Torlo, IN ATTENDANCE: Randy Wolf of Taiber, Kosmala, Spencer Klein and Frank Fanelli of MB Financial, Todd Schroeder and Derek Flessner of Lauterbach and Amen, Finance Director/Treasurer Jason Paprocki, Pension Clerk Rose Kane Phil Kosmala of Taiber, Kosmala attended via teleconference 3. PUBLIC COMMENTS: None presented. 4. APPROVAL OF MINUTES: a. Approval of Regular Meeting Minutes of October 17, 2017 Motion by Trustee Kadolph, seconded by Secretary Caspers, to approve the Minutes of the October 17, 2017 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 October 1-31, 2017 expenditures in the total amount of $ 202,487.91 b. Approval of November 1-30, 2017 expenditures in the total amount of $191,607.79 c. Approval of December 1-31, 2017 expenditures in the total amount of $203,780.84 d. Approval of Taiber Kosmala & Associates, LLC’s invoice for 3Q17 consulting fees in the amount of $7,000.00 e. Approval of Lauterbach & Amen, LLP’s invoices for June through October 2017 accounting and FYE16 IDOI and MCR, in the total amount of $5,801.05 f. Approval of Illinois Public Pension Fund Association’s 2018 membership dues’ invoice in the amount of $795.00 g. Approval of Reimbursement to Pension Clerk Kane for meal at October 17, 2017 meeting in the amount of $150.00 h. Approval of payment to Card Services for florist expenditure in the amount of $120.45 Motion by Secretary Caspers, seconded by Trustee Kadolph, to approve the Consent Agenda. BOARD OF TRUSTEES OF THE POLICE PENSION FUND Minutes Page 2 of 5 January 30, 2018 ROLL CALL: Ayes: 4 –Secretary Caspers, Vice President Feldman, Trustee Patel, Trustee Kadolph Nays: 0 – None Absent: 1 – President Torlo Motion carried. 6. ITEMS REMOVED FROM CONSENT AGENDA – None presented. 7. UNFINISHED BUSINESS a. Discussion/Action regarding a review of the Administrative Rules Police Pension Clerk Kane explained that the revised Rules had not been received from the attorney’s office yet. Motion by Trustee Patel, seconded by Secretary Caspers, to table this item to the next regular meeting. VOICE VOTE: Motion carried. 8. NEW BUSINESS a. Taiber Kosmala and Associates, LLC Report for Fourth Quarter, 2017 Mr. Kosmala discussed capital market trends during the quarter and the firm’s outlook for 2018. Global Economic Review Mr. Kosmala stated that although the economic recovery has been the most tepid since the Great Depression, 2017 ended with surprising global economic activity to the upside, and global earnings growth following a similar trend; that U.S. GDP registered consecutive 3% quarterly tallies, and, because of the stimulative year-end tax package, economists raised expectations for 2018 economic growth. He mentioned that in response to the resurgence in the economy, the Fed raised interest rates at the December FOMC meeting, while reiterating ex pectations for three hikes in 2018, and noted that fiscal stimulus may increase pressure to increase the pace of rate hikes going forward. Market Review In his review of the market, Mr. Kosmala commented that synchronized global growth, improving corporate earnings, low inflation, and easy financial conditions propelled equity markets higher in 2017; that U.S. equities benefitted from pro-growth fiscal policies (deregulation and tax reform); that larger capitalization, growth-oriented stocks led domestic markets higher, with the Russell 1000 Growth Index generating a total return of 30%. He discussed that the S&P 500 gained 6.6% for the quarter and 21.8% for the year with the FAANG stocks (Facebook, Amazon, Apple, Netflix, and Google) accounting for more than a quarter of the S&P 500’s gain for the year ; that in what appeared to be a relentless and steady march forward, the S&P 500 did not have a single day where it lost or gained 2%; and, in fact, there were only eight 1% moves for the year – 1964 was the last time fewer 1%+ moves occurred in a calendar year. Mr. Kosmala stated that the MSCI EAFE gained 4.2% and the MSCI Emerging Markets surged 7.4%, a fourth consecutive quarter of strong returns; that 2017 was a strong year overall with MSCI EAFE rising 26% and MSCI Emerging Markets up 38%; and, that for only the third time in the past fifty years, all forty-five OECD countries are experiencing simultaneous growth. He remarked that bond markets managed modest gains for the quarter (+0.39%) and the year (+3.5%) and, that interest rates moved higher and the curve flattened (short term yields rising more than intermediate term yields) on the quarter. BOARD OF TRUSTEES OF THE POLICE PENSION FUND Minutes Page 3 of 5 January 30, 2018 Outlook Mr. Kosmala and Mr. Wolf commented that Janet Yellen will retire in February of 2018 when her term as Chair of the Federal Reserve Board of Governors ends; and, that Jerome Powell, who has already served as a member of the Board for five years, will replace Yellen as the new Chair. They discussed that Powell has previously stated that the economy does not need additional stimulus, which implies the Fed will continue to raise rates gradually until a neutral Fed funds rate is achieved ; and, that along with the change in leadership at the Fe d, there will still be four vacancies to fill on the Board of Governors. They stated that Taiber, Kosmala remains cautiously constructive on the global economy and earnings. However, Mr. Kosmala pointed out that uncertainty creates volatility - which can lead to lower P/E multiples, and, that as Powell takes the helm as the new Fed Chair and the 35-year bull market for bonds comes to an end, Fed policy error risk remains high. Mr. Kosmala mentioned that North Korea, Italian elections, BREXIT negotiations, the ECB, and the BOJ all have the potential to inject uncertainty and, thus, volatility into the capital markets. He stated that while Taiber, Kosmala does not advocate an emotionally driven knee jerk reaction to the current landscape, they do promote attentiveness as geopolitical and global market events unfold and will keep the Trustees apprised of these risks. Oak Brook Pension Performance On page 5 of the Taiber, Kosmala Report, the portfolio activity was listed as follows: Mr. Kosmala and Mr. Wolf discussed that the Fund gained 2.88% for the quarter, in line with the benchmark’s 2.88% advance, and, for the year, the Pension Fund gained 13.46%, outperforming the benchmark by 1.33% net of fees. They stated that, for the quarter, the Pension Fund benefitted from overweight positions in equities (notably domestic large caps and international equities) and corresponding underweight to fixed income investments relative to the benchmark. He added that the Pension’s active managers lagged the narrow (FAANG led) market during the quarter, mitigating the benefit of the asset allocation decision to be overweight equites. Mr. Kosmala did not recommend any allocation or manager shifts. In response to an inquiry, Mr. Schroeder discussed the market returns from the contribution standpoint and stated that it will be a small increase in the contribution on investment performance, but not what the increase was in the prior years. He remarked that $2 - $2.2 million in extra income came in during 2017 over and above the actuarial expectation. He stated that there are two ways to look at the results, from a funding perspective, there is a gain of a couple percent, and from the financial perspective, a bigger bump will be seen and more volatility. b. MB Financial Investment Management Performance Report on Fourth Quarter, 2017 Mr. Fanelli referred to page 11 of the MB report and stated that the total fund was up 2.20 basis points for the fiscal year to date. MARKET VALUE % OF TOTAL TARGET TOTAL FUND $12,730,237 100.00 100.00 FIXED INCOME $10,873,884 85.42 99.00 CASH & EQUIV. $1,856,359 14.58 1.00 Portfolio Activity Beginning Market Value Fourth Quarter 2017 $36,498,697 Net Cash Flow $142,052 Net Increase/Decrease $1,046.929 Ending Market Value on 12/31/2017 $37,687,679 BOARD OF TRUSTEES OF THE POLICE PENSION FUND Minutes Page 4 of 5 January 30, 2018 Mr. Klein discussed two other benchmarks and compared them with the Fund - the Bloomberg Barclays Intermediate Government Corporate, an index of intermediate maturity government agency and investment-grade corporate bonds, which he stated actually had a loss of 20 basis points for the fourth quarter compared to the reported gain of five. He stated that they believe the Fund is in the ballpark for what is expected for a reasonably defensively, aggressively, middle-of- the-road managed bond portfolio. Mr. Klein remarked that cash is higher than usual, and that he usually likes to keep it to $100,000 to $200,000. He discussed some “curve balls” in the bond market which he felt were good reasons to slow the re-investment process. He said typically a bond portfolio can go up to 20%. He discussed that they want to keep the bond portfolio as fully invested as possible. Discussion ensued regarding the recent rise in the 10 -year yield, change in the Fed Chair, spikes in the interest rates, and Mr. Klein referred to page 13 of MB’s Report, the current asset composition of the Fixed Income portfolio. c. Approval of Investment Transactions for Fourth Quarter, 2017. Motion by Trustee Kadolph, seconded by Secretary Caspers, to approve the Investment Transactions for Fourth Quarter, 2017. ROLL CALL: Ayes: 4 – Trustee Patel, Trustee Kadolph, Vice President Feldman, Secretary Caspers Nays: 0 – None Absent: 1 – President Torlo Motion carried. Mr. Fanelli mentioned that they had a dialogue with the Illinois Department of Insurance regarding possible expansion of investment for public pension funds such as, going across the country with taxable municipal bonds. Mr. Klein and Mr. Fanelli exited the meeting at approximately 7:33 p.m . d. Ratification of 2018 Pension Increases Motion by Trustee Kadolph, seconded by Secretary Caspers, to ratify the 2018 Pension Increases. ROLL CALL: Ayes: 4 – Trustee Kadolph, Vice President Feldman, Secretary Caspers, Trustee Patel Nays: 0 – None Absent: 1 – President Torlo Motion carried e. Discussion/Action regarding 2018 Actuarial Assumptions Mr. Schroeder discussed the actuarial study they conducted for the 2018 assumptions and recommended staying the course. He stated that from an economic side the Fund is at an expected rate of return at 6.5%. He remarked that the Illinois Department of Insurance (IDOL) has a new actuary who has produced some new reports, but which only affect the April fiscal year Funds, but that the expected rate of return for these reports has been lowered from 6.75% to 6.5%. Mr. Schroeder mentioned that some changes will be noticed in the IDOL report which appears to be getting closer to the Fund’s numbers. It was requested that a final draft be provided in advance of the April meeting. Mr. Schroeder stated that the only changes would be if the auditors made any adjustmen ts. Finance Director/Treasurer Paprocki stated that the Village will have their actuarial reports probably in mid-March. In response to a question about a number of high-ranking retirements anticipated this year, Mr. Schroeder explained what would happen with the lower-contributing replacements. BOARD OF TRUSTEES OF THE POLICE PENSION FUND Minutes Page 5 of 5 January 30, 2018 f. Discussion regarding Disability Application Pension Clerk Kane discussed that one of the active members of the Fund has applied for disability and stated there will be a lot of medical records to review. She inquired about whether the Board members would benefit if the Board’s attorney came and provided some training about the upcoming disability process since it has been seven years since the last disability and two Trustees were not on the Board then. It was also asked if the Board could utilize the Village’s independent medical examiner as one of theirs in this process. Consensus to ask the attorney to attend the April meeting, or possibly schedule a day-time meeting in advance of the quarterly meeting if the final draft of the actuarial report is complete and someone from Attorney Reimer’s office could attend to provide some guidance regarding the disability process. 9. INFORMATION & UPDATES a. Scheduling of second quarterly meeting in 2018 1. April Election Pension Clerk Kane stated that the election per the Illinois State Statutes is the third Monday in April, which would be April 16th. Vice President Feldman agreed to conduct the election tally if he is available. Consensus to meet April 18, 2018 at 7:00 p.m. for the regular meeting. 10. ADJOURNMENT: Motion by Secretary Caspers, seconded by Trustee Kadolph, to adjourn the Board of Trustees of the Police Pension Fund meeting at 8:03 p.m. VOICE VOTE: Motion carried. ATTEST: Edward J. Caspers /s/ Edward J. Caspers, Secretary Board of Trustees of the Police Pension Fund