NEW PORT RICHEY POLICE
Of a Quarterly meeting of the Board of Trustees
Meeting at 6739 Adams Street , Police Station,
New Port Richey, Florida 34652
Tuesday, the 24th day of April 2012, at 5:00 P.M.
The meeting was called to order by Mr. Pratt at 5:07 PM.
Mr. Glen Pratt
Mr. Bill Woodard
Officer Steve Wade
Det. Chris Trapnell (arrived at 5:17)
Mr. Brendon Vavrica
Mr. Lee Dehner
Mr. John Riddle
T. Scott Baker
Other: Mr. James Perez
ITEM #1 -- Approval of the minutes of the meeting of 03/27/2012
Motion: Officer Wade made a motion to approve the minutes of the
meeting. Mr. Woodard seconded the motion. The motion passed without opposition.
ITEM #2 -- Trustee Resignation – Robert Smallwood
Mr. Pratt said that Mr. Smallwood was appointed to the Board by the City in December
2011 and since has not attended a meeting. He said Mr. Smallwood sent an e-mail
indicating he thought the meetings were quarterly and due to his travel schedule and other
commitments will not be able to serve in the position. Mr. Pratt said the process will have
to start over and that the position has now sat open for two years. Mr. Baker said that Mr.
Smallwood never filed a Form 1 with the Supervisor of Elections Office and asked Mr.
Dehner since he never filed then assumed he didn’t have to file a final Form 1. Mr.
Dehner said the Board would take the position that he was never really seated, as he
would have been required to file the Form 1 within 30 days of appointment and then also
file a Form 1F Final.
Non-Agenda Item (Mr. James Perez)
Mr. Perez said he was attending the meeting due to reading recent newspaper articles
about the city going broke and issues regarding the Fire and Police Pensions. He asked
what happens to the pension if the city “belly ups”. Mr. Dehner said there are never any
guarantees but said Florida has state laws that are better than most states that protect the
retiree. Mr. Perez asked if the state would get involved if the city goes broke. Mr. Dehner
said he didn’t think the state would step in to back up the obligation. He said he didn’t
think it was something he needs to be concerned about.
Mr. Pratt said even if something happened the pension is set up to pay retirees first. Mr.
Dehner said we have new plan termination provisions that resulted from a codification
from a court case in the Town of Lake Park on the east coast about 3-4 years ago. He said
the termination provision under 185 used to be a hierarchy of payments as it started with
current retirees and went down from there (and if you ran out of money when you got to
vested people who haven’t retired yet then they were out of luck). Mr. Dehner said that
now the termination provision is that if a plan should be terminated the Pension Board
determines the method of distribution of assets (through lump sum payments, annuities,
and other statute requirements). He said they are involved in a case with Bellaire Bluffs
and so far Management Services has sided with the Pension Board. He said the city under
the statute is required to fund whatever, if anything is required to pay the accrued benefit
of all vested and non-vested members of the plan, as well as retirees. He said if the city
files for bankruptcy then all bets are off.
Mr. Perez asked if anyone from the city has contacted anyone from the Pension Board
about their money problems because they made a big deal about the Police and Fire
Pensions. Mr. Baker said the only thing the city has done is the Finance Director made a
request about a month ago for copies of retirement calculation from several of the last
ITEM #3 -- Follow-up to Actuarial Experience Study
Mr. Baker said this item had been tabled until a full board could discuss the issue. Mr.
Pratt this has briefly been discussed previously and is something to be considered to
change mortality tables, pay increases, assumptions, and other items for the valuation. He
said changing some of the things counterbalanced and felt what was currently being done
was relatively valid. Mr. Dehner said generally the catalyst for boards to do experience
studies is due to the state coming down on them for one of the assumptions, and most
frequently for investment returns. The board discussed the issue.
Motion: Officer Wade made a motion to leave the valuation alone and not
conduct an experience study at this time. Mr. Woodard seconded the motion. The motion
passed without opposition.
ITEM #4 -- Garcia Hamilton & Associates Fixed Income Quarterly Report
- By Conference Call
Mr. Jeffrey Detwiler was reached by telephonic conference call. He began going over his
quarterly report starting on page two, showing the portfolio performance. He said they
had healthy outperformance for the first quarter of the year and fiscal year to date. He
said the 12 month period was just marginally behind the index and since inception
(almost 2 years) there has been an outperformance of about .7% annual.
Mr. Detwiler said the third quarter of last year is when we had the most volatility with the
US Treasury got down-graded and fears of what would happen in Greece and other
peripheral countries in Europe. He said this really sent everyone toward the safe haven
trade of treasuries. He said they feel the economy is slowly but surely recovering and
what that means to them is they are looking for the items that are going to be sensitive to
growth in the U.S. and items they think are under-valued. Mr. Detwiler said there was
more detailed market commentary on page 3 of the report.
Mr. Detwiler went to page 5 and said this is how the index and portfolio looks. He said
they are underweighted in Treasuries and said they believe you don’t have to be fearful in
this market as they feel there is opportunity in particular in spread products. He said they
have a healthy over-weight in corporate bonds and only invest in high quality corporate
bonds. He said even though they have a higher quality profile than the benchmark they
have a higher average yield, saying their average yield is at 3% versus 1 ½ % for the
benchmark. He asked for any questions.
Mr. Pratt asked what their outlook was on the economy. Mr. Detwiler said in the U.S.
economy the best case scenario would be something like an improving GDP Growth like
we’ve seen this year. He said we were in the low to mid 1% area and now moving into
the 2-3% area and they think GDP can continue at that 3% area. So their expectation is
for some moderate acceleration of some of the economic fundamentals that they have
seen. The phone conference was ended.
ITEM #5 -- BRC Investment Management Quarterly Report
– Mr. John Riddle
Mr. Riddle began his presentation on page 4 of their report (Firm Statistics) and said
their assets are at about $566 million, which is up from $522 million at the beginning of
the year. He said their staff and ownership has remained the same. Moving to page 5, Mr.
Riddle said markets were strong again in the first quarter, as the Russell 200 (very Large
Cap Stocks) was up almost 13% and all indices up between 12-14%. He said he agreed
with Garcia Hamilton on the 3% GDP. He said the best performing sectors were
financials, informational technology, and consumer discretionary. The only declining
sector for the quarter was utilities which were down about 3%, with telecom flat and
energy stocks up only 3%. He said oil prices for the quarter were up about 4%, but
natural gas prices were down 29%.
Mr. Riddle said this leads to the structural things he wanted to discuss (highlighted on
page 6). He said they keep track a lot of different factors (style or characteristics) of the
market and stocks performance. He said the dominant feature of this last three months
has been “Momentum” (a chart on the top left-hand side of the page). He said momentum
is a measure of a trend. He said if you buy a high momentum stock (one that has gone up
already) the idea is that if it has gone up already then it will keep going up more (he used
Apple as an example). He said the first quarter did exactly opposite of that, as the 5th
quintile of momentum stocks (the stocks that did the worst in all of 2011) were up almost
19% for the first quarter of 2012. He said companies like Sears and Bank of America
were up over 70% for the quarter, but they were down 50% last year.
Mr. Riddle said the chart shows an orange horizontal line and a dashed line, which is an
average performance of all stocks in the universe during the quarter. He said the only
category of momentum stocks that was better than the average was the worst momentum
quartile. He said if you took those 5th quintile stocks (the biggest losers) out and just
picked from the other 80%, the odds were you would have done considerably worse than
the market. He said when you have periods like this last quarter it creates a difficult
environment for professional money managers. Mr. Riddle said this also can be seen in
the chart on page 7, which shows companies rated AAA (highest quality) versus
companies rated B (lowest quality) as there was over 1000 basis points difference,
meaning the lowest quality companies were the ones that outperformed.
Mr. Riddle went on to page 8 (Portfolio Summary) and said they were up 13.1% for the
quarter and the Russell 1000 Value index was up 11.1%, so for the quarter they
outperformed by about 2%. He said for the last 12 months they were up about 3.2% over
the Russell 1000 Value, and since inception they are up about 1.2% annualized. He went
over the positive and negative factors that affected performance in the portfolio listed on
page 9. Mr. Dehner asked what their annual turnover rate was and Mr. Riddle said it is a
little higher than average and was around 150%.
ITEM #6 -- Performance Monitor Report – Mr. Brendon Vavrica
- Follow-up to Real Estate Investment options/Manager
Mr. Vavrica began reviewing his report starting and said it was a very good quarter.
Starting on page 3 (Total Fund Compliance) he said you want everything answered yes
and there was only one answered no. The only no was because the total fund has not
returned 8% or more over the 5 year period. Moving to page 4 (Compliance Individual
Equity) there were no’s on questions 2 and 3 for Logan due to performance issues on the
4 year return and being just outside the 40th percentile for that 4th year. And lastly on
question 6 there was a negative Alpha. He said BRC has just one no (question 3), for
being outside the 40th for the 2 year period. Continuing to page 5, Mr. Vavrica said
Garcia Hamilton has just one no for the 2 year period and ranked in the 62nd percentile.
Mr. Vavrica continued to page 6 (Asset Allocation) saying the portfolio had 60% in
equity (or $10.3 million), 38% in Fixed Income (or $6.5 million), and about $400,000 in
cash which was 2% of the assets. He said this is a grand total of $17,148,000 and an
increase of $1.62 million from 12/31/2011. He said in dollar terms it was a fantastic
Mr. Vavrica continued to page 9 showing the returns and said he wished all of their
reports for the quarter looked as good as this one. He said it was a phenomenal quarter
and all three parts worked about as well as they could have. He said for the quarter the
fund was up 10.5% and placing in the 5th percentile. He said it outperformed the policy,
which was up 7.9%. He said probably the most important number on the page, the fiscal
year to date was up 18.5%, versus the policy at 15.9% and placed in the 7th percentile. He
said the fund is trailing for the one year, due to underperformance in the June and
September quarters last year which still shows in that number. But the trailing three and
five year numbers there is outperformance and over the five years ranking in the 17th
percentile. Mr. Vavrica said equities were up 15.7% versus the benchmark of 12.9%. He
said Garcia Hamilton had a good quarter gaining 3 ¼ % versus the benchmark up 61
basis points. For the fiscal year to date they are up 4 ½ % versus the benchmark at 1.4%
and since inception up 6.10% versus 5.35%.
Continuing to page 10, Mr. Vavrica covered the individual equity manager’s performance
and said Logan was up 18.4% for the quarter, versus the benchmark up 14.7% and was
very nice for the fiscal year to date with a return of almost 29%. He said BRC had a very
good quarter gaining 12.9% versus 11.1% and placed in the 16th percentile. He said going
back, whether it’s the quarter, one year, two year they are outperforming in all periods,
net of expense.
Mr. Vavrica discussed the risk taken by each manager as shown on the graphs on
pages11 through 15. He then went to page 17 and discussed Alpha (which is a
measurement of taking more risk and getting paid for it). The graph shows the total fund,
BRC, and Logan with positive Alpha with Logan being negative.
Mr. Vavrica said the Agenda also called for a follow up of Real Estate Investment
options. He said he re-printed the return page from the asset allocation and said this is the
basis for the recommendation of the discussion. On the far left column is the 60/40 policy
(30% to large Cap Value, 30% to Large Cap Growth, and 40% to Fixed Income) and at
the bottom the anticipated return and standard deviation. In the 2nd and 3rd column is a
Real estate allocation of 10% and the only difference between the two is where the
money comes from. He said over time Real Estate investment will return more than fixed
income, but less than equity. The 4th and 5th columns show International investment.
Mr. Vavrica said if the board was only interested in doing one of the two they
recommend doing Real Estate over International (right now) mainly because of the
incredibly low interest environment on the bond side as they look at Real Estate as a
Fixed Income alternative. He said, as how to fund it, he would recommend taking it from
A discussion took place regarding investing in Real Estate options. After the discussion
the board determined they wanted to go forward with the process of selecting a Real
Estate Investment manager and Mr. Woodard asked if a motion was needed. Mr. Dehner
said a motion was not necessary. The board discussed and agreed to have a meeting on
June 19, 2012 to interview two Real Estate managers. Mr. Vavrica said he would set up
the managers to attend for their presentations.
ITEM #7 -- Legal Report – Mr. Lee Dehner
Mr. Dehner asked when the next contract up for negotiation. Officer Wade said he thinks
they open up possibly June 1st and the contract takes effect October 1st, but doesn’t see it
getting done in a timely manner. Mr. Dehner said the reason he asked was because of the
previous discussion on Senate Bill 1128, which passed last session, which will be the
effective date of when we enter into the next agreement. He said this will affect the lump
sum payments for sick and vacation pay and said he had sent memo in reference to this
and said the board should discuss this.
Mr. Baker asked if the last agreement was a 3 year contract only open for wages and
benefits. Officer Wade said he thought that was how it was but wasn’t sure. Mr. Dehner
said the last position stated on that issue whether or not a re-opener is entered into the
agreement or not was to be decided by the negotiating parties. Mr. Dehner said he sent
two memorandums with respect to implementation of that and also the overtime. He said
one was from August of last year and a follow up in October which set forth a new
position of the Division, which happens to be the one that’s being most widely adopted,
because it is most favorable for the members and it’s the easiest to administer.
Mr. Dehner said the other item is the limitation of overtime to 300 hours which will need
to be decided what the measurement period will be. He said the statute says the limitation
is 300 hours per year, but it needs to be decided locally if it’s going to be fiscal or
calendar year for measurement purposes. He said within the last week to 10 days the
Division has changed their position with respect to what is that 300 hours for Police
Officers (and asked if the memo was received). Mr. Baker said it had been received and
forwarded to the Trustees. He said, very simply what this is, with respect to the 300 hour
overtime maximum, there was an issue with Police Officers due to the 99-1 legislation
(as there was a minimum of 300 hours overtime). He said when they did Senate Bill 1128
they didn’t take that out and they got pressure from the Governor’s Office to provide the
same for Police Officers that it is no longer a minimum, it’s a maximum, which means
you could have a salary definition in your plan provision which doesn’t allow any
overtime. Mr. Dehner reminded Trustees to file their Financial Disclosure Form 1’s by
July 1st in the county you reside.
Officer Wade asked Mr. Dehner when Cpl. Phillip begins negotiating the contract with
the city can any of the items be changed for the pension regarding bargaining. He said
you can’t reduce earned benefits, but benefits can be reduced prospectively. He asked if
contributions can be capped and said whatever is agreed upon. Mr. Woodard asked what
the normal member contribution rate is and Mr. Dehner said the statute requires a
minimum of ½%. He said among the higher member contribution rate is in the 10-12%
amount. He said typically it is in the 5-8% range. He said some plans are going to tiered
plans, not affecting those already in the plan, and reducing benefits and increasing
contribution rate of the new members. He said so long as it’s still a defined benefit plan
your still eligible for state money and for plans that go to defined contribution for new
hires, after a designated date, they are no longer eligible for state money.
Mr. Baker asked if the benefits can’t be reduced below the levels of 99-1. Mr. Dehner
said the Division has taken the position consistently that benefits cannot be reduced, even
for another tier of benefits, below the benefits that were in effect on March 12, 1999. Mr.
Dehner said he had a case with Clearwater Police where they wanted to reduce the
pension benefits below those in effect as of 99-1 and it benefited those Officers.
Mr. Vavrica said that he wanted to discuss manager search charges and after looking at
the contract the charge for the search was to be agreed upon. He said with a special
meeting and only two managers it was a smaller scope and wanted to propose a $2,000
fee for the search. He said there would be an additional $1500 per year charge for
monitoring with the additional portfolio.
Motion: Det. Trapnell made a motion to approve payment to Thistle Asset
Consulting for the cost of the search and charge for monitoring. Mr. Woodard seconded
the motion. The motion passed without opposition
Mr. Vavrica said the only other thing he wanted to mention was at the beginning of the
meeting a discussion took place regarding the funding ratio and he wanted to give a
counter argument. He said as of the last Valuation the fund was at 75.8%, which means
the liability is $5 million, so the fund is $5 million under funded or is 75.8% pre funded.
Stating all of the future liabilities, over 75%, are already paid for. He said Social Security
has a $35 Trillion liability and zero in the bank, but no one wants to talk about that, only
wanting to give the pension a hard time when it’s almost 76% pre-funded.
Mr. Baker asked if the Investment Policy would have to be changed and Mr. Pratt said
there shouldn’t be any additional charge for that. Mr. Vavrica said Investment Policy
changes are included in their regular fees.
ITEM #8 -- Approval of expenditures
Mr. Baker stated there were 4 Distribution Authorizations. They are: $3,972.00 to Thistle
Asset Consulting for Performance Monitoring for the quarter ending 03/31/2012,
$7,754.00 to Logan Capital Management Inc. for Investment Management Fees for the
quarter ending 03/31/2011, $4,163.00 to Gabriel, Roeder, Smith & Co. for Actuary &
Special Consulting services for the quarter ending 03/31/2012, and $200.00 to T. Scott
Baker for petty cash replenishment.
Motion: Mr. Woodard made a motion to approve the expenditures. Officer
Wade seconded the motion. The motion was passed without opposition.
ITEM #9 -- Any other business
Mr. Baker said he had received a check from Oppenheimer Trust for a Class Action
settlement from Enron in the amount of $5,200.08. The May meeting was discussed and
cancelled in favor of having the June 19, 2012 meeting.
Motion: Officer made a motion to adjourn. Mr. Woodard seconded the
motion. The motion passed without opposition. The meeting was adjourned at 6:55 PM.