City of San Jose, CA Police and Fire Department Retirement Board, 9 Jan 2020

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From YouTube: JAN 9, 2020 | Police & Fire Department Retirement Board

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San José Police & Fire Department Retirement Board
View Agenda at https://sjrs.legistar.com/View.ashx?M=A&ID=745510&GUID=63C93F2F-B3BC-4B1F-A4B6-4C13C3C741AD

A

Go ahead and get started and I call this meeting to order happy new years. Everybody hope everybody had a good holiday season and hopefully got a break from work and spent some time with some family.

A

A roll call in djurgården error. Myself is here: trustee Lanza's president trusts trustee menance president trustee murrow's, absent Jesse, Oswald's absent trustee Santos. Is president trustee, son Series present and trustee Votto is absent today, our councilmember, who most likely will be showing up a little bit later. We got our counsel Jeffrey you're here today: I'm CEO, Prabhu, Palani, COO, Barbara and CIO Prabhu. All present.

B

A

I got a corrected this.

A

Orders of the day items 5.11 to withdraw the retirement application of Jose L Vargas. We also have item 3a will be also heard with item 7.3 D through F and.

A

There is no sunshine to waive today.

A

Consent calendar is anything on the consent calendar that would anybody would like to pull for discussion.

C

Okay, it's 1.3.

B

I like to pull 1.5 II, okay.

D

A

So we got motion to approve the consent. Calendar is minus 1 point the minutes from 1.3 and also 1.5 II. A second.

A

All right, good Vince, 1.3, yeah.

C

On the minutes, under new business, which is for e on the committee assignments, just a minor notice that their committees look accurate going forward, but here in the minutes it does not reflect that trustee Oswald was removed from governance that I see on our committees moving forward he's not on there.

C

So what we had done is we had added him to the joint Personnel Committee and he came off of governance.

A

Okay, we'll go ahead and make those corruptions thanks for catching that.

B

Mr. chair so I've been asked by staff: do we usually need a motion on the orders of the day s well, Vince right, I mean.

E

C

B

A

Come back to that.

F

G

Yes, ooming: everybody agrees with.

F

A memo that course.

A

All right, it's good to come back and approve those e. Yes,.

B

Thank you. Mr. chair I just wanted to fool this item. It's been a long time waiting.

B

We're kicking off the office quarterly newsletter again, and this is the first edition and you're gonna see that going forward, and so again I just want to call attention to that, and also there was a lot of work, but especially by Barbara Heyman and Linda Alexander, and so I wanted to thank them publicly as well. So we look forward to communicating with members and you're gonna see them there for that one. Every quarter.

C

B

I'm glad you asked so I think we're still debating, but I think for the first year it's gonna be a hard copy to all members. When you're gonna see in future newsletters, they say an option for members to choose if they ready, if they really have it not an actual copy but by email to let us know what that is, so they can send that back to the officer. Then we can just make it available because idea is after a full year is only two because it is expensive to mail out.

B

So 11,000 newsletters is to only mail that out to those members that prefer to receive the actual hard copy.

C

I want to thank you for producing less. We've talked about this for a long time. Yes,.

A

C

A

I definitely agree. I definitely appreciates the newsletter, looked excellent, like the format in the discussion and then I look forward to the next quarterly one. This is something I know and I trustee Santos has been talking about for a while and he's been hearing from the membership, and so I'm excited about this. So thank you. Yeah.

B

And the concept is there and accordingly basis, we have a theme, so one quarter is going to be investment related under the quarter actually related or the quarter healthcare related. So we just make sure whether we keep the memory surprised so good job, everyone and you know, look forward to continue working on the newsletter and keeping the information flowing to our stakeholders. Okay,.

A

I am going to reissue.

A

We need to reappoint three with the amendments that trustee sent series are brought forward and then also 1.5. Ii do I have a motion to approve those motion by Santos second, second, by Sunseri, all in favor, okay, aye and also we need to go back and approve the orders of the day for those amendments to have a motion motion by Santos. Second sacrifice in serie I'll favor, hi, all right so on to old business 3, a discussion in action on suggestions, revisions to the policy and roles in the vendor selection. No, no too late, I'm!

A

Sorry do a investment, we're all update! Sorry.

H

Thank You mr. chairman.

H

Just a couple of updates and then I'd like to make a brief presentation.

H

Firstly, as I've mentioned to the board before we are in the process of working on an RFP for the general consultant and we're actually close to finalizing the RFP, and it will be made public sometime early next week, and it is my hope that I can work with icy chairs of both boards during the process and also we do have November flash reports.

H

So the pension plan returned 1% in November, as opposed to a policy benchmark of 0.8% and calendar year. To date, it was 11.2% return versus the policy benchmark of 10.7 and fiscal year-to-date, 2.7 percent for the pension plan and the policy benchmark was 3 percent and for the healthcare trust the one month number is 1.1 percent versus the policy benchmark of 1.1 calendar year. To date, both the plan, as well as the policy benchmark, earned 14% and fiscal year-to-date. The plan, the health care plan returned 3.1 percent versus 2.7 percent for the policy benchmark.

H

Again these are flash reports, so these numbers are not final, but they should be somewhat close. Now.

F

You'll see there are two attachments.

H

To the oral update from the CIO this morning in your package, I've been asked to present our fees to their time and working group and the retirement working group actually meets this coming Monday, and so we did present to the City Council and it will be the same fee package that goes to the retirement working group, because that's the last available free report that we have, but in addition to that, I did actually put together a presentation with makitas help, because you know obviously fils is an important subject and it keeps coming up and I really wanted to go back in history.

H

So we do have control over the fees that we pay and I've been tracking fees. Since I like I, became CIO, and we know what we've negotiated with managers, how much we've saved and so on. But I really wanted to go back. I wanted to have an open mind. I want to go back and say you know, going back in over time. Have how much have we paid in fees and has this really paid off for the plan or not so we went.

H

We went in to this project with an open, mind and Makeda was really helpful and instrumental in actually gathering the data. So I told Makita. Let's go back, let's go as far back in history as possible and let's see how much fees we've paid and whether we've added value or not to the plans. And so if you look at this is the first attachment.

H

Now this is this, is this was a very difficult exercise in terms of data gathering, because if you go back three years, we actually have a list of all the managers that we've hired. We've terminated the actual fees paid and so on. But if you go back 10 15 20 years, it gets very difficult because we've had different consultants.

H

There's the issue of how we tracked all the managers over the last 20 years and so on. But Makita did a fabulous job in trying to case they felt confident with the numbers going back at least 10 years right and so I'm going to actually start with slide 3, and this is an important slide. It's very simplistic and I don't mean to talk down to you, but it's an important slide. So often when we talk about fees, the comparison is, you know passive, because we always have a passive.

H

In most cases, we have a passive alternative, so why not simply use a passive manager? Like that's the question, so yes, here are two managers. Excuse me, the manager on the left is a passive manager. The manager on the right is an active manager, so let's say we gave $100 to the manager on the left right and let's say that manager put it in an index, one say the S&P 500 and that returned 10% right now.

H

Even passive managers do charge some fees, however small it is, but for the purposes of this example, I say: okay, let's assume we can get it for free. So for the 10% return. That hundred dollars goes to one hundred and ten dollars right. So with the passive manager, you don't pay any fees at the end of the year. You now have a hundred and ten dollars. Now the manager on the right is an active manager.

H

You give them a hundred dollars, you pay a dollar in fees right and if the active manager had actually returned eleven percent, it's just an example. So at the end of the year you would still have one hundred and ten dollars right, because your hundred dollars went to one hundred and eleven dollars because the active manager did better than the index. But then you paid them a dollar increase right.

H

So in this example, if you actually paid fee, it's a wash them because the manager had actually produced that excess return over the benchmark, that's equal to the fees right, so these have no effect on the plan. They not a drag on. The plan in this example, is everyone clear on this, because this is this? Is this is important that everyone understands this chart, because the rest of the presentation is going to be is based on this.

H

That's right roughly so, if I had to extrapolate this, if we had paid ten million dollars in fees instead of the 1 million dollar here and if the active manager had actually done better than the bend mark by ten million dollars, then it's a wash, then we've not paid any fees right.

H

So how do we is that clear? Okay, so if we go back in time, can we actually compute this number? Can we actually find out whether our active managers have done better than the benchmark right? And so, if you go to slide four, this is what the chart going back. Ten years, we took our net of free returns right.

H

How much have the plants actually returned after fees and what has the benchmark done right? So this should tell us whether fees are a wash or not or have there been a drain right, and so, if you look at this chart and I, you have both plans. You have both red and police and fire, so we have two different end points. We have December 31st 2018 and the latest available, which was September, 13, 30th 2019.

H

Obviously, there's some endpoint bias, depending on the time period you selected, which is why I said. Let's look at two different end points so clearly the Federated City Employees, Retirement System returned five point: four percent for the ten years ending 2000, September, thirtieth 2019 and the investable benchmark, return, five point: two percent and the police and fire returned six point. Five six point: one and the benchmark returned six point two.

H

So what this means is, if we, if we were able to replicate the benchmark without any active managers, we would have got that benchmark return after fees.

H

Our returns have been very close to the benchmark, in one case slightly about and one case slightly below, and if you look at the ten years, ending December 31st 2018, you can see in the case of the Fed, it's exactly the same in the case of police and fire again at six point: eight versus six point nine, and so let's actually translate this into number, so he'll be a little bit more meaningful, so slide.

H

Five just shows the same thing in borrow in a bar chart found, but I'm going to move to slide six, so the actual portfolio value after paying fees for police and fire. As of September 30th 2019, three billion six, forty seven million 566 683 and our funded ratio is seventy three point one and for the investable benchmark it was three billion 722 145, 150 hundred ratio.

H

Seventy four point: six in the case of federated, you can see actual portfolio value is two billion won twenty nine to forty, nine, nine, forty five after paying fees and the benchmark which, if we were able to replicate the benchmark without fees, would have been two billion sixty eight to fifty one, five, zero four.

H

So what this shows is that fees have not been a drag on performance by and large and fees would not have made a difference in terms of our funding ratio, because the fees that we have paid actually has come back from the managers in terms of excess return over the benchmark.

G

H

Haven't done much that.

G

Much better exactly.

H

Let me sort of a wash now we don't take into account the fact that having active managers may have reduced the risk of the portfolio I'm, not even looking at that.

H

Risk benefits, if we simply look at fees, this chart very clearly shows that fees have had no impact on our funding nation.

H

B

H

Is not true, but even if it's zero good point so so the fees that we have paid positions essentially come back to us in the form of excess return. Okay, now I'm going to on a three-year basis, we actually have manager by manager data so I'm going to go into that chart as well. But before that look at we look at page seven, which shows you know the active versus passive divide in our portfolio. Roughly half the portfolio is passive, half is our and then let's move to slide eight right.

H

So if you go back for the last three years, we actually have all managers that we hired active managers, public managers and we'll get to the private managers in a minute and on a manager, my manager basis, you can actually see the added value or not for each plan right- and this includes there's no survivorship bias here, because this includes managers who are terminated and, as you can see from here between federated and police and fire are active managers over the last three years have actually added 28 million dollars over and above the fees that we paid for them.

H

This is important to note again right- and this goes back to Drew's comment- that you know now that we are familiar with these managers. Hopefully we get better at picking the right managers, so we actually are. Active managers have actually added 28 million. So had we used a passive approach, we would have been worse off by 28 million dollars in the last three years.

G

H

Fees, including.

G

H

This is after fees, so over.

D

And about the fees yeah.

H

So, over and above management fees, our active managers have actually had at 28 million dollars.

H

Now page nine shows private equity and obviously we cannot actually name the managers here because of all the NDS that we've sign. But if you look at again a three-year on a three-year basis. If you look at various private asset class categories, you can see the cumulative value added over the benchmark after fees and our private managers after fees have actually added 137 million dollars in the last three years, and this includes private equity, private, real estate and hedge funds.

H

Now a question was raised about private debt and why we've not shown and there's a couple of reasons for that. We do have the numbers and that's because, in the case of police and fire, we've had a private debt program for a little bit longer in the case of federated, it is a pretty new program. We only started actively investing in the asset class in 2017, and so we don't have sufficient.

H

So now let's go to slide 10.

H

This is from a Kaffir report for 180 public pension plans, which shows the percentage of portfolio invested in alternatives, and these are public plans and San Jose has roughly 25 percent in alternatives and, as you can see from this chart, roughly 16 percent of public plans actually have more than forty percent in alternatives. So we have by no means an outlier here in terms of our focus on alternatives and slide. 11 is from the same report and within.

D

The alternative bucket.

H

How do plants invest the assets and, as you can see, a quarter of it is in private equity, a quarter in real estate and so on. Once again, this is this goes to show that we are certainly not an outlier. In fact, we don't have some of these asset classes like this parity and GTAA, not more for you. I.

H

Have a number of other slides in the appendix, but in summary this is slide. 12 I want to emphasize that I know, there's a lot of focus on fees, they're being very transparent with the fees that we pay and we produce a very comprehensive report that we take to the City Council every year. But it's important to understand that fees are not a drag on our investment performance and they're, not the reason why our funding ratio is low, in fact, at least on a three-year basis.

H

You can see that our active managers have actually added value over and above the fees. So please we're not paying anything out of the plan. Even if you go back ten years, we've really not paid anything because it's come back in the form of excess returns.

H

B

20 because he goes directly to the contributions by the plan sponsor right.

H

A

B

I'm sorry page 14 years it just yeah, sorry page 14,.

B

H

B

To be a slide, 20.

H

D

Does say 20 on it, yeah good.

H

Point good catch and did you want if.

B

He can just speak.

H

Yes, which is why I I gave the heads up to build that there may be a question on this and since he he graceful, gracefully said he'd answer any questions graciously accepted.

H

Well, actually, can you walk us through the slide.

H

This is the slide that we spoke about before the meeting. This was presented to the joint city council board meeting.

E

The joint city council meeting- and it just shows one scenario, but if the investment fees were zero, the impact was just a reduction in contributions of 1.2 million. That's because those additional those fees that gain is being amortized in the plans as a game over what we had before and so over time that that could build up to a larger savings if you could pay zero fees year after year after year. But that's not really what was expected, and so that was based on about 68.

B

H

Any other questions.

C

Good can I come in here. One of the benefits of having tenure on the board is that you have the knowledge of some of the decisions that were made over time and, if I'm sitting here, looking at this information and haven't been on the board and I know that the plan has performed poorly, we see that at least on the police and fire side we've slightly underperformed our investable benchmark.

C

My question would be why and my answers and I'm curious if they're, consistent with how you look at this, is that one we didn't necessarily outperform our benchmark. Although we're saying all these active managers and all these alternative investments have done better, we didn't outperform our benchmark. Why is that and I would say it was for a period of time, a persistent underweight relative to our policy benchmark in equities and specifically in 2014, a decision was made. It was approved by the investment committee.

C

It was approved by the board to underweight equities given concerns evaluations and in August of 2017, when we did not have a CIO prior to you coming on board Prabhu, the board made the decision specifically to eliminate that practice, no more tactical asset allocation decisions and we went back to policy that I think was the drag I, don't think it was the fees that were necessarily the drag on our performance. So while the markets were very strong, we didn't have the allocation in line with our policy benchmark.

C

That's the first thing and the second question that comes up is, then: why is our performance weak relative to our peers and and that's just more a question of absolute exposure to equities and I know in this presentation and the appendix the last slide that you have in there it's pretty telling when you look at that, which is page 18, the tenure returns for various asset classes.

C

By far the strength has come from US equities housing come from international. How that come from emerging markets, even fixed income investments, and so any peer that chose to have a high allocation to stocks and specifically US stocks, had great performance we'd the Arista plan. We had less exposure there and I think that had an impact. So you know that your material here and your presentation helps answer the question on the fee side. I think that is the other side of the equation of so then help me answer.

C

Why there's been this under performance and I? Think those are the two factors. Do you agree with yeah completely.

H

All great points Vince so again if we can go back to slide four, and this is an important slide and I think what Vince is referring to is you know, so are we've returned 6.8%? The benchmark is six point, nine pretty close, but why are we trading the benchmark by ten basis points when our active managers have actually added value, and so there have been tactical moves that could have contributed to some of the younger performance? It's not it's, not the active passive question here.

H

Active managers have actually added value, so fees have not been a drag, but we have fixed. We have rectified that issue because we don't make tactical decisions anymore and we stick close to the policy mature. The bigger question is: why have we underperformed our peers over the last decade and that's again, what is unique to our plan is. Our risk profile is maturity of our friend.

H

In fact, there is another chart that Makeda put put together, which is not part of the presentation which actually shows our persistent underweight as Vince mentioned, to to actually US equity. In fact, compared to our peers, we've been or multiple time periods in the last ten years in the bottom quartile, sometimes in the bottom decile in terms of our exposure to US equity, and we did that to protect our sponsor, because it's only in hindsight that you know that we've had a bull market right again.

H

Last year the SNP was up 28% I and our plans calendar year today through November, have returned 11% right and no one knew on January 1st 2019 that the SNP is going to return 28 percent right. This is also a chance that the SNP can be down 20% and so to protect our sponsor. We run a fairly low risk, well diversified portfolio and so you're gonna have that.

H

So all great points and I have to thank trustee sands area, because the kafir' charts and this presentation actually came from him and we are actually going to be making this presentation jointly to the retirement working group on Monday and trustee. Chandra was also going to be part of it. Unfortunately, he did have a schedule conflict but again so I think I think this is important and kudos to Makeda for actually going back and pulling out all this very difficult data and putting these charts together. So thanks, Laura.

D

A

A

H

Just I will be bringing it up in front of the retirement working group, but it was the same presentation that we made to the City Council on October 1st during.

A

Either questions.

D

All right thank.

A

You very much thanks Laura for coming down coming up, so we deferred 3a towards the end of the agenda to coincide with 7.3 d3f, so we'll go ahead and jump to new business for a world update from CEO.

B

Thank you. A me said: sherry just a few items. I wanted to remind you that there's a public member seat open on the police and fire board. That was the seed that was vacated by trustee G, a great a that process that application process actually closed last Sunday and we deficit one applicant I. Think at this point the applicant will be interviewed by the City Council sometime in January and hopefully that person, if appointed, could be, could be a new board meeting for February I. Just want to remind you.

B

We already spoke about about the retirement connection newsletter you saw. It is on the agenda I'm, working with staff, and we have a meeting tomorrow to kick off discussions in the budget process for 2020, as probably indicated, there's a retirement solutions, working group on Monday and he will be presenting on the fees and Kiro representing also as well be we'll be at the meeting.

B

I mentioned this at the last meeting, but we had decided to remain in our building for another five years, so we are working on the process of signing the new lease agreement in March of 2020, hopefully for another five years to 2025 and we're still working through staff and bringing on board a senior benefit. Analysts and two new benefit analysts. We work into the process on how the review process I'm an interviewing to make sure that we are fully staff on the benefit function and, lastly, I wanted to let you know some months back.

B

I did indicated that the city was replacing Blue, Shield and sort of help with Anthem Blue Cross, and so that was alton. Blue Cross is going to be, was going to be the new health care provider for retirees for 2020, and so the conversion actually consisted about 3071 retirees. We did not have any issues, particularly with the anthem, Medicare plans, but and enrollments that are no Medicare. There were seven hundred eighty five, two hundred ninety, two of which are police on fire.

B

There were some challenges and, and members have not received their car, yet the insurance car. We just learned about this ladis ember from Anthon. They had sony issues, including some system issues, programming issues which impacted the release in those cards. But again it is suspected that they will receive in the cards no later than January 17. Some of these members have contacted the office and we are working with an tiem to make sure that they have all the information they need so that they can actually seek services and get prescriptions filled.

B

So I just wanted you to hear that from me, first they're from it retiree. So if you have any retirees that have an issue that is an anthem, have them contact our office and we'll make sure that they taken care of.

D

So they can view us. Oh yes,.

B

No, it is, in fact, I think the agenda actually includes a section where we have the board meetings and the day.

D

B

Okay thanks. That concludes my comments. Mrs. sherry I'm happy to answer any questions.

A

Welcome happy new years thank.

I

You congratulations on a seating to the chair. That's great not a lot to report, yet we just resumed session two on Tuesday very light council session. We are heading into priority-setting session, where we'll be looking at things that policies that we wants to have to work on, that better. The the city of San Jose in our residents and my team is already looking working on a list of what those things might be.

I

Also we're heading into budget session, so we'll be looking on ways to allocate both our district funds, which is our essential services, but also the larger budget and which will include pension payments. Unfunded liabilities, I'm, looking forward to our working group meeting on Monday we've been challenged with coming up with out-of-the-box ideas on how we might be able to address unfunded liabilities. I'll be interested I'm interested to hear more feedback from the Task Force on fees and your report on the fees, because that is important and that's one of their concerns.

I

But the information that you showed today may offset some of their concerns about that. But it's interesting to see what others are doing with their unfunded liabilities, other jurisdictions and how they've addressed them and I have someone on my team who is researching for me, ideas that we can come up with. It might be interesting ways that don't impact bargaining that don't impact any of our current or retirees, but our ways that we might be able to get a handle on unfunded liabilities.

I

Potentially, so it's, as you all know, it's a huge debt to the city, but we have to address it and deal with it. So I look forward to those is.

A

That something the working group is looking into also what other systems are doing to address their unfunded liability. We.

I

As Task Force members, we've been challenged to come back with ideas, so that's what I've had my office look into I know. Vince has his some ideas and hopefully others are bringing in ideas as to look into other jurisdictions, to see what they're doing some are really successful with it. Others, like us, are not so successful and there's a lot of history to that I understand so I don't want to revisit any history, but going forward it.

I

We should be able to figure out a way that we can address it, because it is a drain on our general fund budget, but we have to acknowledge it.

H

I

D

H

D

I

Not a matter of let's just waive it or we or reduce it. It's let's deal with it and move on so Thank You.

A

June 30 2019, so.

B

Mr. chair Chiron is here this morning to really present the all paid methods and assumptions see if you recall, Chiron, presented the findings that you meet in last December and you bore proof all those changes and the final results, but they mentioned that the actual report was not ready. So what we're looking for here is for your board to knowledge the report and approve the final report which is attached to it. It's not an actual presentation unless there is anything further that we would like to add. No.

E

The amortization methods and policies- and we brought everything to that meeting and laid out the impact of the different options you selected when the options, and so this is the report that memorialize is what you selected and it has a city contribution for 2020, one of about 206 million.

E

It's the same number that was reported last month.

B

The same number that council member only reported to the City Council into.

A

It's not under Tina motion. I motion by trustee Santos. Second, second by menon, all in favor aye all right go into the next agenda.

A

E

Right so since we finished the pension valuation, we're on to the opah valuation and this month were asking you to adopt the assumptions that we need for the open valuation and the next month, we'll be back with the results of the open valuation. There are a lot of assumptions listed here. I'll say we're only recommending some changes to the trend rates and a couple adjustments to in lieu elections and the administrative expenses and updating the claims costs.

E

So there's there's actually not a lot that we're recommending changes to, but we do need you to to approve them. So, just as a reminder, the the open-plan is primarily closed.

E

The full benefits are only payable to tier 1 members, who did not elect to go to the vibha, but others who are not eligible for the full benefits can qualify for a catastrophic disability benefit under the OU pet plan. So technically it's not closed, because we have all those people in it, but those benefits are significantly less because they're significantly less likely to be paid member contributions.

E

Now, after measure f are just fixed at 8 percent of pay, and so the the board sets the city contributions, but the city has an option that they can cap contributions at 11 percent of pay. So we prepare the contributions without that cap. We let you know where the cap is we're right around that cap this year, we'll see where we are next year. This valuation would affect the contributions for fiscal year in 2021.

E

Second, a reminder of what we're valuing and what we're paying here. There are two kinds of subsidies: there's the explicit subsidy, which is what we're pre funding. That's what we're developing the contributions for for the plan and holding in the trust and the plan pays the premium for the health coverage selected by the retiree up to the full cost of the premium for the lowest cost plan offered to active employees, and so that amount ends up being fixed for all your pre Medicare retirees for Medicare eligible retirees.

E

Some of their premiums are below that explicit subsidy limit, so we pay the full cost, there's an additional cost. That's used primarily for accounting and disclosure purposes, which is called the implicit subsidy and it's the difference between the expected claims cost and the premium for the insurance. So we know medical costs vary by age. They increase as you get older. The premiums are an average for the whole covered population.

E

But since this plan is only focused on the retirees, it's as effectively the difference for those pre Medicare retirees between what we think they're expected claims are and what the premium is, the city pays for that on a pay-as-you-go basis as a part of its premiums for active employees, as if you didn't have that cost, the premiums for active employees would be lower, and so that piece is simply a part of the valuation. It's a disclosure and it's a key part of your financial reporting of the city's financial reporting for the plan.

E

So just as a reminder of where we are, the plans for police and fire are very much separate. We have separate sub trusts in the 115 police started funding their plan a couple years before fire, and so there.

E

They're further along in the funding, but these are the contributions that were came out of the 2018 valuation and you can see we expected for police about six point: nine million from members and fourteen point six from the city, and then there was an implicit subsidy contribution of about four point two and for the fire. It was five point: five million for the members, nine point, four for the city and a smaller two and a half million implicit subsidy.

E

The those differences are primarily due to the size, differences of the different forces, here's the the funding and you can see. As of the 2018 valuation, the police portion of the plan was about twenty four percent funded and the fire portion was about eighteen and a half percent funded, and that's just for the explicit subsidy piece.

E

So our contributions are much like structured, much like they are for the pension plan, there's a normal cost component, administrative expense component and a UAL amortization component. The difference is the city piece is the sum of those three minus the percent that members contribute under the pension plan. We have different formulas for splitting it and then the amortization payment is structured differently. We use a 25-year amortization with a three-year phase-in and phase-out.

E

We don't do any asset smoothing and so that phase in and phase out is, is to provide a similar effect to the asset, smoothing it also smooths the impact on the liabilities which is important for the OPEC plan, because much of the liability, much of the volatility comes from changes in healthcare costs that are volatile from year to year. So that's our mechanism for smoothing the payments increase three and a quarter percent each year and there's no asset smoothing. These were the projections from the last valuation you can see.

E

The plan as a whole was about 27 percent funded, going out to twenty forty four before it reaches a hundred percent funding. Now the liabilities here are much smaller than under the pension plan. So I you can see. The total liability is including the input subsidy is below eight hundred, whereas for the pension plan that I think the unfunded liability is about a billion.

E

The bottom church is the contributions, and you can see the member contributions going away as the Tier one members retire and the city contributions, the gold bars continuing to grow over that period and then the implicit subsidy on top it grows for a while and then starts to contract. The red line shows that optional maximum that the city can impose, and you can see during the entire projection period, we're right about where that maximum is so. It's very close.

E

So now we'll move to the assumptions and again we borrow many assumptions from the pension plan: retirement rates, turnover mortality- all of those things are the same as what we're using for the pension plan. The specific assumptions for the opie plan are listed there and we need to look at the discount rate separately because it's in the assets are invested differently, but the other things are all specific to the open point.

E

So the the trust assets for the open plan, they're, actually two different trusts, there's a portion of the pension trust, that's called the 401 each account and that used to be where all the money for the open plan went. Now.

E

It's just employee contributions that go in there and currently all benefits are being paid out of the 401 each account, and so it had about 37 million in it and then a separate one 15 trust was established and all of the city contributions are going into the one 15 trust and there's actually two sub trusts, one for police and one for fire, but in total that was a hundred and forty nine million.

E

It's the one fifteen trust that has a different asset allocation, but since most of the assets are in the one, 15 trust and going forward, we expect that to become even more the case. We're setting the expected return and discount rate based on what's in the one 15 trust so Makita provided us much like they did on the pension trust with their capital market assumptions over 10 and 20 year horizons and the expectations this year.

E

As it happened on, the pension went up substantially because these capital market assumptions were based on December 2018, and this is the same slide. We showed with the pension showing how the market conditions had changed from December of 17 to December of 18 and then to June 30th 2019 and the the final answer here is. We think the market expectations have returned to a point, much closer to where they were in December of 17 than they were in December of 18, and so some level of conservatism using the December 18 assumptions would be appropriate.

E

We're currently assuming 6.5 percent for this trust, and we believe it's reasonable to keep that the same.

J

And now we'll focus on the assumptions that are very specific to the health plan and the first is the explicit subsidy. So that's the cost of the lowest-cost plan. That's provided to active employees and it's still the Kaiser $3,000 deductible plan and that cost actually did go up by eight point: seven percent. So it's slightly higher than what our assumed increase, which was 8 percent, and so everybody that's pre Medicare.

J

It's gonna see basically an 8 percent 8 point: 7 percent increase in their liabilities, so the liability all else being equal, be a little bit higher than expected, but for the Medicare plans, it'll actually be a little less because the Medicare plans all have premiums below that maximum or two of them have premiums below that maximum subsidy. So you actually only pay what the actual premiums are for those plans rather than the maximum subsidy amount and then the other change we're making this year.

J

Is it's really a change in the methodology for developing the medical trend rates and we're using what the Jetson model, which was developed by the Society of Actuaries? It takes some more analytic. Look at how you set trends and it's the process really is your initial trends over the next three to five years is based on.

J

What's happened recently and what we expect to continue to happen, then it adjusts linearly to a longer term view that healthcare costs are gonna, continue to grow at the rate of nominal GDP, plus an excess amount, because medical costs are still increasing at a faster rate, but that does mediate itself over time so that over a longer term basis, it grades down to a long term that healthcare really can't increase by more than nominal GDP growth, which by 2075, is 3.9 percent, and if we're dental, we just keep it flat at three and a half percent, and so the next page actually shows what that does.

J

The top is for the non-medical eligibles, and you can see the older set of assumptions which is the blue line said we started a date grated linearly down to our long-term assumption to five and a quarter or four and a quarter. What this one does now is by taking this approach is actually the trend rates were a little bit lower for the next ten years or so as compared to what we did before. But then they, the grading period, is a little bit different as the kind of the wearing away of the excess medical cost.

J

Growth goes so that it's actually a little bit higher than what we did before for a period of time and then at the very end, it's lowering to that long-term GDP. So, on the very very long end, it's a little bit lower. It has a much bigger impact on the Medicare side of it, because it's really recognizing in the Medicare market right now, costs are significantly lower than what is going on in the non Medicare marketplace. There's a lot of factors in there, but the way that Medicare is funding it.

J

Some of the changes that are happening, the increase of the actual population that's covered as the baby boomers age and the ones that are aging. It happened to be healthier than the older baby boomer. So it's really helping them to moderate those cost increase over the short term, but it still has a similar pattern.

J

While it's a little lower in the shorter term period, it's a little bit higher for a period of time and then eventually great sound, a little bit lower, all else being equal everything kind of nets itself out, and so you end up in almost the same point from a liability point of view. But this model really lets you get in and specifically instead of saying: oh, we guess it's kind of dude gonna do this.

J

That's get some very specific parameters that we can tie to the US economy and all the other economic assumptions that underlie the valuation.

J

The next are the dependent coverage elections, and this is for the current active employees that retire in the future is how are they going to elect coverage and the top chart actually shows for the pre Medicare population of where they actually enroll and then at the bottom? We show what the current assumptions are in the word, our proposed assumptions when you look at it for the pre Medicare, you can see that the actual is pretty close within a percent here and they are of what our assumptions are.

J

So we're recommending those just remain unchanged because it's a minor variation and while we don't show the charts for the Medicare, the Medicare assumptions haven't changed and forever and they're really consistent. That for male members about 73 74 percent have cover spouses for females. This is exactly the opposite: they're more single than family. But again those haven't changed, so we're proposing just leaving those assumptions alone.

J

The other assumptions we have to make is again: what plan will they enroll in? And it was a little trickier this year because, as Roberto said, the setter and the Blue Shield plan is replaced with anthem options, and so what we do our assumptions. We just assume that members will select like plans.

J

So if you were in the Sutter HMO you're gonna join the an HMO if you're in the Sutter P, because you like those kinds of plans, that's what people are going to do and then again this chart compares what the actual enrollment was in 2019 to with evaluation assumptions were, and as you can see again, the actuals are pretty close to our assumptions so again we're recommending that we just keep those assumptions unchanged. They really don't need to change.

J

The other assumption we have to make is the in lieu because measure F had it in lieu, so the basically retiree can waive health coverage and build up a credit. That's equal to 25% of that explicit subsidy amount that they can then use at a later point in time. They come back in the plan because this was new and added in measure F.

J

We have very little experience as to what that really is so we're making assumptions we've just been reassessing at year over year, and so now we have two years of data and we can kind of go back and look and see what we did.

J

And so what we actually show here is for both the active members, members who were active and then retired and then decided to go in lieu with the chart on the Left shows, is the black squares or the actual observed rate, so in 2018 about 24 percent of them actually went in Lew, and it actually was almost 36 percent in 2019, and so what we then do is build a confidence range around it to say.

J

What's the 90% confidence interval if somebody's going to be within that range and what we compared is where our initial assumption is, because again we had very little data, so only 20% of the people will actually elect it. Lew and as you can see, what we're seeing is that, in fact, the whole significantly larger number of people are actually taking the in Lew option, which would imply that they've got access to coverage elsewhere. So they want to put this off as long as possible, so we're recommending actually increasing it from 20% to 30%.

J

We look at the same thing for the vested terms, so those are individuals that have left the city. They have eligibility for pension benefits and therefore retiree medical at some point in the future begin very, very similar analysis and that one actually shows that are the proposals right. On top with you can't see. The current cause is right. On top of the current, the actual assumptions are coming in right about 45 percent, which is consistent with what our assumption is remaining she's, recommending, keeping that one unchanged at this point as well.

J

It looks like that one we're pretty spot on the other thing we have to make an assumption on is: how long are they actually gonna stay in lube before they come back? We really have no data on that at this point, and so we did an initial assumption, we're gonna assume five years and we recommend just keeping that the same. The other one is okay. When they come back, what coverage are they going to enroll and again for this one?

J

We assumed that they would be elect similar to what the existing retirees do and, as you can see, the actual 2019 enrollments are actually pretty close to what the assumptions were, and so the only change we're recommending is. It looks like for the pre Medicare, slightly more of them were taking retiree plus family, then retiree plus spouse, and we assumed so that we are recommending. We decrease the retiree plus spouse from 30 percent to 25 and then increase in the family from 45 to 50. The more we flex what's really happening.

J

The next. To the last assumption is the administrative expenses, and historically we did it as a percentage, and now we're recommending to go to something's consistent with, what's being done with the pension plan, is to convert it to a just a per member basis.

J

And so what we looked at did is we looked at with the actual administrative expenses for for 2013 up to 2019 projected them forward, so that they're all on the same basis, using a three and a half three and a quarter percent a year, wage inflation assumption to get them up to a consistent level and looked at what the average was, and so the average over that period of time was 38 dollars and 60 cents per member, and so that, if we adjust that forward for another two years to 2021 at the three and a quarter percent that it's an assumption of forty one dollars per member per year and then the lastly or the aggregate claim costume again.

J

This is the one where we take all of the premium data and the membership to add it say: okay, how do we think that actually runs claims by age which gets the implicit subsidy piece of it, and we do that for each plan, and so what this shows is the aggregate with all the plans aggregated together, and this actually shows that in total, the expected claims piece of it- it's actually lower for 2020 than it was in 2019. It's really caused by two things for the Medicare piece of it.

J

It's actually the anthem, both the anthem, HMO and anthem, PPO cost for the Medicare population is significantly lower than what they were under the old Blue Shield plans and the Kaiser plan was about to save its its most of the membership, isn't Kaiser it kind of mutes that impact, but it basically shows a decrease the actives, while the premiums went up somewhat, it actually comes down, and it's because, prior to this year the active premiums for the police and fire there was a single premium in a family premium.

J

Now they've moved back to the single premium: employee plus spouse, employee plus children, employee plus family, and so that changes the mix of what's happening, and so that mix change actually results in a slight reduction in what the expected claim piece. So again, that really has no impact on what you're funding, but it will have an impact on the implicit subsidy piece of the valuation results.

E

So we need a board decision really. The only changes we're talking about are to the healthcare trend rates, the in lieu elections, administrative expenses and claims costs and I think all of them are pretty minor changes.

A

Does anybody have any comments? No peb.

A

Okay, the the one thing I didn't capture was on the healthcare trend rates. What the nation was the healthcare trend rates. What.

E

Was the question what.

A

The actual recommendation was to change I captured the other ones.

E

It's captured in the green lines here: okay,.

D

E

So it's really. These are the parameters. Actually we have the parameters in the appendix that plug into the model, and so there's a it produces. A stream of you know over 50 different rates by year up through 2075, but we would the key I think it's just what we've outlined here, that we would.

E

E

So we would start the non medicare-eligible at 8%, the medicare-eligible at four. They decline to 2028 to about 5%, and you can see the components of that 5%. There there's two and a half percent inflation, some real GDP growth and excess medical cost growth and then, from the four point, nine seven. It gradually declines to the three point: nine, which is just the inflation in real GDP in 2075. So that's a long period of gradual decline, I.

D

A

One other question on regards to the in lieu election since the trends going up from 25 to 30 percent. What kind of savings is that capturing for the plan since they're not I mean? Is that something that we drop it off?.

F

E

It's it will capture a savings for the plan. It's still a relatively small piece, because it's in the actual savings we won't know till we know how much of the in lieu credit they actually use. You.

A

E

A

Even if they use all the even.

E

If they use it all the seasons, yes, okay,.

A

There's no other comments.

A

What's the best way to what's the best way to move forward you a lot line by line or I didn't see anything that any recommendations that they had that were out of line. I agree with everything that was recommended in my yeah can I make a motion, but based off of.

A

I'll make a motion to approve on the recommendations as presented in the PowerPoint presentation for the OPEC.

C

A

Right Gardiner with first sincere, a second all in favor aye. Alright. Thank you, gentlemen. Thank.

E

I

For coming down.

A

Happy new years.

D

A

All right, moving on to 5.1 retirements, like December.

A

I am completely sorry. I've missed that one. That's ready to move on for a discussion, action on review the investment committee, IC charter.

A

Yeah we reelect another board vice chair for calendar. You definitely don't want to skip that. One Before we jump into that council would like to speak to it prior to having further discussion I.

F

Just for comfort that it can move forward on this today, the policy does state that normally, it is six votes of the board is required to appoint the vice-chair I wanted to point out a few things. First of all, the policy as I read it generally contemplates. If there's gonna be two candidates at the time you vote for them. We don't have two candidates here today we only have one nominee that came from the last meeting when all board members had an opportunity to nominate someone. I also know this is a policy.

F

It's not a law. I did check the Municipal Code and under the the the only Municipal Code was. If provision that could possibly apply here is 2.0 8.0 7. No, that does not require six votes. It's just it just says the board will choose a chair and a vice chair, and normally the board operates by majority vote so and we and then another point I'd like to make, is you don't have a vice chair right now, so obviously it's better to move forward and get one in place than to not have one it's.

F

It is a policy. So the board can change its policies when it's necessary and and also of course, the board can revisit this. If any board members who are not here are not happy about it, they can always raise it later and in fact, under the Municipal, Code chairs and vice chairs can be removed. So if that needs to happen, that can happen so point being I.

F

Think it's fine for you to move forward today, even though you don't have six people here, I do think it should be a unanimous vote if you're gonna move forward today, because if anyone, if it's not unanimous vote that I, don't think you have you don't have all the board members here present agreeing to move forward without the policy and I think the policy is worth at least that much.

F

We should at least all agree that we're comfortable moving for without it, but otherwise, assuming everybody votes for the one nominee here today, I think you can move forward and I won't say anymore. No.

A

I appreciate the appreciate the comment and and feedback from your perspective based off what counsel was saying and our experience that last month's meeting, when everybody was here and we nominated people, there was clear, you know, agreement that you know drew Lanza was nominated so with that fact, and knowing that we could always come back and revisit it as long as I, don't hear any objection from any of the trustees present. I would like to move forward with the vote.

A

Anybody like to speak up.

D

A

With that said, then I'll make a motion to approve drew Lanza as vice-chair yes, second, by Santos, all in favor.

G

A

Thank you any nays, all right that passes with full support.

A

All right, so that motion passes with all.

D

A

Yep, thank you very much.

A

All right now, we'll move on into five 1 retirements. We have another long list of retirements, a lot of seniority, we're losing we're losing.

A

We got Kevon, be Fredo police officer, police department, effective January, 25th 2020, with twenty seven point: five: five years of service George Keene Fire, Engineering, Fire, Department, effective January, twenty-fifth 2020 with twenty four point: five years of service Kevin McKee; oh no police officer, police department, effective January, 11th 2020, with twenty six point: four: six years of service; Barbara, J, Milosh police officer, police department, effective January, 25th 2020, with twenty five point; one: three years of service: Charles, T, Miller, jr.

A

fire; captain, Fire, Department, effective January, twenty-fifth 2020 with twenty seven point: eight: nine years of service with reciprocity, Christopher L, Murphy fire; captain Fire, Department, effective January, 31st 2020, with twenty four point: five: seven years of service, Eduardo, M, pedrera police, lieutenant Police, Department, effective January, 24th 2020, with twenty five point: five; one years of service with reciprocity mark; a panada police officer, police department, effective january twenty fifth, twenty twenty twenty seven point: nine nine years of service, Victor, Wolverine Oh fire; captain Fire, Department, effective January, twenty-fifth 2020, with twenty five point: zero: five years of service, Gerardo, M, Trias police officer, police department, effective January, 25th 2020, with twenty point: eleven years of service and Jeffery, a una dia fire engineer, fire department, effective January, 31st 2020, with twenty nine point: nine years of service with reciprocity.

A

Mr. Vargas, as you remember, withdraw his application. So he is still here. Can I have a motion.

D

A

By Santos, second, by Sunseri, all in favor aye aye.

A

It's good a five-point to deferred vested Brian, missin, er police, sergeant police department, effective January, 18, 2019, 25.2, two years of service with reciprocity and Alex T. No, an police, lieutenant police department, effective January, 30 2020, with 25.91 years of service.

D

A

By Santos, second, vice in Syria, all in favor aye, would anybody like to anybody know these.

D

Missed in health and enjoyed that returned mm-hmm.

A

I echo the same thing. Thank you, everybody for your service and hope you were leaving healthy and happy have a happy new years.

A

We do have a death note of notification, a notification of death of Melvin carrier fire, engineer, retired June, 1st 1995 died, new territory, retired June, 1st 1995 died, November 7th 2019, sir survivor benefits to Paulette carrier spouse. We just take a moment of silence.

A

All right, Thank, You, c'n condolences, go out to their family. On my shirt, did you.

A

Alright, moving on to committee reports and minutes 7.1, this investment committee I, am trying to think. If I know, we got a report out from our CIO but I. Don't think any of the trust were you at the meeting by any chance? I was.

D

A

Stood out that you like to sorry, you put you on the spot. I just realized. There was no one else from the committee here. I, probably.

D

Did a good job.

D

A

Sounds good we'll go ahead and I'm just even file the minutes from October 22nd 2019 for the police and fire and also than joint investment committee. So that's BNC.

A

Next meeting will be later this month on the 28th audit risk.

A

B

Was no meeting and it's February.

A

20Th, okay, thank you. Governments committee. We had a meeting on December 5th, I, don't know if any movie, oh Santos, you weren't there long committee. Yet since area you weren't on the committee yet photos not here.

C

B

So but I mean we we're going to go over the items by your board to be discussed and I was trying to buy some time to say a few things: I texted, Tommy and Russia, and he just texted me back so he should be calling in the next 25 seconds. I'm guessing, but I do want to indicate this one item that I think you bore.

B

Maybe you certainly can discuss it, but I would recommend to be deferred to the next meeting is item 7.3 C regarding recommendation to deny purchasing access to Chiron educational tools for trust issues at the Governance Committee meeting the Governance Committee decided to pound this to you full bore for discussion and the reason for that was I believe one of the trustees there was interested in the tool who used to be a member. The committee was not present at that meeting.

B

The same trustee is now here this morning either so I think it would make sense to have that discussion. Full disco, John Mayer, bore with the present that trustee, so I would recommend to pawn the side into the next meeting. Alternatively, you choose not to do that. You certainly can make a motion today, but that's my recommendation.

B

So with that said, I just heard the phone and I'm gonna guess that tom is there and available Tom.

A

I just want to make sure that we receive and file the minutes. Oh yes,.

B

I'm sure he is for.

A

September 5th 2019 and then also since Roberto touch based on items, see already discussion. Actions on government's committee recommendation for the Chiron education tool, I definitely agree with Roberto's recommendation. I wouldn't feel comfortable moving forward and having that discussion without Vitas here. This is something that was important to him and I wanted to make sure that his his thoughts were expressed. So if you guys feel comfortable without I would definitely prefer to defer this to next month.

J

A

Right, sorry, Tom. Thank you. Tom happy new years.

B

We're going to guess that we are warmer than you are there, but.

K

A

K

Tom we're gonna dive into the report of the Governance Committee regarding a number of policies and charters, the Board of retirement charter, the investment committee charter, the monitoring and reporting pause, see and I'm wondering if it's okay to also include the policy regarding roles and vendor selection. That might get different agenda item but they're all essentially the same sort of item.

K

A

That's okay time we discussed that earlier and we could go ahead and combined all those okay, just let us know which so that policy you want to start first with I, guess.

K

The board of administration charter and I won't. I won't bore you what we've been doing. The committee level is working jointly with the federated governor's committee to review all of these policies and charters and get them aligned and consistent and we're very close. The joint Governance Committee will probably need one more meeting to complete the review so they're putting three or four more items coming today.

K

We've got four and all of the edits are either necessary to ensure alignment across the two boards or to reflect changes that the two boards have made recently as a result of last year's, what we call the investment / governance project, which resulted in expanded authority to the CIO and some changes to the investment program. So what I've done throughout the documents? If the change was driven by the investment governance project, I've simply put in square brackets after the the change investment / governance project?

K

Yes, it doesn't say that it means that the change was necessary simply to deter to ensure alignment across the two boards. So I wasn't planning on going through all the documents. I thought I'd just respond to any questions. We can go one at a time so beginning with the board of administration Charter. Does anybody have any questions on that document?.

A

It doesn't look like it.

K

Okay, does the board want to adopt them one at a time we'll wait till the end? We.

A

Can wait to the end? Okay.

K

So, turning to the investment committee charter, it's exactly the same issue. The changes are driven by either inconsistencies across the two boards or changes that resulted from last year's governance, investment project and again, I've included that note after the relevant changes, investment, / governance project for the most part, they mirror the language in the board charter, at least so. Are there any questions on that document?.

K

And then the monitoring and reporting policy. Once again, these changes were driven by either inconsistencies across the two boards. Last year's project.

K

There's one new item which I included and that is under the investment section item 37 I, believe it's page, 7 CIO update to the investment committee I included that, in response to a suggestion that came out of the board self evaluation process, which we haven't got to that's the next agenda item but I just wanted to flag that. That's why that's? Where that new report emanated from all the other changes or reports are emanating from last year's project or just again alignment with the Federated board. Are there any questions on this Dodger I.

D

Don't think so.

K

Okay, by the way, by approving these documents, they will all these doctors will be identical across the two boards. In the case of this monitoring and reporting policy, the only difference between your board and the Federated Board is in the dashboard reports, which I think is report number seven. On page three, your board receives the dashboard reports. The Federated board does not, otherwise this policy will be identical.

K

And then we come to the policy regarding roles and vendor selection. The board reviewed this back in October. At that time, we presented a number of changes to ensure alignment across the two boards.

K

You at that time requested a few clarifications specifically around distinguishing between staff versus the CIO / CEO.

K

The the concern was that the word staff wasn't specific enough and we should go back and make sure that if we mean CIO, we should say CIO and if we mean CEO, we should include the word CEO. So we've gone away and made those additional changes. I tried to summarize those on the cover memo.

K

Otherwise the document is the same as what you saw back in October. Your suggestions around clarifying the CEO CIO distinction or made in time for the next federated meeting. So the Federated board has already approved those changes, so we're presenting them to you again, just falling up on here suggest on your directionless from the October meetings.

K

Any questions on this report on.

F

A

Correct. Thank you.

D

C

A

So does anybody have any comments on the vendor charter, the board or Retirement charter investment committee charter or the monitoring reporting Paul see that was just discussed by.

C

Tom I just want to comment on the vendor policy that you picked up a lot of the real detailed conversations we had I really appreciate that I think was terrific. Oh.

K

A

If there is, if there's no other discussion or concerns about the policies or any changes that you guys want to make based off the conversation, I'll just go ahead and.

A

Entertain a motion we'll all of them together, like I, said it will be for the monitoring and reporting policy, the investment committee, IC charter, the border retirement charter and then also back up on 3a. The vendor selection charter.

D

A

By Sunseri, second, by Santos, all in favor aye, all right that approved all right. Thank you. Tom. You got one more right. The move on to the next one.

A

G discussion actually on the results of the 2019 police and fire board self evaluation.

A

Tom, did you want to discuss that.

B

D

I

A

No I didn't like the results.

B

Taxi I think he may have lost him. Okay, well,.

A

While he is waiting to get him back, we'll come back to G here some point for our disability.

D

Do some terrible things that happen? It's very very good discussion with dr. Tim on the phone, but the meeting for the thirteenth II sent canceled only one applicant and so we're looking forward to follow the next meeting after the retirement meeting on February, the following Monday we'll find out what we got. Okay,.

A

Well, thank you. You guys keep doing great work, I appreciate it and we'll go ahead and receive and file.

C

The minutes for.

A

October 7 2019 meeting.

A

B

C

Noticed that on the report in the summary of key findings, there's a reference to how the board has really improved over the last two years. I just couldn't help, but.

D

Think anybody can just when you're involved and see the improvements of what has taken place. I think myself have experienced. I could see the very, very good changes that are very positive yeah there.

C

Are several areas of activities and action we need to take? So that's.

K

D

C

A focus on some of it gets delegated to governance. Some joint Personnel Committee.

K

C

Some of it to the IC, so that could be part of the board's work plan that we might want to consider developing.

A

No problem, thanks for coming back, we were about to discuss the 2019 booster power board self evaluation.

K

Ok great, would you like me to jump into that? Yes, please do. Thank you, okay, good! So, as you know, you do this every other year, you stagger with the Federated board this report. Pretty short, it gives a summary of participation and the process yet a little less participation this year, but still very strong and the results were very positive and in fact, better than two years ago, you'll notice.

K

In the second paragraph we say that on average board members rated the overall performance of the board, as a nine out of ten for 2019 I, probably should have included the score for 2017 and I'll. Just tell you burble, it was 7.3, so there was a pretty significant improvement and I'll probably add that to the report. If that's okay- and there were a couple of typos I'll fix those titles for the final draft as well areas of strong performance identified in 2019.

K

Those are listed in on page one points, one two and three: these came through pretty clearly in the survey results themselves and as well. I spoke to most of you through follow-up calls, and you reiterated these points amongst yourselves, so that was all very positive, given that it's been two years since you did, this I thought it would be helpful to review.

D

K

Of the issues or all the issues that were raised two years ago and follow up with the status of what was done and if we dock begins on page two and you'll see that two years ago the need for a clearer investment governance philosophy was raised. That was addressed and it was not raised at all in the current assessment other than people pointing out the success of that project.

K

Succession planning was raised two years ago. It was raised again in a slightly different context. This year and I've I've identified the points that were raised.

K

One board member suggested that board needs to confirm that there's a more specific succession plan in place for key positions, and this individual was looking for an understanding or a plan that would specify precisely who would step in an interim basis and certain positions were to become unexpectedly vacant and.

C

K

Board member suggested that while you've dealt with the CIO position in the last couple of years, the board really still needs to focus on CEO / CIO succession plan.

K

Every stakeholder satisfaction it was raised two years ago. It was raised again in 2019, but board members noted that they think that there's the current project, that's underway, to identify performance metrics people seem confident that that should help address a bigger issue. Two years ago was the efficiency of meetings and the focus was more on the dynamics of the actual meetings itself. People felt they were going on too long too many meetings.

K

Far less concern is raised in 2019 on that point of a couple of smaller suggestions in this area, but by and large this issue seems to have been addressed and, in particular people noted that you've reduced the frequency of the investment committee meetings item 5 on page 3, / 7 direction to management. This seems to have been resolved in 2019 board education.

K

It was raised in 2017 and it was raised again in 2019 slightly different issues, but I think this issue of board education is always an area where we can prove, and some suggestions were raised. I've indicated them there under item 6. So a lot of the older issues were addressed.

K

Some of them are recurring, but in slightly different forms, a number of new ik new improvement opportunities were identified at the current review and they fall under the heading of strategic planning, understanding the current funding position, communication on investment matters and then board meeting effectiveness, so strategic planning somebody suggested actually a couple of board members suggested that sorry, one board member suggested that the strategic planning process was very useful. The offsites in particular it could be made a little more concrete, a little more clear with the goal of yielding more concrete deliverables.

K

Understanding of current funding position. One board member noted that the board is really doing a good job on the basics of governance and now is in a good position to really tackle one of the biggest strategic questions facing the board and it's to gain a really solid understanding of. What's driven the current funding status, what got us to where we are today?

K

That's perhaps an educational issue, but it's also a strategic question and it's important enough that I set it out as a separate standalone issues. Turning to page four communication on investment matters, this is a very practical suggestion.

K

One board member was very comfortable with you CIO, and the current reporting I thought that, given the reduced frequency of the IC meetings, a short email report in between IC meetings would be beneficial, and this is why I included this and you've already adopted it in the reporting and monitoring policy and then, finally, a few suggestions to improve board meeting effectiveness, not not as a major one board. Member felt that, while we've improved in terms of a tendency to always be asking for more and more information before making a decision, the suggestion was.

K

We should really remind ourselves to try to request all the information. We think we need to make a decision ahead of the meeting so that we can speed up the making process.

D

K

Board under thought, it would be great if committees could provide greater additional background information to support all committee recommendations, particularly the in vessel trade and finally, a board member suggested that that person was perception was that sometimes meetings seemed to be a bit focused on finishing according to schedule, and the suggestion was that we should really, as a board, agree that we should let board meeting discussions just exhaust themselves naturally, and that was it and I've tried to convert those into a list on page 5 and put them in more sort of action-oriented suggestions for your consideration.

K

I won't repeat them, because I've just done that, but they are there. On page 5 listed one through mine, these pickups the issues that sort of continue from 2017, along with the new issues identified, are suggestions identified in 2019 and I've, been suggestions on who you might direct these issues to. But, of course, the board is free to direct any individual or committee or or what for a party to tackle these issues? If you think these Akal, these issues in fact need to be addressed.

K

So I thought I'd, just open it up to the board for discussion, the goal being to accept the report and decide which, if any of these actions, the board thinks warrant follow-up action.

G

This is drew so my impression, by the way, excellent job glad to see I hope you enjoyed the cold weather they time it Tom. So my impression from this was that the things you saw strong consensus on from the board were good and the things you saw. We might indeed improvement. You didn't see strong consensus. Am I kind of reading that right?

G

K

Actually, true the concerns or suggestions of isolated, it's usually one or two board members yeah.

G

K

Probably we should tommy's.

G

Yeah, so probably we should do. Tom then would make sense to me is to sort of maybe have you come back to us and say you know these guys, these two or three things? Maybe you should debate these are areas that people said there should be some improvement, but not all of you said there should be right. You know what I mean Tom, so maybe you can pick for us as you sort of sit back and look at it.

G

Maybe two or three things, and we can pick one each board meeting and maybe you can sort of help facilitate a dialogue, because if it's two or three board members that feel strongly about something you know there might be two or three of us that say you're just wrong that I'm glad you feel strongly about it, but I don't agree, and so that imply, whenever you don't have consensus on things to improve, you have to have a debate. Does that make sense done ya.

K

Know agreed, agreed, yeah and again. I should have made that clear. These are isolated comments and I always struggle with had a voyage back Tom anyway. The first decision is: do need to act on these. Is there enough consensus to warrant any action? Well,.

G

That's why Tom, maybe you know cuz you're, you're, really good at this stuff? Maybe you can sort of sit down over a beer, something sort of think Arthur. Are there one or two or three of these? Well, this is kind of actionable. I know it was only two or three people have brought it up, but you know I've known this board long enough that that's worth them discussing whether they should spend some time to work on it. Can you do that? First time.

C

Five, the report he has a summary of the action items and several of those are picked up from those singular concerns, and maybe we take that action list as part of a future discussion and say all right. Do we need to tackle this specific item on the action list? Are we in agreement before we move forward on taking action? Yeah.

G

D

Bringing up this should be sometimes in our retreat. There should be a portion we with 7-point, talked about it there before we actually went home because, let's just say, the majority of me would be on investments at certain areas that we like to really explore. As we go to leave. Have that last one talk about personal things or whatever yeah I.

K

Apologize I couldn't quite hear what thing.

G

Dick was saying you know, maybe if I could sort of modify slightly, we take say you know, maybe you can pick out one or two or three of these that we can debate the meeting and then there's one that we kind of latch on to tea. I. Think dick saying you know, maybe in our next off-site, when we are a little more casual, we have time so it turns into the off-site.

G

We can pick that one up for an hour to and sort of thrash it until we I like that idea, because the off-site we have a little more time, a little more casual.

K

Bring these items back to the board in smaller chunks prioritizing and maybe at the off-site to figure, which ones actually serve a bit of a debate in a more casual atmosphere to determine which of these. We act on yeah.

G

And I and I hear what you're saying to Tom. They may turn out that none of them boil up to that level and that's okay, that's an answer in and of itself right.

D

K

Of these, none of these are serious. You know not any strike me as serious issues. These are forward-looking issues and I think we could take some time. No.

A

I definitely appreciate it and when you were when we lost you for a little bit, Vince made a good observation, I mean and I'm sure true agree. You know things over the last eight years since they've been on the board. You know this list has has changed and you know there were more serious concerns. You know, and over the years they've been addressed and had been improved and we keep fine-tuning things and, though we're heading in the right direction, and so we got a good board here. Thanks Tom for I.

K

Think to your frequency is: it is the right frequency for this book. Yeah.

A

Thanks Tom for for everything today through for all the charters that you went through and going through, the evaluation.

K

B

A

It looks like we need to take action, discussion action, so we need to approve the I guess the the survey.

A

Santos second, since Erie on favor all right, we already did 7.4. We already proved the minutes, never see to file the minutes, so 7.5 George, a PC.

C

B

I just wanted to remind everyone. We, we are working on scheduling your next meeting. I think we provided a couple of dates, and sometimes the last week in January and as part of the Charter for this committee you are going to. You certainly can keep the same chair and vice chair for another year, but you need to make that selection at your next meeting so that gotta be part of the medium.

A

Trusty Santos we are who are working on the presentation from counsel educational presentation. You think we're trying to shoot that for next month, March the latest, but that's definitely on on the agenda.

D

A

Other items that you guys want to throw out. Alright any public comments, no little public comments, all right. Our meeting is adjourned. Thank you. Happy new years, everybody.

A