OFFICIAL MINUTES OF REGULAR MEETING OF THE STERLING HEIGHTS GENERAL EMPLOYEE S RETIREMENT SYSTEM Thursday, December 15, 2016 Location: Room #202 40555 Utica Road, Sterling Heights, MI 48313 (586) 446-2331 Chairperson Weiler called the meeting to order at 1:33 p.m. BOARD MEMBERS PRESENT: BOARD MEMBERS ABSENT: Rich Weiler, Chairperson Brian Baker, Secretary Jennifer Varney, Acting Secretary / Treasurer Todd Marsh, Trustee Paul Henig, Trustee None. ALSO PRESENT: Walt Hessell, Pension Administrator; Thomas Michaud, Legal Counsel, VanOverbeke, Michaud & Timmony, P.C., Timothy Brice, Institutional Consulting Director, Morgan Stanley Graystone Consulting The Brice Group APPROVAL OF AGENDA: Motion by Marsh, supported by Henig, to approve the agenda as presented. APPROVAL OF MINUTES: Motion by Henig, supported by Marsh, to approve the minutes of the regular meeting held November 17, 2016 and the special meeting of November 30, 2016. COMMUNICATION FROM CITIZENS: None PRESENTATION FROM TIM BRICE MORGAN STANLEY GRAYSTONE CONSULTING In follow up from the special meeting of November 30 th, Brice distributed the analysis of when to invest in Active vs. Passive. Over the last few years, passive investing has outperformed active however over the long term history, active style has the advantage. Morgan Stanley s proprietary model suggests that an optimal choice would include both active and passive allocations. The portfolio s active allocation would provide more downside support while the passive portion would provide greater fee efficiency and better consistency in the tracking of the benchmark. Discussion ensued and the Board by consensus agreed that active style investing may now be coming back into favor and that any additional portfolio allocation to passive should be done cautiously and on a limited basis. The Board directed Brice to refine the analysis that was presented and prepare specific recommendations for application to the portfolio. Motion by Varney, supported by Baker, to receive and file the Active vs. Passive analysis prepared by Tim Brice of Morgan Stanley Graystone Consulting. 1
REPORT FROM LEGAL COUNSEL Legislative Update Michaud reviewed the Michigan legislative update memo regarding the defeated HB 6074 which failed to pass in the lame duck session of the Michigan legislature. Michaud opined that as written the bill was inherently vague and would generate extensive litigation in the Courts as municipalities sought to implement the proposed law while retirees and active vested employees looked to retain retiree health care benefits earned. While the matter is now closed in lame duck session, Michaud commented that early in 2017 the issue will once again be revisited in the Michigan legislature. It is hoped that any proposed legislation at that point will be better thought out and an improvement over HB 6074. Motion by Varney, supported by Baker, to receive and file the legislative update memo from VanOverbeke Michaud & Timmony, P. C. Michaud also commented on items as they appeared on the agenda. RECOGNITION OF SERVICE BRIAN BAKER Motion by Henig, supported by Marsh, to present retiring Finance & Budget Director Brian Baker with following commemorative resolution in recognition of his years of service on the Sterling Heights General Employees Retirement System Board. TESTIMONIAL RESOLUTION OF APPRECIATION FOR TRUSTEE BRIAN BAKER City of Sterling Heights General Employees Retirement System December 15, 2016 WHEREAS, BRIAN BAKER SERVED THE CITY OF STERLING HEIGHTS GENERAL EMPLOYEES RETIREMENT SYSTEM AS A TRUSTEE PURSUANT TO APPLICABLE RETIREMENT SYSTEM PROVISIONS, AND WHEREAS, TRUSTEE BAKER IMMEDIATELY DISPLAYED AN UNDERSTANDING OF THE FIDUCIARY RESPONSIBILITIES A TRUSTEE MUST HAVE TO SERVE THE MEMBERS AND BENEFICIARIES OF THE RETIREMENT SYSTEM, AND WHEREAS, TRUSTEE BAKER CARRIED OUT HIS FIDUCIARY RESPONSIBILITIES WITH DEDICATION, SINCERITY, SCHOLARSHIP, HARD WORK AND HONOR AND HAS PROVIDED DISTINGUISHED SERVICE TO THE BOARD AND THE MEMBERS AND BENEFICIARIES OF THE RETIREMENT SYSTEM, AND WHEREAS, THE TRUSTEES, THE MEMBERS AND BENEFICIARIES OF THE RETIREMENT SYSTEM, THE CITY EMPLOYEES AND CITIZENRY OWE A DEBT OF GRATITUDE TO TRUSTEE BAKER FOR HIS SACRIFICE AND SERVICE TO THE RETIREMENT SYSTEM, THEREFORE BE IT 2
RESOLVED, THAT THE BOARD OF TRUSTEES, ON BEHALF OF ITSELF AND ALL CONCERNED, HEREBY EXPRESSES ITS GRATITUDE AND APPRECIATION TO TRUSTEE BAKER FOR HIS HONORABLE AND DISTINGUISHED SERVICE AS A TRUSTEE, AND BE IT FURTHER RESOLVED, THAT THE BOARD OF TRUSTEES, ON BEHALF OF ALL THE AFOREMENTIONED PARTIES, SAYS "THANK YOU FOR A JOB WELL DONE". CONSENT AGENDA: Motion by Henig, supported by Marsh, to receive and file consent items I A through I D-1. I. RECEIVE AND FILE: A. Benefit register listing for December 1, 2016 from Comerica Bank showing 356 active retirees with a payout for November 2016 of $880,922.59 and a year-to-date payout of $10,849,522.34. B. Cash and Asset Statements as of November 30, 2016 from Comerica Bank and Morgan Stanley showing a total market value of $105,360,605.05 comprised as follows: Desired Allocation Asset Class / Percentage 0% Cash 0.03% Comerica Bank $ 34,919.60 16% Fixed Income 17.07% Boyd Watterson 17,986,717.14 8% Fixed Income 8.98% Western 9,464,531.84 15% Small Cap 17.13% Earnest Partners 18,049,668.00 5.8% Large Cap Value 5.48% Confluence 5,769,719.22 5.8% Large Cap Value 5.84% MFS 6,153,880.90 4% 4.5% 2.9% Large Cap Growth 4.12% Large Cap Growth 3.44% Large Cap Growth 3.12% AMI Winslow Janus Capital 4,340,236.04 3,626,019.72 3,284,318.88 7% Large Cap Core 6.95% London 7,322,292.78 5% Large Cap Core 4.20% S&P Index 4,429,935.41 8.5% 8.5% 4% 5% Large Cap Global 7.98% Large Cap Global 8.11% REITS 2.17% MLP s 5.38% INVESCO Cambiar Principal REIT Cushing Asset Mgt 8,404,534.30 8,542,371.45 2,284,215.85 5,667,243.92 C. Correspondence 1. Various securities litigation reports dated Q3 2016. 2. Fee information summary received from Morgan Stanley dated November 2, 2016 3. Email correspondence and letter sent to Morgan Stanley and Comerica Bank dated November 17, 2016 regarding the transfer of funds for the payment of benefits. 4. Email correspondence and letters sent to Morgan Stanley dated November 17, 2016 regarding the authorization for the payment of money manager fees. 3
5. Wire transfer confirmation received from Morgan Stanley dated November 18, 2016 for the payment of money manager fees. 6. Email correspondence with City Clerks Office dated November 21, 2016 regarding update to GERS Board contact info. 7. Wire transfer notification received from Morgan Stanley dated November 23, 2016 confirming the transfer of funds for the payment of benefits. 8. November 25, 2016 Settlement Report securities litigation. 9. Boyd Watterson Form ADV Part 2A dated November 30, 2016. 10. Pension & Investments magazines dated November 14 & 28 and 2016. D. 1. Payable from City Assets for services rendered November 30, 2016: Actuarial fees from Gabriel Roeder Smith & Company in the amount of $3,200 for the IRS Section 415 Limit Recalculations for 2017 for Baker, Guitar, Coffin and Conigliaro. REGULAR AGENDA: II. NEW BUSINESS: A. Suspension of Retiree Benefits Motion by Henig, supported by Varney, to approve the suspension of benefits for the three following retirees who have not responded to the two retiree verification forms that were mailed to them: Howard Bacheller Arlene Graham Leonard Sposato B. Pension Administration Comments In follow up to the previous regular meeting, Hessell presented an informal report with regard to IRC Section 401(a)(9) compliance. Currently the system is in compliance with RMD required minimum distribution rules. Of special concern are former employees who have terminated with their employee contributions and interest remaining on deposit in the GERS. There are nine total terminated employees who fall within this classification. Michaud advised that communications with these members be made so as to address a refund / rollover of their contributions before their attainment of age 70 ½ (RMD mandated age). Hessell stated that he would work with Michaud in drafting an appropriate form letter. C. Trustee Comments None ADJOURN: Motion by Varney, supported by Weiler, to adjourn the meeting at 3:05 p.m. 4
Respectfully Submitted, Jennifer Varney, Acting Secretary / Treasurer 5