PENSION TRUST FUND WESTERN STATES, OPEIU MINUTES June 11-13, 2008 The MacArthur Place (800) 722-1866 & (707) 933-9833 (fax) 29 East MacArthur Street, Sonoma, CA TRUSTEES LABOR Judi Zenk, Co-Chair Suzanne Mode Patricia Sanchez Mike Richards MANAGEMENT Arlene Erickson, Co-Chair Lea Ann Doolittle Michael Parmelee Matt Oglesby PLAN PROFESSIONALS Michael Ashman/Rich Valiant/Andrew Zaitsev Investment Consultant, Alan Biller and Associates Mike Clark - Actuary, Real and Letson Peter Marana/Michelle Portteus Plan Manager, Marana Benefits Administration Joe Reinhart Legal Counsel, Zalutsky, Klarquist & Reinhart I. CALL TO ORDER The meeting was called to order on Wednesday, June 11 th at 9:00 AM by Co-Chair J. Zenk. A. MINUTES The Trustees and plan professionals reviewed the minutes contained in the briefing book. 1. March 12-14, 2008 It was moved, seconded and carried ( MSC ) to approve the minutes of March 12-14, 2008. 2. March 13, 2008 (Executive Session) It was MSC to approve the minutes of March 13, 2008. 3. May 1, 2008 It was MSC to approve the minutes of May 1, 2008.
Page 2 II. INVESTMENT MANAGERS - PRESENTATIONS A. AMERICAN REALTY JAY BUTTERFIELD Mr. Butterfield reported that the fund had changed its name to American Core Realty Fund which more accurately reflected the nature of the fund. He also noted that there had been no changes in the management of the firm, that presently $4.4 billion was under management and that the portfolio was biased to the top end of the quality spectrum. He noted that the fund had earned 17.25% in 2007 with most of the gain attributed to appreciation. Mr. Butterfield predicted that future growth would be more moderate and that the portfolio was properly diversified by clients, geography, industry and type. He also noted that there were no waiting lines regarding investing or withdrawals. B. INTECH MARK CORDONE & CHRISTIAN MCCORMICK Mr. McCormick made the presentation to the Board noting that the firm retained its own management though it was owned by Janus. He reviewed the performance data contained in the presentation booklet and touched on the methodology of the INTECH investment model. C. WAMCO AARON PRINCE AND STEPHEN FULTON Mr. Fulton made the presentation to the Trustees noting that the last twelve months had been very disappointing noting that the firm s heavy placement in mortgage back securities had seriously harmed performance. He further noted that it would take 12-18 months to recover from the recent performance problems but that his firm had experienced similar situations in the past and was confident that the adjustments to portfolio would produce positive returns. III. HEDGE FUNDS OF FUNDS A. GROSVENOR INSTITUTIONAL PARTNERS Mr. Tom Meagher and Ms. Julie Lohrmann presented the Trustees with the advantages of investing with Grosvnor. It was noted that the firm was privately owned and established in 1971. It currently had $26 billion under management and that its core goal was capital preservation with a performance goal of Treasury Bills plus 500 basis points. The fees were reviewed and it was emphasized that there was no restriction on redemption outside of a 70-day notice. B. AUSTIN CAPITAL SAFE HARBOUR FUND Mr. Paul Gurewitz and Mr. Will Gray noted that the firm was established in 1993, was owned by KeyCorp and currently had $2.3 billion under management. They described the firm as a boutique hedge fund of funds and reviewed their investment performance. The commented that their performance goal was the 90-day Treasury Bill plus 400-600 basis points and that they had out-performed the market during periods of stress.
Page 3 C. STERLING STAMOS SECURITY FUND Mr. Stamos, Mr. Ashok Chachra and Mr. Okimoto made the presentation to the Trustees. It was noted that the fund was presently closed but investments would be accepted by clients of Biller and Associates. It was noted that the firm was founded in 1980 with the absolute return fund created in 2002. The performance goal was Treasury Bills plus 400-600 basis points. The fee structure was discussed as well as the firm s use of insurance investments to hedge against extreme market risk. It was MSC to select Sterling Stamos and Grosvnor as the two investment managers in the funds of funds hedge fund asset classification. Trustee Zenk abstained from the vote. It was MSC to allocate 5.0% of the portfolio, split 50/50 between the two new funds of funds investment managers, with the Consultant to re-balance when allocating assets. Trustee Zenk abstained from the vote. It was MSC to direct the Consultant to analyze a 5.0% and 10.0% allocation to the funds of funds hedge fund asset classification. IV. PROFESSIONALS A. ACTUARY 1. New Rules for Minimum Lump Sums Mr. Clark reviewed the memo addressing the new PPA rules dealing with minimum lump sum distributions. 2. Exhibits Hourly Contribution History Mr. Clark also distributed exhibits showing the distribution of contribution rates by amounts since 1978. The data was displayed in both a pie chart and table format. B. LEGAL COUNSEL 1. Articles of Dissolution Hawthorne Business Center Mr. Reinhart noted that the sale of the Hawthorne Business Center was now completed. 2. Horizon/Sea Land Confirmation of Contributions Regarding the issue of whether Horizon Lines properly paid all pension contributions Mr. Reinhart noted that the statute of limitations issue must first be researched before any Trust assets should be spent in auditing the employer or hours by the Plan Manager in retrieving contribution data.
Page 4 3. D. Christian Demand Letter to Wells Fargo Bank It was reported that Ms. Christian had been located in Southern California and that efforts would be made to recover the improper pension payments. 4. Participation Agreements To Be Updated Mr. Reinhart commented that he was working with the Plan Manager to update the participation agreement with the goal to create a single document. 5. Summary Plan Description Annual Review The issue of whether to update the current SPD was discussed with Mr. Reinhart reporting that the Trust was not legally required to issue a restatement until 2010. 6. Investment Manager Contracts Mr. Reinhart reported that work was proceeding on finalizing the contracts with the Trust s new investment managers. He reviewed the wide range of issues that must be addressed and also commented on the complexity and slowness with these documents are revised and approved by the investment managers. Presently work has been completed on INVESCO Value Added Real Estate, AEGON Enhanced S&P 500 GIC, JPMorgan Infrastructure and IFM Global Infrastructure. Mr. Reinhart also reported that it would be necessary to approve and sign a formal resolution on each new investment manager. It was MSC to approve resolutions adopting contracts with INVESCO Value Added Real Estate, AEGON Enhanced S&P 500 GIC, JPMorgan Infrastructure and IFM Global Infrastructure. It was MSC to accept the report of Legal Counsel, Zalutsky, Klarquist and Reinhart. V. PLAN MANAGER A. FINANCIAL STATEMENTS Mr. Marana reviewed the un-audited financial statements for the period ending March 31, 2008. The financial reports, which were included in the briefing book, were reviewed by the Board of Trustees. The financial reports included the balanced sheet, statement of changes to net assets available for benefits, investment manager fee schedule, check list, retirement and terminations report and employer payroll audit report. It was MSC to accept the financial reports and approve the check list for the period ending March 31, 2008.
Page 5 B. CORRESPONDENCE 1. Participation Agreement OPEIU, L.U. 5 Mr. Marana noted that the Agreement with OPEIU Local Union 5 had been signed and returned to the employer along with instructions on how to process the retroactive payment. 2. BONY Mellon Services and Fees The summary of services and fees related to custodial services from BONY Mellon was included in the briefing book. The issue as to the need and cost of this service was discussed with further investigation by the Plan Manager requested. It was MSC to direct the Plan Manager to confirm the necessity of custodial banking services. It was MSC to direct the Plan Manager to investigate the value and availability of a sweep account for the Trust. 3. Additional PBI Search - Quote The quote for a second death search was noted since the Trustees had expressed interest in this review being done twice a year. It was MSC to direct the Plan Manager to conduct a PBI search twice a year to confirm that no participants had died without the Plan being notified. 4. 2007-2008 Payroll Review The list of employers recommended by the compliance auditor was reviewed with no additions or deletions. 5. 2007 Statements A sample of the participant annual statement was reviewed. Legal Counsel noted that the PPA required clear language on statements regarding a participant s vesting status. C. WEBSITE 1. Utilization Report The utilization report for the Trust web site was reviewed.
Page 6 VI. INVESTMENTS A. CONSULTANT 1. Performance Report Mr. Ashman reviewed the Trust s performance report for the period ending April 30, 2008. He commented on the general investment environment and reviewed the net performance of each investment against the referenced index. He noted that the redemption for MIREF I would take 6-12 months because of the demand by other clients for liquidation. It was noted that the contracts with the new investment managers had been reviewed and that capital calls were expected from IFM and Invesco. It was reported that the AEGON investment had been funded at $50M with a 75 basis point enchancement over the S&P 500. The issue of reducing manager and strategy specific risk was also discussed with the goal of limiting strategy specific risk to no more than 10% of the Trust s assets. 2. Investment Policy Statement - Update Mr. Ashman noted that the investment policy statement would be updated for the September meeting. It was MSC to accept the report of the Investment Consultant, Alan Biller and Associates. VII. OLD BUSINESS VIII. NEW BUSINESS A. AMERICAN CORE REALTY FUND - CEASE REINVESTING DIVIDEND To free up more cash for new investment classes and to minimize the need for rebalancing it was suggested by the Investment Consultant to direct dividends be forwarded to the Trust instead of reinvested. It was MSC to direct American Core Realty Fund to cease reinvesting dividends and to have this income forwarded directly to the Trust. B. JOINT AND SURVIVOR ANNIUTY OPTION It was reported that the PPA would require a 75% joint and survivor annuity option in 2009. The Plan currently offered a 66&2/3% option. Legal Counsel noted that a SMM would be necessary to inform the participants of this plan change and that the web site would need to be updated. It was MSC to add a 75% Joint and Survivor Annuity Option and to delete the existing 66&2/3% option with the change to be adopted no later than January 1, 2009.
Page 7 C. PARTICIPATION AGREEMENTS 1. Fringe Benefit Services Denver, CO The Participation Agreement for the Fringe Benefit Services office in Arizona was reviewed by the Trustees. It was MSC to approve the Employer Application and Participation Agreement for Fringe Benefit Services, Inc. D. RENEWAL PROPOSAL - ACTUARY Mr. Clark noted that his firm would not be submitting a fee adjustment at this point even though such a proposal was noted in the trust annual calendar. E. COMMUNICATIONS PROGRAM 1. Proposal Doug Lonergan, Communications Partners The Trustees reviewed the proposal from CPI. The Trustees requested that the company submit some examples of their work that applied specifically to defined benefit pension plans, that an outline be prepared addressing the back content of bi-annual newsletters and also considered offering some seed funding to develop a more formal strategy. F. TRUSTEE ERICKSON EXPENSE REPORTS The issue was raised regarding Trustee Erickson needing to submit expense reports from several years ago when her husband was ill. Mr. Marana noted that most of the activity could be reconstructed but that this would take some staff time. It was MSC to authorize the Plan Manager to re-construct the expense reports for Ms. Erickson and to be reimbursed for this work. IX. CLOSE OF MEETING A. NEXT MEETING September 10-12 December 10-12 San Diego Scottsdale B. ADJOURNMENT