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HomeMy WebLinkAboutCOMM - Meeting Minutes - 281 - 12-2-2020 - RETIREMENT103 MINUTE BOOK RETIREMENT BOARD WASHINGTON COUNTY, PENNSYLANIA IMR I IMITFn FiRn7A9p1 n Minute No. 281 December 2, 2020 The quarterly meeting of the Washington County Retirement Board was held at approximately 2:27 p.m. on Thursday, August 20, 2020, in the Public Meeting Room and via teleconference with the following members being present: Commissioners Diana Irey Vaughan, Nick Sherman and Larry Maggi, Controller Michael Namie, and Treasurer Tom Flickinger. Also present: Chief of Staff John Haynes, Director of Finance Joshua J. Hatfield, Solicitor Jana Grimm, Executive Secretaries Marie Trossman and Patrick Geho, and Secretary Paula Jansante. Present via telephone was Lee Martin, Ph.D. representing Marquette Associates. Approval of Minutes Mrs. Vaughan entertained a motion to approve Minute No. 280 dated August 20, 2020. The motion was moved by Mr. Sherman and seconded by Mr. Namie that the above -mentioned minutes be approved as written. No discussion followed. Roll call vote taken: Mr. Namie — yes; Mr. Flickinger — yes; Maggi — yes; Mr. Sherman — yes; Mrs. Vaughan — yes. Motion passed unanimously. Public Comment None. Treasurer's Report Mr. Flickinger stated the August, September and October 2020 statements were submitted to the participants via email. It was moved by Mr. Flickinger and seconded by Mr. Namie to accept the reconciliations of the above -mentioned statements. No discussion followed. Roll call vote taken: Mr. Namie — yes; Mr. Flickinger — yes; Mr. Maggi — yes; Mr. Sherman — yes; Mrs. Vaughan — yes. Motion passed unanimously. Retirement Allowance Report Bank Balance as of August 1, 2020 $ 80,827.48 Transfers In 18,750.00 Add: ACH Credit 294,660.72 Add: Other Credits 636,473.68 Less: Cancelled Checks (122,863.44) Less: ACH Debits (816,419.23) Bank Balance as of August 31, 2020 $ 91,429.21 Transfer Out (229.19) Less: Outstanding Checks (61,056.60) Less: Retirement Check Run (30,143.42) Reconciled Balance as of August 31, 2020 $ 2 104 RETIREMENT BOARD IMR I IMITFn FlAMWAI n MINUTE BOOK WASHINGTON COUNTY, PENNSYLANIA Bank Balance as of September 1, 2020 Transfers In Add: ACH Credit Less: Cancelled Checks Less: ACH Debits Bank Balance as of September 30, 2020 Less: Outstanding Checks Less: Retirement Check Run Reconciled Balance as of September 30, 2020 Bank Balance as of October 1, 2020 Transfers In Add: ACH Credit Less: Cancelled Checks Less: ACH Debits Bank Balance as of October 31, 2020 Transfer Out ACH Return Less: Outstanding Checks Less: Retirement Check Run Reconciled Balance as of October 31, 2020 $ 91,429.21 768,836.63 289,599.90 (175,976.62) (837.434.00) $ 136,455.12 (111,678.67) (24.776.45) $ 4 $ 136,455.12 656,519.91 419,049.40 (171,491.29) (828,135.43) $ 212,397.71 (125,424.96) (.02) (59,671.86) (27,300.87) $ A= Requisitions Mr. Namie stated that requisitions for the months of August, September, October and November 2020 totaled $3,898,460.06. It was moved by Mr. Namie and seconded by Mr. Sherman that the requisitions be approved. No discussion followed. Roll call vote taken: Mr. Namie — yes; Mr. Flickinger — yes; Mr. Maggi — yes; Mr. Sherman — yes; Mrs. Vaughan — yes. Motion passed unanimously. Distributions August 2020 Check Payee Amount 2054 Washington County Cash Disbursement Account $ 33,779.55 2055 Washington County Regular Payroll Escrow Account 19,652.70 2056 Helen Messerotes Revocable Trust 22.26 2057 Ethel R. Chehovin 649.58 2058 Estate of Madeline A. Finney 80.01 2059 Kathleen L. Tychinski 2,815.92 1 105 MINUTE BOOK RETIREMENT BOARD WASHINGTON COUNTY, PENNSYLANIA IMR LIMITFII FlRmA9AI n 2060 Chase Bartsch 620.02 2061 Matthew Boardley 9,915.73 2062 Kathryn Cole 1,373.19 2063 Madison Foster-Alauzen 3,563.72 2064 Justin Joyce 6,775.40 2065 Benchmark Wealth Management as Trustee of IRA of 15,335.55 Daniel Royall 2066 Lydia Spencer 81.18 2067 Joyce Wright 8,129.07 2068 Derek Wyant 1,487.60 Transfer PNC Bank 59,635.62 Transfer Washington County Retirement Account 785,378.03 Total August 2020 Distributions 949.295.13 September 2020 Check Payee Amount 2070 Washington County Cash Disbursements Account $ 62,086.54 2071 Margo Kravitch 597.94 2072 Ralph A. Lucci 43.44 2073 George Bealonis 2,228.13 2074 Sandra M. Cain 66,883.14 2075 Roman Caruso 10,648.24 2076 Sharon Harris 5,514.93 2077 TD Ameritrade Clearing Inc. as Trustee of IRA of Brett A. 8,130.09 Scheller 2078 Catherine M. Thomassy 21,000.39 2079 Washington County Regular Payroll Escrow Account 20,324.92 Transfer PNC Bank 78,411.84 Transfer Washington County Retirement Account 781,761.06 Total September 2020 Distributions $ 1.057.630,¢ October 2020 Check Payee Amount 2081 Washington County Regular Payroll Escrow Account $20,526.46 2082 Washington County Cash Disbursements Account 19,464.94 2083 Harry Horwatt 243.93 2084 Elizabeth A. Meeks 380.87 2085 Donna M. Bradford 380.87 2086 Jamie Barton 84.54 2087 Walter Blank 2,066.72 106 MINUTE - BOOK RETIREMENT BOARD WASHINGTON COUNTY, PENNSYLANIA IMR I IMITFII FiR( Wl= n 2088 Samuel Caldwell 3,190.00 2089 Carrie O'Connell 2,544.31 2090 Kristapher Engel 183.58 2091 Austin Fisher 1,497.14 2092 Brittany Huber 3,059.65 2093 Slovenian Savings & Loan as Trustee of IRA of Sherly 5,499.07 L. Leitsch 2094 Etrade Securities, LLC as Trustee of James Tiu 12,593.01 2095 Samantha Washington 2,220.60 2096 Susan L. Yaworski 25,577.15 2097 Rachel Milchak 1,152.15 2098 Capital Bank & Trust Co. as Trustee of IRA of Daniel 15,335.55 Royall 2065 Benchmark Wealth Management as Trustee of IRA of (15,335.55) Daniel Royall Transfer PNC Bank 62,970.73 Transfer Washington County Retirement Account 784,665.65 Total October 2020 Disbursements $ 948.301.37 November 2020 Check Payee Amount 2099 Washington County Cash Disbursements Account $33,039.82 2100 Jodi L. Bratton 33.67 2102 Meghan M. Cline 3,454.85 2103 Tasha DeVaughn-Duda 3,674.98 2104 Alicia Donnelly 2,529.05 2105 Samantha Kovalyak 3,215.86 2106 Slovenian Savings & Loan as Trustee of IRA of Amy 5,990.21 M. Ross 2107 Shane Smith 1,190.29 2108 TD Ameritrade Clearing Inc. as Trustee of IRA of 24,099.52 Adam Yarussi 2109 Washington County Regular Payroll Escrow Account 20,302.60 2110 Marci Dever 33.67 Transfer PNC Bank 56,129.15 Transfer Washington County Retirement Account 789,539.23 Total November 2020 Disbursements S 943.232.90 107 MINUTE BOOK RETIREMENT BOARD WASHINGTON COUNTY, PENNSYLANIA I I IMITFII F1Rn7Q9QI n Old Business None. New Business Mrs. Vaughan introduced Lee Martin of Marquette Associates with the portfolio presentation. (At this time, Mr. Flickinger exited meeting.) Portfolio Presentation — Lee Martin, Ph.D. - Marouette Associates Mr. Martin began the discussion reminding the Board that on the last meeting of each year Marquette compiles data from 49 participating Pennsylvania counties from the Pennsylvania county database presented in this year's 2020 Pennsylvania County Pension Plan Report. Mr. Martin noted that there have been a lot of changes this year particularly in trends of lowering the interest rate of return. He pointed out that Washington County has really led the way when it made the prudent decision to reduce the actuarial assumed rate of return to 6.5% especially when considering the sophisticated asset allocation software's projections going forward for the next 5 to 10 years. With fixed income yields basically near zero and equities at record valuations, counties still at the 7.5% ARR may find it difficult to reach even if they go all in on equities which would not be prudent. Consequently, it is expected that more pension plans will lower their ARR in the future. Looking at the salary increase assumption, the larger the salary % increase assumption, the greater the actuarial liability. Historically counties have used 4.5% for their salary increase assumption. However, with inflation low over the last few decades, there has been a significant downward trend with 24 of 49 counties currently using 3.5% and 30 of 49 below 4.5%. With regard to the mortality assumptions, Washington County and quite a few other counties have moved to the more realistic Pub-2010 Public Retirement Plans Mortality Tables published in January 2020. This publication determined a longer average life expectancy for public fund officials/employees which, in turn, would lead to an increase in costs to the public funds. Conversely, the cost of living adjustment has not seen much change since the laws changed for the lookback period but will be a topic of discussion once Washington County's three years are up. Moreover, most counties, including Washington, are using the more nationally accepted actuarial 5-year smoothing method referred to as the "W" method for asset valuation which adjusts for unrecognized gains and losses. Mr. Martin commented that, with regard to the County's fund performance and funding ratio, the investment strategy over that last few years has been a little more conservative to alleviate some risk while still providing strong returns. Marquette Associates uses the Adjusted Funded Ratio as opposed to the Funded Ratio which is an apples to apples comparison between counties. Mr. Martin indicated that the desired funded ratio is between 90-100 percent and explained that the Adjusted Funded Ratio puts Washington County in a sound position of being nearly fully funded. Looking ahead, Mr. Martin explained that as the County's plan matures, there are fewer active participants contributing to the plan relative to terminated and retired employees withdrawing plan funds. Currently the plan is running a little over a $6M deficit a year necessitating the sale of plan assets in order to settle obligations. He explained that one of the reasons that Treasuries were added was to hedge against an event such as the sharp market decline from 1 Q20. 9 • MINUTE BOOK RETIREMENT BOARD WASHINGTON COUNTY, PENNSYLANIA IAAR I IMITF=n Firn7Q9Q1 n Mr. Martin concluded this portion of his presentation apprising the Board that even during this global pandemic. Marquette Associates has continued to grow and was recently hired by the Pennsylvania Municipal Retirement System with $3 billion in assets under advisement. The office hired 3 new analysts and continues to provide counties with charitable donations again in 2020. Marquette Associates also hired Patrick McDowell, Senior Vice President of OCIO Services, bringing 10 years of related OCIO experience with him. Moving to the market environment for the U.S. economy, Mr. Martin highlighted the significant rebound in GDP coming in at a little over expectations at 33.1% driven mainly by consumer spending resulting from the transfer payments from the CARES ACT which accounted for approximately one third of all personal income in the last few months. Additionally, low rates attracted business investment and a late cycle housing boom contributed to the rise in GDP. Mr. Martin talked about the recent encouraging news of the approval of the COVID-19 vaccine in the U.K. and U.S. while noting that the economy may be in for a rocky ride through 2Q21. Globally, Mr. Martin indicated that global policymakers have applied stimulus to combat the economic effects of the virus but pointed out that the U.S. has applied more than any other county at 44% of GDP driving up debt to approximately 150% of GDP. Even though this is the highest it's been since the end of WWII, in comparison, Japan's debt is approximately 200% of GDP as the country has been in a state of stagflation for about 30 years. The upside is that the interest rates are low which is holding the cost of the debt down. However, the downside is that as rates go up, it will lead to higher future interest payments, lower spending and higher taxes. Mr. Martin turned his attention to what the environment has meant for index returns, specifically the global asset class performance. Consistent with Q2, equities led the way with U.S. equities (9.2%) outperforming international equities (5.6%) for Q3 but lagging slightly behind emerging market equities (9.6%). Fixed income was slightly positive for the quarter, but September and October returns were negative, which is a likely indication of where core bond returns are heading. High -yield bonds showed strong returns of 4.6%, and the inflation -sensitive assets posted solid quarterly results with TIPS comfortably in the black and REITs yielding 1.2% with concerns over property values and retail space, etc., due to the uncertainty surrounding the pandemic. To summarize the U.S. equity markets, growth stocks outperformed value stocks by more than 35 percentage points through Q3, but the disparity has lessened since September. Mr. Martin repeated a warning from the last meeting with regard to tech stocks as the market continues to be extremely narrow. As the top 5 company stocks comprising approximately 22.5 percent of the S&P (Facebook, Apple, Amazon, Microsoft and Google) returned 41 % through the end of Q3, the remaining 495 stocks combined were negative. This condition makes it difficult to for active managers to outperform the index until the markets normalize. Mr. Martin focused the Board's attention on U.S. fixed income explaining that the high yield spreads blew out earlier in the year but that they are starting to come down almost to the long- term average of 400. Once it hits 400, Mr. Martin indicated that the County's share of fixed income investments would be reduced to safeguard against any potential future spread expansion. The County's pension fund ended the quarter at $174.7 million, a Q3 gain of $7.7 million and a return of 4.6%, slightly below benchmark, but in line with expectations due to the overall fund 109 MINUTE BOOK RETIREMENT BOARD WASHINGTON COUNTY, PENNSYLANIA IMR I IMITFn F1r)n7Q9g1 n underweight to technology relative to the market. Positive attribution came from growth equities, fixed income and alternatives, particularly infrastructure which has been very strong. Negative attribution came from value tilt, low volatility/high quality equities, underweight to alternatives and overweight to fixed income. Mr. Martin emphasized that the real bench for the fund is the ARR. The 5-year return for the pension fund is 8.1% well above the ARR of 6.5%. Looking longer term at the 7-year return, the fund has gained approximately $77.5M and returned 7.1 % also above both the ARR and the broad benchmark, which returned 6.2%. The fund is invested more conservative than the broad benchmark and policy index with lower volatility (0.96 Beta) leading to a lower downside capture (95%). Some of the changes made over the summer led to lower management fees by about 4 basis points from 0.41% to 0.37%. Mr. Martin noted that he would like to revisit the asset allocation but prefers to wait until the Board can meet in person to make decisions with regard to the optimum asset mix. There was a lot of activity in the second quarter in anticipation of bad times. Equities were rebalanced back into fixed to keep the fund on track to meet its risk objectives. Fixed income currently makes up 27% of the asset allocation mix which is quite a bit higher than the median in the peer group. The higher fixed income strategy is consistent with a more defensive ARR. With the fixed income yield so low, however, it may be prudent to source some private credit/private equity so as to give a higher probability of meeting the ARR. Mr. Martin explained that there was not a lot of change in the composites. With regard to the U.S. Fixed Income Composite, he pointed out that there had been a 50 basis point jump from the addition of high yield but that over 50 percent was still in Treasuries. With the total return on fixed only 0.7%, Mr. Martin emphasized another advantage of lowering the ARR. Wrapping up the pension fund discussion, Mr. Martin wanted to highlight some of the individual funds. Within the U.S. Equity Composite, TWIN Capital Dividend Select lagged in the quarter with a return of 8.3% behind 8.9% from the S&P 500 bench. Mr. Martin went on to explain that the fund improved in September and October outperforming by 5%. GW&K Small -Mid Cap Core has done very well in the last few years since inception returning 7.0% to the 5.9% bench for Q3, mad 8.2% to 3.4% since inception. Moving to the Global Equity Composite, the American Funds New Perspective outperformed by about 400 basis points, and Mr. Martin recognized the effectiveness of the ftind's managers. As expected in a risk on quarter, Acadian Global Managed Volatility lagged 4.8% behind the broad ACWI bench, but Mr. Martin went on to relate that the fund had rebounded well in Q4. Looking at the Non-U.S. Equity Composite, Schroder Int'l Multi -Cap Equity Trust has been ahead by about 300 basis points since inception, approximately 18 months ago. In Defensive Equity, Parametric performed as expected right in between the S&P 50150 and the Covered Combo Strategy indices returning over 5% for the quarter. In Real Estate, J.P. Morgan had about $ 1 B in redemption requests and was forced to sell assets explaining the slightly negative Q3 return. Clarion Lion is a smaller fund and didn't quite have this experience returning 0.4% for the quarter. Previously, the County decided to add infrastructure and timber alternatives rather than increasing real estate which turned out to be a great move by the County. Under Infrastructure, J.P. Morgan outperformed Libor +4% by 2.8% in Q3. J.P. Morgan returned 3.8% for Q3 well above real estate which was practically null. Hancock Timberland and Farmland returned 0.7% in dividends for the quarter 110 MINUTE BOOK RETIREMENT BOARD WASHINGTON COUNTY, PENNSYLANIA IMR I.IMITF:n F1A07Q9QI n bringing the YTD return to 1.6%. Finally, Mr. Martin, drew attention to U.S. Fixed Income Composite commenting that C,S,McKee and Federated Investors were a drag in Q 1 but that adding the high -yield Mainstay Fund added about 15%. Mainstay has since been replaced with higher quality, shorter duration Chartwell as a prudent response to the normalization of high -yield spreads. To wrap up the overview of the pension fund, Mr. Martin reiterated that Washington County was a leader in the move to lower the ARR. With the current asset mix, the most recent projections put the fund at a little over 6% out 10 years. Looking out 20 years, Mr. Martin estimates the addition of about 75 basis points with the expectation that returns for most asset classes will increase in years 10 thru 20. He wants to discuss implementation options at the next meeting suggesting that adding private equity is the only way to reach the desired return without investing more into volatile public equities which are currently at record highs. The OPEB fund finished the quarter at $19.9 million, a $940K gain and a 5.1 % Q3 return below the policy index of 5.8%. The lower return can be explained by the defensive position of the fund relative to the broad market policy index. Positive attribution came from growth equities, fixed income and defensive equity with negative attribution from the value tilt and low volatility/high quality equities. Longer term, the 5-year return is 8.3%, well above the ARR of 7%. Since inception, the fund has returned 7.6% outperforming the 6.5% benchmark. The OPEB fund is a little more defensive minded with less risk exhibited by the volatility beta measurement of 0.93 and the downside capture of 94%. Mr. Martin stated that he would like to discuss the asset allocation, specifically the 3-year outlook, at the next meeting. He noted that there had not been the need to fund benefit payments from the OPEB. If in the next 3 years that is still the case, it may be worth considering taking some of the low -yield fixed income and replacing it with some growth type assets if the goal is to produce a higher 3-year return. Mrs. Vaughan thanked Mr. Martin and stated that the Board will reserve some extra time at the next meeting to discuss the asset allocation and that she hoped that the meeting could be in person. The meeting was adjourned at 3:03 p.m. THE FOREGOING MINUTES SUBMITTED FOR APPROVAL: 2021 ATTEST.