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HomeMy WebLinkAboutRetirement Board Minutes 11-30-22 Min. No. 289169 MINUTE BOOK RETIREMENT BOARD WASHINGTON COUNTY, PENNSYLANIA i I Minute No. 289 November 30, 2022 11 1 The quarterly meeting of the Washington County Retirement Board was held at approximately 2:36 p.m. on Wednesday, November 30, 2022, in the public meeting room with the following members being present: Commissioners Diana Irey Vaughan, Larry Maggi and Nick Sherman; Treasurer Tom Flickinger; and Controller April Sloane. Also present: Chief Clerk Cindy Griffin; Secretary Paula Jansante; Executive Assistant Marie Trossman; Chief of Staff Michael Namie; Lee Martin, Ph.D. representing Marquette Associates; and Frank Byrd. Approval of Minutes Mrs. Vaughan entertained a motion to approve Meeting Minute No. 287 dated May 19, 2022. The motion was moved by Mr. Sherman and seconded by Mr. Maggi that the above -mentioned minutes be approved as written. No discussion followed. Roll call vote taken: Ms. Sloane — yes; Mr. Flickinger — yes; Mr. Maggi — yes; Mr. Sherman — yes; Mrs. Vaughan — yes. Motion passed unanimously. Mrs. Vaughan entertained a motion to hold the meeting minutes of August 18, 2022, in abeyance stating they did not receive said minutes until the previous afternoon. Ms. Sloane countered that the minutes were supplied to Chief Clerk Cindy Griffin weeks prior. Mrs. Griffin countered that the retirement information was received the previous afternoon, to which Ms. Sloane replied that just the minutes were supplied weeks ago. Mrs. Vaughan then stated that the Commissioners had not received them and thus, the motion was then moved by Mr. Sherman and seconded by Mr. Maggi that the above -mentioned minutes be held for review. Roll call vote taken: Ms. Sloane — no; Mr. Flickinger — yes; Mr. Maggi — yes; Mr. Sherman — yes; Mrs. Vaughan — yes. Motion passed. Public Comment None. Treasurer's Report Mr. Flickinger made a motion to accept the reconciled statement for of July, August, September, and October 2022 as presented. Mr. Sherman seconded the motion to accept the reconciliations of the mentioned above. Roll call vote taken: Ms. Sloane — yes; Mr. Flickinger — yes; Mr. Maggi — yes; Mr. Sherman — yes; Mrs. Vaughan — yes. Motion passed unanimously. Retirement Allowance Report Bank Balance as of July 1, 2022 $ 159,271.20 Deposits to Checking Account -0- Transfers In 837,504.93 ACH Credit 279,011.34 170 MINUTE BOOK RETIREMENT BOARD WASHINGTON COUNTY, PENNSYLANIA Other Credits 48,853.89 Less: Cancelled Checks (264,348.13) Less: Other Debits -0- Less: ACH Debits (904,762.61) Funds Transfers Out -0- Bank Balance as of July 31, 2022 $ 155,530.71 Transfers to Mutual Fund -0- Less: Outstanding Checks (127,747.93) Less: Retirement Check Run (27,537.63) Funding Error Adjustment from January (245.15) Reconciled Balance as of July 31, 2022 $� Bank Balance as of August 1, 2022 $ 155,530.71 Deposits to Checking Account -0- Transfers In 809,713.73 Add: ACH Credit 359,677.55 Other Credits 5000.00 Less: Cancelled Checks (124,536.93) Less: Other Debits -0- Less: ACH Debits (919,714.81) Funds Transfers Out -0- Bank Balance as of August 31, 2022 $ 285,670.25 Transfers to Mutual Fund (75,500.13) Less: Outstanding Checks (176,496.29) Less: Retirement Check Run -(3-3,673.83) Reconciled Balance as of August 31, 2022 $� Bank Balance as of September 1, 2022 $ 285,670.25 Deposits to Checking Account -0- Transfersln -0- Add: ACH Credit 402,632.55 Other Credits 833,216.89 Less: Cancelled Checks (163,640.95) Less: Other Debits -0- Less: ACH Debits (907,950.78) Funds Transfers Out (124,363.10) Bank Balance as of September 30, 2022 $ 325,564.86 Transfers to Mutual Fund (75,500.13) Less: Outstanding Checks (85,014.63) Less: Retirement Check Run 171 MINUTE BOOK RETIREMENT BOARD WASHINGTON COUNTY, PENNSYLANIA Transfer in 91h Period for 10`h (132,836.18) Reconciled Balance as of September 30, 2022 $� Bank Balance as of October 1, 2022 $ 325,564.86 Deposits to Checking Account 24.38 Transfers In -0- Add: ACH Credit 325,913.02 Other Credits 600,505.29 Less: Cancelled Checks (172,660.87) Less: Other Debits -0- Less: ACH Debits (923,051.37) Funds Transfers Out -0- Bank Balance as of October 31, 2022 $ 156,295.31 Transfers to Mutual Fund (75,521.51) Less: Outstanding Checks (48,217.84) Less: Retirement Check Run (_-32,455.96) Reconciled Balance as of October 31, 2022 $� Requisitions Ms. Sloane made a motion to approve the requisitions for the months of August, September, October, and November of 2022. It was seconded by Mr. Sherman that the requisitions be approved. No discussion followed. Roll call vote taken: Ms. Sloane — yes; Mr. Flickinger — yes; Mr. Maggi — yes; Mr. Sherman — yes; Mrs. Vaughan — yes. Motion passed unanimously. Distributions August 2022 Check Payee Amount 2370 Beth Phillips - VOID (12,625.37) 2385 Heather Petruskie 6,656.14 2386 Philip Ziedman 234.98 2387 Emilee R McClain 5,952.23 2388 Monike Harrison 73.99 2389 Theresa Cooper 98,078.81 2390 Linda Cooper 330.05 2391 Washington County Regular Payroll Escrow Account 22,313.54 2384 Washington Co. Cash Disbursement Acct 26,510.89 Transfer PNC Bank 81,565.84 172 RETIREMENT BOARD MINUTE BOOK WASHINGTON COUNTY, PENNSYLANIA Transfer Washington Co. Retirement Acct. 946,193.52 Total August 2022 Distributions 1,175,284.62 J September 2022 Check Payee Amount 2392 Corey Bridge 3,789.98 2393 Camellia McGhee 2,380.94 2394 Kelsey Stanford 107.26 2395 Hannah Wapiennik 2,611.03 2396 Makayla Henderson 363.90 2397 Patricia DeClair 13,021.49 2398 Washington County Regular Payroll Escrow Account 21,042.82 2399 Washington Co. Cash Disbursement Acct 3,042.88 Transfer: PNC Bank 65,918.32 Transfer: Washington Co. Retirement Acct. 866,171 54 Total September 2022 Distributions October 2022 Check Payee Amount 2400 Jessica Sphar 1,986.90 2401 Trustee of Fidelity Investments FBO Sara Mitchell 4,946.13 2402 Harrison Graydon 2,780.87 2403 Telina Lindsay 1,843.65 2404 Tasha DeVaughn 2,047.56 2405 Aimee Gordon Jones 931.07 2406 Madison Kopach 1,741.39 2407 Arthur Williams 3,903.68 2408 Stephen Chappars 607.58 2409 Marc Scott 2,197.90 2410 Howard Matten 59,388.40 2412 Washington County Regular Payroll Escrow Account 20,870.04 2411 Washington Co. Cash Disbursement Acct 9,164.18 PNC Bank 79,201.98 Transfer: Washington Co. Retirement Acct. 867,643.16 Transfer: Total October 2022 Distributions 1,059,254.49 173 MINUTE BOOK RETIREMENT BOARD WASHINGTON COUNTY, PENNSYLANIA November 2022 Check Payee Amount 2414 Achili Minch 447.58 2415 Dominic Petrocco 477.46 2416 Capital Bank & Trust as a Trustee of IRA of Dean Aaron Petrone Jr 1,838.50 2417 Joseph Condoluci 85,743.84 2418 Joseph Rusnak 88,419.17 2419 Washington County Regular Payroll Escrow Account 20,601.94 2413 Washington Co. Cash Disbursement Acct 40,010.59 Transfer: PNC Bank 97,537.36 Transfer: Washington Co. Retirement Acct. 865,403.88 Total November 2022 Distributions 1,059,254.49 Old Business None. New Business Referring to the meeting's agenda, Mrs. Vaughan noted her appreciation of April's attention to detail, however, she pointed out there is no need to vote on the estimated pension costs for the 2023 budget. Mrs. Vaughan went on to explain that a resolution was passed, more than a year ago, that the actuary determined amount would always be contributed into the pension fund. Ms. Sloane stated that Korn Ferry advised it to be put on the agenda. Mrs. Vaughan countered that it has never been voted on in previous meetings and that the solicitor advised that it did not have to be voted on. Mrs. Vaughan went on to point out that the information was received by the chief clerk the previous day and that Ms. Sloane had received the information on October 27t" Mrs. Vaughan went on to explain that the information is important to the commissioners for budgeting purposes. Mrs. Vaughan then asked that, in the future, Ms. Sloane send the information to the commissioners when it is received. Mrs. Vaughan moved on to the Korn Ferry fee increase. Ms. Sloane made a motion to accept the increase in fees for the actuary charge from $2859.00 to $2944.00 effective January 1, 2023. This increase would be a 3% change. Mr. Sherman seconded the motion that the above -mentioned request be approved. Mrs. Vaughan paused for questions, stating that while the increase is standard, the information was just received and there was no information ahead of time. No questions were posed, and no discussion followed. Roll call vote taken: Ms. Sloane — yes; Mr. Flickinger — yes; Mr. Maggi — yes; Mr. Sherman — yes; Mrs. Vaughan — yes. Motion passed unanimously. Portfolio Presentation — Lee Martin, Ph.D. — Marquette Associates Mr. Martin opened by stating that the last meeting of the year always begins with a review the annual database report for Pennsylvania counties. The data in this report is as of 12/31/21 and is taken from each county's 2022 annual actuarial report. From an assumed rate of return point of view, about 10 years ago everybody was 7.5 %, although that value has trended downwards because of the expected lower return 174 MINUTE BOOK RETIREMENT BOARD WASHINGTON COUNTY, PENNSYLANIA environment that played out. Washington County is ahead of everybody regarding this trend and has the most conservative return assumption of all counties at 6.5%. Touching on the salary increase assumption, there may be some pressure from Korn Ferry to start to increase that at some point. Currently, Washington County is using 3.5%. However, 10 to 15 years ago, most used 4.5% because 7.5% was being used as the return assumption. The key is to keep about a 3% difference between the two, because that is the long-term inflationary impact. The salary increase assumption looks at the increase in the employee salary over their whole lifetime at the county. It should not be thought of as an annual merit based but as full life of county employment. However, because the return assumption is low for Washington County, an increase is less of an issue than many others because you have a conservative assumption for the expected return. Last year, only five counties gave COLAs. This is not a great year to be issuing COLAs during an inflationary environment as the calculation includes the local level for CPI. However, while there is no look - back provision, even without that, the cost of COLAs would be expensive to funds, long term. Regarding the asset valuation method, Act 44 was what many counties adopted post the great financial crisis. At the time, Act 44 allowed the county to artificially inflate its assets and therefore, reduce the ADC. Washington County never adopted Act 44 and as a result are in a far better funded position today as they fully paid the ADC in the years following the great financial crisis. The county has always employed the actuarial standard for asset valuation by adopting a five-year smoothing method taking 115 of the gain and loss each year over a five-year period. The most recent five-year return, Washington County is a little below median, as you would expect being more conservatively invested. This is through the end of last year and included a very aggressive environment where the average is over 10.5%. The assumed rate of return is 6.5%, so it will be lower. Conversely, after this year, those that have more in the equities due to higher assumed rate of return of 7.5%, are down approximately 17% this year through September 31 st The adjusted funding ratio is the measure of how strong a fund is. The adjusted funded ratio standardizes everything by giving everyone 4% salary increase and 7% investment return. By doing this, you can compare how well funded your plans are. You can now see that Washington County was fully funded at over 105% through the end of last year. Mr. Martin pointed out that active participants now are under 50%. There are more retirees than active participants. This is not unusual to see with mature defined benefit plans. However, because the fund is doing so well, the ADC is coming down and that means the employee contribution is lower. This means due to fewer active participants relative to retirees there will need to be more flows out of the fund each year to pay the ever-growing benefit payments. These metrics are something to be mindful of going forward. Moving on to the third quarter performance report, Mr. Martin pointed out that the first two quarters of the year GDP negatively contracted. However, in the third quarter GDP came in above expectation, growing 2.6%, which was revised even further up this week to 2.9%. This growth came down primarily to the SPR oil release and its impact from a net export pov. The leading indicators going forward have declined over 2.5% over the previous six months. When a leading indicator index begins to decline at such an extent, a recession normally follows. 175 MINUTE BOOK 1 1 �l RETIREMENT BOARD WASHINGTON COUNTY, PENNSYLANIA Mr. Martin transitions to the rate -hiking cycle, pointing out that it is the steepest it's been in decades. The Fed has tightened its monetary policy to tackle inflation. As stated in previous meetings, it takes a few quarters to make an impact. This is the reason why we are starting to see spending slow a lot. There should be at least 50 basis points Fed hike in December. And, depending on holiday sales and the like, we should have a slower GDP and a slower economy in the fourth quarter. This could also lead to GDP potentially turning negative in the first and second quarters again next year. It was negative in the first two quarters of the current year. Shifting to global economy, Mr. Martin stated that inflation is occurring across the world, and it seems to be far more of an issue else ware than in the US. The US has a strong dollar right now and that is helping from any goods that are imported. The rest of the world is doing as the US has done and attacked inflation through monetary policy. Germany and UK government bond yields are now at the highest they have been in decades. Europe has links to Russian energy, and this could be detrimental to European markets this year, especially if we have a cold winter. Mr. Martin states that if you have an expected slowdown in the future, equities will sell off now because equity investments are essentially buying future earnings. In fact, when expecting a future recession, it can sometimes a good chance to rotate back into equities later into the recessionary cycle. This is because one would be expecting improvement after said recession. US stocks were down 4.5%, outperforming international which were down 9.5%. Emerging markets were down 11.5%. However, some of the relative outperformance by the US is driven by the strong dollar as well. If you look at local terms, international markets were only down about 3.6%. This highlights the impact currency can have on overseas investments. Within equities, growth equities outperformed value for the first time in three quarters. This essentially happened in the month of July as it appeared inflation had peaked. Tech stock rose and growth stocks rose as well because they are more highly levered stocks. However, that was relatively short lived. By April, value stocks came back again. Core fixed income aggregate bonds, year to date, are down 14.6%. Due to Washington County investing in shorter duration fixed income, that has only been down 9.6% year to date, outperforming core bonds by 5% on a big allocation within the portfolio. Bank loans, like private credit, are slightly positive for the quarter. They don't get impacted by rate movement because they, like floating rate bonds, readjust the yields every quarter. High yield also had a strong quarter due to its shorter duration. Finally, in inflation sensitive assets, you are starting to see markdowns within the real estate market. This is because we appear to be over the worse from rising inflation. You will soon start to see the private real estate valuations soften as managers more realistically price those assets. The fund finished the quarter at just under 180 million, losing around 7 million. This loss equates to about 3.9%. However, this still leaves Washington County in the top 28% of the peer group. in quarter four the has already made close to 13 million, as equities have gained back about 7%. This leaves the county only down about 7% for the year. Since the growth over the past five years have been between 10% and 18%, this year's impact will not be too dramatic on the overall funding ratio in 2023. Reviewing what has been done, one of the global funds has been removed, helping to reduce fees. Some fixed income was also removed in the third quarter, and equites were dialed back into. This helped to rebalance because equities were down and have risen since. Diversification is the reason so much growth has occurred, investing in not only stocks and bonds, but also real estate, timber and farmland, private equity, and private credit. 176 MINUTE BOOK RETIREMENT BOARD WASHINGTON COUNTY, PENNSYLANIA IMR LIMITED E1607929Ln From a performance pov, Washington County sits in and around the benchmark due to being a little more conservative, particularly over the past five years. The impact of that is noticeable more recently. The one year is down 10.8% and the policy is down 12.4%. However, the policy is still ranked in the 23rd percentile. There is a good strategy from a policy point of view. The managers have also been accretive for the fund, leading to a peer group raking in the 14ffi percentile, adding about 2.5% of outperformance last year. If the portfolio had been made up of just stocks and bonds, it would have been down 17.2% over that same period. This highlights the benefit of diversification. From a risk point of view, the assists have been brought more in line with the liabilities, bringing the risk factor (Beta) to .98. Over the past two years, Washington County has outperformed its policy over the last seven quarters. Within the US equities, Washington County is defensively postured with TWIN and GW&K. In the one-year number, Twin is down 11.3% relative to 15.5% and GW&K is down 19.5% relative to 21%. Last quarter, they did lag a little because they do lean more to the high quality and value side. However, it was the tech and growth that came back the past quarter. Yet, this has reversed again in the fourth quarter this year. On the global side, there are three different managers doing completely different things, but the combination of the last year is down 19.7% relative to 21.2%. Dodge & Cox has been the better performing one because value has been the better place to have been up until the last quarter. They are down only 14% whereas the growth manager is down around 30% over that period. However, over this last quarter, the growth manager is down only 4% whereas the value manager was down nearly 10%. This has reversed again this quarter, stressing as to why there are allocations to both. The international portfolio leans more toward value because they tend to get great yields. Schroder is getting over 4% yield on your investments. This is an all -cap value strategy, so the benchmark should be the IML It lagged the ACWI ex US Value a little but is in line with the IMI year to date. More recently, there was a little small cap overseas allocation. It was a good quarter for the strategy, down 6.5% relative to 8%. Emerging markets were down 14.3% relative to 11.6%. There will be a lot more disparity and variation relative to the benchmark in emerging markets. For example, Wellington was at 7% already in the fourth quarter. Therefore, Washington County only has a 1.5% allocation to Emerging Markets. The largest allocations are in the core of the portfolio. Defensive equity is one area that has been a little disappointing as an asset class over the past two years. This is due to the heightened volatility, and low yield environment for the base portfolio. Looking forward for this asset class, is the fact that yields are higher now, so just sitting there gains a 4% for the Treasury Bills. The outlook for the asset class is better looking forward. Conversely, what has worked well, but is not as likely to work as well moving forward, is the private real-estate. The one-year number is over 24% when stocks and bonds have been crushed over that time. This is driven by overweight to the southern region of the US and multifamily, and industrial. Industrial expansion valuations which have gone up over 50-60%. Multifamily have the advantage of shorter contracts, shorter rent/lease agreements. When they are rewritten, they are at higher rates due to the Fed tightening cycle. Last quarter, there were barely positive numbers for some of these companies. TA posted 1.4%. But these numbers may be slightly negative going forward. The good news is that the income is going up as well in line with rates. Some cap appreciation will be given back from the past few years, yet the income should go up because the yields have been so low. The redemptions that were put into place in June to rebalance some of the real estate overweight as it was the only asset class that held up in 2022. There is a huge growth area down south, with new multifamily and offices, are the areas where the markets are migrating to. The reason there is 1 1 1 177 MINUTE BOOK RETIREMENT BOARD WASHINGTON COUNTY, PENNSYLANIA only a 5% allocation to real-estate is due to having other real assets, such as infrastructure and timber and farmland. Therefore, there is no need to have as much real estate since the real assets are diversified across the board. Timber and farmland is positive for the year again when stocks and bonds are down about 4%. From a real asset point of view, Washington County is up 4.2%. Infrastructure, like the past year, is up 5.6%. Mr. Martin finished with the private equity and private credit that were added last year. Over the past year, private equity is positive. ACWI benchmark is down 20% and Spliced benchmark is down 15%. Private credit, such as Leveraged loans are down 2.5% this past year leaving private credit positive. When the market does recover, Washington County will hold a higher asset value as the fund has protected more on the downside. The meeting was adjourned at 3:29 p.m. THE FOREGOING MINUTES SUBMITTED FOR APPROVAL: --�x aw? c'-- L .2023 ATTEST: za 178 MINUTE BOOK RETIREMENT BOARD WASHINGTON COUNTY, PENNSYLANIA 1 p 1