MINUTES
HULL CONTRIBUTORY RETIREMENT BOARD MEETING
September 29, 2004
The regular meeting of the Hull Contributory Retirement Board, duly posted to be held in the Selectmen's Meeting Room, Town Hall, Hull, MA on the above date was called to order at 9:01 a.m. Present were Leonard Colten, Chairperson, Members Donald Brooker, Ann MacNaughton and James Yacobucci, and Retirement Administrator Marcia Bohinc.
The Board read and attested to the minutes of the August 25, 2004 regular board meeting without modification.
The Board signed all bill warrants for September 2004.
The Board signed the contributory payroll for September 2004.
On a motion by Donald Brooker and seconded by Jim Yacobucci, the Board approved the Application for Withdrawal of Accumulated Total Deductions for former Fire Department employee Stephen Ball, effective September 30, 2004. Mr. Ball resigned on September 15, 2004, with 4 years, 6 months of service. His refund of contributions is $19,799.50, with a balance of $322.63 interest to be transferred to the pension reserve. Voted unanimously.
The Chairman recognized Chris McCabe in attendance at 9:09 for a full Board.
ADP Payroll Errors
It was discovered that while ADP was providing payroll services to the Town of Hull, the required retirement contributions of 2% for all compensation in excess of $30,000 ($576.92 per week) was not being properly calculated. Each pay period, ADP deducted 2% from the base compensation only, instead of accumulating all other "regular compensation" including longevity, holiday pay, stipends and educational allowances to determine the proper deduction amount. It was noted that although this would affect any member with regular compensation not included in the base pay, the error primarily affects the most systems' most costly retirees, the group 4 members.
The total population that potentially owes the retirement system deductions is approximately 140 members with membership dates on or after January 1, 1979. Of those, about 40 are group 4 members. After reviewing a group 4 example for a three-year period (1/1/2000 - 12/31/2002), the Board requested additional information before voting on a course of action. Specifically, they requested:
- when the deductions on amounts in excess of $30,000 went into effect
- a review of the salary structures in the police and fire departments after the cap was lifted to determine the benefit of how many years to go back to collect
- a review of any other major changes to the salary structures that would have affected the deductions (i.e. Quinn Bill)
- a possible method of collecting the required deductions
The current payroll vendor, who began providing services to the Town as of January 1, 2003 is calculating the additional 2% deduction correctly.
January 1, 2004 Actuarial Valuation
The Board reviewed the results of the January 1, 2004 Actuarial Valuation with Actuary Lawrence B. Stone of Stone Consulting, Inc.
Based on the significant actuarial asset gain realized in calendar year 2003 ($2.6 million), Mr. Stone presented the following findings:
- A funding schedule can be adopted that maintains the current scheduled contribution level (as provided in the January 1, 2003 valuation for fiscal 2006)
- The Board has the opportunity to decrease the length of the schedule (less than the maximum 23 remaining years to 2028), or modify the amortization increase to affect the scheduled contribution
- The funding ratio (Assets/Accrued Liability) at January 1, 2004 is 36% (using an assumed 8% interest rate), compared to 31% at January 1, 2003 and 37% at January 1, 2002
- Despite the excellent 2003 asset return, Hull remains the worst funded system in the Commonwealth
- Cash flow must continue to be closely monitored as retiree payments increase and a funding schedule is chosen
In the July 28, 2004 meeting, the Board directed Mr. Stone to make assumption changes in preparing the new funding schedule. Due to the actuarial increase in calendar 2003, Mr. Stone was also able to vary the amortization percent and schedule length for discussion. The Board reviewed scenarios based on a reduced Salary Assumption of 4.75%, down from 5.00%, and Interest Rate Assumptions of both 8.00% and 7.75%. Mr. Stone stated that by using the 7.75% assumed interest rate, the schedule might better reflect future asset returns, however will result in higher costs to the Town and increase the unfunded liability by $1 million.
After reviewing possible fiscal year 2006 contribution amounts at various schedule lengths, amortization percents and the two interest rates, the Board requested Mr. Stone to produce complete funding schedules using the following criteria:
- 23 years in length
- Amortization percents beginning at 3.25% and increasing by .25%
- Interest rate at 7.75%
- Interest rate at 8%
Mr. Stone agreed to produce and forward the schedules immediately. The Board will review the schedules in their entirety and vote in the next regular meeting whether to accept a new funding schedule and if so which one.
SSgA Investment Update
Responding to a request from the Board for a discussion regarding the current poor performance of the investments under management, Melissa J. Hogan and Michael O. Martel of State Street Global Advisors (SSgA) were in attendance. Their presentation included:
- SSgA Overview
- Account Summary and Performance History
- Asset Changes
- Asset Allocation
- Year to Date Performance Analysis
- Asset Allocation Review and Proposal
The Board questioned the strategy in which the assets are invested, specifically why the original investment, and given the cost and performance, why SSgA has not made a change. At the least, they questioned why SSgA has not communicated more with the Board as a result of the lagging returns and high fees.
Currently, the equity assets are in actively managed growth funds, costing the system on average 80 basis points (bp) per year. The cost is graduated based on asset level; therefore with only $3 million invested, the cost is proportionally high. The goal of the actively managed funds is to return from 25bp to 100bp over the index. However, with the cost already 45bp over the index, making a return worthy of the actively managed funds is much more difficult to reach. This, coupled with the current underperforming growth market, has resulted in returns for the Hull Retirement System that are severely lacking.
Both Ms. Hogan and Mr. Martel explained to the Board that it is the Board's decision, based on their investment policy, to make a change in the type of asset investment. They agreed that SSgA should have been more forthcoming with information, but that SSgA's role in the investment of the assets is limited to rebalancing between individual funds in the portfolio. This is dictated by the original contract with the Board outlining their chosen tactical investment approach. SSgA can recommend changes, but can not implement any changes without direction from the Board. Ms. Hogan and Mr. Martel did come prepared with two alternatives to the active growth strategy for the Board to review and consider; an enhanced index option and an all passive indexed option. The cost for both options is
significantly less than current strategy.
Again, both Ms. Hogan and Mr. Martel cautioned making a change without reviewing the overall strategic asset mix as outlined in the asset allocation in the investment policy. They also cautioned making changes as a reaction to market conditions and not taking into account the total portfolio. They stated that the asset allocation was responsible for 90% of the return.
The Board thanked Ms. Hogan and Mr. Martel and agreed to a follow-up meeting after reviewing the responses to proposal for an investment consultant, investment policy and other investments of the system.
Consultant Process
Six responses to the Request for Proposal for an Investment Consultant were received by the due date of September 15, 2004. The six were:
- Dahab Associates, Inc., Richard Dahab
- DHK Financial Advisors, Tim Dempsey
- Rockland Trust, Peter Hebert
- Segal Advisors, Kevin Leonard
- Wachovia Securities, James Tallen
- Wainwright Investment Counsel, Michael Dwyer
The Board scheduled a special meeting for Thursday, October 21, 2004 at 9:00 a.m. for the sole purpose of reviewing the responses and determining which firm, if any, to invite to present to the Board. M. Bohinc will prepare and distribute to the Board a summary of each of the proposals prior to the meeting.
The Board requested PERAC Investment Director Robert Dennis to attend the October meeting to review the Board's investment and fiduciary responsibilities and to offer any guidance in the search for an investment consultant.
Hull Housing Authority
M. Bohinc reported receiving a check for $4,000 from the Hull Housing Authority (HHA) to be applied to the fiscal year 2004 appropriation. In his letter dated September 27, 2004 that accompanied the check, HHA Executive Director Paul Daley stated that although the FY05 budget has not been approved by the state, the FY05 appropriation was included. He further stated that he is still waiting for a $60,000 FY04 subsidy from the state. Upon receipt, a portion of that will be applied to the outstanding payment owed to the retirement system. Mr. Daley again noted that his board continues to discuss this issue on a monthly basis, and requested the additional documentation from Stone Consulting, Inc. (the Board's actuary) regarding the current and former employees considered when the prior year assessments
were calculated. The Retirement Board reiterated that all available information for the appropriation calculation as prescribe by M.G.L. c. 32 has been forwarded to the HHA and nothing further will be forthcoming from Stone Consulting. The Board also reviewed without comment a second letter dated September 27, 2004 from Mr. Daley restating the current financial condition the HHA.
The Board directed M. Bohinc to continue her efforts with Mr. Daley in recovering the additional appropriations due.
On a motion by Lenny Colten, seconded by Chris McCabe, the Board directed M. Bohinc to write a letter of thanks to the HHA for the partial payment, again ask them to recognize the full obligation and to inquire regarding their intentions for payment of the remaining amounts. Mr. Colten requested that a copy of the PERAC preliminary audit finding be included with the letter. Voted unanimously.
Note: The preliminary Public Employee Retirement Administration Commission (PERAC) audit report includes the outstanding appropriations due from the Hull Housing Authority as a finding. The recommendation is
"The Board should continue all efforts to recoup the appropriation payments along with interest for the past due period. This may include litigation if necessary and if so the Board should also seek relief for the cost of litigation."
The finding goes on to cite M.G.L. c.32 § 22(7)(c)(iv)
"If any governmental unit fails to include any amounts so certified in its appropriations for such fiscal year, the assessors or other taxing authorities shall nevertheless include such amounts in the next tax levy. All amounts so certified shall be a legal obligation of any such governmental unit and may be recovered in an action of contract by the retirement board of any such contributory retirement system."
The Board reviewed the current year-to-date trial balance and cash accounts' reconciliation without discussion.
Investments
The following investment materials were provided to the Board:
- Investors Fund Performance - Updated through August 2004
- PRIM Board Update - August 31, 2004
- PRIT - Summary of Plan Performance - August 31, 2004
- SSgA - Total Return through August 2004
Audit Review
In reviewing the superannuation retirement of former police sergeant Robert Tompkins, it was discovered that he was granted additional service credit for his service as a call firefighter from 1972 through 1983. For an additional 1 year, 4.5 months service, Mr. Tompkins remitted a make up contribution in four equal payments in 1990 and 1991. Because the Town of Hull did not accept the provisions of M.G.L. c. 32 § 4(2)(b½), Mr. Tompkins was not eligible to be granted service credit for his call fire service.
Therefore, Mr. Tompkins will be refunded the amount of his make up contribution for his call fire service, and his superannuation retirement will be recalculated with the adjusted service credit. Mr. Tompkins will be notified of the change, plus of the amount of overpayment he has received since beginning receiving his allowance in June 2003.
Note: Section 4(2)(b) states that such service as a call fire fighter shall be credited only if such call fire fighter was later appointed as a permanent member of the fire department.
§ 4(2)(b½) provides that service as a call firefighter shall be credited as full-time service as provided in paragraph (b), except that credit for such service shall not be conditioned upon the appointment of said call firefighter as a permanent member of the fire department.
PERAC Audit
PERAC completed their four-year (January 1, 2000 through December 31, 2003) audit of the Hull Contributory Retirement System with just two findings. The first, as previously discussed in this meeting, was in regard to the Hull Housing Authority's past due appropriation. The second finding was due to a calculation of a retirement allowance that possibly used compensation other than what is defined to be regular compensation under M.G.L. c.32 § 1 and 840 CMR 15.03. This finding will be reviewed by the Commission and may be deleted upon publishing of the final report.
Overall, the audit revealed solid administrative procedures, adherence to all PERAC rules and regulations and well documented retirement board meetings.
The Board read all informational mail:
Correspondence from Tom Capobianco - September 15, 2004
PERAC Memo #33/2004 - Purchasing Creditable Service Questionnaire
PERAC Memo #34/2004 - Reinstatement to Service under G.L. c. 32 § 105
PERAC Memo #35/2004 - Ohio Indictment / Pension Trustee
News Articles:
The Boston Globe - Harvard Fund soars 21.1 percent (September 15, 2004)
The Wall Street Journal - Keeping Pension Promises Poses Challenge (September 16, 2004)
The Boston Globe - Pay-as-you-go pensions hurt cities, towns - (February 8, 1977)
The Babson Staff Letter - August 27, 2004
The Babson Staff Letter - September 10, 2004
Segal Bulletin - August 2004 (3)
Segal Bulletin - September 2004
The Hull Contributory Retirement Board meeting adjourned at 12:15 p.m.
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