MINUTES
HULL CONTRIBUTORY RETIREMENT BOARD MEETING
October 27, 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 September 29, 2004 regular Board meeting without modification.
The Board signed all bill warrants for October 2004.
The Board signed the contributory payroll for October 2004.
January 1, 2004 Actuarial Valuation
At the request of the Board during the presentation of the results of the January 1, 2004 Actuarial Valuation in the September 2004 regular meeting, Actuary Lawrence B. Stone of Stone Consulting, Inc. produced ten funding schedules for the Board's review. The schedules were to be used in making a decision regarding the fiscal year 2006 appropriation and the financial stability of the Retirement System. The schedules were as follows:
- All 23 years in length
- Amortization percents beginning at 3.25% and increasing by .25% at an interest
rate at 7.75% (5 schedules)
- Amortization percents beginning at 3.25% and increasing by .25% at an interest
rate at 8.00% (5 schedules)
The most aggressive schedule, at an interest rate of 7.75% and amortization percent of 3.25%, increases the total fiscal year 2006 appropriation $135,199 over the appropriation amount of the current schedule. A lower amortization percent results in the schedule beginning with a larger current contribution and increasing by a smaller amount over time. Without expecting as much investment return to make up the funding, the lower interest rate also increases the contribution amount over the life of the schedule. Regarding the interest rate, Mr. Stone's statement that in consideration of the current investment environment, using 7.75% might better reflect future asset returns was discussed.
Because the funding decision has a direct impact on the Town, the chairman requested to defer the remainder of the discussion and any vote until later in the meeting when Town Manager and Board member Chris McCabe was present.
Waiting until the end to resume the discussion, however still without member C. McCabe, D. Brooker made a motion to accept the January 1, 2004 Actuarial Valuation. Seconded by L. Colten, voted unanimously.
J. Yacobucci made a motion to accept the most aggressive funding schedule presented by the actuary, with an interest rate of 7.75%, amortization percent of 3.25, 23 years remaining, and a fiscal year 2006 contribution of $2,560,844. Seconded by Ann MacNaughton. Voted unanimously.
It was also discussed that this was the third year in a row that an actuarial valuation was performed, despite the statutory requirement of once in every three years, and the past practice of once every two years. The decision to have the valuations performed annually was based on the need to carefully monitor funding level and cash flow. Because the results of the January 2004 valuation were very consistent with the prior year, depending on the calendar year 2004 investment return and in an effort to keep expenses to a minimum, the Board may want to think about not doing a 2005 valuation. The Board will consider this and vote at a later meeting.
On a motion by Jim Yacobucci and seconded by Lenny Colten, the Board approved the Application for Withdrawal of Accumulated Total Deductions for former School Department employee James Griffin, effective October 31, 2004. Mr. Griffin resigned on September 30, 2004, with 6 years, 9 months of service. His refund of contributions is $23,944.45, interest of $396.32, with a balance of $396.31 in interest to be transferred to the pension reserve. Voted unanimously.
On a motion by J. Yacobucci and seconded by D. Brooker, the Board approved Marlene Flattich's Superannuation Retirement, Option B, with a retirement date of October 1, 2004. Ms. Flattich retired after 16 years, 11 months of service at the Library for the Town of Hull. Voted unanimously.
On a motion by J. Yacobucci and seconded by L. Colten, the Board approved William McLearn's Superannuation Retirement, Option B, with a retirement date of August 17, 2004. Mr. McLearn retired after a total of 17 years, 6 months of service with the Town of Hull, concluding his service as Assistant Building Inspector in the Building Department. His retirement allowance included the veteran's benefit. Voted unanimously.
Superannuation Retirement Recalculations
According to M.G.L. c.32 § 5(2)(a), the superannuation retirement allowance shall
"…be based on the average annual rate of regular compensation received by such member during any period of three consecutive years of creditable service for which such rate of compensation was the highest, or on the average annual rate of regular compensation received by such member during the period or periods, whether consecutive or not, constituting his last three years of creditable service preceding retirement, whichever is the greater…"
The Town of Hull payroll is paid bi-weekly, for a total of 26 pay periods per year. The total three-year compensation is composed of 156 weeks, or 78 pay periods. Four superannuation retirement allowances were calculated using 80 pay periods, or 160 weeks, therefore those retirement allowances must be recalculated with the proper three year compensation, and any overpayments must be returned to the system.
M.G.L. c32, § 20(5)(c)(2) states in part "when an error exists in the records maintained by the system or an error is made in computing a benefit…the records or error shall be corrected and as far as practicable, and future payments shall be adjusted so that the actuarial equivalent of the pension or benefit to which the member or beneficiary was correctly entitled shall be paid."
Under M.G.L. c32, §20(5)(c)(3), a member or beneficiary may request a waiver of repayment, however the error in any benefit payment or amount contributed to the system persisted for a period in excess of one year (Needham Bill). At this time, none of these retirees are eligible for a waiver.
Retirement allowances have been changed as of October 2004 for the following four retirees: Donald Brooker - retirement date of 12/01/2003, Phyllis Kitson - retirement date of 01/01/2004, Gary Fleck - retirement date of 05/21/2004 and Joseph Cole - retirement date of 06/30/2004. Arrangements for repayment of the overages will be made and collected within the next three months.
In the September 2004 regular Board meeting, the need to recalculate former police sergeant Robert Tompkins total creditable service and thereby his retirement allowance was discussed. In 1990, Mr. Tompkins was granted an additional 1 year, 4.5 months service credit for service as a call firefighter from 1972 through 1983. 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 this service credit. He also received 3 years, 7.5 months for seasonal service to police department, for which he was eligible at the time.
Mr. Tompkins Option C retirement allowance was recalculated using 23 years, 11 months, down from the 25 years, 3.5 months used in the original calculation. As of October 2004, his retirement allowance was adjusted and the amount of overpayments calculated. Mr. Tompkins retired as of May 31, 2003, therefore the error existed for more than one year, making him eligible to request a waiver of repayment from the Board. He will be notified of all amounts and his right to a waiver, on which the Board will vote in the November meeting.
Note: Current Supplemental Regulations state "no individual in the employment or service of the Town shall be eligible to be credited with creditable service for any period of part time, provisional, temporary, temporary provisional, seasonal or intermittent employment or service prior to any individual's eligibility to become a member of the System". Mr. Tompkins requested and made the contribution for this service prior to the adoption of this regulation. However, other current members have requested credit for service after the adoption of this clause, for which there has been Board approval. This is not currently permitted and will not be included in any retirement allowance calculations.
ADP Payroll Errors
In a continuance of the review of the error in the calculation and deduction of required retirement contributions of 2% for all compensation in excess of $30,000 while ADP was providing payroll services, the following information was reported to the Board:
- The Town of Hull accepted M.G.L. Chapter 32, Section 22D as of December 31, 1990 in the Annual Town Meeting. This became the effective date of the deduction of 2% for all compensation in excess of $30,000 ($576.92 per week) for member hired after January 1, 1979.
- PERAC sent the certificate of acceptance to the Town in September 1994 after a lengthy legal process involving the Town and the Retirement Board.
- Because the most affected members are the Group 4 members, the year the base compensation exceeded $30,000 for the police and fire departments was:
Police Step 1 Step 2 Step 3
Officer July 1999 July 1996 July 1991
Sergeant Prior to 1991 Prior to 1991 Prior to 1991
Fire
Firefighter July 1999 July 1996 Prior to 1996
Captain Prior to 1996 Prior to 1996 Prior to 1996
- Quinn Bill accepted in the April 1996 Town Meeting, effective July 1, 1996 (FY97).
- Repayments could be automated through payroll.
- The total amount of recovered contributions is estimated to be $25,000.
- A review of a fire department member and a police officer for the five-year period of 1/1/1998 through 12/31/2002, deductions owed to the retirement system were calculated to be $970.74 and $403.64 respectively.
After considerable discussion, J. Yacobucci made a motion to recalculate the under payment of deductions due to 2% deductions from the base compensation only, instead of accumulating all other 'regular compensation' including longevity, holiday pay, stipends and educational allowances, beginning as of January 1, 1995. Seconded by L. Colten. Voted: D. Brooker: yes, L. Colten; yes, J. Yacobucci; yes, A. MacNaughton abstained. A. MacNaughton requested a review and recommendation from PERAC prior to proceeding.
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 September 2004
- PRIM Board Update - September 30, 2004
- PRIT - Summary of Plan Performance - September 30, 2004
- SSgA - Total Return through September 2004
MACRS
Fiduciary responsibility and the concept of fiduciary audits were prevalent topics at the fall MACRS conference, held on October 3 through 6, 2004 in Danvers, MA. M. Bohinc attended all sessions; Brooker and A. MacNaughton attended the sessions on Monday and Tuesday. D. Brooker had strong words of praise for the conference and he encouraged all Board members to make an effort to attend the spring conference, set for the beginning of June 2005 in Hyannis, MA.
Consultant Process
Based on the discussion in the special meeting of the Board on Thursday, October 21, 2004 at 9:00 a.m., for which the sole purpose was to review the responses to the proposal and determine which firm, if any, to invite to present to the Board, the following firms have been confirmed to present to the Board on November 2, 2004:
Investment Consultant Interview Schedule
9:00 Segal Advisors, Kevin Leonard
10:00 Wainwright Investment Counsel, Michael Dwyer and Jeff Fabrizio
11:00 Dahab Associates, Inc., Gregory McNeillie
Hull Housing Authority
In a request from L. Colten for an update on the status of the due appropriations with the Hull Housing Authority (HHA), it was reported that there has been no further communication since the Board received $4,000 on September 27, 2004. Expressing concern that the HHA is still not recognizing their debt, the letter dated September 27, 2004 from HHA Executive Director Paul Daley restating the current financial condition the HHA was discussed, and the Board was satisfied to wait for further information from the state, by way of the Authority.
PERAC Investment Review with Investment Director Robert Dennis
Responding to the Board's request, the Public Employee Retirement Administration Commission (PERAC) Investment Director Robert Dennis was in attendance to review the Board's investment and fiduciary responsibilities, and to offer guidance in the search for an investment consultant.
Mr. Dennis stated that there are two primary keys to investment performance:
- Asset Allocation, and
- Good Investment Managers
Referring to the PERAC Annual Report, Mr. Dennis reported that over time, the Pension Reserves Investment Trust (PRIT) has outperformed most other systems. He remarked that the Pension Reserves Investment Management (PRIM) Board has hired the best consultants and managers in the country. Because of the size of the investments under management, PRIM can capitalize on economies of scale for investment in diverse assets at low fees. He elaborated on the benefits to the Board of having all of the system's assets invested in PRIT, including there no longer being a need for a separate consultant, not having the responsibility of choosing managers and no requirement for annual meetings with the investment managers. To this, he stated that most of the other systems of Hull's size are invested totally in
PRIT.
Mr. Dennis reviewed the current investments of the Hull Retirement System. He commented that the Board should not accept managers "that are not cutting it". When they are hired, the managers are given goals as far as what the benchmarks are and the expectations for meet or exceeding them. Lack of performance, especially when combined with high fees, should not be tolerated. He went on to say that there is nothing wrong with index funds, and perhaps the Board should consider them.
Regarding consultants, Mr. Dennis noted that the investment consultant's role is to "hand hold" the board, remarking that approximately two-thirds of the boards have investment consultants. The consultant will help develop an appropriate Investment Policy, including as many assets classes as possible within PERAC guidelines. They will also help find investment managers and give them the right direction.
When questioned whether there were any specific questions the Board should ask the potential consultants, Mr. Dennis replied to look for the following four points:
- Have the consultant define and detail their investment philosophy
- Ask what the consultant can do for the system over and above PRIM
- Inquire as to what asset class exposure the consultant would recommend
- The consultant must be honest
Mr. Dennis also said that the Board should remember that sometimes being simple is the best way to go, especially for a smaller system. He cautioned against trying to do too much or being too complicated as far as diversification and asset allocation.
Mr. Dennis concluded by saying that his statements were his opinions and may not be those held by other people at PERAC. He is not a representative of, nor has a financial interest in PRIM, and will receive no benefit if the Board invests in PRIT. He simply was trying to outline the Board's options and provide them with information to consider. That being said however, he said investing with PRIM would give the system exposure to many assets classes that would not normally be available and should be considered. In hiring a consultant, the Board should insist on the consultant outlining what they could do better than PRIM. He reminded the Board that they cannot undo the past, but must better prepare for the future, remembering risk and return go hand in hand. He also said that he was
willing to assist the Board in any way and would be happy to return as needed.
Old Business
The Board requested an update on David Leary's status receiving Educational Incentive Pay (EIP) while on injured on duty status and receiving M.G.L. c. 41 section 111F benefits for the period January 2002 through April 15, 2003. This payroll amount was funded at the Special Town Meeting in October as an unpaid bill, however it may have an affect on his retirement benefits, retroactive to April 16, 2003. The retirement system will do nothing until the payment is processed through payroll and deemed to be regular compensation. Only at that time will there be an adjustment to his retirement allowance.
Because the police contract specifically states an office on injured on duty status is not entitled to §111F benefits, the Board is considering if this payment is pensionable. D. Brooker would like to research further, including a background memo referenced in the July 27, 2004 memo by Town Counsel James Lampke, and a review of Rein v. Marshfield 16 Mass. App. 519 (1983). Those documents will be requested from Town Counsel.
The Board read all informational mail:
Mail:
Correspondence from Freedom Capital - September 22, 2004
MACRS Information:
- President's Message - Thomas A. Welch
- New Mortality Tables May Encourage Option C - Ralph White
- Legislative Update - Fall 2004 - John Coleman Walsh
Introduction to Fiduciary Audits for Massachusetts Retirement Boards
PRIM Board Memo - September 21, 2004
Retired State, County and Municipal Employees Association of Massachusetts - Memo - CPI & COLA
PERAC Memo #36/2004 - Appropriation Data Due October 31, 2004
PERAC Memo #37/2004 - New Option C Factors
PERAC Memo #38/2004 - PERAC's Fall 2004 Classes
PERAC Memo #39/2004 - Tobacco Company List
PERAC Memo #40/2004 - Investment Manager List
PERAC Memo #41/2004 - Costs of Buybacks
PERAC Memo #42/2004 - PERAC's Web Site Postings
PERAC Financial Bulletin
Segal Company - Survey
The Babson Staff Letter - September 24, 2004
The Babson Staff Letter - October 8, 2004
The Babson Staff Letter - October 22, 2004
Corporate Governance Bulletin
City & Town - October 2004 - Focus
2005 Segal Health Plan Cost Trend Survey
Retired State, County and Municipal Employees Association of Massachusetts - Newsletter, November 2004
The Hull Contributory Retirement Board meeting adjourned at 11:24 a.m.
| 
