MINUTES
HULL CONTRIBUTORY RETIREMENT BOARD MEETING
December 21, 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, Chris McCabe, Ann MacNaughton and James Yacobucci and Retirement Administrator Marcia Bohinc.
The Board requested to review the audiotape of the November 29, 2004 regular Board meeting prior to attesting to the minutes. The tape will be made available upon request prior to the next meeting.
The Board signed all bill warrants for December 2004.
The Board signed the contributory payroll for December 2004.
Joseph Quirk, identified by PERAC as having failed to submit the required annual report of earnings for 2003 as required by M.G.L. c32, §91A, was duly notified by the Retirement Board of his right to appear before the Board. He failed to appear; therefore on a motion by Donald Brooker, seconded by Jim Yacobucci, and voted unanimously, Mr. Quirk's retirement allowance will be suspended until he is in compliance. He has been notified of his right to appeal the action to the Contributory Retirement Appeal Board.
As an update, retiree Richard Colton's retirement allowance, having been suspended in June 2003 due to failure to submit his annual report of earnings for 2002 as required by M.G.L. c32, §91A, is still not receiving his allowance. Contact was made with Mrs. Colton in an effort to resolve the outstanding reporting issue and bring Mr. Colton current. The retirement system is still making payment for his insurance, creating a net zero check.
The Board reviewed the two findings reported in the draft PERAC Audit for the period January 1, 2000 through December 31, 2003. Being the subject of the second finding, former Police Chief and Retirement Board member D. Brooker recused himself from the ensuing discussion. The Board discussed the origin of the finding, the contract of Police Chief dated March 2002 with the Board of Selectmen, where specific benefits were terminated and replaced with compensation. Specifically, sick leave buy back as provided for in the Town by-laws was waived for an equal amount of salary. PERAC questioned whether this provision in the contract was correctly considered "regular compensation" for retirement calculation purposes. They also questioned the number of holidays included in the three-year
period used for the calculation. PERAC recommended that all amounts included in the high three-year average salary calculation be reviewed to comply with M.G.L. c. 32 §1 and 840 CMR 15.03, and that the calculation be reviewed and the retirement allowance adjusted.
After considerable discussion and historical review, Lenny Colten made a motion that the Board take exception to the portion of the second PERAC audit finding (retirees) referencing sick leave buyback. Seconded by Chris McCabe. In discussion, J. Yacobucci stated that he did not want to take exception, but simply respond, as is the Board's right. L. Colten amended his motion respond to the finding in the following manner:
The contract between the Town and the specific member was an employment contract that terminated certain benefits, one specifically named being sick leave buy-back, and replaced them with compensation as the first step in removing a civil service position covered by the Town's by-laws and creating a professional position. This was not a redefinition of compensation, but an amendment to the ongoing total compensation package for this position.
Voted unanimously.
The response will also state that the final three-year average salary was previously reviewed and found to have included two extra pay periods, which included the additional holidays. The three-year average and subsequent retirement allowance were recalculated to include only the appropriate amounts, and all overages have been repaid to the system.
The other finding regarded the receipt of the appropriation from the Hull Housing Authority to which the Board agreed to respond by simply stating the following:
The Board has received the total FY2004 appropriation from the Hull Housing Authority and they, with their legal counsel, will continue to pursue all avenues for payment of the FY2003 appropriation.
It was noted that the final audit is distributed to the Board, administrator, representatives, senators and governing authority.
Retirement Allowance Adjustments
Under M.G.L. c32, §20(5)(c)(3), the Board reviewed a request for waiver of reimbursement to the system from former police sergeant Robert Tompkins. One year, four months of service credit for service as a call firefighter from 1972 through 1983 was taken away from Mr. Tompkins because the Town of Hull did not accept the provisions of M.G.L. c. 32 § 4(2)(b½) entitling him to that service. As of October 2004, his retirement allowance was adjusted and the amount of overpayments calculated.
Because Mr. Tompkins retired with an expectation of a certain retirement allowance, and was receiving that allowance for over a year, D. Brooker led the Board in a discussion regarding possible recourse for Mr. Tompkins to reinstate his original retirement allowance. To this, he first made a motion to accept the request for waiver from Mr. Tompkins. Seconded by J. Yacobucci, voted unanimously.
D. Brooker went on to discuss the option of an article at the next annual Town meeting asking for a special act of the legislature to reinstate the service taken away from Mr. Tompkins, thereby reinstating his retirement allowance. After discussion, the Board elected not to pursue the matter further.
To explain exactly what the waiver represented, J. Yacobucci made a motion, seconded by D. Brooker, that the Board also return the contribution Mr. Tompkins made to purchase the additional service credit, making the waiver for the gross amount of overpayment. After considerable discussion, including clarification and insight from meeting guest Town Treasurer Arthur Flavin, D. Brooker substituted a clarified motion in two parts. 1) Waive the gross amount of the overpayment from the system, including the amount of the make up contribution required to purchase the service, and 2) Return the contribution Mr. Tompkins made to the system to purchase the credit that has been disallowed. Both motions were seconded by J. Yacobucci and voted D. Brooker, yes, Ann MacNaughton, yes, J. Yacobucci, yes, L. Colten, no
(C. McCabe was absent for the votes).
The Board reviewed the current year-to-date trial balance and cash accounts' reconciliation with a minimum of discussion. It was noted that the payroll reconciliation has been totally cleared, including the repayment of a deceased retiree's overpayment of allowance.
Investments
The following monthly investment materials were provided to the Board:
Investors Fund Performance - Updated through November 2004
PRIM Board Update - November 30, 2004
PRIT - Summary of Plan Performance - November 30, 2004
SSgA - Total Return through November 2004
Quarterly Update - PRIT - Hull Profile
Budget
Per the chairman's request in the November meeting and to comply with M.G.L. c. 32 §20(4)(f) and §22(5), the Board reviewed the calendar year 2005 budget. This budget included $25,000 for an investment consultant and excluded an actuarial valuation for 2005. On a motion by J. Yacobucci, seconded by D. Brooker, the budget of $108,000 was unanimously approved. The Board noted that the current funding schedule for the fiscal year 2006 appropriation was based on an estimated budget of $100,000. Because all expenses for the retirement system are paid from the investment income, if an investment consultant is not hired, any excess amount allocated to expenses will remain in the system and be applied against the unfunded liability.
It was also noted that the appropriation letter detailing the governmental unit amounts has been received from PERAC and will be forwarded to the appropriate parties. The total appropriation due to the system no later than December 31, 2005 is $2,560,844. Responding to a question from the Board, the Treasurer remarked that the Town would probably make their portion of the appropriation payment mid-year (July 1) at a reduced amount.
The Board reviewed M.G.L c.32 §14A (third party recovery) relative to the discussion and vote on a settlement with former firefighter and accidental retiree John Clasby. The Board is required pursuant to §14A to recover any amount attributable to wages in any settlement or judgment that an accidental disability retiree receives. Mr. Clasby's attorney is seeking the Board's consent to waive its lien pursuant to M.G.L. c. 32, s. 14A. According to counsel's letter, the settlement amount is being paid for "physical and emotional pain and suffering" only, and since the Board's section 14A lien is limited to lost wages, it appears that the Board's right to offset has been eliminated. Retirement Board attorney Michael Sacco advised that, under the circumstances, the Board waive its
lien rather than try to pursue the matter further. On a motion by J. Yacobucci, seconded by D. Brooker, the Board unanimously voted to waive the lien.
ADP Payroll Errors
The process of gathering calendar year 2002 data for all affected members is continuing to begin the corrective action the errors 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. In an opinion from Attorney Sacco, he advised that the Board is correct in recouping the additional 2% from the affected employees. If the contributions are not made to the system, the retirement allowances would need to be reduced to reflect the non-payment. He stated that this is supported by a DALA case.
Old Business
The Board reviewed without comment a report provided by Attorney Sacco on his representation of the Board at the December 8, 2004 Division of Administrative Law Appeals (DALA) hearing in the matter of Gary Taylor v. Hull Retirement Board.
At the direction of the Board, all information relative to former Police Officer David Leary's request for additional compensation from the Town, and possibly subsequent increase in his retirement allowance was forwarded to Attorney Sacco for review and opinion. As of this date, no opinion has been received. The Board wanted to verify that the language of both the police contracts (expired June 30, 2002 and effective July 1, 2002) were clear to Attorney Sacco regarding what was considered base pay and benefits. Both contracts were initially provided, however the differences will be clearly stated prior to Attorney Sacco's opinion.
New space for the Retirement office was again discussed without conclusion. Board member and Town Manager C. McCabe said he would keep this an open item when looking at Town buildings.
New Business
Board member D. Brooker made a motion for the Board to schedule the public hearing for the discussion and vote on the cost of living adjustment (COLA) for the retirees effective July 1, 2005. Seconded by L. Colten, voted unanimously. Due to the 30-day posting requirement, this meeting will be conducted in the regularly scheduled February Retirement Board meeting, set for February 23, 2005 at 9:00 a.m. in the Selectmen's Meeting Room.
Consultant Process
Prior to a motion being made, the Chair requested a roundtable discussion regarding the options and opinions on hiring an investment consultant. Before the discussion began, the Board reviewed two handouts. The first handout, in three parts, was a Net Return Analysis reporting investment return over time and the effect of management and consulting fees on the net return. The first part detailed a hypothetical cost and return over a five year period with assets invested 1) with two money managers plus the Pension Reserve Investment Trust (PRIT) Fund, mirroring the current investment, and 2) invested totally in PRIT. The second part detailed the required gross rate of return the individually managed assets in order to exceed the net return of PRIT. The third showed the
required gross rates of return for both to meet the actuarial assumption.
Using constant investment and asset assumptions for the original assets, rates of return and fee structure for the 5 year period, the results showed the degree to which the individually managed assets, with both asset management fees and the investment consultant fees, must out perform PRIT to stay even or exceed on a net return basis. The additional gross return required to meet the current actuarial assumption was even more remarkable.
The second set of handouts was a series of consultant references from approximately 12 retirement systems of similar size using the investment consultants interviewed by the Board. The findings showed that all the systems love their consultants, however most Board members are somewhat investment savvy and they feel that they need to have more control and independence over their assets. Most of the systems invest some assets in a segment in PRIT, but none wanted to invest in the core. None of the systems report remarkable funded ratios.
With that, the roundtable began:
J. Yacobucci:
- Upon appointment to the Board, recognized that the rates of investment return ranked Hull at the bottom of all other systems.
- At the time, expressed his concern at 'putting all the eggs in one basket' and the Board's conservative investment philosophy.
- Stated that he has wanted to hire an investment consultant since that time.
- Currently, the assets are so far behind that the Board must get involved to exceed the PRIT rate of return.
- Recommendation: Leave the 50% currently in PRIT, and hire a consultant for the other 50% with the goal of exceeding the PRIT rate of return to build up the assets, for a trial period of at least one year. He stated that the Board needs a consultant because no one on the Board is qualified to manage the assets.
C. McCabe:
- Recommendation: Switch the entire portfolio to PRIT.
- Does not feel that the system is big enough to undertake the responsibility independently.
- The net savings in fees are something that the Board must consider.
- Over time, PRIT has shown a good track record.
- Does not agree that the system must necessarily do better than PRIT, but does agree that the Board must manage the money. PRIT is an option because they will do it for them.
- Reminded the Board that they may withdrawal the money at any time with 30 days notice.
A. MacNaughton:
- Views an investment consultant as part of the Board and it is the Board's fiduciary responsibility to manage the funds.
- Putting the money in PRIT is reneging on their responsibility.
- The argument to put into PRIT is for cost savings. She conceded that a higher return is required with an investment advisor.
- However, she stated that she does not see why the Board should not try to do that. The Board has never tried. She feels that putting the money into PRIT is not managing it, it is more just "dumping" it.
- PRIT is managing the money to their asset allocation strategy - not ours.
- Feels that the Board's strategy must be reviewed monthly with the investment advisor to be able to reposition the assets if necessary.
- PRIT is investing to their end, not ours.
- J. Yacobucci agreed.
- C. McCabe countered that if the Board was going to try something, save the money in fees and try PRIT first.
D. Brooker:
- Pointed out that fees change - the increase in consultant and investment manager fees against any increase in PRIT should be considered.
- In listening to the consultants, did not feel that they were completely straightforward or honest. He stated that he has trouble believing everything the consultants had to say, and did not have a lot of confidence in their presentations.
- However, did feel very comfortable with Mike Reardon's (PRIM) presentation, remarking that he felt Mr. Reardon was completely above board, helpful and forthright. He stated that he was impressed with all meetings with him.
- Originally, he was in favor of a consultant, reasons being for some guidance in running the operations and how to make decisions. He commented that none of the Board members have a background in investment strategies and he is not comfortable taking the word from the advisors.
- But is comfortable with Mr. Reardon and will be able to go home and sleep at night doing the right thing.
- Recommendation: Based on that, and the ability to change the decision with 30 days notice, his inclination is to go with PRIT.
- J. Yacobucci disagreed stating that he felt more comfortable with the other consultants, and reiterated his recommendation to keep the portion current at PRIT in place, and use a consultant for the other half.
L. Colten:
- Acknowledged that the Board needs help, i.e. the Board needs a consultant, but wants to make sure the Board is going in the right direction and getting their money's worth.
- In reviewing the results of the current managers, he remarked that PRIT is outperforming the current managers. The Board has not been monitoring investments to make decisions - if the assets are in PRIT, this is not an issue.
- The main goal in hiring a consultant is two steps:
1. get the proper asset allocation, and
2. get the proper diversification.
- PRIT offers both of those things. PRIM has the finest consultants available with many people involved in the investment decisions. The Board would be getting the best for the least amount of money. PRIT portfolio offers less risk while still meeting the actuarial assumption. They have proven performance.
- M. Reardon promised constant review, personalized visits and easy access to any information the Board needs.
- Recommendation: PRIT. As a long-range decision, PRIT has proven that they have the best results.
M. Bohinc:
- Agreed with A. MacNaughton that it is the Board's fiduciary responsibility to manage the funds, and that the Board can meet this responsibility by using an investment consultant.
- Also agreed with the argument that going into PRIT would be a cost savings.
- Disagree with statement that PRIT is trying to get to "their" end with their asset allocation. Their end is an 8% actuarial target rate. Hull's is 7.75%. If PRIM hits their rate, so does Hull. PRIT's goals are our goals - they must be fully funded by 2028, and have an actuarially assumed rate to do so. What they are doing is not any different from what Hull is trying to do.
- For the amount of assets currently in our system, it makes sense to be dollar wise and invest in PRIT. However, she warned the Board to not put the money in and forget about it. The Board still must review and consciously make the decision that this is the proper investment.
- Regarding creating an asset allocation, she reminded the Board of the expense of money managers, the first portion of the investment being the most expensive. To properly diversify, it could become very expense. To save money, the Board runs the risk of not being diversified.
- Referring to the cost analysis, with fees, the need for a greater return is crucial.
- Recommendation: With the current market being unpredictable, PRIT offers diversification, with downside protection at a reasonable cost.
It was confirmed that there are no liquidation fees or penalties. At SSgA, 85% of fund is available the next day, with the balance available T+3. At Freedom Capital, a full redemption is available on the third business day after month end.
After close to a year of discussion, analysis, request for proposal process and interviews, D. Brooker made the motion to take all system funds available at SSgA and Freedom Capital and combine them with the existing funds in the PRIT core fund and invest them together as of January 1, 2005 (first business day January 3, 2005). Seconded by C. McCabe. After even more discussion and a last effort by J. Yacobucci to convince the Board not to invest fully in PRIT, the vote was taken: D. Brooker, yes, L. Colten, yes, A. MacNaughton, yes, C. McCabe, yes, and J. Yacobucci, no.
The Board read all informational mail:
Mail:
Memo - Ralph White, MACRS Legislative Chairman - New Mortality Effective Date
PERAC Memo - Appropriation for Fiscal Year 2006 (letter will be sent to Treasurer and HHA in compliance with c. 32)
PERAC Memo - Approval of Funding Schedule
PERAC Memo #44/2004 - New Option A & B Annuity Factors
PERAC Memo #45/2004 - Notice to New Employees in a Job Not Covered by Social Security
PERAC Memo #46/2004 - Follow up to PERAC Memo #44/2004 and the Option B Factors
PERAC Memo #47/2004 - Calendar Year 2004 Annual Statements
Pension & Investment - December 13, 2004 - PRIM Hires
Retired State, County and Municipal Employees Association of Massachusetts - Newsletter, January 2005
Babson Staff Letter - November 24, 2004
The next two regular Board Meetings are scheduled for Wednesday, January 19, 2005 and Wednesday, February 23, 2005 both at 9:00 a.m. in the Selectmen's Meeting Room.
The Hull Contributory Retirement Board meeting adjourned at 11:06 a.m. with wishes from the Board for Happy Holidays and a Happy New Year.
| 
