HomeMy WebLinkAboutPacket - 10/16/2018 - Police Pension Board1
2
3.
4.
5.
6.
7
or rMe FUX RMUMb/
POLICE PENSION BOARD OF TRUSTEES
Tuesday, October 16, 2018
200 PM
Municipal Center - 333 South Green Street
Aldermen's Conference Room
AGENDA
Call to Order
Roll Call
Public Input (5-minutes)
Meeting Minutes:
a) Motion to approve the July 10, 2018 Meeting Minutes.
Presentation of Actuarial Valuation Report as May 1, 2018 and recommendation to
forward Pension Fund Tax Levy request to McHenry City Council
New Business:
a) Motion to approve the purchase of service -time for unpaid leave for
Officer Joe Foley.
b) Motion to accept the annual Independent Medical Examination for
Police Disability Pensioner Justin DeBolt.
c) Motion to approve a request from former Officer Peter Nester for a
refund of all pension fund contributions in the amount of $46,432.40.
d) Motion to approve Officer Megan Carey-Kiessel Application for
Participation in the Police Pension Fund.
Report of Investments and Accounts:
a) Presentation and Motion to approve the Treasurer Report.
b) LPL Financial Equities Report
c) Capital Gains, Inc. Fixed Assets Report
d) Semi-annual review of Police Pension Fund Investment Policy.
Unfinished Business:
a) Motion to approve the payment of bills.
b) Public Pension Trustee Training Update.
9. Additional Items for Discussion
U. Adjournment
Next meeting: Tuesday, January 8, 2019 at 2:30 p.m.
We
HART o. t atia�
Police Pension Board of Trustees
July 100 2018
Meeting Minute
Call to Order
A meeting of the City of McHenry Police Pension Board of Trustees was called to order at 2:30 pm in the
McHenry City Council Chamber, 333 S. Green Street, McHenry, IL.
Roll call:
Jeffery Foerster, Nick Clesen, Jon Meyer, Marc Fisher and Ormel Prust. 0-absent. Others present: Jim
Schmidt, LPL Financial; Gary Karshna, Capital Gains, Inc. and recording secretary Debra Meadows. There
was a quorum present.
Public Input
None.
Meeting Minutes:
Motion to approve the January 2, 2018 meeting minutes.
Motion to approve the April 24, 2018 meeting minutes.
President Foerster asked if any of the members had any comments with respect to the January 2, 2018
minutes or any comments on the April 24, 2018 minutes. Member Fisher stated that on the April 241h
minutes he was not noted as absent. Recording Secretary Meadows will amend the minutes to reflect
Fisher's absence A Motion was made by Member Prust and seconded by Member Fisher to approve
the January 2"d meeting minutes as presented and the April 241h meeting minutes as amended. Roll
call: Vote: 5-ayes by unanimous voice vote. 0-nays, 0-abstained. Motion carried.
New Business•
Call for Nominations and Motion to approve Annual Election of Board Officers:
Member Meyer reported that he is submitting his resignation due to the fact he will be spending more
time in Florida and will be unable to attend all of the quarterly meetings. He reported that his
resignation is effective as of October 2018. The Police Pension Board Members wished him all the best
and noted that his input will be missed. They asked if he would consider on occasion providing the Board
Members with advice with respect to the financials. Member Meyer stated that he would.
President Foerster called for nominations of the office of President. Member Fisher nominated J.
Foerster. No other nominations were received. President Foerster called to close nominations. Moved
by Clesen, seconded by Meyer. Voice vote was unanimous for Foerster as President. President Foerster
called for approval of a unanimous ballot to be entered by the Secretary for Jeff Foerster as President.
Roll call: Vote: 5-ayes by unanimous voice vote. 0-nays, 0-abstained. Motion carried.
President Foerster called for nominations of the office of Vice -President. Member Fisher nominated
Member Clesen. No other nominations were received. President Foerster called to close nominations.
Moved by Fisher, seconded by Meyer. Voice vote was unanimous for Clesen as Vice -President. President
Foerster called for approval of a unanimous ballot to be entered by the Secretary for Nick Clesen as
Vice -President. Roll call: Vote: 5-ayes by unanimous voice vote. 0-nays, 0-abstained. Motion carried.
President Foerster called for nominations of the office of Secretary. Vice -President Clesen nominated
Member Fisher for Secretary. No other nominations were received. President Foerster called to close
the nominations. Moved by Clesen, seconded by Meyer. Voice vote was unanimous for Fisher as
Secretary. President Foerster called for approval of a unanimous ballot to be entered by the Secretary
for Marc Fisher as Secretary. _Roll call: Vote 5-ayes by unanimous voice vote. 0-nays, 0-abstained.
Motion carried.
President Foerster called for nominations for the office of Assistant Secretary. Member Meyer
nominated Member Prust for Assistant Secretary. No other nominations received. President Foerster
called to close the nominations. Moved by Member Meyer and seconded by Vice -President Fisher.
President Foerster called for one unanimous ballot to be entered by the Secretary for Member Prust as
Assistant Secretary. Roll call: Vote: 5-ayes by unanimous voice vote. 0-nays, 0-abstained. Motion
carried.
Motion to approve the 2018/19 Police Pension Board of Trustees Meeting Schedule
A Motion was made by Vice -President Clesen and seconded by Secretary Fisher to approve the following
2018/19 Meeting Schedule as follows:
• October 16, 2018
• January 8, 2019
• April 9, 2019
• July 9, 2019
Roll call vote: 5-ayes by unanimous voice vote. 0-nays, 0-abstained. Motion carried.
Motion to approve Officers Peter Mader and Luis Pena's Applications for Participation in the Police
Pension Fund
A Motion was made by Vice -President Clesen and seconded by Member Meyer to approve Officers
Peter Mader and Luis Pena's Applications for Participation in the Police Pension Fund. Roll call: Vote:
5-ayes by unanimous voice vote. 0-nays, 0-abstained. Motion carried.
Corporate Bond Acquisition and Sale Policy
Mr. Karshna commented on legislation regarding the length a bond experiencing a significant loss can be
held. He had drafted a Corporate Bond Acquisition and Sale Policy addressing this issues. This policy may
be incorporated into the Investment Policy or serve as a standalone policy. This matter will be placed on
the next agenda for Board approval.
Report of Investments and Accounts
Motion to approve the Treasurer Report
The Treasurer's Report was not presented. No action was taken at this time.
Fixed Assets Investment Report
Fixed Assets Manager Gary Karshna presented the annual investment report for Fiscal Year beginning
May 1, 2017 and ending April 30, 2018, at which time the Market Valuation was $9,265,906 and Book
Valuation was $9,089,615. He went on to report that the investment strategy applied was extremely
effective in the current, rising interest rate environment. The Pension Fun outperformed the Barclays
Blended Bond Benchmark, by a significant margin.
Mr. Karshna reported that the fixed income portfolio held its value extremely well, in a rising interest
rate environment.
Equites Investment Report
Mr. Jim Schmidt of LPL Financial presented the equities investment summary for the period of
December 29, 2017 to July 9, 2018. The total market value of investments as of July 9, 2018 was
$16,335,909.42, which is a 5.21% increase.
Unfinished Business
Motion to approve the payment of bills as follows:
• Illinois State Treasurer -/Annual Compliance Fee $4,555003
• Justin Debolt $250.00
• Capital Gains Services-5/1-7/31 $4,999.00
A Motion was made by Assistant Secretary Prust and seconded by Member Meyer to approve the
payment of bills as presented. Roll call: Vote:5-ayes: Assistant Secretary Prust, Member Meyer,
President Forester, Vice -President Clesen and Secretary Fisher. 0-nays, 0-abstained. Motion carried.
Pension Training
The Pension Board Members will be attending a two training session in the near future.
Additional Items for Discussion
There was no additional items discussed.
Motion to Adjourn
There being no further business to discuss, a Motion was made by Assistant Secretary Prust and
seconded by Vice -President Clesen to adjourn from the public meeting at 3:10 p.m. Roll call: Vote: 5-
ayes by unanimous voice vote. 0-nays, 0-abstained. Motion carried.
Respectfully submitted,
Debra Meadows
CITY OF 1VICHENRY
POLICE PENSION FUND
INVESTMENT POLICY
Adopted July 13,1999
Revised:
3/13/2001
1/8/2013
10/8/2013
1/12/2016
10/11/2016
CITY OF MCHENRY POLICE PENSION FUND
INVESTMENT POLICY
PURPOSE
The investment of pension funds is the responsibility of the members of the Board of Trustees
(Pension Board) of the McHenry Police Pension Fund (Fund). The purpose of this investment
policy is to indicate a conscious, formal effort by the Pension Board to develop, implement and
monitor the investment of pension funds. It shall be considered an important means to
communicate the Pension Board's policy views on management of pension funds to the public,
participants, and beneficiaries of the Fund.
SCOPE
This policy governs investment practices and applies to all financial transactions of the McHenry
Police Pension Fund.
OBJECTIVES
The Pension Board has a fiduciary responsibility to discharge their duties with respect to the
Pension Fund solely in the interest of the participants and beneficiaries as set forth in the Illinois
Pension Code at 40 ILCS 5/1-109.
• Safety: Safety of principal is the foremost objective of the McHenry Police Pension Fund.
Each investment transaction shall seek to first ensure that large capital losses are
avoided whether they are from securities, defaults or erosion of market value.
• Return on Investments: The Pension Board seeks to attain or exceed market rates of
return on its investments consistent with constraints imposed by its safety objectives,
cash flow considerations and Illinois Laws that restrict the placement of public funds.
• Maintenance of Public Trust: All participants in the investment process shall seek to
act responsibly as custodians of pension funds. Investment officials shall avoid any
transactions that might reasonably impair Fund participant's confidence in the Pension
Board's ability to manage the Fund.
• Liquidity: The assets shall be sufficiently liquid to meet the Fund's disbursement
requirements for the payment of operating expenses and benefits.
RESPONSIBILITY
Management of the investment program is the responsibility of the McHenry Police
Pension Fund Board of Trustees. No person may engage in an investment transaction except as
provided under terms of this policy established by the Pension Board.
The Pension Board may appoint an investment manager (as defined in 40 ILCS 5/1401.4) to
assist in the management of the investment program. The investment manager shall
acknowledge, in writing, that they are a fiduciary with respect to the McHenry Police Pension
Fund. Any such written agreement shall be attached to this policy.
The Pension Board will meet with the investment manager quarterly to review market
conditI
ons and to determine investment strategy. The Treasurer of the City of McHenry
(Treasurer) is responsible for ensuring all investment transactions undertaken are
consistent with the Fund's investment strategy.
The Board shall file a copy of this Policy with the Illinois Department of Insurance within 30
days after its adoption, per 40 ILCS 511-113.6. A copy of this Policy shall be made available
to the public at the main administrative office by the Fund, per 30 ILCS 235/2.5(b).
PRUDENCE
The standard of prudence to be used by investment officials shall be the "prudent person" and
shall be applied in the context of managing the portfolio. Investments shall be made with care,
skill, prudence and diligence that a prudent person acting in like capacity and familiar with such
matters would use in the conduct of an enterprise of like character with like aims.
PROHIBITED TRANSACTIONS
A Fiduciary with respect to the Fund shall not:
• Deal with the assets of the Fund in their own interests or for their own account.
• In their individual or other capacity act in any transaction involving the Fund on behalf
of a party whose interests are adverse to the interests of the Fund or the interests of
its participants or beneficiaries.
• Receive any consideration for their own personal account from any party dealing with the
Fund in connection with a transaction involving the assets of the Fund.
INVESTMENT INSTRUMENTS
The Pension Fund may invest in any type of security allowed for in Police Pension Statutes 40
ILCS 511 — 113. Approved investments include:
1) Bonds, notes, certificates of indebtedness, treasury strips, treasury bills, or other
securities, including obligations of the Government National Mortgage Association,
which are guaranteed as to principal and interest by the full faith and credit of the
government of the United States of America or its agencies.
2) Agencies include Federal Housing Administration (FHA), Government National
Mortgage Association (GNMA), Public Housing Boards (HUD), Farmers Home
Administration, General Services Administration (GSA), Maritime Administration,
Small Business Administration (SBA), Tennessee Valley Authority (TVA), Washington
Metropolitan Area Transit Authority, Federal Land Bank, Federal Intermediate Credit
Banks, Banks for Cooperatives, Federal Farm Credit Banks, Federal Home Loan Banks,
Federal Home Loan Mortgage Corporation (Freddie Mac), Federal National Mortgage
Association, Student Loan Marketing Association (Sallie Mae) and any other agency
created by Act of Congress.
3) Interest -bearing savings accounts, interest -bearing certificates of deposit or interest -
bearing time deposits or any other investment constituting direct obligations of any
institution that is insured by the Federal Deposit Insurance Corporation or insured
accounts at credit unions chartered in the state of Illinois or federally chartered provided
its principal office is located in Illinois.
4) Illinois Funds (formerly IPTIP)
(2)
5) Municipal bond and tax anticipation warrants issued by any city, county, township,
village, incorporated town, municipal corporation or school district in Illinois and
Illinois Municipal Certificates of Accrual (M-Cats) or tax exempt securities.
6) Guaranteed Investment Contracts (GIC's) valued at purchase price (not market value) not
to exceed 10% of the total aggregate book value of the portfolio.
7)
Separate accounts of a life insurance company authorized to do business in Illinois,
comprised of, common or preferred stocks, bonds or money market instruments; real
estate or loans upon real estate secured by first or second mortgages. The total
investment in such separate accounts shall not exceed 10% of the aggregate book value
of all investments owned by the fund.
8) State of Israel Variable Rate Issue Bonds and Prime Rate State of Israel Notes, limited
to 5% of the book value of the pension fund. The fund must have at least $5 million of
net present assets to invest in these funds.
9) Corporate bonds which meet the following requirements:
a) Rated as investment grade by one of the two largest credit rating services —
Standard & Poor's and Moody's Investors Service - at the time of purchase.
b) If securities are downgraded by both Standard & Poor's and Moody's Investors
Service, subsequent to purchase, below investment grade, they must be liquidated
within 90 days of the downgrade.
If the Fund has assets in excess of $2,500,000, it may invest up to 45% of its total assets in
the following items:
1) Separate accounts that are managed by life insurance companies authorized to transact
business in Illinois and are comprised of diversified portfolios consisting of common or
preferred stocks, bonds or money market instruments.
2) Mutual funds that meet the following requirements:
a) The mutual fund is managed by an investment company as defined and registered
under the federal Investment Company Act of 1940 and registered under the
Illinois Securities Law of 1953.
b) The mutual fund has been in operation for at least 5 years.
c) The mutual fund has total net assets of $250 million or more.
d) The mutual fund is comprised of diversified portfolios of common or preferred
stocks, bonds, or money market instruments.
If the Fund has assets in excess of $5,000,000 and has appointed an investment advisor
under section 1-113.5, it may, through that investment advisor, invest up to 45% of the
aggregate market value of the total portfolio in domestic common and preferred stocks,
provided;
(3)
1) The common stocks are listed on a national securities exchange or board of trade as
defined in the federal Securities Exchange Act of 1934 and set forth in Illinois Securities
2) Law of 1953 or quoted in the National Association of Securities Dealers Automated
Quotation System, National Market System (NASDAQ NMS)
3) The securities of a corporation created or existing under the laws of the United States or
any state, district, or territory thereof and the corporation has been in existence for at
least 5 years.
4) The corporation has not been in arrears on payment of dividends on its preferred stock
during the past 5 years
5) The market value of stock in any one corporation does not exceed 5% of the cash and
invested assets of the pension fund, and the investments in the stock of any one
corporation do not exceed 5% of the total outstanding stock of that corporation.
6) The straight preferred stocks or convertible preferred stocks are issued or guaranteed by
a corporation whose common stock qualifies for investment by the Board.
7) The issuer of the stocks has been subject to the requirements of Section 12 of the federal
Securities Exchange Act of 1934 and has been current with the filing requirements of
Sections 13 and 14 of that Act during the preceding 3 years.
8) The Fund's total investment in the items authorized in section 5/1-113.3 and 5/1-113.4,
shall not exceed 45% of the market value of the pension fund's net present assets stated
in its most recent annual report on file with the Illinois Department of Insurance.
If the Fund has net assets of at least $10,000,000 and has appointed an investment adviser,
as defined under Sections 1401.4 and 1.113.5, it may, through that investment adviser,
invest an additional portion of its assets in common and preferred stocks and mutual
funds.
The stocks must meet all of the following requirements:
1) The common stocks must be listed on a national securities exchange or board of trade
(as defined in the Federal Securities Exchange Act of 1934 and set forth in paragraph G
of Section 3 of the Illinois Securities Law of 1953) or quoted in the National Association
of Securities Dealers Automated Quotation System National Market System.
2) The securities must be of a corporation in existence for at least 5 years.
3) The market value of stock in any one corporation may not exceed 5% of the cash and
invested assets of the pension fund, and the investments in the stock of any one
corporation may not exceed 5% of the total outstanding stock of that corporation.
4) The straight preferred stocks or convertible preferred stocks must be issued or
guaranteed by a corporation whose common stock qualifies for investment by the board.
The mutual funds must meet the following requirements:
1) The mutual fund must be managed by an investment company registered under the
Federal Investment Company Act of 1940 and registered under the Illinois Securities
Law of 1953.
(4)
2) The mutual fund must have been in operation for at least 5 years.
3) The mutual fund must have total net assets of W50,000,000 or more.
4) The mutual fund must be comprised of a diversified portfolio of common or preferred
stocks, bonds, or money market instruments.
ASSET ALLOCATION
The Pension Funds total equity investment in the items authorized under this Section and Section I-113.3
shall not exceed 65% of the market value of the Pension Fund's net present asset valuation, at fiscal year-
end (April 30th). The recommended percentages of each asset class are listed below.
Asset Class Minimum Maximum
Equities 40 % 65%
Fixed Income 20 % 59 %
Cash/Cash Equivalents I % 30%
1) Other permitted investments as approved by the Pension Board from time to time.
The Board of Trustees may register the investments of the Fund in the naive of the Pension
Fund, in the nominee name of a bank or a trust company authorized to conduct trust business in
Illinois, or in the nominee name of the Illinois Public Treasure's Investment Pool.
CONTROLS
The Fund maintains its books and records in conformance with generally accepted accounting
principles. The internal controls shall be reviewed by the Pension Board and an
independent auditor. The controls shall be designed to prevent losses of public funds
arising from fraud, employee error, misrepresentation by third parties, unanticipated changes in
financial markets of imprudent action by employees and officers of the Pension Board.
The Treasurer is named an authorized signature on all Fund accounts. All Fund disbursements
shall be authorized by the Pension board and be executed by two (2) signatures. One of the
signatures shall be the Treasurer and the other shall be a Trustee authorized by the Pension
Board.
DIVERSIFICATION/STRATEGY
Fixed Income:
1) The average maturity/duration of the portfolio will be managed based upon the current
existing interest rate environment.
Equities:
2) Shall be maintained in accordance with the guidelines of Illinois State
Statutes,
COLLATERALIZATION
It is the policy of the Fund to require that all deposits in excess of FDIC insurable limits
(applies to bank Certificates of Deposit) be secured by collateral in order to protect
deposits from default.
I) Eligible collateral instruments and collateral rations (market value divided by deposit) are as
follows:
(5)
a) U.S. Government Securities
b) Obligations of Federal Agencies
c) Obligations of the State of Illinois
d) Local and Municipal Bonds rated "A"
or better by Moody's
The ratio of fair market value of collateral to the amount of funds secured shall be reviewed
at least quarterly and additional collateral shall be requested when the ratio declines
below the level required.
2) Safekeeping of collateral:
a) Third party safekeeping is required for all collateral. To accomplish this, the
securities can be held at the following locations:
i. A Federal Reserve Bank of branch office.
ii. At another custodial facility -generally in a trust department
through book entry at the Federal Reserve, unless physical securities
are involved. If physical securities are involved, at a third party
depository in a suitable vault and insured against loss by fire, theft, and
similar causes.
b) Safekeeping of collateral shall be documented by a written agreement
approved by the Treasurer. This may be in the form of a safekeeping
agreement, trust agreement, escrow agreement or custody agreement.
c) Substitution or exchange of securities held in safekeeping as collateral may
occur without prior written notice to the Treasurer provided that the market
value of the replacement securities are equal to or greater than the market
value of the securities being replaced. The Treasurer shall be notified in
writing within two days of all substitutions.
CUSTODY AND SAFEKEEPING OF INVESTMENTS
1) Third party safekeeping is required for all securities owned by the Fund. To
accomplish this, the securities shall be held in a trust department through book -entry at
the Depository Trust Company.
2) Safekeeping shall be documented by an approved written agreement. The
agreement may be in the form of a safekeeping agreement, trust agreement escrow
agreement or custody agreement. Fees for this service shall be mutually agreed upon by
the Pension Board and the safekeeping bank.
ETHICS AND CONFLICTS OF INTEREST
Any fiduciary with respect to the Fund shall refrain from personal business activity that
could conflict with the proper execution of the investment program, or which could impair
their ability to make impartial investment decisions.
INDEMNIFICATION
Pension Board members, investment officers, and the Treasurer acting in accordance with this
Investment Policy and such written procedures as have been or may be established, in relation
thereto, and exercising due diligence, shall be relieved of personal liability for an Individual
security's credit risk or market changes,
(6)
REPORTING
On an annual basis, the Treasurer shall submit to the Pension Board an investment report
which shall describe the portfolio in terms of investment securities, maturity, cost, and earnings
for the current period and year to date. The Treasurer shall also submit a comprehensive
annual report on the investment program and activity.
MEETING SCHEDULE
The Board shall schedule quarterly meetings on the 2nd Tuesday of January, April, July and
October of each year. Special meetings may be called from time -to -time by the Police
Pension Fund President,
AUDIT
The Police Pension Fund shall be audited annually by a certified public accountant in
conjunction with the City's audit. In addition, the Fund is subject to periodic examination
by the Illinois Department of Insurance.
DEFINITIONS:
Beneficiary. Person eligible for or receiving benefits from a pension fund.
Book Entry Security. Securities that can be transferred from institution to institution using
the federal electronic wire system, thus eliminating the physical transfer of certificates.
Records are maintained on a computer system at the Federal Reserve.
Collateral. The pledging of a security to guarantee performance of an obligation.
Commercial Paper. Unsecured promissory notes of corporations issued for 270 days or less.
Fiduciary. Person entrusted with the control of assets for the benefit of others.
Investment Manager. An individual or organization that provides investment
management services for a fee, either on a discretionary or nondiscretimildly basis. Under
Illinois law, an investment manager is considered a fiduciary with respect to the Fund.
IPTIP (Illinois Public Treasurer's Investment). A short-term money. market fund for public
funds in Illinois.
Market Value. The present price of a given security.
Return. The profit or interest as payment for investment.
Security. Any note, stock, bond, certificate of interest or certificate of deposit.
Stagnate Account. Term used of variable annuities. Because the risk is borne by the
investor in a variable annuity, the issuer may not commingle funds invested in the variable
annuity with the general funds of the issuer.
Treasury Bill. Short-term debt obligation of U.S, government which will mature within ten
years at the time of original issuance.
Treasury Bond. Longer debt obligations of U.S. government which will mature in ten
years or longer at the time of original issuance.
Yield. Percentage measured by taking annual interest from an investment and dividing by
current market value.
AMENDMENT
This policy may be amended from time to time by the Pension Board.
CONFLICT
In the event of
decisions of the
any conflict between this Policy and the Illinois Compiled Statutes or case
State of Illinois, the Statutes and case law decisions shall govern.
(8)
Investment Policy
Signature Page
The undersigned have read and agree to follow the Investment Policy adopted by the Board of
Trustees of the City of McHenry Police Pension Fund on July 13, 1999, and last amended
October 11, 2016.
Name Officers
Jeffrey Foerster President
Jon Meyer Vice -President
Kelly Ducak Secretary
Ormel Prust Appointed Trustee
Marc Fisher Elected Trustee
Name Investment Managers
Gary Karshna Capital Gains, Inc
James Schmidt LPL Financial
Name
Laura Goodloe
Board Attorney
Puchalski, Goodloe,
Marzullo LLP
Signature
r`' _0 t
Signature
Rev 10-11-2016PPBInvestPolicy
Investment Policy
Signature Page
The undersigned have read and agree to follow the Investment Policy adopted by the Board of
Trustees of the City of McHenry Police Pension Fund on July 13, 1999, and last amended
October 11, 2016.
Name
Jeffrey Foerster
Jon Meyer
Kelly Ducak
Ormel Prust
Marc Fisher
Name
Gary Karshna
James Schmidt
Name
Laura Goodloe
Officers
President
Vice -President
Secretary
Appointed Trustee
Elected Trustee
Investment Managers
Capital Gains, Inc
LPL Financial
Board Attorney
Puchalsl�i, Goodloe,
Marzullo LLP
Si 1� ature
Signature
Si ng ature
Rev 10-11-2016PPBInvestPolicy
Police Pension Board of Trustees
Regular Meeting
April 25, 2017
1. A meeting of the City of McHenry Police Pension Board of Trustees was called to order at 3:30 PM in
the City of McHenry Council Chambers, 333 S. Green Street, McHenry, IL.
2. Roll Call: President Jeffrey Foerster, Ormel Prust and Jon Meyer. Absent: Marc Fisher and Kelly
Ducak. Others present: Jim Schmidt, LPL Financial; Gary Karshna, Capital Gains, Inc.; Dennis
Dressel, Lauterbach & Amen, LLP; City Treasurer Carolyn Lynch, and recording secretary Marci
Geraghty.
3. Public Input
None,
4. Lauterbach &Amen, LLP Assumptions Update
Dennis Dressel representing Lauterbach (X Amen, LLP provided the board with an Actuarial
Assumption Summary for the McHenry Police Pension Fund.
Expected Rate of Return. Mr. Dressel reported the long-term rate of return of the fund assets is
anticipated to be available to pay benefits (net of expenses). The prior assumption used was 7% and the
proposed assumption is also 7% and is based on guidance from the fund's investment advisor Capital
Gains regarding long term expectation of returns for each broad asset class in the fund and the long term
anticipated asset allocation.
Expected Pay Increases, The prior assumption used for expected pay increases was 4%. The expected
increase in individual salaries proposed at 4% - 10.27% -long-term increases at 4%with additional step
increases in the first seven years. Mr. Dressel explained service -based pay rates capture additional pay
increases anticipated for employees early in their working careers in addition to cost of living
adjustments for all employees.
The prior assumption used to determine the long term expected increase in total payroll for active
employees was 4%. This will now be assumed at 3.5%. The total payroll assumption should also take
into consideration that over the life of a pension plan, as higher paid employees retire, they are replaced
by lower paid entry-level employees.
Consumer Price Index-U. The CPI-U rate that will be used to predict future COLA adjustments is
proposed at 2.5%. In prior years, the rate used was 3%. Mr. Dressel explained that historically, CPI-U
rates show an average increase over a 20-30 year period of 2.5%-3%.
Percent Married. There is no change proposed in the 80%assumption for married employees.
Mortality Rates. In past assumptions, the RP 2014 Mortality Table (BCHA) was used to predict deaths
that trigger a benefit for beneficiaries. This assumption was also used to estimate the amount of
payments an individual is expected to receive when payments begin.
Proposed is the L&A Assumption Study for Police 2016. These rates are experience -weighted with the
raw rates as developed in the RP-2104 study, with Blue Collar Adjustment and Improved
Generationally using MP-2016 Improvement Rates.
Disability Rates. In past reports, this assumption was based on studies of the fund and the Department
of Insurance. Proposed is 100% of the L&A Study for Police Officers in Illinois 2016 that ranges at
Age 24 at a rate of 0.001 and steadily increases to Age 50 at a rate of 0.006.
Retirement Rates. The probability is that members retire at any given age. The assumption used with
active fund members to predict retirement dates that trigger a benefit payment were in prior years based
on studies of the fund and data from the Department of Insurance (100% by age 70). Proposed is 100%
of L&A Study Police 2016 ranging from Age 50 at a rate of 0.117% to Age 70 at 1%.
Termination Rates. This assumption is used with active members to predict termination that could
trigger deferred retirement benefits or contribution refunds. In prior years, this assumption was based
again on studies of the fund and the Department of Insurance. Proposed are rates from the L&A Police
2016 study that begin at Age 24 at a rate of 0.041% to Age 50 at a rate of 0.003%.
Mr. Dressel concluded his presentation and announced he will return with a draft actuarial study
sometime after the City has concluded its financial audit.
5. Approval of Minutes
a) Mr. Karshna recommend a correction on the first page, last paragraph, and second sentence of the
first page noting the percent of taxable general obligation municipal bonds should be 29% not
929%.
O. Prust made a motion, seconded by J. Meyer to approve the regular meeting minutes from
January 3, 2017 as amended and to hold them for audit.
Ayes: Prust, Foerster, Meyer
Nays: None
Absent: Fisher, Ducak
Motion carried
5. Semi-annual review of Executive Session Minutes
All Executive Session minutes have been released.
6. Report of Investments and Accounts:
a) Treasurer Report: Finance Director and Board Treasurer Lynch presented the Cash and
Investments report as of March 31, 2017. She reported approximately $50,000 in cash is needed to
pay bills through May.
Motion by J. Meyer, seconded by O. Prust to approve the Treasurer Reports as of March 31, 2017,
with total investments of $22,582,386.40, as presented.
Ayes: Prust, Foerster, Meyer
Nays: None
Absent: Fisher, Ducak
2
Motion carried
b) Capital Gains Fixed Assets Investment Report: Fixed Assets Manager Gary Karshna presented the
investment report for the period ending March 31, 2017, at which time the Market Valuation was
$9,000,407 and Book Valuation $9,167,467.
Mr. Karshna reported the barbell strategy is working well in the current global investment
environment. The bond portfolio produced a 1.39% return versus -64% for the Barclays
Intermediate Government Bond Index.
c) Equities Investment Report: Jim Schmidt of LPL Financial presented the equities investment
summary for the period of December 31, 2016 to April 24, 2017. Total market value of
investments as of April 24, 2017 was $13,544,623.29; total percent rate of return is 7.50%. Mr.
Schmidt also distributed a Performance Detail by Asset Class report.
d) Motion to approve the capture of profits from investments and/or the sale of individual investments
and deposit said funds into the Pension Fund checking account for paying bills: Mr. Karshna
reported he would transfer profits from anticipated bond sales to provide the fund with the needed
cash.
Motion by O. Prust, seconded by J. Meyer to authorize the transfer of $50,000 from the fixed
assets fund to the fund checking account for the payment of bills in May.
Ayes: Prust, Foerster, Meyer
Nays: None
Absent: Fisher, Ducak
Motion carried
e) Semi-annual Review of Police Pension Fund Policy: No changes to the policy were recommended
7. Unfmished Business:
a) Motion to approve payment of bills as presented.
Capital Gains Quarterly Invoice: $4,920
Capital Gains Quarterly Invoice (Dec) $4,941
IPPFA Annual Dues: $795
Reimbursement of Pension Contributions (Zachary Piekarski): $15,909.66
O. Prust made a motion, seconded by J. Meyer to approve the payment of bills as presented.
Ayes: Prust, Foerster, Meyer
Nays: None
Absent: Fisher, Ducak
Motion carried
8. Motion to approve Application for Participation in the Police Pension Fund from Officer Derek
Schmidt: President Foerster reported Officer Derek Schmidt was sworn in on March 24, 2017.
Motion by J. Meyer, seconded by O. Prust to accept the Application for Participation in the Police
Pension Fund from Officer Derek Schmidt as presented.
3
Ayes: Prust, Foerster, Meyer
Nays: None
Absent: Fisher, Ducak
Motion carried
9. Additional items for discussion: President Foerster reported the results from the Pension Board
Elections: Jeffrey Foerster was reelected as Beneficiary Representative. Active Members (2): Officer
Marc Fisher was reelected and there is a tie between Officer Kelly Ducak and Sgt. Nicolas Clesen. A
run-off election will be held on May I". Ormel Prust was reappointed as the Mayoral appointee.
10. Adjournment: O. Prust made a motion, seconded by J. Meyer to adjourn the meeting at 4:25 PM.
Ayes:
Nays:
Absent:
Motion carried
Respectfully submitted,
Prust, Foerster, Meyer
None
Fisher, Ducak
Marci Geraghty, Recording Secretary
n