HomeMy WebLinkAboutPacket - 04/24/2018 - Police Pension Board
MEETING
POLICE PENSION BOARD OF TRUSTEES
Tuesday, April 24, 2018, 2:30 PM
Municipal Center - 333 South Green Street
Council Chambers
AGENDA
1. Call to Order.
2. Roll Call.
3. Public Input.
4. Motion to approve the January 2, 2018 Meeting Minutes.
5. Report of Investments and Accounts:
a) Motion to approve Treasurer Report.
b) Fixed Assets Investment Report.
c) Equities Investment Report.
d) Semi-annual review of Police Pension Fund Investment
Policy.
6. Unfinished Business:
a) Motion to approve payment of bills.
7. New Business.
8. Any additional items for discussion.
9. Motion to adjourn.
Next Scheduled Meeting: July 10, 2018.
Police Pension Board of Trustees
January 2, 2018, 2:30 PM
1. 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 Chambers, 333 S. Green Street., McHenry,
IL.
2. Roll Call: President Jeffrey Foerster, Jon Meyer, Ormel Prust, Marc Fisher and Nick Clesen.
Others present: Jim Schmidt, LPL Financial; Gary Karshna, Capital Gains, Inc.; City Treasurer
Carolyn Lynch, and recording secretary Marci Geraghty.
3. Public Input
None.
4. Approval of Minutes
O. Prust made a motion, seconded by J. Meyer to approve meeting minutes from October 10,
2017 as presented to hold them for audit.
Ayes: Prust, Meyer, Clesen, Fisher, Foerster
Motion carried
5. Semi-Annual Review of Executive Session Minutes.
There remains no closed Executive Session Minutes.
6. Investment Reports.
a) Motion to approve the Treasurer’s Report.
Treasurer Lynch presented the Treasurer’s Report for the period ending December 31,
2017. Cash and investments totaled $25,623,030.70 and equities were at 60.60%.
Motion by J. Meyer, second by O. Prust to approve the Treasurer’s Report as presented.
Ayes: Meyer, Prust, Clesen, Fisher, Foerster
Motion carried.
b) LPL Financial Equities Report. Mr. Jim Schmidt from LPL Financial presented the
Equities Portfolio Performance Summary for the period from December 29, 2016 to
December 29, 2017. For the year, $6,784,420.77 in net dollars were invested; Market
Value of the portfolio at the end of 2017 was $15,527,360.20 for a 22.87% return on
investment.
2
President Foerster noted the percentage of equities invested is getting close to the 65%
limit. Mr. Schmidt stated at the end of the fiscal year, the percentage may be no higher
than 65% - the law allows for inadvertent fluctuations throughout the year.
c) Capital Gains Fixed Assets Investment Report: Fixed Assets Manager Gary Karshna
presented the investment report for the period ending November 30, 2017, at which time the
estimated Market Valuation was $9,200,286 and Book Valuation $9,100,413.
The bond portfolio produced a 1.23% rate of return versus .64$ for the bond benchmark
fiscal year to date. Mr. Karshna reported he is using a blended Bond Benchmark using the
Barclays Intermediate Government Bond Index and the Barclays Aggregate Intermediate
Corporate Bond Index. Currently, the portfolio has 58% in corporate bonds and 42% in
government bonds and we can use that ratio to create a blended bond benchmark and adjust
it to reflect accurately the exact holdings in the portfolio each month.
J. Meyer asked Mr. Karshna why the Bloomberg index was not being used. Mr. Karshna
stated that it made more sense to use a blended index. A discussion ensued on the duration
of the portfolio and the benefits of purchasing shorter-duration instruments at this time in
the market.
7. Motion to approve Applications for Participation in the City of McHenry Police Pension Fund
submitted by Officer Katelyn M. Lorenz and Officer Roger J. Hendrickson.
Motion by N. Clesen, second by Fisher to approve the applications to join the McHenry Police
Pension Fund as presented.
Ayes: Clesen, Fisher, Meyer, Prust, Forester
Motion carried.
8. Motion to approve annual pension increases.
M. Fisher made a motion, seconded by N. Clesen to approve annual pension increases as
presented.
Ayes: Fisher, Clesen, Meyer Prust, Foerster
Motion carried.
9. Unfinished Business:
a) Motion to approve payment of bills as presented.
Motion by J. Meyer, second by N. Clesen to approve payment of the following bills:
IPPFA annual dues for $795
Lauterbach & Amen Actuarial Services: $4,750
Capital Gains: $5,000
Ayes: Meyer, Clesen, Prust, Fisher, Foerster
3
Motion carried.
10. Adjourn.
Motion by O. Prust, second by J. Meyer to adjourn the meeting.
Ayes: Prust, Meyer, Clesen, Fisher, Foerster
Motion carried.
The meeting adjourned at 3:30 PM.
Next meeting: July 10, 2018, 2:30 PM.
Respectfully submitted,
_______________________________
Marci Geraghty, Recording Secretary
CITY OF MCHENRY
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
PURPOSE
CITY OF MCHENRY POLICE PENSION FUND
INVESTMENT POLICY
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 5/1-101.4) to
assist in the management of the investment program. The investment manager shall
aclmowledge, 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
conditions 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 5/1-113.6. 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 5/1 -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 1-101.4 and 1-113.5, it may, through that investment adviser,
invest an additional portion of its assets in common and pref erred 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 $250,000,000 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 1-113 .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 1% 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 name 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.
1) 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:
1. A Federal Reserve Bank of branch office.
11. 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 nondiscretionary 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 m 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.
(7)
AMENDMENT
This policy may be amended from time to time by the Pension Board.
CONFLICT
In the event of any conflict between this Policy and the Illinois Compiled Statutes or case
decisions of the 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
Tmstees of the City of McHenry Police Pension Fund on July 13, 1999 , and last amended
October 11 , 2016 .
Name Officers Signature
Jeffrey Foerster President 7¥4 5~
Jon Meyer Vice-President L 1vl-1--
~/
KellyDucak Secretary ~ ~~· Ormel Pmst Appointed Tmstee
Marc Fisher Elected Tmstee r ·'1t1S~
Name Investment Managers Signa~
Gary Karshna Capital Gains, Inc /. 7
James Schmidt LPL Financial ~-~ c:#""
Name Board Attorney Signature
Laura Goodloe Puchalski, Goodloe , il#-Ac-H c~
Marzullo LLP
Rev 10-ll-2016PPBlnve stPolicy
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
KellyDucak
Ormel Prust
Marc Fisher
Gary Karshna
James Schmidt
Laura Goodloe
Rev 10-ll-2016PPBlnvestPolicy
Officers
President
Vice-President
Secretary
Appointed Trustee
Elected Trustee
Investment Managers
Capital Gains, Inc
LPL Financial
Board Attorney
Puchalski, Goodloe,
Marzullo LLP
Signature
Signature
Signature