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Transcript
Excerpt from June 11, 2015 special meeting minutes relating to declaration of expected annual rate of investment return for assets of Port Orange Police Pension Plan Mr. Little went on to present the new reporting disclosures required by Governmental Accounting Standards Board (GASB) 67 which was effective as of the fiscal year ended September 30, 2014. The total pension liability, net pension liability and discount rate sensitivity information were based on asset information as of the end of the fiscal year. The plan’s net pension liability was $14,758,614. These disclosures would be sent to the State and would also need to be posted on the City’s web site. Based on information provided by Graystone Consulting/Morgan Stanley, the expected long-term rate of return net of expenses but gross of inflation was 7.1 percent. Yet the plan’s assumed rate of investment return was 7.75 percent. Mr. Little stated that he had no other plan where the expected rate of return was less than the assumed rate of return. He recommended that the Pension Board review the above expectation (i.e. 7.1 percent) which was communicated by the investment manager and discuss whether or not the 7.75 percent assumed rate of return should be revised. Along this line, Attorney Harrison stated that action to declare the next agenda item (i.e. declaration of expected annual rate of return) be deferred to the next quarterly meeting when it could be discussed with representatives of Graystone Consulting. Member Traster moved to accept the GASB 67 Supplement as presented. Member Bastian seconded the motion and it carried unanimously. CITY OF PORT ORANGE POLICE PENSION FUND PAGE 5 Calculation of the Discount Rate The long-term expected net rate of return on investments was determined using a building-block method. Best-estimate ranges of expected future real rates of return (expected returns net of investment expense and inflation) are developed for each major asset class. The long-term expected net rate of return on investments is the best-estimate ranges weighted by the asset allocation plus expected inflation. Best estimates of arithmetic real rates of return for each major asset class as provided by the investment monitor are shown in the following table as of September 30, 2014: Asset Class Large Cap Value Equity Large Cap Growth Equity Large Cap Core Equity Small Cap Value Equity Small Cap Growth Equity International Value Equity International Growth Equity Hedge Fund of Funds Core Private Real Estate Core Fixed Income Target Allocation % Expected LongTerm Real Return Weighted Average Expected LongTerm Real Return 11.25% 11.25% 10.00% 6.25% 6.25% 5.00% 5.00% 10.00% 7.50% 27.50% 6.60% 7.00% 6.74% 8.12% 9.12% 6.76% 6.76% 3.42% 5.07% 1.51% 0.74% 0.79% 0.67% 0.51% 0.57% 0.34% 0.34% 0.34% 0.38% 0.42% 100.00% 5.10% Based on the above target allocation and expected long-term real returns for each asset class, the weighted average expected long-term real return net of inflation is 5.10%. The investment monitor also indicated that the inflation estimate was 2.0% producing an expected long-term rate of return net of expenses but gross of inflation of 7.10%. In comparison, the discount rate used to measure the total pension liability was 7.75%. The board of trustees should review the above expectation communicated by the investment manager and discuss if the 7.75% discount rate should be revised. The discount rate of 7.75% is the single rate that reflects the long-term expected net rate of return on pension plan investments expected to be used to finance the payment of benefits, including inflation. We have found that that the fiduciary net position is projected to be sufficient to make projected benefit payments using this assumption. For purposes of this determination we understand the board of trustees finds the 7.75% assumption to be reasonable and that they expect pension plan assets to be invested using a strategy to achieve the 7.75% net discount rate. A projection of contributions has been included as Table 1. The projection of cash flows used to determine the discount rate assumed member contributions are made at 8.0% of pay for members hired after January 31, 2011 and at 7.5% of pay for members hired on or before January 31, 2011, and that City contributions will be made in an amount equal to the difference between actuarially determined contributions and member contributions. A projection of the fiduciary net position has been included as Table 2. This table includes a projection of benefit payments, administrative expenses and investment earnings.