Warrington Township Pension Committee 2018 in Review and Looking Ahead to 2019 & Beyond Presenters: Kevin Peacock and Joseph Kirby Citizen Members June 11, 2019
Agenda u Review Membership and Service Providers u Review Pension Plan 2018 Performance u Review 2018 u Plan Enhancements / Changes u Plan Performance u Look Ahead to 2019 and Beyond u 2018 Valuation of Plans u Changes to Mortality Tables u 2019 MMO u Asset Value Methodology u Summary and Conclusions u Questions
Pension Plan Oversight Board of Supervisors Pension Custodian Bank Committee Investment Actuary Consultant
Pension Advisory Committee Members 2018 2019 Kevin Peacock , Citizen Member Kevin Peacock , Citizen Member u u Joe Kirby , Citizen Member Joe Kirby , Citizen Member u u Fred Gaines , Chair, Board of Supervisors Vince Formica , Citizen Member u u Eileen Albillar , Supervisor Fred Gaines , Chair, Board of Supervisors u u Barry P. Luber , Township Manager Eileen Albillar , Supervisor u u Cassandra Williams , Director of Finance Barry P. Luber , Township Manager u u Amy Organek , Staff Accountant Cassandra Williams , Director of Finance u u Officer Daniel Sadowski Amy Organek , Staff Accountant u u Sargeant, Kenneth Hawthorn (alternate) Lt. Robert Meditz u u Officer, Daniel Sadowski (alternate) u
Marquette Associates – Investment Consultant Pennsylvania Public Fund Clients – Plans of all sizes Over $30 billion under advisement across 36 Pennsylvania public funds Representative PA Public Fund Clients City of Allentown u City of Philadelphia u City of Pittsburgh u Delaware River Joint Toll Bridge u Commission Municipality of Monroeville u Port Authority of Allegheny u County Scott Township u Warrington Township u As of May 31, 2019. It is not known whether these clients approve or disapprove of Marquette’s services. These clients were selected upon the basis of objective criteria, namely client classification, geography and size. 5
Actuary / Custodian Bank Conrad Siegel US Bank Under Act 205, actuarial assumptions US Bank is being named new Custodian u u are selected jointly by the actuary TD Bank is being removed as custodian u and governing body of the pension due to poor service quality plan. Assumptions are reviewed with the valuation every two years and must u Recent example was issue with be within a "reasonable range" both COLA calculation / check issuance individually and in aggregate Assumption changes do not impact u the benefit provisions. The actual cost of the benefits promised are not impacted by the actuarial assumptions used. The assumptions simply define how the pension costs are funded over time.
2018 in Review
Warrington Township Pension Plan MMO Requirements and State Aid Contributions 2016 2017 2018 MMO Requirements Uniform 748,774 769,228 805,895 Non-Uniform 97,795 93,952 87,779 Total MMO 846,569 863,180 893,674 State Aid Contribution 406,842 417,531 463,754 Net Cost after Aid 439,727 445,649 429,920 Note: State Aid Contributions are not received from the state with a break down for each plan. Uniform employees receive double the unit value and non-uniform receive a single unit value in state aid contributions.
Warrington Pension Committee Summary of Police and Non-Uniform Plans Police Union Pension Plan Non Uniform Pension Plan Open Plan - accepting new employees Closed Plan – no new employees u u Assumed Rate of Return 7.35% Assumed Rate of Return 6.75% u u Funded Status = 91%* Funded Status = 103.8%-106.4%* u u Avg Age – 42.6 Years Avg Age – 52.5 Years u u Employees contribute – 5% of comp Employees contribute – 1% of comp u u u Changed to 2% in 2018 for plan enhancements * As of January 1, 2018 Ad Hoc Actuarial Valuation
Changes to Non-Uniform Pension Plan Summary of Changes in 2018 u Change the Assumed Rate of Return (ARR) to 6.75% u Modified Investment Philosophy u Recommend less aggressive investment policy u Added 2 new investment funds to diversify risk u High Quality Real Estate Fund u Defense Equity Fund u Enhancement to Non Uniform Pension Plan u Change Salary Calculation from last 5 Yr Avg to last 3 Yr Avg u Included increase in employee contribution
Changes to Police Pension Plan Summary of Changes in 2018 u Added 2 new investment fund to diversify risk u High Quality Real Estate Fund u Defense Equity Fund
A Positive 2018 until December The market pull back in Q4 2018 will directly impact the plan valuations Currently the plan uses a “snap shot” at the end of the year to value assets The committee is currently considering a recommendation to perform asset smoothing to reduce valuation variability / funded status 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 12/31/16 3/31/17 6/30/17 9/30/17 12/31/17 3/31/18 6/30/18 9/30/18 12/31/18 3/31/19 Net Return Assumed Return (7.5%)
2018 Investment Performance Q4 2018 u Police Pension Plan Loss: -$1.5M u Police Pension Plan Return:-9.4%; Benchmark: -9.6% u Non-Uniform Pension Plan: -$459K u Non-Uniform Pension Plan Return:-7.7%; Benchmark: -8.1% Since Inception (November 1, 2014): u Police Pension Plan Gain: $2.3M u Police Pension Plan Return: 4.6% (Rank: 30 th ); Benchmark: 4.5% u Non-Uniform Pension Plan Gain: $1M u Non-Uniform Pension Plan Return:5.1% (Rank: 4 th ); Benchmark: 4.9% u Low investment management fees: 0.41% (Police); 0.37% (Non-Uniform)
Looking Ahead to 2019 and Beyond
Q1 2019 Investment Performance Q1-2019 Investment Returns: u Police Pension Plan Gains: $1.35M u Police Pension Plan: 9.4% (Gross); Benchmark: 9.4%; u Non-Uniform Pension Plan Gains: $456K u Non-Uniform Pension Plan: 8.6% (Gross); Benchmark: 8.7%: Since Inception (November 1, 2014): u Police Pension Plan Gain: $3.7M u Police Pension Plan Return:6.5% (Rank: 22nd); Benchmark: 6.4% u Non-Uniform Pension Plan Gain: $1.5M u Non-Uniform Pension Plan Return:6.8% (Rank: 12th); Benchmark: 6.6% u Low investment management fees: 0.42% (Police); 0.38% (Non-Uniform)
Updated Mortality Tables Based on Public Sector Experience The Society of Actuaries (SOA) recently released new mortality tables based u on public sector data referred to as Pub-2010 Mortality Tables . The levels of mortality vary by job classification within the public sector which is why separate tables have been drafted for: Safety employees (covering police, fire, and correctional officers), General u employees, and Teachers
Warrington Township Pension Plan MMO Requirements and State Aid Contributions Pension Committee is currently discussing the possibility of recommending that the pension plans start to utilize asset smoothing as part of the valuation process Smoothing of assets reduces volatility of MMO contribution 2016 2017 2018 2019 MMO Requirements Uniform 748,774 769,228 805,895 1,060,318 Non-Uniform 97,795 93,952 87,779 156,998 Total MMO 846,569 863,180 893,674 1,217,316 State Aid Contribution 406,842 417,531 463,754 Not Available Net Cost after Aid 439,727 445,649 429,920 N/A Note: State Aid Contributions are not received from the state with a break down for each plan. Uniform employees receive double the unit value and non-uniform receive a single unit value in state aid contributions.
Summary and Conclusions u Current service providers Marquette and Conrad Seigel are performing very well u Committee is looking forward to better custodial service with US Bank u New investment vehicles have been added to diversify risk u Low investment management fees: 0.42% (Police); 0.38% (Non-Uniform) u Non-uniform Plan (closed) is being managed more conservatively u Lowered annual rate of return assumption u More conservative investment mix
Summary and Conclusions u Police Pension Plan u Governed by the collective bargaining agreement u Further diversification will be explored as needed / allowed u Potentially look to lower the assumed rate of return u Implication to MMO / funded status u Committee may recommend switching from “snap shot” valuation to “asset smoothing” to reduce volatility of MMO budgeting u Recommendation would be finalized at next pension meeting
Questions?
Thank you for your attention
Appendix Will Not Be Presented
Pension Glossary Act 44 : On September 18, 2009, the Pennsylvania General Assembly enacted u Act 44 of 2009 which amended Act 205 (governing municipal pension plans). Section 702-A of Act 44 requires that all municipal pension plans adopt procedures for selecting the most qualified person to enter into a professional services contract, including, but not limited to, advertisement for professional services, review of proposals, disclosures, conflicts of interest, public information, increases in the costs of professional services contracts, and notice and summary of factors that resulted in an award. Recommended reading: The Changing World of Public Pensions . GASB: Governmental Accounting Standards Board: Organization that u formulates accounting standards for governmental units.
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