Okay. So4 if I have an ICMARC plan that is killing5 us in terms of what they get in "City X"6 or "County Y," I don't even -- when I7 make this decision at the Pension Board8 with my consultant, I don't even know9 what their top 1 is, their top 5, their10 top 10 compared to what we're doing.11
No, we don't know12 ICMARC -- what funds they offer in other13 jurisdictions.14
Okay. Or15 what their returns are in other16 jurisdictions.17
Okay. Is19 Mr. Dubow still here?20 (Rob Dubow returns to witness21 table.)22
Rob, could23 you answer that? I'm curious because24 these are the extraordinarily complicated25 187 4.18.11 COMMITTEE OF THE WHOLE - Bill 1101371 matters when we start talking about all2 of the jurisdictions that ICMA Retirement3 Corporation is in, and they also do their4 own funds, so we know that there's a lot5 of City managers and the like that just6 put all of their pension money in ICMARC,7 and they've been doing it for years; it8 has nothing to do with the 457 that their9 city has with a list.10 Why are they not a part of the11 mix in terms of this decision as to what12 funds our employees get to choose from13 and what returns they might be able to14 otherwise get, which would be higher15 possibly?16
Yeah. And I think17 it's just that we've gone with another18 advisor through our --19
Okay. I'm20 not asking you for an advisor. This is21 something they would gladly furnish you.22 And, you know, usually, you know, there's23 best practices out there, and it's free24 information.25 188 4.18.11 COMMITTEE OF THE WHOLE - Bill 1101371 So I would at least ask you if2 you could have your staff -- how long has3 ICMARC been our management company?4
Okay,8 2008, I'll go for that.9 If could you just go back,10 since they've been working for us and the11 one prior year, 'cause that's always a12 safe bet, what their top fund choices13 were compared to ours. I'd really like14 to see it. And to the extent that it15 helps you, I --16
Thank you.18 You mentioned the fund returns19 under the smoothing, that it was 12.920 percent. That's under the ten-year21 smoothing?22
What would24 it have been if the State did not agree25 189 4.18.11 COMMITTEE OF THE WHOLE - Bill 1101371 from the 5-year to the 10-year smoothing?2
I mean,8 one of the tough situations here, and9 it's going to come up in other10 discussions, is that every time we make11 that decision, like a ten-year smoothing12 that's good for the City General Fund, it13 isn't so good for the Pension Fund.14 They're often opposite15 benefits. The City gets a benefit and16 then the Pension Fund gets the short end17 of the stick, and that has an ultimate18 result.19
Right. And that20 one cuts both ways. I mean, obviously,21 initially, it was very beneficial to the22 General Fund. For a year like last year23 when the return was 14 percent, that24 smoothing actually helps the Pension Fund25 190 4.18.11 COMMITTEE OF THE WHOLE - Bill 1101371 more than it helps the General Fund2 'cause the impact of beating the earnings3 assumption by 5 percent is smoothed over4 ten years rather than five.5
Oh, it was10 better for the Pension Fund to have a11 ten-year smoothing last year?12
Yeah. When you13 exceed the earnings, the amount by which14 you exceed the earnings is smoothed over15 a longer period, so it has less of an16 impact on reducing the unfunded17 liability.18
So I could2 see that over a different period to see3 that it would be helpful, but thanks for4 that --5
But you'd also have6 the impact of the big loss in '09, so7 that's still counting against it. So, I8 mean, that obviously was a big --9
Right,10 okay. And Rob, you might just stay here11 for a minute.12
And I18 don't want to get into all of the, you19 know, whys and wherefores of 47, 45, 80,20 and all of that, with this question at21 least.22 But we know that we hit the top23 quartile in the 14 percent at the end of24 June 30 of 2010.25 192 4.18.11 COMMITTEE OF THE WHOLE - Bill 1101371
In fact,3 does that funding -- I mean, that return4 comparison, where we're trying to get5 into that top quartile, do all of the6 other funds, are they gross numbers as7 well, and we don't know if --8
Okay. But11 if somebody -- just to stay with the12 previous thought, while I have Mr. Dubow13 up the front, if we were able to -- and14 this is a hypothetical. If we were able15 to get the same return, 14 percent, using16 index funds, it wouldn't show the fact17 that we might have saved 30-some million18 dollars in fees, because we're using --19 we'd still be using gross numbers, 'cause20 we're not netting out any of our fees in21 this --22
Correct. And23 the -- when we're doing kind of a public24 universe comparison, they want to show25 193 4.18.11 COMMITTEE OF THE WHOLE - Bill 1101371 gross of fee returns.2
Okay. And13 can you also tell me if any in the top14 two quartiles were indexed only or15 primarily -- when I say we're 95 or so16 managed actively, if there's ones that17 are 95 or so active -- I mean passive,18 that would still meet my test in terms of19 what I'm looking for?20
Yeah,23 okay.24 (Councilman Clarke now chairing25 194 4.18.11 COMMITTEE OF THE WHOLE - Bill 1101371 hearing.)2 COUNCILMAN O'NEILL:3 Councilman, I have more, but I -- anybody4 else?5
Thank you,6 Councilman.7 Councilwoman Reynolds-Brown.8
Thank you.9 Let me thank Councilman Brian10 O'Neill for walking me through that11 "Pensions 101." I thank you.12 I have a couple of follow-ups13 and a point of information to my14 colleagues first. You asked for a list.15 Can you restate what that list was,16 Councilman Brian O'Neill? You asked for17 a particular list of the Pension Board;18 do you recall what that list was? It was19 a list of all of the...20
Okay, I25 195 4.18.11 COMMITTEE OF THE WHOLE - Bill 1101371 don't know because I didn't write that2 down, which list it was.3
-- and9 whether they used the system we're10 suggesting, where we get to count 7511 percent of their trading commissions12 against our fees.13
So it15 reduces our fees essentially. And we're16 not getting such a great response.17
All right.18 So on the fund managers, how do they end19 up getting on that, some might call it,20 "lucky list"? How does that happen?21 Briefly. Do they -- is it a RFP process?22 Do they apply? Just give me a sense of23 how that happens.24
Fund managers or25 196 4.18.11 COMMITTEE OF THE WHOLE - Bill 1101371 transition brokers?2
Both? The fund4 managers, the equity fund managers -- and5 to define that, that would be6 non-private-equity, non-hedge-fund, and7 non-real-estate matters are chosen via8 RFP.9
Transitional12 brokers must fill out an application with13 the Board of Pensions and meet the14 qualifications of the application, and15 they are put on the list, and the list is16 provided to the investment managers to17 utilize for making their transactions.18
How is the19 world alerted that that opportunity is20 coming, the opportunity to be a21 transitional broker? How do you inform22 the public that -- 'cause you say they23 apply.24
We'll check into4 that.5 What I will say is that we have6 recently had a discussion with Board7 members and with investment staff to8 address how that list was created and9 look into that. So I don't really have a10 good answer for you to that question11 right now.12 That list has been in existence13 for some time, but we are looking at14 that, and we will address that and get15 back to you on that once we get to --16
Well, I17 appreciate you being so forthcoming,18 because the continuing interest for many19 of us in this body is that lists look20 like Philadelphia in terms of gender and21 ethnicity.22 And so, we'll look forward to a23 response to that by when?24
I would say in the25 198 4.18.11 COMMITTEE OF THE WHOLE - Bill 1101371 next couple of months. We started to2 discuss that at the last board meeting,3 and that's one of the issues that we4 specifically addressed, is WMBE5 inclusion.6 And we've been working with7 Councilman Green's office on local broker8 initiatives, so we are working on both of9 those things.10
Okay, all11 right. So then let's get a measurement12 or a temperature of where you are right13 now. If you will forward the existing14 list to Madam Chair -- Mr. Chairman, that15 would be informative.16 You stated in your testimony17 response to Councilman O'Neill that you18 constantly monitor performance of19 managers. Define what that means. Is it20 every quarter, or is it every year21 annually, or is it every board meeting?22
Yeah, I think --23 and if I can address this also,24 Mr. Woolworth mentioned something in25 199 4.18.11 COMMITTEE OF THE WHOLE - Bill 1101371 response to Councilwoman Verna that a2 manager is usually there until three3 years. That's not a rule.4 I mean, I think what5 Mr. Woolworth was referring to was that6 in the investment world, people say that7 an investment manager generally needs8 time -- three to five years -- to see how9 they're doing, because different managers10 perform different in different type of11 markets.12 However, every single month at13 the board meeting, at the Investment14 Board meeting, a report is given out to15 the Board; it's called a Flash Report,16 and that shows the one-, three-,17 five-year, month-to-date returns of every18 single manager we have versus their19 respective index, which would be, as20 Councilman O'Neill pointed out, an index21 fund.22
Most are measured24 against the S&P 500, others are measured25 200 4.18.11 COMMITTEE OF THE WHOLE - Bill 1101371 against various indexes that are equal to2 the type of investment that they have.3 So that is done on a monthly basis.4 The board members constantly5 ask questions of the investment staff6 such as, why is this manager7 underperforming?8 So you will see in the Flash9 Report that for the last month, the last10 three months, "Manager A" has been11 underperforming the index. The Board12 asks inquisitive questions every single13 month.14 So managers have been relieved15 of their duties, so to speak, much16 quicker than three years.17
Managers have been19 relieved if they show -- I think this is20 fair to say -- a constant pattern of21 underperformance that is not acceptable22 to the Board, especially in a fund that's23 47 percent funded. We cannot have that,24 and we will not have that.25 201 4.18.11 COMMITTEE OF THE WHOLE - Bill 1101371
And who2 makes that determination or those3 judgments?4
The Board makes5 that determination. That is their6 decision.7
Very well.8 In your testimony, you indicated that the9 number of DROP applications has10 quadrupled in the past year from 461 to11 1820.12 Can you explain the increase in13 DROP participation? And how do these14 fluctuations impact planning for your15 agency?16
Well, I don't know17 if I can explain it except to say that18 there was an article that appeared in the19 Inquirer on July 28th concerning a20 possibility of DROP no longer being21 available, and then that appeared in the22 Inquirer on July 28th.23 Ever since that date -- and I24 have the statistics -- of those 1,82025 202 4.18.11 COMMITTEE OF THE WHOLE - Bill 1101371 applications from July 1st, from July2 28th through April 7th, we received 1,8063 of those 1,820 applications.4 So that -- again, I measured it5 from the appearance the article in the6 Inquirer on July 28th.7
Now, I will also12 tell you that as of August 2nd or August13 3rd or a couple of days after that, there14 were approximately 3200 people who were15 eligible to enter DROP. So, again, if16 that will help you, there were 320017 eligible to enter DROP; 1800 actually18 filed an application.19
So if that gives21 you a better ratio to look at, they're22 the numbers.23
And as to how it25 203 4.18.11 COMMITTEE OF THE WHOLE - Bill 1101371 will affect us, people can enroll in2 DROP, but their enrollment date can be3 some date in the future. So I don't4 think we're necessarily getting all of5 these people that will be leaving City6 employment necessarily at the same time.7 So if I were to enroll in DROP8 today, for example, I may -- maybe I'll9 put my start date a year down the road or10 a year-and-a-half down the road. So it's11 not necessarily true that all of these12 people will be leaving at the same exact13 month or the same exact six-month period.14
We can do an16 analysis of that going forward, but right17 now, we do know that people are putting18 dates further out in the future, which,19 spreading it out is always a good thing.20
Very well.21 Let's talk a little about the Special22 Commission to Study Benefits.23
Give us25 204 4.18.11 COMMITTEE OF THE WHOLE - Bill 1101371 more detail on the components of the2 Commission. What is precisely being3 studied?4 Just additional background, if5 you will. Who has participated in the6 Commission thus far?7
Well, thus far,8 we've had several meetings starting late9 last summer or early fall of the Special10 Pension Commission. And the chairman is11 whoever the chairman of PICA at that12 time.13
Previous to15 Mr. Katz being named Chairman of the16 Commission, it was Mr. Eisenhower.17 We've had several meetings.18
At this point, the20 actuary that we hired pursuant to the21 mandate by the State act -- and, by the22 way, the State act required that we pay23 for all fees associated with the Special24 Pension Commission.25 205 4.18.11 COMMITTEE OF THE WHOLE - Bill 1101371
Yeah, which is4 interesting, given our funding level, but5 that's a different discussion.6 The actuary has given us a7 preliminary report of the comparable8 jurisdictions around the country to our9 pension fund. So that will be the10 starting point for the actuarial11 evaluation.12
It's still a draft15 at this point, but when it becomes final,16 we will certainly provide that.17
Our written report19 is due in the fall to the Special Pension20 Commission.21 So the Chairman of PICA is the22 head of that commission. Jim MacAnneny23 (sp?) from PERC, the Pennsylvania24 Employees Retirement Commission, is also25 206 4.18.11 COMMITTEE OF THE WHOLE - Bill 1101371 on that group, as are the members of the2 Board, including the City Controller. So3 that is the composition of the Special4 Commission. And we have been meeting5 regularly since late last summer or early6 fall. So --7
How many8 members? Excuse me for cutting you off.9 How many members?10
Yes, yes. The14 City Solicitor, for example; trustees of15 the Board of Pensions, which now include16 three female members.17
The City19 Solicitor; Carol Stukes (sp?), the20 trustee; and Veronica Panke (sp?), our21 newest trustee, replacing Mr. Rubin.22
Very good,23 okay.24 According to your prepared25 207 4.18.11 COMMITTEE OF THE WHOLE - Bill 1101371 testimony, the Pension Fund ranks among2 the top quartile among all public funds.3 Can you speak to which funds might do4 better or worse than ours?5
I'll let6 Mr. Woolworth address that, but before I7 do, I also neglected to state that your8 own Anne Kelly is also on the Special9 Pension Commission.10
And I would16 need to get the list with the actual17 names of the pension plans that were on18 that list. I will get that information19 to you.20
Okay. And24 just to recap, on this Commission report,25 208 4.18.11 COMMITTEE OF THE WHOLE - Bill 1101371 you anticipate that we will get that2 after August 31, which is when the State3 is supposed to produce their report,4 correct? Isn't that not so?5
That's correct.6 Ours is due in September, I believe, to7 the State.8
After they12 release their report on August 31? I13 don't get it.14
I think we're15 talking about the same report. The16 State -- this commission was set up by17 the State, and they're requiring us to18 report to them. I think we're talking19 about the same thing.20
Yes, we21 are. Yes, we are.22 So the date is not August 31;23 that's what I read someplace.24
Well, September is25 209 4.18.11 COMMITTEE OF THE WHOLE - Bill 1101371 the date I have. It could very well be2 August 30th.3
Okay. And4 it is at that point that it becomes5 public information for Councilmembers to6 preview as well?7
I think that's8 probably right. But to the extent that,9 for example, the comparative information10 is finalized, we could get that to you11 before.12
Right. And what13 the actuary did was an actual comparison14 of our pension fund to similarly-situated15 pension funds around the country, and16 that's in draft form.17
Okay,24 then.25 210 4.18.11 COMMITTEE OF THE WHOLE - Bill 1101371 Lastly, give me the composition2 of the professional team in the Pension3 Office.4
Is it your7 testimony --8 (Indiscernible; parties talking9 over each other.)10
The demographic11 statistics? We are female -- 73 percent12 female is our staff, and 64 percent13 minority is our staff.14
And what15 percentages are professional staff, not16 line staff, but managers, people in17 position of responsibility and18 leadership?19
Right. Myself,20 I'm the Executive Director. Mr. Mark21 Murphy is our Deputy Director. Right22 now, we only have an acting CIO, and23 that's Rhonda McNabbish, a female.24
Okay.25 211 4.18.11 COMMITTEE OF THE WHOLE - Bill 1101371
We have four2 pension program administrators who are3 non-reps. I consider them professionals.4
Are they5 civil service, the pension program6 administrators?7
That means that16 they used to be in either DC 33 or DC 47,17 but have advanced to the point where they18 are no longer civil service employees.19
Not union; they22 are non-reps, part of the civil service23 system.24
Okay. Is25 212 4.18.11 COMMITTEE OF THE WHOLE - Bill 1101371 there four of them?2
They are all3 female, African-American women. And I do4 consider them professional staff.5
I rely them on a7 regular basis. And two of them are here,8 Shamika Taliaferro and Teresa Gray.9
Thank you,19 Councilman Clarke.20 The top quartile, the 22nd21 rank, in that same ranking, where are we22 in terms of our funded or unfunded,23 depending on how you look at the coin --24 we're getting closer to half, so it won't25 213 4.18.11 COMMITTEE OF THE WHOLE - Bill 1101371 make much difference soon, hopefully.2 But where do we come out when3 compared to other similar funds that you4 were talking about in this comparison?5
Yeah, our funding6 percent is very low. I mean, I think7 there may be --8
I don't think we14 have it for the same hundred but we've15 seen other analyses.16
So I think18 Pittsburgh's weaker than we are. And19 Chicago has a few funds, and I think a20 couple of them are weaker.21
Is nobody25 214 4.18.11 COMMITTEE OF THE WHOLE - Bill 1101371 doing a comparison of this?2
Yeah. I've seen6 the comparison and I'm trying to kind of7 remember it.8
It would12 be interesting. Then we could have some13 more discussion on it. Okay, thank you.14 But you don't think it's in the15 top -- we're in the top quartile funded?16
Okay,19 okay. But you'll get it, you'll try to20 get it?21
All right.24 The question of the different plans --25 215 4.18.11 COMMITTEE OF THE WHOLE - Bill 1101371 and I'm really thinking of the 1967 plans2 that are still killing and are really,3 really underfunded.4
And then7 the '87 plans that are pretty healthy in8 terms of the funding of those plans.9
80 -- just11 using 80 as the goal that everybody kind12 of says, you know, we could strive for,13 the '67 plans are in -- are real low, and14 the others are fairly high.15 They have some period where --16 I mean, people have to stop collecting17 pensions, which usually means dying,18 before they are -- that system is out of19 our hands and out of our responsibility.20 These are the '67 very much unfunded21 plans and very costly plans that changed22 in '87 for new employees.23 At what point, if we didn't24 anything else, do we reach 75 or even 8025 216 4.18.11 COMMITTEE OF THE WHOLE - Bill 1101371 percent funded because of fewer people in2 those 1967 plans as opposed to the '873 plans?4
Well, we have kind5 of a series of projections from our6 actuary. So part of it depends on kind7 of what the investment returns do.8
But I think we're10 really talking, you know, out close to11 2030 before we get up to what we would12 consider to be a healthy funding ratio.13
If we keep the same22 earnings assumption, we make that23 earnings assumption, and we make our24 amortization payments under the MMO.25 217 4.18.11 COMMITTEE OF THE WHOLE - Bill 1101371
Okay.5 That was -- you just triggered my6 follow-up question.7 If we had not moved away from8 the City plan about eight years ago, is9 that a fair -- eight or nine years ago?10