[This transcript was generated automatically from audio using AI and hasn't been reviewed by a person -- it can contain mistakes, including plausible-sounding sentences that were never actually said. Treat it as a starting point, not a verbatim record.]

[0:00] Okay. Okay.
[0:03] Next person in the flat shirt.
[0:07] I think I'm, there we go. My name is Jesse Lizon. I'm with Hub International. Okay. And lower person, gentlemen, with a nice beard.
[0:20] I'm Steve Hickman, the city council liaison. Okay.
[0:26] Welcome. And the last person we have on our Zoom call. Yeah, it gets probably me. I'm Glenn Gahan. I'm an actuary with Hub.
[0:35] of International Colleague of Justice.
[0:39] Very good.
[0:40] My name is Brawley O.S. Cabar,
[0:42] I'm the citizen member of the committee,
[0:45] and we have our employee liaison.
[0:49] Steve Stewart, I'm with the City of Newport.
[0:52] Also present, we have our finance manager,
[0:55] Steve Barrher, finance director.
[0:57] And then we have a person down here on the dius.
[1:00] Tiffany Collier, assistant finance director.
[1:04] Welcome, Tiffany, this is the first time I've had a chance to meet you.
[1:07] Okay, is that sufficient for a roll call?
[1:11] Yes, it is.
[1:12] We have our liaison with the city.
[1:14] We have two members here, and so the meeting is called order.
[1:18] First item on the agenda is approval of the minutes from July 24, 2025.
[1:31] Those were emailed out to us earlier last week.
[1:34] I think
[1:36] we would entertain a motion to approve the minutes, Stephen.
[1:43] I make a motion to approve their minutes as presented.
[1:47] Is there a second out there?
[1:50] I'm going to second it.
[1:51] I wasn't here, so I don't think I should really say yes, I approve them.
[1:55] I rely upon our staff and Steve here.
[2:02] I'll tell you what, hearing no objection to approval of the minutes.
[2:04] We're going to approve the minutes from July 24, 2025.
[2:11] Okay, the next item is the actual error or report from Hub International Great Plains and that's always interesting to hear that and see how we're doing.
[2:22] Do we have that representative on Zoom?
[2:24] So yeah, both of myself, Glenn Gayhand and Jesse Laison will co-present.
[2:31] And I'd like to just ask if you would like us to have share screen to pull up the report
[2:40] as we go through it.
[2:42] We have the written report.
[2:46] So there's no need to put it up on your screen.
[2:49] as you're walking through the report if you could identify the page that you're
[2:54] speaking of, then we can follow along. Absolutely. Okay, very good. Well, that's the
[3:01] turn to page one of the report, the financial highlights, and what we'll do is
[3:08] cover this and then selectively other pages as we walk through the report.
[3:14] Looking there, we present first the actual determined contribution, and then we additionally
[3:23] have what we call an alternative contribution.
[3:26] This little reminder or context of this determination, this has been in place this methodology since
[3:36] in 2013 where we are amortizing the unfunded liability over what was then a 13-year period
[3:47] starting in 2013 or an 18-year period as the alternative.
[3:52] So, in fact, 2023 is actually when we changed to this method, 2023, yeah.
[3:59] And the only difference in those contributions is that amortization period and you might
[4:06] we called prior to that, we were decreasing the amortization period of the unfunnered liability
[4:14] by one each year, and we were in essentially re-amortizing that amount. And as the period
[4:24] was decreasing, depending on the amount of the unfunnered liability, it could increase significantly.
[4:30] And so what we have changed in 2023 was what we call a layering method, so that, and we
[4:38] have this presented in report rule through which we'll get to.
[4:41] So it gives the outcome a little more stable, contribution amount, even though we do see
[4:49] an increase from 2024.
[4:51] And the reason for that was there was some, you know, relatively modest actually, but actual
[4:56] or your losses that are getting amortized.
[5:01] In the period that we amortize this loss, you know, as of July 1st, 2025, is 11 years under the
[5:10] actual determined contribution or 16 years on the alternative. So 349,000, the actual, actual
[5:20] determined contribution for the year in the alternative amount, you see, is 293,000.
[5:27] And we present an annual compensation amount
[5:31] in the contribution as a percentage of that as the number
[5:38] of active participants decreases the amount
[5:41] of that annual compensation also decreases.
[5:47] So it's not as meaningful, probably, of a figure
[5:53] that we see is 80% of the compensation.
[5:58] Important component of the valuation results is the, you know,
[6:02] investment return for the year.
[6:04] And under the market value of assets, we're now at, you know,
[6:08] $9,861,000, which experienced about a 9.5% return for the prior year.
[6:16] And the year before that was, you know, 10.9%.
[6:19] So it has had a couple, you know, relatively strong years of investment performance.
[6:25] The plan uses an actual value of assets to smooth out gains and losses, which is very common.
[6:33] The gains and losses are smooth over a five-year period.
[6:36] And so that takes out some of the highs and lows.
[6:38] And there have been some losses in some previous years.
[6:43] there was a negative 13% return four years ago.
[6:49] So that kind of gets smoothed in over future years.
[6:53] And for this most recent year, the actual value is 9,813.
[6:59] So just a little bit less than market value.
[7:03] The return on the actual rate was 6.1%.
[7:06] And since the market value is a little bit higher than the actual value,
[7:09] that indicates there's some gains that are not yet recognized in the actual value that
[7:16] will be recognized in future years.
[7:20] The actual reliability, that starts our main measure of the plan's liability is 12.1 million.
[7:28] And if you were to ask us, what would be the asset value to 100% fund the plan liability?
[7:38] this is the number we'd look at, and we're currently on a, you know,
[7:43] based on the market value, or 81% funded, and this
[7:48] funded percentage has been increasing over the years, and the
[7:56] contribution that we presented up top, you know, is in place that over time,
[8:03] You know, the actual determined contribution
[8:05] to the fund liability in the remaining period of 11 years,
[8:11] the forecast would be that the plan would be fully funded
[8:15] once we get fully advertised over that period.
[8:21] I'm just going to skip down to the annual normal cost
[8:24] just over $37,000 for this year.
[8:28] That represents the present value of benefits expected to be earned
[8:31] during the plan year.
[8:32] And this is always one of the components of the actual readily determined contributions
[8:37] so that we fund the benefits expected to be earned in a year, and then we also amortize
[8:42] the unfunded liability.
[8:45] And then we have the number of participants in the plan, the act is decreased by one from
[8:51] eight last year to seven, this 47 retirees we had had one new no deaths during the year,
[9:00] and then, you know, 12 remaining terminated vested participants.
[9:06] And those terminated vested participants, those are former employees who have terminated employment
[9:12] but have a deferred vested benefit.
[9:14] So they'll get a monthly benefit in the future.
[9:23] We'll turn to next page, too.
[9:26] And just mentioned the average age, the bottom half of the page,
[9:32] was 53 years this year, just a little bit less than the average was last year, and then
[9:41] the average salary for the participants was 108,778 this year versus 96,000 last year.
[9:53] So it increased about 13% on average, even though there was...
[10:00] You were a participant, so it's not the exact same participants were looking at last year and this year because we have one less that sometimes can skew that average.
[10:14] And on page three, we present the last two years of the actual return on contribution, which we had looked at in page one. And then we showed the amount actually of contributed during the plan years. So.
[10:29] So, looking at 2024, we had an actual retirement contribution of 308,058, and the amount that
[10:38] was contributed was 284,254.
[10:45] The prior year of 2023, you made 410,000, which actually exceeded the actual retirement
[10:53] contributions of that year.
[10:59] Page 5, we just comment on some of the valuation assumptions and methods and just commenting
[11:09] that there were no changes in the plan provisions for the year.
[11:14] And then the actual method, we really didn't have a change in it.
[11:19] The way it's already set up is that we have this closed amazation period which decreases
[11:24] by one each year. And that was, you know, applied for this year as well. And, as I said, that the
[11:35] new Ambrization-based established this year was amortized over a new 11-year period.
[11:45] Page six,
[11:47] this graphically shows historically the actual road-determined contribution. And you can see how it's,
[11:55] You know, fluctuated over the years, the method that's in place currently has been established since, you know, 2023.
[12:07] And it's, you know, and as I mentioned earlier, hopefully to stabilize that, that contribution amount, because only change in it from year to year is, is changes in the normal cost.
[12:19] And as participants, active participants continue to retire what a fewer
[12:26] active and that should result in a lower normal cost, but that's a fairly
[12:31] minor part of that contribution. The majority of it is amortizing the unfunded
[12:36] liability, but we only have a new amount for the new gain or loss during the year.
[12:44] so we can anticipate again that to be fairly stable going forward and the
[12:51] contribution as a percentage of compensation that's only for the act of
[12:56] participants' compensation in the plan and that's really you know well you have
[13:03] two things going on you know and you know especially since 2021 you can see on
[13:09] top, how that contribution amount is increased through that period.
[13:15] But also the number of active participants with compensation has decreased quite a bit.
[13:21] I went back and just pointed a reference.
[13:24] In the year 2020, the plan had 22 active participants in, you know, today it only has seven active.
[13:31] So, the amount of active, thereby the amount of compensation has decreased as that contribution
[13:39] has increased, especially since 2021.
[13:44] So, again, I don't know how meaningful of a percentage that is there on that page.
[13:55] Each seven on top shows the unsfunded crude liability.
[13:59] and this is the amount, the method is established to reduce it over the amazation period.
[14:09] We have learned years remaining.
[14:11] It was fairly constant over the last three years.
[14:18] We did have some losses established this year that increased the unfunded liability
[14:23] and we'll look at the gain loss page in a little bit.
[14:28] In the bottom of the page 7, we show the return on the actuarial value of assets compared
[14:35] to the actuarial assumed investor return, and the plan assumes a 6.75% return on plant
[14:44] assets, and this smooth or actuarial value of assets for the most years has been a little
[14:52] bit less than the 6.775. If we just take the straight average of that 12-year period, it's
[14:58] about 6.3%
[15:00] More recently, over the five years, average is about 5.6%. But as noted, the last two years, the market value had a return in excess of that 6.75%. So that's good. And when we talk about assumptions, we like to just bring up the investor return because that's what we say at the primary assumption that drives results. And you know, make sure that
[15:29] we have continued comfort on that assumption going forward and a lot of time that's driven
[15:40] by any changes and that might be driven by changes in investment policy or investment objectives
[15:47] and investment allocations and so we just want to be alerted if there are any changes in
[15:54] those areas.
[15:55] I'm
[16:03] going to jump a couple pages to page 9.
[16:06] Here we have the display of the development of the contributions.
[16:10] The top is what we call, you know, the actual determine a recommended contribution has
[16:15] the remaining 11 years of amortization.
[16:21] And as I said earlier, the annual normal cost is the component of that contribution that
[16:26] represents the value of benefits expected to be earned during the year and that's $37,000.
[16:31] and then the amortization payment of the unfinal liability is $290,000 by far the largest component.
[16:39] And then we just give it interest to the end of the plane year to get to the $349,000 recommended
[16:46] contribution. Alternatively, if we amortize the unfinal liability over a five-year longer period,
[16:55] You see an item two, the amortization period decreases and that's the difference in the
[17:05] methods and we get $293,000 contribution, an alternative contribution calculation.
[17:15] Those amortization installments are detailed on the next page 10 and might just draw your
[17:23] attention to the second column original duration. This method was really started in 2023.
[17:33] At that time, it was amortized over a 13-year period and had an annual installment of $225,000.
[17:43] There's 11 years remaining on that and that $225,000 will be a constant amount for each of
[17:50] the remaining years until that's fully amortized.
[17:53] Likewise, the next layer in 2024
[17:56] was amortized over a original period of 12 years.
[17:59] And the most recent, an actual loss of $360,000
[18:03] has been amortized over 11 years.
[18:07] So those three components give us the amortization amount
[18:10] of $290,000.
[18:12] And that would be a constant amount that will continue
[18:16] this year and then following 10 years
[18:19] until those are fully amortized.
[18:22] Then we have the alternative contribution schedule
[18:26] with remaining periods of 16 years below that.
[18:29] And that's the difference in those two contributions.
[18:33] The amortization amount is about $52,000.
[18:36] And then we add interest to the end of the year
[18:38] and we can get a difference about $55,000
[18:41] of the contribution.
[18:50] We jump to page 12.
[18:52] Here we have this reconciliation on the market value of assets.
[18:54] that you can see the city's contribution of $284,000.
[19:02] Collectively, there were investment earnings
[19:04] about $884,000.
[19:07] And then the plan paid out in benefit payments of $967,000.
[19:12] So that's the cash flows resulting
[19:16] in a market value of $9,861.
[19:20] And the very next page develops the actual rural value
[19:24] where the method calculates a gain loss on the value of assets on an annual basis and those get
[19:32] smoothed in over a five-year period of time. And the smooth value is 9,813,000. So a little bit less than
[19:45] the market value. And as I mentioned earlier, that indicates there's some deferred gains because the
[19:50] market value has returned in excess of the 6.75% of the last few years, and those deferred
[19:58] gains will continue to come through the actual.
[20:00] roll of value in the future years.
[20:10] I was going to just jump to page 16 and look at the actual gain
[20:13] a lot and Jesse maybe ask if you want to provide some comments on that development.
[20:21] Excuse me. Some of us don't have page 16. Staff is helping out right now.
[20:30] Okay.
[20:33] My packet
[20:34] end at page 12.
[20:37] Oh, okay.
[20:38] Okay.
[20:39] I can bring that up if that would be.
[20:45] I think that would be helpful.
[20:49] Okay.
[21:00] Oh, so Sherry's not turned on.
[21:03] I can send a request.
[21:07] If you have an administrator of the Zoom meeting there,
[21:10] but it looks like I have to request the permission to share my screen.
[21:51] I'm
[21:55] sorry about that, but it's not allowing me to share my screen, you know, look, is the adjustment that we made to change that?
[22:13] Yeah, I think our IT person is working on that to get you to share.
[22:17] Okay.
[22:27] Okay, should be reshared now.
[22:31] Okay.
[22:31] Okay.
[22:54] Did that work?
[22:56] It did.
[22:57] On my end, the top of the page is currently cut off.
[23:10] So on this page, we just detail the actual container loss,
[23:15] which is the basis for those amortization installments
[23:20] that determine the contribution.
[23:22] And the way we do that is we look at what the unfunded accrued liability was last year,
[23:29] and if everything had progressed exactly as assumed, what would it be today?
[23:36] And then we compare the actual unfunded accrued liability today to that expected value,
[23:42] and that gives us the actual real gain or loss that we're then spreading over future installments.
[23:48] So, the first section just, and it develops that on the liability side, what we had expected
[23:54] the liabilities to be, and right underneath that, we do the same with the assets.
[23:59] We look at the, what the assets were and roll them forward a year.
[24:04] And then that gives us line three, which is the expected unfunded accrued liability of 1.956
[24:12] million.
[24:12] And
[24:15] then immediately below that we look at the actual unfunded liability on the measurement
[24:21] date.
[24:22] And that's that $2,316,000.
[24:25] And the difference between those of $367.01 is the actual oil loss that the plan.
[24:38] And so at least the loss comes from several different sources.
[24:44] The majority of it this year is the money purchase plan, which is the similar to the
[24:53] plan.
[24:53] It is actually part of the same trust, but people, when they retire, they can take their
[24:58] of Money, Purchase, Plan, Con-
[25:04] And we had just one participant do that this year, but those increased annuities as approximately $150,000 in value. And so because that wasn't accounted for in prior valuations, then that shows up here as a loss on the liability side.
[25:28] In addition, salaries increased more than expected or more than assumed, and so that increases
[25:38] not just future benefits, but also past benefits for the actives, although the actives are
[25:46] a small group that can sometimes have an outsized influence, and then no deaths.
[25:52] You know, each year we assume a certain percentage that everybody is going to die given based on their age and when that doesn't happen, there's just a small loss associated with each person.
[26:09] And so that is just the development of the actual real loss for there.
[26:13] And Jeff, I can advance the report if you want to hit any other pages.
[26:23] That was kind of the last one.
[26:25] We could look at the risk, I suppose,
[26:33] table here.
[26:34] It shows the retiree liability and the total plan liability.
[26:42] And you can see that it's a large part.
[26:45] It's 80% and it's increasing each year.
[26:49] And you know, that trend is going to continue.
[26:51] The plan is close to new entrants, only 7 active, like two-thirds of them currently are
[26:58] retired.
[27:01] And then cash flow, 284,000 going in, 967 coming out for the past year, and that also
[27:09] is going to be a continuing pattern.
[27:14] If the plan earns, you
[27:18] miss speaking, but not by much, but if the plan earns the assumed
[27:22] return on assets then I think it's going assets will be decreasing each year in general. That's
[27:29] just because the payments to retirees are growing each year and that's just kind of the nature
[27:36] of mature plans like this.
[27:42] It's not too exciting that's just a measurement of kind of how the
[27:46] liabilities respond to changes in interest rates.
[27:59] The liabilities respond to changes of interest rates.
[28:02] we have this other liability measure. It's called a load default risk obligation measure.
[28:10] What's done there is
[28:14] re-value the liabilities instead of using the assumed 6.75% rate.
[28:19] We're using a risk marker rate, I believe. Let me find that 4.74% is what was used here.
[28:31] And so if we use that lower interest rate, the liabilities increase to 14.5 million.
[28:42] I
[28:45] guess one way to think of this number is that it's based on the liabilities that are accrued as of today.
[28:54] It doesn't project any future earned benefits going forward.
[29:00] And a good way to think of this number is that if you wanted to put the funds in a safe
[29:09] account and just kind of ignore them, this is the amount that you would want to have in
[29:14] that account to cover liabilities earned as of today.
[29:26] I think all that I wanted to cover good
[29:32] times to hit any questions that may have come up.
[29:34] Any
[29:45] questions Jesse and I just wanted to point out a couple of things on the assumptions kind of looking ahead the next year in a way
[29:53] They're the society of actuaries just recently this year published a new public
[30:00] Pension plan, mortality, table, they updated it. It might kind of sound old, but it updated it from the 2010 to the 2016 table. And what they usually do is, when they name the table, they take a midpoint of the experience years in which they're analyzing to come up with a mortality table. And we've taken some preliminary looks at this table. And it doesn't seem to have a significant impact.
[30:29] impact on the plan liabilities, but we'll take a closer look at it for your plan in specifics
[30:36] next year and may likely recommend we update it just to keep on the current table.
[30:44] And then we did just want to ask the board, you know, if your thoughts on the salary increase
[30:51] assumption, which is 3% remains our best estimate going forward because we didn't know what
[30:57] that looked like there was higher pay increases
[31:01] than the 3% assume this past year.
[31:04] And we know we're always gonna get gains or losses
[31:07] from year to year on most of the assumptions.
[31:10] And we don't make a determination
[31:12] on a single year experience,
[31:14] but you know, get any feedback you have for us
[31:17] on the assumptions we would certainly take
[31:19] into consideration on those.
[31:34] I think as Jesse said, that takes us through
[31:36] the really the parts that we wanted to present to the board and again any questions or comments that
[31:44] we could address. We certainly welcome them. Now this is Bob Westerman. I do have a clarifying
[31:51] question. I thought I heard you say use the low market rate of 4.75. Is that should that be 6.75?
[31:59] Because that seems awful low for returns.
[32:03] Yeah, and that is just used for the one number.
[32:09] It's required disclosure under the actual practice.
[32:19] And so that number is being used for this 14.5 million result.
[32:25] And that's just really a comparison number.
[32:27] We, for the vast majority of results shown in this report, the 6.75 percent was used.
[32:35] The 4.74 is only used for the single point of comparison.
[32:40] Yes, so the contribution recommendations based on the 6.75 percent, as Jesse mentioned,
[32:46] this 4.74, just used because we need to satisfy actual standards of practice or present this number,
[32:54] which is just a disclosure item, not used for any of the recommendations.
[33:03] Just to help me understand a little better, what is the, in terms of the unfunded liability,
[33:13] are we in a better position today in October 2005 than we were in October of 2004?
[33:23] Your plans,
[33:27] based on the market value, was the same 81%.
[33:33] So on that basis, you know, it's just very similarly funded this year versus last year.
[33:41] It seemed to me at one point, I mean, historically, we were a little underfunded.
[33:47] Then there were a couple years when we were well funded.
[33:51] And then there was the drop in the market and we had to have a discussion among ourselves
[33:57] And the recommendation to a city council has to how much to fund.
[34:02] And I think this committee always was always recommending to the city council that we aggressively fund.
[34:10] And if I recall the city budget starts in July and they start putting their budget together in April.
[34:18] So if I recall last year, we made a recommendation in January or February.
[34:22] Is it appropriate to do that now?
[34:25] I would say this would be a good point to do a recommendation because we will be starting the budget probably late November, early December.
[34:34] It just seems to me we have this data in front of us.
[34:37] We have the experts to ask any questions and if I'm understanding it correctly, you've got two recommended plans.
[34:46] One, to retire the liability in 11 years, and the other one was to retire the liability over 18 years.
[34:55] Is that an accurate assessment on my part?
[35:00] It is, except the remaining period, the 13 is down to 11, as you said, because this was established in 2003, in the 18-year period is now down to 16. But, you know, we do present the higher amount, this 349,000, as our act, what we call the actual determined contribution or our recommended contribution. You know, you sound like my credit card statement. If you make the minimum payment,
[35:29] It'll take you 25 years to pay it off and make a larger payment.
[35:32] You can pay it off in three years.
[35:35] You know, we have a representative from the City Council here with us.
[35:40] Did he log off?
[35:43] I'm here.
[35:44] Okay.
[35:45] What do you think the sense of the city council would be?
[35:49] My own personal recommendation would be to follow the recommended contribution
[35:55] and as set forth in the hub report here.
[36:00] The rich would pay for it.
[36:01] Yeah, I mean, it's reasonable to ask, you know, now would be the time, as Steve said.
[36:08] I don't know, you know, what things are going to be looking like.
[36:12] They don't seem to be too positive just now in terms of our funds, but it seems reasonable
[36:21] to at least put it out there and make the request.
[36:28] Very good. Steve, do you have any comment?
[36:37] Excuse me.
[36:38] I've got three steves.
[36:44] No. I mean, if we're looking at 4349 versus 293,
[36:51] I guess it kind of dictates on what budget funding is
[36:57] as to which one would be more easily attained.
[37:02] Mr.
[37:05] Westman and
[37:18] that would be our recommendation to the City Council.
[37:23] Yeah, but he else want to make.
[37:25] Yeah, I'd recommend the 3.49 5.20 for the next budget year, that'd be by a recommendation.
[37:32] All right, so we're building a consensus.
[37:35] We have our finance manager over here.
[37:38] Do you like, do you have an opinion or assessment to share?
[37:41] I'll try to keep it funded with the recommendation because the way things move up and down, you
[37:47] We don't want to get hit one year with a lot more money than we want to budget.
[37:51] So I vote for the recommendation at $3.49, $5.20.
[37:58] Chair would entertain a motion to make a recommendation to the City Council for
[38:02] the contribution to the defined benefit plan.
[38:12] So I think the motion is to recommend to the City Council that the recommended
[38:17] to contribution amount as set forth in the hub report of $349,520 be sent to the City Council.
[38:27] And do I have a second?
[38:29] I have a second.
[38:30] Is there any further discussion?
[38:35] All in favor, please say aye.
[38:37] Aye.
[38:39] Is anyone opposed?
[38:41] So if our minutes could reflect that we're making a recommendation to the City Council,
[38:44] You know, finance folks, you know our recommendation, pay off the liability.
[38:50] We've made what I feel is a sacred commitment to the employees, and we need to fulfill that commitment.
[38:58] Okay, Hub, thank you folks for participating and sharing your expertise with us.
[39:07] Unless you have something further, you can stay or you can leave whatever your preference is.
[39:13] and we can move on to Andrew.
[39:21] All right, but I appreciate, we just,
[39:23] I would both appreciate every time and attention
[39:25] and just look forward to any further discussion
[39:28] and never hesitate to reach out to us
[39:31] with questions that they come up.
[39:32] Thank you very much.
[39:33] It's always, you know, annually you come in
[39:36] and when you first start your conversation,
[39:40] my head starts spinning numbers in new terms.
[39:42] Yeah. Thank you very much. Thank you. Okay. Andrew, do you want to talk about your quarterly
[39:52] investment review? Sure. Let me try and share the screen here.
[40:01] And, yeah, it's funny you mentioned that, Rolio, there's something that challenges my economic
[40:10] page about putting people to sleep and actually all people might do that. But those guys
[40:16] are good and that's great information. And I think it's a good service for the city
[40:23] and the retirement plan. Can you see my screen here, the economic overview?
[40:30] So I'll run through
[40:30] this, like in quarters past, I highlight some numbers here. I've voted some economic growth,
[40:36] which is GDP. Long-term average for the US is 2%, and we've been above that the last
[40:42] several years, but economists are expecting that to slow down. You can see here, for the
[40:48] end of this year and next year, it's just right below 2%, and then 20-27 potentially getting
[40:53] back up to that long-term 2% average. So, long story short, expectations are that we may
[40:59] A.C. is somewhat of a slowdown in the economy, and I think we are certain to see some of that in some of the pockets across the country.
[41:06] Inflation is a key figure, certainly for investors and consumers and the Federal Reserve.
[41:18] E.E. is the main figure they look at, personal consumption expenditures.
[41:22] Another target is 2%, but most of the comments believe we're probably not going to get down to 2% anytime soon.
[41:30] But if it gets to a level that's closer to between two and a quarter and two and a half,
[41:35] that's kind of a healthy or interest inflation rate where we're at, it would lead the Fed
[41:41] to lower interest rates.
[41:43] You can see it's hovering right at 2.9 right now.
[41:48] You know, most of
[41:51] it to be, for this year and next year kind of seems
[42:08] to be holding steady.
[42:09] They've increased significantly.
[42:10] You can see over the last several years,
[42:18] consumers spending and industrial production to
[42:20] main parts of the economy. Consumer spending has been fairly resilient. We've been saying this
[42:25] for the last couple of years. Economists have been expecting consumers spending to slow down,
[42:31] and you can see here there's an expectation that we should be slowing down over the next couple
[42:36] years. We're seeing some underlying consumer
[42:42] spending habits, people substituting name brand products
[42:46] for a store brand, generic products, and things like that. You're seeing default rates,
[42:53] credit cards
[42:56] These are early warning signs saying that the consumers are starting to feel pressure.
[43:02] But they're not at levels that we would be concerned at a recessionary level.
[43:06] Certainly, the default rate on credit cards is not at levels that we've seen in previous times of concern.
[43:14] So,
[43:17] all that said, we are seeing some consumer spending slow down, but not to a point where we'd be throwing up red flags and concerned about a recession.
[43:27] Unemployment, the headlight numbers look better than the unemployment data underneath actually
[43:33] is. So from a historical standpoint, unemployment at 4 percent, 4.2, 4.3, 4.5 even is historically
[43:41] very, very low unemployment. But we have been seeing layoff announcements. We've been seeing
[43:49] lower than expected job data come through.
[43:54] Unfortunately, the federal government is in a shutdown right now
[43:57] and we don't have the latest jobs number.
[43:59] But there's some other jobs numbers out there that indicate
[44:02] that it is slowing down.
[44:04] So that's one of the main reasons why the federal reserve is getting more concerned
[44:07] and why they've recently cut interest rates.
[44:10] They're likely going to cut interest rates here this month
[44:12] and likely in December.
[44:15] But that's the rate's prediction markets are saying it's about a 50% chance that we have
[44:22] another rate cut in December, but for now, expectations are we have another quarter
[44:28] percent rate cut here at this month at the next Fed meeting.
[44:34] Concerns, I mentioned slowing, slowing economy, jobs numbers were lower than expected.
[44:42] manufacturing is still hovering kind of below that expansionary mark in this institute.
[44:48] For supply management figure, services has been more resilient, but it's just hovering
[44:54] right at that kind of expansion versus contraction.
[44:58] and a break point.
[45:00] Main concerns for investors right now, as I mentioned, flowing economy, questions around the unemployment
[45:07] jobs market, interest rates are still higher than we've been used to for the last couple decades.
[45:13] And there's a potential for re-emerging inflation. I don't think consumers have really seen
[45:20] the impact of these tariff policies. And a lot of businesses are, I think, eating up some of the
[45:28] impact from that as well. So there may be some more
[45:34] surrounding that moving forward.
[45:37] But for now, long story short, slow in economy, not in a recession, not likely approaching
[45:44] a recession. We're cautious to see optimistic as investors at this point, you know, markets have
[45:50] done very well this year, even in the face of all these uncertainties. And earnings reports
[45:56] the last couple of weeks actually have been the
[46:03] consumers resilient,
[46:07] my investment.
[46:10] The American consumer is more resilient than many people will think.
[46:15] And it's really been a key driver for the economy in the last several years.
[46:21] How's there to see if there's any questions?
[46:27] If not, on page three has the summary of the accounts.
[46:31] As you recall, there's two different main portfolios that we manage.
[46:35] One is the defined benefit, which is essentially a pensioned
[46:43] contribution.
[46:44] retirement plan. So the fine benefit wound which we heard from the actuarials is this one here.
[46:50] There's a growth portfolio which holds the bulk of the assets and is invested. And then we have
[46:56] a cash liquidity account that has funds set aside in anticipation of distributions. And so the
[47:03] combination of those two at the end of the quarter just above $1.2 million that's a fine contribution
[47:11] Portfolio right around 4.75 million at the end of the quarter.
[47:19] So I've got a couple pages here with some analytics regarding the Portfolio and they're all
[47:24] combined.
[47:25] Both the Portfolios are managed in a balanced fashion.
[47:28] We call it acid allocation, which is balanced.
[47:32] And so in
[47:35] this type of acid allocation, about 59% inequities or stocks, 37.5% in fixed income
[47:43] similar bonds, and then the remainder in cash.
[47:48] And so looking for the quarter, you can see here,
[47:51] and I'll go here to date, might give you a better picture
[47:54] of where we started at at the beginning of the year,
[47:56] just above 13.6 million.
[47:59] There's been some contributions,
[48:02] there's been withdrawals and distributions
[48:03] through retirees, fees, and then what's been the gain
[48:07] in the portfolio for the year, about 1.6 million.
[48:10] So at the end of the quarter, right about
[48:15] 15 million.
[48:17] As chart below, I find this interesting because I find it a visual
[48:22] kind of as gone.
[48:26] We've started managing portfolio way back, you know, right in the
[48:29] the throes of the great financial crisis.
[48:33] And you can see here that portfolio really shrunk.
[48:35] This is back in 0708.
[48:37] If you remember those times, which were atrocious for investors.
[48:41] And then over time you can see staying invested, staying diligent and disciplined with your
[48:48] plan.
[48:48] Even throughout numerous different crises, portfolios can grow over the long run.
[48:54] You can see here, you know, great financial crisis.
[48:58] We have some tips in 2016.
[49:00] The pandemic-driven recession you can see here.
[49:05] Can you see my cursor, by the way?
[49:07] Yeah.
[49:08] Okay.
[49:09] Cool.
[49:09] So, right here was a big drop-off in the markets during the pandemic, subsequent rally afterwards.
[49:18] 2022, if you recall, was an atrocious year for investors.
[49:22] The worst bond market ever in the last 90-plus years.
[49:29] But staying in best and staying disciplined, you can see portfolio growth.
[49:32] Even here, early in the first quarter of this year, there was a big death after announcements for tariffs.
[49:36] but markets have recovered and they're close to all time highs.
[49:43] Same discipline, same invested, don't panic, don't hide your cash.
[49:49] It's kind of the story there.
[49:54] I'm going to page five.
[49:55] Page five kind of drills down.
[49:57] And this gives you a closer look at what it is.
[50:00] Exactly. The portfolio is done this year. So you can see the first quarter was kind of up and then flat. As I mentioned, we had that kind of tariff announcement and care in the market. But the market's been all intensive purposes. It's been on a tariff ever since then. We've had some clarity around some tariffs, earnings have been OK, consumer has been OK, inflation hasn't spiked like people feared. So things have gone well in the markets. And you can see here, I'll go down to the account summary. You can see each of the portfolios here.
[50:29] but overall for the quarter, a great quarter, you know, up almost 5.6% in the portfolios,
[50:36] year-to-date returns, up over 12% for the year, through the end of September.
[50:43] So it's been kind of a gangbusters year for investors, I would say.
[50:47] And you can see up here, just highlight some of the top 10 holdings that have done really
[50:52] well what
[50:58] we call our core large cap US strategy where we manage about 50 to 60 individual
[51:04] stocks and we use that as a core position in many of our client portfolios and that's
[51:09] what we've got.
[51:10] These portfolios in some of the names that we've got in there have done well so things that
[51:15] are related to technology you think semiconductors AI, L3 Harris has exposure to defense spending
[51:24] as well as technology.
[51:28] You know, a lot of these names have some tech exposure.
[51:32] Obviously, you've probably heard of NVIDIA.
[51:35] NVIDIA hasn't been the top performer.
[51:37] We've had some other positions that have done very well.
[51:40] Crowdstrike's an interesting name that we own.
[51:43] They're involved in cybersecurity.
[51:45] Really well-willed company.
[51:47] Position to take advantage of that thematic over coming years.
[51:51] So just give you a highlight there.
[51:54] And on the last page of page 6, this gave you a drill down, so what we call asset allocation,
[51:59] different asset classes, how to classify things.
[52:02] So as I mentioned, you're balanced portfolio, think of it as like a 60-40 mix.
[52:07] You can drill it down into US exposure versus international.
[52:12] And you can go even further, you can say okay, we have large cap companies, which are larger
[52:17] companies, made in small companies.
[52:19] We have developed exposure, we have emerging market exposure, and then within fixed income
[52:25] you have other exposures as well, like high yield, corporate bonds versus government bonds.
[52:32] And then the sector exposure just shows you, okay, within stocks what kind of sector of the economy are we invested in.
[52:38] And we keep this fairly close to the S&P 500.
[52:43] So, you know, technology has become a very big part of the economy, and so no surprise
[52:48] there.
[52:49] It's one of the largest physicians that we have in the strategy.
[52:55] But overall, very well diversified, that's our strategy, that's what we do for our clients.
[53:00] Make sure we're diversified within equities, within fixed income, not taking too much risk
[53:06] but trying to get market-like returns or better with lower risk over the long run.
[53:15] questions. I think I thought your strategy was to build a portfolio that would withstand
[53:25] a lot of the volatility and it wouldn't require a lot of trading. In light of your comments
[53:33] at the bottom of page two, do you see any need to make adjustments in the portfolio for
[53:42] the city's retirement funds.
[53:46] Don't see a lot of need to change.
[53:48] We do, from time to time, change asset allocation sub
[53:55] asset
[53:55] classes.
[53:57] The cash and the portfolio, there's some set aside.
[54:01] But our team's been talking about if there is excess cash,
[54:04] we would recommend putting it in fixed-income or bonds
[54:09] as opposed to putting it back in the equities.
[54:12] Your portfolio is pretty right in line with the $60,40
[54:17] balance. So at this point, there's not a lot of excess cash sitting out there. But like
[54:24] I said, we're cautious, the optimistic, not making a lot of changes at this point, but
[54:30] for clients who do have excess cash, we're recommending some bond exposure for that instead.
[54:36] Because we expect short-term cash rates to come down the Fed, like I mentioned the Fed,
[54:40] likely going to cut interest rates. So short-term interest rates will be coming down. That
[54:46] that does benefit college.
[54:52] There are questions of Andrew, either from city staff,
[54:57] members of the committee.
[54:58] No further questions.
[55:02] How about from our, our liaison with the council? Do you have questions of the, from our advisor?
[55:10] No questions for me. Seems, um, fairly solid and clear. Thank you. I don't think we have a lot of questions when there's a 12% return.
[55:25] I, as just checking, you know, my own personal account and I've got 8% but you're at 6040 and I'm a little bit more conservative because I'm old. Thank you, Andrew. Any more questions?
[55:39] for any more questions from Andrew.
[55:44] Andrew, the next meeting is not going to be until January
[55:47] and we look forward to seeing you either in person
[55:50] or via Zoom at that time.
[55:53] Okay, my pleasure. Thank you for your time.
[55:55] Thank you, sir.
[55:58] Okay, so we've had the report from Andrew.
[56:02] We're supposed to get an updated human resources report
[56:06] report on upcoming retirements.
[56:17] There isn't any HR updates.
[56:25] Shannon's not here, and she told me there wasn't going to be nobody's sitting about retiring.
[56:32] What is bailing yet?
[56:33] Nobody's bailing.
[56:34] All right, good, thank you.
[56:36] What happens is when a person retires, I usually get a phone call from somebody at the city
[56:42] manages office to sign off, and that's the only time I know if somebody's retiring.
[56:47] And I always kind of thumb through the paperwork to see if the person is taking a lump sum where if they're transferring it to another program and we always want people to, we can't make a recommendation to that, to that employee, but it's always wise to see somebody being prudent with their funds.
[57:07] Okay. I missed an agenda item. We have a vacancy.
[57:17] I went last meeting and I went up
[57:23] and I talked to one
[57:28] of the investment counselors with Edward Jones, the one up in the north end
[57:32] of town. And he has a new investment counselor there. I forget her name. And she didn't follow
[57:43] through on an expression of interest. I just thought it would be nice to have somebody
[57:47] with that type of a background. I think he just put the notice out there. We need
[57:55] a committee member, and there may not be a lot of interest. It might be incumbent upon
[58:00] our City Council members of our committee here to, if we see somebody who would invest the
[58:09] time and has a little bit of knowledge on financial issues, it might be wise for us to attempt
[58:17] to recruit that person.
[58:19] I was first recruited years ago by Mr. Baker, John Baker.
[58:25] And I took that opportunity as an opportunity for me to learn.
[58:28] I didn't feel that I could contribute a lot, but it was an opportunity to learn.
[58:33] And so keep your eyes and your ears open.
[58:36] And if we see somebody that all of us in this room feel that they could contribute to our work here,
[58:44] we might want to suggest to them that they get in touch with Stephanie or Steve under somebody here at City Hall to sign on and be a member.
[58:54] Yeah, probably, Ali.
[58:55] Probably, Ali should be recorded.
[58:58] Okay, that's the Down at the City Manager's office.
[59:01] this, Alex at the City of Managers office.
[59:04] Allie?
[59:05] Allie.
[59:06] Oh, wasn't she here just a few minutes ago with the glasses?
[59:09] Yeah.
[59:09] Okay, okay, following the conclusion of this meeting, we will have two meetings.
[59:22] There will be, and it's not required that anybody attend.
[59:26] I'll be there, our finance manager will be there.
[59:28] And we'll have a meeting with any employee who is in the Defined Benefit Program.
[59:35] And then after that, we'll have a meeting with anybody who's in the Defined Contribution Program.
[59:41] Those will be group meetings to answer general questions.
[59:44] After lunch at one o'clock, there's already an agenda of some, one, two, three, seven employees will have personal consultations with city staff.
[59:58] Um, it's-
[1:00:00] So that's what will be happening with us later on today. Again, it's not mandatory that anybody appear.
[1:00:06] Traditionally, I appear, I sit there like a bump on the log and help folks.
[1:00:12] Anyway, looking at our agenda moving on through, it looks as though our next regularly scheduled meeting would be January 22 at 10 o'clock.
[1:00:23] We met today at 9.30 because of the employee meetings and that required us to start just a little early
[1:00:29] We're going to go back to a 10 o'clock meeting schedule in January and again if you have ideas or
[1:00:37] Suggestions that we should discuss let's definitely know she can put them on the agenda
[1:00:41] It would be helpful if we could redouble our efforts to trying to find
[1:00:48] Another person to be on the committee so we're at full strength
[1:00:51] Any comments from the City Council today that you'd like to share with us?
[1:01:01] Just very briefly, back to the idea of an additional member of the committee.
[1:01:07] I think with the new website launching soon and some other things that I think are happening in terms of making volunteer opportunities more public, we could be optimistic that we could more likely capture somebody.
[1:01:22] So, there are things in the work, works regarding volunteer opportunities in general that I think might serve us well.
[1:01:31] That's all I have to report.
[1:01:32] I have a question. Do you have software that allows for you to be kind of a, it's like a portrait mode.
[1:01:41] You're bright and shiny and sharp, and then your background is blurred so that your image bounces out.
[1:01:49] It's a great software that you've got there.
[1:01:52] Oh, yeah, it's just part of zoom. I'm on the road. I'm sitting at the at the base of Mount
[1:01:56] Shasta at the moment in my in my camper van. Oh, that sounds like a Willie Nelson song on the
[1:02:05] end. I just can't wait to ask about that. Anything else for the good of the order for anybody here?
[1:02:12] Did we do the public comment yet? Oh,
[1:02:23] all right. See you in January.
[1:02:31] We're going to adjourn this meeting right now unless there's anything else that people would like to speak with.
[1:02:36] And again, welcome, Stephanie, and keep us informed.
[1:02:40] And we are fortunate to have a really good city staff here.
[1:02:46] Thank you.
[1:02:48] Thank you.
[1:02:49] Thank you.
[1:02:50] You know, we said there wasn't a lot of defaulting, but I kept reading that it was default on less than prime car loans.