MINUTES POLICE RETIREMENT SYSTEM OF KANSAS CITY and

MINUTES
POLICE RETIREMENT SYSTEM OF KANSAS CITY and CIVILIAN EMPLOYEES’
RETIREMENT SYSTEM OF THE POLICE DEPARTMENT OF KANAS CITY
BOARD MEETING
Tuesday, March 11, 2014
Richard Smith called the meeting to order.
PRESENT:
Richard Smith, Member
Floyd Bartch, Member
James Chappell, Member
Gary Jenkins, Member
Leslie Lewis, Member
Barbara Stuart, Member
Gerald Gorman, Attorney
James Pyle, Staff
Sharon Blancett, Staff
Lori Freeze, Staff
SECRETARY REPORT:
Investment Committee Report
RVK Staff Update
Ms. Stuart said Ron Klotter said he would be leaving RVK in mid-March and Marcia
Beard who is a senior consultant, shareholder and member of the RVK Board of Directors
will be working with Kristen Steffens on our account. Mr. Pyle said he and Rob Woodard
met with Ms. Beard and Ms. Steffens following the Investment Committee meeting to talk
about how we fit with Ms. Beard’s current work load and the future of the Chicago office.
Mr. Pyle said they thought Ms. Beard would be a good fit in working with the board and
IC. Mr. Pyle said he also talked with Becky Gratsinger, RVK’s CEO, who is planning to
attend the May Retirement Board meeting. During the phone call, Ms. Gratsinger
reaffirmed their commitment to the growth of the Chicago office.
Asset/Liability Study
Ms. Stuart said Jim Voytko, who is President of RVK and a senior consultant, and Ryan
Sullivan, an associate consultant, reviewed the results of the Asset/Liability studies for both
the Police Plan and Civilian Employees’ Plan. The A/L study links components from the
investment policy, contribution policy, and benefits policy. This allows the board to see the
impact of contributions and plan liabilities on the asset allocation process.
They said the results of the A/L were very positive. Under normal conditions the plan will
continue to progress toward full funding over the long term. If investment returns exceed
our assumed rate of return funding ratios could improve more quickly. If investment
returns lag our assumed rate of return, the models indicate that the plans’ funding ratios
remain pretty resilient as long as the contributions remain consistent at the actuarial
required contribution rate.
RVK was able to replicate the actuarial projections completed by Cavanaugh Macdonald to
within a 1% variance. They conducted fixed and Monte Carlo simulation analysis on the
plans using our current actuarial assumptions and plan benefits for six different investment
portfolios. The six portfolios included our current target allocation, the proposed allocation,
a conservative portfolio of 100% bonds, portfolio 1 that produced returns that were 50 basis
points below the proposed allocation, portfolio 2 that produced returns that were 50 basis
points above the proposed allocation, and an aggressive portfolio of 100% stocks. The
results showed the proposed allocation produced good results over 5, 10, 20, and 30 year
periods under fixed conditions and during 2000 trial simulations. RVK also stress tested the
six portfolios under conditions of higher volatility and higher correlation and in both
instances the target allocation performed well.
Asset Allocation
Based on the results of the A/L study RVK recommended that the Retirement Board adopt
the proposed asset allocation. The index inputs project the allocation to generate expected
returns of 6.73% with standard deviation of 10.49%. The current allocation is expected to
generate returns 6.93% with standard deviation of 11.95%. Ms. Stuart said the
implementation process and active management returns, that were reviewed last month,
should bring the expected returns for the proposed allocation to 7.5% without increasing
the level of risk. The Investment Committee recommends a motion to adopt the proposed
asset allocation.
U.S. Equity
18%
International Equity
18%
Fixed Income
31%
Diversified Inflation Hedge
5%
Real Estate
10%
Hedge Funds
15%
Private Equity
3%
Total
100%
Expected Return
6.73
Expected Standard Deviation
10.49
Ms. Stuart made the motion to adopt the proposed asset allocation for both plans. The
motion was seconded by Mr. Bartch which passed unanimously.
Artisan Global Growth Update
Ms. Stuart said RVK had completed their due diligence on the Artisan Global Growth
investment options and recommended that the Retirement Board use a separately managed
account in the Police plan and a commingled fund in the Civilian Employees’ plan. Kristen
Steffens’ review of the fee and custody analysis showed that the separate account will
provide some incremental savings on fees over the commingled fund. Due to investment
size requirements, the Civilian Employees’ plan is not eligible to participate in the separate
account. Ms. Steffens had also completed a review of the statistical measurements for a
global large cap investment mix between LSV and Artisan. Based on their analysis, RVK is
recommending a 60% allocation to LSV and a 40% allocation to Artisan. The analysis
shows this portfolio mix produces, over a 5 year period, the better tracking error, beta, and
information ratio vs. a 50/50 split. Ms. Stuart said the IC recommends a motion to complete
the Artisan allocation as recommended by RVK.
Ms. Stuart made the motion to: 1) Complete the hiring of Artisan with as separately
managed account for the Police Plan and a commingled fund for the Civilian Employees’
Plan with initial funding for active global equities split 60/40 between LSV and Artisan.
Mr. Jenkins seconded the motion which passed unanimously.
U.S Small Cap Equity Manager
Ms. Stuart said with the new asset allocation that has a much smaller percentage of the
portfolio in U. S. small cap stocks, RVK is recommending one U.S. small cap manager that
can move between growth and value stocks. At the IC meeting, RVK reviewed the style,
performance, and statistical information on DFA’s Small Cap Portfolio, PanAgora’s Small
Cap Core Stock Selector, RBC’s Small Cap Core, and Wellington’s Small Cap 2000. RVK
is recommending the Wellington fund which is a commingled fund that is traded daily. The
fee is 90bps but there are no additional trading fees. Wellington produced the best
combination of tracking error, beta, and information ratio of the four firms. Ms. Steffens
also reviewed statistical information prepared by the research team and had said the
allocation would provide core exposure to U.S. small cap stocks, serve as a source of alpha
in the equity portfolio, and complement the passive exposure in the NT ACWI fund. Mr.
Pyle said the hiring of Wellington for U. S. small cap will require redemptions from
Waddell & Reed and Vaughan Nelson. Ms. Stuart said the IC supports the recommendation
to hire Wellington and complete redemptions from Waddell& Reed and Vaughan Nelson.
Ms. Stuart made the motion for both plans to invest in Wellington’s Small Cap 2000 fund
and to complete full redemptions of the Waddell & Reed Small Cap Growth fund and
Vaughan Nelson Small Cap Value fund. Mr. Chappell seconded the motion which passed
unanimously.
International Small Cap Equity Manager
Ms. Stuart said to complete the implementation process of the equity allocation, RVK
reviewed options for international small cap equity managers. RVK reviewed the style,
performance, and statistical information on DFA’s International Small Cap Company,
Vanguard’s International Explorer, Wellington’s International Small Cap Equity, and
Wellington’s International Small Cap Research. RVK recommended the Wellington Equity
fund over the Research fund only because of the short track record of the Research fund.
The Research fund is managed by many of the same portfolio managers who work on the
larger International Research fund. Wellington has provided the seed money for the
International Small Cap Research Fund but there are currently no other outside investors.
Mr. Woodard encouraged the IC to consider being a founding investor based on the track
record of the managers and the small allocation, $10 million combined, to the fund. The IC
asked RVK to provide additional information on the Research fund.
Implementation of Equity Portfolio Changes
Ms. Stuart said RVK had walked the IC through the additional change to the equity
portfolio to implement the asset allocation and fund manager decisions that were approved
by the board today. Ms. Stuart made the motion to continue the implementation of changes
to the equity portfolio with full redemptions from the NT Russell 1000 Index fund, LSV
U.S. Value Equity fund, LSV International Value Equity fund, and the GE International
fund. Mr. Bartch seconded the motion which passed unanimously.
January 2013 Investment Performance Analysis
For the month of January, on a net of fees basis, the Police plan returned -1.49% vs. the
relative benchmark of -1.54%. The Civilian Employees’ plan returned -1.39% vs the same
benchmark.
Ms. Stuart said the next Investment Committee meeting is scheduled for 8:00am on April 1
at Police Headquarters Annex 901 Charlotte.
RETIREMENT BOARD ELECTION SCHEDULE
Mr. Jenkins reviewed the attached 2014 Retirement Board election schedule. He said the
open seat on the board, currently held by Mr. Smith, is up for election this year. The first
date in the election process is May 27 when the notice of election and the filing period will
be posted. The deadline for filing and nominations will be June 26 at 4pm. Mr. Jenkins also
recommended that the Retirement Board use VR Election Services to run the election again
this year. The voting process would be identical to 2012 when members voted by mail,
phone, and internet.
Mr. Jenkins made the motion to adopt the election schedule and to hire VR Election
Services to run the Retirement Board election. Mr. Bartch seconded the motion which
passed unanimously.
REVISED POLICY STATEMENTS
Policy #002 – Purchase of Creditable Service
Mr. Pyle said the policy was updated to reflect statutory changes effective in 2011. The
main changes are in the calculation of cost to restore prior service and an unpaid leave of
absence.
Policy #003 – Pension Estimates and Final Pension Calculations
Mr. Pyle said the policy was updated to reflect statutory changes effective 2013. The only
change is to defined mandatory retirement in the Police plan at 32 years of service rather
than 30 years of service.
Policy #015 – Refund of Members’ Contributions
Mr. Pyle said the policy was updated to delete old statute section references prior to the
recodification of the statutes in 2005. A review of the policy led to a discussion of the
impact on members whose employment is terminated and the possible delay in refunding
their member contributions. Mr. Smith and Mr. Bartch said they wanted the changes to
Policy #015 delayed until the Retirement Board had more information on the refund
process. Mr. Pyle said that information would be presented at the April Retirement Board
meeting.
Mr. Jenkins made the motion to adopt the amended versions of Policy #002 Purchase of
Creditable Service and Policy #003 Pension Estimates and Final Pension Calculations. Ms.
Stuart seconded the motion which passed unanimously.
SECRETARYS UPDATE
Legislation Update
Mr. Pyle said House Bill 1301 passed the House of Representatives on February 26 by a
vote of 152-0. The next step in the legislative process is for the bill to be read in the Senate
and assigned to a committee.
Retiree Health Insurance Premium One Month Reduction
The KCPD has notified the Retirement System that there will be partial premium reduction
for one month for retirees enrolled in BC/BS Blue Care Options 1 & 2 and Preferred Care
Blue. A letter will be sent by the Retirement System to members enrolled in those plans
telling them of the 50% premium reduction on their March 31 benefit payment for Police
and April 1 benefit payment for Civilian Employees. Premium amounts will return to 100%
of the premium with the April/May benefit payments.
BOARD MEMBER COMMENTS
There were no additional board member comments.
PUBLIC COMMENTS
A time was set aside for public comments.
OMNIBUS MOTION
Mr. Bartch made the following motion, seconded by Ms. Stuart. Motion passed
unanimously.
RESOLVED, that the Retirement Board hereby unanimously approves:
The minutes of the previous meeting of February 11, 2014 as amended;
The monthly financial statements for January 2014;
The payment of bills as listed in the Secretary’s Reports for this meeting;
The return of contributions to those persons, who have resigned or terminated
service, as listed in the Secretary’s Reports for this meeting;
The purchases and sales of assets as listed in the Secretary’s Reports for this
meeting;
The payment or commencement of pensions or other benefits as listed in the
Secretary’s Reports for this meeting; and
Any purchases of creditable service as listed in the Secretary’s Reports for this
meeting.
ADJOURNMENT
The next regularly scheduled board meeting will be April 8 at 9:00am at the KC Police
Credit Union.
BOARD SECRETARY
CHAIRMAN

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