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10628I 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 RESOLUTION NO. 10, 628 4 9 u A RESOLUTION APPROVING THE ADOPTION OF NEW INVESTMENT POLICIES, PURSUANT TO ACT 50 OF 1999, BY THE BOARD OF TRUSTEES OF THE NON - UNIFORM EMPLOYEES PENSION FUND; AND FOR OTHER PURPOSES. WHEREAS, the Board of Directors has previously authorized the Board of Trustees ( "Trustees ") of the City's Non - Uniform Employees Pension Fund ( "Fund ") to hire an investment manager to manage the assets of the Fund and to advise and report to the Trustees quarterly; and WHEREAS, assets of the Fund consist, as of June 30, 1999, of $8,745,656 in the Defined Benefit Plan Account and $27,183,811 in the Defined Contribution Account; and WHEREAS, Act 50 of 1999 gives Cities authority to update their investment policies and rules consistent with the Arkansas state retirement system policies; and WHEREAS, The Trustees have consulted with the Fund's investment advisor and reviewed and adopted new investment policies consistent with state policies on July 28, 1999. NOW, THEREFORE, BE IT RESOLVED BY THE BOARD OF DIRECTORS OF THE CITY OF LITTLE ROCK, ARKANSAS: SECTION 1. The adoption of new investment policies by the Board of Trustees of the Non - Uniform Employees Pension Fund pursuant to Act 50 of 1999 is hereby approved. ADOPTED: August 17, 1999 ATTEST: 'ad'a C-4 ROBBIE HANCOCK CITY CLERK THOMAS M. CARPENTER CITY ATTORNEY APPROVED: JIMWAILEY MAYOR 0 11 CITY OF LITTLE ROCK NON - UNIFORMED EMPLOYEES' DEFINED BENEFIT (DB) RETIREMENT FUND INVESTMENT POLICY STATEMENT 491 I. PURPOSE AND AUTHORITY The City of Little Rock Non - Uniformed Employees' Retirement Fund (the "Fund ") is a single employer Defined Benefit (DB) plan that provides retirement pensions. The Fund's members are all of the regular Non - Uniformed employees of the City who were employed on or before December 31, 1977. The Fund and the benefits provided are currently funded entirely by contributions from the City of Little Rock. Members of the Fund do participate in Social Security as City employees The Plan's objective is to provide a retirement benefit to retired employees based on a final pay and years of service formula. The primary statutory authority for the investment activities of the Board of Trustees for the Little Rock Non - Uniformed Employees' Defined Benefit Plan is found in Act 50 of 1999 and the Arkansas Code Ann. Section 24 -3-417 through 24- 3-426. It is administered for the exclusive purpose of providing benefits to members, retired members, and their beneficiaries and to defray the necessary expenses of investing and administering the Fund. The Trustees shall discharge their duties solely in the interest of the Little Rock Employees' Non - Uniformed Defined Benefit Plan and for the exclusive benefit of plan participants and beneficiaries. These duties shall be discharged with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent investor acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims. The Board of Trustees is authorized to engage the services of investment advisors, as defined under the Investment Advisors Act of 1940, and other investment professionals to provide the specialized research and skilled manpower to meet the Little Rock Non - Uniform Employees investment objectives and guidelines. Accordingly, the Board of Trustees requires the investment advisors to adhere to the "prudent man rule" under state law. The Board of Trustees is composed of five board members consisting of three City appointees appointed by the City manager and two by ordinance due to their position on the city staff. Those staff positions are Director of Human Resources and Director of Finance. This statement sets forth the investment objectives of the Fund, and the investment policies to be followed in pursuit of the investment objectives. Also, this statement will provide a basis to evaluate the investment performance of the Total Fund, and also the individual managers hired to manage assets for the Little Rock Non - Uniformed Defined Benefit Plan. 0 0 DEFINED BENEFIT (DB) INVESTMENT POLICY STATEMENT CITY OF LITTLE ROCK NON-UNIFORMED EMPLOYEES RETIREMENT FUND D. INVESTMENT OBJECTIVES 492 The primary investment objective of the fund is to earn a real rate of return (Total Fund rate of return — Consumer Price Index) of 4.5 %. This return objective is not a year over year objective but a long -term guideline for the Fund's Trustees. The Trustees will utilize five -year rolling periods as an appropriate time frame for analysis. A secondary investment objective of the fund is to constrain the volatility of the total fund through a program of diversification. In practice, the fund should experience less volatility than a 60% S &P 500 -40% Lehman Bros. Govt. /Corp. benchmark over rolling three and five year time frames. Central to the achievement of this goal is the concept of investing in asset classes that demonstrate relatively low correlation to one another. These correlations and their impact on total fund volatility will be reviewed from time to time by the Trustee's to determine the effectiveness of the diversified program. IIIREEIZ►�I31. Y� Ui�Ii;�WOOK"I The investment strategy to be followed in the reasonable expectation of achieving the Retirement Fund's investment objectives is as follows: ASSET CLASS TARGET RANGE EXPECTED REAL RETURN Domestic Equities 50% 45 % -55% 6.5% International Equities 10% 8 % -12% 6.5% Domestic Fixed Income 40% 35 %-45% 15% * ** The asset class targets, ranges, and expected real rates of return are as of June 30, 1999. The Board of Trustees shall review its asset allocation at least annually to determine if the asset allocation is consistent with the level of risk and volatility acceptable to the fund. Quarterly, the asset allocation will be compared to the permissible range. At that time if the actual asset allocation falls outside the permissible range, the mix should be brought back into the range unless it is prudent not to do so. The Trustees will diversify its Domestic Equity allocation to include different investment styles and market capitalization strategies. The reason for doing so it to expose the total fund to investment opportunities with attractive risk -return profiles. 0 0 DEFINED BENEFIT (DB) INVESTMENT POLICY STATEMENT CITY OF LITTLE ROCK NON - UNIFORMED EMPLOYEES RETIREMENT FUND IV. PERFORMANCE STANDARDS These performance standards provide a framework in which the Board of Trustees can measure investment performance. The Board of Trustees preference will be to view managers through a full market cycle (cyclical peak to trough) rather than an arbitrary time frame. However, absent adequate cyclical data, the committee will utilize a five -year time frame for analysis. Total Fund The Total Fund's performance is expected to exceed the return of a 60% S &P 50040% Lehman Bros. Govt. /Corp. benchmark after all fees. The Total Fund is expected to rank in the top half of the Wilshire universe of institutional funds managed in a similar style. The Total Fund's volatility of retums, as measured by the standard deviation of monthly returns should not exceed the 60% S &P 500401/6 Lehman Bros. Govt. /Corp. benchmark. Domestic Equities Performance is expected to exceed the most appropriate benchmark in terms of manager style and market capitalization after all management fees. The investment manager is expected to rank in the top half of the Morningstar universe of investment managers using the same investment style and company market capitalization classifications The investment manager's volatility of returns as measured by the standard deviation of monthly retums should not exceed the appropriate benchmark by 25 %. International Equities Performance is expected to exceed the MSCI EAFE index after all management fees. The investment manager is expected to rank in the top half of the Morningstar universe of investment managers using an international equity style. The investment manager's volatility of returns as measured by the standard deviation of monthly returns should not exceed the MSCI EAFE index by 25 %. 0 DEFINED BENEFIT (DB) INVESTMENT POLICY STATEMENT CITY OF LITTLE ROCK NON - UNIFORMED EMPLOYEES RETIREMENT FUND Domestic Fixed Income i 494 Performance is expected to exceed the Lehman Bros. Govt. /Corp. Intermediate Fixed Income index after all management fees. The investment manager is expected to rank in the top half of the Morningstar universe of investment managers using an intermediate fixed income style.. The investment manager's volatility of returns as measured by the standard deviation of monthly returns should not exceed the Lehman Bros. Intermediate Fixed Income index by 25 %. ARUK0111-1 11-MIN Q141 All assets selected for the Fund must have a readily ascertainable market value and must be readily marketable. The following assets and/or transactions are prohibited: Naked Options - Puts or Calls Net Short Selling Commodities Restricted Stock The Board of Trustees believes that it is necessary and desirable that equity securities held in the Fund represent a diversified portfolio. The investment managers will be allowed to choose the degree of concentration in various issues and industry sectors. For separately managed accounts, the initial purchase of a single company shall not exceed 101/6 of the portfolio market value. If price appreciation causes a security to exceed the 101/6 limitation, a sale of the issue shall not be required except as warranted by investment considerations. The Board of Trustees believes that it is necessary and desirable that fixed income securities held in the Fund represent a diversified portfolio. The fixed income investment managers will be allowed to choose the degree of concentration in various issues and market sectors. With the exception of U.S. Government securities, the securities of a single fixed income issuer shall not represent more than 10% of the portfolio market value. V. PROXY VOTING The Board of Trustees recognizes that proxy voting is a fiduciary responsibility and requires that proxies be voted based on those factors which would enhance the value of the fund's investments. The Investment Committee delegates its authority to vote proxies to the investment managers and instructs the investment managers to maintain accurate voting records and to vote proxies for the exclusive benefit of the fund. 0 0 CITY OF LITTLE ROCK NON - UNIFORMED EMPLOYEES' DEFINED CONTRIBUTION (DC) RETIREMENT FUND INVESTMENT POLICY STATEMENT 495 L PURPOSE AND AUTHORITY The City of Little Rock Non - Uniformed Employees' Retirement Fund (the "Fund ") is a single employer Defined Contribution (DC) plan that provides retirement pensions. The Fund's members are all of the regular Non - Uniformed employees of the City. The Fund and the benefits provided are currently funded entirely by contributions from the City of Little Rock and the employees (contribution rates are 4.0% City, 3.5% employees). Members of the Fund do participate in Social Security as City employees The primary statutory authority for the investment activities of the Board of Trustees for the Little Rock Non - Uniformed Employees' Defined Contribution Plan is found in Act 50 of 1999 and the Arkansas Code Ann. Section 24 -3-417 through 24 -3426. It is administered for the exclusive purpose of providing benefits to members, retired members, and their beneficiaries and to defray the necessary expenses of investing and administering the Fund. The Trustees shall discharge their duties solely in the interest of the Little Rock Employees' Non - Uniformed Defined Contribution Plan and for the exclusive benefit of plan participants and beneficiaries. These duties shall be discharged with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent investor acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims. The Board of Trustees is authorized to engage the services of investment advisors, as defined under the Investment Advisors Act of 1940, and other investment professionals to provide the specialized research and skilled manpower to meet the Little Rock Non - Uniform Employees investment objectives and guidelines. Accordingly, the Board of Trustees requires the investment advisors to adhere to the "prudent man rule" under state law. The Board of Trustees is composed of five board members consisting of three City appointees appointed by the City manager and two by ordinance due to their position on the city staff. Those staff positions are Director of Human Resources and Director of Finance. This statement sets forth the investment objectives of the Fund, and the investment policies to be followed in pursuit of the investment objectives. Also, this statement will provide a basis to evaluate the investment performance of the Total Fund, and also the individual managers hired to manage assets for the Little Rock Non - Uniformed Defined Contribution Plan. 0 0 DEFINED CONTRIBUTION (DC) INVESTMENT POLICY STATEMENT CITY OF LITTLE ROCK NON - UNIFORMED EMPIAYEES RETIREMENT FUND IL INVESTMENT OBJECTIVES 496 The primary investment objective of the fund is to earn a real rate of return (Total Fund rate of return — Consumer Price Index) of 5.0 %. This return objective is not a year over year objective but a long -term guideline for the Fund's Trustees. The Trustees will utilize five -year rolling periods as an appropriate time frame for analysis. A secondary investment objective of the fund is to constrain the volatility of the total fund through a program of diversification. In practice, the fund should experience less volatility than a 70% S &P 500 -30% Lehman Bros. Govt. /Corp. benchmark over rolling three and five year time frames. Central to the achievement of this goal is the concept of investing in asset classes that demonstrate relatively low correlation to one another. These correlations and their impact on total fund volatility will be reviewed from time to time by the Trustee's to determine the effectiveness of the diversified program. III. INVESTMENT POLICY The investment strategy to be followed in the reasonable expectation of achieving the Retirement Fund's investment objectives is as follows: ASSET CLASS TARGET RANGE EXPECTED REAL RETURN Domestic Equities 60% 55 % -65% 6.5% International Equities 10% 8 % -12% 6.5% Domestic Fixed Income 30% 25 % -35% 1.5% * ** The asset class targets, ranges, and expected real rates of return are as of June 30, 1999. The Board of Trustees shall review its asset allocation at least annually to determine if the asset allocation is consistent with the level of risk and volatility acceptable to the fund. Quarterly, the asset allocation will be compared to the permissible range. At that time if the actual asset allocation falls outside the permissible range, the mix should be brought back into the range unless it is prudent not to do so. The Trustees will diversify its Domestic Equity allocation to include different investment styles and market capitalization strategies. The reason for doing so it to expose the total fund to investment opportunities with attractive risk -return profiles. 0 0 DEFINED CONTRIBUTION (DC) INVESTMENT POLICY STATEMENT CITY OF Lrrrr.E ROCK NON - UNIFORMED EMPLOYEES RETIREMENT FUND IV. PERFORMANCE STANDARDS 491 These performance standards provide a framework in which the Board of Trustees can measure investment performance. The Board of Trustees preference will be to view managers through a full market cycle (cyclical peak to trough) rather than an arbitrary time frame. However, absent adequate cyclical data, the committee will utilize a five -year time frame for analysis. Total Fund The Total Fund's performance is expected to exceed the return of a 70% S &P 500 -30% Lehman Bros. Govt. /Corp. benchmark after all fees. The Total Fund is expected to rank in the top half of the Wilshire universe of institutional funds managed in a similar style. The Total Fund's volatility of returns, as measured by the standard deviation of monthly returns should not exceed the 70% S &P 500 -30% Lehman Bros. Govt. /Corp. benchmark. Domestic Equities Performance is expected to exceed the most appropriate benchmark in terms of manager style and market capitalization after all management fees. The investment manager is expected to rank in the top half of the Morningstar universe of investment managers using the same investment style and company market capitalization classifications The investment manager's volatility of returns as measured by the standard deviation of monthly returns should not exceed the appropriate benchmark by 25 %. International Equities Performance is expected to exceed the MSCI EAFE index after all management fees. The investment manager is expected to rank in the top half of the Morningstar universe of investment managers using an international equity style. The investment manager's volatility of returns as measured by the standard deviation of monthly returns should not exceed the MSCI EAFE index by 25 %. 0 9 DEFINED CONTRIBUTION (DC) INVESTMENT POLICY STATEMENT CITY OF LITTLE ROCK NON - UNIFORMED EMPLOYEES RETIREMENT FUND Domestic Fixed Income 4 j u Performance is expected to exceed the Lehman Bros. Govt. /Corp. Intermediate Fixed Income index after all management fees. The investment manager is expected to rank in the top half of the Morningstar universe of investment managers using an intermediate fixed income style.. The investment manager's volatility of returns as measured by the standard deviation of monthly returns should not exceed the Lehman Bros. Intermediate Fixed Income index by 25 %. V. INVESTMENT GUIDELINES All assets selected for the Fund must have a readily ascertainable market value and must be readily marketable. The following assets and/or transactions are prohibited: Naked Options - Puts or Calls Net Short Selling Commodities Restricted Stock The Board of Trustees believes that it is necessary and desirable that equity securities held in the Fund represent a diversified portfolio. The investment managers will be allowed to choose the degree of concentration in various issues and industry sectors. For separately managed accounts, the initial purchase of a single company shall not exceed 10% of the portfolio market value. If price appreciation causes a security to exceed the 10% limitation, a sale of the issue shall not be required except as warranted by investment considerations. The Board of Trustees believes that it is necessary and desirable that fixed income securities held in the Fund represent a diversified portfolio. The fixed income investment managers will be allowed to choose the degree of concentration in various issues and market sectors. With the exception of U.S. Government securities, the securities of a single fixed income issuer shall not represent more than 10% of the portfolio market value. V. PROXY VOTING The Board of Trustees recognizes that proxy voting is a fiduciary responsibility and requires that proxies be voted based on those factors which would enhance the value of the fund's investments. The Investment Committee delegates its authority to vote proxies to the investment managers and instructs the investment managers to maintain accurate voting records and to vote proxies for the exclusive benefit of the fund.