city of owosso employees retirement … vice chairperson mark sedlak, and chairperson wilfred...
TRANSCRIPT
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CITY OF OWOSSO EMPLOYEES RETIREMENT SYSTEM BOARD
THURSDAY, APRIL 16, 2015 CITY HALL COUNCIL CHAMBERS
**********SCHEDULED FOR 7:15 A.M.**********
AGENDA
CALL MEETING TO ORDER: ROLL CALL: APPROVE AGENDA: APPROVE MINUTES OF FEBRUARY 19, 2015 REGULAR MEETING: APPROVE MINUTES OF MARCH 11, 2015 SPECIAL MEETING: APPROVE MINUTES OF MARCH 26, 2015 SPECIAL MEETING: CITIZEN COMMENTS: CITY OF OWOSSO EMPLOYEES RETIREMENT SYSTEM 70TH ANNUAL ACTUARIAL VALUATION:
Ken Alberts - Gabriel Roeder Smith (report to be distributed at the meeting) CONSENT AGENDA: 1. Approve Pension Check Reports:
a. February 2015 $ 205,627.78 b. March 2015 $ 207,259.46
2. Approve Statements:
a. City of Owosso Employees Retirement Fund
January 31, 2015 b. City of Owosso Employees Retirement Fund
February 28, 2015
3. Payment Authorizations:
a. Ronald J. Tobey, City Treasurer Report of Checks Written – February 2015 $255,468.71 b. Ronald J. Tobey, City Treasurer Report of Checks Written – March 2015 $209,080.35
COMMUNICATIONS:
o MERS – Consulting Services Offer, March 25, 2015 o Gabriel Roeder & Smith – NewsScan February 19, 2015 o Gabriel Roeder & Smith – NewsScan March 4, 2015 o Gabriel Roeder & Smith – NewsScan March 19, 2015 o Gabriel Roeder & Smith – NewsScan April 1, 2015
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OLD BUSINESS: 1. MAPERS 2015 Spring Conference. Approve attendance at the MAPERS 2015 Spring Conference.
2. Consulting Contract. Consider contract with Graystone/Morgan Stanley for the provision of consulting
services. (Information regarding this item will be forthcoming.) NEW BUSINESS: 1. Custodial Search. Discuss whether to use Morgan Stanley as the new custodian for the System.
2. Direct Deposit Requirement. Consider requiring all new retirees to receive their benefits via direct
deposit. INVESTMENT CONSULTANT REPORT: 1. Merrill-Lynch: First Quarter 2015 Executive Summary Report (to be distributed at the meeting). CITIZEN COMMENTS: NEXT BOARD MEETING: Regular – June 18, 2015 ADJOURNMENT: The City of Owosso will provide necessary reasonable auxiliary aids and services, such as signers for the hearing impaired and audio tapes of printed materials being considered at the meeting, to individuals with disabilities at the meeting/hearing upon seventy-two (72) hours notice to the City of Owosso. Individuals with disabilities requiring auxiliary aids or services should contact the City of Owosso by writing or calling the following: Amy K. Kirkland, City Clerk, 301 West Main Street, Owosso, MI 48867 or at (989) 725-0500. The City of Owosso Website address is www.ci.owosso.mi.us.
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CITY OF OWOSSO EMPLOYEES RETIREMENT SYSTEM BOARD OWOSSO CITY HALL COUNCIL CHAMBER
FEBRUARY 19, 2015 7:15 AM CALL MEETING TO ORDER: Chairperson Farrell called the meeting to order at 7:22 a.m. ROLL CALL: PRESENT: Trustees Richard Brewbaker, Burton Fox, Elaine Greenway, Paul Kleeman, Bobbi Jo
Perry, Vice Chairperson Mark Sedlak, and Chairperson Wilfred Farrell. ABSENT: None. ALSO PRESENT: City Attorney William C. Brown; City Clerk Amy K. Kirkland; City Treasurer Ronald J.
Tobey; Merrill Lynch Consultant Marie Vanerian; and Merrill Lynch Advisor Shaunt Vanerian.
APPROVE AGENDA: Motion by Vice Chairperson Sedlakto approve the Agenda as presented. Motion supported by Trustee Greenway and concurred in by unanimous vote. APPROVE MINUTES OF DECEMBER 18, 2014 REGULAR MEETING: Motion by Trustee Fox to accept the minutes of the December 18, 2014 Regular Meeting as presented. Motion supported by Trustee Brewbaker and concurred in by unanimous vote. CITIZEN COMMENTS: Heidi O’Dea, Raymond James Financial Advisor, was on hand to thank the Board for making sure local firms had the opportunity to bid on the request for investment consulting services. She went on to say that after much effort on the part of her firm, Raymond James was unwilling to accept fiduciary responsibility and as such she was withdrawing her submission. CONSENT AGENDA: Motion by Vice Chairperson Sedlak to approve the consent agenda as follows: Approve Pension Check Reports:
a. December 2014 $ 202,949.92 b. January 2015 $ 204,720.11
Approve Statements:
a. Atlanta Capital
As of December 31, 2014
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b. Franklin Templeton Investments As of December 31, 2014
c. Loomis Sayles As of December 31, 2014
d. MD Sass As of December 2014
e. NFJ Allianz
As of December 31, 2014 f. WHV
As of December 31, 2014
g. Russell Investments As of December 31, 2014
h. City of Owosso Employees Retirement Fund
December 31, 2014
Payment Authorizations:
a. Atlanta Capital For period 01/01/15 through 03/31/15 $ 3,147.97 b. Franklin Templeton Investments For period 10/01/14 through 12/31/14 $ 7,422.86 c. Franklin Templeton Investments – SIK For period 10/01/14 through 12/31/14 $ 300.00
d. Loomis Sayles
For period 01/01/15 through 03/31/15 $ 13,155.50
e. M.D. Sass For period 01/01/15 through 03/31/15 $ 12,562.20 f. NFJ Allianz
For period 01/01/15 through 03/31/15 $ 3,579.81 g. WHV For period 01/01/15 through 03/31/15 $ 3,980.99
h. Merrill Lynch – Consulting Services For period 01/01/14 through 12/31/14 $ 4,600.00 i. City of Owosso
Annual Audit – FY 13/14 $ 2,900.00
j. Ronald J. Tobey, City Treasurer Report of Checks Written – December 2014 $ 215,884.34 k. Ronald J. Tobey, City Treasurer Report of Checks Written – January 2015 $ 212,048.51
Motion supported by Trustee Perry and concurred in by unanimous vote.
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COMMUNICATIONS:
o Berthiaume & Company – Auditors’ Newsletter 2015 Annual Update o Merrill Lynch – Market Focus, 4th Quarter 2014 o Gabriel Roeder & Smith – NewsScan January 9, 2015 o Gabriel Roeder & Smith – NewsScan January 28, 2015
The following communications, publications and conference announcements are on file with the City Clerk – if you would like to read them, please contact her:
Merrill Lynch: Comprehensive AIM Report, 2014Q3 DVD
OLD BUSINESS: CONSULTANT SEARCH: Chairperson Farrell detailed the changes in the process that took place since the December meeting of the Board, saying the Board had expressed a strong desire to make sure all local firms were included in the bid process. As such, when it was discovered that a number of local firms did not receive prompt notice of the distribution of the RFP a decision was made by the Chairperson and Legal Counsel to extend the deadline for submission to February 18, 2015 at 3:00 p.m. Despite this extension no additional local firms expressed interest in submitting a bid, save Raymond James, with the local branch pulling their bid for legal reasons. In response to all of these changes the Board was being asked to consider a new timeline for the process. Motion by Trustee Brewbaker to adopt the amended schedule as proposed, cancelling the March 5th special meeting, setting a special meeting on March 11, 2015 at 7:15 a.m. to select candidates for interview, and setting a second special meeting for March 26, 2015 at 7:15 a.m. to interview said candidates and potentially select a new investment consultant. Motion supported by Trustee Fox and concurred in by unanimous vote. NEW BUSINESS: APPLICATION FOR RETIREMENT – C. KRIESEL Motion by Trustee Brewbaker to approve the application for retirement from Cynthia Kriesel, effective April 6, 2015. Motion supported by Trustee Greenway and concurred in by unanimous vote. APPLICATION FOR RETIREMENT – D. STANHOPE Motion by Trustee Fox to approve the application for retirement from Douglas Stanhope, effective January 15, 2015, with pension to begin February 14, 2015. Motion supported by Trustee Brewbaker and concurred in by unanimous vote. 2015-16 BUDGET City Treasurer Ronald Tobey presented the proposed budget to the Board, highlighting two major changes: an increase in the audit costs due to changes in GASB regulations and undefined investment consultant fees which will be determined with the hire of a new consultant. In regard to the consulting fees he indicated that he plugged in the amount of the highest proposed fee from the consulting RFP responses received to date, with the thought that the amount would be easier to adjust down rather than
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up. He went on to note that the City reimburses the System for the consulting fees and as such has the final say over the amount included in the budget, though he suggested the Board might want to consider sharing the cost of consulting fees if they feel it necessary. Chairperson Farrell indicated he approved leaving the conference expenses budgeted at $4,000 to allow members to attend educational events. Motion by Vice Chairperson Sedlak to approve the proposed 2015-16 Retirement Board Budget as follows:
Proposed Retirement Board 2015-2016 Budget
Checks, misc. 150 Audit 2,900 Actuary Fee 24,000 Conference Exp. 4,000 Counseling Fee 238,000 Total $269,050
Motion supported by Trustee Perry and concurred in by unanimous vote. INVESTMENT CONSULTANT REPORT: FOURTH QUARTER 2014 EXECUTIVE SUMMARY REPORT Ms. Vanerian noted that the bull market will continue and more progress will be made before it burns out. She briefly detailed the 4th quarter report then went on to give her predictions for 2015. She indicated she felt deflation will be a concern worldwide this year, US GDP will grow to 3%, interest rates will gradually increase which could pull on equity markets after about 6-9 months, international issues will continue to affect the market, and oil prices will increase during the year. She went on to say that in 2014 the portfolio made $2 million with $1.7 million in distributions. She went on to present an overview of the following:
Total Portfolio Performance Summary for Period Ending 12/31/2014 Source of Funds Thousands of Dollars Quarter
Cumulative 12/94-12/14
Beginning Market Value Net Contributions Investment Earnings Ending Market Value
33,392-464713
---------------------- 33,641
18,080
-20,91936,480
-------------------------- 33,641
At the conclusion of her report there was discussion as to the level of Ms. Vanerian’s involvement with the consulting search. She indicated she would be willing to be present for any meetings or discussions the Board desires, though she felt that her presence during the interviews may be distracting for the candidates. The Board indicated they desired her presence at both March special meetings. There was also discussion regarding the direction of the investment consulting industry, Ms. Vanerian’s recommendation the Board move away from bundling their consulting and custody services, the fact that PA 314 does not require a system to employ a consultant, the complexities of the consulting services
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search, and Ms. Vanerian’s recommendation the Board hire a consultant prior to searching for a new custodian as the new consultant may be able to negotiate custody fees on behalf of the System. CITIZENS COMMENT: There were no citizen comments. NEXT BOARD MEETING: Special – March 11, 2015; 7:15 a.m. – selection of candidates for interview Special – March 26, 2015; 7:15 a.m. - interviews Regular – April 16, 2015; 7:15 a.m. ADJOURNMENT: The meeting adjourned at 8:32 a.m. ________________________________ Amy K. Kirkland, City Clerk
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CITY OF OWOSSO EMPLOYEES RETIREMENT SYSTEM BOARD OF TRUSTEES
SPECIAL MEETING OWOSSO CITY HALL COUNCIL CHAMBER
MARCH 11, 2015 7:15 AM CALL MEETING TO ORDER: Chairperson Farrell called the meeting to order at 7:21 a.m. ROLL CALL: PRESENT: Trustees Richard Brewbaker, Burton Fox, Elaine Greenway (arrived at 8:28), Paul
Kleeman, Bobbi Jo Perry, Vice Chairperson Mark Sedlak, and Chairperson Wilfred Farrell.
ABSENT: None. ALSO PRESENT: City Attorney William C. Brown; City Clerk Amy K. Kirkland; Merrill Lynch Advisor Maral
Thomas (via telephone); and Merrill Lynch Consultant Marie Vanerian (via telephone). DISCUSSION: MAPERS SPRING CONFERENCE ATTENDANCE City Clerk Kirkland inquired who might be interested in attending the 2015 MAPERS Spring Conference in Mount Pleasant. Trustees Fox and Greenway indicated they were interested. Ms. Kirkland indicated she would seek formal approval for their attendance at the April 16th meeting. NEW BUSINESS: SELECTION OF INTERVIEW CANDIDATES Chairperson Farrell read aloud the list of candidates recommended by the small group which reviewed all of the RFP’s in detail as follows: Asset Strategies Portfolio Services The Bogdahn Group Graystone Consulting Noting that all members received copies of all of the RFP’s he initiated a conversation to solicit the opinions of the Board members as well as that of current Consultant Vanerian regarding all the submissions and the recommendation of the small group. Ms. Vanerian offered that she felt that with the level of knowledge of the Trustees and the fact that they continue to have a fiduciary duty to the System that a firm that functions as a full-discretion partner may not be the right fit, though she did not completely dismiss such firms. She went on to say that she felt it was important that a firm have existing exposure to the Michigan public pension market and that they not be an overly large or small firm. Lastly, she noted that she knew all of the managers recommended by the small group and she urged the Board to explore the differences between candidates, examine the work history of the proposed consultants and firms, and be careful to hire a candidate they are comfortable with and one that will value them as a client.
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Small group members Farrell, Fox, and Kirkland described how they reached consensus on the recommended firms noting the following: the desire to hire local but concern with the experience level of the local firms; the desire to keep fees reasonable and to maintain the Board’s sole discretion in management choices; ensuring selected firms are open to working with our current money managers; priority was given to those firms with significant Michigan public pension experience; the desire for a firm that will work with index funds; and concern that extremely large firms may have underwriting/consulting conflicts or may not see the System as an important client. During the course of the discussion regarding the candidates it came to light that two of the firms had some potential legal concerns that should be explored. City Attorney Brown presented evidence of a settlement agreement made by Graystone despite the fact that they had indicated in their RFP they had not had any settlements since their inception in 2006. Ms. Vanerian also noted that the proposed consultant for The Bogdahn Group had only recently been hired by the firm and the Board should research potential legal issues with his former firm to ensure he was not involved. There was further discussion regarding adding more candidates to the interview list so as not to be forced to make a selection based solely on the idea that the Board didn’t feel comfortable with the other two based on their explanation of their legal issues. The Board decided to proceed with the interview of three firms, but being prepared to discuss at 4th candidate at the March 26th meeting. Motion by Trustee Fox to schedule interviews with Asset Strategies Portfolio Services, Inc., The Bogdahn Group, and Graystone Consulting – Holycross Group. Motion supported by Trustee Kleeman and concurred in by unanimous vote. The conversation then moved on to the details of the interview process including: selection criteria, suggested questions, and the length of time allowed for each interview. Ms. Vanerian offered to email a series of questions she felt were important ask. City Attorney Brown indicated there were good questions listed on page 8 of the Bogdahn Group RFP that he would like to see included as well. City Clerk Kirkland said she would email a compiled list of questions to Board members prior to the meeting. CITIZENS COMMENT: David Hood, local Wells Fargo consultant, indicated he appreciated the diligence of the group during the RFP process. Trustee Greenway arrived at 8:28 a.m. Chairperson Farrell recapped the meeting for her. She indicated she was ok with the three firms selected for interview. NEXT BOARD MEETING: The next board meeting is scheduled for March 26, 2015 at 7:15am ADJOURNMENT: Motion by Vice Chairperson Sedlak for adjournment at 8:31 a.m. Motion supported by Trustee Fox and concurred in by unanimous vote. ________________________________ Amy K. Kirkland, City Clerk
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CITY OF OWOSSO EMPLOYEES RETIREMENT SYSTEM BOARD OF TRUSTEES
SPECIAL MEETING OWOSSO CITY HALL COUNCIL CHAMBER
MARCH 26, 2015 7:15 AM CALL MEETING TO ORDER: Chairperson Farrell called the meeting to order at 7:20 a.m. ROLL CALL: PRESENT: Trustees Burton Fox, Elaine Greenway, Paul Kleeman, Bobbi Jo Perry, Vice Chairperson
Mark Sedlak, and Chairperson Wilfred Farrell. ABSENT: Trustee Richard Brewbaker. ALSO PRESENT: City Attorney William C. Brown; City Clerk Amy K. Kirkland; City Treasurer Ronald J.
Tobey; and City Finance Director Richard C. Williams. Prior to the interviews Chairperson Farrell explained how the interviews would be conducted saying staff members present would be allowed to ask questions of the candidates if they desired. It was also announced that the System’s current consultant Marie Vanerian would not be present today to avoid any lingering legal liability by being involved in the selection of the System’s next consultant. City Attorney Brown noted that he had received a phone call from Paul Schluckebier of the local Wells Fargo branch asking that the Board reconsider including them in the interviews. Mr. Schluckebier felt that 90% of pension plans use a full-discretion philosophy like that employed by Wells Fargo and the Board should not be afraid of this consulting style. Trustee Fox indicated he had been approached this morning by Mr. Schluckebier’s business partner regarding the same matter. It was also noted the Mr. Schluckebier had contacted the mayor as well. INVESTMENT CONSULTANT INTERVIEWS: THE BOGDAHN GROUP – CHRISTOPHER KUHN 7:30 A.M. Mr. Kuhn introduced himself and the firm saying he has over 15 years of experience in institutional investing and is a CFA holder. The firm is dedicated to being an independent consulting firm with no financial ties to financial institutions or their products. The currently have $60 billion under management, with approximately half of those assets belonging to public pension plans. He went on to say that the firm is known for their dedication to customer service and this concentration was one of the reasons he chose to work for the firm. Mr. Kuhn went on to describe the firm’s manager search process, the all-inclusive fee for their services, and his thoughts on the System’s Investment Policy, asset allocation, and current money managers. He noted there was some room for negotiation on their fees. The Board asked about Mr. Kuhn’s affiliation with Gray & Company and that firm’s troubles with the SEC. Mr. Kuhn noted that the investment questioned by the SEC was for the Pontiac General City Employees’ Retirement System, not for the Pontiac Police & Fire Employees’ Retirement System that he consulted, which retained him as their consultant after he left Gray & Company. He said his reasons for leaving the firm had more to do with problems in the office and the effect they had on client services than the SEC inquiry into the reporting for that single particular investment.
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ASSET STRATEGIES PORTFOLIO SERVICES – KATHERINE GHANNAM & GEORGE VITTA 8:30 A.M. Mr. Vitta introduced himself and Ms. Ghannam and briefly detailed the firm saying they were based in Auburn Hills and were an independent consulting company with no affiliations with other entities. The firm specializes in public pensions and lists clients all over the state. He went on to say that all consulting firms have access to the same information and it is the experience of the consultants that differentiates one firm from another. He noted that their firm had been in business for 23 years and their average relationship with public clients is 13 years. Further, they are actively involved in MAPERS and she holds her CPA. The firm computes portfolio returns themselves, manager searches are done in-house using independent databases, and their fee is all-inclusive. The Board inquired whether the candidates had any opinions on the System’s current money managers, investment policy, and asset allocation. They indicated they would need to review the items prior to rendering a decision. The Board also inquired whether the firm had any compliance or litigation issues. Mr. Vitta noted that the firm had been included in a suit initiated by a small group of retirees that were not pleased with the performance of their portfolio, the suit was eventually thrown out. He also noted that the firm had been audited once by the SEC and had received the highest possible rating from the organization. (Mr. Williams left the meeting during the interview for Asset Strategies.) GRAYSTONE CONSULTING – MICHAEL HOLYCROSS & CHRISTINE WILSON 9:30 A.M. Mr. Holycross introduced himself and briefly detailed his firm saying they are based out of Birmingham, Michigan and are actively involved in MAPERS with one employee serving the MAPERS Executive Board as a Corporate Advisor and others working on the committee to revise PA 314. The firm has the full resources of Morgan Stanley at the ready, though it was noted that Graystone is a separate company, functioning under the Morgan Stanley umbrella, in an effort to provide conflict free consulting services. Their firm receives only consulting fees as compensation for their services. Mr. Holycross went on to reassure the Board that Morgan Stanley has no plans to move out of the public pension space like Merrill Lynch. Ms. Wilson introduced herself saying she would be responsible for account support to ease the burden of administrative activities on staff, serving as the point person for questions, and functioning as a “middle man” between the Board and its money managers. She also indicated she is currently a board trustee and as such has experienced the importance of board education and has taken on the additional role of ensuring the Board receives ample educational opportunities. The firm has clients all over the state from the Upper Peninsula to Southeast Michigan, Morgan Stanley performs all their research, and they have a proven track record of outperforming the benchmark year over year. The firm has an all-inclusive fee of 20 basis points. The Board inquired about any litigation issues. Mr. Holycross indicated his disclosure noted one issue that involved the violation of a client’s investment policy, he was not directly involved but profited from the transaction in question and is now required to disclose this incident. It was asked why this issue was not noted in the RFP. Mr. Holycross indicated the RFP inquired about consulting violations and this incident was not classified as consulting in nature and thus not included. The interview concluded with a brief assessment of the System’s asset allocation and money manager selection by Mr. Holycross. DISCUSSION: There was discussion regarding how similar Graystone was to Merrill Lynch, the different personalities of the candidates and which ones inspired confidence in their skills, who backs up Mr. Kuhn at Bogdahn,
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whether everyone felt comfortable with the explanations each firm gave regarding any legal issues they may have had, and the feeling that all the candidates were of good caliber and could potentially serve the System. Chairperson Farrell took a quick poll to determine if any of the candidates had received consistently low rankings from all Trustees and could be removed from the discussion. All members indicated that Asset Strategies was ranked as second or third on their list. There was consensus that the discussion would focus on The Bogdahn Group and Graystone going forward. City Attorney Brown returned to the issue of whether or not to interview the Wells Fargo team so that he could give Mr. Schluckebier an answer. The Board indicated they were not comfortable with a firm that uses a full-discretion consulting model and had no Michigan public plan clients. At this point Merrill Lynch Consultant Marie Vanerian joined the conversation via telephone at the request of the Board. Chairperson Farrell sought confirmation from Ms. Vanerian that the System must leave Merrill Lynch’s custodial services as well, she indicated that was correct. Chairperson Farrell went on to briefly summarize the Board’s conclusions to this point noting the Board’s preference for either The Bogdahn Group or Graystone/Morgan Stanley. Ms. Vanerian indicated that both firms would be on par in regard to the negotiation of management and custodial fees. She estimated that custodial fees may run about $15,000 - $20,000 per year. There was a question about the depth of personnel at Bogdahn, Board members and staff were concerned as to how things would be handled if Mr. Kuhn were not available. Ms. Vanerian noted that she would find it highly unusual for a firm of their caliber not to have some sort of team that tends to a relationship rather than a single individual. She also noted that she personally found it helpful to have a second associate at meetings to take notes and make sure that they perform all necessary follow-up. She concluded by saying that she felt the Board had done a very thorough job throughout the search process and either firm would do a fine job. Ms. Vanerian wished the Board good luck and ended the call. Chairperson Farrell inquired whether the Board wanted to vote on the issue now or wait until the April meeting. All indicated they would prefer to vote today. Chairperson Farrell asked each member of the System that was present at the meeting (Trustees and staff members) how they felt and if they had any preferences. Three members expressed a preference for Graystone, one for Bogdahn, and one said there were positives for both candidates. The Board agreed to vote by naming the consultant they wished to hire, subject to the negotiation of a contract. Roll Call Vote. Vice Chairperson Sedlak – Graystone Trustee Brewbaker – Absent Trustee Fox – Graystone Trustee Greenway – Bogdahn Trustee Kleeman – Graystone Trustee Perry – Graystone Chairperson Farrell - Graystone Chairperson Farrell noted that it was a difficult decision but he was confident with the outcome. City Attorney Brown will review the contract and present any issues to the Board in April. Chairperson Farrell suggested the Board also plan to discuss the custodial search at the April meeting.
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City Attorney Brown expressed his concern should video of the meeting be played on the local cable access channel before contact is made with all the candidates. He requested the show be held until a contract is reached. CITIZENS COMMENT: There were no citizen comments. There was discussion regarding whether the motion to select a consultant was simply for consulting services or whether it included custodial services as well. It was noted the motion was for consulting services only. City Attorney Brown suggested a conference call between Graystone, City Clerk Kirkland, and he to clarify what the fees were based on whether or not the Board chooses to custody their assets with Morgan Stanley. He said he hoped to have the contract ready for approval at the April 16th meeting. There was also discussion regarding whether other firms would follow Merrill Lynch out of the public pension market. City Attorney Brown indicated that he had from other brokers that Merrill Lynch was more worried about potential litigation rather than the conflict of interest it noted as reason for the exit. City Clerk Kirkland noted that Merrill Lynch was a part of Bank of America which had seen a large amount of litigation as a result of its acquisition of various mortgage companies back in 2008-2009 and may fear the same sort of actions from its Merrill Lynch acquisition. NEXT BOARD MEETING: The next board meeting is scheduled for April 16, 2015 at 7:15am ADJOURNMENT: Motion by Trustee Kleeman for adjournment at 11:23 a.m. Motion supported by Trustee Perry and concurred in by unanimous vote. ________________________________ Amy K. Kirkland, City Clerk
Retirees' Pension by Department Retirees' Pension by Department
February 2015 March 2015
Gen-NonUnionGen-Union Police Pol. Comm.Fire Water Sewer WWTP Gen-NonUnionGen-Union Police Pol. Comm.Fire Water Sewer WWTP
Apsey 139.09 Apsey 139.09
Archer 2,120.85 Archer 2,120.85
Arnett 2,990.04 Arnett 2,990.04
Austin 967.66 Austin 967.66
Baker 5,895.51 Baker 5,895.51
Benson 1,152.92 Benson 1,152.92
Bittell 2,940.33 Bittell 2,940.33
Blaha 1,766.30 Blaha 1,766.30
Blair 686.75 Blair 686.75
Bloomfield 3151.29 Bloomfield 3151.29
Borton, C 1,934.64 Borton, C 1,934.64
Burk, G 6,361.59 Burk, G 6,361.59
Bush, M 2,793.39 Bush, M 2,793.39
Butcher 1,108.32 Butcher 1,108.32
Compeau 1834.44 Compeau 1834.44
Conklin 918.29 Conklin 918.29
Coon 1,749.12 Coon 1,749.12
Craig 3296.66 Craig 3296.66
Crawford 3,077.07 Crawford 3,077.07
Dery 3,225.72 Dery 3,225.72
Duffield 3282.65 Duffield 3282.65
Fogle 905.66 Fogle 905.66
Gates 4,224.31 Gates 4,224.31
Geeting 1,851.54 Geeting 1,851.54
Groll, B 2904.89 Groll, B 2904.89
Guenther 4,490.12 Guenther 4,490.12
Hall, B 3,384.42 Hall, B 3,384.42
Hanzlovic 336.14 Hanzlovic 336.14
Hathaway 4,533.41 Hathaway 4,533.41
Hazel 1,401.37 Hazel 1,401.37
Hetfield 2067.57 Hetfield 2067.57
Horton, W 4,549.20 Horton, W 4,549.20
Hoshield, R 695.58 Hoshield, R 695.58
Jelinek 5,305.01 Jelinek 5,305.01
Jungnitsch 1,679.56 Jungnitsch 1,679.56
Kenney, J 4,550.95 Kenney, J 4,550.95
Kincaid, C 2,393.31 Kincaid, C 2,393.31
King, J 2,749.82 King, J 2,749.82
Kirk, T 2,073.30 Kirk, T 2,073.30
Kline, D 920.08 Kline, D 920.08
Kline, S 920.08 Kline, S 920.08
Krusyna 849.17 Krusyna 849.17
LaGuire 1,701.99 LaGuire 1,701.99
Lemos 1,833.44 Lemos 1,833.44
Lytle 456.81 Lytle 456.81
Marchok 3,609.90 Marchok 3,609.90
Marr, R 1,718.93 Marr, R 1,718.93
Marr, W 143.45 Marr, W 143.45
McCloskey 2,950.99 McCloskey 2,950.99
Monroe, H 910.85 Monroe, H 910.85
Morden, R 1,412.19 Morden, R 1,412.19
Moreno, G 147.08 Moreno, G 147.08
Morgan, J 91.72 Morgan, J 91.72
Norcross, W 2,152.36 Norcross, W 2,152.36
Owen, D 2,918.97 Owen, D 2,918.97
Pappas, 2,011.20 Pappas, 2,011.20
Pearsall 3,961.74 Pearsall 3,961.74
Plementosh 2,468.91 Plementosh 2,468.91
Rau 1646.1 Rau 1646.1
Reuther 1707.29 Reuther 1707.29
Robbins 4,382.57 Robbins 4,382.57
Roedel 2,980.44 Roedel 2,980.44
Rolfe 651.98 Rolfe 651.98
Schaufele 4,461.73 Schaufele 4,461.73
Schultz 5,063.71 Schultz 5,063.71
Selleck, P 3,583.59 Selleck, P 3,583.59
Shepard 1,024.25 Shepard 1,024.25
Speers, A 1,943.03 Speers, A 1,943.03
Speers, R 2,776.49 Speers, R 2,776.49
Stanhope 1882.69 Stanhope 3,514.36
Stanley, R 1,743.23 Stanley, R 1,743.23
Steck 1,387.20 Steck 1,387.20
Steere, D 3,132.70 Steere, D 3,132.70
Stephens, D 2,461.02 Stephens, D 2,461.02
Stephens, R 2512.36 Stephens, R 2512.36
Storrs 2,419.91 Storrs 2,419.91
Talbot 1,614.12 Talbot 1,614.12
Thomas 1017.67 Thomas 1017.67
Tilson 183.25 Tilson 183.25
Treadway 4,238.35 Treadway 4,238.35
West, W 2,285.21 West, W 2,285.22
Wheeler 3594.69 Wheeler 3594.69
Wiegel 849.88 Wiegel 849.88
Williams, J 5,423.52 Williams, J 5,423.52
Williams, R 6,873.37 Williams, R 6,873.37
Woodworth 1,118.78 Woodworth 1,118.78
46,303.11 18,164.75 27,263.57 3,480.54 59,096.29 32,554.87 5,269.15 13,495.50 205,627.78 46,303.11 18,164.75 28,895.24 3,480.54 59,096.30 32,554.87 5,269.15 13,495.50 207,259.46
REPORT OF CHECKS WRITTEN
February 2015 Checks Written
203,573.14 Pension + State/Fed withholding
reimbursed 3,146.24 PHP insurance
7,722.86 Franklin management fee
36,426.47 ML-Atlanta, Loomis, Sass, NFJ, WHV management fees
reimbursed 4,600.00 ML-consulting fee
255,468.71 Total checks for February 2015
March 2015 Checks Written
205,094.35 Pension + State/Fed withholding
reimbursed 2,900.00 City of Owosso - audit
reimbursed 550.00 Maper's Spring Conference Registration/Greenway & Fox
reimbursed 536.00 Soaring Eagle-Maper's Conference housing
209,080.35 Total checks for March 2015
submitted by Ronald J. Tobey, City Treasurer 4/8/15
March 25, 2015 Attn. Amy Kirkland, City Clerk Mr. Wilfred Farrell, Board Chairman Owosso Employee Retirement 301 W. Main Street Owosso, MI 48867
Dear Mr. Wilfred Farrell:
During recent discussions regarding the City of Owosso’s Police Command Division with MERS, we learned of the Request for Proposal (RFP) issued in search of Investment Consulting Services for the Retirement Board. MERS would welcome the opportunity to discuss with you the Investment Services Program that provides many of the benefits of traditional Investment Advisors, and more, at a lower cost than traditional investment advisors.
About MERS In 1945, MERS was created to administer public retirement plans and since that time, we have been partnering with municipalities throughout Michigan to provide retirement services. Currently, we partner with more than 800 municipalities, including the City of Owosso’s Command Division, and manage more than $9 billion in assets. With our focus and expertise with public sector retirement plans, MERS provides everything from plan governance to board investment education. Our nine-member Board, elected by our members, brings local voice, best practices and balanced representation that ensures the timely and cost-effective delivery of retirement benefits. MERS provides fiduciary oversight by maintaining plan governance and compliance, including a tax qualified plan reviewed by the IRS, coupled with investment best practices and management.
About MERS Investment Services Program The MERS Investment Services Program was created specifically for Michigan municipalities interested in investment services from MERS. We accept fiduciary responsibility for the investment of the assets. MERS proactively manages the assets within the asset allocation, as directed by the MERS Board. However, what sets the MERS Investment Services Program apart from other providers is instead of providing investment advice, MERS manages a number of funds from which the City of Owosso Employee Retirement System can choose to participate in to meet the investment objectives of the plan. This saves the city time and money required to complete asset allocation studies, investment manager searches, investment manager performance standards/guidelines and enforcement, conducting site visits, etc. because MERS handles these functions internally on behalf of the municipalities within MERS.
Low Cost and Transparency The MERS Investment Services Program provides much more than traditional investment advisors at a much lower cost. It provides access to funds which might not be available through traditional investment advisors, or at the same cost structure. Partnering with MERS means you benefit from our ability to negotiate lower fees due to the pooled assets in our portfolio.
Fiduciary responsibility Unlike other providers, the MERS Board assumes the role of plan fiduciary and proactively manages the assets within the asset allocation, as directed by the MERS Board. What sets the MERS Investment Services Program apart from other providers is instead of providing investment advice MERS manages a number of funds from which your Retirement Board can choose to participate in to meet the investment objectives of the Plan. Because the City is selecting from MERS managed funds, items such as asset allocation study and investment manager selection and oversight, is already done for you. This saves the City time and money.
The City of Owosso Employee Retirement System Retirement Board would remain in control of determining investments and asset allocation from the MERS menu of options. MERS would be available to provide an overview of these investment options and updates regarding your specific plan to Board Members as needed.
I look forward to the opportunity to further discuss how MERS and the Investment Services Program could be an investment solution for the City of Owosso Employee Retirement System. Please contact me at 517-703-1235 or [email protected].
Regards,
Colleen Kuehnel, Growth Manager Marne Carlson, Regional Manager
cc: Jessica Unangst, Human Resources Director
Donald Crawford, City Manager
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February 19, 2015 The following news summaries were developed by Gabriel, Roeder, Smith & Company to inform clients and other benefit professionals of news in the benefits industry. Our thanks to Mary Ann Vitale for her diligent work on this issue. If you would like to receive announcements of our publications via email, please go to our website at http://www.gabrielroeder.com and enter your email address in the “Sign-up for GRS Publications” box on the lower right side of the page and fill out the short form. To stop receiving our announcements electronically, click on the SafeUnsubscribe link at the bottom of our email announcements. Copies of this and other benefit-related publications are also available on the GRS website. Note: The authors of these summaries are not attorneys and the statements made are not legal advice or opinion. Qualified legal advice should be obtained before acting with regard to related laws and regulations. IRS Considers Proposed Regulations for Public Charter Schools to Participate in Public Pension Systems
On January 23, 2015, the Internal Revenue Service (IRS) and U.S. Treasury Department released Notice 2015-7 announcing proposed regulations under consideration regarding whether a state or local retirement system that covers employees of a public charter school is a governmental plan under Internal Revenue Code (IRC) § 414(d). Generally, IRC § 414(d) defines a governmental plan as, “a plan established and maintained for its employees by the Government of the United States, by the government of any State or political subdivision thereof, or by any agency or instrumentality of any of the foregoing.” Currently, there are no regulations interpreting § 414(d) or defining key terms relating to governmental plans. However, on November 8, 2011, the IRS issued an advance notice of proposed rulemaking (ANPRM) on the definition of a governmental plan.
In response, the IRS received over 2,000 comments from members of the public charter school community. According to Notice 2015-7, the commenters expressed concern that the guidance would “deter State or local retirement systems from permitting charter school employees participation in their retirement systems in order to retain their governmental plan status.” And therefore, “would jeopardize the retirement security of charter school employees and adversely affect charter schools’ ability to attract and retain teachers.” Currently, 42 states and the District of Columbia have laws authorizing the chartering of independent public schools of choice (i.e., public charter schools).
In proposing the public charter school guidance, Notice 2015-7 states that it will take several items into account, including: 1) the special and unique nature of public charter schools; 2) the governance structure associated with these schools; 3) the structure of many public school systems that permit or encourage public school teachers to move between public charter schools and traditional public schools; and 4) the relationship between public charter schools and the agencies authorized by the State or political subdivision of the State ... that hold these schools accountable for academic results.
Under Section III.A of Notice 2015-7, the guidance under consideration specifies that a charter school would have to meet various requirements including, but not limited to:
1) The entity is a nonsectarian independent public school serving a “governmental purpose” by providing tuition-free elementary or secondary education, or both;
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2) The entity is created and operated in accordance with a specific state statute authorizing the granting of charters to create independent public schools or authorizing the establishment of independent public schools; and
3) The entity’s employees are expressly required or permitted to participate in the state or local retirement system under applicable law.
In addition, there are more complicated requirements related to the governance, funding and ownership of a charter school. The principles described in Section III.A are expected to apply regardless of whether the retirement plan is a defined benefit, defined contribution, Section 403(b), or Section 457(b) governmental plan.
The notice also discusses the potential for broader transition relief for governmental plans after the final regulations under IRC § 414(d) are issued. Under the transition relief, the IRS and Treasury Department anticipate that charter schools will have until the effective date of the final regulations to make any changes needed to meet the requirements of the final regulations. Written comments on the proposed regulations are due by May 11, 2015.
Notice 2015-7 is available at: http://www.irs.gov/pub/irs-drop/n-15-07.pdf.
Detailed summaries have been published by The Groom Law Group and Ice Miller, available respectively at: http://www.groom.com/media/publication/1525_IRS_Issues_Transition_Relief_for_Charter_Schools_in_Public_Plans.pdf and http://www.icemiller.com/ice-on-fire-insights/publications/breaking-news-regarding-the-participation-of-chart/
IRS Cincinnati District Office Raises Issues Regarding DC DROPs On January 30, 2015, the law firm of Cypen & Cypen issued a C&C Special Supplement Newsletter for January 30, 2015, regarding Internal Revenue Service (IRS) issues related to deferred retirement option plans (DROPs) that are effectively defined contribution plans (referred to as “DC DROPs”). In December 2014, the IRS National Office issued a memorandum on applying Internal Revenue Code § 415(c) limits to DROPs, as reported by a number of sources, including GRS News Scan. As provided in the IRS memorandum, the amounts that are credited to a DROP should not be treated as subject to the IRC § 415(c) limit, unless all of the following conditions are met: 1) the DROP consists of segregated accounts for each participant; 2) earnings on the DROP are based solely on actual investment earnings (e.g., not set as a fixed or guaranteed return); and 3) the DROP does not provide for the accrual of investment earnings to cease at any time. However, as discussed in the C&C Special Supplement Newsletter, the IRS Cincinnati District Office (which is responsible for governmental plan determination letters) has raised questions as to how a DC DROP would satisfy the IRC requirement that a plan be “definitely determinable”. Moreover, the Cincinnati District Office is planning to request explanations from 75 governmental plans having pending determination letters as to how their DC DROPs would satisfy the definitely determinable rule. The C&C Special Supplement Newsletter concludes by suggesting that “trustees keep informed of the status of the situation and turn to their counsel for specific advice.” The C&C Special Supplement Newsletter is available at: http://www.cypen.com/pubs/01-15/2015jan30_supp.htm NASRA Releases Public Fund Survey Findings for FY 2013
On January 28, 2015, the National Association of State Retirement Administrators (NASRA) released its Public Fund Survey Summary of Findings for FY 2013. The survey presents key data from 99 public defined benefit (DB) retirement systems with 126 plans, covering 12.6 million active members, 8.2 million retirees and other annuitants, and holding $2.86 trillion in assets. Overall, the retirement systems surveyed represent approximately 85% of state and local DB plan membership and assets as of fiscal year (FY) 2013. The Summary of Findings
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presents information regarding plan funding, membership, benefits, contribution rates, cash flows, and actuarial assumptions. According to the report:
• The average actuarial funded ratio for the surveyed plans was 71.8% in FY 2013, down from 73.5% in FY 2012. Between FY 2012 and FY 2013, the aggregate actuarial value of assets increased 3.4%, while the aggregate actuarial value of liabilities increased 5.9%, leading to the decline in the aggregate funded ratio. However, many state and local plans smooth investment gains and losses into the actuarial value of assets over time (typically five years and sometimes longer). Moreover, most plans have nearly completed recognizing their 2008-2009 investment losses, which have been partially offset by investment gains since 2008. As a result, funding ratios may rise in FY 2014.
• Growth in pension liabilities has trended downward over the decade, from an annual rate of about 8% in FY 2002 to about 4% in FY 2010. For four consecutive years, the median rate of pension liability growth has remained below 4.5%, as a result of low salary growth and benefit reductions due to pension reforms.
• The combined allocation of plan assets to public equities and fixed income securities declined from 75.0% in FY 2012 to 73.9% in FY 2013. At the same time, allocations to real estate continued to increase and allocations to alternative investments (such as private equity and hedge funds) have remained steady. Reaching its lowest level in FY 2013, the allocation to fixed income securities decreased to 23.7%.
• The median annual investment return was 12.0% for plans with fiscal years ending 6/30/2013 (approximately 75% of the plans in the survey) and 16.1% for plans with fiscal years ending 12/31/2013. Investment returns for longer periods are mostly strong except the five-year returns which include the sharp decline in 2008-2009. However, for longer periods (i.e., 20 years and more), the median actual investment returns are closer to the assumed returns used by most plans.
• For most of the Public Fund Survey’s measurement period, the median investment return assumption used by public pension plans was 8.0%. However, in FY 2013, the median actuarial assumption for investment return was 7.75% and the median assumption for the real rate of return was 4.5%. Notably, since 2009, many plans have reduced their investment return assumptions. Also, rates above 8.5% have been eliminated and four plans have adopted rates below 7.0%.
• The number of plans receiving at least 90% of their Annual Required Contribution (ARC) has been increasing since FY 2011, reaching about 65% of plans in FY 2013. However, effective in FY 2014, public pension plans are no longer required by the Governmental Accounting Standards Board (GASB) to calculate and report an ARC. Instead, under GASB Statement No. 67, public plans (except for agent plans) are required to report their “actuarially determined contribution” (ADC)1 which should be included in the retirement system’s financial reports.
The survey data are available online for each individual retirement system and plan. The data include: plan membership, actuarial assumptions and methods, plan assets and liabilities, contribution rates, and system asset allocations, among other information. Selected data can also be viewed via comparative tables that allow sorting on selected items and provide graphs of selected data (e.g., inflation and investment return assumptions). The survey is available at: http://www.publicfundsurvey.org. Registration is required to access the data. However, after registration, the data are available at no charge.
U.S. Census Bureau Finds Large Public Pension Systems’ Assets Decreased 1.8% in the Third Quarter of 2014
On December 31, 2014, the U.S. Census Bureau reported that total holdings and investments for the 100 largest state and local government pension systems decreased 1.8% from the previous all-time-high of $3,365.4 billion at the end of the second quarter of 2014 to $3,305.2 billion at the end of the third quarter of 2014. The decline in assets for the quarter was due to negative earnings, making the third quarter of 2014 the first quarter to experience 1 Per GASB Statement Nos. 67 and 68, an ADC is “A target or recommended contribution to a defined benefit pension plan for the reporting period, determined in conformity with Actuarial Standards of Practice based on the most recent measurement available when the contribution for the reporting period was adopted.”
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negative earnings since the third quarter of 2012. However, compared with the third quarter of 2013, assets increased 8.0%. During the third quarter of 2014:
• Earnings on investments were -$43.0 billion, down from $129.4 billion in the second quarter of 2014; • Government contributions were $25.0 billion, up from $24.0 billion in the second quarter of 2014; and • Employee contributions were $9.8 billion, down from $11.3 billion in the second quarter of 2014.
During the third quarter, holdings and investments in corporate stocks decreased 0.7% to $1,168.1 billion, corporate bonds increased 2.7% to $381.3 billion, international securities decreased 4.9% to $624.5 billion, and federal government securities increased 0.1% to $308.1 billion.
The results are from the U.S. Census Bureau’s Quarterly Survey of Public Pensions which surveys the revenues, expenditures, and composition of assets for the 100 largest U.S. public employee retirement systems. The report also provides a table showing the quarterly percentage changes in cash and investment holdings by major investment category from the first quarter of 2009 to the third quarter of 2014. However, in the first quarter of 2012, the survey was revised to implement changes in asset classification. As a result, data comparisons of asset amounts before and after the first quarter of 2012 should be made with caution.
The report is at: https://www.census.gov/content/dam/Census/library/publications/2014/econ/g14-qspp3.pdf Commonwealth Fund Finds ACA Reversing Uninsured Trends and Lowering Costs On January 15, 2015, The Commonwealth Fund released its report, The Rise in Health Care Coverage and Affordability Since Health Reform Took Effect. The report is based on findings from the Commonwealth Fund Biennial Health Insurance Survey, 2014. According to the survey, the Affordable Care Act (ACA) is reversing uninsured trends and lowering cost barriers for the working-age population (ages 19-64). In 2014, the ACA’s subsidized insurance options and consumer protections reduced the number of uninsured working-age Americans from an estimated 37 million (or 20% of the population) in 2010 to 29 million (or 16%) in 2014. For the first time since the survey began in 2001, fewer adults reported cost-related access problems and medical-related financial difficulties. Those with cost-related access problems decreased from 80 million (or 43% of the working-age population) in 2012 to 66 million (or 36%) in 2014, and those with medical-related financial difficulties declined from an estimated 75 million (or 41%) in 2012 to 64 million (or 35%) in 2014. Other key findings include:
• In 2014, 6.7 million Americans enrolled in the ACA’s marketplace health plans; • The uninsured rate for young adults ages 19-34 declined from 27% in 2010 to 19% in 2014 mainly due to
coverage for those age 26 and under being eligible for their parent’s health coverage, protections in college health plans, subsidized marketplace plans and expanded eligibility for Medicaid;
• For adults with incomes below 200% of the federal poverty level ($22,980 for an individual and $47,100 for a family of four), the uninsured rate fell from 36% in 2010 to 24% in 2014;
• About 94% of adults who were insured all year reported having a regular doctor or source of care compared with 71% of those who were uninsured during the year.
• Of the remaining 29 million uninsured adults ages 19-64, 61% lived in states that did not expand their Medicaid programs.
The brief indicates that high deductibles and excessive cost-sharing for individuals across all insurance types may jeopardize the improvements in cost-related access and medical bill burdens. Although the nationwide uninsured rate has declined, the uninsured rates remain high among low-income adults, particularly in states that rejected Medicaid expansions.
The Commonwealth Fund report is at: http://www.commonwealthfund.org/~/media/files/publications/issue-brief/2015/jan/1800_collins_biennial_survey_brief.pdf?la=en
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March 4, 2015 The following news summaries were developed by Gabriel, Roeder, Smith & Company to inform clients and other benefit professionals of news in the benefits industry. Our thanks to Mary Ann Vitale for her diligent work on this issue. If you would like to receive announcements of our publications via email, please go to our website at http://www.gabrielroeder.com and enter your email address in the “Sign-up for GRS Publications” box on the lower right side of the page and fill out the short form. To stop receiving our announcements electronically, click on the SafeUnsubscribe link at the bottom of our email announcements. Copies of this and other benefit-related publications are also available on the GRS website. Note: The authors of these summaries are not attorneys and the statements made are not legal advice or opinion. Qualified legal advice should be obtained before acting with regard to related laws and regulations. State and Local Government Organizations Issue Fact Sheet on Public Finance and Pensions
In February 2015, the National Governors Association (NGA), National Conference of State Legislatures (NCSL), National Association of State Retirement Administrators (NASRA), Government Finance Officers Association (GFOA) and seven other organizations representing public sector officials and employees published a fact sheet titled, State and Local Fiscal Facts: 2015. The fact sheet is intended to help state and local officials inform the media and policymakers regarding state and local finances, municipal bonds and public pension issues. A few of the stated facts include:
• Over the last several years, state and local fiscal conditions have been improving and the trend is expected to continue in 2015.
• In FY 2015, 43 states enacted higher general fund spending than in FY 2014, which indicates more stabilized fiscal conditions.
• In FY 2015, 41 states and the District of Columbia expect to meet or exceed their revenue projections. • Although there were 92 credit-rated municipal bond defaults from 1970 through 2014, the majority were
issued by not-for-profit hospitals or housing project financings. Only six were credit-rated city or county governments.
• As of September 30, 2014, state and local retirement trusts held $3.7 trillion in assets and, on average, the 2013 funded level was 72%.
• From 2009 to 2014, every state and many local governments addressed their long-term pension concerns by making changes to pension benefit levels, employer and employee contributions, or both.
• On average, the share of combined state and local government spending that is dedicated to retirement system contributions is 4%.
The fact sheet is available at: http://www.nasra.org/files/JointPublications/State%20and%20Local%20Fiscal%20Facts.pdf
GFOA Publishes Best Practice on Portfolio Risk Assessment and Advisory on Pension Obligation Bonds
In January 2015, the Executive Board of the Government Finance Officers Association (GFOA) approved 10 Best Practices (BP) and Advisories related to budgeting, accounting, retirement benefits administration, debt issuance
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and investment management. The GFOA regularly develops BPs to serve as guidance on selected topics for state and local governments. It also develops Advisories to caution against certain practices.
In a new Best Practice titled, Using Benchmarks to Assess Portfolio Risk and Return, the GFOA’s Treasury Investment Management Committee recommends that government investors assess their investment portfolio for performance and risk by comparing the total return to carefully selected benchmarks. Using benchmarks helps to verify that investment objectives are being met and that investment returns are appropriate for the risk incurred. The GFOA recommends that total return comparisons be completed at least on a quarterly basis and more frequently for portfolios with large investments and those managed by external providers. By analyzing the total return, investment managers can adjust the portfolio’s risk if it extends beyond the benchmark’s acceptable variance. A benchmark should be selected that reflects the portfolio’s policy constraints and management practice related to duration, maturity range, security types, sector allocations and credit quality.
In addition, the GFOA also updated an existing Advisory titled, Pension Obligation Bonds, which cautions governments to avoid issuing pension obligation bonds (POBs) and summarizes the associated risks. In some cases, state and local governments have tried to fund their pension shortfalls by issuing POBs. According to the Advisory, the use of POBs involves considerable risk and assumes that the bond proceeds invested in higher-yielding assets will be able to earn higher returns than the interest rate owed over the term of the bonds. The GFOA cautions against the use of POBs for the following reasons, among others:
1. If the POB proceeds do not earn more than the interest rate owed over the term of the bonds, the government’s overall liabilities will increase.
2. POBs are complex and involve considerable risk (i.e., credit risk, interest rate risk, and counterparty risk). 3. A government’s bonded debt burden increases due to issuing taxable debt to fund the pension liability. 4. A government’s overall costs may increase since POBs may defer the principal payments or extend
repayment over a period longer than the actuarial amortization period. 5. Rating agencies may not consider the proposed issuance of POBs as credit positive.
The BP and Advisory are available respectively at: http://gfoa.org/sites/default/files/BP_UsingBenchmarks.pdf and http://gfoa.org/sites/default/files/ADV_PENSION_OBLIGATION_BONDS_1.pdf
NIRS Finds Increased Costs When States Switch from DB Plans to DC Plans On February 10, 2015, the National Institute on Retirement Security (NIRS) released its report, Case Studies of State Pension Plans that Switched to Defined Contribution Plans. The case studies include plans in Alaska, Michigan, and West Virginia. Generally, the studies found that states that switched from defined benefit (DB) pension plans to defined contribution (DC) 401(k)-type plans experienced higher pension plan costs. According to the report:
• Changing from a DB plan to a DC plan did not help solve the existing underfunding problem, but rather increased the pension plan costs. Switching to a DC plan does not, by itself, lower the costs or liabilities of the DB plan. Moreover, since the new employees contribute to the DC plan, the loss of their contributions to the DB plan makes it more difficult to fund the DB plan. And, as active employees in the DB plan retire, there are fewer active employees to make contributions and so the plan sponsor is responsible for more of the costs.
• In addition, workers under the DC plan faced increased levels of retirement insecurity. As discussed in the case studies, members in the DC plans had difficulty accumulating account balances that would provide them with an adequate retirement income, due partly to lower rates of investment return and the bear markets from 2000-2002 and 2008-2009.
According to a press release from NIRS Executive Director, Diane Oakley, “These case studies are important cautionary examples for policymakers examining retirement plans in their states. It’s clear that closing a pension plan to new employees doesn’t fill overdue funding gaps or reduce the cost of providing employees’ pensions, and in fact has had the opposite effect of increasing costs to taxpayers. Moreover, employees that moved to
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individual DC accounts found themselves with inadequate retirement account balances. We hope our research helps policymakers avoid the mistakes of these states.”
The case studies are available at: http://www.nirsonline.org/storage/nirs/documents/Case%20Studies/public_pension_resource_guide_-_case_studies_of_state__pension_plans_that_switched_to_defined_contribution_plans.pdf
CRR Updates Database for State and Local Pension Plans
In January 2015, the Center for Retirement Research at Boston College (CRR) released its updated Public Plans Database (PPD), which was sponsored by the Center for State and Local Government Excellence (SLGE). The new database contains annual state and local pension data for 2001-2012, with nearly 90 variables related to plan funding, benefits, membership, assets and governance. The plans include 150 state and local pension plans. The online database interface allows users to:
• Browse tables containing aggregate and individual plan statistics; • Create tables by searching data for specified time periods and across various plans; and • Download data to conduct an in-depth analysis.
The database is accessible at: http://crr.bc.edu/data/public-plans-database/
NASRA Updates Issue Brief on Public Pension Plans’ Employee Contributions
In February 2015, the National Association of State Retirement Administrators (NASRA) updated its issue brief, Employee Contributions to Public Pension Funds. The brief analyzes employee contribution plan designs, policies and recent trends. As discussed in the brief, nearly all state and local government employees are required to contribute to the cost of their retirement benefits, with employee contributions typically ranging between 4% and 8% of an employee’s salary. In addition, the report indicates that 25-30% of state and local government employees do not participate in Social Security. In many cases, those who do not participate in Social Security have a higher pension benefit and higher required contributions as compared with those who do participate in Social Security.
According to the brief, after the market decline in 2008-2009, 35 state governments (including Puerto Rico) increased their employee contribution rates. Moreover, an increasing number of states are exposing employee contributions to risk either by: 1) linking employee contribution rates to the pension plan’s investment return; or 2) establishing a hybrid or 401(k)-type plan, thereby transferring the related investment risk from the employer to the employee. Other recent trends in employee contributions include:
• Maintaining a variable employee contribution rate based on the pension plan’s actuarial condition; and • Increasing employee contribution rates when labor agreements are negotiated.
The legality of increasing employee contributions varies by state. In some states, courts have ruled that legislative efforts to increase employee contributions are a violation of the state constitution or contractual rights. However, in other states, higher employee contributions have either withstood or have not been subject to legal challenges. The outcome of current legal challenges will likely affect future reform issues. The brief includes an appendix of employee contribution rates for 116 individual statewide retirement plans and identifies whether or not plan members have Social Security coverage. The issue brief is available at: http://www.nasra.org/files/Issue%20Briefs/NASRAContribBrief.pdf
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SLGE Issues Brief on City and County Supplemental Retirement Savings Plans On January 30, 2015, the Center for State and Local Government Excellence (SLGE) released its issue brief, Importance of Supplemental Retirement Savings Plans for City and County Employees. The brief is the final in a three-part series that examines employee participation in primary and secondary retirement plans, retiree health care benefits, and Social Security in 20 large U.S. cities and counties. The key findings include:
• City or county employees are more likely to participate in supplemental plans when governments have matching contributions, provide multiple plans, and offer online enrollment.
• Employees covered by less generous primary pensions are more likely to contribute to voluntary supplemental retirement plans.
All of the 20 selected state and local governments in the sample have a primary defined benefit plan that requires employee contributions and at least one voluntary supplemental savings plan. In 16 of the 20 governments examined, employees are covered by Social Security. The study found that, in most cases, the governments also offer a 457(b) plan. The brief notes that local government workers with shorter career tenure will likely need to build retirement wealth with supplemental retirement savings plans.
In addition to its analysis, the report also includes several tables summarizing the data from the previous two issue briefs. The tables cover participation rates in supplemental savings plans related to: 1) the defined benefit (DB) plan replacement rate; 2) Social Security coverage; 3) the employee contribution rate to the DB plan; and 4) plan characteristics.
The brief is available at: http://slge.org/wp-content/uploads/2015/01/Importance-of-Supplemental-Retirement-Savings-Plans-for-City-and-County-Employees-01-15.pdf
The Commonwealth Fund Reports on State Trends in the Cost of Employer Health Insurance Coverage
On January 8, 2015, The Commonwealth Fund released its report, State Trends in the Cost of Employer Health Insurance Coverage, 2003-2013. The report analyzes trends in the growth of health insurance premiums and deductibles on a state-by-state basis over the 10-year period. According to the report, employer-provided health insurance premiums, deductibles and copayments have increased substantially over the past decade. As presented in Tables 1a, 1b, 4a, and 4b at the back of the report:
• Average premiums (including both employer and employee portions) for single-person coverage grew 60% from $3,481 in 2003 to $5,571 in 2013. Premiums for family coverage grew 73% from $9,249 in 2003 to $16,029 in 2013.
• Annual employee contributions for single-person premiums increased from $606 (17% of total premiums) in 2003 to $1,170 (21% of total premiums) in 2013. Employee contributions for family coverage grew from $2,283 (25% of total premiums) in 2003 to $4,421 (28% of total premiums) in 2013.
As discussed in the report, employer-sponsored health insurance premiums grew more slowly in 31 states and the District of Columbia from 2010 to 2013, due to the Affordable Care Act (ACA). However, over the same period, wages grew even more slowly. As a result, average annual health insurance premiums in 2013 (including both employer and employee portions) comprised 20% or more of household income in 37 states, as compared with only two states in 2003.
The authors conclude that policymakers will be required to “pursue reforms that improve the quality of health care, rein in cost growth, and ensure that savings are shared with patients and families across the income spectrum.”
The report is available on the web at: http://www.commonwealthfund.org/~/media/files/publications/issue-brief/2015/jan/1798_schoen_state_trends_2003_2013.pdf?la=en
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March 19, 2015 The following news summaries were developed by Gabriel, Roeder, Smith & Company to inform clients and other benefit professionals of news in the benefits industry. Our thanks to Mary Ann Vitale for her diligent work on this issue. If you would like to receive announcements of our publications via email, please go to our website at http://www.gabrielroeder.com and enter your email address in the “Sign-up for GRS Publications” box on the lower right side of the page and fill out the short form. To stop receiving our announcements electronically, click on the SafeUnsubscribe link at the bottom of our email announcements. Copies of this and other benefit-related publications are also available on the GRS website. Note: The authors of these summaries are not attorneys and the statements made are not legal advice or opinion. Qualified legal advice should be obtained before acting with regard to related laws and regulations. GASB Issues Statement No. 72 Regarding Fair Value Measurement and Application On February 27, 2015, the Governmental Accounting Standards Board (GASB) issued Statement No. 72, Fair Value Measurement and Application. The Statement provides final guidance on the accounting and financial reporting issues related to fair value measurements, primarily applicable to investments made by state and local governments. The guidance: 1) defines fair value and describes how it should be measured; 2) identifies the assets and liabilities that should be measured at fair value; and 3) identifies the fair value information that should be disclosed in the notes to the financial statements. As provided in GASB Statement No. 72, fair value is defined as, “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” An investment is defined as, “a security or other asset that (a) a government holds primarily for the purpose of income or profit and (b) has a present service capacity based solely on its ability to generate cash or to be sold to generate cash.” The guidance requires most investments to be measured at fair value, but exclusions apply for some investments, such as those in external pools and money market investments. The Statement also provides information on how to apply fair value for investments when market values are not readily available. In addition, the guidance changes the measurement of capital assets (i.e., donated works of art, historical treasurers and similar assets) from fair value (exit price), as previously required, to acquisition value (entry price). In a recent publication, GASB in Focus, the GASB clarifies that Statement No. 72 changes current practice under Statements No. 25 and No. 31. The publication also summarizes the major provisions of Statement No. 72, which are intended to improve the consistency and comparability of how governments measure and apply fair value and disclose information about those measurements. Moreover, it explains that governments are required to use valuation techniques that are appropriate under the circumstances and for which sufficient data are available to measure fair value. The valuation techniques should be consistent with one of three approaches, as follows:
1. Market approach - uses prices and relevant market information to determine measurement; 2. Cost approach - reflects the amount required to replace the service capacity of the asset; or 3. Income approach - converts future amounts (i.e., cash flows) into a single current amount.
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According to the new rules, when first applying the guidance, entities are required to treat changes as an adjustment of prior periods. When practical, financial statements for the affected periods should be restated. The cumulative effect would need to be reported as a restatement of beginning net position or fund balance for the earliest period (generally the current period). The requirements of Statement No. 72 are effective for financial statements for reporting periods beginning after June 15, 2015, although earlier application is encouraged. GASB Statement No. 72 and GASB in Focus are available at: http://www.gasb.org/ P2F2 Comments on AICPA Whitepaper Regarding Testing Census Data for Public Pension Plans On February 19, 2015, the President of the Public Pension Financial Forum (P2F2), Dave DeJonge, issued a comment letter to the American Institute of Certified Public Accountants (AICPA). The comments relate to the AICPA Whitepaper titled “Single-Employer and Cost-Sharing Multiple-Employer Plans: Issues Associated with Testing Census Data in an Audit of Financial Statements.” The comments apply to guidance from the Whitepaper that could ultimately be included in the AICPA’s State and Local Governments Audit and Accounting Guide (AICPA SLG Guide), expected to be released later this year. The P2F2 was established in 2004 and represents public pension plan finance professionals across the United States, many of whom are also members of the AICPA. The Whitepaper was issued in 2014 by the AICPA State and Local Government Expert Panel. It addresses the responsibility of single-employer plans and cost-sharing plans to obtain the necessary census data to ensure there is no material misstatement in the plan’s total pension liability, contribution revenue, and contributions receivable. Moreover, it would require an auditor to test the payroll records at the employer sites. The P2F2 letter agrees with the Whitepaper regarding the plan auditor’s responsibilities to identify and assess the risks of material misstatement. However, it disagrees with the Whitepaper’s requirement that plan auditors be required to test the underlying payroll records at the employer sites. As stated in the letter: “Our members are highly concerned over the significant efforts and costs (exceeding $200,000 annually for some plans) being incurred to address potential risks that could never rise to the level of a material misstatement to the financial statements of the plan or to the separate elements of total pension liability, contribution revenue, and contributions receivable.” The letter concludes: “We feel strongly that the AICPA should preserve auditor judgment in the audit process and leave the determination of audit procedures over census data at the plan auditor level.” The letter is available at: http://www.p2f2.org/assets/pdfs/professional_resources/DOC021915.pdf NASRA Updates Brief Regarding State and Local Government Spending on Public Pensions
In February 2015, the National Association of State Retirement Administrators (NASRA) updated its standing issue brief, State and Local Government Spending on Public Employee Retirement Systems. The brief examines the cost of pension benefits for state and local governments and finds that, based on U.S. Census Bureau data, about 3.9% of all state and local government direct general spending was used to fund pension benefits in 2012.1 Moreover, state and local government direct general spending on public pensions has remained relatively stable over the past 30 years, averaging about 5% in the 1980s, declining to about 2.3% in fiscal year 2002 and rising to 3.9% by 2012.
The brief also finds that state and local government spending on pensions varied from 1.44% of total spending to more than 7% in 2011. This variation was mostly due to: 1) differences in benefit levels, and 2) differences in the magnitude of unfunded pension liabilities. As a percentage of total spending, pension costs are about 33% higher for cities than for state governments over the 30-year period from 1984-2013. In part, this is attributable to: 1) the
1 Direct general spending includes all government expenditures except intergovernmental transfers. Generally, it includes expenditures for government operations and capital outlays as well as for payments to current and retired employees.
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types of services delivered at the local level, and 2) a larger share of local government budgets allocated to employees’ salaries. The brief also clarifies that state and local government pension benefits are paid from the plan’s trust funds rather than from general operating revenues. Public pensions are financed from the combination of employee contributions, employer contributions and investment returns. Since 1984, investment earnings amounted to about 62% of all public pension plan revenues, with an additional 26% from employer contributions, and 12% from employee contributions. The brief concludes that public retirement programs “remain a relatively small part of state and local government spending.” Moreover, “states and cities with a history of paying their required pension contributions are in better condition and have needed more minor adjustments to benefits or financing arrangements compared to those with a history of not adequately making their contributions.” The brief also includes a table showing state and local government pension contributions in 2012 as a percentage of state and local government direct general spending on a state-by-state basis. The brief is available at: http://www.nasra.org/files/Issue%20Briefs/NASRACostsBrief.pdf NIRS Finds 86% of Americans are Concerned that the Nation Faces a Retirement Crisis On March 3, 2015, the National Institute on Retirement Security (NIRS) released its biennial nationwide public opinion research report, Retirement Security 2015: Roadmap for Policy Makers. NIRS commissioned the report to assess how Americans feel about financial security in retirement and to get their views on public policies that could improve the retirement outlook. According to the survey, 86% of Americans believe that the nation faces a retirement crisis and 74% are concerned about retirement security. The research findings are intended to help policymakers and other stakeholders develop ways to improve the U.S. retirement system. Key findings include:
• Americans believe there is a retirement crisis. About 86% of respondents agree that the nation faces a retirement crisis, with 57% strongly agreeing.
• Americans consider retirement benefits almost as important as salary. About 75% of respondents consider salary to be an important job feature and 72% consider retirement benefits to be important.
• Pensions are reliable and help relieve retirement anxiety. About 86% of respondents believe that those with pensions are more likely to have a secure retirement. About 67% would be willing to take less pay increases in exchange for guaranteed retirement income.
• Americans strongly support pensions for public employees. About 87% of Americans indicated that pensions are effective to recruit and retain qualified teachers, police officers and firefighters. Only 25% realized that public employers pay 25% or less of public pension costs with the remaining 75% being paid with employee contributions and investment returns.
• Americans believe protecting Social Security benefits is increasingly important. About 73% of respondents oppose government spending cuts to reduce Social Security benefits for current retirees, up from 67% in 2013. For future generations, 69% oppose cutting government spending that reduces Social Security benefits.
The report is available at: http://www.nirsonline.org/storage/nirs/documents/2015%20Opinion%20Research/final_opinion_research_2015.pdf IRS Issues Notice Regarding Excise Tax on High Cost Employer-Sponsored Health Coverage On February 23, 2015, the U.S. Treasury Department and the Internal Revenue Service (IRS) issued Notice 2015-16 discussing possible approaches to future regulations related to the excise tax on high cost employer-sponsored health care (also known as the “Cadillac Tax”). The excise tax was added as Internal Revenue Code (IRC) § 4980I by the Affordable Care Act and applies to taxable years beginning after December 31, 2017. The Notice
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is the first of several notices developing federal regulations related to the tax. Key issues discussed in the Notice include: 1) defining applicable coverage; 2) determining the cost of applicable coverage; and 3) determining the applicable dollar limit. Under IRC § 4980I, if the aggregate cost of “applicable employer-sponsored coverage” (referred to as “applicable coverage”) provided to an employee exceeds a statutory dollar limit, the excess is subject to a 40% excise tax. For this purpose, the term “employee” includes a former employee, surviving spouse, or other primary insured individual. The baseline dollar limits for 2018 are $10,200 for employees with self-only coverage and $27,500 for employees with other-than-self-only coverage (e.g., spousal and family coverage). Cost-of-living adjustments will be applied to the dollar limits after 2018. Depending on the circumstances, the dollar limits may also be adjusted for age, gender, retirement status, and whether the employee is in a high-risk profession. Defining Applicable Coverage. Under IRC § 4980I, the term “applicable coverage” is coverage under any group health plan made available to the employee by an employer which is excludable from the employee’s gross income under IRC § 106 (or would be if it were employer-provided coverage). Applicable coverage includes: Health FSAs, Archer MSAs, HSAs, governmental plans, on-site medical clinics, retiree coverage, multiemployer plans, and coverage for specific diseases/illnesses if the coverage is excludible from gross income. Applicable coverage excludes: accident or disability income insurance, liability insurance, workers’ compensation, automobile medical payment insurance, long-term care, dental and vision insurance, and certain other insurance that is not excludable or deductible from gross income. The Notice anticipates that employer contributions to HSAs and Archer MSAs (including salary reductions to HSAs) will be included in applicable coverage, but employee after-tax contributions to HSAs and Archer MSAs will be excluded from applicable coverage. Determining the Cost of Applicable Coverage. Under IRC § 4980I, the cost of applicable coverage is determined under rules similar to those defining the “applicable premium” for COBRA continuation coverage. Generally, the COBRA applicable premium is based on the average cost of providing coverage under the plan for similarly situated individuals, rather than coverage based on the characteristics of each individual. However, a number of issues arise in determining the applicable premium, including: 1) how to determine which non-COBRA beneficiaries are similarly situated; 2) the specific methods self-insured plans may use to determine the premium; and 3) how to determine the premium for HRAs. The Notice requests comments on these issues. Determining the Applicable Dollar Limit. IRC § 4980I also provides different dollar limits for employees with self-only coverage ($10,200 in 2018) and employees with other-than-self-only coverage ($27,500 in 2018). Generally, an employee is treated as having self-only coverage, unless: 1) the employee is enrolled in other-than-self-only coverage in a group health plan which provides minimum essential coverage (MEC) to the employee and at least one other beneficiary; and 2) the MEC does not vary based on whether any individual covered is the employee or another beneficiary. However, in some situations, an employee may simultaneously have both self-only coverage and other-than-self-only coverage. In such cases, the IRS is asking for comments regarding which of the two dollar limits should apply or whether a composite dollar limit should be determined, possibly by prorating the two dollar limits based on the costs of the self-only and the other-than-self-only coverage. In addition to the issues mentioned above, Treasury and the IRS are inviting comments on a variety of other issues related the excise tax rules. The comments are due by May 15, 2015. IRS Notice 2015-16 is available at: http://www.irs.gov/pub/irs-drop/n-15-16.pdf The Groom Law Group’s summary of IRS Notice 2015-16 is available at: http://www.groom.com/media/publication/1551_Treasury-IRS_Take_First_Step_In_Implementing_40__High-Cost_Cadillac_Excise_Tax_with_Notice_2015-16.pdf
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April 1, 2015 The following news summaries were developed by Gabriel, Roeder, Smith & Company (GRS) to inform clients and other benefit professionals of news in the benefits industry. Our thanks to Mary Ann Vitale for her diligent work on this issue. If you would like to receive announcements of our publications via email, please go to our website at http://www.gabrielroeder.com and enter your email address in the “Sign-up for GRS Publications” box on the lower right side of the page and fill out the short form. To stop receiving our announcements electronically, click on the SafeUnsubscribe link at the bottom of our email announcements. Copies of this and other benefit-related publications are also available on the GRS website. Note: The authors of these summaries are not attorneys and the statements made are not legal advice or opinion. Qualified legal advice should be obtained before acting with regard to related laws and regulations. SOA’s Retirement Plans Experience Committee Seeks to Compile Data for Public Pension Plan Mortality Study In March 2015, the Society of Actuaries (SOA) issued a request for proposal (RFP) related to “Data Cleansing and Validation for Public Pension Plan Mortality Study/Tables.” The data will be used by the SOA’s Retirement Plans Experience Committee (RPEC), chaired by David T. Kausch, Chief Actuary for GRS, to develop an experience study report and mortality tables that will be used in consideration of selecting an appropriate mortality assumption for measuring public pension obligations. Assembling and cleansing the data is the first step in an extensive process of developing new tables. The selected vendor will work with the RPEC to collect data from large and/or statewide public employee retirement systems (PERS) beginning this summer. The RPEC hopes to get broad participation from PERS to make the analysis more robust and the final tables more specific to public plans. Further information is available at: https://www.soa.org/Research/Research-Opps/Proposal-Request/data-clensing-validation-public-pension-plans.aspx NASRA Releases Study of State Retirement Plans’ ARC Experience On March 12, 2015, the National Association of State Retirement Administrators (NASRA) published its report, Spotlight on The Annual Required Contribution Experience of State Retirement Plans, FY 01 to FY 13. The study details the annual required contribution (ARC) experience of 112 statewide pension plans in every state and the District of Columbia from fiscal years 2001 to 2013. Collectively, these plans account for over 80% of all public pension assets and participants. Over the 13-year measurement period, the study indicated that: 1) the aggregate ARC for all plans rose sharply from $27.7 billion in FY 2001 to $93.7 billion in FY 2013; 2) all but six states paid at least 75% of their ARC; and 3) the average plan received 89.3% of its ARC. The report defines the ARC as, “the amount needed to be contributed by employers to adequately fund a public pension plan. The ARC is the sum of two factors: a) the cost of pension benefits being accrued in the current year (known as the normal cost), plus b) the cost to amortize, or pay off, the plan’s unfunded liability. The ARC is the required employer contribution after accounting for other revenue, chiefly expected investment earnings and contributions from employee participants.” However, effective in FY 2014, public pension plans are no longer
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required by the Governmental Accounting Standards Board (GASB) to calculate and report an ARC. Instead, under GASB Statement No. 67, public plans (except for agent plans) are required to report their “actuarially determined contribution” (ADC)1 which should be included in the retirement system’s financial reports. Other key findings include:
• Policies that require payment of the ARC (i.e., constitutional provisions, statutes, or retirement board requirements) generally produced better pension funding outcomes. However, some plan sponsors consistently paid their ARC without a requirement to do so.
• Despite statutory requirements, some states failed to fund their pension plans. Failing to make a good-faith effort (defined as “paying 95% or more of the ARC”) increases future costs of funding the pension. Half of all plans received at least 95% of the ARC.
• Policy constraints that limit payment of the ARC are more likely to negatively affect the ability of employers to fund the pension plan.
The report concludes that, “Evidence strongly indicates that most states and local governments sponsoring pension plans in this study made a good-faith effort to fund all or most of their required contributions since 2001, and that the minority of states who fell well short of their ARC requirements disproportionately impact the overall average experience of public pensions receiving their annual required contributions.” It added, “Even though the ARC as defined in previous GASB statements no longer will be included in government accounting standards, public pensions are expected to continue to calculate an actuarially determined annual contribution amount, and new GASB standards will require disclosure of the effort made to fund this amount.” The report is available at: http://www.nasra.org/files/JointPublications/NASRA_ARC_Spotlight.pdf Federal Reserve Reports Public Pension Assets Increased to $3.78 Trillion in the Fourth Quarter of 2014 On March 12, 2015, the Board of Governors of the Federal Reserve released its Financial Accounts of the United States statistical report for the fourth quarter of 2014. On page 98, the report shows that state and local government employee retirement fund assets totaled $3.78 trillion on December 31, 2014, up from $3.66 trillion on December 31, 2013, an increase of $120 billion (or 3.3% based on the unrounded asset values). Moreover, state and local retirement funds’ holdings of corporate equities totaled $2.50 trillion (66.2% of total assets) on December 31, 2014, down slightly from $2.47 trillion (67.5% of total assets) on December 31, 2013. The Federal Reserve’s report is available at: http://www.federalreserve.gov/releases/z1/current/z1.pdf CRR Reports on Conflicting Retirement Readiness Assessments On March 17, 2015, the Center for Retirement Research at Boston College (CRR) released its issue brief, Are Retirees Falling Short? Reconciling the Conflicting Evidence. The report examines conflicting assessments regarding whether working-age U.S. households will have adequate retirement income to maintain their pre-retirement standard of living. It compared existing studies that evaluate the retirement readiness of working households using two different approaches: 1) the “optimal savings” life-cycle model; and 2) the “target replacement rate” model. The optimal savings approach takes into account mortality, labor market and health cost risk, and income from defined benefit pensions and Social Security benefits. The target replacement rate calculates the adequacy of retirement income as a percentage of pre-retirement income. According to the authors, Alicia Munnell, Matthew Rutledge and Anthony Webb, the issue remains unsettled regarding retirement readiness. However, they found that the most convincing evidence about retirement
1 Per GASB Statement Nos. 67 and 68, an ADC is a “target or recommended contribution to a defined benefit pension plan for the reporting period, determined in conformity with Actuarial Standards of Practice based on the most recent measurement available when the contribution for the reporting period was adopted.”
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preparedness relies on target replacement rates. This approach is used to develop the CRR’s National Retirement Risk Index (NRRI) which relies on data from the Federal Reserve’s Survey of Consumer Finances (SCF). The SCF data shows that the ratio of net wealth-to-income at each age has remained virtually unchanged from 1983 to 2013. In these ratios, wealth includes all financial assets, 401(k) balances, and real estate less any outstanding debt. However, it excludes the value of defined benefit pension benefits and Social Security benefits. Income includes earnings and returns on financial assets. The NRRI model compares projected replacement rates to target replacement rates that would allow working-age households to consume at the same rate before and after retirement. By assuming steady consumption and spending for retirees, the NRRI model results in significantly less favorable retirement readiness. The SCF uses simple and assumption-free calculations of wealth-to-income ratios. The data from the NRRI and SCF are consistent, which indicates that retirement shortfalls are a growing problem. In contrast, other industry research based on optimal savings approaches found more favorable retirement readiness trends. However, the authors indicate that such research is based on questionable behavioral assumptions about household consumption patterns that may change when children leave home and when households retire. Other key findings include:
• The Federal Reserve data shows that retirement preparedness has been declining over time, but studies on the level of preparedness indicate conflicting assessments.
• Under the target replacement rate model, the NRRI shows that 50% of households are “at risk” of running short of required income in retirement.
• In contrast to the target replacement rate method, the optimal savings approaches suggest that less than 10% of retirees will fall short of adequate retirement income.
The issue brief is available at: http://crr.bc.edu/wp-content/uploads/2015/03/IB_15-5.pdf
NIRS Updates Report on Retirement Savings Crisis
On March 12, 2015, the National Institute on Retirement Security (NIRS) released its report, The Continuing Retirement Savings Crisis. The study analyzes workplace retirement plan coverage, retirement participation rates, retirement account balances2, and household retirement savings as a percentage of income. In addition, it estimates the share of working families that meet benchmarks for retirement savings.
Based on data from the Federal Reserve’s 2013 Survey of Consumer Finances (SCF), the study analyzes the retirement readiness of all working-age U.S. households ages 25-64 and finds that nearly 40 million working-age households (45%) have virtually no retirement savings. In 2013, median retirement savings amounted to $2,500 per household when all households are included (i.e., those with and without retirement savings), down from $3,000 in 2010. Of the households near retirement (i.e., households with at least one worker between the ages of 55-64), the median retirement savings amounted to $14,500, up slightly from $12,000 in 2010. In this cohort, 62% of the households have retirement savings less than one times their current annual income, which is well below the amount needed to maintain their standard of living in retirement. Key findings include:
• 55% of private sector workers have access to a retirement plan at work; • 51% of working-age households participate in workplace retirement plans;
2 Retirement accounts include both employer-sponsored DC plans (i.e., 401(k)s) and individual retirement accounts (i.e., traditional IRAs).
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• Retirement account ownership is heavily concentrated among higher-income households with nearly 90% of those in the top quartile owning retirement accounts as compared to only 21% in the lowest quartile; and
• 66% of working families have household net worth that falls short of retirement savings targets for their age and income based on working until age 67.
The report recommends policy changes in three areas: 1) strengthening Social Security; 2) improving low- and middle-wage workers’ access to work-related retirement plans; and 3) helping low-wage workers save for retirement. According to the report, without such changes the combined effect of decline in older households receiving defined benefit (DB) pension income and inadequate retirement savings will likely lead to increasing demands for public assistance. The report is available at: http://www.nirsonline.org/storage/nirs/documents/RSC%202015/final_rsc_2015.pdf HHS Releases Factsheet on Health Insurance Coverage and the ACA On March 16, 2015, the U.S. Department of Health & Human Services’ (HHS) Office of the Assistant Secretary for Planning and Evaluation (ASPE) released its factsheet, Health Insurance Coverage and the Affordable Care Act. The factsheet highlights the changes in health insurance coverage after enactment of the Affordable Care Act (ACA). It also provides detailed information regarding young adults and those who gained health insurance coverage related to race and ethnicity, household income and state Medicaid expansion status. According to the factsheet, the number of uninsured individuals in the U.S. declined by 16.4 million as a result of the ACA’s coverage provisions from 2010 through the first quarter of 2015. This included 14.1 million adults (ages 19-64) who gained coverage after October 2013 and 2.3 million young adults (ages 19-25) who gained coverage between 2010 and October 2013 due to the adult child coverage requirement. Since October 2013, an additional 3.4 million young adults gained coverage. In total, an estimated 5.7 million young adults gained coverage from 2010 through March 4, 2015. Overall, the uninsured rate declined among all race and ethnicity categories. Among White Americans, the uninsured rate decreased from 14.3% to 9%, down 5.3 percentage points. For African Americans, the uninsured rate decreased from 22.4% to 13.2%, down 9.2 percentage points. For Latino Americans, the uninsured rate decreased from 41.8% to 29.5%, down 12.3 percentage points. In addition, the uninsured rate has significantly declined in Medicaid expansion states, especially among the lowest income population groups in all states. In Medicaid expansion states, the uninsured rate dropped from 18.2% to 10.8%, down 7.4 percentage points. In this category, the largest decline was among families with incomes at 138% of the federal poverty level (FPL) or less, down 13% percentage points. In non-expansion states, the uninsured rate dropped from 23.4% to 16.5%, down 6.9 percentage points. In this category, the largest drop was among families with incomes between 139-400% of FPL, down 10.1 percentage points. According to the factsheet, these declines in the uninsured rates are attributed to various provisions of the ACA, including: 1) coverage for young adults (ages 19-25) who were eligible for coverage through their parent’s health insurance plan; and 2) adults who acquired coverage after open enrollment in the Health Insurance Marketplaces. The factsheet is available at: http://aspe.hhs.gov/health/reports/2015/uninsured_change/ib_uninsured_change.pdf
MEMORANDUM
301 W MAIN · OWOSSO, MICHIGAN 48867-2958 · WWW.CI .OWOSSO.MI .US
DATE: April 9, 2015 TO: Chairman Farrell and the Board of Trustees FROM: Amy K. Kirkland, City Clerk SUBJECT: 2015 MAPERS Spring Conference Attendance RECOMMENDATION: I recommend the Board formally approve the attendance of two Trustees to the 2015 MAPERS Spring Conference in Mt. Pleasant. BACKGROUND: The Board has strongly supported educational opportunities for its Trustees, going so far as to double the education budget in recent years. Trustees Fox and Greenway have expressed an interest in attending the MAPERS Spring Conference and I have made arrangements for them to go based on the Board’s past approval of attendance as well as the quick discussion that was had at the March 11, 2015 special meeting. This item seeks to formally approve this expense. FISCAL IMPACTS: The remaining balance of the education line item will be approximately $1,800 after the expenses for this conference are accounted for.
MEMORANDUM
301 W MAIN ∙ OWOSSO, MICHIGAN 48867-2958 ∙ WWW.CI .OWOSSO.MI .US
DATE: April 10, 2015 TO: Chairman Farrell and the Board of Trustees FROM: Amy K. Kirkland, City Clerk SUBJECT: Consulting Services Contract with Graystone BACKGROUND: Attached you will find a copy of the contract for consulting services with Graystone/Morgan Stanley. Prior to Thursday’s meeting City Attorney Brown will be reviewing this document and working with Graystone to make any necessary changes. The final document will be presented at the meeting.
GRAYSTONE CONSULTING INSTITUTIONAL SERVICES AGREEMENT ICGCONTR N0411
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Graystone Consulting Institutional Services Agreement
The undersigned (“Client” or “you”), having opened an
account or accounts (the “Account”) with Morgan Stanley
Smith Barney LLC (“MSSB”, “we” or “us”) through its
Graystone Consulting business unit (“Graystone”), hereby
retains Graystone, under the terms and conditions set forth
herein, to perform the services set forth below and in the
respective Exhibits attached.
1. Consulting Services
Graystone Consulting shall perform all of the following
consulting services:
A. Assistance in the Preparation of Investment Objectives and Policies. Graystone shall assist Client in the review, evaluation and the preparation of investment policies and objectives for the Account. In addition, Graystone shall assist Client in preparing investment guidelines for each existing Advisor (as defined below) to the Account. Graystone shall periodically, as requested by the Client, help determine whether the investment objectives, policies and guidelines remain consistent with the long-term requirements of the Client, based on information provided by the Client. Client has provided a copy of Michigan Public Act 314 of 1965, as it may be amended from time to time (the “Act”), with respect to the investment restrictions and requirements of the Plan. Graystone and Client intend to incorporate such requirements generally in the Investment Policy State, and, in concert with Client’s counsel, will use their best efforts to confirm that any Plan investments subject to the terms of this Statement materially comply with the requirements of the Act. Graystone has been retained as a non-discretionary investment consultant. Accordingly, the Client shall be responsible for monitoring compliance with their investment policies and guidelines.
B. Asset Allocation. Graystone Consulting shall review Account asset allocation and recommend any changes deemed appropriate by Graystone Consulting from time to time.
C. Performance Reporting. Graystone Consulting shall provide Client with a periodic Performance Evaluation Report (a “Report”) of the Account and of the portion of the Account managed by each Advisor, Exchange Traded Fund or Index Fund (collectively referred to hereinafter as “ETF”) who may be retained by Client or Graystone Consulting for the Account. The Advisor or ETF may or may not be affiliated with MSSB. The Report shall show historical performance and asset allocation of the Account, and of the portion of the Account managed by each Advisor. The Report will be based solely on information requested by Graystone Consulting and (i) provided by Client, or (ii) provided by the custodian of the assets in the Account, at Client’s direction, or (iii) (if MSSB is the custodian) shown on the records maintained by MSSB as
custodian. In circumstances where MSSB is not the custodian, Graystone Consulting shall not be responsible for the accuracy of the information supplied by the custodian, including the valuation of securities and other investments, or for any reports derived from such information.
D. Identification of Investment Advisors. Graystone Consulting shall assist Client with identifying investment advisors which have historically performed in a manner generally consistent with Client’s investment policies and objectives. Graystone Consulting shall identify such investment advisors from the universe of managers that have been profiled, reviewed and approved for inclusion in Graystone Consulting’s Manager Assessment Program (“MAP”), MSSB’s Fiduciary Services Program (“FS”) and MSSB’s Consulting and Evaluation Services Program (“CES”) (collectively “Advisors”). Client understands that Graystone Consulting and MSSB do not evaluate and make no representations concerning any Advisor chosen by Client outside of those Programs including, but not limited to any Advisor Client selects through MSSB’s Investment Management Services Program (“IMS”), nor shall Graystone Consulting or MSSB assume any liability for any loss, claim, damage or expense attributable to Client’s selection of any Advisor outside of those Programs, including but not limited to any Advisor Client selects through IMS.
E. Investment Options. While certain of the (i) ETFs, (ii) Funds (as defined below) or (iii) Advisors (collectively “Investment Products”) available under this Agreement may be affiliated with MSSB, there will likely be affiliated and unaffiliated investment options available for selection. Investment options affiliated with MSSB (except money market funds) will not be available to Employee Retirement Income Security Act of 1974, as amended “ERISA”, clients. Some investment options may be available in more than one MSSB program and each program may offer Investment Products and other features that are not available in other programs. Additional information about this Program is contained in the applicable Morgan Stanley ADV brochure for Graystone Consulting.
F. Fund Search. MSSB shall assist Client with identifying Mutual Funds (“Funds”) that are generally consistent with the Client’s investment policies and objectives. MSSB shall identify such Funds from the universe of Funds that have been profiled, reviewed and approved by MSSB Investment Advisor Research (“IAR”). Client understands that MSSB does not evaluate, will not recommend, and makes no representations concerning, any Fund chosen by Client outside of those covered by IAR, nor shall MSSB assume any liability for any loss, claim, damage or expense attributable to Client’s selection of any Fund outside of those covered by IAR
GRAYSTONE CONSULTING INSTITUTIONAL SERVICES AGREEMENT ICGIC401 N0411
PAGE 2 OF 20
Client acknowledges that neither MSSB nor any of its affiliates
can be the designated Broker of Record for the Client, and
MSSB and its affiliates will also not be responsible for
collecting 12b-1 fees, shareholder servicing fees and/or selling
fees or “loads” on behalf of the Client.
G. Identification of Exchange Traded Funds and Index Funds. Graystone Consulting shall assist Client with identifying ETFs that are consistent with Client’s investment policies and objectives. Graystone Consulting shall, identify such ETFs from the universe of ETFs that have been approved for inclusion in MSSB’s ETF Program. Client understands that Graystone Consulting and MSSB do not evaluate and make no representations concerning any ETF chosen by Client outside of that Program, nor shall Graystone Consulting or MSSB assume any liability for any loss, claim, damage or expense attributable to Client’s selection of any ETF outside of that Program.
H. Advisor Review. Graystone Consulting shall conduct a periodic review of each current Advisor. Such review will include, among other factors, historical composite investment performance as provided by the Advisor, methodology, organization and personnel. For Advisors that participate in FS or CES, such review shall consist of a research-based evaluation of the Advisor and the factors described above.
In the event that Graystone Consulting makes a determination
that an Advisor or ETF previously recommended to, and
chosen by Client, is no longer approved for MAP, CES or the
ETF Program (“Unapproved Manager”), Graystone Consulting
will notify Client. It shall be Client’s option to change or retain
the Unapproved Manager. In the event that Client wishes to
continue to retain an Unapproved Manager, all terms of
Sections 1(D) (F) & (G) shall be null and void with respect to
such Unapproved Manager, and Graystone Consulting will (i)
make no further representations concerning the Unapproved
Manager, (ii) not assume any further liability for any loss, claim,
damage or expense attributable to Client’s determination and
(iii) not continue to review or make any recommendations
regarding such Unapproved Manager. However, Client shall
continue to pay Graystone Consulting the Fee described in
Section 4 below. The process for replacing an Unapproved
Manager in FS is described in the FS Manager Program
Agreement.
Investment products sold through Graystone Consulting
and MSSB are not insured by the FDIC; are not a deposit
or other obligation of a depository institution; are not
guaranteed by a depository institution; and are subject to
investment risks, including the possible loss of the
principal amount invested.
2. Trading and Execution Services
Client has appointed each Advisor as its agent and attorney-in-
fact to buy and sell securities or other investments for the
Account at Client’s risk. Client hereby agrees to indemnify and
hold Graystone Consulting, MSSB, and its officers, directors,
agents, employees and affiliates harmless from all loss, cost,
indebtedness and liabilities arising there from. In all such
purchases and sales, Graystone Consulting is authorized to
follow the instructions of the Advisor in every respect
concerning the Account and, except as herein otherwise
provided, the Advisor is authorized to act for Client in the same
manner and with the same force and effect as Client might or
could do with respect to such purchases and sales as well as with
respect to all other things necessary or incidental thereto, except
that the Advisor is not authorized to withdraw any money,
securities or other property either in the name of Client or
otherwise. This authorization is a continuing one and shall
remain in full force and effect until terminated in writing. The
termination of this authorization shall constitute a termination of
this Agreement.
In the absence of written instructions to the contrary from
Client, transactions for the purchase and/or sale of securities
and other investments shall be placed by the Advisor with
brokers or dealers, including MSSB or its affiliates, as the
Advisor in its sole discretion deems appropriate. Where
transactions are effected through MSSB or its affiliates, they may
act, in the absence of instructions to the contrary, on an agency
or principal basis, to the extent permitted by law and subject to
applicable restrictions, and will be entitled to compensation for
its or their services.
In connection with transactions effected for the Account, Client
authorizes the Advisor to establish and trade Accounts in
Client’s, MSSB’s or the Advisor’s name with members of
national or regional securities exchanges and the Financial
Industry Regulatory Authority, Inc. including “omnibus”
accounts established for the purpose of combining orders from
more than one client.
Client consents that some or all executions for the Account may
be aggregated with executions effected for other clients of MSSB
and be subsequently allocated to the Account at an average price,
and that MSSB may from time to time and at its discretion act as
principal (to the extent permitted by law) with respect to
aggregated orders that result in allocations to the Account at an
average price. Client’s confirmations will identify when a
transaction was effected at an average price and the average price
at which it was effected, and if so, whether MSSB acted as
principal or agent for the transaction. Client may only rescind
this consent by written instruction to MSSB.
GRAYSTONE CONSULTING INSTITUTIONAL SERVICES AGREEMENT ICGIC401 N0411
PAGE 3 OF 20
Client hereby grants MSSB and its affiliates the authorization to
effect “agency cross” transactions (i.e. transactions in which
MSSB, or any person controlling, controlled by or under
common control with MSSB, acts as broker for the party or
parties on both sides of the transaction) with respect to the
Account to the extent permitted by law. Client acknowledges
that (i) MSSB or its affiliates may receive compensation from
the other party to such transactions (ii) as such, MSSB will have
a potentially conflicting business of loyalties and responsibilities
and (iii) this consent to “agency cross” transactions can be
revoked at any time by written notice to MSSB.
In no event will Graystone Consulting, MSSB or its affiliates be
obligated to effect any transaction for Client which they believe
would be violative of any applicable state or federal law, rule or
regulation, or of the rules or regulations of any regulatory or
self-regulatory body.
3. Custody Services and Valuation
1. MSSB Will Act as Custodian
Unless Client instructs MSSB not to maintain custody, MSSB
will maintain custody of all cash, securities and other assets held
in the Account. MSSB will credit the Account with dividends
and interest paid on securities held in the Account and with the
principal paid on called or matured securities in the Account.
Client warrants that any securities delivered to MSSB are free of
any encumbrances, including constructive liens. MSSB shall
provide at least each calendar quarter a statement of all assets in
the Account in MSSB custody.
Client authorizes MSSB and Graystone Consulting to deduct
any and all fees when due from the assets contained in the
Account, including fees charged by an Advisor, and pay them
to the Advisor on behalf of Client. If required pursuant to the
terms of the investment management agreement entered into
between Client and the Advisor, MSSB or Graystone
Consulting will debit the Advisor’s fee from the Account upon
MSSB’s or Graystone Consulting’s receipt of an invoice from
the Advisor. MSSB and Graystone Consulting will pay the
amount shown to be due on the invoice and will not verify the
rate, computation, or timing of the Advisor’s fee or the value of
the assets used in this connection.
For accounts where MSSB is the custodian, in computing the
fair market value of any security or other investment in the
Account, a security listed on a national securities exchange shall
be valued, as of the valuation date, at the closing composite
price (the consolidated tape price). Generally, the prices of
bonds, particularly municipal bonds, are obtained from third-
party quotation services, whose prices are based either on
closing prices, the most recent trades of round lots of $1
million, the mean between the bid and asking price of these lots,
or a matrix based on interest rates for similar securities. As such,
pricing may not reflect round lot/odd lot differentials (Odd lots
are anything smaller than $1 million and can be as small as
$5,000 or $10,000.) On average, odd lot prices are lower than
round lot prices. Accounts which are charged an asset-based fee
should note that such fees are based upon round lot valuations.
Where prices are not available from quotation services, MSSB
may use such prices that in MSSB’s judgment best reflect the
market prices of the securities. In either case, MSSB does not
guarantee the accuracy of such prices. These prices should not
be considered firm bids or offers, and may be subject to
fluctuations due to lot size and market conditions. Any other
securities or investments in the Account shall be valued in a
manner determined in good faith by MSSB, in its sole discretion,
to reflect market value. Any such valuation should not be
considered a guarantee of any kind whatsoever with respect to
the value of the assets in the Account.
a. Sweep Investments
All uninvested cash and allocations to cash in your Account will
automatically “sweep” into interest-bearing bank deposit
accounts (“Deposit Accounts”) established under a Bank
Deposit Program (the “Bank Deposit Program”) or money
market mutual funds including but not limited to those managed
by Morgan Stanley Investment Management Inc., or another one
of our affiliates (each, a “Money Market Fund” and, together
with Deposit Accounts, “Sweep Investments”). Allocations to
cash that are part of an overall asset allocation will be limited to
investments in either Deposit Accounts or an alternative Money
Market Fund (if available). Uninvested cash and allocations to
cash including assets invested in Sweep Investments are included
in the Fee calculation hereunder.
The Bank Deposit Program is the default Sweep
Investment for all accounts. As discussed below,
uninvested cash balances will sweep into the Bank Deposit
Program unless you affirmatively elect an alternative, if
available for your Account.
You further acknowledge that MSSB may with 30 days written notice (i) make changes to these sweep terms; (ii) make changes to the terms and conditions of any available sweep investment; (iii) change, add or delete the products available as a sweep option; (iv) transfer your sweep investment from one sweep product to another.
b. The Bank Deposit Program
Through the Bank Deposit Program, Deposit Accounts are
established for you at one or more of the following banks
(individually and collectively, the “Sweep Banks”): (i) Morgan
Stanley Bank, N.A. and/or (ii) Morgan Stanley Private Bank,
National Association. The Sweep Banks are affiliated with
GRAYSTONE CONSULTING INSTITUTIONAL SERVICES AGREEMENT ICGIC401 N0411
PAGE 4 OF 20
MSSB. The Sweep Banks pay interest on the Deposit Accounts
established under the Bank Deposit Program. Your deposits at
the Sweep Banks will be insured by the Federal Deposit
Insurance Corporation (“FDIC”) up to applicable limits, in
accordance with FDIC rules, and subject to aggregation of all
the accounts (including, without limitation, certificates of
deposit) that you hold at the Sweep Banks in the same capacity.
Bank deposits held through the Bank Deposit Program are not
covered by SIPC or excess coverage.
If the Bank Deposit Program is your Sweep Investment, you
authorize us, as your agent, to establish the Deposit Accounts
for you, and to make deposits into, withdrawals from and
transfers among the Deposit Accounts.
Terms of the Bank Deposit Program are further described in
the Bank Deposit Program Disclosure Statement, which will be
provided to you upon your first investment in the Bank
Deposit Program. You may also obtain the Bank Deposit
Program Disclosure Statement as well as current interest rates
applicable to your Account, by contacting your MSSB financial
advisor ("Financial Advisor") or through MSSB’s web site at
http://www.morganstanley.com/wealth/services/bankdeposit
program.asp. You acknowledge and understand that we may
amend the list of Sweep Banks at any time with 30 days written
notice to you. If you are participating in the Bank Deposit
Program, please read the Bank Deposit Program Disclosure
Statement carefully.
You acknowledge (i) that you are responsible to monitor the
total amount of deposits you have at each Sweep Bank in order
to determine the extent of FDIC insurance coverage available
to you, and (ii) that MSSB is not responsible for any insured or
uninsured portion of your deposits at any of the Sweep Banks.
Unless otherwise specifically disclosed to you in writing, such as
in connection with the Bank Deposit Program noted above,
investments and services offered through MSSB are not insured
by the FDIC, are not deposits or other obligations of, or
guaranteed by, the Sweep Banks, and involve investment risks,
including possible loss of the principal invested.
c. Money Market Funds
We may, in our sole discretion, offer Money Market Funds as
Sweep Investments. The Money Market Funds may or may not
be affiliated with MSSB. You understand that purchases and
redemptions of Money Market Fund shares may be effected
only through MSSB and that you may not directly access the
Money Market Fund.
If a Money Market Fund is your Sweep Investment, you
authorize us, as your agent, to make investments in, and
redemptions from, the Money Market Fund.
Each of these Money Market Funds is a separate investment
with different investment objectives. Their fees, expenses,
minimum investment requirements, dividend policies and
procedures may vary. Before you invest in any Money Market
Fund, read its prospectus carefully. Money Market Fund shares
are neither insured nor protected by the FDIC. Investment in
any money market fund is a purchase of securities issued by the
money market fund, not a bank deposit.
Certain of the Money Market Funds described above have
minimum investment requirements. In addition, MSSB may
require a minimum initial investment to activate some or all of
the Sweep Investments. If you do not meet the minimum initial
investment, uninvested cash and allocations to cash in eligible
Accounts will remain uninvested or be invested in the Bank
Deposit Program.
In addition, certain of the Money Market Funds have minimum
balance requirements. For eligible Accounts, if your investment
falls below the minimum balance requirement, MSSB may
redeem and reinvest all of your shares in the Bank Deposit
Program. Once your sweep option has been changed, we will
not automatically change it back to your previous Sweep
Investment even if you meet the minimum initial investment
and/or balance requirements. You must contact your Financial
Advisor to do so. However, if a pattern develops of falling
below the minimum balance requirement, we may preclude you
from investing in that Sweep Investment in the future.
We may offer other money market funds as a non-sweep
investment choice. You may purchase shares in these money
market funds by giving specific orders for each purchase to your
Financial Advisor. However, uninvested cash in your Account
will not be swept into these money market funds.
d. Alternatives to the Bank Deposit Program
All accounts that are eligible can choose from among certain
Sweep Investments as alternatives to the Bank Deposit Program.
Please contact your Financial Advisor for more information
about choosing an alternative Sweep Investment. In addition,
you may obtain information with respect to the current yields
and interest rates on the available Sweep Investments by
contacting your Financial Advisor or through MSSB’s web site at
http://www.morganstanley.com/wealth/services/bankdepositpr
ogram.asp.
The above provisions may not apply if you are not a U.S.
resident. If you are not a U.S. resident, please contact your
Financial Advisor to determine whether the Bank Deposit
Program or a Money Market Fund will be your default Sweep
Investment.
GRAYSTONE CONSULTING INSTITUTIONAL SERVICES AGREEMENT ICGIC401 N0411
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e. Miscellaneous
You acknowledge that the rate of return on a default Sweep
Investment may be higher or lower than the rate of return
available in other Sweep Investments. Neither MSSB nor any
affiliate is responsible to you if the default Sweep Investment
has a lower rate of return than the other available Sweep
Investments or causes any tax consequences resulting from
your investment in the default Sweep Investment. We may, in
our sole discretion determine and change the Sweep
Investments available in your account. We may, at any time,
discontinue offering any available Sweep Investment and, upon
notice to you, cease offering your Sweep Investment. If we
cease offering your Sweep Investment and you do not select a
new Sweep Investment, your new Sweep Investment will be the
default Sweep Investment as designated by us for such account.
Generally, temporary “sweep” transactions of all uninvested
cash balances, allocations to cash and cash equivalents, if any,
in the Account will commence, to the extent permitted by
applicable law, on the next business day, with dividends
credited to the client on the second business day. (If cash is
deposited after normal business hours, the deposit may be
credited on our recordkeeping system, for purposes of the
preceding sentence, as having been received on the following
business day.) (For certain accounts — namely accounts
established as Basic Security Accounts that have less than
$1,000 in the Sweep Investment — amounts awaiting
investment will sweep weekly.)
Neither MSSB nor any affiliate will be responsible for any
losses resulting from a delay in the investment of cash balances.
You authorize us to invest your funds in your Sweep
Investment and to satisfy debits in your Account by redeeming
shares or withdrawing funds, as applicable, from your Sweep
Investment. Upon any such sale, gains on your position may be
taxable.
You may change your Sweep Investment to another Sweep
Investment, if available for your Account, by contacting your
Financial Advisor. You agree that upon selection of a new
Sweep Investment we may, as applicable, sell your shares in, or
withdraw your funds from, your current Sweep Investment and,
as applicable, purchase shares or deposit funds in your new
Sweep Investment. There may be a delay between the time we
sell shares or withdraw funds from your current Sweep
Investment and the time we purchase shares or deposit funds
in your new Sweep Investment. You may not earn interest or
dividends during the time your funds are not invested.
f. Conflicts of Interest Regarding Sweep Investments
If your Sweep Investment is a Money Market Fund, as available,
then the Account, as well as other shareholders of the Money
Market Fund, will bear a proportionate share of the other
expenses of the Money Market Fund in which the Account’s
assets are invested.
If your Sweep Investment is a Money Market Fund, you
understand that Morgan Stanley Investment Management Inc.
(or another MSSB affiliate) may receive an investment
management fee for managing the Money Market Fund and that
Morgan Stanley Distributors Inc., or another one of our affiliates,
may receive compensation in connection with the operation
and/or sale of shares of the Money Market Fund, which may
include a distribution fee pursuant to Rule 12b-1 under the
Investment Company Act of 1940, to the extent permitted by
applicable law.
You understand that the Fee will not be reduced by the amount
of the Money Market Fund management fee or any shareholder
servicing and/or distribution or other fees we or our affiliates
may receive in connection with the assets invested in the Money
Market Fund. For additional information about the Money
Market Fund and applicable fees, you should refer to each
Money Market Fund’s prospectus.
If your Sweep Investment is the Bank Deposit Program, you should be aware that, each Sweep Bank will pay MSSB a fee equal to the percentage of the average daily deposit balances in your Deposit Account at the Sweep Banks. The fee received by MSSB may affect the interest rate paid by the Sweep Banks on your Deposit Accounts. Your Financial Advisor will not receive a portion of the fee. Affiliates of MSSB may receive a financial benefit in the form of credit allocations made for financial reporting purposes. The amount of this benefit will vary and will be based on the average daily deposit balances in the Deposit Accounts at each Sweep Bank. Generally, these benefits will increase as more funds are deposited through the Bank Deposit Program. No separate charges, fees or commissions will be imposed on your Account as a result of or otherwise in connection with the Bank Deposit Program.
In addition, MSSB, the Sweep Banks and their affiliates receive
other financial benefits in connection with the Bank Deposit
Program. Through the Bank Deposit Program, each Sweep Bank
will receive a stable, cost-effective source of funding. Each
Sweep Bank intends to use deposits in the Deposit Accounts at
the Sweep Bank to fund current and new businesses, including
lending activities and investments. The profitability on such
loans and investments is generally measured by the difference, or
“spread,” between the interest rate paid on the Deposit
Accounts at the Sweep Banks and other costs of maintaining the
Deposit Accounts, and the interest rate and other income earned
by the Sweep Banks on those loans and investments made with
the funds in the Deposit Accounts. The income that a Sweep
GRAYSTONE CONSULTING INSTITUTIONAL SERVICES AGREEMENT ICGIC401 N0411
PAGE 6 OF 20
Bank will have the opportunity to earn through its lending and
investing activities is expected to be greater than the fees earned
by us and our affiliates from managing and distributing the
money market funds available to you as a sweep investment.
2. MSSB Will Not Act as Custodian
In the event Client retains a custodian other than MSSB, Client
shall advise Graystone Consulting of the name and address of
the custodian and of Client’s account number at the custodian.
Fees of a custodian other than MSSB shall be paid by Client
and are not included in the fees set forth in this Agreement.
MSSB will NOT maintain custody, and the Graystone
Consulting Fee will be billed to Client. Please sign below if
applicable.
Client’s Signature
Date
4. Fees
Client shall pay Graystone Consulting for its services hereunder
a fee as set forth in Exhibit A, which is attached to, and made a
part of, this Agreement. The fees payable hereunder may be
modified or changed by Graystone Consulting. If Graystone
Consulting increases the fee, it will do so after Client’s written
consent or upon written notice to Client. Clients will also be
notified of any decreases to their fees. The new fee will
become effective unless Client notifies Graystone Consulting in
writing to terminate the Agreement. Graystone Consulting shall
not be compensated on the basis of a share of capital gains
upon or capital appreciation of the funds or any portion of the
funds of Client. Notwithstanding the foregoing sentence,
Graystone Consulting may be compensated based upon the
total value of the Account as of definite dates.
Fees and commissions charged may be negotiated. Such fees
and commissions may differ based upon a number of factors,
including, but not limited to, the type of Account, the size of
the Account, the historical or projected nature of trading for
the Account, and the number and range of advisory and client-
related services to be provided by Graystone Consulting to the
Account.
A portion of the fee or commissions charged in connection with
the Account is paid to financial advisors and other employees of
MSSB and its affiliates in connection with the provision of
supplemental and client-related services. Such payments are
made for the duration of this Agreement.
If an open or closed-end mutual fund or an exchange traded
fund is utilized by MSSB as an Investment Product, any such
Fund may pay its own separate investment advisory fees and
other expenses to the fund manager or other service provider. In
addition, an open end mutual fund may charge distribution or
servicing fees. In both cases, these fees or expenses will be in
addition to the Fee paid by Client on the Account.
For clients other than Plan clients, MSSB receives payments and
fees for recordkeeping and related services. Please see Item 4.C
of the MSSB ADV Brochure for this program or contact your
Financial Advisor for a more detailed description of such
payments.
We have a conflict of interest in offering these Funds as
Investment Products because (as outlined above) we will earn
more money in a Client’s non-Retirement plan Account from
investments in Funds than other Investment Products. This
compensation to us will not be shared with the Financial
Advisor. Furthermore, affiliates of MSSB serve as the
investment advisor or other service provider for certain Funds
offered in the Program and earn investment management fees
for providing investment advisory services to such Funds (or
earn other fees for providing other services). As a result, we have
a potential conflict of interest in recommending these Funds
over others.
The rates and terms and conditions of these arrangements can
be changed at any time. For more information, please refer to
the applicable MSSB ADV Brochure which is available at
www.morganstanley.com/ADV or to the document “Mutual
Fund Share Classes and Compensation”, which is available at
http://www.morganstanley.com/wealth/investmentsolutions/p
dfs/MF_share_classes.pdf. Both these documents are also
available from your Financial Advisor upon request.
5. Client Authority
If this Agreement is entered into by a Trustee or other fiduciary,
such Trustee or other fiduciary represents that the terms of this
Agreement are authorized by the governing instruments of,
and/or laws and regulations applicable to Client, the services to
be provided under this Agreement are within the scope of the
services and investments authorized by the governing
instruments of, and/or laws and regulations applicable to Client,
MSSB will NOT maintain custody, and the Graystone
Consulting Fee will be billed to the outside custodian: Please
sign below if applicable.
Client’s Signature
Date
GRAYSTONE CONSULTING INSTITUTIONAL SERVICES AGREEMENT ICGIC401 N0411
PAGE 7 OF 20
and that said Trustee or fiduciary is duly authorized to enter
into this Agreement. If Client is a corporation, the signatory on
behalf of Client represents that the execution of this Agreement
has been duly authorized by all necessary and appropriate
corporate action. Client undertakes to advise Graystone
Consulting of any event which might affect Client’s authority to
participate in, or the propriety of, this Agreement.
A. The Client represents that neither it nor another person who has an ownership interest in or authority over this Account knowingly owns, operates or is associated with a business that uses, at least in part, the Internet to receive or send information that could be seen as placing, receiving or otherwise knowingly transmitting a bet or wager.
B. The Client understands that, in order to open and continue to provide services to the account, MSSB is required to obtain certain information from the Client. If this information is not provided by you fully or in a timely manner, MSSB may suspend trading in your account until the information is provided and/or terminate the Account. The Client will deliver to MSSB, in writing, all of the information that MSSB or a Advisor may require or reasonably request to perform their duties hereunder without violating or causing any violation of applicable law.
USA PATRIOT ACT NOTICE: IMPORTANT
INFORMATION ABOUT OUR PROCEDURES FOR
OPENING A NEW ACCOUNT OR ESTABLISHING A
NEW CUSTOMER RELATIONSHIP.
C. You further understand that to help the government fight the funding of terrorism and money laundering activities, federal law may require all financial institutions to obtain, verify and record information that identifies each individual or institution that opens an account or establishes a customer relationship with MSSB. Therefore, before entering into a new client relationship with you, MSSB will ask for your name, address, date of birth (as applicable) and other identification information. If all required documentation or information is not provided, MSSB may be unable to open an account or maintain a relationship with you.
D. The Client represents that neither it nor any person who has a material ownership interest in or authority over, the Account is or has been a Politically Exposed person or an immediate family member or close associate of a senior political figure. If you, any other owner of, or any authorized person on the Account is or has been such a figure you are required to disclose that to MSSB and to provide the necessary information required by law to open and/or to service your Account. By signing this Agreement you also represent that this Account will not be used for any transactions with or for the benefit of any person, entity or country subject to sanctions administered by the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”). For the purposes of this paragraph, a “Politically Exposed Person” is a senior official in the executive,
legislative, administrative, military or judicial branch of a foreign government (whether elected or not) or a major foreign political party, or a senior executive of a foreign government-owned corporation or a corporation or business entity or other entity formed by, or for the benefit of, such a figure; “immediate family” includes, but is not limited to, parents, siblings, children, and in-laws; “close associate” means a person who is widely and publicly known to maintain an unusually close relationship with a senior political figure, including a person in a position to conduct substantial domestic and international financial transactions on behalf of such a figure. For a fuller discussion of the preceding terms and definitions, see: http://www.federal reserve.gov/boarddocs/srletters/2001/sr0103.htm.
6. Proxies and Other Legal Notices
Graystone Consulting shall not take any action or render any
advice with respect to the voting of proxies solicited by, or with
respect to, the issuers of any securities held in the Account, nor
shall it be obligated to render any advice or take any action on
behalf of Client with respect to securities or other investments
held in the Account, or the issuers thereof, which become the
subject of any legal proceedings, including bankruptcies. Client
hereby expressly retains the right and obligation to vote any
proxies or take action relating to securities held in the Account;
provided, however, Client may delegate said rights and
obligations an Advisor or other properly authorized agent.
7. Termination of Agreement; Share Conversion
This Agreement may be terminated at any time upon written
notice by either party to the other and termination will become
effective upon receipt of such notice. Such termination will not,
however, affect the liabilities or obligations of the parties
incurred, or arising from transactions initiated, under this
Agreement prior to such termination, including the provisions
regarding arbitration, which shall be deemed to survive any
expiration or termination of the Agreement. Upon the
termination of this Agreement, Graystone Consulting shall not
be under any obligation whatsoever to recommend any action
with regard to, or to liquidate, the securities or other investments
in the Account. Graystone Consulting retains the right, however,
to complete any transactions open as of the termination date and
to retain amounts in the Account sufficient to effect such
completion. Upon termination, it shall be Client’s exclusive
responsibility to issue instructions in writing regarding any assets
held in the Account. Client is responsible for providing
Graystone Consulting with the name of another custodian at the
time the Agreement is terminated if MSSB is providing custody
services and Client chooses not to maintain custody of the
Account with MSSB.
Client authorizes MSSB (without notice to Client) to convert
shares of any Fund in the Account to a share class of the same
GRAYSTONE CONSULTING INSTITUTIONAL SERVICES AGREEMENT ICGIC401 N0411
PAGE 8 OF 20
Fund which is a load-waived or no-load share class such as an
Institutional share or Financial Intermediary share, or to a share
class that is available only to investment advisory clients
(collectively, an “Investment Advisory Share”), to the extent
available. Upon termination of this Agreement for any reason
or the transfer of Fund shares out of the Account into another
account including a MSSB retail brokerage account, Client
hereby authorizes MSSB to convert any Investment Advisory
shares to the corresponding Fund’s appropriate non-
Investment Advisory share class, or to redeem the Investment
Advisory Shares. Client acknowledges that the appropriate
non-Investment Advisory Share class generally has higher
operating expenses than the corresponding Investment
Advisory Share class, which may negatively impact investment
performance.
8. Potential Conflicts of Interest
Client understands that MSSB is affiliated with Morgan Stanley
& Co LLC (“MS&Co ”) (formerly known as “Morgan Stanley
& Co Incorporated”) and thus MSSB has a conflict of interest
to recommend MS&Co affiliated mutual funds or other
investment products.
Client understands that MSSB, each Advisor and their affiliates
may perform, among other things, investment banking,
research, brokerage, and investment advisory services for other
clients. Client recognizes that Graystone Consulting and each
Advisor may give advice and take action in the performance of
their duties to such clients (including those who may also be
participants in the Graystone Consulting Institutional Services
Program) which may differ from advice given, or in the timing
and nature of action taken, with respect to Client. Moreover,
MSSB or any of its affiliates may advise or take action with
respect to itself or themselves differently than with respect to
Client.
Nothing in this Agreement shall be deemed to impose on
Graystone Consulting, any Advisor or any of their affiliates any
obligation to recommend any investment advisor or to
purchase or sell, or recommend for purchase or sale, for Client
any securities or other investments which Graystone Consulting,
any Advisor or any of the affiliates may recommend, purchase
or sell, or recommend for purchase or sale, for its or their own
account, or for the account of any other client, nor shall
anything on this Agreement be deemed to impose upon
Graystone Consulting, any Advisor or any of their affiliates any
obligation to give Client the same advice as may be given to any
other clients.
Client further understands that any Advisor may from time to
time and as it deems advisable, consistent with applicable law,
effect securities transactions with or through MSSB for the
accounts of other clients and that MSSB may earn brokerage
commissions or other compensation in connection with those
transactions. The MSSB Financial Advisor also could receive a
financial benefit from any Advisor through referrals of clients to
the MSSB Financial Advisor by such Advisor. MSSB, its affiliates,
employees, including any MSSB Financial Advisor, also may
invest with any Advisor.
MSSB may have trading, investment banking or other business
relationships with an Advisor, including an Advisor
recommended to clients. By reason of its investment banking or
other activities, MSSB and its affiliates may from time to time
acquire confidential information and information about
corporations and other entities and their securities. Client
acknowledges and agrees that MSSB will not be free to divulge
to Client or any Advisor, or to act upon, such information with
respect to its or their activities, including its or their activities
with respect to this Agreement.
Moreover, the amount of compensation received by MSSB may
be greater if the Account is managed by an Advisor affiliated
with MSSB, rather than an unaffiliated advisor. As a result,
MSSB could have a financial incentive to recommend an
affiliated advisor over an unaffiliated advisor.
In Graystone Consulting and other investment advisory
programs, non-retirement account cash balances are invested in
affiliated money market funds. Please see the section on
“Custody Services and Valuation” above, for information on
conflicts of interest regarding Sweep Investments.
As indicated in the section on “Fees” above, in accounts of non-
Plan Clients MSSB may receive from Funds and their affiliates
recordkeeping and sub-transfer agency fees (which include
shareholder sub-accounting and networking fees), for
recordkeeping, sub-transfer agency and other services provided
by MSSB to the Funds or their service providers. A portion of
these fees may represent revenue sharing if and to the extent that
they exceed what the mutual fund would otherwise have paid for
such services. The amount of sub-transfer agency fees may
change from time to time. Please see the most recent applicable
MSSB ADV Brochure for more information.
With respect to non-Plan Clients, MSSB or its affiliates earn
greater compensation from mutual funds than from separate
accounts. At times, a manager may believe that it is in a Client’s
interest to maintain assets in cash, particularly for defensive
purposes in volatile markets. The above-described Bank Deposit
Program revenue and fees for money market funds, sub-transfer
agency fees for accounts of non-Plan Clients and revenue
sharing payments create a potential for a conflict of interest to
the extent that the additional payments could influence MSSB to
recommend or select (a) a mutual fund or ETF, instead of a
GRAYSTONE CONSULTING INSTITUTIONAL SERVICES AGREEMENT ICGIC401 N0411
PAGE 9 OF 20
separate account investment product, or (b) a manager that
favors cash balances.
Please note that the Financial Advisor does not receive any of
the Bank Deposit Program revenue, fees from money market
funds, sub-transfer agency fees or revenue sharing payments
described herein. By signing this Agreement, Client
acknowledges this potential conflict of interest and consents to
the use of the Bank Deposit Program, the money-market funds
or the Funds as investment vehicles for the Account to the
extent permitted by law and to the resulting payment of
additional compensation to MSSB and/or its affiliates.
Certain investment management firms (including managers of
mutual funds and/or ETFs) do other business with MSSB and
its affiliates.
9. Liability of MSSB
Client acknowledges that an investment advisor’s past
performance is not necessarily indicative of future performance.
MSSB makes no representations or warranty under this
Agreement with respect to the present or future level of risk or
volatility in the Account, or any Advisor’s future performance
or activities. Client understands that Graystone Consulting will
perform no discretionary trading acts with respect to the
Account, that pursuant to this Agreement Graystone
Consulting shall effect only such transactions as it is instructed
to by Client or any Advisor, and that the Advisor is solely
responsible for the management of Client’s portfolio.
Accordingly, Client understands that Advisor, not Graystone
Consulting, is Client’s investment advisor with respect to each
transaction.
10. Non-assignability
This Agreement shall not be assignable by Graystone
Consulting without the prior consent of Client. This Agreement
and its terms shall be binding upon Client’s successors,
administrators, heirs, executors, committee and/or
conservators.
11. Governing Law
This Agreement, including the arbitration provision contained
herein, is made and shall be construed under the laws of the
State of Michigan without reference to the choice of law or
conflict of laws provisions thereof. This choice of law clause
shall not govern the choice of statutes of limitations applicable
to claims and controversies described in the arbitration
provision, and the statute of limitations applicable to any such
claim or controversy shall be that which would be applied by
the federal district court for the district in which Client resides.
If Client does not reside in the United States, the statute of
limitations shall be that which would be applied by the courts in
the state where the MSSB office servicing Client’s account(s) is
located.
12. Entire Agreement and Amendment
Client may execute a client agreement (the “Client Agreement”)
with MSSB. This Agreement and the Client Agreement (if
applicable) represent the entire agreement between the parties
with regard to the services described herein and therein. This
Agreement (including language on fees and other charges) may
be amended by either of the following methods: (a) MSSB
unilaterally amending the Agreement by giving you written
notice of the amendment, or (b) MSSB signing a written
amendment in cases where you request or agree to the change.
This Agreement and the Client Agreement (if applicable)
supersede all previous agreements and understandings between
the parties hereto with respect to the subject matter hereof.
Notwithstanding the terms of the Client Agreement, the terms
of this Agreement shall govern with respect to the fees and
advisory services described herein.
13. Severability
If any provision of this Agreement shall be held or made invalid
by a statute, rule, regulation, decision of the tribunal or otherwise,
the remainder of the Agreement shall not be affected thereby
and, to this extent, the provisions of the Agreement shall be
deemed to be severable.
14. Miscellaneous
Graystone Consulting reserves the right to refuse to accept or
renew this Agreement in its sole discretion and for any reason.
In connection with the services being provided to Client under
this Agreement, Graystone Consulting and each Advisor shall be
entitled to rely on the financial and other information provided
by Client to Graystone Consulting, in writing from time to time.
Client agrees to inform Graystone Consulting promptly in
writing of any material change in Client’s circumstances which
might affect the manner in which Client’s assets should be
invested or the services provided by Graystone Consulting to
Client under this Agreement. Client will provide Graystone
Consulting with any such information as Graystone Consulting
shall reasonably request.
MSSB represents that it is registered as an investment advisor
under the Investment Advisers Act of 1940 (“Advisers Act”) and
that it will serve as an investment advisor with respect to the
Account. MSSB acknowledges that it is a fiduciary under the
Advisers Act.
GRAYSTONE CONSULTING INSTITUTIONAL SERVICES AGREEMENT ICGIC401 N0411
PAGE 10 OF 20
For the purpose of referring to this Agreement, the date of this
Agreement shall be the date of acceptance by Graystone
Consulting.
Client acknowledges that MSSB may withhold any tax to the
extent required by law, and may remit such taxes to the
appropriate government authority.
All written communication to Graystone Consulting pursuant
to this Agreement shall be sent to Graystone Consulting at the
address referenced below, unless Graystone Consulting
designates otherwise in writing. All written communication to
Client shall be sent to the address referenced below, unless
Client designated otherwise in writing.
As used herein, reference to persons in the masculine gender
shall include persons of the feminine gender. References in the
singular shall, as and if appropriate, include the plural.
All paragraph headings are for convenience of reference only,
do not form part of this Agreement and shall not affect in any
way the meaning or interpretation of this Agreement.
All information, recommendations and advice furnished to
Client pursuant to the Institutional Services Program shall be
treated as confidential by Client.
If MSSB maintains custody, all or a portion of the Account may
be held in cash or cash equivalents including securities issued
by money market mutual funds. Client authorizes MSSB to
automatically deposit or “sweep” all free credit balances in the
Account into such money market mutual funds.
Client understands that Graystone Consulting may choose not
to accept this Agreement until such time as Client delivers the
securities and other investments that will comprise the Account
into MSSB’s custody. Client assets will remain in the form
delivered prior to the acceptance of the contract by Graystone
Consulting. Collection and processing of the required
documentation may delay the acceptance of the contract.
Client acknowledges receipt of a copy of this Agreement
(including all Exhibits checked below), and of the applicable
Morgan Stanley ADV brochure. Notwithstanding anything to
the contrary herein, Client shall have the right to terminate this
Agreement without penalty within five business days after
entering into, and acceptance by Graystone Consulting of, this
Agreement.
15. Arbitration
This Agreement contains a predispute arbitration clause. By signing an arbitration agreement the parties agree as follows: • All parties to this Agreement are giving up the right to
sue each other in court, including the right to a trial by jury, except as provided by the rules of the arbitration forum in which a claim is filed.
• Arbitration awards are generally final and binding; a party’s ability to have a court reverse or modify an arbitration award is very limited.
• The ability of the parties to obtain documents, witness statements and other discovery is generally more limited in arbitration than in court proceedings.
• The arbitrators do not have to explain the reason(s) for their award unless, in an eligible case, a joint request for an explained decision has been submitted by all parties to the panel at least 20 days prior to the first scheduled hearing date.
• The panel of arbitrators may include a minority of arbitrators who were or are affiliated with the securities industry.
• The rules of some arbitration forums may impose time limits for bringing a claim in arbitration. In some cases, a claim that is ineligible for arbitration may be brought in court.
• The rules of the arbitration forum in which the claim is filed, and any amendments thereto, shall be incorporated into this Agreement.
You agree that all claims or controversies, whether such claims or controversies arose prior, on or subsequent to the date hereof, between you and MSSB and/or any of its present or former officers, directors, or employees concerning or arising from (i) any account maintained by you with MSSB individually or jointly with others in any capacity; (ii) any transaction involving MSSB or any predecessor or successor firms by merger, acquisition or other business combination and you, whether or not such transaction occurred in such account or accounts; or (iii) the construction, performance or breach of this or any other agreement between you and us, any duty arising from the business of MSSB or otherwise, shall be determined by arbitration before, and only before, any self-regulatory organization or exchange of which MSSB is a member. You may elect which of these arbitration forums shall hear the matter by sending a registered letter or other written communication addressed to Morgan Stanley Smith Barney LLC at 485 Lexington Avenue, 11th Floor, New York, NY 10017, Attn: Legal and Compliance Division. If you fail to make such election before the expiration of five (5) days after receipt of a written request from MSSB to make such election, MSSB shall have the right to choose the forum.
GRAYSTONE CONSULTING INSTITUTIONAL SERVICES AGREEMENT ICGIC401 N0411
PAGE 11 OF 20
No person shall bring a putative or certified class action to arbitration, nor seek to enforce any predispute arbitration agreement against any person who has initiated in court a putative class action; or who is a member of a putative class who has not opted out of the class with respect to any claims encompassed by the putative class action until: (i) the class certification is denied; (ii) the class is decertified; or (iii) the person is excluded from the class by the court. Such forbearance to enforce an agreement to arbitrate shall not constitute a waiver of any rights under this Agreement except to the extent stated herein. The statute of limitations applicable to any claim, whether brought in arbitration or in a court of competent jurisdiction shall be that which would be applied by the courts in the state in which you reside or if you do not reside in the United States, the statute of limitations shall be that which would be applied by the courts in the state where the MSSB office servicing your Account is located.
16. Attachments
The following Exhibit(s) are attached to, and made a part of, this Agreement:
Exhibit A. Asset Based Fee Exhibit B. Advisor Letter Exhibit C. Select UMA
GRAYSTONE CONSULTING INSTITUTIONAL SERVICES AGREEMENT ICGIC401 N0411
PAGE 12 OF 20
YOUR CONSENT TO ELECTRONIC DELIVERY OF ADV BROCHURES, PRIVACY NOTICES AND OTHER DOCUMENTS
a. Electronic delivery: By signing below, you authorize us to deliver any type of document relating to your existing and future investment advisory accounts and relationships with MSSB (including MSSB’s ADV brochures and privacy notices), instead of paper copies, either by email to an email address you give us, by giving you a CD-ROM to read on a computer, or by referring you to a website. Your consent to Electronic Delivery in the previous sentence does not apply to delivery of documents such as account statements, trade confirmations and tax documents (such as 1099 forms). If you would like to have these documents delivered electronically, please visit www.morganstanley.com/online/edelivery or contact your Financial Advisor.
b. Website address: MSSB’s ADV brochures and privacy notices, and the Advisors’ profiles, for your Account are available now at www.morganstanley.com/ADV. Please review them.
c. Your computer access: You acknowledge that you have access to a computer which can access these documents (including PDF software, available free of charge at Adobe’s website www.adobe.com, and a CD-ROM drive), and that you may incur costs accessing or printing the documents (e.g. online provider fees and printing costs). We are not liable for these costs or any computer problems (including viruses) you incur in accessing the documents.
d. How to get paper copies: This consent remains in place until you give written notice to your Financial Advisor that you are revoking it. You may also, without revoking this consent, ask your Financial Advisor for a paper copy of any document that we deliver electronically under this consent.
e. Other document deliveries: Sometimes we may deliver paper copies of documents relating to an account. Also, some documents that we can deliver electronically are not covered by this consent and have separate procedures for enrollment and unenrollment in electronic delivery and for obtaining paper copies.
Proxies and Waivers. Graystone Consulting shall NOT be
obligated to take any action or render any advice with respect
to the voting of proxies with respect to issuers of securities
held in the Account or the taking of any action relating to
such Issuers which become the subject of any legal
proceedings including bankruptcies.
By initialing below, I delegate all proxy voting rights to each
Advisor and designate such Advisor to receive all proxies
including proxy soliciting material and related material
including interim reports, annual reports and any other issuer
mailings (“Related Material”).
PROXY WAIVER: (Client may initial):
Client who fails to initial above shall be solely
responsible for voting all proxies, and expressly retains
such right and obligation.
Trade Confirmation: To the extent permitted by law do you
want to receive confirmation of transactions on or with your
monthly statement instead of individual trade confirmations
following each transaction. You will not pay a different fee if
you select this option. Selecting this option is not a condition
to entering into (or continuing to participate in) the Program.
You may choose to receive from us, at no additional cost,
trade confirmations for any period in which you elected not to
receive individual trade confirmations. You can also revoke
your authorization at any time by giving us written notice in
accordance with this Agreement.
Yes No
Representative Client List. Graystone Consulting publishes
materials which, in addition to describing the nature of its
investment advisory services, may also provide a
representative listing of Graystone Consulting’s institutional
clients (“Representative Client List”). Such a listing will
generally provide the name of the Client, but will not provide
any specific Account information. By signing below, Client
consents to the inclusion of its name on Graystone
Consulting’s Representative Client List.
Client’s Signature
GRAYSTONE CONSULTING INSTITUTIONAL SERVICES AGREEMENT ICGIC401 N0411
PAGE 13 OF 20
This Agreement may be executed in counterparts and shall be binding on the parties hereto as if executed in one document.
Note: This Agreement contains a pre-dispute arbitration clause which is located in Section 15 on pages 10 and 11 of this Agreement.
BY SIGNING THIS AGREEMENT, THE UNDERSIGNED CLIENT ACKNOWLEDGES: (A) RECEIPT OF A COPY OF THE AGREEMENT; (B) RECEIPT AND REVIEW OF THE APPLICABLE MORGAN STANLEY ADVS AND PRIVACY NOTICES; (C) THAT CLIENT CONSENTS TO ELECTRONIC DELIVERY OF ADV BROCHURES, PRIVACY NOTICES AND OTHER DOCUMENTS, AS PROVIDED ABOVE.
AGREED to this day of , _____
Title of Account: City of Owosso Employees’ Retirement System
By:
By:
Address:
ACCEPTED as of the day of , ______
MORGAN STANLEY SMITH BARNEY LLC through its GRAYSTONE CONSULTING business unit
By:
Robert J. Mandel, Executive Director
Director of Graystone Consulting
2000 Westchester Avenue 2nd Floor
Purchase, New York 10577
GRAYSTONE CONSULTING INSTITUTIONAL SERVICES AGREEMENT ICGIC401 N0411
PAGE 14 OF 20
Exhibit A to the
Graystone Consulting Institutional Services Agreement Asset Based Fee
Client shall pay Graystone for its services quarterly (on a calendar quarter basis) in advance an annual fee as a percent of
the market value of the Account based on the following schedule (the “Fee”). The Fee includes all fees or charges of
Graystone and MSSB (including brokerage commissions, compensation to MSSB Financial Advisors and MSSB custodial
charges) except certain costs or charges associated with the Account or certain securities transactions, including dealer
mark-ups or mark-downs, auction fees, certain odd-lot differentials, exchange fees, transfer taxes, electronic fund and wire
transfer fees; charges imposed by custodians other than MSSB; fees imposed in connection with Financial Management
Accounts; certain fees in connection with custodial, trustee and other services rendered by a MSSB affiliate; SEC fees on
securities trades; any other charges mandated by law; and certain fees in connection with the establishment or
administration or termination of retirement or profit sharing plans or trust accounting. In addition, brokerage
commissions and other fees and charges imposed because an Advisor chooses to effect securities transactions for the
Account with or through a broker-dealer other than MSSB will be separately charged to the Account. The Fee does not
include any fees or charges of any affiliated or unaffiliated advisor retained by Client or Graystone Consulting. If an
affiliate of MSSB (including MS&Co.) is a member of the underwriting syndicate from which a security is purchased,
MSSB or its affiliate may indirectly benefit from such purchase.
The initial Fee shall be due in full on the date the Account is opened at Graystone Consulting (the “opening date”) and
shall be based on the market value of the Account on that date. The initial Fee payment will cover the period from the
opening date through the last business day of the next full calendar quarter and shall be pro-rated accordingly. Thereafter,
the Fee shall be paid quarterly in advance based on the Account’s market value on the last business day of the previous
calendar quarter and shall become due the following business day.
Additional assets received into the Account during any period may be charged a pro-rata fee based on the number of days
remaining in the billing period as against the total number of days in the billing period. No adjustments will be made to the
Fee for appreciation or depreciation in the market value of securities held in the Account, or with respect to partial
withdrawals by Client, during any billing period for which such Fee is charged. In the event this Agreement is terminated
by either party prior to the end of a billing period, a pro-rata refund of the Fee will be made.
In computing the market value of any securities or other investments in the Account, securities listed on any national
securities exchange shall be valued, as of the valuation date, at the composite closing price (at the consolidated trade price).
Any other securities or investments in the Account shall be valued in a manner determined in good faith by MSSB, in its
sole discretion, to reflect market value. Any such valuation should not be considered a guarantee of any kind whatsoever
with respect to the value of the assets in the Account.
FEE SCHEDULE
Account Asset Value Annual Graystone Fee to Client
On all assets as described above 0.20%
GRAYSTONE CONSULTING INSTITUTIONAL SERVICES AGREEMENT ICGIC401 N0411
PAGE 15 OF 20
Exhibit B to the
Graystone Consulting Institutional Services Agreement (Fee-based accounts only)
City of Owosso Employees’ Retirement System INVESTMENT ADVISOR NAME CLIENT NAME
INVESTMENT ADVISOR ADDRESS ACCOUNT NUMBER
To Whom It May Concern:
We have entered into an Investment Advisory Agreement (“Agreement”) with Morgan Stanley Smith Barney LLC
(“MSSB”), through its Graystone Consulting business (“Graystone Consulting”) to provide our account(s) with
investment consulting and execution services. These services are outlined in our Agreement with Graystone Consulting.
Under the fee arrangement with Graystone Consulting, there are no separate or additional commission charges for
transactions executed at MSSB. In light of the inclusion of execution and other services in the fee charged under our
Agreement with Graystone Consulting, we hereby direct you to execute transaction orders for our account(s) through
MSSB.
We understand that as a fiduciary you are obligated to execute transactions in a most efficient and beneficial manner on
our behalf. If, in your sole judgment, MSSB is unable or unwilling to do so, or is not competitive in its pricing, you are
hereby instructed and directed by us to use the services of another broker-dealer who can provide “best execution.”
It is understood and agreed that this letter of direction is to become part of our investment advisory agreement with you,
and will remain in effect until revoked in writing.
You will be required to attest to your receipt of this letter and acknowledgement of your obligations set forth herein in
Graystone Consulting’s INVESTMENT ADVISOR CERTIFICATION.
Sincerely yours,
CLIENT SIGNATURE AND TITLE CLIENT SIGNATURE AND TITLE DATE
To the Client: Please sign and return this Exhibit to your Financial Advisor.
GRAYSTONE CONSULTING INSTITUTIONAL SERVICES AGREEMENT ICGIC401 N0411
PAGE 16 OF 20
Exhibit C to the
Graystone Consulting Institutional Services Agreement
Select UMA®
The undersigned have executed an Institutional Services
Agreement (“Agreement”) with Morgan Stanley Smith
Barney, LLC (“MSSB”) through its Graystone
Consulting (“Graystone”) business unit, dated
, which is hereafter incorporated by reference
as if fully set forth herein. In furtherance of that
Agreement, the undersigned agree to the following
terms and conditions of this Exhibit.
1. Select UMA®. You shall utilize the Select UMA®
Program pursuant to the terms and conditions of the
Agreement and this Exhibit.
(a) The Select UMA® Program is a unified managed
account program in which MSSB acts as investment
advisor, assisting you in reviewing investment
objectives and selecting a portfolio (“Portfolio”) to
be implemented by MSSB’s Private Portfolio Group
(“PPG”), acting as an overlay manager. For
purposes of this Exhibit, services performed by
PPG will be referred to as being performed by
MSSB. MSSB receives an overlay management fee
for this service, which is in addition to your advisory
fee and will be specified in your account
documentation. References to MSSB in this section
may include PPG or other MSSB business areas that
perform services for your account.
Your account may comprise some or all of the
following investment products, which may or may
not be affiliated with MSSB: (i) mutual funds, (ii)
ETFs, and (iii) SMAs managed by a third party or an
affiliated Manager. Such accounts may be invested
directly by such Manager or by MSSB based on a
model portfolio provided by the Manager.
MSSB selects and approves each investment product
based on a variety of factors, and then provides
ongoing due diligence and monitoring of those
investment products. In order to construct the
Portfolio, MSSB and you will first select an asset
allocation investment model from among
investment models predefined by MSSB (or, if you
select the “custom” version of the model, by you or
by your Financial Advisor). If the model is
predefined by MSSB, MSSB is responsible for
setting the asset allocation of the model and
adjusting the asset allocation from time to time as
MSSB deems appropriate. This may include adding
asset classes to any model at any time MSSB
determines it is appropriate to do so with an
appropriate investment product. MSSB may, in its
sole discretion, change the classification of any
security or class of securities as it deems appropriate.
Unless you have selected the “Financial Advisor
Discretion” or “Firm Discretion” option, you
authorize MSSB, at MSSB’s option, to handle a
change in the asset class that a Manager or
investment product is included (an “Asset Class
Change”) in one of the following two ways:
i. MSSB may notify you, in advance, of the Asset
Class Change. Such notification may include
an appropriate Manager or investment product
(the “Change Default Product”) that is in the
asset class that you have selected. If you do
not select a different Manager or Investment
Product (or change to a different model) prior
to a date specified by MSSB in the notice of
Asset Class Change, MSSB will change the
Manager or Investment Product to the Change
Default Product.
ii. Alternatively, MSSB may (without notifying
you) leave you in the investment product that
is subject to the Asset Class Change, and
MSSB will change your asset allocation
investment model to reflect the Asset Class
Change.
In the event of either (i) or (ii) above, MSSB will
provide you with a confirmation of the new
investment product or asset allocation investment
model, as applicable.
Each of these models represents a different asset
allocation appropriate for a different investment
objective/risk tolerance. You may select from the
“tactical,” “strategic” or “custom” version of the
model and you must advise your Financial Advisor
of your choice. Generally speaking, it is anticipated
that MSSB will change the asset allocation of the
tactical version more frequently than that of the
strategic version. If you select the “custom” version,
you will define the model by setting the asset
allocation for the model and adjusting the asset
allocation from time to time as you deem
appropriate. Once you have selected the model, you
and MSSB will construct the Portfolio by populating
each asset class comprising the model with
investment products. If an investment product
GRAYSTONE CONSULTING INSTITUTIONAL SERVICES AGREEMENT ICGIC401 N0411
PAGE 17 OF 20
utilized in your account is terminated for any reason,
MSSB will notify you and ask you to select a new
available investment product. If you do not do so
within the time frame prescribed in our notice and if
the notice identifies a proposed replacement
investment product, that replacement investment
product will be utilized for your account.
You authorize each Manager, as investment advisor
to you, to exercise discretion to select securities for
your account by (i) delivering a model portfolio to
MSSB, which MSSB will implement (subject to any
reasonable restrictions accepted by MSSB); or (ii) (in
the case of a Manager that executes such transitions
itself instead of delivering instructions to MSSB)
implementing its investment decisions directly. You
acknowledge and agree that any Manager may
delegate any or all of its functions to an affiliated or
unaffiliated firm that meets MSSB’s due diligence
standards, provided that Manager shall remain liable
for the performance of all its obligations in its
agreement with MSSB.
MSSB offers a Financial Advisor Discretion (“FA
Discretion”) version of the Select UMA® Program.
In the FA Discretion version, MSSB will exercise
discretion to select and change your Managers or
investment products and (if you have selected the
custom version of the model) to define and adjust
the model as described above. As described above,
by signing this Agreement you delegate discretionary
authority to MSSB and the Financial Advisor to
select investment products and set or adjust your
asset allocation for your Select UMA® account(s).
MSSB also offers a Firm Discretion version of the
Select UMA® Program. In the Firm Discretion
version, by signing this Agreement you delegate
discretionary authority to MSSB or an affiliate to
select (and change) Managers or investment
products for you. These services will be performed
by a professional investment management team
employed by MSSB or an affiliate. We will restrict
selection of investment products to the type of
investment product designated by you, and only
those investments will be utilized to populate the
asset classes comprising the model. MSSB shall
exercise this discretion at any time that MSSB
determines that it is appropriate to do so, in light of
your investment objectives for the account as stated
in your Investor Profile, or as otherwise
communicated to MSSB by you. If you select Firm
Discretion, you may not select a “custom” version
of the model or FA Discretion, and your account
does not qualify for tax management services (as
described below and in greater detail in the Select
UMA® ADV Brochure).
“Investing with Impact Investment Products” are
investment products that seek to limit their
underlying investments to investments in socially
responsible firms or enterprises (“Impact
Investments”). The Manager of any SMA or any
mutual fund or ETF in the account (not you, MSSB
or any affiliate) will determine in its sole judgment
whether any underlying investments are Impact
Investments. MSSB will determine in its reasonable
judgment whether an investment product is an
Investing with Impact Investment Product. The
performance of Investing with Impact Investment
Products will differ from that of non-Investing with
Impact Investment Products. If you have selected
an Investing with Impact Firm Discretion option,
you will only be permitted to select the Strategic
Asset Allocation Model (you will not be permitted to
select the Tactical or Custom Asset Allocation
Models). The asset allocation investment models
pre-defined by MSSB for clients who make this
selection will be different from the models pre-
defined by MSSB for other Select UMA® clients.
This is because there are no Investing with Impact
Investment Products for some asset classes. If you
make this selection, (a) MSSB will restrict its
selection of investment products to Investing with
Impact Investment Products (in the event that such
a product is removed from the portfolio and no
replacement product that qualifies as an Investing
with Impact Investment Product is available, MSSB
reserves the right to utilize a non-Investing with
Impact Investment Product as a replacement); (b)
MSSB may select any type of Investing with Impact
Investment Product (mutual fund, ETF or SMA);
and (c) the Sweep Investment (as hereinafter
defined) will not necessarily be an Impact
Investment.
You also grant us, or a Manager selected by you or
us, the authority to invest and reinvest all of the
assets in the account in securities of any kind. You
also agree that in certain strategies, Managers may be
granted responsibility by MSSB to implement some
or all investment decisions directly by placing orders
for the execution of transactions. Notwithstanding
the provisions of this paragraph, you understand
that decisions to purchase or sell securities (other
than mutual fund or ETF investment products) shall
generally be made by Managers, and not by you,
MSSB or any affiliate.
GRAYSTONE CONSULTING INSTITUTIONAL SERVICES AGREEMENT ICGIC401 N0411
PAGE 18 OF 20
(b) Models. In Select UMA®, you will choose a
Strategic Asset Allocation Model, a Tactical Asset
Allocation Model or a Custom Allocation Model.
An asset allocation model is a set of investment
guidelines that will guide you and your Financial
Advisor in populating your account with a mix of
investment products that is most suitable relative to
your investment objectives and risk tolerance.
The Strategic Asset Allocation Model is based on the
current recommendations of MSSB’s GIC. The GIC
publishes different models to suit investors’
objectives and risk tolerance levels.
The Tactical Asset Allocation Model is a version of
the GIC models that is adjusted for certain shorter-
term factors that the GIC deems to be of current
importance.
If you do not desire the Strategic Asset Allocation
Model or Tactical Asset Allocation Model, you may
work with your Financial Advisor to construct a
Custom Allocation Model. With a Custom
Allocation Model, either you or your Financial
Advisor will determine an initial asset allocation that
is specifically designed for you. You or your
Financial Advisor may or may not utilize GIC
recommendations in constructing a Custom
Allocation Model. If you have elected FA
Discretion, your Financial Advisor will make
changes to your Custom Allocation Model over time.
If you have chosen to make decisions concerning
your model yourself, you must communicate any
changes to your Financial Advisor in order to make
such changes.
Changes to Strategic Asset Allocation Model or
Tactical Asset Allocation Model may be made by the
GIC at any time. Such changes are likely to require
that adjustments be made to the mix of investment
products in your account, which may entail tax
consequences.
(c)Overlay Management and Portfolio
Implementation.
MSSB’s Private Portfolio Group (“PPG”) serves as
overlay manager for the Select UMA® Program. If
you select an SMA as an investment product, PPG
will take a suggested portfolio of securities provided
by a Manager that has been retained on your behalf
and will effect transactions in your account so that
your account will reflect the model that you have
chosen or that has been chosen for you by your
Financial Advisor or by MSSB. PPG will also effect
transactions in mutual fund or ETF shares to the
extent that such investment products are to be used
in your account. PPG will also rebalance your
account to the agreed upon allocation on a periodic
basis in its discretion.
You pay an additional fee to MSSB of 0.07% for
overlay management and portfolio implementation
services particular to the Select UMA®, as set forth
in the applicable ADV Brochure.
(d) Sub-Managers. Third party or affiliated Managers
may be chosen to provide day-to-day portfolio
management services with respect to any SMA
portion of your account. Such Managers may be
referred to as Sub-Managers. As a general rule, a
Sub-Manager will determine, in its discretion, which
securities should be bought and sold for your
account. The Sub-Manager will then deliver
instructions to place such purchases to PPG, who
will effect the transactions in your account. In some
cases, a Sub-Manager will execute such transactions
itself instead of delivering instructions to PPG. We
refer to this as an “Executing Sub-Manager.” If
approved by MSSB, Sub-Managers may execute
transactions directly or delegate such execution to a
third party that meets MSSB’s due diligence
standards.
(e)Engaging or Changing Sub-Managers (for clients
not utilizing Firm or FA Discretion). Generally,
we will not assign an investment product or model
to your account without your consent. MSSB will
notify you and ask you to identify models or
investment products for a particular asset class. If
your account falls below the minimum for an
investment product or model or if a Manager
terminates its relationship with MSSB, we will notify
you of that and suggest a replacement investment
product or model. MSSB may (without further
consent from you) transfer your assets to another
appropriate investment product or model, which
investment product or model has a minimum
investment for which the account qualifies. If you
do not notify us of your intentions in this regard,
you will be deemed to have accepted our suggested
replacement and we will implement the change in
your account. If your account includes an
investment product in MSSB’s GIS Program and
that product is terminated for any reason, we may
replace it with another GIS investment product.
Changes in investment products and models may
result in increased Manager fees and may generate a
GRAYSTONE CONSULTING INSTITUTIONAL SERVICES AGREEMENT ICGIC401 N0411
PAGE 19 OF 20
taxable event. The implementation of any changes
to your investment product or model may take
several business days, during which time your
account may remain invested in its then-current
investments and may not be actively managed. Your
account will continue to be charged fees during any
such transition periods.
2. Fees. You pay an additional fee to MSSB of 0.07%
for overlay management and portfolio implementation
services particular to the Select UMA®, which is in
addition to the Fee charged to Client pursuant to the
Agreement. The Investment Manager fee rates for the
said Investment Managers are as follows:
Manager Manager
Fee Rate*
Atlanta – High Quality SMID Cap 0.30%
WHV - International Equity 0.35%
Franklin - Intermediate Fixed Income 0.23%
* Client pays negotiated manager fee as part of overall
client fee. Manager fee is negotiated by MSSB and the
manager and can change over time.
3. Miscellaneous. You understand that we will provide
you with the Select UMA® ADV Brochure and privacy
notice (“Privacy Notice”), and if appropriate, the
applicable ADV Brochure and Privacy Notice for each
Manager for the advisory program that you select, as
required by applicable law. MSSB will provide you with
periodic account statements and other reports. You are
responsible for reviewing all such statements and
reports, and reporting any inaccuracies to your Financial
Advisor.
Please note that MSBS, the Managers in its advisory
programs, and Morgan Stanley & Co. and their
respective affiliates may give different advice, take
different action, receive more or less compensation, or
hold or deal in different securities for any other party,
client or account, including their own accounts or those
of their affiliates, from the advice given, actions taken,
compensation received or securities held or dealt for a
client.
You understand that in order to open and continue
managing your account, MSSB is required to obtain
certain information from you. If this information is not
provided by you fully or in a timely manner, MSSB may
suspend trading in your account until the information is
provided and/or terminate your account. You will
deliver to MSSB, verbally or in writing (as specified by
MSSB), all of the information that MSSB may require or
reasonably request to perform MSSB’s duties hereunder
without violating or causing any violation of any
applicable law.
USA PATRIOT ACT NOTICE: IMPORTANT
INFORMATION ABOUT PROCEDURES FOR
OPENING A NEW ACCOUNT OR
ESTABLISHING A NEW CUSTOMER
RELATIONSHIP
You further understand that to help the government
fight the funding of terrorism and money laundering
activities, federal law requires all financial institutions to
obtain, verify and record information that identifies each
individual or institution that opens an account or
establishes a customer relationship with MSSB.
Therefore, before entering into a new client relationship
with you, MSSB will ask for your name, address, date of
birth (as applicable) and other identification information.
This information will be used to verify your identity. As
appropriate, MSSB may, in our discretion, ask for
additional documentation or information. If all required
documentation or information is not provided, MSSB
may be unable to open an account or maintain a
relationship with you.
By signing this Agreement you represent to MSSB that
neither you nor any other person who has an ownership
interest in the account is or has been a Politically
Exposed Person or an immediate or close family
member or close associate of a senior foreign political
figure. If you or any person described above is or has
been such a figure, you are required to disclose that to
us and provide the necessary information required by
law to open and/or service your account. By signing
this Agreement, you also represent that this account will
not be used for any transactions with, or for the benefit
of, any person, entity or country subject to sanctions
administered by the U.S. Treasury Department’s Office
of Foreign Assets Control (“OFAC”). For the purposes
of this paragraph a Politically Exposed Person is a
senior official in the executive, legislative, administrative,
military or judicial branch of a foreign government
(whether elected or not) or a major foreign political
party, a senior executive of a foreign government-owned
corporation or a corporation, business or other entity
GRAYSTONE CONSULTING INSTITUTIONAL SERVICES AGREEMENT ICGIC401 N0411
PAGE 20 OF 20
for by, or for the benefit of, such a figure; “immediate
family member” includes, but is not limited to, parents,
siblings, children and in-laws; “close associate” means a
person who is widely and publicly known to maintain an
unusually close relationship with a senior political figure,
including a person in a position to conduct substantial
domestic and international financial transactions on
behalf of such a figure. For a fuller description of the
preceding terms and definitions, see
http://www.federalreserve.gov/boarddocs/srletters/20
01/sr0103.htm.
As disclosed in the Select UMA® ADV Brochure,
MSSB’s investment advisory accounts may be subject to
certain guidelines such as guidelines relating to
economic sector and security diversification, approval of
securities (including mutual funds and ETFs) that may
be purchased for accounts, and asset-mix parameters.
Limitations may also exist related to the types of
transactions (e.g., covered options writing, protective
put buying, purchases of puts, calls and LEAPs) that
may be conducted. Securities that you currently own
may not be compatible with MSSB’s investment
advisory programs. At the time you instruct MSSB to
open an investment advisory account, if you wish to
fund your investment advisory account with securities,
you will discuss with your Financial Advisor the
compatibility of your securities with the advisory
program you have selected. In the event that your
securities are incompatible with MSSB’s investment
advisory platform, MSSB may sell your incompatible
securities in its discretion when the investment advisory
account is opened, or at any time thereafter. Such sales
could result in realized losses or adverse tax
consequences. You acknowledge and accept the
foregoing.
You authorize MSSB to accept instructions concerning
your account, including withdrawal instructions, from
the person(s) signing this Agreement and any other
authorized person (“Authorized Individual”). Subject to
MSSB’s policies, if MSSB receives conflicting
instructions, or reasonably believes instructions from
one Authorized Individual might conflict with the
wishes of another Authorized Individual, MSSB may do
any of the following: (i) choose which instructions to
follow and which to disregard, (ii) suspend all activity
relating to your account until written instructions signed
by all Authorized Individuals are received, (iii) terminate
your account or (iv) take other legal action.
This Exhibit may be executed in counterparts and shall
be binding on the parties hereto as if executed in one
document.
Note: The Agreement contains a pre-dispute arbitration clause which is located in Section 15 on pages 10 and 11 of the
Agreement.
AGREED to this day of ,_______
Title of Account: City of Owosso Employees’ Retirement System
By:
By:
(If more than one, all principals to the account must sign. If any signatory is a fiduciary, the capacity in which the fiduciary
is acting must also be indicated.)
Address:
ACCEPTED as of the day of ,_______
MORGAN STANLEY SMITH BARNEY LLC through its GRAYSTONE CONSULTING business unit
By:
Robert J. Mandel, Executive Director
Director of Graystone Consulting
2000 Westchester Avenue 2nd Floor
Purchase, New York 10577
MEMORANDUM
301 W MAIN ∙ OWOSSO, MICHIGAN 48867-2958 ∙ WWW.CI .OWOSSO.MI .US
DATE: April 9, 2015 TO: Chairman Farrell and the Board of Trustees FROM: Amy K. Kirkland, City Clerk SUBJECT: Custodial Services RECOMMENDATION: I recommend the Board consider utilizing Morgan Stanley for custodial services based on potential cost savings. BACKGROUND: As you are aware the Retirement System must secure the services of a new custodian for System assets. Merrill Lynch’s exit from the public pension plan market highlighted the potential conflicts of interest that a large firm faces when they provide consulting and custodial services for a client. Our new consulting firm has given the Board verbal assurance that Morgan Stanley will remain in the public pension plan market for the foreseeable future, thereby opening the door to our using their custodial services much like the arrangement we had in the past with Merrill Lynch. At this point the Board must decide whether to use Morgan Stanley as custodian or to start the process of a custodial search. There are advantages and disadvantages to utilizing our consulting firm for custodianship. The primary advantage would be the lower custodial fees, in this case there would be no added charge for custodianship of our assets. The primary disadvantage would be the risk of Morgan Stanley moving out of the custodial market for public pensions, much like Merrill Lynch, potentially leaving the System looking for a custodian in a hurry. One must also consider the fact that local custodians would not have a chance at the business as well. FISCAL IMPACTS: The Board has been very conscientious about the fees charged to the System and the issue of custodianship should be no exception. I have attached a breakdown of the fees for consulting, custodianship, and management under Merrill Lynch, with total annual fees coming to approximately $181,000 for $34M in assets. Morgan Stanley has proposed a fee of 20 basis points for consulting and custodial services, which comes out to be around $70,000 per year. I have also tried to estimate potential money manager fees as well so that you can see the bigger picture of overall fees for the System. Based on this very inexact analysis I am recommending the Board use Morgan Stanley for custodial services. As always this is simply a recommendation and the Board is free to take any action it wishes.
Approximate fees under Merrill Lynch
Approximate Value Platform
ML Fee - bp
Manager Fee - bp
Total Fee - bp
Performance Reporting
ML Fee - $
Manager Fee - $
Total Fee - $ Admin/Record
Transaction Costs
Investment Fiduciary
Atlanta 1,750,000$ Consults 30 35 65 5,250$ 6,125$ 11,375$ ML Included ML
Franklin 9,875,000$ Direct - 32 32 1,500$ - 31,600$ 33,100$ Manager Manager
NFJ 2,400,000$ UMA 30 35 65 7,200$ 8,400$ 15,600$ ML Included ML
Loomis 8,475,000$ UMA 30 28 58 25,425$ 23,730$ 49,155$ ML Included ML
MD Sass 8,600,000$ UMA 30 28 58 25,800$ 24,080$ 49,880$ ML Included ML
Wentworth 2,700,000$ UMA 30 40 70 8,100$ 10,800$ 18,900$ ML Included ML
Composite 2,850$ 2,850$
Cash 250,000$
Totals 34,050,000$ 76,125$ 104,735$ 180,860$
58
bp = basis points (.00xx%)
Approximate fees using Morgan Stanley custodial services
Approximate Value Platform
Fee - bp
Total Fee - $ Admin/Record
Transaction Costs
Atlanta 1,750,000$ 65 11,375$ MS ? Included ?
Franklin 9,875,000$ Direct 32 31,600$ Manager
NFJ 2,400,000$ 65 15,600$ MS ? Included ?
Loomis 8,475,000$ Direct 65 55,088$ Manager ? Included ?
MD Sass 8,600,000$ Direct 65 55,900$ Manager ? Included ?
Wentworth 2,700,000$ 40 10,800$ MS ? Included ?
Cash 250,000$ -$
Morgan Stanley 34,050,000$ 20 68,100$
Totals 34,050,000$ 248,463$
Average Total Fee in basis points =
* We are in receipt of proposed contracts for Loomis Sayles and MD Sass and I have used the terms of those contracts to estimate fees for those managers. The items shown in gray are simply repeated from the first chart using Merrill Lynch's fee structure because I did not have the terms of the new contracts for these firms. Bottom line, this estimate is on the lower end of what we can expect to pay for money management and consulting services.
MEMORANDUM
301 W MAIN ∙ OWOSSO, MICHIGAN 48867-2958 ∙ WWW.CI .OWOSSO.MI .US
DATE: April 10, 2015 TO: Chairman Farrell and the Board of Trustees FROM: Amy K. Kirkland, City Clerk SUBJECT: Direct deposit for new retirees RECOMMENDATION: City staff recommends the implementation of a direct deposit policy for new retirees. BACKGROUND: I am in receipt of a request from our payroll department for the Board to consider implementing a policy requiring all new retirees from this point forward utilize a direct deposit order to receive their monthly pension payment. This change will reduce the number of paper checks that are issued each month, thereby reducing the workload of this department of one. I feel this request is completely reasonable and will actually provide retirees with access to their money more quickly than if they had been issued a traditional check. Currently retirees can elect to receive their payment via direct deposit but it is not a requirement. The requested change not affect those who have retired up to this point. FISCAL IMPACTS: This change will save staff time as well as providing retirees with faster access to their money each month.
RESOLUTION REQUIRING DIRECT DEPOSIT OF PENSION PAYMENTS FOR ALL NEW CITY OF OWOSSO RETIREES FROM THIS DAY FORWARD
WHEREAS, the payroll department of the City of Owosso issues pension checks each month to all retirees of the City of Owosso Employee’s Retirement System; and WHEREAS, this process is costly, incurring expenses for staff time, postage, and paper; and WHEREAS, the City of Owosso Employees’ Retirement System Board of Trustees wishes to simplify this process and reduce expenses; and WHEREAS, direct deposit of pension wages would reduce costs and provide earlier access to funds for retirees; and WHEREAS, the Board of Trustees recognizes that many current retirees and/or their beneficiaries are of an age that change is difficult and the Board does not desire to require changes from the current pensioners. NOW, THEREFORE BE IT RESOLVED, by the City of Owosso Employees’ Retirement System Board of Trustees that:
FIRST: All employees retiring from the City of Owosso Retirement System after the date of this resolution shall be paid by electronic fund transfer or deposit to an automated clearinghouse member financial institution account designated by the employee.
SECOND: All employees applying for retirement benefits shall submit a completed electronic deposit
authorization form to the City of Owosso Treasurer at the time their W-4 is filed. THIRD: Any employee who fails to submit an electronic deposit authorization prior to the issuance
of their first pension payment shall be paid via debit/payroll card. FOURTH: The Treasurer’s Office shall distribute educational information about debit/payroll cards to
all employees applying for retirement benefits.