CIVILIAN AND POLICE PENSION BOARDS

The Civilian and Police Pension Boards met on February 8, 2006 at 1:00 p.m. with Chairman Ruane presiding. Members present were Mr. Hogan, Mr. DePrima, Chief Horvath, Mrs. Mitchell, Mrs. Braun, Mrs. Rigby, Ret. Lt. Knotts, Mr. Lucas, Ret. Lt. Mullaney, and Ret. Capt. Gray.

AGENDA ADDITIONS/DELETIONS

Mr. Hogan moved for approval of the agenda, seconded by Ret. Lt. Mullaney and unanimously carried.

Actuary Reports - Presented by Al Pike of Pike Associates

Members were provided Actuarial Valuation reports as of July 1, 2005 for the General Employee and Police Pension Plans, as prepared by Mr. Al Pike of Pike Associates. Mr. Pike reviewed the valuation summaries and explained that the annual costs presented are based upon generally accepted actuarial assumptions and methods.

Referring to the Police Pension Plan, Mr. Pike stated that the only change was the addition of one (1) retired officer which left on a terminated vested basis. He also noted that a City contribution, in the amount of $560,638, is necessary to provide for normal cost, plus amortize, for the unfunded accrued liability over a twenty (20) year period. The City costs reflect a $5,906,582 unfunded actuarial liability as of July 1, 2005, which has been amortized over nineteen (19) years with $551,707 in annual payments. Mr. Pike noted that it is expected for the amortization payment to stay the same for the Police Pension Plan and indicated that the funding ratio, which is the number of liabilities that are covered by assets, is still a little high even though it did decrease from 67.26% to 66.91%.

Ret. Lt. Mullaney stated that future Actuarial Studies should indicate the spouse death benefit which is fifty percent (50%) of the officers retirement for the life of the spouse.

Referring to the General Employee Pension Plan, Mr. Pike stated that the 2005 City normal costs is $313,677 (representing 4.25% of payroll) and that a contribution in the amount of $1,708,937 (representing 23.15% of payroll) is necessary to amortize the unfunded actuarial accrued liability over nineteen (19) years with payments increasing at 3½% per year. Mr. Pike stated that the recommended City contribution is $2,022,614 and represented 27.40% of payroll.

Mr. Pike indicated that although there was a decrease of one (1) in the number of participants last year (182), the unfunded liability increased. He stated that this is a concern due to this being the third year in a row that the City’s cost has increased.

Responding to Mr. Ruane, Mr. Pike advised members that there is a contribution shortfall in the amount of 0.17% and stated that the City granted retirees a COLA that also increased the plan costs, which also increased the City contribution from 23.59% to 27.40%.

Mr. Pike noted that the funding ratio is 37% and stated that it should be at 70% to 80% for an active plan since this number would be taken into consideration by an underwriting agency if the City ever wanted to issue bonds.

Responding to Mr. DePrima, Mrs. Mitchell stated that the assets that are invested are covering 37% of the total unfunded liability.

Mr. Pike indicated a 2% COLA would cost approximately $500,000.

Ret. Lt. Mullaney moved for acceptance of the Actuary Reports for the City of Dover General Employee Pension Plan and Police Pension Plan as presented, seconded by Mr. Hogan and unanimously carried.

Quarterly Performance - Presented by Michael Shone of Peirce Park Group

Mr. Shone provided members with the Quarterly Investment Performance Analysis, as of December 31, 2005. Mr. Shone explained the various investment strategies and reviewed the Asset Growth Summary Statements and Performance Summaries for both the General Employees and Police Funds, as follows:

GENERAL EMPLOYEES FUND

                                                                        TOTAL FUND                        POLICY INDEX

                   Quarter Return                                     2.8%                                        1.8%

                   1 Year Return                                      8.3%                                        5.6%

                   3 Years Return                                     9.7%                                       11.1%

                   5 Years Return                                     0.4%                                        3.1%

                   Total Assets                                 $15,049.044

POLICE FUND

                                                                        TOTAL FUND                        POLICY INDEX

                   Quarter Return                                     2.8%                                        1.8%

                   1 Year Return                                      8.3%                                        5.6%

                   3 Years Return                                     9.5%                                       11.1%

                   5 Years Return                                   (0.1%)                                       3.1%

                   Total Assets                                 $11,684,079

Mr. Shone recommended to members that the portfolio should be re-balanced due to stocks outperforming bonds. Currently the allocation to bonds are coming in at 31% and Mr. Shone stated that this is the low end of what the investment policy states, which is a target of a minimum of thirty 30%.

Ret. Lt. Mullaney moved for fund reallocation back to the 65%/35% parameters for both the General Pension Fund and Police Fund based upon Mrs. Mitchell and Mr. Shone’s recommendations. The motion was seconded by Mr. Hogan and unanimously carried.

Mr. Shone noted that in 2004, the original investment policy called for an intermediate benchmark for the fixed income assets, which meant the average maturity of the bonds is between four (4) to five (5) years. During the process of finalizing the investment policy, there was discussion regarding the interest rates being low and whether the bond maturity should be shortened. Mr. Shone noted that the Board could set the intermediate for the benchmark that would allow for some room for adjustment or make no changes at all.

Mr. Lucas noted that in the past, the intermediate was changed from ten percent (10%) to five percent (5%) and the short-term was changed from 25% to 30% due to the knowledge that interest rates were going to rise, which occurred.

Responding to Mr. DePrima, Mr. Shone stated that the investment policy called for a Lehman Intermediate Index which has an average four (4) to five (5) year maturity. The intermediate items that were picked from VanGuard Funds have a seven and a half (7½) year average maturity and the short term items from VanGuard have a three (3) year average maturity. In order to meet the Lehman Intermediate Index of a four and a half (4½) year average maturity, the intermediate had to be 25%/10%.

Ret. Lt. Mullaney requested Mr. Shone to present a recommendation to members during their next meeting on what language should be used for determining the intermediate benchmark.

Mr. Hogan moved to request Mr. Shone to present a recommendation to members, during their next scheduled meeting, the wording that should be used to recognize the volatility of the bond situation, seconded by Ret. Lt. Mullaney and unanimously carried.

Ret. Lt. Mullaney moved for adjournment, seconded by Capt. Gray and unanimously carried.

Meeting Adjourned at 2:26 P.M.

Respectfully submitted,

Timothy Mullaney                                                                  Eugene B. Ruane

Chairman - Police Pension Board                                          Chairman - Civilian Pension Board

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