In addition to the downtown boat slips referendum, the City of Clearwater is asking its citizens to approve an amendment to the pension plan that covers approximately 85 percent of its employees.
This issue has received little attention, so we asked the city to describe the purpose of the change in investment policy they propose to make so that our readers can cast an informed vote. What follows was provided by the City of Clearwater.
The Pension Plan Amendment Referendum item is seeking to allow diversification of pension plan investments into the investment categories that the State of Florida authorizes for local retirement systems.
Largely due to limited investment options, the City of Clearwater Employees' Pension Plan investments have underperformed many public pension plans in recent years, after many years of outperforming most pension plans.
The Plan's investment consultants have advised that the Plan's investment performance has been hindered by the inability to proportionately invest in many of the investment categories that other plans have added to their portfolios in recent years.
The Plan's investments are currently restricted to domestic fixed income (bonds), domestic equity (stocks), and an allowed 10 percent exposure to international equity per the Pension Plan Ordinance.
The Plan hired Kalson & Associates in February 2005 to perform an asset allocation study to determine an optimal weighting of investment categories to minimize risk and achieve the Plan's assumed rate of return on investments (7.5 percent).
The study results indicated that the Plan could improve the investment return nominally while actually decreasing risk by diversifying into some of the typical investment categories utilized by other public pension plans, including categories such as Real Estate Investment Trusts (REITs) and Emerging Market equities.
The city is proposing to adopt the State of Florida's categories of authorized investments for local retirement systems in order to allow the diversification necessary to optimize the plan's investment return and risk levels.
Improvement in the Plan's investment performance will decrease required city contributions to the Plan, effectively decreasing the taxpayer burden.