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HomeMy WebLinkAbout1991-10-31 Minutes• • MINUTES OF A MEETING OF TEE FIRE PENSION BOARD A meeting of the Fayetteville Fire Pension and Relief Fund Board of Trustees was held on Thursday, October 31, 1991, at 11:00 a.m. in Room 362 of City Hall, 113 W. Mountain, Fayetteville, Arkansas. PRESENT: Firemen Marion Doss, Pete Reagan, and Danny Farrar; Retirees Richard Baird and Darrell Judy, Finance Director Ben Mayes, and City Clerk Sherry Thomas. ABSENT: City Manager Scott Linebaugh CALL TO ORD$R The meeting was called to order by Marion Doss. INVESTMENTS Curtis Williams of Merrill Lynch addressed the Board with a report on the investments. He explained that several long term $30,000 CD's were purchased to cover withdrawals when CD rates were attractive. This is not the case at the present time with CD rates well below 6%. When CD rates began to drop below that of government guaranteed securities, they ceased buying CD's. Monthly distributions will now be funded out of income from some of the government securities with yields in the 8%-10% range. INCOME ACCOUNT REPORT Williams reported on the Income Account. He explained with the assumption that interest rates would fall, they purchased long-term fixed income instruments to take advantage of the decline in rates. When interest rates fall, the value of the bonds increase. With the current declining rates, they did very well with their bonds and realized some nice capital gains. A bond is purchased with a locked -in rate of return and income string. Coming out of the recession, interest rates will actually go lower before increasing. He further explained that the double digit interest rates of the 80's were not reality, but an anomaly; reality is that the 200 year average for a 30 year treasury bond is 3.9% and the 200 year average for high quality corporate bonds is 5.1%. On the other hand, if you continue to hold bonds and interest rates increase, the income string remains the same, but the profit goes back. Even though interest rates could go lower, Williams stated that he is not as comfortable that this will happen now as he was three years ago. Williams reported as reflected on the Income Statements, profit has been taken from those bonds; moved from 15, 20 and 30 year bonds into 5, 7 and 10 year bonds, enabling them to maintain the bulk of their cash flow. The Fixed Income Portfolio is "immunized" - 5 to 10 year bonds don't fluctuate in value as much as 30 year bonds. While interest rates continue to decline, they won't make as much • • • October 31, 1991 money. But, if interest rates turn around, they won't lose as much money as they mature in a shorter period of time. Williams further reported that the restructuring of the Fixed Income Portfolio is basically complete; there won't be much activity in that account from this point forward. The income string is locked in and running at 8-10% for several years to come; but that is the only activity that can be expected and growth will slow. Enough income will certainly be generated from their securities to pay the monthly benefits. Mayes requested that Williams provide them with receipts from the Income Account on deposits and withdrawals in order to show that the Income Account grows in spite of the withdrawals as well as showing net realized from turn -backs. In response to Baird's question regarding a bi-yearly or yearly reports with figures reflecting growth in the account, Williams responded that with Roxbury, for example, an equity manager of $685,000, as of the close of business on 9/30/91, it was up 21.1% for the year. These figures are directly reflected in the Fire Pension Income Account. Baird further requested figures that he can keep up with and that mean something to him. Williams stated that the figures shown on the July '91 report reflect the original investment, and the figures on the September '91 report reflect current value. In response to Reagan's question, Williams reported with regard to the M L Lee Account, the income string has diminished with the recession, but the overall return for the first two years has been around 8-9% - a reasonable investment from a cash flow point of view. Williams further explained that due to unforseen political activities, the Euro Fund investments have not done as well because of the unification of Germany following the disintegration of the Soviet Union and strain on their economy, as well as wars currently erupting in satellite states. By pulling out now after having held it to this point, the fund would take a 25-30% loss on this investment. Williams further stated that the long-term viability of the European market will be realized eventually. In response to Reagan's question regarding the net worth of the account, Williams stated that the three figures added together total approximately $5.7 million. In addition, the insurance turn - back of $100,000 will appear on the October statement. Williams explained the inactivity in Occidental Petroleum was because the sale of "ISPs" are ahead of schedule with debt restructuring. The funds will probably be used to buy another chemical company - shifting from a restructuring mode to an acquisition mode. Analysts and investors perceive this as negative on a short term basis resulting in the reason for the stock October 31, 1991 inactivity. Based on the capital loss that would be realized, this stock is being held for better times. Williams explained the Spanish telephone company (Telephonic De Espania) infrastructure is expanding thereby benefiting the phone company and 1992 is expected to be a good year. He explained "recovery" related stocks contained in the portfolio, stating that he believes we are in a recovery and as soon as everyone else realizes this, the shares of the cyclical recovery type stocks increase. Starting in 1972, for 5 years no one made any money in the market, but over the 10 year haul of the 1970's, the market was up at a total of 22%. It is important to take a longer term view. Some stocks will never increase and will be sold at a loss. It is impossible to predict the exact top and bottom of these stocks. Williams reported that Scott Paper Company did not live up to expectations; taking a $2,500 loss and repositioning the dollars was of long-term benefit. Williams further stated that a manager's flat fee is paid per year and whenever a transaction is initiated on a trade by trade basis, a commission charge is reported to the Board and can be figured by dividing the commission into dollars spent and is paid quarterly to Merrill Lynch. He further reported that their commitment was to keep the total cost to the fund below 1%, which it is. Baird stated that it may be helpful if Merrill Lynch would educate those new Board members who were not a part of the negotiated contract, on how the contract was arrived at. City Clerk Sherry Thomas suggested that Merrill Lynch provide the Board members with a print-out of expenses at each meeting. Williams stated that Merrill Lynch would prepare a report on their costs and commissions and present the same to the Board members on a monthly basis. PENSION LIST Thomas reported that there were no changes on the Pension List. Baird, seconded by Farrar, made a motion to approve the Pension List. The motion was approved by a unanimous vote. Baird stated that he saw discrepancies in the amounts being paid to volunteer widow's benefits (i.e. Carmen Poore). Baird further stated that these disability accounts and benefits paid should be reviewed on a periodic basis. He commented that this Board is a Pension and Relief Board; in case of hard luck to a retired member, the Board has the authority to raise salaries at their discretion. Reagan responded that the benefits referred to that seem to be disproportionate to others are victims of time and three pay raises • • • October 31, 1991 by this Board since their retirement. In addition they must abide by state statutes regarding the $250 widows' pension. OLD BUSINESS Darrell Judy Pension Request It was agreed that they would keep the item tabled regarding Darrell Judy's request for disability retirement benefits until City Attorney Jerry Rose and City Manager Linebaugh were present for the discussion. This item will need to be researched to determine whether it can be retroactive and when the law went into effect. NE11 BUSINESS Actuary Soundness Report Ben Mayes explained an actuary study was conducted for the Police Pension Fund to determine the earning necessary to be actuarialy sound by the year 2003, which was 6%. The Fire Pension and Relief Board earnings return has been 6.71% for 1988, 7.94% in 1989, well above 6% for 1991. Mayes reported on a request to increase the contribution made by the City from 6% to 9% for 1989 and to 12% for 1990. A recommended increase was approved by the City Board of Directors on October 16, 1990. The contributions by the City for 1989 and 1990 will be retroactively increased up to 12%. Reagan questioned whether giving a lump sum bonus in lieu of a locked -in, across the board raise would makes a difference in the projections on the total Plan. Mayes responded that he was not sure they can legally do that unless they are actuarialy sound. He stated that he would research that and report on it at the next meeting. ADJOURNMENT The meeting was adjourned at noon.