HomeMy WebLinkAbout1991-10-31 Minutes•
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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
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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
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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.