HomeMy WebLinkAbout1992-07-30 Minutes•
MINUTES OF A MEETING OF THE FIRE PENSION BOARD
A meeting of the Fayetteville Fire Pension and Relief Fund Board of
Trustees was held on Thursday, July 30, 1992, at 11:00 a.m. in Room
362 of the City administration Building, 113 W. Mountain,
Fayetteville, Arkansas.
PRESENT: Firemen Marion Doss, Danny Farrar, and Pete Reagan;
Retirees Richard Baird and Darrell Judy;
Administrative Services Director Ben Mayes; and
City Clerk Sherry Thomas.
Others present: Fire Chief Mickey Jackson and
Richard Yada of Merrill Lynch.
ABSENT: City Manager Scott Linebaugh.
CALL TO ORDER
The meeting was called to order by Marion Doss.
MINUTES
Reagan noted that on the last page, the second paragraph of the
Yada report in the April 30 meeting, the sentence which reads, H.
for a total charge of $11,393.89 or 4.5% . . ." should read
• "for a total charge of $11,393.89 or 1.5% . . ."
Reagan, seconded by Baird, moved to approve the minutes of the
April 30 meeting as corrected, and the May 28, 1992 meeting. The
motion was approved by a unanimous vote.
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PENSION LIST
City Clerk Sherry Thomas reported that the pension checks had been
mailed out for June. There were no changes on the Pension Lists
for June and July. Reagan, seconded by Farrar, made a motion to
approve the Pension Lists as they stand from the last meeting. The
motion was approved by a unanimous vote.
OLD BUSINESS
ARVLE KING
Reagan reported that he had in his possession a letter from Dr.
McDade, Arvle King's neurosurgeon, indicating that Mr. King was
scheduled for evaluation in his office on August 19, 1992.
ROY SKELTON
Reagan further asked whether there had been any response from Roy
Skelton's evaluation with Dr. B. Dean as requested by the City.
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City Clerk Sherry Thomas stated she was unaware of any letters from
the City Attorney to Roy Skelton or of any response. It was her
understanding that Dr. Dean had indicated he would contact Roy
Skelton directly regarding an appointment. Ms. Thomas stated she
would check on the status of Skelton's evaluation with Dr. Dean and
report back to the board.
ACT 891
Jackson asked whether any information had been received on Act 891,
referred to in the minutes of the May meeting. He stated he was
questioning the act which dealt with firemens' pensions. He
understood this referred to House Bill 1007.
Mayes reported they were awaiting information on this act and hoped
to have something at the next meeting.
NEW BUSINESS
PENSION CHECK AUTHORIZATIONS
Baird asked whether when the board does not conduct a formal
meeting, in order to keep everything legal, should a majority of
the members sign an authorization prior to distribution of pension
checks.
Mayes responded that it is common practice for the Fire Pension and
Relief Fund Board not to meet on a monthly basis, and suggested the
City does that which is legally obligated. Board approval is
obtained after the fact at the next meeting.
Mayes stated if there were a change in the Pension List, he would
recommend they require the Board members to appear to sign the
authorization for payment of pension checks in the months when no
meeting was held.
City Clerk Sherry Thomas stated the retirees have earned their
pensions and have a legal right to be paid whether the Board
approves them or not, which is more of a formality. Whenever a
meeting is not held in a certain month, the procedure has been to
approve the preceding month's pension payments at the next meeting.
Ben Mayes, Director of Administrative Services, suggested that they
ask City Attorney Jerry Rose for verification on the legal
technicalities for this approval procedure.
ACTUARY REPORT
Richard Yada highlighted areas of interest contained in the
actuarial report prepared by the Pension Review Board.
There are enough assets in the pension fund to cover all active
member contributions (6%) as well as all payments to the current
retirees. He explained that the only area which the Fireman's
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July 30, 1992
Pension Fund is not actuarially sound is with actuarially
calculated retirement of active members, which should be at 45% of
future payments earned by active members, and currently is at 31%.
Yada added that at the time of the last actuary report prepared in
1989, the Fireman's Pension Fund was at 15%.
Yada further reported that payroll comes in at $585,898. Necessary
employer contribution required in addition to investment income is
at $195,273. The actual 1991 contributions total $312,696.
Therefore, the income coming into the account more than covers what
is being paid out by $117,000.
The cost calculations reflect actuarially accrued liability
benefits that the actuary had calculated and will be needed in the
future to pay benefits. Yada reported total liability is currently
$7,427,386. If the plan contained this sum, it would be considered
100% funded and actuarially sound. At the current time, the plan
is $1,427,422 short of actuary soundness, and he explained this is
not a problem.
Turnback insurance funds of $112,
back insurance totalled $109,371
to account for the retirees as
shrinking amount, but currently
almost equal.
743 were received. In 1991, turn-
. Yada explained the law changed
far as the formula. This was a
under the new law, it is staying
The millage in 1991 was $131,933, and net investment income was
$446,372, up over 1989 and 1990. Total income was $795,000, and
total expenses were $378,762.
In response to Reagan's question regarding the source of
administrative expenses listed, Yada stated the City submits these
figures, and he was unsure exactly where they came from.
Director of Administrative Services Ben Mayes responded he did not
currently have the additional detail regarding the breakdown of
administrative expenses; however, he would be able to provide that
information at a later time. He explained that a small amount is
charged for the actuary report as well as a charge for an
independent audit.
There were total assets of $5,189,846 contained within the account
broken down over three years which have increased to approximately
$5,999,964 at the end of 1991.
Yada further explained investment returns of 7.9% in 1989, 6.9% in
1990, and 8% in 1991 only account for actual dollars realized and
are made up of interest, dividends, profits taken, minus losses.
The investment returns do not account for the increase in stock,
for example, when purchased at $10 per share, and increase to $100
per share. These returns will be picked up in the next report 11/2
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July 30, 1992
years from now, as was seen in 1991 with the capital gains in
stocks and bonds.
Baird questioned the discrepancy between $5,999,000 shown for
12/31/91 and Yada's portfolio total at that same time of
$6,142,000, for a difference of $142,200.
Ben Mayes explained that the state uses a cost basis for assets in
their figures. Therefore, the $5,999,964 was cost or what was paid
for the investments, and Yada's total reflects an "unrealized
gain", for example, stocks purchased at $20, now worth $80, but not
yet sold. This gain is not recognized until the stock is actually
sold and the gain is taken on the books. Mayes reported that as of
December 31, 1991, the plan had a total market value of $6,304,000,
including Merrill Lynch's $6,142,000 plus investments held by the
City in one treasury bill of $157,000, and miscellaneous cash.
Therefore, the total market was $6.3 million, including
appreciation in stocks and bonds not recognized in the actuary
report. He went on to explain that it is typical in private
industry when evaluating pension plans to use market values in lieu
of cost. Mayes recalled that at the time the plan with Merrill
Lynch began, there were a couple of T-bills earning very good
interest rates which the board chose to hold onto instead of
cashing them out. One of these treasury bills of $157,000 held by
the City has not matured yet and is not being held under Merrill
Lynch's management, but under that of the City.
In response to Baird's question whether this $157,000 treasury bill
shows up on every financial report, Mayes responded that it does
appear on all financial reports for the plan as a whole prepared by
the City, but not in Merrill Lynch's report. This figure is
included in the 12/31/91 total of $5,999,964, the amount held by
the City and invested. Mayes further explained that the $5,999,964
is the cost of every investment owned by Merrill Lynch and the
City. In addition, there exists a checking account, which
maintains a minimum cash balance, out of which pension checks are
paid, and doesn't appear in Merrill Lynch's reports. This balance
hasn't changed in three years, and was dropped from the reports.
The $5,999,964 is shown on all financial statements and also on the
actuary report. Mayes noted this has nothing to do with the fact
that they use cost instead of market. He estimated the balance to
be around $150,000. Once this treasury bill matures, the Board
will make a decision where to invest.
Comparisons from prior years reflect an annual payroll which peaked
out in 1982 at $810,996, as a result of the last person hired prior
to December 31, 1982, after which they went into the new pension
plan. At the end of 1991, the annual payroll reveals $585,898.
The unfunded actuary liability shows an increase as each person
works another day toward retirement, having peaked in 1989 at
$1,976,463, with a large decrease from 1989 through 1991.
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July 30, 1992
Yada explained the report which reflects the 6% contribution and
that the plan is 100% funded to cover all active member
contributions, and payments to the current retirees is reflected at
100% funded. The current active member percentage of the fund,
after the benefit increase in 1987, decreased to 15% in 1989, and
was up to 31% in 1991. Actuary soundness for
retirement of active members would be reached at 45%, or an
additional 14%. The report shows 48% in 1981 and three benefit
increases given between then and 1987 caused this value to
decrease. The 45% figure at the end of 1991 increases by 5% each
year, and by the end of the year 2002, this fund must reach 100%.
Reagan asked Ben Mayes to verify the benefits reflected under
employer contribution of 12%, as those figures appear to be in
error.
Ben Mayes explained the City held U.S. Treasury note has a current
rate of 8.75% interest, and was purchased in September, 1988 at
$157,961, matures in November 15, 1993, and at the end of 1991, had
a market value of $224,634. This note will not change between now
and maturity, remaining at $157,961.
Mayes explained the bond has a market value at the end of December
1991 of $224,634, and face value of approximately $200,000; between
now and November 15, 1993 when the bond matures, the $24,000
disappears, even with 8 3/4%. The yield to the maturity date is
somewhere between 3% to 4%. He further explained that in the
income portfolio situation such as this, the security is sold at a
higher rate of return.
INVESTMENT REPORTS
Richard Yada, from Merrill Lynch, addressed the Board with the
current stock portfolio recap. Roxbury portfolio began the year
with $796,707, was down to $740,810 at the end of June, and
currently, the market value is $776,457 He explained the growth
stocks, invested by Roxbury, were up 30% last year; however, these
stocks have not been kind to money managers in 1992. Even though
the Dow Jones is up, Roxbury is down for the year. Roxbury is 88%
invested, with 12% in cash. The realized capital gains and loss
summary reflects that Roxbury has taken $52,400 profit in 1992,
plus $8,000 in dividends and interest. The actuary was calculated
on Roxbury for 1992 with a realized gain of approximately $62,000,
or over 8% return.
New Mexico Capital Management portfolio began the year with
$2,523,916. At the end of June it showed a value $2,579,402, and
on this date, the portfolio value is at $2,648,982. The New Mexico
Capital Management portfolio is made up of 55% stocks. The income
account shows $63,333.71 since the first of 1992; with profits
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taken of about $46,000 with nothing sold or purchased in the month
of June.
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July 30, 1992
Yada next gave a recap of the three portfolios plus an index
comparison. Through the end of June, treasury bills were up 2.10%;
Dow Jones industrial average with the reinvested dividends were up
6.19%; S&P 500 was down .75% He explained that the Dow Jones
industrial average was made up of 30 stocks (market companies), and
the S&P 500 is a closer indication of what the market is doing.
Long term treasuries were up .20%, and high grade corporate bonds
were up 3%. The consumer price index (measure of inflation)
through May was up 1.31% at 2% above the rate of inflation.
The balanced account in both stocks and bonds of New Mexico Capital
was up 1.67%, representing a fair average. Roxbury Capital was
down 7.02% compared to up over 30% in 1991. Growth stocks are
giving some back this year, and they remain down from the market
average. The income account was up 3.44% and appears to be an
excellent manager. The checking account has kept a minimum with
withdrawals sent back to the checking account to supplement
dividend contributions. A market value as of the end of June
showed $2,859,000, minus accrued interest or $2,833,123, and began
the year at $2,821,624, minus withdrawals of $84,000, for an
investment base of $2,737,624. As of this date, the market value
was $2,872,829. The income account generated $99,299.76 in
dividends and interest through the end of June. Profits were taken
in 1992 of approximately $2,500 with very little sold. Not
recognized in the statement is MCI Communications that was sold at
$43,745.95 and had a cost of $38,254.85 for a gain of $5,500.
Richard Yada pointed out a government security with a $15
value and matures May 15, 1996. The market value is
Between now and May 15, 1996, the $745 will disappear,
have a yield at maturity of a little less than 4%. If a
investment comes along that pays more than 4%, they will
treasury, capture the profit, and immediately put the
work.
1000 face
$15,745.
and will
suitable
sell the
money to
In response to Baird's question why if a bond is worth so much, do
you end up losing so much, Yada stated that is what someone is
willing to pay right now. The reason for the $745 loss is that the
going interest rate for a 4 year treasury is currently 4%, and the
interest is received yearly at 7.375% on $15,000, or approximately
$1,100 per year. Before selling a treasury bond, Yada explained
they look for something of equal rating with a little longer
maturity for a higher return. Those treasury bonds issued after
1985 can be called 5 years earlier than maturity date; however,
corporate bonds have a set call date. They may also look for bonds
close to call date paying a high coupon paying 8 to 9%, and take a
profit before it is called. Yada addressed a Security Pacific bond
with a locked in rate of 9.75%, purchased 1k years ago at $48,705,
and matures on May 15, 1999 with a yield at 10%. Security Pacific
merged with the Bank of America, who if loaded with money, will
request that the 9.75% bonds be called, and could be bought back at
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July 30, 1992
$51,000. Closer to the maturity date, the $55,286 begins to
decrease, and when this happens, they will sell and reinvest.
Occidental Petroleum shows them paying 5.10% yield based on the
current price and dividend, but they paid a lot more for it;
therefore, the actual rate of return is about 3%. Yada explained
that when they changed over to New Mexico and Roxbury, the board
requested the security not be sold since the majority owner of the
company, Arman Hammer, who was close to his demise. The upcoming
management change was anticipated to make the value of the stock
increase. They are currently in the midst of restructuring, and
this stock will increase with oil and gas prices. Sale of this
stock would produce a $59,000 loss, which would knock the actuary
down one percentage point.
In conclusion, Richard Yada stated that the actuary looked good and
the portfolios are doing really well. He reported nothing has
changed with the sale of New Mexico Capital Management to John
Hancock, and the same people are managing the company.
BOARD LIABILITY
Baird posed the question of what the liability of the board members
is to the Fire Pension and Relief Fund Board. Is it necessary to
have bonds or insurance? Have there been boards sued for
mismanagement? He expressed his concern that managing $6 to $7
million is no joke, and a lot of people will be depending on this
fund for a long time.
Yada stated the board looked at an insurance policy about 4 years
ago. Since this type of insurance is extremely expensive, and it
was decided not to be feasible as long as they act as a board, and
everything is done by majority vote rules. He further reported
that Arvest would soon be conducting a seminar in Rogers or
Bentonville dealing with pension funds and liabilities, and
suggested that this could be helpful.
Doss stated that since the board is nominated and elected by the
members, liability is shared among all members of the fund.
Yada stated each board member is a fiduciary to the plan, and
entrusted by the members to act in a prudent manner in all regards
concerning a pension plan. If the board instructed that an
investment be made without study and the proper back-up, they could
be sued.
Baird reported a case where a board was sued and each member had to
hire their own attorney to defend the case. Even though the case
was settled, the members still owed thousands of dollars. He
stated that he does not wish to be put in that position.
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July 30, 1992
Reagan responded that it would depend on the nature of the suit,
but if you were sued individually, each member has their own
attorney. If a case is won, the fees can be recovered.
City Clerk Sherry Thomas stated the City used to carry public
official liability insurance which covered various boards and their
members.
It was suggested that they consult with City Attorney Jerry Rose on
this issue and ask for his opinion and advice.
ADJOURNMENT
The meeting was adjourned at 12:16 p.m.