HomeMy WebLinkAbout1992-10-29 Minutes•
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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, October 29, 1992, at 11:00 a.m. in
Room 362 of City Hall.
PRESENT: Marion Doss, Danny Farrar, and Pete Reagan;
Retirees Richard Baird and Darrell Judy;
Administrative Services Director Ben Mayes; City
Attorney Jerry Rose; and City Clerk Sherry Thomas.
ABSENT: City Manager Scott Linebaugh
CALL TO ORDER
The meeting was called to order by Marion Doss.
CITY ATTORNEY'S REPORT
ROY SKELTON
City Attorney Jerry Rose updated the Fire Pension and Relief Fund
Board on the Roy Skelton matter. He stated Lamar Pettus, attorney
for Skelton, had filed a Petition for Declaratory Judgment, which
essentially sets out that under the Fire Retirement Statute, once
Roy Skelton has worked his twenty years of service, he is then
• locked into the medical disability pension which he has been
receiving. Even if Skelton was found by a doctor to be no longer
medically incapable of performing his job, since he had served his
twenty years, he would not be required to return to work and would
be entitled to the disability pension for the rest of his life.
Jerry Rose reported he filed an Answer to Skelton's Petition
stating that Skelton's interpretation of the Fire Retirement
Statute is not as the City reads the statute. The City interprets
the Fire Retirement Statute to mean that Roy Skelton was entitled
to retire at the time he received his disability retirement, but
that he had not attained normal retirement age. Rose explained
that there is no mention in the statute itself of the definition of
"normal retirement age"; however, the old Fire Retirement Statute
sets out age 55 as normal retirement age. Therefore, Jerry Rose
stated his theory is that Roy Skelton would have to attain the age
of 55 before being locked into the medical disability pension.
City Attorney Rose stated he had envisioned handling this case by
filing briefs; however, he reported receiving Interrogatories and
Requests for Production of Documents from Mr. Pettus. It appears
from these documents that Pettus intends to raise some factual
issues, citing examples such as - 1) definition of normal
retirement age as adopted by City and the year of that adoption; 2)
produce City's or Fire Department's Personnel Policy Manual; 3)
• produce minutes of all meetings of the Fire Department Pension
Board for the past ten years; 4) produce all memos, notes,
correspondence, opinions, and research received from or sent to
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others by or on behalf of the Fire Department concerning Skelton;
5) normal retirement age and normal retirement age for Fire
Department personnel; 6) produce City's different Fire Department's
manual, pamphlet, regulations, instruction, ordinance and the laws
on retirement; 7) produce City's and/or Fire Department's
regulations which address the age in which City or Fire Department
personnel may retire.
He continued to read from the Interrogatories that it was the
understanding of Roy Skelton that the pension plan from which
retirement funds for firemen are administered changed several years
ago, and Skelton was and still is covered under the old plan. The
plaintiff further requests a copy of the old pension plan or the
pension plan for firemen which immediately preceeded the current
pension plan.
Reagan verified that the Fire Pension & Relief Fund has two plans,
and Roy Skelton is covered under the old plan. He stated that
under "Disability" in the old pension system and Disability Act, if
the disability ceases, so does the payment.
Baird stated the old pension plan had a 50% disability provision,
but with no increase in pay. The new rates of 60% to 65% were put
in since the new plan was initiated and are retroactive. In
• addition, he stated it used to be that an individual did not have
to pay taxes on medical disability; however, that too has changed.
City Attorney Rose verified that LOPFI is the new medical
disability plan. Since Skelton falls under the old plan which does
not list a "normal retirement age" this creates one of the problems
in Skelton's case. Rose further stated he would further research
the old and new plans and believes this matter should be cut and
dried. He will argue the "normal retirement age" referred to in
the plan is not a term of service, but an age. The use of "term of
service" and "years of service" are used throughout the old plan;
instead of using those terms in the new plan, the term "normal
retirement age" was used. Logic tells you this refers to something
different than twenty years of service. In addition, Rose stated
the City has a good "common sense" argument that if someone is no
longer disabled, they should not be drawing disability benefits.
Rose reported there had been no briefing schedule set, and he
anticipates the case to take six to nine months to resolve. There
is a provision whereby Declaratory Judgments can be advanced on the
judicial calendar and heard quickly.
Reagan asked whether the Board is actually required to provide
board minutes from the last ten years. City Attorney Rose
responded that if it was possible to produce those minutes, it
• should be done. Rose further stated the City could object to
copying the minutes for the plaintiff due to the volume requested
and could make the minutes available to Mr. Pettus to view at City
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Hall. This would meet the requirements of the Freedom of
Information Act.
Reagan asked if the wording changed in the new statute before the
upcoming legislature, how that would affect those disabled retirees
already retired. City Attorney Rose responded that it would
probably not have any retroactive impact upon those firemen already
retired.
Reagan asked City Attorney Jerry Rose about approval of the monthly
pension list after the fact. Jerry Rose explained the Pension
Board decides whether or not an individual is eligible for a
pension. The date of the pension is generally not a discretionary
matter, but a date certain. Simply because a ruling is not made
until a few months after the fact doesn't have any effect, and the
pension would be retroactive back to the date of first
entitlement.
Sherry Thomas stated in those months that the Pension Board does
not meet, pension checks are mailed anyway. The pension list is
approved on a monthly basis, and in the case where the Board has
not met, the pension list is approved after the fact.
City Attorney Rose suggested the preferable way to handle this
matter would be to have the Board meet in advance of issuing
checks, so as to eliminate any question. He further responded that
legally, the Board can retroactively approve a pension. The real
problem occurs if the Board makes a mistake in issuing a pension
check and how they can pragmatically request return of the funds.
He therefore advised that the Board avoid retroactive approval of
pensions; however, if it cannot be avoided, it would be defensible,
but extremely difficult to recover pensions paid.
Baird reported that meetings used to be held earlier in the month
in order to allow time to approve the pension lists prior to
issuance of checks. He further stated the reason for changing the
meeting date was to accommodate City Manager Scott Linebaugh and
Director of Administrative Services Ben Mayes in attending the
Board meetings, as well as an attempt to hold the Board meeting
before the monthly meetings at the Fire Station. It was suggested
they may want to move back to that procedure with the upcoming
election.
City Clerk Thomas explained the Board is approving the November
pension list at this meeting, or earlier than what the statute
requires.
PENSION LIST
• City Clerk Sherry Thomas reported one change to the Pension List
for November, reporting that Oliver (Ray) Davis had passed away.
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Ray Davis' widow, Beulah Davis, will continue to receive the full
amount of Mr. Davis' pension benefits.
Reagan, seconded by Judy made a motion to approve the Pension List
for November with the necessary change made so that Ray Davis's
widow will continue to receive the full amount of his pension
benefits. The motion was approved by a unanimous vote.
MINUTES
The minutes from the July and August Fire Pension & Relief Fund
Board meetings were reviewed.
City Clerk Sherry Thomas reported that there was no meeting in
September.
Reagan, seconded by Farrar, made a motion to approve the minutes of
the July and August Fire Pension & Relief Fund Board meetings. The
motion was approved by a unanimous vote.
OLD BUSINESS
NEW MEXICO CAPITAL MANAGEMENT
Chuck Dumler of New Mexico Capital Management addressed the Board
providing information on the account as of September 30, 1992. The
year to date return is 6.4%. He reported returns for the last
twelve months from September 30, 1991 through September 30, 1992,
of 11.9%. The cumulative figure of 31.5% represents the increase
in the account from the day New Mexico Capital Management took over
on January 18, 1990. An annualized figure since inception reported
an average yearly figure of 10.5%. As compared to 1991 returns
with year end stock market figures in the New Mexico Capital
Management Account at +19%, the 1992 returns are not very good. In
comparison, 1992 was a flat year in the stock market with a total
return of 6.4%. He reported the S&P 500 at the end of September
1992 was up only 2.4% with dividends reinvested. Therefore, he
pointed out that compared to the stock market, the New Mexico
Capital Management Account at 6.4% is substantially out performing
the stock market.
Dumler stated there is 54.3% of the account in the stock market
with the balance in U.S. Treasury bonds and money markets. This
puts New Mexico Capital Management's account at about half the risk
of the stock market. Since the account's inception in January
1990, New Mexico Capital Management has invested in a little of
each type of market. 1990 was a down year in the stock market and
was followed by a strong year in 1991, and a side -ways flat year in
1992. He stated the results are seen in the 10.5% annualized
return for the New Mexico Capital Management account. Compared to
the market and different indices particularly in 1992 and over the
last twelve months, the S&P 500 average is 11.1%, and New Mexico
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has outperformed it with a return of 11.9%. On a cumulative and
annualized basis, the New Mexico Capital Management account is
slightly behind the market, which is typical with a balanced
account and slightly more than half in the market.
Dumler stated New Mexico Capital Management has a philosophy and
style of investing in stocks based on the fact that they are a
conservative (no -risk), value manager, which is evident by the
balance in the account. Furthermore, th! type of stocks purchased
by New Mexico Capital Management are ch ap. He stated the result
of this philosophy of New Mexico Capital Management is a portfolio
that is less volatile than the market.A strategy such as this
will tend to protect the account better in a bad market. He
reported in fifteen years of operation, New Mexico Capital
Management has not had a down year in their balanced accounts.
Dumler gave a percentage breakdown on the different types of
economic classes contained in the New Mexico Capital Management
portfolio. The key in this account is diversification with the
highest percentage in the capital goods technology area, consumer
durables, and consumer non -durables. The account has very small
exposure to transportation, basic industries, and energy.
The New Mexico Capital Management portfolio itself reflects the
money market fund at roughly $62,000 made up basically of less than
5% cash, and representing 2.4% of the portfolio. The bond listing
consists totally of government agency obligations, which is the
highest quality paper that can be bought and is unrated. In
addition, maturities are short on these bonds, averaging 5 to 6
years.
The stock listing, broken down into the various economic classes,
also shows diversification with a "foot on base" in virtually every
economic class and company size. He reported on new stock
purchases. Dumler pointed out that Boeing is currently the largest
industrial manufacturing company in the U.S. and the cheapest stock
with 7' times earnings. Aeronautics is a cyclical industry, and
with the lagging economy of the past few years, airlines currently
have a lot of red ink. Dumler stated as the country pulls out of
the recession and as times get better, Boeing will do extremely
well.
Dumler explained many of the stocks in the portfolio are currently
cheap, not necessarily in terms of the price of the stock, but
cheap relative to their earnings to the market and less risk in a
down market.
Dumler reviewed the New Mexico Capital Management portfolio
investment earnings, appreciation, and income since January 1990.
The portfolio has increased $644,000 since inception. He stated
there are other managers, although not many, who have done somewhat
better than New Mexico Capital Management during this period. He
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stressed the importance of an appropriate degree of risk and still
achieve a reasonable rate of return. In this regard, Dumler stated
the New Mexico Capital Management portfolio is meeting the
requirements of the Fire Pension Board investment policy.
Dumler stated if there is to be a surprise in the market in the
next six months, it is expected to be on the upside. The trends in
place with lower interest rates and low inflation are all good for
stocks and bonds. He further stated New Mexico Capital Management
predicts whoever is elected as our next President should not have
a major effect on the marketplace. He stated his opinion that the
market has already discounted a Clinton victory; if Bush were to
sneak in and win, it would be a favorable surprise since as a rule,
Wall Street people tend to be conservative and would be more likely
to line up with Bush than Clinton.
Reagan asked about the BETA factor. Dumler responded that BETA is
a measurement of volatility of stocks; i.e., how much they
fluctuate compared to the market as a whole. The S&P 500 is
arbitrarily assigned a BETA of 1. If a stock has a BETA higher
than 1, it is more volatile than the stock market; if a stock has
a BETA less than 1, it will go up less in a bull market and go down
less in a bad market. He reported New Mexico Capital Management
stocks as a rule tend to have a BETA of around .7 or .8,
considerably less than the market, and by design, don't move much
one way or the other. The overall portfolio probably has a BETA of
less than one-half, considering they are only half in the stock
market, and bonds are extremely stable stocks.
Baird questioned since government corporate bonds listed in the
portfolio which are higher all the way across the chart, why
doesn't New Mexico Capital Management invest more in them. Dumler
responded that approximately 45% of the portfolio is in government
bonds. As a rule, bonds don't do as well as stocks, which have
averaged 10.4% since 1925. Corporate and government bonds in
comparison have averaged approximately 51% in the same period. He
explained since the New Mexico Capital Management portfolio
inception, there have been rapidly declining interest rates
virtually the entire time. When interest rates go down, bond
prices rise, and visa versa. The bond rates have out -performed
stocks in the portfolio during this period of time. In the long
run, stocks usually pull ahead at some point and become more
volatile with higher returns. Even if bond rates go a little
lower, bonds will continue to do well. New Mexico Capital
Management predicts that 70% to 80% of the big bull market in bonds
started in the early 80's is behind us. They believe that normal
is somewhere in between, or 5% to 6% a year in corporate bonds.
Dumler explained New Mexico does not do a lot of trading because
they take a long term view when they buy a stock. He reported that
commissions New Mexico Capital Management has been paying to
Merrill Lynch have been running.05% per year. He stressed that New
Mexico is not partial to Merrill Lynch; they are totally
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independent and work with all brokerage firms. Merrill Lynch gives
New Mexico Capital Management a good discount, batch trades
together with them to get a penny to share on a trade when
possible, resulting in low costs.
Dumler addressed the acquisition of New Mexico Capital Management
by John Hancock Life Insurance Company earlier in 1992. He stated
no changes are foreseen in New Mexico Capital Management's
philosophy. He also stated that he will continue to visit a Fire
Pension & Relief Fund Board meeting once a year unless the Board
wishes to see New Mexico Capital Management more often.
In answer to a question about the stock screening process, Dumler
stated before a stock is purchased, it proceeds through a screening
process consisting of about 22 different requirements. Examples of
these requirements include: 1) whether the stock pays a dividend;
2) how much debt does a company have; 3) what kind of management
does the company have; 4) what do the earning trends look like,
etc. He further reported that New Mexico Capital Management
screens approximately 3,000 stocks weekly, and last week only 38
names came through, for which New Mexico Capital Management owns
about 25.
NEW BUSINESS
COOPER & LYBRAND AUDIT
Director of Administrative Services Ben Mayes pointed out an error
in the Cooper & Lybrand Audit whereby Danny Farrar and a few others
are listed as a female on the Coopers & Lybrand Report.
Mayes explained that Coopers & Lybrand sends a print-out to the
City, who in turn completes and returns information. He further
explained the information requested by the state is the same
financial statement used for the actuary study.
Reagan pointed out that dates of retirement were needed for a
number of retirees. Ben Mayes responded they do not know a date of
retirement for the majority of older retirees in the plan.
Ben Mayes stated that if the records of dates of retirement can be
located, the City would provide them to the state. He stated that
they have the retirement dates from 1989 forward; however, they
have no dates of retirement on record before 1989.
FIDUCIARY LIABILITY CONTRACT
Baird raised the question whether the Fire Pension & Relief Fund
Board has a contract with Merrill Lynch for fiduciary liability.
Mayes reported Martha Lindsey of the accounting staff had attended
a seminar put on by Arvest on the topic of fiduciary responsibility
to pension funds. The topic of management contracts was discussed,
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which are required with the money manager and state they take on
the fiduciary responsibility of the portfolio.
Ben Mayes stated that he asked Martha Lindsay to attend the seminar
on fiduciary responsibility. Due to a death in her family, Ms.
Lindsay was unable to attend this pension meeting to give a report.
Mayes stated he would talk with Ms. Lindsay and do further research
into the necessity of fiduciary contracts.
Mayes stated he is certain such a fiduciary contract is a part of
the initial paperwork associated with the inception of the Merrill
Lynch account. City Clerk Thomas stated she would locate the
initial contract with Merrill Lynch.
Reagan stated the seminar cost $10 per person, and those Board
members who attended (Doss, Judy, Baird, and Lindsay) did so on
behalf of the Fire Pension & Relief Fund Board, and he felt should
be reimbursed their expenses.
Farrar, seconded by Reagan, made a motion that those members of the
Board who attended the seminar be reimbursed their costs. The
motion passed unanimously.
ADJOURNMENT
• The meeting was adjourned at 12:15 p.m.