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HomeMy WebLinkAbout1992-10-29 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, 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 • • October 29, 1992 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 • • • • October 29, 1992 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. • • October 29, 1992 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 • • • • October 29, 1992 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 • • • October 29, 1992 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 • October 29, 1992 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, 1 • • 1 October 29, 1992 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.