HomeMy WebLinkAbout1993-07-29 - Agendas - Final•
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AGENDA
FIREMEN'S PENSION AND RELIEF BOARD
July 29, 1993
11:00 a.m.
City Hall Room 326
1. Approval of the minutes of the June 29, 1993 meeting
2. Approval of the Pension List for August, 1993
3. Old Business
4. New Business
A. Financial Statement for period ending Dec. 31, 1992
B. Other
5. Adjournment
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MINUTES OF A MEETING OF THE FIRE PENSION BOARD
A meeting of the Fayetteville Firemen's Pension and Relief Board
was held on Tuesday, June 29, 1993, at 10:00 a.m. in Room 326 of
the City Administration Building, 113 W. Mountain, Fayetteville,
Arkansas.
PRESENT: Marion Doss, Pete Reagan, Ron Wood, Retiree Darrell Judy,
Mayor Fred Hanna, City Clerk Sherry Thomas, City
Treasurer Glyndon Bunton, LaGayle McCarty, Assistant City
Attorney, and Martha Lindsey, Finance Department.
ABSENT: Retiree Richard Baird
CALL TO ORDER
Mayor Hanna called the meeting to order.
MINUTES
Reagan, seconded by Judy, made a motion to approve the minutes of
the June 3, 1993 meeting. The motion was approved unanimously.
PENSION LIST
Reagan, seconded by Doss, made a motion to approve the pension list
for July. There were no changes in the pension list. The motion
was approved unanimously.
OLD BUSINESS
NEW LEGISLATION REPORT
Reagan asked to comply with Act 1197 of 1993 does the fund have to
be actuarially sound to increase the minimum benefit. McCarty
stated that it does not have to be. The act merely increases the
minimum amount for both volunteer and full time retirees with all
other regulations staying the same.
Reagan asked regarding the Drop Plan, if a firefighter has in 20
years of service and opts for this plan, 1/2 of his salary goes
into the trust fund, does the city's share continue to be paid?
McCarty stated that it would continue to be paid.
Reagan asked Mayor Hanna if the City would continue to pay 12% or
would they pay only 6%. Mayor Hanna stated he did not know, but
suggested Reagan get with Ben Mayes and/or Personnel Director Don
Bailey to determine this answer.
Reagan stated the Fire Pension Board needs to meet on this Drop
Plan and decide if Fayetteville will participate in this plan and
if so, guidelines for participation need to be established. He
suggested a workshop be set up to discuss this plan.
Doss stated the
should also be
person chooses
goes to a trust
level and not
McCarty stated
passed.
June 29, 1993
long range effects on the pension fund of this plan
considered. He asked if after working 20 years, a
to participate in this plan and 50% of his salary
fund, will his retirement benefit be frozen at that
take into consideration future pay increases.
that issue was not addressed in the act that was
Mayor Hanna stated he would ask Ben Mayes to research this
it can be discussed further at the next pension meeting.
RICHARD BAIRD
act so
Darrell Judy stated he had contacted Richard Baird, and Baird wants
to continue to be a member of the Board. He would like for Howard
Boudrey to fill in for him until he is able to attend the meetings
himself.
GARY SPRINGSTON TERMINATION
Reagan asked if Gary Springston withdrew his pension contributions
from the fund. Thomas stated Springston did withdraw. She
prepared a check request withdrawing the pension in the amount of
$14,980.60 which is the total of his contributions during the time
he was a firefighter.
NEW BUSINESS
ROXBURY INVESTMENT REPORT
Richard Yada and Curtis Williams of Merrill Lynch were both
present, and they introduced Katie Hayden who is with Roxbury
Investments and was present to give a report on the Roxbury
portfolio.
Ms. Hayden gave the pension board a brief history of the company
which was founded in 1986 but was founded by Tony Browne and Harry
Wilson, both of whom have many years' experience in the investment
business. The company manages $1.2 billion, has 7 institutional
clients and 119 individual clients. There are 22 employees and 5
owners.
Ms. Hayden stated Roxbury buys stocks that are selling below the
worth of the company. Roxbury combines both growth and value in
the same portfolio. They look to invest in companies that maintain
a constant earning stability and return money in the form of
dividends. Roxbury invests in basically 50 stocks, and they do
research and personally visit each of the 50 companies in which
they invest. She stated the portfolio consists of between 30-60%
blue chip stocks, 20-40% small to medium stocks, and about 20% in
specialized stocks.
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June 29, 1993
Ms. Hayden stated Roxbury does have a sell discipline that when
prices decline 15% from their high or cost, they look to see if the
stock should be sold. In the last 10 years, compared with 31 other
managers, Roxbury has been in the top 10% of the managers. They
have outperformed their peers since 1983 by 5.7%.
Roxbury has reworked the client portfolios to try and do the best
in today's economy. Roxbury is seeking to invest in the types of
securities that are not sensitive to interest rate changes. They
do feel interest rates will remain low for some time to come.
Reagan stated for the past 1 and 1/2 years, the pension fund
portfolio has been down compared to the rest of the market. He
asked for an explanation of this from Ms. Hayden.
Ms. Hayden stated when Roxbury started with the account in 1990,
the market was down. In 1991, the market was up, and they earned
about 42% interest. Roxbury realized the portfolio needed to be
changed to deal with the recession because the companies that had
been performing well would not continue to do so. Since Roxbury
has had the account, the pension fund has had about an 11.7%
return. She stated January and February were terrible, but they
have had a good month and expect to have good quarter. The market
is up about 3.5% year to date, and the portfolio is up about 1%.
Reagan stated he was concerned about the length of time it was
taking to reposition the portfolio.
Ms. Hayden stated Roxbury buys stocks in blocks, and if they sold
huge blocks of stock at one time, it could drive down the value of
the stock. So, they slowly reposition the stocks to keep from
losing value.
Reagan asked what percentage of growth they are aiming at for 1993.
Ms. Hayden stated she does not know because of all of the
uncertainty in the market and economy. They hope to have a growth
rate between 15 and 18%.
Richard Yada stated Wal Mart was down 20% since January, which
indicates growth is down in the majority of areas of the stock
market.
Ms. Hayden stated retailers are hurting right now. She feels the
pension fund portfolio is about 92% restructured.
Yada stated as of yesterday, the fund was actually up for the year.
Curtis Williams asked if Roxbury does economic
Ms. Hayden said they did do some forecasting.
certain stock selection which leads them into
forecasting.
Roxbury studies a
industry study of
June 29, 1993
that particular sector. She stated Roxbury's long term record has
been better than the market. Since inception of the account with
Roxbury, which was March 31, 1990, the pension fund has had an
11.3% annualized average rate of return.
Williams explained that an ADR, or an American Depository Receipt,
was a foreign based company that is listed on the American stock
exchange. An example of this is Nestle's, which is a Swiss
company. At Merrill Lynch, they are trying to get the portfolio at
20% in foreign stocks. The United States now only consists of
about 35% of the world economy as opposed to the 65% that we used
to represent.
Glyndon Bunton asked with the small to medium sized stock
companies, when does Roxbury expect to see gains.
Ms. Hayden stated the fear of inflation has caused these stocks to
decline. One of these companies, Alza Corporation, as of
yesterday, only had a relatively small loss. They are a drug
delivery system company, and they should be able to do ok in the
market.
ADJOURNMENT
• The meeting adjourned at 11:10 a.m.
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fiICIE f Cr JS um =SEIN1fS, I11C.
MES ES • I IES • fll>I YSE
June 10, 1993
Arkansas Fire and Police Pension Review Board
124 W. Capitol, Suite 940
Little Rock, AR 72201
RE: Administration of DROP option
Ladies and Gentlemen:
1300 Tower suk ing
,111&Canter Stews
Uthe Rods, Mcnn 72201
301/3764043
During the April 6, 1993 meeting of the Pension Review Board our
firm was asked to prepare information concerning the Deferred
Retirement Option Program (DROP). This information was intended
to be sent to the plans in the form of a memo. The last two
months we have received several calls with questions concerning
the DROP. Many calls were also taken by the staff. It became
• clear to our office in consultation with the staff that more
regulatory power than just a memorandum to the plans was needed.
Therefore, we have compiled the information as requested and
would like to request that the Pension Review Board consider mak-
ing this a Board Rule. If you would vote to begin the process
today, there would be time to make the proper notifications and
hear comments at the scheduled July 14, 1993. This would allow
this Board Rule to be in effect by August 13, 1993 which is the
effective date of the laws governing the DROP.
We appreciate your consideration of this matter. We will be
happy to discuss your questions and comments about the proposed
Board Rule that is attached
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Sincerely,
Jody Carreiro, A.S.A.
Associate Actuary
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• ARKANSAS FIRE AND POLICE PENSION REVIEW BOARD
BOARD RULE !f 10
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This Board Rule is promulgated by the Arkansas Fire and Police
Pension Review Board by the authority of Arkansas Code Annotated
524-11-203. This Board Rule will be effective on August 13,
1993. This Board Rule is not intended to conflict with any part
of A.C.A. S24-11-101 et. seq.
The purpose of this Board Rule is to describe the administration
of the Deferred Retirement Option Plan (DROP).
Q.1.
What is the DROP program?
A.1. In 1993, the Arkansas Legislature passed two laws which
establish a "Deferred Retirement Option Program" (DROP)
for paid firefighters and for police officers. Act 757
of 1993 established the plan for police officers and Act
1004 of 1993 did the same for paid firefighters. Both of
these Acts will be effective on August 13, 1993.
The DROP is a retirement option that may be elected by a
member of one of these plans. This option, if elected by
the member, allows them to "drop" their retirement bene-
fit into a DROP account and accumulate a lump sum. The
member may continue to work up to five years while the
DROP account accumulates.
Q.2.
If a local fire or police pension board wishes to start a
DROP program, what must be done?
A.2. Both Act 757 and Act 1004 make the DROP a local option.
If the local pension board wishes to make it available to
its members, the board must vote to do so. A sample
board resolution is Attachment 1 to this Board Rule.
If a local board does elect to make the DROP an option, a
copy of the board resolution must be filed with the
Arkansas Fire and Police Pension Review Board.
June 10, 1993 Draft
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The local fire or police pension fund in my city has con-
solidated with LOPBI for administrative purposes. How
can we start the DROP program?
A.3. JRESERVED1
Q.4.
When can an individual member of the plan elect the DROP?
A.4. The DROP is a retirement option and can be elected when a
member is eligible for retirement; that is, anytime after
attaining 20 years of service.
Q.S.
How does the individual elect to begin the DROP?
A.5. Attachment 2 of this Board Rule is an election form for
the member. This form would have to be filled out prior
to the member beginning the DROP. When an individual
elects the DROP they have agreed to two important items:
First, they have fixed their retirement benefit at the
amount they would receive if they retired normally at
this time. The retirement benefit will NOT change during
the DROP period and will NOT change when the member
actually quits the department. In other words, when you
go on DROP, the monthly retirement you draw will be fixed
at that time and will never change, even when they
actually retire. The member's benefit will NOT increase
because of increased pay. The benefit will NOT increase
because of the extra service. -
Second, they have agreed that they
of the department for a period not
Note that a person is not required
DROP is just an extra option for a
will be in the employ
to exceed 5 years.
to go on DROP. The
member.
Q.6. What is the amount of DROP payments?
A.6. A member's DROP account will be credited monthly for the
amount of the retirement benefit at the time the DROP is
elected. For example, an officer whose final salary is
$3,000 per month with exactly 20 years of service, who is
a member of a standard police pension plan, would have
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50% or $1,500 per month credited to his DROP account.
This member would begin receiving this same $1,500 per
month at the end of the DROP period.
Q.7. What if aur pension plan receives a benefit increase dur-
ing the DROP period?
A.7. There is an exception in the laws that would apply if the
entire plan increased benefits under the usual procedure
when the Pension Review Board approves the increase. For
example, if the pension plan in the above Q&A received
approval for a benefit increase to a base benefit of 60%
of salary, the DROP payment would increase to 60% of
$3,000 or $1,800 per month. This member would begin
receiving this same $1,800 per month at the end of the
DROP period.
Q.B.
Would the member continue making contributions while on
DROP?
A.B. The member would continue making contributions to the
• plan (not to the DROP account) while they are on DROP.
That is, 6% of current salary (4% of current salary for
policemen participating in Social Security).
Q.9.
Besides the normal retirement benefit, what goes into the
DROP account?
A.9. One half of the employer matching contributions go into
the DROP account. That is, 3% of current salary (except
for police funds participating in Social Security, which
would be 2%). The account is also credited with interest
once a year.
Q.10. Can you give an example of how the DROP account accumu-
lates?
A.10. Let's use the example of the police officer with exactly
20 years of service. The pension plan is standard, that
is, 50% of final salary. They do not participate in
Social Security. The officer's final salary is $3,000
June 10, 1993 Draft
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per month. For this example, assume the salary does not
change during the DROP period. He remains on DROP for 3
years (i.e., 36 months).
Monthly DROP amount=50% of $3,000 = $1,500 per month
1/2 city match = 3% of $3,000 = $90 per month
DROP payments=36 X $1,500 $ 54,000
City Match=36 X $90 3,240
Interest 2.324
DROP account at end of 36 months $ 59,564
Q.11. Rom is the interest that is credited to the DROP account
calculated?
A.11. The Acts which established the DROP accounts specify that
interest will be credited annually. The law does not
specify the way to credit this interest. There are 3
methods of crediting interest to the DROP accounts that
will be considered acceptable. Of these three, Method 1
is preferred.
Method 1 One year's interest is credited to the begin-
ning of the year's balance in the DROP. No interest is
credited to the activity during the year. No interest
will be credited for the year the DROP account is dis-
tributed.
Method 2 One year's interest is credited to the begin-
ning of the year's balance in the DROP. One half year's
interest is credited to the sum of all activity in the
DROP regardless of date of activity. No interest will be
credited for the year the DROP account is distributed.
Method 3 One year's interest is credited to the begin-
ning of the year's balance in the DROP. All activity in
the DROP account is weighted according to the date of
activity. This weighting may be based on months or days.
This weighted activity would then receive one year's
interest. No interest will be credited for the year the
DROP account is distributed.
Q.12. Can you give an example of each method of crediting
interest?
June 10, 1993 Draft
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• A.12. ¥ethod & Assume the following facts.
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December 31, 1993 DROP balance
94 DROP payments 12 X $1,350
94 City match 12 X $81
Interest rate
The interest credited for 1994 is
gethod 2 Assume the following facts.
December 31, 1993 DROP balance
94 DROP payments 12 X $1,275
94 City match 12 X $76.50
Interest rate
The interest credited for 1994
Beginning of year balance
1/2 DROP payments
1/2 City match
Investment Base
times interest rate
1994 DROP interest
is
Method 3 Assume the following facts.
DROP elected September 1, 1993
City match payments
Interest rate
The interest credited for
9/1/93 payments=$1,272 X
10/1/93 payments=$1,272 X
11/1/93 payments=$1,272 X
12/1/93 payments=$1,272 X
Investment Base
times interest rate
1993 DROP interest
1993 is
4/12
3/12
2/12
1/12
$ 10,000
16,200
972
7%
$ 10,000
X 7%
$ 700
$ 8,000
15,300
918
6.5%
$ 8,000
+ 7,650
+ 459
16,109
X 6.5%
$ 1,047
$ 1,200/mo.
72/mo.
6%
$ 424
+ 318
+ 212
+ 106
1,060
X 6t
$ 63.60
Q.13. How is the interest rate certified by the actuary?
A.13. The Pension Review Board will communicate the necessary
information from the annual reports that are submitted to
it to the actuary for the Pension Review Board. The
June 10, 1993 Draft
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actuary will then from time to time issue a list of local
plans which have elected participation in the DROP and
the certified interest rate for the DROP.
The interest rate used in the actuarial valuations as of
December 31, 1991 was 6%. Therefore, this would be the
minimum rate of interest credited to the DROP accounts at
that time. This rate of interest may be changed from
time to time.
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Q.14. Does the plan have to maintain separate and/or distinct
assets for the DROP accounts?
A.14. No. The assets of the members' DROP accounts are com-
mingled with the other pension assets. The DROP accounts
are simply liabilities of the plan, and are accounted for
separately. DROP accounts are bookkeeping items and
should not affect the investment of the pension fund.
Q.15. Where is the DROP account administered?
A.15. The DROP accounts remain part of the local pension fund
during the DROP period. The amount of each DROP account
is calculated separately for each member who has elected
the DROP.
Q.16. What is the duration of the DROP?
A.16. A member's DROP will continue for 5 years or until termi-
nation of employment, whichever is first.
Q.17. What happens at the end of 5 years?
A.17. At the end of 5 years (or termination of employment if
earlier) the member's DROP account is distributed. The
member may receive the DROP account in a lump sum or as a
monthly annuity payable for the -life of the member. The
June 10, 1993 Draft
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member would also begin to receive the same monthly
retirement amount that had been going into the DROP
account. •
The member has. also agreed to terminate his employment
with the department at this time.
Q.18. What happens if the individual dies during the DROP
period?
A.18. One section of the member DROP election form allows the
member to name a beneficiary. If a member dies during
the DROP period, the named beneficiary would receive the
balance of the DROP account in a lump sum payment. The
member's widow (if there is one) would begin to receive
the normal widow's benefit based on the benefit at the
time the DROP was elected.
Q.19. What happens if the individual leaves the department dur-
ing the DROP period?
A.19. A member who leaves the department after electing the
DROP option but before the five years have expired would
begin receiving the same monthly retirement amount that
had been going into the DROP account. They would also
receive the DROP account either as a lump sum or as an
annuity as discussed in Q&A.17.
Q.20. What happens if an individual is disabled during the DROP
period?
A.20. A member is considered to have retired at the time that
they elected the DROP option. If a member is disabled
during the DROP period, they are treated as if they left
the department. The same procedure is followed as dis-
cussed in Q&A.19.
Q.21. How is the DROP account converted to an annuity at the
end of the DROP period?
June 10, 1993 Draft
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A.21. The final DROP account can be converted to a monthly
annuity amount at the option of the member. If this is
done, the monthly amount must be calculated by using the
factors that are Attachment 3 to this Board Rule. The
factors are for a monthly benefit for the life of the
member only. The factors are based on the member's age
on their nearest birthday at the date of the conversion.
(The age nearest birthday means that if the person is
closer to age 55 then age 56, use age 55. If they are
closer to age 57 then to age 56, use 57.) After the DROP
account is converted to an annuity, there is no longer
any need to track the DROP account separately.
There is also included on Attachment 3 factors to convert
the DROP account to monthly payments for a certain number
of months. This type of annuity would be paid whether or
not the member lived for the number of months selected.
Q.22. Can you give an example of converting to an annuity?
A.22. We are given the following situation.
DROP elected September 1, 1993
DROP payments (based on $3,000/mo pay)
Police plan participating in Soc. Sec.
93 City match payments ($3,000/mo pay)
94 City match payments ($3,040/mo pay)
95 City match payments ($3,162/mo pay)
96 City match payments ($3,288/mo pay)
97 City match payments ($3,420/mo pay)
98 City match payments ($3,556/mo pay)
Interest rate all years (Method 1)
DROP account balance 12/31/93
DROP account balance 12/31/94
DROP account balance 12/31/95
DROP account balance 12/31/96
DROP account balance 12/31/97
DROP account balance 8/31/98 Final
Age nearest birthday of 55 on 8/31/98
DROP converted to monthly benefit
Retirement benefit
Total monthly income beginning 9/1/98
NOTE: If this member had NOT gone on the
DROP, his retirement benefit on 9/1/98
would be based on $3,556 per month pay
and would be:
$ 1,500.00/mo.
240.00
729.60
758.88
789.12
820.80
568.96
6%
$ 6,240.00
25,344.00
45,623.52
67,150.05
89,999.85
102,568.81
X 0.0070869
726.90/mo.
1.500.00/mo.
$ 2,226.90/mo.
$ 1,878.00/mo.
June 10, 1993 Draft
• Q.23. What would be paid when the member in the above example
dies (after 9/1/98)?
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A.23. The $726.90 increment from the DROP stops. If the
retiree had an'eligible spouse she would receive $1,500
per month.
Q.24. Does the plan have to purchase an annuity from an Insur-
ance Company at the end of the DROP period?
A.24. No, the DROP account is converted to a monthly benefit
and the separate DROP accounting is no longer necessary.
The money leaves the plan as the calculated monthly
increments are paid to the retired member.
Q.25. What is the retirement benefit at the end of the DROP
period?
A.25. The monthly benefit that will be received by the member
after the DROP period is the retirement benefit as calcu-
lated at the date the member began his DROP. The monthly
benefit does NOT change after the DROP period. This same
monthly amount is now paid to the individual instead of
into the DROP account.
The retirement benefit at the end of the DROP
- Does NOT change with increases in salary during the
DROP period;
- Does NOT change with extra service during the DROP
period;
- Is the SAME amount as was being credited to the DROP
account.
Q.26. Why is the service or salary increases after the DROP
period begins not used in calculating the benefit after
the DROP period?
A.26. Item (e)(1) of Section 1 of both Acts clearly states that
"The member's monthly retirement benefit shall not
change, unless the plan receives a benefit increase."
This item is important to the law since local plans could
not afford the cost of the DROP program otherwise. The
DROP is an additional retirement option. Once the DROP
June 10, 1993 Draft
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is elected, it cannot be changed. A pension plan cannot
afford to allow someone to change retirement options
after they have retired.
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If a member believes that it is not to his advantage to
go on DROP because he may get more benefit from future
pay raises and service, then he does not have to elect to
go on DROP.
Q.27. What antra reporting will be required to be made to the
Arkansas Fire and Police Pension Review Board?
A.27. The financial and member information required to be
reported annually would be supplemented by a detailed
listing of each member on DROP and the amount of their
DROP account as of the end of the current reporting
period. The Pension Review Board has the right to
request additional information concerning the calculation
of the DROP account.
June 10, 1993 Draft
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Attachment 1
RESOLUTION TO ELECT PARTICIPATION IN THE
ARKANSAS FIREFIGHTERS
DEFERRED RETIREMENT OPTION PROGRAM
Whereas, Act 1004 of 1993 established the Arkansas Firefighters
Deferred Retirement Option Program pursuant to the approval of
the local pension board;
Whereas, this local pension board believes that it is to the
advantage of the members of this pension plan and of benefit to
our municipality for this option to be made available to our
members;
It is therefore resolved, that the Board of Trustees of the City
of Police Pension and Relief Fund approves and
elects that this plan have the Deferred Retirement Option
described in Act 1004 of 1993 available to its members.
The Board of Trustees, in electing to participate in this plan,
agree to abide by the followings
1. The Deferred Retirement Option Program (DROP)
will be made available to all members of the
plan who are eligible.
2. The DROP account will be maintained as a part
of the total pension fund.
3. The DROP accounts will be administered accord-
ing to Arkansas Fire and Police Pension Review
Board Rule 110.
4. Once the DROP account is elected, a member's
monthly retirement cannot increase due to pay
raises or extra years of service worked. That
is, the monthly payments made to the member at
the end of the DROP period will be the same as
the amount of monthly payment into the DROP
account.
5. A copy of this signed resolution will be filed
with the Arkansas Fire and Police Pension
Review Board.
June 10, 1993 Draft
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Attachment 1 (continued)
This election may be effective on the date of resolution, but no
earlier than August 13, 1993.
DATE
Chairman
Secretary/Treasurer
Member
Member
Member
Member
Member
June 10, 1993 Draft
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Attachment 2
Arkansas Fire and Police Local Plans
Deferred Retirement Option Plan (DROP)
Member Election Form
I hereby elect the DROP as my retirement benefit option from the
Pension Plan in place of the normal retirement benefit. I under-
stand that in electing the DROP I have agreed to the following
statement:
1. The amount of the DROP payments will be $ per
month. This amount is the same as if I retired today.
2. I understand that the monthly benefit that I will receive
at the end of the DROP period is the exact same amount
stated in item 1, regardless of any pay raises I receive
or extra years of service I may work.
3. I understand that at the end of the DROP period I will
• have the option to receive the DROP account as a lump sum
or convert the DROP account to a monthly annuity amount.
4. I understand that the DROP account will remain in the
pension fund until I leave the department. I do not have
the ability to withdraw from the DROP account until the
time of my departure.
5. I am agreeing that if I am still employed with the
department at the end of 5 years that I will resign at
that time.
6. I understand that neither the pension fund or the depart-
ment has given any tax advice concerning the way the DROP
account is taxed. I have or will consult my own tax
advisor for this information.
I have elected this option to commence
Date
Member signature
Date
Plan Representative
June 10, 1993 Draft
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Attachment 2 (continued)
Arkansas Fire and Police Local Plans
Deferred Retirement Option Plan (DROP)
Member Election Form
DESIGNATION OF BENEFICIARY
I hereby designate the following beneficiary to receive any bene-
fits from the DROP plan if I die prior to my termination of
employment:
Signature of Member Date
Please select one of the following:
_ I certify that to the best of my knowledge, the above named
Member is single or that his spouse cannot be located.
Signature of Plan Representative Date
or Notary
I certify that I have agreed with my spouse on the selection
of the above beneficiary or benefibiaries. I understand
that if I am not the named beneficiary, I will not be
entitled to benefits under the Plan.
Signature of Spouse Date
I certify that I have witnessed the spouse's signature
above.
Signature of Plan Representative Date
or Notary
June 10, 1993 Draft
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• Attachment 3
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Factors
Arkansas Fire and Police Local Plans
Deferred Retirement Option Program (DROP)
for converting the DROP account to a monthly annuity
Factors for converting to a monthly annuity payable for the life
of the member only.
Age nearest
Bithday at
End of DROP
46
47
48
49
50
51
52
53
54
55
56
57
58
Multiply
DROP account
by this factor
0.0061608
0.0062362
O .0063263
O .0064190
O .0065144
0.0066128
O .0067141
0.0068339
0.0069581
0.0070869
0.0072205
0.0073593
0.0075250
Age nearest
Bithday at
End of DROP
59
60
61
62
63
64
65
66
67
68
69
70
Multiply
DROP account
Dv this factor
O 0076984
O .0078800
O .0080704
0.0082702
O .0084996
O .0087420
O .0089987
0.0092709
0.0095602
0.0098656
O .0101912
O .0105390
Factors for converting to a monthly annuity pa
number of months listed whether or not the mem
Number of
Monthg
60
72
84
96
108
120
132
144
156
168
180
192
204
Multiply
DROP account
by this factor
0.0191657
O .0164180
0.0144621
0.0130009
0.0118695
O .0109690
O .0102364
O .0096296
O .0091196
O .0086856
O .0083125
O .0079887
O .0077055
Number of
Months
216
228
240
252
264
276
288
300
312
324
336
348
360
yable for the
ber is alive.
Multiply
DROP account
by this factor
O .0074562
O .0072353
O .0070387
O .0068627
O .0067045
O .0065618
O .0064327
0.0063155
0.0062087
0.0061112
0.0060221
O .0059403
0.0058652
June 10, 1993 Draft
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FAYETTPP
QUARTERLY REPORT
June 30, 1993
CITY OF FAYETTEVILLE FIRE
PENSION AND RELIEF FUND
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NM Capital Management, Inc.
Quarterly Investment Comment
Second Quarter 1993
SECOND QUARTER MARKET REVIEW
Sluggish economic growth, concerns about
tax mcreases and healthcare reform had a
moderating effect on the financial markets
during the second quarter. The S&P 500
was essentially flat with a three-month
return of 0 4% Broad government/
corporate bond indices outperformed
stocks for the quarter with returns of
approximately 2.2% to 3.0% stemming
from a decline in interest rates in June.
For the first half of 1993, bonds
outperformed stocks. Bonds returned
6%-8% while the S&P 500 returned 4.7%
for the six months. Bond indices and the
S&P 500 have provided excellent double
digit returns (approximately 10.5%-13.5%)
over the last year. Stocks reached their
highs in March and again in June while
bonds prices peaked on June 30 with the
lowest yields in twenty years.
NMCM's "value" style of investing has
continued to be rewarding during the
second quarter. Our stock returns
generally have outperformed the market
over the last three months, six months
and twelve months. The favorable
performance versus the S&P 500 over the
last twelve months is striking and likely
unsustainable. However, our
value -oriented stock selection process
should continue to produce rewarding
long-term returns.
ECONOMIC AND INVESTMENT
OUTLOOK
After what was perceived as decent
economic growth for the first quarter of
this year, Gross Domestic Product (GDP)
was revised down in May to a
disappointing 0.9%. Economic signals
have been mixed, resulting in periods of
encouragement over the strength followed
by disappointment over the apparent
weakness Swings in inflation expectations
and interest rates have created a trading
range environment in the financial
markets this quarter. Despite the plethora
of economic statistics, it appears that the
recovery is still on track and will continue
to grow with low inflation in the months
ahead. The apparent slow growth has
been influenced by a significant long-term
reduction in defense spending. During the
first quarter of 1993, defense spending fell
dramatically. Excluding defense, GDP
was up 2.6% during the first quarter.
Growing imports, also a drag on GDP,
reflect the economic weakness in key U.S.
trading partners -- Japan, Canada and
Europe. As foreign economies turn
around, U.S. and worldwide economic
growth will improve.
Recent economic weakness, as reflected in
the drop in consumer confidence in June,
weak June employment growth, a decline
in the May leading indicators, plus a
favorable inflation report in May
contributed to an abrupt decline in
interest rates in June. The diminishing
inflation fears (which may be temporary)
reduced concerns that the Fed might
increase short term rates.
Despite the slow economy and low
inflation, real corporate profits have
generally been strong, reflecting
substantial productivity growth.
Corporate restructuring, which began in
earnest in the manufacturing sector in the
mid-1980s and more recently the service
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sector, is now producing good earnings
increases even in an environment of slow
volume growth and intense price
competition.
The economic environment of low interest
rates with improving corporate profits is
favorable for stocks. In addition, a
continued heavy flow of funds from
maturing CDs and called bonds, resulting
in a shift of money market funds into
stock and bond mutual funds, provides a
source of buying power that can drive the
markets higher. Another positive is the
potential for increased investment from
abroad based on expectations of continued
recovery, stable U S. interest rates and a
stronger dollar. Also positive is the
prospect of many companies buying back
their own stock as excess cash builds from
improving sales and several years of cost
cutting and debt reduction. Although the
present environment looks favorable, tax
increases, healthcare reform costs,
re -regulation and trade problems remain
a concern.
EQUITY STRATEGY
While we favor stocks over bonds and
cash in the present environment, our
equity strategy is not dnven by top-down
econonuc forecasts. After a disciplined
analysis of individual company operations
and balance sheet fundamentals, we invest
in stocks which are good long-term values.
Equity Focus Comment
Nature's way is simple and easy, but men
prefer the complex and artificial.
- Lao Tsu
This observation of human nature, first
written down in the third century B C in
the valleys of Northern China, provides a
bit of insight into what otherwise remains
an incomprehensible mystery. Highly
complex, quantitative, "black box"
investment strategies continue to
proliferate. Some investment firms have
even gone so far as to rename portfolio
managers "portfolio engineers" and require
these individuals to be highly trained in
the most advanced fields of mathematics
and analytics. This trend continues
despite its tremendous cost, complexity
and the mounting body of both objective
and anecdotal evidence that most of these
models just don't work.
At NMCM, we believe that investment
wisdom resides in simplicity. We accept
the obvious and inevitable fact that we
simply don't know what is going to
happen tomorrow. All the esoteric
quantification in the world is very unlikely
to improve this lack of prognosticative
ability very much, if at all. Neither we nor
anyone else knows what is going to
happen, never mind how all of these
combined "happenings" are going to
change the price of one individual stock or
group of stocks. We accept this a priori
circumstance calmly and construct our
strategic response to this age old investor's
dilemma at the simplest as opposed to the
most complex level One result of this is
our emphasis upon the disarmingly simple
yet powerful price to book value ratio
(P/BV). It has been observed that
portfolios comprised of low P/BV stocks
have tended to persist in outperforming
the stock averages over time. Yet, very
few professionally -managed equity
portfolios have a P/BV lower than the
market average! With the S&P trading at
3 times BV versus a fifty year, year-end
mean of 1.7 times, portfolios invested in
stocks with P/BVs equal to or above the
market should probably be viewed with
alarm. While nothing is ever absolute or
guaranteed, the financial markets have
rather consistently demonstrated a
propensity to repeat themselves, especially
when answering one extreme level of
valuation with an equally extreme
correction. We have no idea when and
why such a corrective reaction may or may
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not occur. However, having observed that
one is far less likely to sustain a serious
injury when falling from a low footstool
than when falling from the top of a very
high ladder, we do take comfort in the
relatively more conservative valuation of
our equity portfolios which currently have
a P/BV of around 1.6 times.
Over the last few months, we have
progressively tightened our valuation
discipline, selling issues which appeared
fully valued and consolidating our base in
clearly undervalued securities with well
established "margins of safety" and the
potential to eventually return to
investment "favor" at a value well above
the current price. Simple? Certainly the
purveyors of complex quantitative
forecasting models probably think so. It
brings to mind a favorite, amusing
anecdote about the fate of the world's
"smartest man". Having argued to his
satisfaction that his superior brain should
be saved for posterity, he grabbed one of
two remaining parachutes on a crashing
plane and jumped to safety, leaving behind
a priest and a hippie to determine which
one of them should be given the one
remaining chute. Following a moment of
silent contemplation of their unfortunate
predicament, the hippie laughed out loud
and turning to the priest said: "No sweat,
padre, the world's "smartest man" just
jumped out with my knapsack?
FIXED INCOME STRATEGY
Renewed signs during June that the
economy was sluggish and that inflation
was still very modest pushed Treasury
bond prices higher and yields down to
lows not seen for twenty years. The
benchmark 30 -year bond ended June
yielding 6.7%, down from 6.9% at the end
of March and 7.4%. six months ago
Shorter maturities, such as the 5 -year
Treasury, also finished the second quarter
at a low of 5.0% compared to 5.2% on
March 30 and 6.0% on January 1. During
the three months ended June, the yield
curve flattened slightly as long maturity
bond yields declined and short-term bond
yields rose. This minor flattening of the
yield curve was expected in light of the
abnormal disparity between long and short
rates that existed earlier this year.
With interest rates at present levels and
our expectation of continued improvement
in the economy, we do not anticipate a
further significant decline in yields.
Interest rates are probably close to lows
for this cycle. The rise in gold prices
during the quarter, considered by many to
be a precursor of rising inflation and
interest rates, may be a sign that the
decline in rates is nearly over. If
industrial materials' prices also start to
rise, which has not happened yet, an
upturn in rates will likely follow.
Assuming a continued slow recovery, we
do not expect a sharp rise in rates any
time soon.
Thus, over the next few months, we think
interest rates are likely to remain fairly
stable. However, signs of economic
strength and/or inflation worries may
cause the Fed to nudge short rates higher.
In this environment, we remain cautious.
Consequently, we continue to emphasize
intermediate maturities of high quality
bonds.
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Dear Client,
In accordance with the Association of Investment
Management and Research (AIMR), please be advised
that the returns shown for the various segments of
your portfolio (cash, equity, etc.) are supplemental
information to the total fund return.
1
NM CAPITAL MANAGEMENT, INC. Page 1
1cCLIENT : FAYETTPP - CITY OF FAYETTEVILLE FIRE PENSION AND RELIEF FUND
111,AGER: NTSC
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REPORTING PERIOD: 04/01/93 TO 06/30/93
CASH AND EQUIVALENTS
EQUITIES
GOVT/CORP BONDS
ACCRUED INCOME
TOTAL
PORTFOLIO COMPOSITION
MARKET % OF
VALUE TOTAL
196,013.41
1,679,632 63
1,102,984.70
24,756.61
3,003,387.35
6.5
55.9
36.7
0.8
STATEMENT OF CHANGES
PORTFOLIO MARKET VALUE AT 04/01/93:
DEPOSITS
WITHDRAWALS
INCOME EARNED
CAPITAL APPRECIATION
100.0 PORTFOLIO MARKET VALUE AT 06/30/93:
$2,935,806.47
0.00
(4,527.79)
44,003.62
28,105.05
$3,003,387.35
TOTAL PORTFOLIO
CASH AND EQUIVALENTS
EQUITIES
GOVT/CORP BONDS
BALANCED INDEX - I
T BILLS
00 REINVESTED
V'T/CORP INTERMEDIATE BOND
CONSUMER PRICE INDEX
04/01/93 TO 06/30/93
2.5%
0.8%
1.8%
3.8%
1.1%
0.8%
0.4%
2.2%
0.6%
CUMULATIVE
ANNUALIZED
YEAR-TO-DATE PAST TWELVE MONTHS SINCE INCEPTION SINCE INCEPTION
9.0%
1.8(
9.4%
9.4%
5.2%
1.6X
4.7%
6.2%
1.5%
INVESTMENT EARNINGS (APPRECIATION + INCOME) SINCE INCEPTION 01/18/90:
1
17.3%
3.4%
20.1%
15.4%
12.1%
3.4%
13.5%
10.5%
2.9%
S987,218.14
48.4%
20.8%
50.5%
51.2%
46.4%
21.4%
48.6%
42.4X
14.2%
11.9%
5.6%
12.4%
12.5%
11.5%
5.7%
12.0%
10.6%
3.9%
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DATE PRINTED: 07/20/93
Cash and Equivalents
MONEY MARKET FUNDS
Fixed Income
GOVERNMENT ISSUES
Equities
COMMON STOCKS
ACCRUED INTEREST
ACCRUED DIVIDEND
TOTAL PORTFOLIO
NM CAPITAL MANAGEMENT, INC.
Portfolio Summary PRICING DATE: 06/30/93
DATE OF APPRAISAL: 06/30/93
FAYETTPP - CITY OF FAYETTEVILLE FIRE PENSION AND RELIEF FUND
ESTIMATED
MARKET % OF ANNUAL
VALUE PORTFOLIO INCOME YIELD
196,013.41
1,102,984.70
1,679,632.63
21,807.93
2,948.68
3,003,387.35
6.5
36.7
55.9
0.7
0.1
100.0
5,351
79,775
47,436
2.7
7.2
2.8
132,562 4.4
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NM CAPITAL MANAGEMENT, INC.
DATE PRINTED: 07/20/93 Common Stock Summary PRICING DATE: 06/30/93
DATE OF APPRAISAL: 06/30/93
FAYETTPP - CITY OF FAYETTEVILLE FIRE PENSION AND RELIEF FUND
X OF % OF
MARKET COMMON TOTAL
COMMON STOCKS VALUE STOCKS PORTFOLIO
Capital Goods Industrial
Capital Goods Technology
Consumer Durables
Consumer Non -Durables
Energy
Finance
Basic Industry
Transportation
Utilities
TOTAL COMMON STOCK
66,800.00
368,775.00
263,425.00
372,482.63
119,100.00
101,350.00
125,562.50
130,575.00
131,562.50
1,679,632.63
4.0
22.0
15.7
22.2
7.1
6.0
7.5
7.8
7.8
2.2
12.3
8.8
12.4
4.0
3.4
4.2
4.3
4.4
100.0 55.9
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' DATE PRINTED: 07/20/93
•
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SHARES /
FACE VALUE
IS
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196,013.41
DESCRIPTION
NM CAPITAL MANAGEMENT, INC. Page 1
Client Appraisal
FAYETTPP - CITY OF FAYETTEVILLE FIRE PENSION AND RELIEF FUND
Cash and Equivalents
MONEY MARKET FUNDS
MONEY MARKET FUND
UNIT
COST
TOTAL MARKET
COST PRICE
PRICING DATE: 06/30/93
DATE OF APPRAISAL: 06/30/93
% OF ESTIMATED
MARKET X OF ASSET ANNUAL CUR
VALUE PORTFOLIO CLASS INCOME YLD
1.00 196,013.41 1.00 196,013.41
Fixed Income
GOVERNMENT ISSUES
220,000 US TREAS 8.500X 05/15/97 100.04
100,000 FNMA DEB 9.550% 09/10/97 99.34
100,000 FNMA DEB 9.150% 04/10/98 99.34
300,000 US TREAS 7.875% 11/15/99 102.95
250,000 US TREAS 7.500X 11/15/01 101.00
TOTAL GOVERNMENT ISSUES
Equities
COMMON STOCKS
Capital Goods - Industrial
3,200 HARNISCHFEGER INDUSTRY
Capital Goods - Technology
4,200 AUGAT INC
1,800 BOEING CO
3,400 PRECISION CASTPARTS CP
2,500 ROCKWELL INTL CORP
1,400 UNITED TECHNOLOGIES CORP
2,300
1,900
4,000
2,000
2,949
5,500
3,900
1,100
1,800
4,100
220,092.35 113.13
99,343.75 116.53
99,343.75 116.25
308,852.10 113.59
252,504.85 112.22
980,136.80
248,875.00
116,531.30
116,250.00
340,781.40
280,547.00
6.5 100.0 5,351 2.7
8.3 22.6 18,700
3.9 10.6 9,550
3.9 10.5 9,150
11.3 30.9 23,625
9.3 25.4 18,750
7.5
8.2
7.9
6.9
6.7
1,102,984.70 36.7 100.0 79,775 7.2
16.69 53,412.85 20.88 66,800.00
12.17
43.91
19.00
23.28
47.44
TOTAL Capital Goods - Technology
Consumer Durables
ARVIN INDS INC
BROWN GROUP INC
CROSS (A.T.) COMPANY
TANDY CORP
TOTAL Consumer Durables
Consumer Non -Durables
ARCHER DANIELS MIDLAND
DELTA WOODSIDE
HANSON PLC SPONSRD
MCDONALDS CORP
MERCANTILE STORES
RYKOFF-SEXTON INC
TOTAL Consumer Non -Durables
Energy
2,200 NORSK HYDRO A S SPONSORED ADR
700 ROYAL DUTCH PETE NY REG GLDR 5
TOTAL Energy
22.07
26.43
15.35
26.85
20.55
13.36
18.93
31.54
34.97
17.66
51,123.55
79,041.25
64,587.85
58,189.85
66,420.60
319,363.10
50,754.35
50,225.86
61,404.85
53,698.90
216,083.96
16.75
37.00
21.50
33.25
54.00
33.50
31.25
16.75
30.00
60,591.92 23.63
73,497.20 11.38
73 829 05 17.00
34,692.38 49.13
62,950.85 33.88
72,420.40 14.38
377, 981.80
70,350.00
66,600.00
73,100.00
83,125.00
75,600.00
2.2 4.0 1,280 1.9
2.3
2.2
2.4
2.8
2.5
4.2
4.0
4.4
4.9
4.5
368,775.00 12.3 22.0
77,050.00
59,375.00
67,000.00
60,000.00
263,425.00
2.6
2.0
2.2
2.0
4.6
3.5
4.0
3.6
0 0.0
1,800 2.7
408 0.6
2,500 3.0
2,520 3.3
7,228 2.0
1,748 2.3
3,040 5.1
5,120 7.6
1,200 2.0
8.8 15.7 11,108 4.2
69,670.13 2.3 4.1
62,562.50 2.1 3.7
66,300.00 2.2 3.9
54,037.50 1.8 3.2
60,975.00 2.0 3.6
58,937.50 2.0 3.5
372,482.63 12.4 22.2
23.88 52,537.90 24.63 54,175.00
75.16 52,613.55 92.75 64,925.00
105,151.45
119,100.00
295 0.4
2,200 3.5
3,536 5.3
473 0.9
1,836 3.0
0 0.0
8,340 2.2
1.8 3.2 816 1.5
2.2 3.9 2,934 4.5
4.0 7.1 3,750 3.1