HomeMy WebLinkAbout1996-01-25 MinutesMINUTES OF A MEETING OF THE FIRE PENSION BOARD
A meeting of the Fayetteville Firemen's Pension and Relief Board
was held on Thursday, January 25, 1996, at 11:00 a.m. in room 326
of the City Administration Building, 113 W. Mountain,
Fayetteville, Arkansas.
PRESENT:
ABSENT:
Mayor Fred Hanna, Ron Wood, Howard Boudrey, Darrell
Judy, Pete Reagan, and City Clerk/Treasurer Traci Paul
Marion Doss
CALL TO ORDER
Mayor Hanna called
MINUTES
the meeting to order.
Reagan, seconded by Boudrey, made a motion to approve the minutes
of the December 28, regular meeting. The motion passed
unanimously.
PENSION LIST
Paul explained that Elizabeth Barnes passed away and has been
removed from. the list. Paul stated a revised list has been
distributed.
Reagan, seconded by Wood, made a motion to approve the revised
January pension list. The motion passed unanimously.
OLD BUSINESS
DROP Plan
Reagan explained that he modeled the DROP plan after Little
Rock's plan. He stated Little Rock's plan has passed.
Reagan stated the active members of the Fire Department met this
morning. There were two members absent. Each person who
attended the meeting voted in favor of the DROP. Each person
understands that the Fund will not be held liable in any way and
that the DROP is strictly their personal option.
Reagan, seconded by Wood, made a motion to adopt the proposed
DROP plan.
In answer to a question from City Attorney Jerry Rose, Reagan
stated his motion was to move the proposed resolution.
January 25, 1996
City Attorney Rose explained that he reviewed the resolution.
Rose stated the resolution adopts the DROP program. A copy will
be filed with the Arkansas Fire and Police Pension Review Board.
Article 9 of the DROP plan rules and regulations is a disclaimer
of liability for tax consequences. The purpose of the article is
an attempt to insulate the Board from any unfavorable tax
consequences that any retiree may get for electing the DROP
program. Rose recommended that a copy of the document that says
"Important Notice" at the top be given to each individual who
participates in the DROP program. It sets forth, to the person
who elects to participate in the DROP program, the warning that
it may have serious tax consequences. The notice is attorney
Greg Jones' disclaimer. Anyone who elects to participate in the
DROP program is going to be hard pressed to say to anyone that
they did not realize that there might be some unfavorable
consequences as a result of their election.
Richard Yada, Merrill Lynch, stated the adoption of the DROP plan
will negatively affect the actuary by approximately 10%. In view
of what is happening in the account, there is room.
Mayor Hanna called for a vote on the resolution. The motion
passed unanimously.
Proxy Materials
Paul explained that she contacted Richard Yada about the proxy
materials that Accounting had been forwarding to the City Clerk's
Office. Paul stated Richard suggested forwarding the materials
to him. He said he would handle them.
Affidavits
In answer to a question from Reagan, Paul stated about half of
the affidavits have been returned. There are 27 affidavits still
out. Retirees have until January 31 to turn their forms in.
After January 31, reminder letters will be mailed out and then
the Accounting Division will hold pension checks.
NEW BUSINESS
Investment Report
Richard Yada gave a comparison of the end of 1995 to the end of
1994.
Yada stated $1,000,000 was transferred from NM Capital to
Keystone in September. NM Capital started the year with $4.2
million and finished at $3.9 million. New Mexico would have been
close to $4.5 million if the transfer to Keystone had not been
made. There was $120,000 in deposits over the year in the
income account. There was $53,000 in withdrawals to cover
January 25, 1996
benefits over the year. The income account started the year at
$3.2 million and finished the year with $3,891,000. Keystone
started with $1 million in October. After a down month in
October, they were back up to $1,029,000 by the end of the year.
Yada stated 3 -month treasury bills were up 6% last year. The Dow
Jones Industrial Average with the dividends reinvested was up
36.92%. The S & P 500 with the dividends reinvested was up
37.5%. Long term treasury bonds were up 31% and high grade
corporate bonds were up 26.28%. Through November, the Consumer
Price Index was up 2.61%.
The New
16.64%.
return.
account
Mexico account has some bonds and stocks. They are up
Compared to the indexes, 16.64% is a good rate of
They probably underperformed 7% - 8%. The Income
is up 16.89% and Keystone is up 3.73%.
There were dramatic changes in our performance from 1994 to 1995.
In answer to a question from Reagan regarding New Mexico's
underperformance, Yada explained the Board has to consider the
other numbers and not just the performance.
Yada stated as of December 31, 1995, the income account was at
$3,891,408; Keystone had $1,029,774; and New Mexico Capital had
$3,924,021. There was approximately $30,000 in the checking
account at the end of the year.
The asset allocation at the end of the year was 42% in stocks, 8%
in cash, 48% in fixed income, and 2% in the other category. The
target asset allocation is 47% in stocks, 45% in fixed income, 5%
cash, and 3% in other. We are close to the target.
Yada stated a study was done at the University of Michigan that
found that asset allocation made up 93% of the return. We look
at the asset allocation on a monthly basis. It is important to
make sure we stay where we want to be.
Curtis Williams stated the suggestion to move to Keystone was not
based on performance from New Mexico. We were making an asset
allocation shift. Williams explained that things go in cycles,
after a four year run, growth stocks would tend to underperform
for a few years. When we came out of New Mexico, value had done
so well for so long and growth stocks had underperformed. We
think we are on a slowing economic environment where growth
stocks now tend to come back to the floor. We want to get more
exposure to growth. The fact that New Mexico underperformed for
one year is not a reason to fire them.
January 25, 1996
Williams explained there are three managers: the fixed income
account, Keystone, and New Mexico. We want to avoid a
correlation with no diversification. With this type of
correlation, what affects one account positively will affect all
three positively. It will be a portfolio that will make the
Board very happy or very sad depending on which way the markets
are going. An unpredictable correlation is better than having
one with no diversification because there is a chance the markets
will not have the same effect on each manager. We are looking
for a correlation where one asset class is going up while the
other is going down so that we hit a return. We want an asset
allocation where we are not always going in the same direction at
the same time. That is why growth stocks and value stocks make
sense in the portfolio with most market cycles.
Williams explained how investing in international stocks reduces
risk and encouraged the Board to begin to incorporate some
international exposure in the portfolio. Williams stated he will
submit specific recommendations to the Board in the future. If
the Board decides to invest in international stocks, we will
increase the return of our portfolio and decrease the overall
volatility in most markets.
Looking at the 1993 actuary, Yada reviewed the actual
contribution from the employer, the summary of financial
information, a comparison with prior years and a short condition
test.
Mayor Hanna left the meeting.
Yada explained that the actuary will be affected close to 100 on
the negative side by the DROP program.
In answer to a question from Wood, Yada stated the DROP will
bring more money into the pension system but between one and five
years there will be a large sum of money going out. It cannot be
projected as being used for long term returns. The money will
have to be in short term investments.
Yada and Williams gave their projections for the year and
explained several things they would be looking for.
Payment to Greg Jones
Paul stated the Board received a bill from. Greg Jones for his
services on the DROP. The amount of the bill is $581.97.
Wood, seconded by Boudrey, made a motion to pay Greg Jones
$581.97. The motion passed unanimously.
With a motion by Judy and a second by Reagan, the meeting
adjourned at 11:50 a.m.