Loading...
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.