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HomeMy WebLinkAbout1997-01-30 Minutes• MINUTES OF A MEETING OF THE FIRE PENSION BOARD A meeting of the Fayetteville Firemen's Pension and Relief Board was held on Thursday, January 30, 1997, at 11:00 a.m., in room 326, of the City Administration Building, 113 W. Mountain, Fayetteville, Arkansas. PRESENT: Mayor Fred Hanna, Pete Reagan, Marion Doss, Ron Wood, Darrell Judy, Howard Boudrey, City Clerk/Treasurer Traci Paul, City Attorney Jerry Rose and Administrative Services Director Ben Mayes. CALL TO ORDER Mayor Hanna called the meeting to order. MINUTES Reagan, seconded by Doss, moved to approve the minutes of the December 12, 1996 meeting. The motion passed unanimously. PENSION LIST Paul reported one small change in Carl Springston's tax withholding but that there was no change in the total figure. Doss, seconded by Judy, moved to approve the February pension list. The motion passed unanimously. INVESTMENT REPORT Curtis Williams, Merrill Lynch, distributed copies of the portfolio performance as of December 31-, 1996. Williams stated there will be a more comprehensive report presented to the Board in February. The report distributed is a recap of what the three major accounts did for 1996. Williams stated 1996 was a good year. It was a far better year from the U.S. than was expected. We were not particularly optimistic about having a great year for the U.S. markets this time last year. Referring to the performance report, Williams stated the Dow Jones Industrial Average is up 29% and the S & P 500 is up 220. That is a big difference in those two indexes. They usually track each other closer than that. 1 • • January 30, 1997 New Mexico Capital Management is up 11.37% and Keystone is up 17.91%. They lagged the averages. In the latter months of 1996, the indexes were setting new records almost everyday. There is a big trend now towards index funds. Index funds buy the index which makes the index go up We have had two real good years back to back. If we have a third year as strong as 1996, it will be the first time we have ever done it. There is a wonderful environment for stocks out there right now. We have low inflation, low interest rates, and an expanding economy. Corporate earnings are growing. That is an environment that is great for stocks. Williams stated the market is paying up for stocks as if these conditions are going to go on indefinitely. Certain changes could have a very negative impact on the market. We know that things are going to change sooner or later. We are cautious on the U.S. markets. We want to set expectations lower than they have been the last few years. We are not going to continue to compound at 20%. We are going to have to have a cooling off period. Some type of correction is due and would be healthy. On the fixed income side, Long Term Treasury Bonds lost 1.21% for the year. We had an uptick in interest rates and they are trending up again. That would be one of the factors that could be negative for the market next year. High Grade Corporate Bonds were up 1.61%. The Income Account was at 4.25%, outperforming both indexes. Williams explained that the U.S. market outperformed Japan and that a more definitive report on the foreign investments will be available at the next meeting. Williams stated this year we would like to tone down the expectations for the U.S. markets and at some point in the year look at some type of a corrective phase. In that case the money will have to go somewhere. If money comes out of our market, we would expect the foreign markets to perform well and balance the portfolio. Williams concluded by stating 1996 was a great year. The Board briefly discussed the portfolio performance report and commented that they would be looking forward to a full report in February. 2 • • • OLD BUSINESS January 30, 1997 Proposed Benefit Increase Mayor Hanna explained that the discussion on the proposed increase was left on the table. Mayor Hanna expressed his concern about the increase and stated he had several questions to ask. Mayor Hanna expressed his concerned for the retired guys that were making $300 to $600 per month. They have been given percentage raises, and sometimes more, to get them up to where their retirement is even half way decent. Some guys who are receiving $400 per month have been given a 15% raise and some guys who are receiving $1,400 per month have also been given a 15% raise. Mayor Hanna explained that it does not seem fair. Mayor Hanna stated some things have been done in the past to help the retirement funds for fire and police. There was an increase in the City's contribution. It was higher than the contribution given to other City employees. Another one was the millage thing. At the time those things were done it was to enable the police and fire funds to stay at 50% retirement after 20 years. Are we violating the public trust by increasing retirement to more than 50%? The public might question something like this. Are we leaving ourselves open to look bad or to lawsuits? Mayor Hanna stated City Attorney Jerry Rose and Administrative Services Director Ben Mayes are here to discuss these issues with the Board. Mayor Hanna stated the Board needs to really think about these things before passing an increase. Mayor Hanna stated the investments have gone well. They always go in cycles. We are. going to get back to a period where they aren't going so well. What happens when we get caught in a really bad year? Also, we don't want anybody to think we are doing something for one class of City employees that we are not going to do or don't intend to do or can't do for others. Administrative Services Director Ben Mayes explained that the situation is unique because it is a closed plan. Mayes stated there will never be any other participants coming in. Your numbers are only reducing. As the numbers get smaller, the amount of money continues to increase. The Board needs to consider what is reasonable and fair overall to the taxpayers, firefighters, and everyone when making a decision. Mayes explained there are several ways the closed plan receives income. Mayes stated income comes 3 • • January 30, 1997 through investment earnings, State insurance turnback money, employer and employee contributions, and the millage. Someone needs to decide how long to continue to put a millage in. All the others are going down as the number of participants go down. But the millage just stays there regardless of how the. participants shift from this plan to the State plan. The way the retirement plan works, 50% of a person's salary, is normal compared to many other retirement plans. Mayes stated a person in the State plan would have to have 32 1/2 years of service at age 65 to get to 65% ' of salary for retirement. Mayes asked do we wait until you all get at 100% or more of your retirement salary before we start looking at taking the millage and using it for some other purpose. It is just a consideration that needs to be looked at. A retirement of 50% of salary seems to be normal. There are only two things that anybody else decides on besides the Fire Pension Board, the millage and the contribution level. The contribution level could be reduced back from 12% to 6%. The millage brings in about $220,000 per year. Someone needs to look at this issue at some point in time. Mayor Hanna explained that the number of recipients of the retirement will decrease over the years, investments could keep going well, and income from taxes will continue to come in. He stated somewhere along the line we are going to reach a point where there are only a few people left drawing. What happens if there is several million dollars left in the fund when the last person is gone? • City Attorney Jerry Rose stated even though there was one individual, a Board would still be in existence and should that Board agree to give that as a benefit and it did not ruin the actuarial soundness of the plan that person would become your best friend. You are running a retirement. What is the purpose of your retirement? Is it to provide an equatable retirement for everyone in the City or is everybody really on their own? The firemen have been wise and prudent investors. You could say they should reap the benefits of the advantages that came to them and the other folks have their own opportunities and their retirement is their business. Rose explained that legally he had two guidances for the Board. He stated the first is that there is not a doubt in his mind that as long as the plan is actuarialy sound the Board may increase benefits. The second is that he has no doubt that if the City, as a matter of policy, wants to play with those amounts they may do so. The most common way is the millage because it is the only one that provides a reasonable amount of money. The employee contribution is not all that much. Eventually, the State Legislature may become involved if it does become a problem. 4 • • • • January 30, 1997 Mayor Hanna stated the millage was passed to help all the firemen and all the policemen that had retired since we had a semi- retirement. Mayor Hanna expressed his concern that the people that retired 15 to 20 years ago are getting the short end of the stick. He stated some of them are making $500 per month. He explained his feelings that the intention of the whole thing was the 50% retirement. Mayor Hanna stated the Board should'look at equalizing retirement pays before an increase is given. Marion Doss expressed his concern about some retired firemen and widows receiving the lower amounts each month. He stated he hoped the Board could do something to give everyone an increase. Mayor Hanna stated the millage has increased so much in the last ten years. It was originally passed to insure the retirement benefits for everybody who has been a fireman. Pete Reagan asked if the Police Pension Fund gets a percentage of the tickets written. Mayes explained that he was not sure but could find out. Mayes stated the way the new plan works is that they do a calculation at the State level which determines the need for a certain amount to keep the plan actuarialy sound. They just tell you how much they need and a check is written. The employer still does the contribution side of it but amounts are not identified by a specific source. In answer to a question from Reagan, Mayes stated the City is paying less than 12% on its LOPFI employees. Reagan stated the LOPFI fund for the whole state is 141% funded. In answer to another question from Reagan, Mayes stated the police and fire are each assigned a half mil. Reagan stated the State gives the option to go up to one mil by referendum. Reagan stated the LOPFI plan has a cost of living increase built in. This plan does not have that kind of an increase built in. That is the reason for the benefit increase. Reagan stated the guys who retired a long time ago have been given more than a 100% increase. Reagan explained that the increase will be given to those who are not receiving over a certain percentage. That was a' long time ago and we have discussed addressing that problem but there is going to have to be a minimum dollar amount set on those. Those who are not getting an increase this time have been receiving increases. The first was in 1983; the second was in 1984; and the third was in 1986. The increases were possible because the Board took good care of the fund. 5 • January 30, 1997 Reagan stated he would like to see the income sources of the millage and the City's contribution left as they are. That is a good source of revenue for the fund. Reagan commented that when the fund first went under management with Merrill Lynch,• we had just given the pay raise in 1984. Merrill Lynch asked us not to grant any more benefit increases for 8 to 10 years until they could build the fund. That has affected the guys who have retired in that time. They just happened to retire during that time and they have not had a benefit increase. Mayes stated the State statutes only address the down side. It says what happens if you don't make it. There is nothing that addresses the success story. Reagan pointed out that fire pension funds in Rogers and Springdale have already increased their retirements to 65% and over. Mayor Hanna expressed concern that the State may step in and use some of the excess money in the fund in the future as the participants decrease. Reagan stated a new Federal law passed in the last legislative session which states the money in the pension fund can only be used for the benefits of that plan. Rose stated there are two different philosophies. One philosophy says let's set a fair retirement of 50%, 60% or whatever it might be and we will find,money to fund that retirement. First you determine what is fair then you figure out how to fund it. The other philosophy says give us what you think is fair to contribute, City, (the millage, the participation from the insurance, and the participation from the contribution) and let us work with it. We will set our own retirement once we get that money. Mayes asked if State statute limits what you can do for the existing retirees. Reagan stated the cap was 100%. Now we can go over 100% as long as the plan is.actuarialy sound. In answer to a question from Mayes, Reagan agreed that the Board could grant a 3% benefit increase in a year for existing retirees to cover an increase in inflation. He stated there would have to be an actuary study. Reagan stated the Board does need to address the question of what happens to the fund when we are all gone. 6y. • • January 30, 1997 Reagan made a motion to grant the benefit increase per the resolution passed by the Board on July 25, 1996 and make it retroactive to January 1, 1997. Boudrey seconded the motion. The motion passed unanimously. Pension Affidavits Paul reported she has received all pension affidavits except for Floyd Carl, Roger Lewis, and Dewain McChristian. In answer to a question from Paul, Mayor Hanna stated he understood that Floyd Carl is house bound. Paul stated she would contact the retirees and ask them to return their affidavits by February 15. If they do not return their forms by that date, their pension checks will not be mailed out. If Floyd Carl needs help, we can work with him. Judy stated he could go by Carl's house and get his signature. NEW BUSINESS Roger and Marvie Lewis The Board briefly discussed the situation of Roger and Marvie .Lewis. Mayor Hanna stated the issue should be reviewed and investigated by Roger Lewis and his attorney. The Board discussed their uncomfortable feelings about having to pay Marvie Lewis half of Roger Lewis' retirement as stated in the divorce decree. They expressed their feelings that the City should not be paying Ms. Lewis, Roger Lewis should be responsible for that. Mayor Hanna suggested that Roger Lewis could bring all the information down and sit down with the City Attorney and tell the City Attorney that he thinks that is illegal for them to do. let Jerry Rose make that decision on behalf of the City that is his job. In answer to a question from Doss, Mayor Hanna explained that the City Attorney should address any questions about the City doing something illegal. There being no further business, the meeting adjourned at 12:05 p.m. 7