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Home My WebLink About2002-10-30 - Agendas - Final• FIRE PENSION AND RELIEF FUND AGENDA OCTOBER 30, 2002 A meeting of the Firemen's Pension and Relief Fund Board will be held on October 30, 2002 at 10:00 a.m. in Room 326 of the City Administration Building located at 113 West Mountain Street, Fayetteville, Arkansas. 1 Approval -of -the -minutes. 2. Approval of the pension list 3. Investment Report 4. Other Business • • • MINUTES OF A MEETINGO OF THE FIREMEN'S PENSION AND RELIEF FUND BOARD SEPTEMBER 26, 2002 A meeting of the Fayetteville Firemen's Pension and Relief Fund Board was held on September 26, 2002, at 11:00 a.m. in Room 326 of the City Administration Building located at 113 West Mountain Street, Fayetteville, Arkansas. PRESENT: Mayor Coody, Ronnie Wood, Marion Doss, Danny Farrar, Pete Reagan, Marsha Farthing, Kit Williams, and Heather Woodruff. MINUTES Mr. Reagan moved to approve the minutes. Mr. Wood seconded. The motion carried unanimously. PENSION LIST Mr. Reagan moved to approve the pension list. Mr. Farrar seconded. The motion carried unanimously. INVESTMENT REPORT Ms. Longer stated the transfer was completed on August 15, 2002. They had had to do some sales prior to transfer, but on that date they had most everything in Northern Trust and they could trade it. The market value of the fund was at 9.9 million on August 15. Cash that transferred in was approximately four million, including the certificate of deposit, so 3.8 million in money market. Stocks were down to 3.36 million, which was 34% of the total portfolio. In the Portfolio Appraisal was where they were right now. The stock part of the portfolio has been moved even lower. They were at about 29% equities. They did buy the S2Y, the proxy for the Standard and Poors Index, to hold their equity positions while they went through transfer. Once they got everything they were able to sell position that they did not consider core holdings. That had moved their positions in their portfolio into an even more defensive posture. They had weathered the storm well. Credit risk have continued to increase. They had hit four year lows. The Dow had took out the July lows. The Nasdq was now at a new six year low. They have been able to pick up some bonds. They have been buying some of the government agencies in the short maturities to enhance the income. They were trying to move into more of the government agency to give them a good component in the fixed income side. There was still too much credit risk out there in the corporate market to really be able to justify going corporate. They have check with Merrill Lynch and they have in writing that all of the certificates of deposits are FDIC insured. They had a hard time researching those because some brokerage CDs were not FDIC insured. They could not find out anything that indicated at their CDs were FDIC insured, but according to Merrill Lynch they were. The Market value was 9.71 million. On their remaining corporate bonds they had a few that were below A rated, but they were not the low investment grade. BBB- is the lowest investment grade. The lowest grade that they had was BBB+. All of the less • • than investment grade bonds were out of the portfolio with the exception of Enron and Sola, which they could not get rid of. She did not think they were going to be able to get out of Enron and she did not believe they were going to get a competitive bid for Sola. Their fixed income securities currently have a yield on book value of 6.3%. On the total portfolio their income yield was $276,000 or 3% yield. They would like to see the total portfolio yield get up over 4%. They did not have the opportunity to do that out there right now because the interest rates were so low. They were being very conservative and sticking to the short maturities on what they were buying so that they did notlock themselves. They really needed to have more in the treasuries and agencies part of the bond market. That was the area that every one was running to right now. They really needed a better buying opportunity before they go out there farther. Since they have begun managing the fund, the Dow is down 13%, the S&P 500 is down 12%, and the Nasdq was off 12.1%. Their equities were down 9.9%. Their fixed income was up 2.5%, so their total has dropped 3% since they came in. Their equity component is still going to have the volatility that the stock market has on the down side, but they were trimmed back to 29%-30% equities, so they had the purchasing power to go to 50%. They were in a much better position. They had good core holdings. They will still experience negative volatility, she was please to see that the equities did not perform as badly as any of the indexes. She felt that all the bad stuff was out of the portfolio. With interest rates where they were they could not advocate anyone being out of equities completely. This was a three year bear market. They have not had three years of negative returns in the stock market since the 1930's. They were still under weighted in their technology stocks. They had asked Kathryn Henshaw what would be the assumed rate of return to produced actuary soundness. The assumed investment return is 6%. If they were at the level where their fund was actuary sound, to stay sound they would have to earn 6%. Now there was a catch up to get to where they were sound. What they were looking for is what is that return that they would have to get to to get to 6% begin the actuary return. Jody Carrio was not able to provide that to them. What he did was refer them to the actuary report. They had page 4 and 7 of their last actuary. On page 7, the year end valuation on 12/31/01 was 11.6 million. They were at 9.7 million at this time. What Ms. Henshaw says in her e-mail is that as of 12/31/01 the fund needed 4.126 million more in assets to cover the existing liability at that point in time. What ever the rate of return that can make that addition amount of money was what they needed at the end of 2001. That was a 33% return. The fund assets have dropped another 2 million since year end of 2001. That was present value. Whey they talk about future liability of 4.126 million, that was future value. A present value decline in the portfolio could result in more than adding 2 million to their unfunded liability. They could be more than 6.4 million unfunded. She did not think that they should wait until the next acturary to have one done. Mr. Williams questioned the need for another study. What decision could the board make to change things. Mr. Reagan stated they were looking for a number figure to put into their investment policy. Ms. Longer stated the question had come up about the benefits. They could not answer the question because they were not actuaries. The actuaries could run the assumption. Ms. Henshaw was saying that they look at investment returns as the third stream in the calculations of the actuary soundness. • They were really looking at employee and employer contributions to the plan as being the primary revenue stream. The investment performance was really meant to give them a guide for how much return they had to achieve once those revenue streams are sufficient to fund the future needs. There were only four pieces to the puzzle: the employer contributions, the employee contributions, the distributions or benefits, and the investment returns. If they end up finding out that they were quiet a bit under funded, then they had those things to look at. Mr. Reagan asked Ms. Longer what she would recommend that they set their rate of return at. Ms. Longer stated for their retirement plans they were using 6 to 8% on equity returns going forward. The long term rate of return on stocks in good and bad markets is roughly 10%. If they look at that return, 4 to 4.5% of that component was dividend yield. The current dividend yield was about 1.5%. If they look at 1.5% and say that earning should track nominal GDP growth (5.5-6.5%). They could reasonably expect 6 to 8% on equity returns, On the fixed income side they could not get 6% right now, unless they distort their credit quality. She had wanted to know the actuaries return assumptions, what would the portfolio have to do to get them out of unfunded. What ever that number is, • she did not think that it was achievable in this kind of environment. They did not want to risk more of their assets. It came down to employee and employer funding and benefits would have to be addressed. She did not believe that there was anything on the investment side that will get them back to being fully funded. They would have to get to 16.6 million and be earning 6% on that. From 10 million, they were talking about a 60% return to get back to earning 6%. Mr. Reagan stated he had sat on this board for twenty years. The majority of that time they had not been actuary sound. He was concerned about the amount that they were actuary unsound by. He thought that Ms. Longer. had done an excellent job in laying the ground work. Ms. Longer stated they had amended their policy to reflect their return assumptions. The changes that had been made to their policy at the last meeting were in bold. The changes that they were proposing were in italics. Mr. Wood moved to approve the changes to the policy. Mr. Reagan seconded. The motion carried unanimously. Ms. Longer explained how they used options on stocks to help protect the fund. She presented a list of securities that they had sold which had been in violation of their investment policy and their realized lost on the securities. The realized loses of Merrill Lynch prior to transfer of the assets were $591,000. She could not comment on what was in that $591,000 lost and how much of that may have been in violation of their policy. • But, following the transfer of the assets, they had listed them according to stock. At the time, their policy read, "stocks must be rated A or better." Their corporate bonds include the bonds that had gone to less than investment grade and the unrealized lost. The Merrill Lynch products that they sold that were out of line with their policy were listed. Some of them they had a hard time getting description on them so that they could say with any kind of certainty that they were at discrepancy with their policy. They were footnoted. The Mutual fund Conseco they considered in violation of their policy, because 38% of the portfolio was rated BBB and 9.5% was rated less than investment grade. That again violated their investment grading rating on fixed income. Their preferred debt securities that were in violation were Dillards and Motorola. The Tribune, they did not know if it would be considered a violation of policy because it was rated A-, but it was convertible to AOL stock which was rated B-. She thought that was why they had experienced a loss on it. It was not just a straight bond, it had been convertible to AOL and they had taken a loss They had added the disclaimer that the report had been complied from sources that they believe are reliable, but they could not guarantee it completeness and accuracy. They had been going by cost bases that had been provided by Merrill Lynch. In response to questions, Mr. Williams stated they have been trying to find actual proof that Merrill Lynch knew about an investment policy. If the board was looking to pursue litigation against them, then they would need to find a specialist in this field. There were many firms who might be willing to take the case. If the board wanted to pursue retaining an attorney, then they would have to go through the city's procedures. It was his recommendation that they consider hiring a lawyer and authorize the city to begin the necessary process to select one. Mr. Wood moved to follow Mr. Williams recommendations. Mr. Doss seconded. The motion carried unanimously. The meeting adjourned at 12:15 p.m. IMAM OIREMEN'S RELIEF AND PENSION CTOBER 2002 *FOLLOWING ARE THE OBLIGATIONS OF THE FIREMEN'S RELIEF FUND FOR THE TH OF OCTOBER, 2002. YOU ARE HEREBY INSTRUCTED TO ISSUE CHECKS TO THE PAYEES, IN THE AMOUNTS SHOWN, AND FOR THE PURPOSE SO STATED. • • DATE OF REGULAR Year To Date MO BENEFIT REG BENEFIT FED. TAX ST. TAX NET EMP# RETIREMENT NAME 79 11/99 ARMSTRONG (DILL), PA 1,658.91 11,612.37 300.00 100.00 1,258.91 74 3/86 BAIRD, JULIA 1,649.16 11,544.12 550.00 145.00 954.16 2 3/75 BIACKARD, PAUL 55.00 385.00 55.00 63 5/72 BOLAIN, ANN 55.00 385.00 55.00 68 7/99 BONADUCE, MICHAEL 2 73514 19,145.98 475.38 2,259.76 44 9/86 BOUDREY, BETTY MRS. 2,267.18 15,870.26 300.00 ' 50.00 1,917.18 45 9/86 BOUDREY, HOWARD 1,911.99 . 13,383.93 - 1,911.99 49 7/88 BOUDREY, JACK 1,507.82 10,554.74 287.68 50.00 1,170.14 4 • 6167 CARL, FLOYD JR 55.00 385.00 55.00 5 5/72 CASELMAN, ARTHUR 75.00 525.00 75.00 57 5/90 CATE, ROY 1,637.10 11,459.70 1,637.10 6 4/68 CHRISTIE, ARNOLD 55.00 385.00 55.00 84 03/01 CIRCT CLRK WA CO 0.00 0.00 85 03/01 CIRCT CLRK WA CO 0.00 0.00 8 10/76 COUNTS, WAYNE 55.00 385.00 55.00 61 6/66 DAVIS, BEULAH F. 377.50 2,642.50 377.50 78 11/99 DILL,GARY JOHN 1,658.92 11,612.44 100.00 1,558.92 11 2/76 FARRAR,ALONZO 914.10 6,398.70 75.00 839.10 38 5/84 FRALEY, JOSEPH G. 1,618.08 11,326.56 200.00 15.00 1,403.08 92 03/02 GAGE,TOMMY 2,376.34 11,881.70 226.00 50.00 2,100.34 34 6/79 HARRIS, JAMES E. 55.00 385.00 55.00 70 11/99 HARRIS, MARY RUTH 55.00 385.00 55.00 93 06/02 JENKINS, JOHN 3,273.93 5,749.65 700.00 200.00 2,373.93 86 07/01 JOHNSON,ROBERT 2,812.66 19,688.62 500.00 . 100.00 2,212.66 64 4/95 JORDAN, CHARLIE 2,081.90 14,573.30 2,081.90 76 5/88 JUDY, JAN 1,507.82 10,554.74 _ 200.00 50.00 1,257.82 37 3/84 KING, ARNOLD D. 1,393.18 9,752.26 300.00 200.00 893.18 54 5/89 KING, ARVIL 1,566.00. 10,962.00 130.00 1,436.00 12 3/60 LANE, HOPE MRS 55.00 385.00 55.00 13 10/67 LAYER, MERLIN 417.50 2,922.50 417.50 14 7/74 • LEE, HAROLD 55.00 385.00 55.00 51 10/88 LEWIS, CHARLES 1,507.82 10,554.74 75.00 25.00 1,407.82 60 12/89 LEWIS, MARVIE 790.49 5,533.43 790.49 55 12/89 LEWIS, ROGER. 790.50 5,533.50 50.00 10.00 • 730.50 40 9185 LOGUE, PAUL D. - 2,624.88 18,374.16 325.00 75.00 2,224.88 50 9/88 MASON, LARRY 1,492.83 10,449.81 78.16 1,414.67 39 4/85 MC ARTHUR, RONALDA 1,604.92 11,234.44 150.00 50.00 1,404.92 35 2/82 MC CHRISTIAN, DWAYNE 55.00 385.00 30.00 25.00 15 4/77 MC WHORTER, CHARLE 1,221.26 8,548.82 150.00 1,071.26 29 8/81 MILLER, DONALD 1,193.41 8,353.87 125.00 25.00 1,043.41 73 2/00 MILLER,KENNETH 2,910.17 20,371.19 2,910.17 42 2/86 MOORE, JAMES H. 55.00 385.00 55.00 17 2/66 MORRIS, WILKIE MRS. 55.00 385.00 55.00 16 4/64 MORRIS, WILLIAM H. 70.00 490.00 70.00. 62 10/68 MORRISON, ELIENE 80.00 560.00 - 80.00 48 7/88 MULLENS, DENNIS W. 2,005.35 14,037.45 . 2,005.35 58 9/90 OSBURN, EDWARD 2,248.33 15,738.31 160.00 2,088.33 46 5/88 OSBURN, TROY 1,738.46 12,169.22 200.00 38.00 1,500.46 81. 02/01 PHILLIPS,LARRY 2,530.45 17,713.15 2,530.45 53 2/89 POAGE, LARRY 2,147.56 15,032.92 300.00 . 100.00 1,747 56 22 4/73 REED, JOE 55.00 385.00 55.00 30 3/81 SCHADER EARVEL 1,268.40 8,878.80 1,268.40 41 9/85 SCHADER TROY 1,395.58 9,769.06 57.00 . 1,338.58 82 03/01 SKELTON,KELLY 1,114.17 7,799.19 125.00 25.00 964.17 83 03/01 SKELTON, KIMBERLY 1,114.17 7,799.19 125.00 25.00 964.17 23 4/71 SKELTON, LAWRENCE B 870.50 6,093.50 870.50 66 8/98 SKELTON, PAULINE 390.00 2,730.00 390.00 36 5/76 SPRINGSTON, CARL 737.78 5,164.46 70.00 17.00 650.78 FIREMEN'S RELIEF AND PENSION SEPTEMBER, 2002 1 • DATE OF EMP# RETIREMENT NAME GROSS 90 03/02 STOUT, IMOGENE W. 702.65 25 2/75 STOUT, ORVILLE (DECEASED) 26 3/66 TUNE, BILLIE SUE 80.00 27 3/71 TUNE, MILDRED MRS. 80.00 71 1/00 WARFORD,THOMAS 2,290.35 28 7/68 WATTS, DONALD 400.00 59 5/91 WATTS, WAYNE 1,642.10 88 01/02 WOOD,RONNIE D 2,816.02 52 9/88 WRIGHT, RANDALL 1,547.82 75,561.20 DROP DATE DROP EMPLOYEES 05/01/98 02/01/99 02/01/99 05/01/99 04/01/00 07/01/00 01/01/01 FREEDLE, LARRY LEDBETTER, DENNIS TATE, RALPH BACHMAN, EDDIE NAPIER,LONNIE REAGAN,PETE DOSS,MARION FED. TAX 3,513.25 1,405.30 560.00 560.00 16,032.45 300.00 2,800.00 11,494.70 130.00 16,896.12 10,834.74 200.00 504,191.84 ST. TAX 20.00 25.00 6,994.22/ 1,395.00 NET 702.65 0.00 80.00 80.00 1,990.35 400.00 1,492.10 2,816.02' 1,322.82 ✓ 67,171.98 ✓ EW BENEFITS 3492.86' 3,455.40" 3,356.83 - 2,396.34. 3,219.73✓ 3,235.68" 4,920.63 .✓ WE, THE UNDERSIGNED, DO SOLEMNLY SWEAR THAT THE ABOVE OBLIGATIONS ARE JUST AND CORRECT; THAT NO PART THEREOF HAS BEEN PREVIOUSLY PAID; THAT THE PENSION PAYMENTS SO CHARGED ARE IN ACCORDANCE WITH THE ACTIONS OF THE BOARD OF TRUSTEES OF THE FIREMEN'S RELIEF AND PENSION FUND; THAT THE SERVICES OR SUPPLIES FURNISHED, AS THE CASE MAY BE, WERE ACTUALLY RENDERED OR FURNISHED; ANDTHAT THE CHARGES MADE THEREFORE DO NOT EXCEED THE AMOUNT ALLOWED BY LAW OR THE CUSTOMARY CHARGE FOR SIMILAR SERVICES OR SUPPLIES • SECRETARY CHAIRMAN AND PRESIDENT ACKNOWLEDGEMENT STATE OF ARKANSAS ) COUNTY OF WASHINGTON) SWORN TO AND SUBSCRIBED BEFORE ME THIS DAY OF 2002. MY COMMISSION EXPIRES NOTARY PUBLIC 6810-9810-5335-00 CURRENT MONTH TOTAL EXPENSE YTD MONTHLY YTD 428,630.64 75,561.20 504,191.84 • a • WTTI WTW \ cr If till. %La k1 T IP • ‘Lai { tul MITe \ 001 • tAI eta 100 . LUTA • ID lie Penile* Revenue 171741on 0,81 Z;a ; \•822-,;8 t•» •.: •,R !\4 k {• \ \ c.ct. • •Pi r. G. \ �. /I 2 ['rt $ L 3k, : vet 7; [ Wim/ \ k-88888828.10 ' OT ;Eh rc Inc t . \ ;mg ; ccc \ ecc {4.7.43wee\ OTITL ! \1000f TW ITOD }% Ptt" 44.21 99, /f tie • me 7 me OM fro rr- \2 • ca irC au! iL T LA mai f rt 4. j £ • t r d00 IC r� 454 1.74.1 .cI-W eE a. OltL�• PC 4 gzt4 Et407 pc 01 ea ▪ na • 0• 0+4 ▪ 4010 Division 9010 - Tire titmice Cgense zmc 0 MO 01/0000 n0001 ci Th. .,_ 0 00 0+1 • mop PIT • 00000000000 0 000 00104:40000 00 000c oelbFOP 000000Ookeoe oozy . 000000 ixa eon xi °saves a $; .: pr f N ON WMM VVW cE NVIV WV VMM .mi ti DEBIT NOW e'fe 0G_'CDC 00 oc C C" (- O `olij1 a,•„a - - :fo.,v +fie c cF I¢ .� !, ti ast Me .. 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S n.x n:x..:+.. .awv. .. - �e,we e,- e a m,v e_ «0s It + « it i.1 Z F ▪ fir F• ael'e` a nretrk•• .`e dn•n [t 0_OD• 1.11.111. 11'm 11 CO r.111 111: ter 0 TO 11 • 0 011 T. CITY OF FAYETTEVILLE - REQUEST FOR TRANSFER OF FUNDS TO: Longer Investments (Fax #443-7129) ATTN: Kim Cooper(443-5851) *FROM: Emma Badgley (575-8274) October 10, 2002 Wire From: Account No. Description \wiremisc Amount Northern Trust Company Chicago, IL ABA#071000152 03-03353 Wire To: Bank of Arkansas - Fayetteville, AR ABA4082901392 "'For deposit to City of Fayetteville, Fire Pension - Account No. 1063401 City of Fayetteville Fire Pension Fund 40,000.00