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HomeMy WebLinkAbout1993-08-19 MinutesMINUTES OF A POLICE PENSION BOARD MEETING A meeting of the Police Pension Board was held on August 19, 1993, at 2:00 p.m. in Room 326 of the City Administration Building, 113 W. Mountain, Fayetteville, Arkansas. PRESENT: Eldon Roberts, Jerry Friend, Hollis Spencer, Clint Hutchens, Dr. James Mashburn, City Clerk Sherry Thomas, City Treasurer Glyndon Bunton, and Administrative Services Director Ben Mayes. ABSENT: Mayor Hanna CALL TO ORDER The meeting was called to order by Eldon Roberts. MINUTES Spencer, seconded by Bunton, made a motion to approve the minutes. The motion was adopted unanimously. ATTORNEY GENERAL OPINION ON SICK LEAVE Roberts stated the Pension Board had received a letter from Mashburn & Taylor regarding Captain Bill Foster's retirement. Foster had asked for his unused, unaccrued sick leave to be added to his length of service for retirement purposes. According to the Attorney General's opinion, this unused, unaccrued sick leave cannot be used for this purpose. City Attorney Jerry Rose concurred in his memo to the Pension Board. He asked the Board members if they felt this was appropriate. Roberts went on to explain that a police officer is allowed 20 days per year of sick leave and can accrue up to a maximum of 60 days. This is mandated by state law. A police officer can get paid for 90 days if the city passes an ordinance to allow this, and the City of Fayetteville did pass this ordinance. The time Foster is talking about is not really sick leave because he did not accrue this time. A person gets paid for their accumulated unused leave, but Foster had maxed out on his time, and this portion was unaccumulated. Hutchins stated he had a letter dealing with this when he retired. The Attorney General's opinion at that time was that a retiree could only get paid for 60 working days, which was actually 90 days of pay. Roberts stated another law on the books defined salary for retirement purposes as re -occurring pay, such as salary, educational pay, and longevity pay. • • • Spencer stated he felt the appropriate questions were asked of the Attorney General, and the Board has received an answer to pass on to Foster. Bunton asked if the unused, unaccumulated sick leave was used when determining Foster's retirement benefit. Bunton stated he agreed with the Attorney General if it were not. Roberts stated it was not. Spencer asked if Foster had had an extended illness and used up all of his sick leave during a period of his employment, could he have used part of the unused, unaccumulated sick leave for the illness. Roberts stated he would not have been able to go back and retrieve any of the sick leave that was not accrued. He would have had to use comp or vacation time for the balance of the time he was off due to illness. Friend asked if there was any other City that had allowed the use of this unaccrued sick leave. Roberts stated he had no knowledge of this happening. Dr. Mashburn stated the federal government follows the same rules as the City regarding sick leave. Friend stated section (a)(1) of the code stated sick leave begins 1 year after the date of employment. He asked if the police officers get sick leave once they begin employment. Mayes stated they do, he thinks the statute is stating the minimum requirement. Friend, seconded by Mashburn, made a motion based upon the Attorney General's opinion and the advice of City Attorney Rose to deny the use of unused, unaccrued sick leave to be counted toward the years of service for retirement. The motion passed unanimously. NEW BUSINESS LONGER INVESTMENTS REPORT Elaine Longer stated the combined portfolio is invested 59% in equities and 41% in fixed income with a total value of $2.785 million. No one single stock exceeds 4% of the total portfolio. She stated the manufacturing stocks have been doing better in the current market, and they have been staying away from consumer stocks. The fund still has purchasing power of about 18% in the stock market. There is a lot of uncertainly about the budget and economic growth, so she is comfortable with having some stored up purchasing power, especially with the market hitting new highs lately. • • • August 19, 1993 Longer stated the bond fund has very little reinvestment risk because the Home Loan Mortgage Bond that is due in 1995 is the soonest investment to mature. There is a 7.3% annualized return on this fund. She stated the equities are up about 41% with an annualized return of 11.85%. The S&P was up 40.1% and the Dow Jones was up 35.4% for this same time period. Longer stated the total portfolio return for June was 33.9% with an annualized total return since inception of 10%. Longer stated the nature of the stock portfolio has changed. In January, 1993, most of the large cap stocks were sold and smaller stocks and industrial goods companies stocks were purchased. These are the type of markets that were anticipated to do the best in the current market, and that has proven to be so. Longer stated the return on equity has a weighted average of 16.6%. The debt to total capital is only 17.6%. The S&P debt to total capital is about 38-39%. The price earnings multiple is 19.1 which is high because of the declining interest rates. Longer stated the current economy is somewhat edgy because of the President's budget. In the budget there are a lot of things called spending cuts which are really tax increases. If you factor out the defense cuts and taxes, there are really no major spending cuts in Clinton's budget. There could be more stimulative programs coming from the government in 1994 if there are no improvements in unemployment and growth. Dr. Mashburn asked Longer what she thought about the shift of money from bonds, CD's, etc., to the stock market. He asked if this could become a big problem with the stock market when the economy changes. Longer stated she felt it could be detrimental in the event of a crash like there was in 1987. Bunton asked if Longer read anything into the fact that housing starts have been down recently. Longer stated she felt that was related to the recent flooding. DEAN WITTER INVESTMENTS Roberts stated about 2-3 weeks ago he got a call from Mike Kirkland that Acorn has merged with another company and was now not approved by Dean Witter. So, Roberts authorized Kirkland to freeze the pension fund money until the full board could meet and decide what to do. He stated he asked Kirkland to come to this meeting with a recommendation about Acorn or about a new money manager. Friend and Spencer stated they supported Roberts' actions. Kirkland stated Acorn had been pulled from the Dean Witter recommended list of managers because of the uncertainty about their structure and their lagging performance. He stated Dean Witter did • • • August 19, 1993 what he has told the Board would happen in a case like this involving a money manager, etc. Friend asked if it would cost the fund to change managers. Kirkland stated the fund has been credited back with a pro -rata share of the management fees charged by Acorn. Kirkland stated the Board has Madison as a manager when they were with Shearson and brought the account with them to Dean Witter. However, Madison is not on Dean Witter's list of monitored managers. He stated he was not saying there was something wrong with Madison, but in the event they had some major change in the company, etc., Dean Witter would not know about it for some time like they had with the change in Acorn. Through June 30, 1993, Madison has had an annualized rate of return of 8.95% which is an okay performance. Other managers for this same period have earned about 11%, but this is nothing to be concerned about. Acorn has had an annualized rate of return of 11.75% since inception, and that is a good rate of return as well. Roberts asked what about the risk factors. Kirkland stated Madison is a fixed income manager, so there is very little risk with bonds, treasuries, etc. He stated he has selected one manager to introduce to the Board, which is TCW, Trust Company of the West. They were established in 1971. They have a balanced structure of management which was created to handle public type accounts. Their primary goal is to protect the principle, and their second goal is growth. They manage 5 out of 10 of the largest public fund companies in America. They have a group of managers for their bond investments and a different group of managers for their equity investments. Kirkland presented the Board with a scattergram which shows TCW has had a 14.5% rate of return for the last 5 years with 7.5% volatility. He stated there was another goodcompany, but they invest in global and international markets, which is against the pension fund's investment policy. Dr. Mashburn stated there were a lot of people investing in this market now. Kirkland agreed and stated some of his clients are now in this market for about 10% of their investments. By not investing in this market, an investor is missing out on about 2/3 of the world's growth by only investing in US companies. Kirkland stated for the period between March 1990 and March 1993, Acorn was up 7.5% and TCW was up 13.8%. For the past 10 years, Acorn has earned 13% and TCW 14%. Acorn is not among the 10 largest investment companies in America. Kirkland stated TCW is available through Dean Witter's Access program because they have invested about $5 million from smaller investors. TCW will work with a wrap fee. Bryan Tarbo would be the representative for this account, and Kirkland talked with him yesterday. He will come and talk with the Board. So, the Board does not have to worry about August 19, 1993 being a "small fish in the big sea" problem with this manager. The closing balance with Acorn at this time is $1,529,684. Kirkland stated if the Board decides to hire TCW, their fee is 1.75% which includes all fees, and it just requires a letter of authorization from the Board. Dr. Mashburn stated he was reluctant to make a quick decision. Roberts asked with what degree of speed does a decision need to be made. Friend stated he feels the decision should be made within the next 2-3 weeks. Kirkland stated he narrowed down the list of managers to TCW. However, he can get another company for the Board to review. Bunton asked if the agreement with a new manager would be for an indefinite period of time. Kirkland stated the Pension Board could change from TCW the next day. Friend, seconded by Spencer, made a motion to approve TCW as a money manager and transfer funds from Acorn. Friend stated he does not feel any urgency to vote, but since this is the company Kirkland feels is best, he feels it would be best to proceed. Bunton stated he appreciates Dr. Mashburn's concern, but it seems like it would probably be better to go ahead and move on this. Roberts stated the Board has hired Mike If the Board takes no action and does not Board does not need him. Kirkland to advise them. rely on his judgment, the Spencer stated as Kirkland has said, he could bring 4 or 5 more companies to the Board to review in the next couple of weeks, but he has already told the Board which is his top selection. He has trusted Kirkland's judgment up to now, so he feels the Board should move on with the program. Dr. Mashburn stated he will probably vote yes. However, he would like to have had the information on TCW sooner so he could have read more about them. He stated he too trusts Kirkland's judgment. Roberts stated Mike Kirkland has been with this Board for quite some time. He was with Shearson Lehman when they sold out, and he moved to Dean Witter. The Pension Board moved with him. Roberts stated he feels comfortable with Kirkland's advice. Kirkland stated he appreciates the Board's confidence in him. The motion to approve TCW as the new money manager was approved unanimously. • • • • August 19, 1993 FINANCIAL STATEMENTS Ben Mayes stated an actuary is performed every other year on the pension fund. He talked with Catherine Henshaw, and the financial statements are prepared every year from information supplied to them by the City. Dr. Mashburn stated the Coopers & Lybrand audit stated the fund's value at $6,026,482 and the City's report states the value is $5,784,732. He asked why there is a difference. Mayes stated the $5 million figure is based on cost and the Coopers' report is based on market value. Mayes stated there is a treasury note that matured and about $425,000 was transferred to Dean Witter to be held in the cash account which is earning about 2.5 to 3%. He stated they try to keep about 3 months pension benefits, or between $90,000 and $100,000, in the cash account. He recommended taking about $300,000 and moving to one of the managers for investment. Friend, seconded by Dr. Mashburn, made a motion to transfer $300,000 to Longer Investments. The motion was approved by a unanimous vote. Roberts stated Elaine Longer has always been available for the Board. Mayes stated Longer's annual rate of return is 10.1%, with Madison earning 8.95%, and Acorn earning 10.75%. So, they have all been doing pretty well. BENEFIT INCREASE Mayes stated in the minutes, the Board had inquired about making the minimum retirement $350 per month. In order to do this, the fund has to be actuarially sound, which the fund is not. Roberts asked how the new act that lets the fund count 80% of market value affects the soundness of the fund. Mayes stated if we could use 100% of market, the fund would be sound. Hutchins asked when there would be another actuary report. Mayes stated it would be done at the end of 1993. Dr. Mashburn asked what the cost would be to the fund to increase to this minimum. Roberts stated it would cost about $800 per month. August 19, 1993 DISABILITY RETIREMENT REOUEST - DON KILGORE Roberts stated Don Kilgore will be with the department 13 years in September. He has been off work for about 6 weeks with right arm or elbow problems. He has been going to Dr. Rogers, an MD General Practitioner, and going to a physical therapist. Roberts stated he told Kilgore what he needed to get the retirement process started. He stated the Board has tried to refer the people requesting disability retirement to a physician that is a specialist in the field where the person is having problems. Dr. Mashburn stated the letter from McBee says neurological information was obtained. He asked that the Board request (1) the results and/or a copy of the neurological evaluation and who did it and (2) request Mr. Kilgore to obtain an orthopedic consultation. He needs to make sure he gets to see the correct doctor who works on arms and elbows. He recommended Dr. James Moore located in the Northwest Arkansas Sports Medicine Building. He reminded the Board they have the authority to request this additional examination which will be at the patient's expense, not the Pension Fund's. Dr. Mashburn stated by getting this information, it will speed up the process for Mr. Kilgore. Roberts asked Thomas to write Kilgore a letter asking for this information and asking him to get in contact with Roberts when he has obtained the information. Roberts stated he has about 4 weeks of sick leave left. Roberts asked if Kilgore should attend the Board meeting when his application is discussed. Spencer and Dr. Mashburn both felt that would be a good idea. ADJOURNMENT The meeting adjourned at 4:30 p.m.