HomeMy WebLinkAbout1994-10-27 MinutesI!'
MINUTES OF A POLICE PENSION BOARD MEETING
A meeting of the Police Pension Board was held on October 27, 1994,
at 2:30 p.m. in Room 326 of the City Administration Building, 113
W. Mountain, Fayetteville, Arkansas.
PRESENT: Eldon Roberts, Jerry Friend, Clint Hutchens, Mayor Fred
Hanna, City Clerk Traci Paul, City Treasurer Glyndon
Bunton, and Administrative Services Director Ben Mayes.
ABSENT: Hollis Spencer, Dr. James Mashburn
CALL TO ORDER
The meeting was called to order by Mayor Hanna.
MINUTES
Roberts, seconded by Hutchens, made a motion to approve the minutes
of the July 21, 1994 meeting. The motion passed unanimously.
NEW BUSINESS
LONGER INVESTMENTS REPORT
Elaine Longer, Longer Investments, explained that the bond market
is down. She stated earnings in the stock market are up about 18%
year-to-date versus last year. The strong economy that is creating
good earnings is causing higher interest rates. In the past, when
there was a bad stock market, you usually made money on the bond
side. This year bonds are down in price.
We have tried to build flexibility into the portfolios this year.
There is liquidity both in the bond portfolio and the stock
portfolio. There needs to be a more favorable interest rate
environment. If the interest rate had been raised in September,
the investment situation might be better. Rates will probably be
raised in November. At that time, maybe the long term interest
rates will stabilize.
Longer stated in the Combined Portfolio, stocks, as a percentage of
the total, are about 44.5%. The largest holdings are Emerson
Electric, Philip Morris, General Electric and Bristol Myers.
Philip Morris has increased their dividend by 25% this quarter.
Corporate bonds make up about 11% of the portfolio. The current
yield on the corporate bonds is about 7.5%. Treasuries are about
34%. Treasuries and agencies, together, are about 40%. There is
also a CD that matures in a little over a year. The total
portfolio value is approximately $3,048,000 and the current income
on the portfolio is about $148,000 per year. That has moved the
overall portfolio income yield up to 5%. The income yield on the
portfolio has come up this year by about 25%.
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October 27, 1994
In the Stock Account, 70% is invested in stocks. The amount in the
Treasuries is considered purchasing power. By the time the two
year that was purchased in June is sold and converted to cash, the
interest income that we have received will do better than if it had
been a money market fund.
The 30 year bond has been rolled to a 10 year maturity. We
realized the loss on the 30 year bond, but we have gold stocks in
the portfolio as an edge against inflation. We just realized a
gain on one of the gold stocks. The two offset each other and
there is no change to realized gains.
In the report that breaks down the categories of the stocks, 15.5%
of the stock portfolio is invested in Large Capitalization Growth
stocks. The Industrial Goods stocks have done well, even in a bad
market. The Value segment of the portfolio shows stocks with a
high asset value or a high dividend yield.
The Bond Fund has $1.1 million and the current yield on market
value is about 7.3%.
In the Performance Summary, the stock account, including the bond
reserves, is still off about 5.9% with a combined account based on
market value off 5.3%. There has been improvement since June 30.
The stock account is up about 2.7% and the total portfolio up about
1.6%. The bond part of the portfolio, since June 30, is still off
one tenth of one percent because interest rates have continued to
rise. The bond portfolio has not dropped much because we have so
much in short maturities. On a combined account basis, based on
book value, the interest income, dividend income, and realized gain
year-to-date, are a positive 4.6% and then with interest income for
the next two months it will boost up. It will still show a
positive return.
In the indices year-to-date, S & P is off about 0.8% and the
Salomon Bros. Treasury Index is down 3.7%. We are at about 6.5%
for the year. That is why the bond portfolio is down 4.2%. The
mutual fund index is down about 3.5%.
Nothing has really changed with the Portfolio Parameters. The
earnings reports that are coming out are excellent. The
Price/Earnings Multiple on the portfolio is now at 18.2 times
earnings. The return on equity is 22.4%. It was 16.8% a year ago.
You have a very high quality portfolio and yet the price/earnings
multiple is in line with the market. The Debt to Capital Ratio is
23.2%. That compares to 32% on the S & P 500. The Standard &
Poor's Rating is still between an A and an A-. The quality of the
portfolio is still the same. The market price flucuations are what
give negative return year-to-date. Most of the Large Cap. and Mid
Cap. companies have a little growth componenent. There is 16.9% in
-Small Cap. stocks. Realized gains year-to-date are about $76,000.
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October 27, 1994
The way that the weighted average debt to capital and return on
equity is calculated is that we take every company that is in the
portfolio and look at each one of their specific investment
criteria. Then, weight them by how much they represent within the
account. With increased exposure to some companies, the weighted
average debt to capital is shifted.
On the Portfolio Income and Yield report, the annual income in
fixed income securities only is $113,019 with a yield of 6.8%.
That compares to $80,000 with a yield of 6.0% at the end of 1993.
We have gradually increased the allocation and increased the income
yield on the portfolio so that the total portfolio income yield now
is 5.0%. The income return on the portfolio is up by 24%.
The Weighted Average Maturity is 6.45 years. That has been a
fairly conservative allocation. Weighted Average Duration is 4.2.
The longer you go out on maturities the more volatility you have
with interest rates. The fixed income part of the portfolio
matures within three years. Those bonds can be converted to cash.
In the Stock Portfolio, we have about 15.5% that can be used for
purchasing power. In the Bond Portfolio, there is almost 45% that
can be used to increase the income yield further.
In answer to a question from Friend regarding the Income Summary
Statement, Longer stated it was dividends and interest on bonds.
The Economic Outlook presented in July has not really changed. For
1994, the S & P earnings estimates have now been increased to about
$32.00.
On Friday, we will get the first look at what the third quarter GDP
growth rate is. It may have slowed to about 2.5% growth rate in
the first half of the year. That would start to alleviate some of
the pressure on the Bond Market.
In answer to a question presented at the last meeting, Longer
stated she had spoken to Katherine Henshaw regarding the South
Africa Statute. The law is still in effect. The only thing that
can be done about it is perhaps to petition our representatives up
here to change the law in the next legislative session.
DEAN WITTER INVESTMENT REPORT
Mike Kirkland, Dean Witter, stated both accounts are effected by
interest rates. We have run into one of the worst bond market
declines since 1931.
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October 27, 1994
The long bond is down 20% in the last twelve months. The Fed Fund
Rate is up 77% in the last year. The Prime rate is up 30%, the
three month CD rate is up 44%, thirty year treasury is up 34%, the
seven year treasury note is up 58% and the three month T -Bill is up
61%.
The ten year treasury, over the last twelve months, is down about
12%. Kirkland reviewed the Madison Report which lists what the
bonds have done in the last year.
In updating the portfolio, we are down. The value as of the end of
September is 1.47%. We are down less than a percent for the year.
In reviewing the Portfolio Appraisal, Kirkland stated two
Government Bonds would mature within the next three months. There
is $575,000 available in the next three months. There is almost
$50,000 in the money market fund.
The portfolio positioning is stable right now.
Bunton asked what would happen short term as we get a change and
people start reinvesting in the longer term bonds.
Kirkland stated they still think there is more on the other side.
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Rates may tick up a little more over the next three to six months.
When rates begin to come back down then bond values will go back
up. We might be able to lock in a pretty good yield and get
capital appreciation as rates begin to come back down. That is
what is happening with the bonds now, you have locked in a decent
yield but in the meantime, the bond value has gone down. If you
hold the maturity, your o.k., but in the meantime, the total return
is going to be flat to down.
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Roberts asked if the performances listed on the footnotes page are
just referring to their fund.
Kirkland agreed.
Roberts stated we are in the negative column.
Kirkland stated for this year, yes. On the short term, this may
not look too good. Even as you stagger maturities, you miss out on
some of those 10% - 12% years.
Bunton asked which range of the bonds will the turn -around start.
Would eight be the average maturity?
Kirkland stated if we knew for
most attractive. The longer
volatile it is going to be.
sure, the thirty year would be the
the maturity of the bond, the more
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October 27, 1994
The Stock Market has done what the Bond Market has allowed it to
do. In October of 1993, the S & P 500 was on the index of 460. As
of the close just in the last few days, it was around 460. It did
run up. The Dow and the S & P were at all time highs back at the
first of February, 1994. That is when the Fed began to tighten.
The S & P Index went form 482 to 435 in about two months. It has
recouped since then, but since the first of the year the Dow is a
little bit above where it is., The Equity portion of the account
has done about the same.
Referring to the Comparative Performance Summary of the TCW
Account, Kirkland stated that in the current quarter section, the
gross return is up about 3.3% and the S & P is up about 5%. In the
year-to-date section, the total portfolio is down about 2% and the
S & P is up about 1.3%. In the other indices section, the balanced
indices is a 60/30/10 mix. A couple longer term bonds were really
effected by rates going up. Based on where we were earlier in the
year, it is basically flat. The bond market is a big part of that.
We have got good holdings. We have got to hold on and take the
long term view. We probably will not have the returns like we had
in the 1980's. Rates may come down the first of the year. The
risk there is that since the Fed had tightened this year, it may be
too much and choke off earnings next year. We may be sitting still
for another quarter or two.
JERRY SURLES - ADDITIONAL BENEFITS
A letter from Jerry Surles, requesting additional benefits, was
distributed.
Roberts stated the request seems legitimate. There was a law
passed that allowed police officers in the old police pension plans
to purchase military time to allow them to retire early. Two years
was the maximum amount of time that could be purchased. The
original intent was to allow a person with 18 years in the Police
Dept to buy time. Then a law was passed which added $20 per month
to a police officer's pension for every year he stays past his
twenty. For example, if a police officer has in twenty years and
is ready to retire, he may buy two more years of military time and
receive an additional $40 in benefits per month.
Friend asked if there was a cap?
Roberts stated the years a person can stay after their twenty is
capped at 5 years.
Roberts stated Surles has been retired since about 1986.
Hutchins asked if the law was amended in 1991.
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October 27, 1994
Robert stated yes.
Roberts suggested that the requested be submitted to Jerry Rose for
his review.
In answer to a question from Hutchins, Roberts stated the first
part of the law addresses who can and who can't purchase military
service.
In answer to a question from Friend, Roberts stated with Jerry's
purchased military time, he would have 22 years. That would be an
additional $40 per month on his pension check. He did not work
here twenty years but he did have some Sheriff's Office time. He
did have to pay to use the time from the Sheriff's Department.
Roberts stated he retired using the Sheriff's Office time on our
pension plan without paying anything into our plan. Since then,
the Sunset Policy was established. The policy requires anyone who
uses that time now to .contribute to the pension plan. Surles
explained in his letter how many months he was short. He did
participate in our plan for twenty years with the 17 months we let
him buy. He would like to buy two more years now.
In answer to a question from Bunton, Roberts stated others have the
right to ask to buy two more years also, as long as they meet the
criteria.
Friend asked when the law allowing an extra $20 per month came into
effect.
Roberts stated the intention was to entice people to stay past
their twenty years. A twenty year program is hard to fund. In the
past, $5 extra was given per month for every year a person stayed
over twenty. That was increased to $20. The law was amended
around 1985. The law that allows military time to be purchased was
passed around 1981. The Finance Department is looking into what
Jerry Surles may have to pay. He may have to pay about $300 to
start drawing the extra $40 per month.
In answer to a question from Roberts, Friend stated he had to pay
$268 for his two years. It is very expensive if you buy time
before twenty years.
Bunton stated the original intent was to entice police officers to
work longer than twenty years.
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October 27, 1994
Roberts stated there are two laws. One law was going to give a guy
$20 per month to stay for every year past twenty. The other law is
for purchasing military time. When they are put together, it is
advantageous to purchase the two years of military to get the
additional $20. A person could buy,two years instead of working
two years.
Bunton stated Surles is asking for equal treatment. , Jerry Rose
should review this request and advise the Board.
Friend expressed concern about laws that get turned around.
Hutchins read the law pertaining to increasing benefits for service
beyond twenty years.
Friend, seconded by Hutchins, made a motion to submit the request
to Jerry Rose for his review. The motion passed unanimously.
STATE INSURANCE TURNBACK FUNDS
Administrative Services Director Ben Mayes stated there is about
$173,000 that the City invested in a treasury. ,It is up to about
$185,000 now. Based on the cash flow situation, $160,000 of that
money could be sent to Mike or Elaine for investing.
In answer to a question from Roberts, Mayes stated the majority of
the money is the insurance turnback check.
Friend, seconded by Bunton, made a motion to send the money to
Elaine Longer of Longer Investments. The motion passed
unanimously.
ADJOURNMENT
The meeting adjourned at 4:00 p.m.