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HomeMy WebLinkAbout1995-07-20 MinutesMINUTES OF A POLICE PENSION BOARD MEETING A meeting of the Police Pension Board was held on July 20, 1995, at 1:30 p.m. in room 326 of the City Administration Building, 113 West Mountain, Fayetteville, Arkansas. PRESENT: ABSENT: Eldon Roberts, Mashburn, City Administrative Randy Bradley, Hollis Spencer, Dr. James Clerk/Treasurer Traci Paul, and Services Director Ben Mayes. Mayor Fred Hanna and Jerry Friend CALL TO ORDER The meeting was called to order by Eldon Roberts. NEW BUSINESS DEAN WITTER INVESTMENT REPORT Madison Kay Frank with Madison stated the account for the first six months of 1995 was up 8.8%. In July of 1994, indicators were saying high risk situation. It was our job to let the market do what it wanted to and right time. For the 1994 calendar year .16%. we were in an extremely step to the sidelines and then jump back in at the the account was down In the latter part of 1994, it became more apparent that the worst of the market was over so bond exposure was increased. As a result, the first six months of 1995 have been very pleasant. Frank reviewed a chart showing the change in price of a 10 -year treasury bond over the last five years and the change in interest rates. Frank stated that interest rates fell dramatically from 1990 through the fall of 1993. From the fall of 1993 to November of 1994 there was a dramatic sell off. There was a 20% decline in the value of the bond. Since then, the market has reversed course. Frank explained that the Fed dramatically lowered interest rates beginning in 1989 through 1993. They did it in an effort to stimulate the economy. In the beginning of 1994, the Fed reversed course and increased interest rates because the economy was going too fast. In June of 1995 the Fed noticed some signs that the economy was slowing, so the decision was made to lower interest rates again. Frank pointed out that Greenspan is up for renomination in March of 1996. The Administration does not want to see a recession in 1996. • • July 20, 2995 The Federal Reserve and bond investors are looking at growth in the economy and change of inflation. The current economic indicators are saying that the economy has slowed. Frank explained that the National Association of Purchasing Managers Composite Index has an excellent correlation to the growth in the economy. Frank stated when the survey is above 50, the economy is expanding. When it falls below 50, the economy is contracting. Frank reviewed charts showing recent quarterly growth of GDP and annual growth of GDP. Frank pointed out that GDP is declining and stated there is clear evidence that the economy is slowing. Frank, in reviewing a combined inflation index, stated there was a huge run up in comodity prices in 1994. The expectation was that the run up would lead to an increase in consumer prices in 1995. The bond market sold off in 1994. Interest rates increased because of a fear of higher inflation. Lately, the comodity prices have started to roll over. The inflationary pressures are not currently as strong as they were in the latter part of last year. Frank stated all in all the market has built in a soft landing. The Fed is trying to slow the economy to a perfect level that will match the growth and capacity, that is a non -inflationary rate of growth. Based on the huge rally in the first six months, the bond market is saying that the Fed has accomplished a soft and perfect landing. The outlook going forward is good. The Fed has never accomplished a perfect landing before and may not this time. It is time to step back, be appreciative for the great returns in the first six months, and let things settle out. In the next six months, the market will probably step back. If interest rates go sideways for the next six months, nothing happens to the fund. The account will be up almost 12% for the year. Based on current positioning, if the market continues to rally and the perfect landing is achieved, the market is going to be up 16% and the fund will only be up 14%. If the market has gotten ahead of itself and the economy is not as weak as the market is saying it is, the market will be about 6-8% and the fund may still have a 9-10% return. In answer to a question from Mayes, Frank agreed that Madison took over the account on November 27, 1989 with $1,003,443 and has increased the amount to $1,599,243. In answer to a question from Mayes, Mike Kirkland agreed that the purpose of Madison was fixed income for the stability part of what Dean Witter puts together and to keep a balance. • • • July 20, 2995 Mashburn arrived. Roberts expressed approval of a safe and conservative approach with the money in the fund. Frank explained that Madison's philosophy is to be safe and conservative. Roberts stated he thought the Board had been told in the past that they needed to maintain 6% to stay even. A 6% earning would pay all benefits that have been promised. Roberts explained he was pleased with any returns greater than 6%. Frank stated 6% is a realistic actuarial assumption. TCW Mike Kirkland, Dean Witter, stated the market has done well. The TCW account is up a little over 14% year to date. There was a drop yesterday from 16% to 14%. The market may have gotten a little ahead of itself on the short term. Inflation does not seem to be a problem. Mashburn stated yesterday the losses in the market were almost' completely in high tech stocks. Kirkland stated even though the loss occurred, technology stocks are still good. This could create some buying opportunities in that area. Looking at the portfolio, Kirkland stated the high techs are still well above where they were. Kirkland stated as of the close yesterday, the account has a good balance. There is 64% in market and 33% in bonds. In answer to a question from Mashburn, Kirkland stated the value of the account at the end of 1994 was $1,483,310, the value of the account at the end of June 1995 was $1,697,419, and the value of the account as of the close on July 19, 1995 was $1,695,928. The actual cash in the account in the money market fund is $58,909. Kirkland reviewed percentages and holdings of the account as listed on the report distributed to the members. In studying the reports, Roberts commented that sometimes cost is greater than market value. Most items listed show market value greater than the cost. • • • July 20, 2995 In answer to a question from Roberts regarding a $172,000 treasury note, Kirkland stated it should mature in October of 1996. In answer to a question from Roberts regarding the Dean Witter cash account, Kirkland stated it was probably drawing approximately 6.5%. Bradley requested that Kirkland add his name to his mailing list. Kirkland stated he had just received a current mailing list. LONGER INVESTMENT REPORT Elaine Longer, Longer Investments, distributed and reviewed portfolio appraisals and other documents dated June 30, 1995. Longer stated stocks as a percent of everything that is being managed is at 43.5%. The rest is invested in convertible preferred corporate bonds, treasury bonds, and agency accounts. The annual income on the portfolio is $165,000. That is a 4.7% yield on market value and just over 5% yield on book value. Last year when interest rates were rising we were able to increase the portfolio income yield because we bought the 7.25% treasury in November, $225,000 of the 7.5% treasury in December and added to the ten year treasury notes with a 7 7/8% maturity in November. Interest rates have come down lots this year. There aren't any maturities that we have to worry about reinvesting in the lower interest rate environment. The is a government agency bond carrying a 9 1/8 coupon that is eligible for call in August. With interest rates where they are, that will probably be called. In the past several weeks there have been signs of strengthening in the economy. Greenspan, in his semi-annual testimony, said it looks like our greatest risk of recession is behind us now. Everyone then sold bonds because it looks like the Feds not going to cut rates again. Even though there is not anything maturing, we have the flexibility to take advantage of any increase in rates that might occur. In the stock account there are large cap stocks and small cap stocks. Among the large cap stocks, the unrealized gains are approximately $64,000. The unrealized gain in the smaller companies is $97,000. Industrial stocks have done well. In the common stock portfolio the unrealized gains are $246,471, about 19% of the total book value. • July 20, 2995 The unrealized gains in the bond portfolio are approximately $20,000. In the bond account, the average income yield is 7.1% on market value and about 7.2% on book value. Longer reviewed the Largest Holdings report and stated as a percentage on total portfolio there is nothing that represents over 2.5%. Longer reviewed the Portfolio Parameters report and explained that the report is a picture of the portfolio with the weighted average return on equity being 21%. Longer stated it is a real high quality portfolio. Through the first part of the year the stock part of the portfolio was up approximately 16% with the total being up approximately 11.5%. Through Friday, the stocks are up approximately 20.6% and the total is up approximately 13.4%. Longer stated as of July 14, equities are up approximately 21% and bonds are up approximately 9.6%. Appreciation in the portfolio year to date is $435,000. Longer reviewed a summary report on the bond portfolio which listed the total portfolio income to be above 5% on cost and above 70 on the bond part. Longer stated the weighted average maturity of the bond portfolio is 4.7 years. Bonds as a percent of the equity fund are 25%. Longer stated last year's earnings were up approximately 20% in the market. Interest rates were rising and the multiple came down. It erased the overvaluation from 1993. 1994 was a year of correction. Earnings are still growing, about a 12% earnings growth this year. In answer to a question from Mashburn, Longer explained some areas of the market are high risk and some areas are neglected. PHYSICIAN POSITION UP FOR ELECTION Roberts asked if the physician member of the Board is to be elected by the other members of the Board. Paul stated yes and explained that the Assistant City Attorney LaGayle McCarty,suggested the position be advertised. The position will be published in the newspaper on July 23, July 30, and August 2. After the applications are submitted, they will be forwarded to the members of the Board. The Board can hold an election at the next meeting. Mashburn asked if he needed to submit anything to reapply for the position. July 20, 2995 • Paul requested that Mashburn fill out an application. • Roberts stated Mashburn'•s term expired in May but explained that he would like to see Mashburn continue to serve on the Board until something changes. Paul stated the person holding a position usually continues to serve until the position is filled or they are reappointed. ACTIVE MEMBER ELECTION Paul stated on May 30, 1995, the active pension fund members met and held an election to fill an active member position. There were two nominations. Eldon Roberts was re-elected to serve another term on the Board. The term expires in May of 1997. NEW DEFINITION OF ACTUARIAL SOUNDNESS Roberts stated the Pension Review Board in Little Rock voted unanimously to adopt a new definition of actuarial soundness. Two police funds in Arkansas that were not actuarially sound became sound as a result of the new definition. The Fayetteville Police Department was one of the two funds to become actuarially sound. Act 1197 of 1993 is an act that increased the minimum police retirement benefit from $250 to $350 per month. The last section of the act stated that to be eligible for the increased minimum benefits, the pension plan must be actuarially sound after the inclusion of the new minimum benefits. Roberts distributed a copy of the July pension list with eligible additional benefits noted. Roberts stated to bring everyone up to $350, the monthly benefit total would be increased by $681.72. The Actuary is reviewing the fund to determine if the fund will remain actuarially sound after raising benefits. Roberts explained that he is waiting to hear from the Actuary. Roberts stated Marilyn Cramer, in the Accounting Division, is holding August pension checks so the increase can be included. Roberts suggested the Board discuss, in the future, pension increases for the entire group of retirees. The Actuaries will have to approve any increases. Roberts stated once benefits are given they cannot be taken away. They impact the plan forever. In answer to a question from Mashburn, Roberts stated the Board cannot make a motion to approve the increases until the Actuary finishes the review. The Board may have to hold a special meeting when the determination is made. • • July 20, 2995 MINUTES Spencer, seconded by Mashburn, made a motion to approve the minutes of the May 10 special meeting and the April 20 minutes with the correction that Randy Bradley was not present. The motion passed unanimously. ADJOURNMENT The meeting adjourned at 3:05 p.m.