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HomeMy WebLinkAbout1999-08-19 - Agendas - Final t, - PAYETTEVILLE THE CITY OF FAYETTEVILLE, ARKANSAS POLICE PENSION AGENDA AUGUST 19, 1999 A special meeting of the Fayetteville Police Pension and Relief Fund will be held on August 19, 1999 at 1 :00 p.m. in Room 219 of the City Administration Building located at 113 West Mountain Street, Fayetteville, Arkansas. 1 . Approval of the minutes 2. NASDAQ Antitrust Litigation 3 . Benefit increase 4. W-4 forms • 113 WEST MOUNTAIN 72701 501 521-7700 FAX 501 575-8257 - • MINUTES OF A MEETING OF THE POLICE PENSION AND RELIEF FUND A meeting of the Fayetteville Police Pension and Relief Fund was held on July 15, 1999 at 113 West Mountain Street located at 113 West Mountain Street, Fayetteville, Arkansas. PRESENT: Mayor Hanna, Eldon Roberts, Hollis Spencer, and Heather Woodruff. ABSENT: Randy Bradley, Dr. Mashburn. APPROVAL OF THE MINUTES Mr. Spencer moved to approve the minutes. Mr. Roberts seconded the motion. Upon roll cal the motion carried unanimously. APPROVAL OF THE PENSION LIST Mr. Roberts moved to approve the pension list. Mr. Spencer seconded the motion. Upon roll call the motion carried unanimously. INVESTMENT REPORT Ms. Elaine Longer presented the investment report. The account was over 11 million dollars. • She thought it would be good to review the investment policy. They had summarized the investment policy. They were bound by the Prudent Expert Rule. She explained how their portfolio was allocated between different types of investments. She presented the historical return of the account. She noted stocks only made up approximately 40-50% of their portfolio, but had delivered almost double that representation in term in numbers of return. She suggested revisiting their asset allocation to see if that was still an appropriate policy for them. She asked if they were concerned about volatility. Realistically speaking the way they were structured and the fact that they were invested for long term picture, it was difficult for them response to a market disruption and to raise a lot of cash fast. They were invested for the long term. She thought they needed to determine if they had an appropriate risk level. Mr. Roberts asked Ms. Longer since she had reviewed their investment policy, was she still comfortable with their current policy. Ms. Longer replied she was still comfortable, if they still had a long term time horizon. She stated most of their increases had been based on book value and not market value. She added they had a huge amount of unrealized gain in their portfolio. They had some to play with. If the market were to go down. It would not affect the retirees. From her stand point she thought the 50/50 was very comfortable. She felt they had a lot of flexibility. She was happy with how their portfolio was structured. The only thing she was concerned about their concern about fluctuation. • 1 • Mr. Roberts stated the accounting department had been questioning some of her trading. Ms. Longer replied she had looked at that. She had looked at their past record. Every item that had been bought or sold at different prices. Almost every single transaction was close to the earnings date. Generally speaking the company would come out and give them a terrible earnings report, what would happen was that these things never come out when the market was open, they came out when the market was closed. The next day when the stock opened it would be five dollars lower. From a portfolio managers standpoint, they had already taken a hit. The only question was were they going to sit there with it the portfolio and let it be dead money for a six months or were they going to move it from here to real life losses and get the capitol working again. They always had net realized gains, but you can always use a realized loss. It was better for the client and the portfolio if they got the dead money out of there. She thought their job was to prune the weeds as it was to find the stocks that were going to grow. She had added she would rather by a stock at a higher price and have a higher confidence it in. She had asked Kim to go back and look at their past record. They had gone back several years to look at their past trading. Their style and not changed since they had began managing their funds. She felt they were on top of the stocks. If she was leaving a stock she did not want to leave them in it. She thought there was always a way they could off set a loss. The question they had about their expenses. She presented a report which showed what the management fees were. She went ahead and annualized it so they could look at the percentage of total portfolio. So their total expense was 1 . 15% including everything. Compared to 1997 and 1998 their fees had been 1 .49%, that was not their fee, but the total commissions plus custody and management fees. Which could be • compared to 1 .78 % from Morgan Keegan. In 1998 when their assess grew their fee schedule dropped, so the total 1 .32 compared to 1 .60. So now they were down to 1 . 16 which was a good total expenditure ratio. She summarized what that needs and cost saving on their asset side at this point in time. $ 11 ,000 in saving this year. Based on the year with Morgan Keegan they were saving approximately $ 1 ,500 on those assets. They had always summarized commissions for them. However, they had never seen a trade ticket, that showed the commission on the confirmations, but they had always summarized the commissions for them in a different format. Whenever a trade took place there would be a commission there was a cost to doing this kind of business. Mr. Roberts stated once he had put all the expenses together and realized they come to less than $ 100,000. He did not mind paying approximately $95,000 a year to have almost 12 million dollars managed. Ms. Longer added their custody ration was very low. They went through the Northern Trust Discount Broker it was not the Pension Fund that the transaction. So they did not pay a transaction fee. They had relationships worked out like that. It would keep their clients overall expenses low. Because of the relationships they had built over time they were able to use a discount broker, and offset the custody expense so the total picture was such that they had a rock solid custodian relationship and the commission expenses were moderate. She welcomed any questions. • 2 • � i • Mr. Roberts explained that their first investment experience had not been good, they had gotten into a deal where the people were generating revenue by simply buying and selling whether it needed to be done or not. OLD BUSINESS ELECTION OF MEMBERS Mayor Hanna noted that everyone's terms had expired. Ms. Woodruff added they had not elected members last year, so everyone's term had expired. Mr. Roberts stated there was only one active member elected, which was him and he would try and get everyone together. The board members would vote on the doctor. Mr. Spencer stated they had polled retired members by phone in the past. BENEFIT INCREASE Mr. Roberts stated he had received a fax on their cash projections. It had not been formalized yet, it had to go before the Pension Review Board for final approval. The actuary had sent him a fax which stated they had completed the calculations for the cash flow study which projected not only the benefit payments and income based on recent experience, putting the two items together they could project asset levels into the fund for the future. The fund at its current benefit rate of • 55% is projected for assets to continue to grow and therefore never run out of money. They had looked at various benefit levels to see what benefit levels to see what level of benefit could be afforded. A base benefit level of 100% of pay would not completely deplete the fund, but the projected level of assets would go down quite a bit. A benefit level of 90% or below would project for the fund to maintain about the same level of assets for several years into the future. These projects were based on the actuarial assumptions of the last evaluation. The key assumption is 6% interest. The current assets of the fund reflect an extremely good investment year in the long run they were projecting a 6% each year. A complete report would follow in a few days. Mr. Roberts stated he thought they should practices some financial conservativism here and some restraint. He was a little concerned about it. Mayor Hanna asked if they knew how much the half mill contributed to the fund. Mr. Roberts thought it was approximately $ 175,000 per year. Ms. Woodruff thought it was approximately $250,000 for both the fire and police pensions. Mr. Roberts did not believe it was enough to ruin them. • 3 • Mayor Hanna thought the millage had been passed by the city to give the firemen and policemen a retirement of 50% of their pay. He stated he would feel more comfortable going up to 65 or 75% if they could do without the property tax. Mr. Roberts stated they did not have to make a decision today. He thought most of the members would want to receive a benefit increase. Mayor Hanna expressed concern about people getting use to the 100% of salary and then have to go back to 50% of income. He suggested some conservativism, 5 or 10% at a time. He wanted to make sure they would not leave themselves open to criticism from the city by keeping the tax. He wanted to make sure they were not going to lose the lawsuit against them. Mr. Friend stated if they were to give themselves raises and the economy was to turn bad, the city had guaranteed them 50% of their salaries and if they did not use good sense and it turned so bad that they could not even get 50% then it might relieve the city from the burden of giving them 50%. Mayor Hanna asked if the spouse of the retired policeman would receive the benefit. Mr. Roberts stated the spouse would not receive the benefit increase. Mr. Spencer added there were people on the pension list that the benefit increase would not • affect. Mr. Roberts added if they went to 100% of salary and the policeman died, his spouse would be reduced back to 50%. They had taken this approach because it would cost less. Mayor Hanna stated he would feel better if they were not dependant on the half mill tax going into their pension fund. They were collecting a tax right now that would never have been passed if they could have funded the 50% benefit. Mr. Robert added the millage only went to the police and fire funds. The police fund was actuary sound, the fire pension was not sound. Mayor Hanna stated there had been a lot of people complaining about all the taxes. Mr. Roberts stated he had written a letter concerning the Drop Plan for their opinion. He read the response on the affect of the Drop Plan. If the Drop was elected any benefit enhancement would cost money in the long run. Based on the Police Plan they had studied almost 100% of those who have taken the drop plan. With a 5 year drop plan the cost was fairly low at a 50% benefit level. Plans with a higher benefit would have a higher cost of the drop plan. With some plans there would be a savings. This was because on average police officers retire with 21 years of service. If police officer in Fayetteville have been retiring at 25 years of service. There would be • 4 .a r. • a long term cost to the plan because of the drop. Mr. Roberts added he was opposed to the drop plan because of the benefit increase. Mayor Hanna stated he had seen what had happen with the firemen. He thought there were some real tax concerns when they decided to draw their money on. This was something the IRS made decisions on. He did not believe the Drop Plan was a good idea. Mr. Roberts added there were only eleven people who would benefit from it. They had to be actively employed to get on the drop plan and it would adversely affect the plan for the rest of the people on the plan. Mayor Hanna thought it would make the police look good if they stated they did not need the millage anymore. The increase would not bother him one bit if they were not using the millage. He added he would have the city attorney research the origin of the law. Meeting adjourned at 2:25 p.m. • • 5 r . FAYETTEVILLE • THE CITY OF FAYETTEVILLE, ARKANSAS - To: Police Pension Board Members From : Marsha Farthing, Fixed Assets Coordinator ` Through : Marilyn Cramer, Accounting Manag r " Date: July 20, 1999 Subject: NASDAQ Antitrust Litigation The City of Fayetteville Police Pension Fund has received notice of a settlement in the NASDAQ Antitrust Litigation case. The settlement involves all persons and entities who traded securities on the NASDAQ Market between May 1 , 1989 and July 17, 1996. Brokerage firms that traded on the NASDAQ Market during this time have prepared preprinted claim forms for their clients. Kim Cooper, of Longer Investments, has indicated that their office will be responsible for researching all transactions that were originally handled by their office. However, because of the volume of transactions involved, I am asking for your approval to submit the preprinted forms as proof of claims for the City's other Police Pension accounts. If you feel the preprinted forms are not adequate documentation of the City's stock activity during this period , you might entertain the idea of hiring a part time employee to research the claims. I , however, feel the amount of resources used in the process will exceed any increased gain from the settlement. Please let me know how you wish to proceed in this matter. 113 WEST MOUNTAIN 72701 501521-7700 FAX 501575-8257 Z o o'. o 0 0 J 1- O O O O N r r a a z w CIO CD N O N N O n 0 t0 N O r � O N N (7 O O O OD O aD O a t0 �• N N O O N 10 V as CD p CO Q m m ' 01 W O t0 t0 t0 N O v a fA 1 4) E N N O N o O � N }J • x O ^ O , O NII 0 O R ' O N N L aC c o fN0 O (0 o NO e O oe w 0 N O O n t0 N n N 0 N N NJ W U w IN v c LL � � N C ¢ m Y 4S NO t0 m (n < 00 m m I ru N I o m ¢ Z c rn m w aam in m z N 2 >, v m ik ik O w > 'O A N 0 ! 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