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HomeMy WebLinkAbout2006-04-13 - Agendas - Final . Police Pension and Relief Fund Board of Trustees Agenda • April 13, 2006 A meeting of the Fayetteville Policemen's Pension and Relief Fund Board will be held on April 13, 2006 at 1 :30 p.m. in Room 326 of the City Administration Building located at 113 West Mountain Street, Fayetteville, Arkansas. 1. Roll Call 2. Approval of the Minutes • Approval of the January 18, 2006 Meeting Minutes. 3. Approval of the Pension List • Approval of February, March, and April, 2006 Pension Lists 4. Longer Investments • Investment Report • 5. Old Business • Benefit Increase • Osborn, Carreim & Associates, Inc. Letter Regarding the COLA dated August 712003 • Resolution 01 -04 Requesting a Cash Flow Study • Letters Regarding the Benefit Increases 6. New Business • Board Member Elections for 2006 • Act 2094 Disclosure of Gifts • Discussion on the length of meetings , • Arkansas Fire and Police Pension Review Board Rules r • W � d c� tvo F dvi cV2 aW mo y3 NE V H m d 0 A°o _ N o O m U N LLc` N C° ° oo p O O Q mo yaji 'EodCoNE2 p` c w d m C LL LL N C f6 O 0 N � C L `9 ` 1 cc Qd N o V O a N L N t C a_ N o a c 5 w E o y c ° d E In d ° ° moo t N v F- m m Vit ° a t j CO 4k Q�j C C mo V w LL N N fn d C C {L d p O o O Co _ a O o p o p = '6 3 0 0 d R d E o 0 0 d m v_ d E d o LL1 N m � w -, 't= o � �n N m � w � i= o � m � s a 0 c � t � IR Joe see WZ c N c LL N N p d aW o9 O O O p Vc0 c—) N W g m ` ee vi — w O J m LL rj m J Ile DA m L C C L O O m m � m m m.. 2Fd OR3 m NV 9 lee = rEcl O LL ^ O O Lie CO C O C °m E VN c°mD eW leek E :k See �wl see Q a Jf Policemen's Pension and Relief rand Board of Trustees Meeting Minutes January 18, 2006 • Page ] 0(27 Policemen 's Pension and Relief Fund Board of Trustees Meeting Minutes January 18, 2006 A meeting of the Fayetteville Policemen's Pension and Relief Fund Board was held on January 18, 2006 at 1 :30 p.m . in Room II l of the City Administration Building located at l l3 West Mountain Street, Fayetteville, Arkansas. Mayor Coody called the meeting to order. Present: Mayor Coody, Eldon Roberts, Jerry. Friend, Tim Helder, Dr Mashburn, Jerry Surles, City Clerk Sondra Smith, City Attorney Kit Williams, Trish Leach and Wendy Moore, Accounting Department, Lisa Branson, City Clerk's Office, Police Chief Frank Johnson, Greg Tabor, Deputy Chief of Police, Rick Holt, Pensioner, Steve Davis, Finance and Internal Services Director, Elaine Longer, Kim Cooper with Longer Investments. Approval of the October 20, 2005 Meeting Minutes Jerry Friend moved to approve the minutes. Dr. Mashburn seconded the motion. Upon • roll call the motion carried unanimously. Approval of the December, 2005 and January, 2006 Pension List Sondra Smith : The only change in the Pension List is the 3% COLA has been added to January. That is the difference between the December, 2005 list and the January, 2006 list. Dr. Mashburn moved to approve the Pension List for December, 2005 and January, 2006. Tim Helder seconded the motion. Upon roll call the motion passed unanimously. Old Business: Benefit Increase Mayor Coody: Steve I think you wanted to make a report to the board. Steve Davis, Finance and Internal Services Director: I . gave Sondra a memo that basically asks you to postpone any consideration of a benefit increase until the 2005 actuarial study is completed by the State' s actuary. I will point out a couple of reasons, under the cash flow method in 2004 the pension fund qualified under the cash flow method; it did not qualify in 2002 • or 2003 and it does not look like it will qualify in 2005. There are events that are not occurring in Arkansas but are related to self directed pension plans. On January 6 numerous San Diego pension officials were indicted on Federal and State charges, because of the issues surrounding the San Diego pension plan the Securities and Exchange Commission has withheld approval of critical bond issues for the City of San Diego. As you all are aware, Fayetteville is in the midst ii Policemen s Pension and Relief Fund Board of Trustees Meeting Minutes January 18, 2006 Page 2 of27 of financing a wastewater systems improvement project and a number of other items and we need to tread carefully as we move forward. When you review the pension report from Osborn & Carreiro the reason this pension qualified for a benefit increase consideration was due to investment earnings due to using the cash flow method. 1 don't think you made as much as you expected to in 2005 because it was an up and down year. State turn back is sliding downward in terms of what this pension fund is receiving. Fayetteville right now is receiving somewhere between 30% to 40% of pension expense incurred for both LOPFI and this pension plan. Your key revenue source, as you continue forward in funding of your benefits, is the millage the City Council every year has to reaffirm that on an annual basis. You are basing a future plan on revenue streams that may not be there in the future to the extent that you need them to be there. Mayor Coody: You say the word indictment and my ears go up. When I read the list of people that were indicted for basically approving increases to the fund, to the obligations of the fund when they were not actuarially sound, there is a question whether if we keep approving all the increases that we want we may be doing the same thing. Aside from that the people that were indicted here are the people that had an actual gain in the pension program. Since I am not a member of the police retirement program I would not fit into this mold would I? Steve Davis: I am not sure. Mayor Coody: That ' s not the right answer. Steve Davis: They are also looking at the former City Manager and the former Mayor of San • Diego. Mayor Coody: This pension fund was it for workers in general or like this plan, the police pension? Steve Davis : It looks like to me it is a specific department but 1 do not have information about which pension fund this is. Dr. Mashburn : That' s the reason 1 ask .that question is it actuarially sound. Steve Davis: I don't know anything :about the California legal system, 1 don't know if they had an option for the cash flow method like the Arkansas system has. This information leads me to make a recommendation to postpone any increase until we can actually research this further so that whatever decision you make is the right one and that 6you will not have any negative repercussions in the future. Jerry Surles : Would this apply to approving widow 's benefits to 90%. Steve Davis: I don' t know the answer to your question we would have to specially research that. Mayor Coody: One thing that has several of us concerned is one of these days 1 will leave a widow too if all goes as planned and I want her taken care of very much so 1 understand everybody's position in wanting to take care of our wives. At the same time 1 also would hate for any board, this one or any other board, to want to take care of their current beneficiaries to the point that one of two things happen, the whole fund falls apart because the funds are all gone and then you have these widow' s who really don ' t have anything to fall back on or the tax payers Policemen's Pension and Relief Fund Board of Tmsiees M eeting Minutes January 18, 2006 • Page 3 of 27 are going to have to come in and fund a huge deficient for a hand full of folks that has ballooned over the years. In the actuarial pension programs that has a real likelihood of happening if it is not carefully administrated. Jerry Surles: Apparently someone in the State of Arkansas decided they needed to get this law passed and it was passed for the widow's benefit. Kit Williams: It was passed to allow local funds such as yours if they have actuarially sound plans to give this. In the past just by State statue they could not. Jerry Surles: You are saying that PRB says we don't really qualify. Steve Davis: The PRB stands by its statement that based on the study that was done on the 2004 year you qualify on the cash flow basis. That's what the PRB statement is. What I passed out is something that hit the press January 6, 2006. Sondra Smith: We asked for an increase to 100% for pensioners and to increase to 90% for widow's and PRB came back and said you can only go to 95% for pensioners and 90% for widow's. So they were concerned that our fund was not stable enough to handle an increase up to 100%. Steve Davis: If the primary concern for the pension board is to do something for the widow's ' then that is a separate study that in all likelihood would reduce the future cost from what this report says. I do not know if you have the latitude to only do the 90% on the widow's and not do the 95% for pensioners. Jerry Surles: It is my understanding it all came up because a State law passed saying that we could do it if we had the funds available. Kit Williams : That is correct. Jerry Surles : This says we have the funds available. Tim Helder: As of 2004. This study was based on 2004 and what you are saying the projections for 2005 may not be as favorable. Steve Davis : That's correct. Tim Helder: And we would be basing our decision on old information. Steve Davis: Yes. Sondra Smith : Accounting has completed the calculations a copy is in your packet, both increases would be an increase of almost $ 14,000 per month, to the plan. That's a pretty large increase. Kit Williams: Keep in mind that is the current cost and where you have your real cost for widow's benefits will be at the end when more widow's are drawing. l Policennens Pension and Relief Fund Board of Truslees Mecling Minutes January 18, 2006 Page 4 of 27 Jerry Surles : But If I am stili alive 1 am still drawing the same amount of money 1 am right • now. Kit Williams : That' s why the cost is not that much right now but as the later people who retire that are getting the higher monthly benefits die and their widow' s start drawing 90% instead of 50% that ' s where your cost will be to the system . I am not saying not to do it; I am saying there will be a smaller cost now and a greater cost in the future. Sondra Smith : Normally women outlive men. Eldon Roberts : You are still paying out the same amount when the pensioner dies his wife will continue drawing it. It would not be an increase. Kit Williams : What 1 am saying if you are looking at it actuarially, how that decision makes a difference actuarially it makes a big change at the end. Because normally instead of getting 50% of what you are drawing the widow would get 90%. It is a back end loaded increase. Eldon Roberts: That amount has still been figured for the pensioner himself. Kit William : No because when they .do these actuarial tables they are figuring that you are going to die. Eldon Roberts : When I die my pension stops and it goes to wife I don't keep drawing it and her • too. It is awash. Sondra Smith : What kit is saying is that right now in the future your wife would only draw 50%n of benefits but if we increase benefits your wife will draw 90% so there is a 40% increase. Eldon Roberts: But 1 am not going to be drawing that 90% any longer. Sondra Smith : When they do these studies they take that into account that you will no longer be drawing 90% and you pension will revert to your wife at 50%. They take that into account when they do the study. Mayor Coody : So Steve's recommendation is to put off any increase until more actuarial work is completed. Is that correct Steve? Steve Davis : It is really a three pan request. Postpone any decision on the benefit increase until the 2005 actuarial full study is done, ask for a special review just for the widow ' s benefit ' s and what that impact is and research legally how the California case relates to what we are doing here in Arkansas, if there is any correlation. Mayor Coody : How would we do the third pan? Kit Williams : Basically you all have the fiduciary duty just like they did out there. However.if you operate in good faith and make sure you do not violate any of these laws, as long as you have done everything properly and you have not gone into the gray area where you are raising benefits even though the program looks like it is not actuarially sound then 1 would hope there r Policemen's Pension and Relief Fund Board of Trustees Mecting Minutes January 18, 2006 • Page 5 of 27 would not be any criminal ramifications on anyone here. San Diego is $2 billion in the red, that is a pretty big loss. I guess we potentially have some liability already for this is that right Steve? If we wanted to send this plan to LOPFI would it cost the City any money to do that? Steve Davis : Would it cost any money over and above the millage, based on the 2003 study the cost if any would be minimal . There would be some reduction in State turn back in the first few years but after that it would stabilize. Kit Williams: Does the study indicate that the millage will continue indefinitely? Steve Davis : This study we have here? Kit Williams : Yes. Steve Davis : It anticapes the millage will continue until the end. That is the only way that it amortizes in 20 years. Jerry Surles: At the end when there is no one else drawing the pension on this plan and there is $5 million in there, who gets the $5 million. • Steve Davis : I think it goes back to the State. Eldon Roberts: I think it goes to LOPFI. Kit Williams : It may depend where the plan is. Steve Davis : I think any remaining amount would go to LOPFI. Tim Helder: I guess it was three years ago that we had a discussion about moving to LOPFL We talked about it and you made a recommendation then that we not do it at that time, because of the turn back; because it was increasing but we anticipated that it would go down. Are we at that point now to where we really need to start looking at going to LOPFI again? Steve Davis : In 2006 yes. In 2003 we expected that the City's cost for our current police officers and fire fighters off of that 2003 study said the City should pay somewhere around $250,000 for 2006, our actual cost for 2006 is closer to $600,000. It is attributed to two things legislative benefit increases and the decrease in the amount of State tum back, because of the formula change. The built up surplus that was available in the insurance turn back fund at PRB and LOPFI has all been spent so 2006 is the year to reconsider. Tim Helder: Is it your feeling that the City is ready for us to move, if we are ready to make that move. Steve Davis: I have not had a conversation with the Mayor but I have everything in place for that to happen this year. Policemen's Pension and Relief Fund Board of Tmstees Meeting Minutes January 18, 2006 Page 6 of • Mayor Coody: We have not had that conservation . We talked .about the ramifications a few years ago but that is the Last time we talked about it. Sondra Smith : If the fund is moved to LOPFI and the benefits stay as they are now will there be an amount the City will have to pay over and above the amount that we collect from the citizens right now to fund this plan. Steve Davis: I do not know. When this pension board and the City Council both sign a resolution saying they want to consider sending the pension plan to LOPFI they do an actuarial study and then they come back and tell us what the cost if any is. Sondra Smith : Do they do that study on a cash flow basis or on an actuarial basis? Steve Davis: They do the actuarial study. Sondra Smith: So there could be a big unfunded liability right now if we send this plan to LOPF] that the City would have to make good. Steve Davis: If we look back at the 2003 report there is this huge unfunded actuarial liability and is it attributed to the old plan or the new plan. The way the actuarial study was put together, we were the first City that ever asked for a long look at LOPF], we are now the second City, Little Rock has asked for a long look at LOPFI . Most of the huge unfunded liability was LOPFI, • the new plan. The State is in the middle of an interim study on how to create a future funding stream for LOPFI because they have come to realize that the new pension plan has issues in the future in another 20 years. They want to know what the problems are today. The short answer for your question we think that there is some unfunded liability that the City will have to pick up for this plan but in terms of the total of what the City is going to have to pick up for police pension plans most of that expense is in LOPFI. As long as there are beneficiaries of this plan participating in LOPF] the millage can continue to be collected. When the last beneficiary in the old plan no longer collects money that millage has to stop. Sondra Smith : I was just concerned if the millage would have to be increased due to us sending this to LOPFI. Steve Davis: The only time you have to increase your millage when you send it to LOPFI is if you petition to go into the special case section for old pension plans, they you have to make sure that you have one mil dedicated for the closed pension plan. We are not in that condition. Jerry Surles : You said we are going to address this sometime this year. Steve Davis : Yes Jerry Surles : 1 don 't see how we can give anybody a raise or anything else if that is the case. Eldon Roberts: This paper you gave us from California 1 am sure is on the up and up. The ;• word indictment does not scare me one bit at this table because we are following State law, now if we were outside the parameter of what they told us we could do then I would have some concerns. The fact that we asked for 100% and they said no that tells me that they are monitoring it pretty close. The fact that there are two methods to follow, cash flow and actuarial Policemen's Pension and Relief Fund Board of?nistees Meeting Minutes January 18, 2006 f 27 • Page 7 oparticipantssoundness is State law. Only plans that have 50 or more participants can do the cash flow evaluation. We are following State law we have not veered off the course one percentage point. I am not the least bit concerned about doing what they tell us we can do. I expect Steve to be on the side of the table he is on, that is the side of the coin that he is on, that is what he is paid to do. By State law we are right in line with what we are allowed to do. When we talk about giving the widow's a raise and nobody else or this group a raise and nobody else you are stymieing anybody else of getting a raise if you are going to start doing it in blocks. I have some concern in that area too. The fact that we have done exactly what we have been asked to do to follow the law we have done it and it makes me very comfortable with it. I visited with Sondra about this, I know she has some concerns, I have no problem with a motion that we would pass today that if and when all of this doom comes about that we meet and we cut benefits. The actuary is involved in that too, I wouldn 't want the board to arbitrally say things are looking pretty bad in the investment field, the economy is going south so let' s reduce benefits by 50%. I would want the actuary involved in that too to tell us what we would need to reduce benefits to. I don't think there is anybody at this table that wouldn't be willing to do that if and when it got to that point. Mayor Coody: I do, nobody cuts benefits. No one ever cuts benefits. Sondra Smith : My concern about that is if this does go to LOPFI it goes to LOPFI at the present benefit amount and no benefit cuts would ever be made. So if you increase pensioners to 95% and widow's to 90% and six months from now we sent it to LOPFI, it stays at that amount, there will never be a benefit cut. • Eldon Roberts : By the same token there would never be any benefit increases either. That's it. 1 Sondra Smith : That' s right. .But when you are at 95% you can' t increase benefits too much more than that, well I guess you could, you could go to 150% of your salary if you wanted to in the future if you saw the fund was going to be huge with a $5 million balance at the end like Jerry thought, I guess you could do that. You are taking a chance either way you go, you are taking a chance in increasing the amount and not having enough money left and you are taking a chance by not increasing the amount that there might be some funds left. I can not imagine that there would be a huge dollar amount left with the number of people we have drawing and the cash flow projections. Jerry Surles: How much money did we have in the pension fund in 2004 or 2003 and how much do we have in there now. Eldon Roberts : Roughly $ 10 million is in there right now is my guess. Sondra Smith : The difference between 2003 and now is you now have people drawing that were not drawing in 2003 and they are drawing a huge amount of money and then you still have one more left to retire. Jerry Surles: In 2006 or 2008 we will have less people drawing. Eldon Roberts: That is right. That is the beauty of this it is a closed plan. Policemen's Pension and Rclief Fund Board of Trustees Meeting Minules January 18, 2006 Page 8 o 27 _• Sondra Smith: Those people that you think are going to decease between now and then are drawing a little amount where those people that are coming onto the plan are drawing a large amount. That is not going to be equalization at all . Jerry Surlesc We only have one more member to get on the plan. Sondra Smith : That's right. But if you will look at the benefits that some of these folks are drawing it could take three or four people deceasing in one year to make up what one person coming onto the plan might draw during that one year. Normally we do not have that many people decease during the year. 1 am just laying it all out here for us to think about. Mayor Coody : Frank if you were .eligible to retire, which you are able to do now, you could live for another 45 years on this program. Jerry Surles: But he could die tomorrow too. Mayor Coody : I know but we look at the actuarial study. Actuarially you will probably live to be 79 or 80. That is another 35 years that he could draw. That is just one individual and his benefit would be pretty substantial . In order for us to be responsible not just to our immediate folks at the table and our immediate folks that are with us right now we have to look at the long term. I am fiscally conservative and I want to make sure that we don ' t obligate ourselves to do something that 10 to 15 years down the road people think my goodness look at the mess that we have gotten ourselves into now because of decisions that we made today. That is the thing that concerns me. I can be portrayed as being callus towards widow's which I am certainly not but to give benefits and then maybe later have to cut the benefits that looks pretty callus to widow's. You can't very well say to a 75 year old that we are going to cut your income in half. That is the most brutal thing a person could do . Eldon Roberts: I had to do that when I was on that Review Board in Little Rock and 1 agree but when the reality is in front of you, you have to do it. One thing you just said that I :agree with whole heartily is we have to look at the actuaries . You have to look at them .and that is what we are looking at. Sondra Smith- This one is on a cash flow basis. Eldon Roberts : 1 am talking about the actuarial study the one that we have in our bands now or the benefit proposal although it is not the actuarial soundness study it is the cash flow plan, it is still done by the same folks just in a different method but it is approved by the State. Sondra Smith : On our last actuarial soundness we were not sound . The plan was not sound. Eldon Roberts: Right. 1 understand ,that because that is a different method . )Mayor Coody: We can 't just pick this study because it makes us look good and wee will :use this one because we don 't ,like the results of this other study. Eldon Roberts: If State law allows it, I think you can. Policemen's Pension and Relief Fund Board of Trustees Meeting Minuses January 18, 2006 Page 9 of 27 Sondra Smith: My main concern is if it is going to go to LOPFI in the future. Because if it goes to LOPFI in the future and you have increased your benefits it goes down there at that benefit increase and it can not be reduced. So if we move to increase benefits and a year from now the market goes sour then we are going to have to do a benefit decrease, if it is at LOPFI a year from now there will not be a benefit decrease. We may then have to go to the City or the taxpayers and say we are not going to have enough money to fund this plan because we have increased benefits and we need more money to keep this plan afloat. That concerns me because you are not just talking about the 50 or 60 people on this plan you are talking about 60,000 to 70,000 people that live in the City of Fayetteville that are going to have to make this plan sound if that should happen. We don't know, I wish I had a crystal ball and I could say let' s give you 115% increase because your plan is going to last forever but I don't have that crystal ball . I would feel more comfortable if we did a little more research on it. No one would lose anything if we did some more research because they state we can go back to the date that we passed the resolution to implement the increase. Tim Helder: What kind of additional research are you talking about us doing? Jerry Friend: The actuarial soundness study. Eldon Roberts: Well, you are not going to pass it. Tim Helder: It is not, going to pass actuarially, we know that. Sondra Smith : If it is going to LOPFI, if it is not going to LOPFI that is an issue for me. Tim Helder: You said let's wait and get the actual numbers of 2005, after the actuarial study on 2005 numbers? When will that take place? Steve Davis: We have to have the actuarial study on this plan for our financials for the 2005 audit. We have to have the numbers to them by April 1 , 2006. Sondra Smith : That study is not on a cash flow basis correct? Steve Davis: No it is a full study. Tim Helder: It is not going to pass the actuarial study in order to do what we are talking about. Steve Davis: No but they can take that data and run a cash flow analysis. Mayor Coody: What does it take to get to the point to find out what we need to find out? Does this board need to vote to have the study done or what? Jerry Friend : The study has to be done anyway right? • Steve Davis: Right. That study will be completed by April 30, 2006. You do not have to do anything for that report to be done. You would have to vote to do a new cash flow study if that is what you wanted using 2005 numbers. I think Tim and Eldon are correct it would be a miracle if this pension fund passed the true actuarial study. Policemen s Pension and Relief Fund Board of Trustees Meeting Minmes January 18. 2006 Page 10 of 27 Kit Williams : What do you mean by that as opposed to the cash flow? Does actuarial mean the • full cost to fully fund the plan and pay all the benefits? Steve Davis : Yes. Kit Williams: What does the cash flow do? Steve Davis : The cash flow says I have enough coming in to meet my obligations for that year. Eldon Roberts: is it just for one year? Steve Davis: That is all they check. They are forecasting that if you didn't do any increases you would not be actuarially sound until 2025. With the 90% it is 20 years and 95% it is 25 years. When the last beneficiary passes on the cash flow stops because the property tax ceases. Eldon Roberts: What about the widow does she continue on; she is still a participant in the plan. Steve Davis : Yes she is and so 28 years, that is cutting it kind of close. All it takes is a few years of less than 6% investment returns and you are there or exceeding it, you run out of funds. One of your main sources of revenue is decreasing at 8% a year that is the State turn back so you are going to have to put more pressure on your investment earnings to generate more revenue and if you do that you are going to get into more volatile investments that some years you are going to win big on and other years you are not. You may count on property tax millage increasing put then you have the Amendment 59 issues to contend with. Our property tax values have been increasing about 6% to 7% a year. I think more thought is needed personally. Tim Helder: Is there something they can .do for us to make it clearer. Steve Davis: The PRB report is one piece of information; the mortality tables are another piece of information and then what you look at in terms of what's the liability of that millage. Is the City Council in the future going to say we need this millage for other things besides a police and fire pension and can they chose to not levy it one year? Eldon Roberts: Can they do that? It was a vote of the people that instituted it can the Council automatically change it to something else. Steve Davis: If you don't submit the millage ordinance in time to be incorporated in to the County millage ordinance you don 't get your millage for the next year. Kit Williams: 1 don't think just by their discretion they can not do it. One thing you might consider is the difference between your plan and the current employees. Tim Helder: Their benefits have increased and l believe they are going to continue to increase. Eldon Roberts : They have a built in automatic increase every year. Tim Helder: l really feel like we have been blessed with this pension it is beyond my wildest dreams that we would be where we are at right now. The only reason we are looking at tthis Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes January 18, 2006 • Page I I sire increase, at least to the 95%, is because of this study because it said we could do it. My desire since coming on this board has been to find some way to increase benefits to widows. ' Personally I think we are adequately taken care of on the pension. My desire in the future is to take care of widow's, insure that we have this COLA in place and get us to LOPFI. Get us out from under your feet. It just seems to me if we get under that umbrella that life is good, they can't touch us and our pension is going to be more solid under that umbrella. Steve Davis: You are looking to do a permanent 3% COLA and increasing widow' s benefits to 90%. That is not what the actuaries studied. Tim Helder: They studied more. Steve Davis: I don't think they looked at a permanent COLA. Eldon Roberts : Yes. Sondra Smith : No, they did not look at a permanent COLA; they looked at a temporary COLA. Eldon Roberts: I just got off the phone with Jody Carreiro two hours ago because I think that is a gray area. We were on speaker phone in Rick Hoyt's office and Jody stated yes that he intended to put that in there that the COLA remains in place with all the rest of this. We can get that in writing if that needs to be. Sondra Smith: So, you are saying if it goes to LOPFI it is not a temporary COLA, it is a permanent COLA. Eldon Roberts: That is correct. Kit Williams: I think that needs to be in writing because 3% per year is a giant cost to the fund. Eldon Roberts : We can get it in writing. Steve Davis: Your next increase is widow's benefits to 90%. Tim Helder: Or whatever. That is the one that we chose. Mayor Coody: What are they receiving now? Sondra Smith: 50%. Steve Davis: Widow's increase above 50% and then the third item is LOPFI. Once I get that long look report that Jody is supposed to be finishing up then we will sit down and talk about that long look and I will visit with the Mayor about what that means to the City long term. The issue is going to be what does this mean, does this mean that the City is going to have to pick up increased cost because of this transaction of moving this pension to LOPFL If the 2005 study is similar to the 2003 study the information will be there that says yes there may be a little bit of cost, but most of what you are looking at in terms . of long term LOPFI cost is on the current employees not the retirees. Otherwise the State would not be doing study on bow to fund LOPFI long term. Policemen's Pension and Relief Fund ,Board of Trustees Meeting Minules January 18, 2006 Page ] 2 of 27 • Eldon Roberts : I think you are absolutely right our plan is what is termed as a closed plan. We are not taking on any new people; we are never going to take on a new person. We are only going to lose people. So they can more near get a grasp of what it is going to cost to fund this plan than they can LOPFI because they know there is never going to be any more liabilities. LOPFI is just going to go on until they decide to change it and have a new pension system for State, policemen and firemen. Our plan is a closed plan, I feel more comfortable that they can get a better handle on what it is going to take to fund our plan because they know how many people are involved. Steve Davis: 1 think the biggest issue this group has to struggle with is the balance of income versus expense. In there, there are certain revenue assumptions and mortality assumptions. I know people are living longer today even though the mortality table says 23 years, they are living into their 80's. Kit Williams : That should be adjusted. Don't they adjust that table every few years? Eldon Roberts: I assume that is kept up to date surely. Steve Davis : It is a 1971 mortality table. That is the mortality table that is used in the industry. Jerry Friend : Since 1971 it has not changed that much has it? • Steve Davis : Life insurance companies are the ones that set those tables. Sondra Smith : 1 am not as concerned in increasing the widow' s benefits because according to the spreadsheet that Accounting completed, that is not as big of an increase. That is only $4,000 instead of $ 14,000 per month. I would not have a problem increasing the widow' s benefits. It scares me increasing the benefits about $ 14,000 per month. I am not an actuarial and I do not know how do to a study like they do but I do know that if I have one study that tells me the plan is not sound and another study that says it is sound only on a cash flow basis that concerns me. Eldon and I have talked about this several times, how can we go against an actuarial study but on the other hand if the market crashes tomorrow you all lose big time and it is not just the people that are sitting here at this table that are going to lose big time it is the other people on this plan that will also lose. That concerns me. There is just a lot to think about. Eldon and I talked and I said I might be able to vote for the increase to 95% for pensioners if we put in the motion that there will be a benefit decrease if the plan does go sour six months from now or a year from now. Another thing about that concerns me is I am now hearing that we may be moving this plan to LOPFI six months from now, what is that going to do to the City, we don't know. That is the reason I think we need just a little bit more time to think about it and find out if it moves to LOPFI if it will be a burden to the City and more money that the citizens or the City is going to have to come up with to continue to fund this plan because we increased the benefits. I would hate to tell someone that is living on an $ 800 month social security check that we are going to have to take more of that 5800 a month social security check because out pensioners wanted to draw 95% or 100% benefits. Some of the pensioners are drawing more than 100% of benefits because of the temporary COLA . I would have a hard time telling the citizens that we are taking more of your social security so that these guys can have a lot more. Jerry Friend: You mean upping the millage? Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes January 18, 2DO6 • Page 13 of 27 Sondra Smith : Yes. Eldon Roberts: You are not going to do that without a vote of the people, you can't just do that. Sondra Smith : I know you can't just do that but the City will have to be able to fund this plan if it costs them more money. Where is the City going to get the money? Eldon Roberts: There is an unfunded liability now in this pension plan. Sondra Smith : Right. Eldon Roberts: There will be an unfunded liability when it moves to LOPFI if and when that ever happens. Moving to LOPFI gives the City a lot longer period of time to pay that debt. It is amortized out over several more years. Sondra Smith : It is still a debt. Eldon Roberts : It is a debt now. Sondra Smith: It will be a higher debt. Kit Williams: In reality it is not a City debt unless we move it to LOPFI and then it becomes a City debt. Sondra Smith: Right. Kit Williams: Right now it is not a City debt, if it runs out of money it just runs out of money and the pensioners lose, if we move it to LOPFI it becomes a City debt. Steve Davis: There are several options if you start to run out of money, one is you can reduce benefits or the City can kick in money. Kit Williams: But the City is not now required to do anything but the millage. Steve Davis: That is Correct. Sondra Smith : Right. Kit Williams: The millage is required, I believe every year, it has to be done and that is all that is required of the City for the closed plan. We have different requirements for the LOPFI plan because the State law has requirements for us to make certain contributions there and they can change the State law and make us pay more. That is actually a liability of the City, your plan stands alone that is why you all are running it , and that is why you have the fiduciary responsibility to try to insure that it remains okay. The City has no liability for this plan. Sondra Smith : We all agree that Elaine Longer is doing an excellent job that has nothing to do with the plan moving to LOPFI. The reason that you would want it to move to LOPFI is because of the security isn' t that right? Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes January 18, 2006 Page 14 of 27 • Jerry Firiend: I don't have that view. 1 feel safer with us handling it ourselves. If it goes to the State anything can happen, legislators can change anything. I feel comfortable with it staying here. Kit Williams : The sounder your plan the better it is to keep it yourself. Mayor Coody : Do we need to vote on something'? Sondra Smith : Not yet, there has not been a motion . Jerry Friend : It really bothers me this thing from California that Steve presented; not that it happened, there are crooks everywhere, I like Steve but what bothers me is that to me I am taking this that we are about to become crooks. I don't agree with that. 1 agree with Eldon that we are very careful to follow the law. To me it is a scare tactic but Steve probably did not mean it that way. Steve Davis: No 1 didn 't. Jerry Friend : It didn 't affect me and it does not scare me. We are going to follow the law and that's what we have always done. These guys did something under the table and that would come out if you looked at the case. • Steve Davis : I did not think that, it is only a heads up. There are litigious folks out there everywhere and anybody that pays millage to this retirement fund can create a whole can of mess for you guys. Mayor Coody: There are law firms that specialize in looking at every single situation and looking for holes in it, so we have to be really careful . 1 appreciate your comments, I want to be responsible, and that is our main obligation. I do not want to approve something that today looks good but ten years from now, when whoever comes after us, wonders what on earth were these people thinking when they made that decision. Sondra Smith : I am whole heartily for the police officers; l don't want you all to misunderstand me. 1 am just trying to think of the future. Jerry Surles : What bothers me is at a meeting a year and a half ago we found out they passed a State law stating the widow's benefits could be increased . We have talked about it at several meetings since then, the pros and cons, we finally decided we needed to spend the money and have an actuarial study completed to make a decision. We did that and now we are to the point that we are not going to do anything. Sondra Smith : I have stated that I would support the increase in widow's benefit. Steve Davis: The report says you can adjust your benefits tip to the 95% for pensioners and 90% for widow ' s. How far you go under those two umbrellas is your business. _ Mayor Coody : If we increase widow ' s benefits from 50% to 75% or 80% what kind of hit to the fund are we looking at? Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes January 18, 2006 • Page 15 of 27 Sondra Smith : if we go to .90% according to the calculations from Accounting it would be around $4,000 per month. if we increase the pensioners to 95% and the widow's to 90% is would be around $ 14,000 per month. Mayor Coody: You were saying you can live with that? Sondra Smith : The widow's benefits 1 don't have a problem with. Eldon Roberts: You are talking about widow's benefits only here you are not talking about the 95%. Jerry Friend : Someone said we may not be able to do that by itself. Mayor Coody: Steve if we were to do the 90% widow's benefit what is your perspective on that is it a mistake to do it now or should we continue to wait until April 30th to see what the actuaries say? Steve Davis: I think that under the cash flow method the actuary has said that under these circumstances you can go up to 90% for widow's and 95% for pensioners. I did not have the conversation with Jody but if he is willing, you can do the widow's increase today and then when we get the letter from Jody that states he had calculated the COLA to remain in place permanently then you can come back and make the COLA permanent. You do not have to do all or nothing; you can do what you are comfortable with today and then come back. Mayor Coody: What ramifications would you see or anticipate from the widow's benefits being increased from 50% to 90%? Would it deepen the debt over time? Was that a real actuarial problem? Steve Davis: The actuarial study said that with the 95% increase and the 90% for widow' s that it would amortize in 26 years. Mayor Coody: What about just the 90% for widow's? That would be quite a bit less. Steve Davis: . We do not know what that amortizes at. Mayor Coody: It would be quite a bit less. Steve Davis: It would be less. Jerry Friend : By quick math it should be less than half. Steve Davis: It is not going to get much below 20 years. Mayor Coody: Women generally out live men by about 10 years. Steve Davis: My guess is that it will be somewhere closer to a 20 year amortization under the cash flow method. Policemen s Peosion and Relief Fund Board of Trustees Meeling Minutes January 18, 2006 Page 16 of 27 Mayor Coody moved to increase widow ' s benefits from 50% to 80% . Dr. Mashburn . seconded the motion. Eldon Roberts : You are just singling out the widow' s? Mayor Coody: Yes. Jerry Friend moved to amend the motion to increase the widow' s benefits from 50% to 90%n . Tim Helder seconded the motion. Eldon Roberts: 1 think we can single out one group and you start giving them benefit increases you are stymieing it for everybody else. That' s just my discussion . Mayor Coody: If you are looking for my support on this, I just can't do a blanket support without finding out a lot more information. We have to look out for not only you guys but everyone else in the program. Frank is 45 years old and has been eligible to retire for five years. I don' t know how many other industries in the world that a person can retire with benefits at the age of 40. We are asking the public to work to the age of 65 and we are going to be asking them to cough up more money to pay for someone' s retirement that retired at 40. We don' t look at just this group we have to look at the entire world and try to make a balancing act work that' s fair not just for you but for everyone, that includes the people that are paying the bills on this. Mayor Coady: We have an amendment to a motion to increase widow' s benefits from 50% to • 90% for widow' s only. Is there any other discussion on the amendment? I said 50% to 80%; Jerry Friend has amended by motion to go from 50% to 90%. Right now we are going to vote on the amendment, if the amendment fails then it goes back to 50% to 80%. Mayor Coody asked shall the amendment pass. Upon roll call the amendment passed 4-3. Jerry Friend, Tim Helder, Jerry Surles and Sondra Smith voting yes. Mayor Coody, Eldon Roberts and Dr. Mashburn voting no. Mayor Coody: Alright, so we are at 90% for widow's now which is fine. I am happy with that too. That is an 80% increase in benefits that will be huge. Mayor Coody asked shall the amended motion pass. Upon roll call the motion passed 5-2. Mayor Coody, Jerry Friend, Tim Helder, Jerry Surles and Sondra Smith voting yes. Eldon Roberts and Dr. Mashburn voting no. Steve Davis : We have one more question. What is the effective date of the widow' s increase? Patricia Leach : We want to make sure we calculate the increase correctly, will it be January 1 , 2006 or retroactive? What do you want to do? Eldon Roberts: It can be retroactive back to April, 2005 according to the study. Mayor Coody : 8o the effective date could be January 1 , 2006 or April of last year. What are the advantages and disadvantages of doing it between January and February of this year? Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes January 18, 2006 - - Page 17 of 27 Patricia Leach : Whatever you decide to do we will put a letter in with their checks, letting them know about the increase. Jerry Friend: My personal opinion is to start it with the next check just because it is easier. Does that need to be a motion? Sondra Smith : Yes. Jerry Friend moved to make the widow's benefit increase effective on February 1 , 2006. Jerry Surles seconded the motion. Upon roll call the motion passed unanimously. Mayor Coody: Regarding the COLA and the 95% my recommendation would be to follow Steve's recommendation which is to wait until the actuarial studies are done to where we have a more clear picture of what the long term future looks like and not just the short term. Jerry Friend : If we wait until we get that report and it says we are not actuarially sound, which we are expecting, we can still follow State law and do a raise based on cash flow is that right? Eldon Roberts : l believe so. Kit Williams: The only thing I am concerned about is if it was not clear in there about the COLA that needs to be clear before you pass the COLA. Jerry Friend : I agree. Steve Davis: We would have to find out how long this study is good for. 1 think we can get a letter from the actuary on, did this study incorporate a permanent COLA. Jerry Friend: Surely this study is good until April until we get the other study. The actuary report that will be completed in April is it completed by the same people? Sondra Smith: Yes. Eldon Roberts moved to increase the current retired pensioners benefit from 90% to 95% and that the COLA remain in affect permanently. Tim Helder seconded the motion. Kit Williams : I have a real problem when it says a temporary COLA and then for this board to pass a permanent COLA. That gives me real concern that you are overstepping your bounds. I would wait; you can do it at the next meeting or call a special meeting but get something in writing that says a permanent COLA can be approved from the actuary before you pass a permanent COLA. Eldon Roberts moved to amend his motion to increase the current retired pensioners benefit from 90% to 95%. Tim Helder seconded the motion. Upon roll call the motion failed 3-4. Eldon Roberts, Tim Helder and Dr. Mashburn voting yes. Mayor Coody, Jerry Friend, Jerry Surles and Sondra Smith voting no. Sondra Smith : Another concern I have that 1 will bring up again is if Dr. Mashburn's vote counts on anything that he is voting on because of the change in the State law. Policemen's Pension and Relief Fund Board of Trustees Meeting Morales January 18, 2006 Page of 27 Kit Williams : 1 believe Dr. Mashburn,Mashburn, would serve until he is replaced, however 1 am concerned that if his vote was actually needed one way or another to pass a benefit increase that someone else could say that he should have been removed and that you all should not have left him in that position and therefore his vote does not count. 1t is not clear. Jerry Friend : Is that a contention on either one of these votes? Sondra Smith : No. Jerry Friend : We will worry- about it the next time. Mayor Coody: This is a tough one because we all want to be as generous as we can to our families: goodnight who do you want to help more than your families? Sondra Smith : We passed the widow's increase from 50% to 90% effective February 1 , 2006. Tim Helder : Kit, your thoughts were that we can 't even vote on the 3 %? Kit Williams : I would council you against it because it put temporary COLA in the letter and if you want a permanent COLA then it needs to be cleared up. He needs to be specific in writing. You can vote on it as soon as he clarifies that. Sondra Smith : We have a resolution that we passed and a copy of it is in your packet that says • it is a 3% temporary COLA. This board passed a resolution on a temporary COLA not a permanent one. Tim Helder : What was the duration of that? Sondra ;Smith : January 1 , 2004 through January 1 , 2008. Tim Helder: Is that a temporary COLA or compounded? Sondra Smith : It says it is a five year temporary 3 % compounded COLA beginning January 1 , 2004. You would have to pass another resolution to do a permanent COLA. Eldon Roberts : We had to have a study in order to do that and we were allowed to do it. Why do we need to do anything further for two more years? Sondra Smith : You don' t unless you want to do a permanent COLA . Right now this resolution says you are good through 2007 . Jerry Friend : If when we get our actuary report we decide to bring up a raise again with a permanent we would need to make sure that permanent COLA is in there. Kit Williams : You have to ask by resolution and get 6 out of 7 votes for a permanent. Sondra Smith : We would have to have another study .completed to do a permanent COLA. That' s the reason 1 did not understand why the actuary said that was a permanent COLA because Policemen's Pension and Relief Fund Board of Tmslees Meeting Minutes January 18, 2006 Page 19 of 27 that is not what we asked for and that is not what we passed by resolution. That is my concern about when you talked to the actuary and he said he computed it on a permanent basis. Jerry Friend : I would like to see it in writing. Kit Williams: I don't think you can pass a permanent COLA until you do a new resolution and ask for a permanent one. Sondra Smith: I don't think we can either, I think we would have to do another study. If we do another study to implement a permanent COLA we can ask about the benefits being increased for just the pensioners and see what the numbers look like for 2005. Eldon Roberts: If we are going to stay around here and wait until everything is as rosy and pretty perfect to raise benefits they will never be raised. That's not the way that it is going to work. There is going to be a lot of money left in that fund and people that could use it to better their lives are not going to have it. I know the flip side is it could go broke and they would have nothing. If you are waiting for the day when it is a guaranteed deal it is not going to happen. Jerry Friend: I agree with you. Sondra Smith : But we have raised benefits twice in the past two years. Eldon Roberts: We went from 1999 to 2004 without anything. Sondra Smith: I don't think that statement is true; 1 tend to argue with you, that you are never going to raise benefits; you raised benefits today and on September 10, 2003. Eldon Roberts: I agree but the tone of the board and two members themselves who are involved in this are voting against it. It is not going to happen if we are waiting on it to be picture perfect. Jerry Friend : I don't look for it to be perfect but 1 would like to be a little more comfortable than 1 am now. Eldon Roberts : I don't know how you are going to get more comfortable, the State law allows you to do it. You are waiting on this actuary to "see what they come up with and we already . know what that is going to be. A lot of people on this board are going to go that direction, not me, and that' s fine that is what the board is for. I can live with whatever comes out of this board. Actuarial Study A copy of the actuarial study from Osborn, Carreiro & Associates dated October 18, 2005 was given to the board. A copy of the letter from Arkansas Fire, & Police Pension Review Board was given to the board. Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes January 18,2006 . •Steve Davis Memo January 17, 2006 Page 20of 27 A copy of the memo from Steve Davis dated January 17, '2006 regarding the proposed benefit increase was given to the board. Accounting Calculations on Increase A copy of the calculations from Accounting regarding the additional cost if the benefit increases are implemented was given to the board. Resolution 0903 COLA Sondra 'Smith : A copy of Resolution0903 that was signed by the board in 2003 is in your packet. Pension Board Minutes September 10, 2003 Sondra Smith : Eldon asked that I include a copy of the minutes from 2003 regarding the passage of Resolution 0903 . • Longer Investments : 'Elaine Longer, Longer Investments: This is your year end report and then we have an update. On this first page you ended the year about 45% common stocks, domestic; and then we had about 4% in foreign stock so you are right at the 50%that the policy calls for. Page 5 shows the ending value at the end of the year was about $ 10.5 million and the dividend and interest income is about $370,000 which is a 3,7% income yield. That' s the income that comes in from the portfolio regardless of what the stock market .does or what the bond market does. The last time that we were in a meeting we talked about looking for an opportunity to raise the interest rates on the bond portfolio, we said all last year that we weren ' t there. In the 4th quarter we were able to roll .a number of the shorter maturities into longer maturities and 'increase income yield on the portfolio. If you will look at where the portfolio income was on September 30th it was about $336,000 and by rolling the bonds like we did in the 4th quarter we have increased the income to $370,000 so about a 3.4% to 3.7% income yield increase. To give you an example the ten year treasury is trading today at about a 4.3 % yield. You have almost 80% or so of the treasury yield with 50% still invested in growth. The next report on page 6 is just an update as to where we are as of last Friday. Last year was very flat; the markets were troubled all year .by rising interest rates, rising energy prices and Katrina so we dosed the year with the DOW down for the first time since 2002, just fractionally. The NASDAQ was up about 1 .3%, the S&P was up about 3%. We came into this year and the market has taken off in a great way up about '3 .6% for the first • two weeks. We have had some backing and filling this week but we went ahead and included an update as of January 13"'. You are slightly over the 50% because of the appreciation ,since `the end of the year but I think we were authorized in the last meeting to be up to 55% so l :donr'3 ,think we (need to reauthorize. On page 11 is a summary of your realized ,gains and losses for :the Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes January 18, 2006 Page 21 of 27 • year. We ended up with $230,000 in realized gains and $263,000 in income. On page 12 is the report that shows you the basis component of your fixed income portfolio, the bond side, you can see the yield to maturity is now 5 .2%, it was 4:8% in September. We have extended maturities so that now your current average maturity is 7.8 years it was 5.7 years and your average coupon is 5.3% versus 4.8%. We still have plenty of flexibility if interest rates do increase that we have 33% in securities that mature in less than three years so we still have a lot of flexibility but we took that down from about 36%. Today interest rates have dropped below where they were previously. We have had a couple of attempts to go below 435 on the ten year. Today they broke below 435 which means that the interest rates that we have locked in, that was a good move because now you are starting to see some economic weakness. Some reasons for it have to do with what is going on in the international markets and in Japan. Also Intel reported earnings yesterday and IBM reported, the conference calls were less than enthusiastic and so the outlook is not as robust as what people had thought, with that the interest rates are tapering off a bit. We still expect the Fed to raise rates at the January 31s' meeting but when we wrote the newsletter in December I said I wasn't sure that we would have another one in March and at the time it was pretty much in the market that we would have another one in March, now you are sort of taking that off the table. That's why interest rates are coming down a little bit. Page 14 is your industry report nothing much has changed basically we are still overweight on the capital goods, the corporate side of the economy, underweight the consumer, we are still slightly overweight energy and stocks and about equal weight on technology. Page 19 is a summary of your contributions and distributions for the year, the contributions totaled $275,000 and the distribution was about $840,000. On page 20 is your performance report. Domestic stocks were pretty sluggish this year, down about 1 %. The international stocks that you own were up about 22% so that your blended return, your international plus your domestic came out to be about flat for the year. The international did help bring it up to a positive number for the year. Fixed Income of 2 . 1 % represents the income that you have received on the bonds but also the decline in the bond prices that took affect because of the rising interest rates. That is why you did still cam the 5% income but as you know the price of bonds fluctuates in a rising interest rate environment. In 2002 there was a declining interest rate environment and your total return was 9.6% on bonds but that was because interest rates dropped so you earned the coupon return plus capital appreciation. Over the life of the bonds you still approximate a return that is the coupon. In the interim the prices will fluctuate given what interest rates are but over the life of the bond you have earned 6.3%. Your after expenses compounded annual return is still at 6.6%. If you look at from 2002 where we came off a three year bear market your portfolio during that time was down about 4%. That's when the S&P was off about 50% and the NASDAQ was down about 80%. We got a little bit more aggressive as we came into 2003 and we had a better year in stocks in 2003 . 2004 was sort of a year that was an average return year, this is a flat year but your average annual return is still compounding at that 6% rate. We have been using expected returns in our retirement plan projections of 7% to 9% on stocks for this decade because we think for a number of reasons it won't be the 10% to 12% that historically has happened. At this point in time we are still using those fairly moderate projects. As you look at your considerations what we are looking at from our standpoint that might help you is that if you use a 7% to 9% expected return on the equity side on a 50% portfolio then you are looking at 3 .5% to 4.5% contribution from stocks and then you have a 5% yield on the fixed income side in a 50% that is 2.5%. You are looking at an expected return with this kind of a balanced portfolio structure of anywhere from 6% to 7.25%. If you were to ask me, what are the expected returns, Policemen s Pension and Relief Fund Board of Trustees Meeting Minutes January 18, '006 Page 22 of 27 you are right in there as far as your actuarial assumption of 6% and our expected returns on the market would lead us to believe that that would be satisfied in a conservative assumption. But to think that it could go to 10% in this kind of portfolio, it may as it did in 2003 ; it may do that on a single year but our economic outlook and our expectations for the market would be more along the lines over a ten year period of 6% to 7 .25%. Page 21 is the performance update that shows what has happened since we closed the year. The account is up $ 190,000 and that is real nice, l don't know how much they have taken away from .us to date because we did have some disappointing earnings last night which have impacted the stock market. We wrote the newsletter in December and just the overall outlook you have a situation where earnings have increased in 2004 by about 23% and by about 13% in 2005. During that time the stock market has gone up about 8% so you have a 35% increase in earnings with an 8% increase in prices. What has happened is the price earnings multiple or the valuation of the stock market has continued to improve to the point that now we are looking at 15.5% earnings. That is the long term historical average multiple on the stock market. We have erased all of that over evaluation that we had coming out of the intemet craze. If you look at the valuation, the price earnings multiple compared to the yield on the ten year treasury which is 4 .25% to date then that is under valued. As we wrote in our report in December if you look at relative valuation this year it has really improved, the relative valuation of stocks versus bonds. That is why you see us holding at tha150% to 55%. Tim Helder: What is Steve talking about when he said in 2005 when the figures come in they • are not ,going be as attractive as they have been? Eldon Roberts: I knew that was difference just with the meeting I had with Elaine on my personal business the other day. She could probably contradict that. Elaine Longer: It depends on when the last one was cut off. Eldon Roberts : I think it goes until the end of the year. Elaine Longer: So it would have been December 31 , 2004. Then it probably would be worse because your assumption is 6% and you have made 1 .3%, so that falls behind a little bit. Eldon Roberts : So it will have doom and gloom painted all over it. Elaine Longer: Well if it is 2004 it wouldn't probably because it would have had the 11 % pop in 2003 plus 5 .5% added to it in 2004. It probably wouldn't have fallen behind at all . Now if they update through 2005 because of .the fact that was a flatter year compared to what your assumptions are, so it will fall behind in 2005 once they update those numbers. This was just a year that everything hit the stock market. I really think it performed pretty well given the rising energy prices and a Fed that has raised rates at each meeting. The President has been in trouble and the market never does well when the President is in trouble. What has held 'A together has been the earnings, corporate America is just very healthy, cash flows and profit margins as a percent of sales are at an all time high. You have kind of got this two edged sword where on the one hand you have all of these worries and concerns but on the other hand it still keeps getting healthier. We are really pretty optimistic about this year but 1 always have to add Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes January 18, 2006 Page 23 of 27 • we get new variables every day. Just given what we have to look at right now and running the numbers that we run it looks like it could be a good year. Eldon Roberts: Is our investment policy in line with where you want it to be right now do we need to make any changes or are you satisfied with it? Elaine Longer: I am satisfied with it. You don't really want to go to a more aggressive stance because you really can't take more risks. The real important thing here is to protect the principle and I think over the long term you are doing that. You have authorized us in bear markets to go below the lower limits which we have done before. You did weather a three year bear market, you can't make money in years like that all you can hope to do is not lose as much. Capital is your work horse so if you lose 25% you have to make 33% of what you have left to get to break even. That's why it's so important not to go too aggressive unless you can risk the principle. If you drop by 50% you have to make 100% just to get back to break even. Playing defense is just as important as playing offense when you are dealing with a fund like this. Tim Helder: This is absolutely unfair to ask you because you have a vested interest in us but you heard the discussion about moving the plan to LOPFI in your eyes what would be the downside? Elaine Longer: I can't speak to the specifics because I wasn't involved the last time so I don't really know. It still is a liability; the City is going to have to pay for the unfunded liability. • What I remember from the previous discussion was the only difference was if you went LOPFI you had a 4 or 5 year longer amortization to pay as opposed to a shorter amortization. But it still is, I believe, I was under the impression it was still a liability that the City has to recognize and pay for. It was just a longer amortization if it they went with LOPFI. Jerry Friend: That's what I thought. Sondra Smith: It is my understanding that liability if we go to LOPFI could increase but if we keep it here locally the City' s liability may not increase. They may ask you to cut benefits if the market goes down instead of the City's part having to pay an increase; if you go to LOPFI that is not an option. Tim Helder: You are speaking on behalf of the City; I am speaking on behalf of my family. Sondra Smith: I am speaking on behalf of everyone that is receiving the pension. Jerry Friend: That would be good for us to have it frozen where it could not go down. Eldon Roberts : You have to go to LOPFI to do that. Jerry Friend : But that is not really true the legislature at any time could cut LOPFI. Nothing is guaranteed. Tim Helder: Sondra why would we not want to go to LOPFI? Sondra Smith : I am not saying it is a bad idea for you to go to LOPFI, I am not saying that at all. Policemen's Pension and Relief Fund Board of Tnnslees Meeting Minutes January 18, 2006 Page 24 of 27 • Elaine Longer: I am not either. Sondra Smith : If you go to LOPFI everything that you have fight now you are going to retain. The City may have to pay a larger amount because of you retaining all that, whereas if you don't go to LOPFI the way I understand it the City may not have to pay a larger amount and you may get a smaller amount because of the fluctuation in the plan. Elaine Longer: That' s the big question. Jerry, Friend : If we keep control here and we make more money and come up with more money we could vote .to give everybody double our salary and we couldn 't if it was at LOPFL Sondra Smith: Right. l would be concerned about going to LOPFI if I were you and I was only drawing 50% of benefits because it is always going to be 50% but you are drawing 90% of benefits. I don't think anyone would want to go to 115% of benefits and then send it to LOPFI if that would cause the City to have a big unfunded liability. Tim Helder: I am thinking about this board l am not thinking about the taxpayers right now. I am thinking about the people that are receiving this pension which is my responsibility. In this position it is not thinking about the taxpayers it is thinking about these people and what is the best long term protection for the widow' s and for me for the rest of my life. Which is the best long term situation? • On the surface 90% plus the compounded COLA how does it get any better than that and then we lock it in. I love Elaine she has done us wonders but 1 am trying to think what is the best. Elaine Longer: As you vote increases then that unfunded liability is going to go up on those numbers so then if you into LOPFI the City is going to get a bill. They are going to have to pay and amortize it. Sondra Smith : Where is that money going to come from are they going to have to go to a widow that is making $800 a month in social security and tell her we are going to take another $50 of that $800 a month. Elaine Longer: I just think there are questions that need to be answered. Jerry Friend : From 1975 when 1 started and most of my career the City under funded our fund. Sondra Smith : If was sitting in your shoes I might say let' s send it to LOPFI but before 1 took it to LOPFI, if 1 was sitting in your shoes, I would not vote myself in a benefit increase. Tim Helder: That's kind of where I saw this going today. If we are able to do the widow' s and the compounded COLA would the City be more likely to approve funding the unfunded liahility and send us to LOPFI. The impression 1 got from Steve was yes. But 1 wanted Eldon to get ,his • request on the table to see what everyone' s thoughts were. Sondra Smith : The City Council has to vote to send this to LOPFI. Policemen's Pension and Relief rund Board of Trustees Meeting Minutes January 18, 2006 • Page 25 of 27 Tim Helder: I know that. I know we need to do a little bit of research and find out what the benefits are and if it doesn't happen I am comfortable with Elaine certainly. If we have a real crash I am not sure the City will back us then. Sondra Smith : I think they would say you need to start doing benefit decreases because you did these benefit increases and then if you got back to your 50% level then I think they would back you. Jerry Friend : 50% was all we were ever promised. Tim Helder: You are surer of their long term loyalty to the people that are on this plan than I am. That is my biggest concern about going to LOPFI. Sondra Smith : My concern about taking this to LOPFI is the fact that when we take this before the City Council and tell them we need to send this to LOPFI and it is going to cost the City money. And the Council says they are drawing 95% of benefits and they ask when did they get their last benefit increase and we have to say 2 months ago. Elson Roberts: The City stands to gain by sending us to LOPFI by how it makes them look on the books. We almost joined LOPFI three years ago. • Elaine Longer: I thought as it currently stands it is an obligation of the City but when it goes to LOPFI it becomes an obligation of the State. Eldon Roberts: It is still an obligation of the City. Sondra Smith: Af LOPFI says this year you need to pay 5% and then next year they say you have to pay 10% the City has to pay that. Eldon Roberts: In our particular case I don't think they would have to pay anything above,what they are paying now until the end of the plan when it begins to run out and you see there really is an unfunded liability. I don't know if anyone can say without a doubt there is going to be money owed on this old pension plan. I think it will be the other way around I think there is going to be some money left there especially if we don't grant these increases. Jerry Friend: I think you are right. I think there is going to be money left because they do it on a conservative basis. I ' Sondra Smith: I would much rather have your plan that what the City affords for us and what we have to put into our plan because our plan is not secure at all whatsoever. I have no guarantee that when I retire that I will draw a single penny of what I am putting back or what the City is putting back for me at least you have some guarantees. Elaine Longer: The important thing about the pension versus defined contribution plan is that you have a stream of income you can count on and that is so important. The stream of income on the pension if you capitalize it back to what you really have in terms of asset value to be able to derive that kind of income it is very important and a lot different than defined contributions. A discussion followed on the increases to the plan during the past several years. Policemen's Pension and Relief Fund Board of Trustees Meeting Minules January 18, 2006 Page 26 of27 • Sondra Smith : The regular everyday people that work here at the City may get 10% to 15 % of what they are making right now. Eldon Roberts: I don't like getting compared to somebody else. I don't like that at all . I am sorry for you if you don't have a good plan, become a policeman. Sondra Smith : 1 am not saying that I feel bad about my plan. You are talking about your plan at 50%, that ' s great and that' s good but I talking about these widow's that are drawing $800 a month. Eldon Roberts : There again that is another class of people. We worked and we did our job and we contributed to our plan and this is what we are allowed to do by State law. I don't want to be compared to somebody else. The Longer View A copy of the Longer View was given to the board. New Business : 2006 Meeting Schedule • A copy of the 2006 meeting schedule was given to the board. 2006 Parking Permits 2006 Parking permits were given to the board. Eldon Roberts : The letter that Kit was talking about that we need to get from Jody Carreiro on the 3% COLA do we need to go ahead and get that now although our COLA is in place for two more years? Are we going to vote at the next meeting to make it permanent? Jerry Friend: I think we have to have it in case at the next meeting we want to vote on it. Sondra Smith: I don't think you can vote to make it permanent, Eldon until you do another study. Tim Helder: What he is saying is that by his phone call to Jody he did this study based on it being a permanent COLA . It is not in there but he did. We just need to get a letter from him stating he did it . Eldon Roberts: We don't need to spend more money to get the same information that we just received . Policemen's Pension and Relief Fund Board ofTrustees Meeting Minuses January 18, 2006 Page 27 of 27 • Sondra Smith : 1 don't know why he would calculate that on a permanent basis when our resolution only said temporary. He may not have looked back at our resolution. Tim Helder: He probably just assumed it was. Sondra Smith: If we do that we will have to pass another resolution and we have to have 6 out of 7 votes to pass it. Eldon Roberts: I know where that is going. It takes 6 members of this board to vote for a benefit increase if we have a couple that are never going to vote for an increase we are not going to get one. Nothing is going to change on that it is the law. I will call him and see what his intentions were in this most recent study about the COLA. Jerry Friend: If we get that letter and after the actuary report comes out if someone wants to bring up going to 95% again someone that voted against it might vote for it. Tim Helder: The actuary report is not going to change. Jerry Friend: It may not say that we are actually sound but it may say. how close we are. To me if we are close it is different than if we are far away. Sondra Smith: We can also pull the report from when he did the study to do the temporary COLA and see if they put in there that it was a temporary COLA or a permanent COLA. Tim Helder: We were the ones that decided to make it temporary because we were told that we were going to be moving to LOPFI. We just wanted to get it covered and have it in place so that when we moved to LOPFI the COLA would be there and they could not change it. Meeting Adjourned at 3:40 PM.