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HomeMy WebLinkAbout2006-01-26 MinutesFiremen's Pension and Relief Fund Board of Trustees Meeting Minutes January 26, 2006 Page l of 6 Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes January 26, 2006 A meeting of the Fayetteville Firemen's Pension and Relief Fund Board of Trustees was held at 11:00 AM on January 26, 2006 in Room 326 of the City Administration Building. Marion Doss called the meeting to order. Present: Marion Doss, Danny Farrar, Dennis Ledbetter, Pete Reagan, Sondra Smith, Trish Leach Accounting Department, David Whitaker Assistant City Attorney, Fire Chief Tony Johnson, and Elaine Longer and Kim Cooper Longer investments. Absent: Mayor Coody and Ronnie Wood. Approval of the December 29, 2005 Meeting Minutes Danny Farrar moved to approve the December 29, 2005 meeting minutes. Pete Reagan seconded the motion. Upon roll call the motion passed 5-0. Mayor Coody and Ronnie Wood were absent. Approval of the Revised January, 2006 and February, 2006 Pension List Pete Reagan moved to approve the Revised January, 2006 and February, 2006 pension list. Dennis Ledbetter seconded the motion. Upon roll call the motion passed 5-0. Mayor Coody and Ronnie Wood were absent. New Business: Kim Skelton College Enrollment Letter: A copy of the letter asking for proof of enrollment from Kim Skelton was given to the Board. Parking Permits: 2006 parking permits were given to the Board. Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes January 26, 2006 Page 2 of 6 NCPRES Annual Conference: Sondra Smith: If anyone is interested in going to the NCPRES Conference we need to get that process rolling. Pete Reagan: I would sure be interested in going and I would encourage whoever else is interested to go. This is the top public pension monitoring in the nation. They have offices in Washington, D.C., they lobby Congress to make sure that our pensions stay as a defined benefit plans rather than a defined contribution, which is the main thing right now, and that social security is also available. Sondra Smith: If you are interested in going we will need to complete a travel initialization report like we did last year. Marion Doss: It sounds to me like Pete is volunteering to go and if he wants to go I am all in favor of it. Pete Reagan: It is very educational. Danny Farrar: What was our cost for the last one? Sondra Smith: I think it was around $3,000 with the room, airline ticket and everything. Danny Farrar moved to send one pensioner to the 2006 NCPERS Conference. Pete Reagan seconded the motion. Upon roll call the motion passed 5-0. Mayor Coody and Ronnie Wood were absent. Added to New Business: Elections: Pete Reagan: The way we conduct our elections, I would like to see that revamped in a more democratic manner. I think we should have Positions on this Board. Right now the way we do it we have two positions open every year and the way we do our ballots the top two vote getters are the two that sit on the Board. So, actually when you vote for yourself and somebody else you are actually voting against yourself. I think there needs to be Positions and someone needs to run for each position on the Board. Marion Doss: I am not sure that it didn't use to be that way. A long time ago I think we may have had Positions. I think taking the top two evolved after it got hard to get people to run and to serve. Sondra Smith: I think the way we are doing it is according to State law. The law says we have to do it by secret written ballot every year. David Whitaker, Assistant City Attorney: I will check into that. Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes January 26, 2006 Page 3 of 6 Pete Reagan: The secret ballot is the way the elections are run. We had an instance last year where a Board member wanted to stay on the Board and he ran for that position and he was beat by one vote. That was actually his vote if he voted for two people on that ballot. The ballot says to vote for two, so he actually beat himself by voting that way. Sondra Smith: But his other vote could have been for someone else other than the person that beat him. Pete Reagan: That's true. Marion Doss: You might research it for us. David Whitaker: My guess is that the law is probably silent on the difference between choosing the top two or to have defined positions but I will double check it for you. When it is silent like that it means you have the discretion to adopt it as a procedure. Sondra Smith: I don't think it does say that it has to be the top two. Marion Doss: I don't think it does either. Sondra Smith: I will probably send the nomination letters out in March. Pete Reagan: So we can do this at the next meeting and be fine. Also what happens when you have no more active members at the Fire Department, who fills that position. Sondra Smith: It becomes a retired position. Marion Doss: It is a retired person. Sondra Smith: It also says that if Danny is not willing to serve he does not have to serve; it reverts to the next highest ranking person at the Fire Department who is a part of this plan. Longer Investments Report: Elaine Longer, Longer Investments: Page 1 is the December 31, 2005 cut off report. It shows where you closed the year on the portfolio appraisal. You equities were right at 50% which includes domestic equities of 45.5% and international of 4.5%. The fixed income makes up the rest of the 50% of portfolio so that at the end of the year your total was $9.57 million. The income on the account which is the dividends and interest that come in regardless of what the stock market did is $319,000 which is on page 5. That compares to $298,000 on September 30, 2005 so in the 4th quarter as interest rates spiked up we started to roll some of our shorter maturity lower coupon bonds into higher coupon, higher interest. So the overall income yield on the portfolio has gone up from 3.4% to 3.6%. That's including all of your stocks. Page 6 we included an update which was through January 20th, as of yesterday the stock is up about 1.25% to 1.50% year to date. So we have had a better start this year than the way that we Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes January 26, 2006 Page 4 of 6 closed last year. It has been a rocky start to the earnings season, we were up about 3.5% and tagged about 11,000 and then we had some bad earnings from Intel, IBM, General Electric, Apple, most of it was not so much the earnings as the guidance going into the next quarter and so the market pulled all the way back off to about 10,650. It is sorting through all this today, we had great earnings off Caterpillar, Sony and some other companies and so the market is up about 97 points. We are in that process of digesting the 4th quarter earnings, it is a little bit rocky but it does have a better tone to it than last year. Page 6, 7, 8 and 9 is just your update as of January 20th. Page 11 you will see realized gains and net income. Last year realized gains were $327,000 and net income was $225,000. Page 12 has your largest holdings we did sell Johnson and Johnson on disappointing earnings this week because they came out and their earnings were a little bit light. They made their earnings number but it was only because of the change in their tax rate, so if you remove that their earnings were actually light by about six cents a share. They also lost out on the Guidant deal so that was something that could have helped their growth rate going forward but since they lost on acquiring Guidant so they don't have enough growth going on in the pharmaceutical area. We have swapped out of that and gone into Medtronic's and Abbott. Morgan Stanley, Home Depot, Disney and Citigroup, those are your top holdings. As a percent of equity portfolio you can see that most of the full positions are about 3.5% and by policy we can go to 5%. On page 13 we have summarized the industry and sector allocations whether or not we are over or underweighted versus the S&P 500. We have written a lot about the over leveraged consumer in our newsletters and we have talked a lot about it in our meetings but we are still heavily weighted on the capital goods sector of the economy. Corporate America is in better shape financially than households are. We are seeing that in some of the earnings reports. We are overweight the capital goods and we are underweight both consumer cyclical, which would be things like autos, furniture and home furnishings and underweight the consumer non-cyclical as well. We are overweight on energy as we were all through last year and about equal weight on services and financial. The biggest disparity we have with the index is that we are light the consumer and more heavily positioned to benefit from corporate America's capital spending. Page 14 you have your contributions and distributions from inception to date, from August of 2002. The contributions have been about $622,000 and total distributions have been $2.99 million. Last year the markets were fairly flat the Dow closed down .06% and that was the first negative closing the DOW has had since 2002. The NASDAQ was up about 1.3%, the S&P was up about 3%. So it was a fairly flat market in the US stock market, the international funds that you have were up over 20%. That did help so that the combined equity return was a little better than the domestic return. The fixed income was up only 2.3% and that's because of the fact in a rising interest rate environment like what we have now the price of your bonds goes down. So, you still earn that 5% or 6% that we have locked in on the bonds but the price decline offsets the interest income so that as we mark to market at the end of the year the total return is 2.3%. It doesn't take away from the fact that you have about 5% locked in in your bond portfolio. Your total return was 1.6% and your annualized return inception to date is still at approximately that Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes January 26, 2006 Page 5 of 6 6%. Your annualized return on the equity side is 8.3%. That compares well to the indices, the DOW with dividends is 8.3%, the S&P is about 9.1%, the Salomon Brother Treasury index has annualized 3.6% and your bonds have annualized 3.9% after expenses. It was a bit of a flat year but the annualized returns are still in there where they should be. We have been talking for years about the expected return in the stock market being about 7%. So if you look at how the returns have been you can see that you do have an out size year on occasion like 2003 followed by just sort of an average return year followed by a flat year. We are still using projections of approximately 7% average annual return in our retirement accounts that we run for clients. The way that that happens in the stock market some years you get three years worth of return and some years it is like last year. At the bottom of Page 15 you will see that the beginning value was $9.9 million and the ending value is about $9.5 million. The net distributions have been about $2.2 million net of contributions and the investment return has been approximately $1.89 million. The distributions net of contributions and investment return have been just a little bit more about $300,000 or more since inception. We are still operating on the authorization that we can be up to 55% on equities although we closed the year closer to 50%. As we get into this earnings season we will probably be back up over 50%. Pete Reagan: I think that we should have been over energy. Do you foresee that through the next year or two years, with energy prices as high as they are? Elaine Longer: The energy sector we came into last year with the majors plus we had some of the more aggressive plays. As the energy stocks performed last year we peeled off some of the more volatile entities and we are left with the ones that pay the real strong dividend yields and are more of the boring part of the sector. Then we have the energy partnership which yields about 6.25% on the payout yield. We have kept the ones that have the good strong dividend income and we have sold the more volatile components but we are still slightly overweight. The S&P is about 9% energy and we are about 12.75%. I still feel pretty safe there because energy is pulling back quite a bit today but you still have a situation of crude is probably not going to go below 50. Supply is so constrained right now compared to worldwide demand that the slightest spark into that tinder box and you are going to have a fire. It is stretched and so I really think that you have to have a real good weighting in the portfolio with energy. It is kind of like the hedge on the unknown. The areas of the world where the unknown can happen are pretty much going to cause the price of energy to go higher. As we get a good pull back in energy we will probably be adding to it, because we took profits at a good point last year, that's where a lot of your realized gains came from. I thought they were getting a bit too extended. When the party hats start coming out of the closet I start getting nervous. So we did take some chips off the table but I would look at increasing exposure if we got a real good play back. Dennis Ledbetter: What effect is this big cut back by Ford going to have? Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes January 26, 2006 Page 6 of 6 Elaine Longer: It affects the auto stocks in particularly. There are a lot of industries tied to auto which you are seeing those repercussions also like the auto parts companies. It is pretty isolated as a sector of the economy you have no exposure there, it is not really affecting the portfolio performance and so it is not big enough to effect the overall economy. My concern is the 30,000 people that are being laid off and are going to have a difficult time finding jobs with healthcare benefits and pensions. Because more and more of those kind of jobs are not available in our economy unless you have a college education and you are in the technology area or the services area like banking. The manufacturing base that provided so many of those jobs with benefits and pension is more and more being outsourced to cheaper labor countries. I think this is just another indication that our pricing structure in a world economy for manufacturing is still too high. The combination of General Motors and Ford is going to be about 60,000 jobs cut and jobs that are hard to replace. Meeting was Adjourned at 11:50 AM.