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HomeMy WebLinkAbout2006-09-28 MinutesFiremen's Pension and Relief Fund Board of Trustees Meeting Minutes September 28, 2006 Page l of 20 Firemen's Pension and Relief Fund Meeting Minutes September 28, 2006 A meeting of the Fayetteville Firemen's Pension and Relief Fund was held at 11:00 AM on September 28, 2006 in Room 326 of the City Administration Building Marion Doss called the meeting to order Present: Pete Reagan, Marion Doss, Dennis Ledbetter, Ronnie Wood, Ted O'Neal, City Clerk Sondra Smith, City Attorney Kit Williams, Finance Director Paul Becker, Trish Leach, Accounting, Chief Johnson, Mark Martin, Darrin Williams, and Ken Kieklak. Absent: Mayor Coody Approval of the August 31, 2006 Meeting Minutes: Ronnie Wood moved to approve the August 31, 2006 Meeting Minutes. Dennis Ledbetter seconded the motion. Upon roll call the motion passed 6-0. Mayor Coody was absent. Approval of the Pension Lists: Approval of the Revised September, 2006 Pension List: Marion Doss: It was revised because of a supplemental payment and the removal of two that deceased. Sondra Smith: Yes there were a couple items on there that needed to be revised. The net regular benefits had an amount for Mildred Tune and it should have had a zero amount, so that has been changed. We had supplemental benefits in there for Mildred Tune also. Pete Reagan moved to approve the Revised September, 2006 Pension List. Ted O'Neal seconded the motion. Upon roll call the motion passed 6-0. Mayor Coody was absent. Approval of the October, 2006 Pension List: Pete Reagan: I move to approve with no changes. Sondra Smith: At this time there's not. That is something I want to talk to you about later on, it might be better if we approve these pension lists after the checks go out because we are approving October before the checks go out so if any changes have to be made then you have to Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes September 28, 2006 Page 2 of 20 approve the revised list. So it might be better if we start approving the October list at our October meeting. Kit Williams: Checks have already gone out then though. Sondra Smith: Yes but we do that on Police Pension and we can change anything we have to. It doesn't matter to me but we are going to see revised lists probably every month if we approve them ahead of time because of the changes that have to be made. Trish Leach: If someone deceases. Sondra Smith: Yes. It doesn't matter to me, we can talk about that later on if you want to or you can be thinking about and we can talk about it at a different meeting. Kit Williams: If we approve them before the fact like you are doing now they might have to be changed if someone dies or something else happens like that or you can approve them after the fact, where you or basically just saying what the city has done is correct and you are approving what has happened. Marion Doss: Actually were trusting that the checks are going out anyway and the checks are going to go out whether we have a meeting or not and we approve them. Whether it's before the fact or after the fact we can do which ever works best for everybody. Pete Reagan: Would it help solve the problem if we move the date of the meeting? We are meeting on the last Thursday of the month; we could meet on the second Monday or second Tuesday because the checks go out at 12:00? Trish Leach: There has been a long standing agreement that they would always go out by the I lth and if the l lth falls on a Saturday or Sunday we mail them slightly earlier. It's something that has been in position for long time and we've honored that. When Denise left she told me that was the agreement and we have stuck with that so sometimes they do go out a little earlier. The problem most of the changes someone will call us and they will want their tax withholding changed and since we have that on the pension list then we would revise that. Sondra Smith: Any change I'm bringing back before the board because the Mayor and I have to sign the affidavit that is attached and I want to make sure the board is approving the one that we are signing. It is usually minor changes but I just want to make you aware that we may have a lot of revised lists due to people deceasing or changing taxes. Marion Doss: One thing if we think about changing the meeting date is the city staff meetings on Monday morning and other meetings. Kit Williams: I think Thursday is a better day every other Wednesday we are working on the ordinances that were passed at the City Council meeting and the clerk's office and my office are Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes September 28, 2006 Page 3 of 20 busy doing that. Tuesday's we're sometimes getting ready for that meeting. So I think Thursday is really a better day. Pete Reagan: I'm here to help and I like to hear from finance and Sondra if the first Thursday would make it better if checks are going out on the I Ith that would give a lot shorter period of time. It would give a weeks difference in approving the pension list if everybody is in favor of that or if you want to keep it the same and have revised lists or however you want to do it. Sondra Smith: It doesn't matter to me I don't mind bringing you revised lists but I just wanted you to know why there may be a revised list ever month. Marion Doss: One Thursday is as good as another Thursday to me. Pete Reagan: Why don't we keep it on the agenda for next month and see if we can put our heads together between now and then. Trish Leach: Something else you could consider is the lists that we give to you for approval we remove the tax withholding columns because what you are really approving is the gross amount of the revenue benefit. It's not really up to you to approve what Marion wants withheld for taxes that's Marion's decision. Pete Reagan: I understand. Kit Williams: That's really the way it should be it should be the gross amount. Trish Leach: We could do that and that might eliminate some of the revisions that we do. Sondra Smith: We could eliminate the three columns the federal, state, and net amount. Trish Leach: Yes, on the report that we send to you. So we will do that and see where that takes us. Marion Doss: It's always convient to be in there but we are approving a total amount of pay out. I never give a thought to what someone has held out for taxes or anything else. One thing that might help if we did change to the first Thursday or something it might be better for around holidays because we always have problems with Thanksgiving and Christmas. Sondra Smith: That's true. Marion Doss: I think that is something to put on the next meeting. Sondra Smith: We will talk about just changing the meeting date and I will put that on the agenda for next meeting. Pete Reagan: Would you like to try to keep it on a Thursday is that correct. Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes September 28, 2006 Page 4 of 20 Sondra Smith: If possible that would be great. Pete Reagan: Around the same time. Sondra Smith: That's great with me. I just know that the Mayor is busy on Tuesday's and Monday mornings we have staff meetings and Wednesday's are bad because it is after our council meetings and we have ordinances we are processing. That would be great. Pete Reagan moved to approve the October, 2006 Pension List. Dennis Ledbetter seconded the motion. Upon roll call the motion passed 6-0. Mayor Coody was absent. New Business: Mark Martin and Darrin Williams Update Mark Martin: First of all I'd like to thank you for this opportunity to appear today to bring you up to date on the monitoring that we have done for a little over three years with regards to your stocks to determine if there was any stop losses, class action law suits, so we could report to you what might have occurred and what to do about it. Today with me is my law partner Ken Kieklak and also Darrin Williams with a law firm of Cauley, Bowman, Carney and Williams. Darrin's firm and my firm have been working together on this project; their firm specializes in SEC litigation. There has been a new development that we wanted to discuss with you today that you need to be aware of, as part of the monitoring process we have discovered a loss that this pension fund has realized with regards to stock purchased from Baxter International between November, 2001 and July, 2002. These are developments that will probably be revealed in the news in the future and litigation is very fresh in this regard. So that you will know a little bit of history with regard to this particular stock there was a lawsuit filed about two years ago. It was SEC litigation and basically based upon losses associated with fraud at the corporate level. There were allegations of improper notification with regards to projections of what the corporate profits would be, what the corporate sales would be allegations of misrepresentation and this litigation has been going on for approximately two years. The case went before a federal district judge in Chicago the judge dismissed the case on a 12-B-6 motion and agreed with the defense attorney that the safe harbor statue provided protection from litigation. That case has wound its way up through the appeal process and as late as two weeks ago the Seventh Circuit Court of Appeals reversed that federal district court judge and said no the safe harbor statue is not a defense in this case at least in a 12-13-6 level which was the initial level, I want this case to go back to a hearing and we are going to hear this case on the merits. As of yet no decision has been made with regards to class action status. The judge withheld making a decision on that issue until the 12-B-6 motion could be determined. That case is now before the federal district judge and sometime in the very near future a decision will be made with regards to class action status. To give you just a basic idea of some of the fraud that was pointed out Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes September 28, 2006 Page 5 of 20 against Baxter International, as you know Baxter engages in making medical supplies and medical equipment. As part of their corporate responsibilities they have to give projects of what they would expect their stock to do in the future particularly with regards to sales and other economic issues. The long and the short of it is we think there is very strong evidence that Baxter International juiced up their projections for the purpose of gaining profit. There is evidence that after making these projections and the stocks stood at $43 a share, there is evidence that a lot of the corporate officers dumped their stock which is usually a tip off that something is going wrong and they all happened to dump it within this relevant period of time which was about seven months. When they made there projects about the viability of the company they failed to include certain pieces of information that were critical to folks that bought this stocks, one was that Baxter Labs produces dialysis equipment and they were saying that they expected their sales of their dialysis equipment to go up. What they didn't say was that there were a lot of problems with their dialysis equipment, there was manufacturing malfunctions, and it had a product design defect, because one of the filters on the machines was not filtering the equipment properly. A lot of litigation has arisen in association with that and also two of the dialysis companies were closed down one in Florida and I believe the other one was in Sweden. At the same time they were painting a rosy picture and claimed that those sales would increase they did not disclose this type of information. Also Baxter Labs produces plasma and they predicted that the sales of that operation would increase what they didn't disclose when they made these projections is they had a lot of problem with their plasma, a large group of it wasn't sterile, because it was not sterile it had to be dumped and there was about ten million dollars of plasma that was dumped because of this reason. These are things we believe they knew about and simply did not disclose. So they paint the rosy picture, the corporate officer's dump their stocks, reality finally caught up with them and I believe right after July, 2001 they amended their projects to take account of all of these realities we are talking about. Stocks went from $43 a share to $32 a share and it has not risen much above $32 as of today. Because of this we feel that there is a very strong case against Baxter Labs, this fund had money invested in Baxter Labs and had losses associated with that. Kit Williams: About how much did we have in there? Mark Martin: We're estimating right now that probably about $5,700 of losses from that particular stock from the information that we have so far through the monitoring agreement. That could change as we get more information, Kit. I want to make it clear even though those are losses there is no guarantees that pursuing action against them would net $5,700 but it is a loss and we believe it needs to be recovered and action needs to be taken against Baxter Lab to accomplish that. There are some options that this board may want to consider in deciding what to do about your particular losses. At this time I would like to turn this over to Darrin Williams who would like to discuss what those options are. Thank you. Darrin Williams: Mark has given you the information about the case better than I could. Let me add a few things to the facts, the dialysis machine that had the filter problems there are about 51 deaths that are associated with that filter and that problem. The company did a number of things we believe to keep their stock price elevated and to maintain it throughout the class period. They Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes September 28, 2006 Page 6 of 20 had two real reasons to do that, they were attempting to purchase another company called Fusion Medical Technologies and they were going to purchase that company in a stock swap, meaning they were going to give their stock for that company. So as long as they keep their stock price high it was a better deal for them and they did that. Also the officers and directors of that company have a substantial portion of their own net worth invested in that company because they owned a lot of stock and they also had a lot of the options in that company. During this class period 9 out of the 11 officers and directors that we've sued traded an enormous amount of stock more than they had in 7 years prior. One officer traded 100% more than he had in the previous 7 years during that 7 month period of time. These guys traded over 435,000 shares of stock and reaped over $23.7 million of profits we believe at an inflated price. We also believe that because of these inflations when Fayetteville purchased the stock they purchased at an unofficially high price. Fayetteville subsequently sold a large portion of their stock two days after the class period after they announced what truly happened. That $11 drop that Mark talked about happening was in one day, a 36% drop in stock in one day. You guys sold it two days after they announced that drop. $5,700 is not enormous amount of money but this case has unique facts and unique procedural history that I want to share with you and tell you why I'm here. We probably talked about this years ago if you remember when I talked about monitoring your funds, in 1995 Congress passed an act that basically said we want institutional investors, firefighter pension funds, state pension funds, mutual funds, big guys, folks with more than $10 invested in the market, we want you lead this litigation. Prior to 1995 what happened was individuals lead the litigation which really meant that lawyers lead the litigation because a person may lose a few dollars in a stock and a lawyer would hook up with that person and move the case forward and the lawyer and the individual client did not have a good relationship. So the court thought if institutions that have a board and have governing procedures, if they get involved in the cases these cases would be prosecuted to a much higher degree with more confident council and that's what our firm does. We do quit a bit of litigation with institutional investors and we do have some individual investors. To give you some idea of how we believe this act has worked, I'll use 2003 as an example; in 2003 there were 16 cases that settled with an institutional lead plaintiff, meaning a pension fund or public fund and those 16 cases that settled the average settlement was $116 million. In all the cases that settled that had an individual investor or a non public pension fund the average settlement was $7.5 million so it is about 16 times different when you have an institution involved. The courts take it more seriously, the defendants take it more seriously and usually you only get involved in the better cases. I'm not guaranteeing that kind of recovery here that's an average. Why this is important now and what we are asking is that you give serious consideration to being lead plaintiff or class representative and leading this litigation. We filed this case in 2003, at that time we filed with individuals investors who had small losses and we have survived a motion to dismiss, several courts have looked at this including the court of Seven Circuit Court of Appeals and allowed the case to move forward. Now we are at the stage where the court has to certify the class and there are several things that happen when you certify a class, the court says in order to certify the class, the class representative of the lead plaintiff must be like the other purchasers of the stock and the purchasers here are the folks who purchased this stock between the 2001 and 2002 date and so you guys fit within that. You must also agreed to fairly represent all the class, you can't represent Fayetteville more than you want to represent the other class members because just as you said it Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes September 28, 2006 Page 7 of 20 is fiduciary to all the members of the pension fund for Fayetteville and make decisions for all their good not just your own good. Same concept works here when you're a lead plaintiff in litigation. When we move forward with class certification in court, the judge said I'm not going to certify this class, I'm going to deny that motion because you guys have individuals, I want you to find an institution to be lead plaintiff. Honestly when we signed you up to monitor your fund I never thought you would ever be lead plaintiff because you're not a big fund compared to some of our other clients. We have clients that have $30 to $40 billion under investment but you never know who might be lead plaintiff because you never know what people invested in when. None of my other clients where invested in this stock during that relative period of time. If this was a traditional case and we were at the beginning of the litigation I probably would say I'm going to continue to monitor sit back and don't do anything because somebody else bigger than you is going to be lead plaintiff. In this case the only people that agreed to move it were individuals; no other institution has stepped up. This is a unique opportunity for Fayetteville to actually lead litigation. There are some benefits to leading a litigation you get to do that, you get to work with the firm, the lawyers to hopefully settle this case in a manner that's fair for you and fair the entire class of purchasers. What does it mean for you to be a lead plaintiff, again the responsibilities are really to supervise to lawyers, not that you have to know the law or know legal knowledge of the case, you have to have some fimularality with the case, pretty much what Mark has told you someone at some point in time may have to sit for a deposition. You will have to help us as we move forward when there are decisions that need to be made it's not the lawyers that make the decisions it's the lead plaintiff it's the class representative that makes the decisions. So those are the things that we are asking. It may sound like an enorminous amount time and effort but it's really not. At no time if you guys allow us to move forward on this case will the City of Fayetteville ever spend one dime to prosecute the litigation. You guys might remember back to 2003 when you asked us to look at the arbitration case it's the same kind of context you guys never saw a bill, we would have never gotten paid unless we were successful. In that context we suggested that you didn't bring a law suit we incurred about $6,000 worth of cost but you never saw that because we didn't move forward with the case. Same thing would happen here if we move forward in this case you guys will be lead plaintiff, you will never see a bill, the city will never spend any money and for that person who may be deposed or for Mr. Williams if he has to done some work your time will be reimbursed. Every time we have done this we have asked the court to reimburse the lead plaintiff for time spent and the courts have never failed to do that. Now I can't always say what the court is going to do but that 100% of the time it has happened. There are no liability concerns because in the unlikely case that something happens our firm will identify you on anything. We will cover all the costs and especially litigation and we're only paid if we are successful. That's really what we are asking for, we are asking you to consider stepping up, leading this litigation, not just for yourselves but for all the class of purchases of this stock, because if a lead plaintiff doesn't step forward quit honestly this company may get off the hook. The courts said unless you guys get a lead institution I'm not going to certify this class. Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes September 28, 2006 Page 8 of 20 There is a sense of urgency here because the court has asked us report back to her; the judge has asked us to report back to her by October 6 whether we have an institution or not to lead the litigation. I hate use such short of a notice but we just got this information from the judge just recently. We tried to proceed with the folks we had but the judge said I want an institution and judges can do that and that's what the judge in this case has done. That's really the long and short of it. The most important thing for you to realize is you are taking on some responsibilities to watch and monitor the litigation and to work with us. You are not taking on any responsibility for any expenses or costs, but it may take human time, somebody maybe deposed, somebody may have to find the custodial records because we want to make sure we have exactly what you purchased, because we don't know exactly what you purchased we won't know exactly how much you should get back. There will be some back and forth typical for litigation. We do this all the time we are there we probably have prosecuted over 250 of these cases across the country. We are very familiar with the defense council; I have about four cases going right now. The good thing about this case is that it has moved down the pipe, it has survived a couple of motions to dismiss. That doesn't mean that we are going to be successful but that does mean the court thinks enough about the case to let us move forward but the court is saying I want even more protection, I don't want these individuals who don't know any thing, I want institutions who not only do they have processes, they have professionals who they hire to buy their stocks. You're not required to know why you bought the stock because as a board you fulfilled your responsibility when you hired a professional who bought the stock. That is really the long and short and we are asking again that you authorize us to move forward with Fayetteville as lead plaintiff or class representative in this case and prosecute this litigation. Pete Reagan moved that the board retain the law firm of Martin and Kieklak and, Cauley, Bowman, Carney and Williams Darrin Williams to seek lead plaintiff status on behalf of our pension board in an action against Baxter International to try to recover our losses. Dennis Ledbetter seconded the motion. Upon roll call the motion passed 6-0. Mayor Coody was absent. Kit Williams: This of course is under the same terms and conditions we had before just kind of extending the contact we had with you. Sondra Smith: Do we need a new contract? Kit Williams: Probably. I don't know what do you think? Darrin Williams: We might want in this particular case since we have a specific case we might want to enter into an agreement just to protect you and spell out exactly what we want. We can get you a copy pretty quickly. Kit Williams: I would ask the board to authorize the Mayor as chairman of your board, upon my advice, to be empowered to sign the retaining contract with the firm which will be very similar to the one we agreed with them a few years ago. You that were on the board at that time know that it was a no risk contract for the city where they agreed to cover their own expenses and if they are successful then of course expenses can come out of any recovery but if they're not Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes September 28, 2006 Page 9 of 20 they don't come back and bill us as you heard. The first time that they investigated something for us they found there really wasn't much of a good claim and we never saw a bill. Hopefully this time they will be successful but we still will not see a bill if anything we will see some money that will come back to us. Pete Reagan: Darrin, when did you say this need to be signed? Are we looking at needing to sign something today or tomorrow or next week? Darrin Williams: It doesn't have to be done today. I would like to have it in place before October 6, 2006 but it is not required. Kit Williams: The Mayor will be back this Monday. Darrin Williams: That's fine. Pete Reagan: That's the reason I was asking. Marion Doss: I was concerned with that to. Darrin Williams: I think that works. I probably should have entered a copy of the complaint in the record that it has been filed. I'll give this to the clerk just so you will have a copy. Kit Williams: Okay. Sondra Smith: Thank you. Pete Reagan: If he is not available Kit sign it on his behalf. Kit Williams: That wouldn't be me. It would be the Vice Chair. Sondra Smith: We don't have that. Marion Doss: We don't have that but we could get all the board members to sign. Kit Williams: We actually have the Mayor's signature stamp and with unanimous authority of Sondra, Gary Dumas and me we can use it, but I don't think we will need to that. I would much rather get a real signature from him and he will be back Monday and we can explain all of that to him. Darrin Williams: Thank you. Pete Reagan moved to authorize the Mayor to sign the contract with the attorneys. Ted O'Neal seconded the motion. Upon roll call the motion passed 6-0. Mayor Coody was absent. Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes September 28, 2006 Page 10 of 20 Merrill Lynch Letter Sondra Smith: That is the letter I sent to them stating that we were not interested in them attending one of our meetings. Marion Doss: Okay. Kit Williams: It really would be inappropriate if you all decide that you want to reconsider financial advisors then you have to put out an RFQ just like you did before. It can't be groups coming in and soliciting. Marion Doss: I don't think any of us are interested in changing but if we do we will send a letter to everyone. Pete Reagan: I think we should note that Sondra was very polite in her wording. Kit Williams: Do you want her to be tougher next time. Pete Reagan: No. Ted O'Neal: She does well. Pete Reagan: She did an excellent. Discussion on approving Pension List after checks are issued instead of before Marion Doss: We have already touched on the discussion on approving the pension list checks. Kim Skelton Proof of Registration Marion Doss: We have a copy of Kim Skelton's proof of registration in an institution of higher learning. Sondra Smith: Yes. NCPERS Membership Dues Sondra Smith: If you wish to continue to your membership I need to pay that and I'll need a motion and a second to approve payment for the membership. It looks like that has gone up. I think it was $100 and it is now $150. I wanted to make you aware of that too. Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes September 28, 2006 Page 11 of 20 Pete Reagan moved to approve payment of the NCPERS membership. Dennis Ledbetter seconded the motion. Upon roll call the motion passed 6-0. Mayor Coody was absent. Trish Leach: Before we move on can we back to the request for custodial records. Can I forward them to Sondra and she can forward them to you. Are you okay with that? Sondra Smith: Yes. Trish Leach: We will get those pulled so you will not have to wait on those. Old Business: Extension of temporary COLA Marion Doss: The temporary COLA just stays like it is doesn't it? Pete Reagan: No it dead ends the 31st of December. Kit Williams: Is that when it runs out? In other words you wouldn't get an additional COLA increase. Sondra Smith: You wouldn't have a COLA in January. You wouldn't have 3% added to your check in January. Marion Doss: Right, but it would stay like it is. Kit Williams: It would stay like it is. Sondra Smith: You retain the same amount you are currently drawing. Kit Williams: In other words if you are getting a $1000 you will continue to get a $1000. Sondra Smith: Yes. Marion Doss: That's what I thought I just clarify that. Pete Reagan moved to seek a cash flow analysis through the Arkansas Pension Review Board for continuation of the 3% compounded COLA for the purposes of allowing an actuary who is a professional in the business, who does all the actuaries for the old Fire and Police pension plans to allow them to review our funds to see if the fund can afford it. Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes September 28, 2006 Page 12 of 20 Pete Reagan: I do note that in the resolution and I would ask that this be included in my motion that under Section 2 in the second sentence after numeric number three and the percent sign that compounded be added. Kit Williams: Temporary COLA compounded? Pete Reagan: That's currently what we have, is a compounded COLA. Kit Williams: I would imagine that is probably the way they always do it. Pete Reagan: No it's not that's why I wanted to add that because there is a difference in 3% and 3% compounded. We currently have the 3% compounded COLA and that's exactly what LOPH has. Kit Williams: So you want compounded after both 3%'s in there. Pete Reagan: In the 41h sentence after 3% - compounded COLA. Kit Williams: Between 3% and COLA on both ones you want compounded is that right? Pete Reagan: Yes sir. Kit Williams: My memo was provided to you and I am concerned since the actuarial people, the same people that you will be asking to do a cash flow study, in their latest evaluation of your fund said that it doesn't have enough funds to pay current benefits. In fact if you look at their Exhibit 4 apparently the funded percent that is available at this point in time is barely 50% of what you will need in the future without counting additional increases. As was stated earlier you all have fiduciary responsibilities to beneficiaries including yourselves to try to insure that the fund will be around to pay the benefits. If it ever gets depleted then all the benefits will be reduced pro rata and it is possible that the only amount of money coming in once you've spent your reserves will be the millage, four tenths a mil which will not go very far. That means everybody would have a tremendous benefit cut. So I urge caution on increasing benefits when the very actuary that you would be asking to do this cash flow study said that the funded percent of your fund right now is at 50.9%. It has been going down dramatically since 1999 when it was at 95% and 2001 it was at 75%, 2003 it was at 60% and 2005 it is at 50%. As you can see the funded percent according to your actuaries has taken a tremendous dive and makes me concerned if there will be sufficient funds to pay you right now not even considering an increase in the benefits that you are currently getting. I would urge caution in this particular case. Pete Reagan: With all due respect if I can comment on that, Kit we also have a fire insurance premium tax that is allotted to this fund; it is based on the number of retirees and the active members that will always come into this fund. Kit Williams: As long as the legislative doesn't change it. You never know what the legislative is going to do. Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes September 28, 2006 Page 13 of 20 Pete Reagan: We will be there to protect it, I will guarantee you that. We also have several legislators and the Governor has promised to keep it there. Also I would like to note that there is an increase in our portfolio this month of $723,673. We all know that we have been in a down market cycle for several years now and we rode out three of these. We know that is going to happen as nature takes its course in the stock market. We are in a down market cycle and it looks like we are coming out of it. The stock market was near an all time high yesterday, the last time I saw it, I don't know whether it went over for the last six years. Things are improving although we are at war with two different countries, I think it is our responsibility to our members to allow and actuary to review this and see if the fund can afford it. I also want to note that the last three benefit increases that we have given to our retirees we have waited until after the full blown actuary has come out and we have always had the three check marks in the no column where we were not actuarially sound but we were able to give benefits on a cash flow evaluation. That is the reason that the state legislator saw fit to allow a cash flow evaluation to be done for the purpose of giving benefits to retirees. Marion Doss: If I understand this right we are just asking if we can. Pete Reagan: If the fund can afford it. Marion Doss: When we get the information back if it says we can't then it is a mute point. That is one thing our retirees have always wanted, some kind of COLA on this fund. For so many years it did not have a COLA, you retired and stayed that way forever. We finally got some benefit increases. Dennis Ledbetter: How long will it take to get one? Pete Reagan: It all depends on how busy the actuary is, two to three months. Ted O'Neal: The actuary costs the pension fund doesn't it? Kit Williams: Yes, you pay for it. Pete Reagan: It is $2,000. Sondra Smith: For a cash flow. Pete Reagan: The full blow is like the one that we have here that is mandated by state statutes and is $3,000 to $3,500. The reason we wait until after the full actuary is done is they are familiar with our numbers and they have updated our numbers. They do not have to go back and update them for the last year or two years. It makes it easier on them also. Sondra Smith: You might also look on Page 6 that your contributions have only been $622,000 and your withdrawals have been $4,207,000 since 2002. You can't just consider the point that Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes September 28, 2006 Page 14 of 20 your fund is going up you also have to consider how much is going out of your fund on a regular basis. I am very concerned about an increase and I am even more concerned about voting on an increase when the Chairman of the Board is not here. We were courteous enough last month not to vote on this because everyone was not here. I do not feel we should vote on this unless everyone is here. I think we owe the Mayor that courtesy also. Pete Reagan: With all due respect all we are asking is that the professionals review this. We are not going to institute a COLA until the actuary comes back and says we can do it. We are almost in October that will give us three months to look at it and decide. Kit Williams: There is a provision in the statutes that is set up to rescue funds that get in over their heads, unfortunately in order to be in that, to have it taken over, two things have to be established that this fund does not have. You have to be at the minimum levels of benefits which are 50%, no COLA and no additional survivor's benefits and you have to have at least one mil passed by the voters that would be funding it. If our fund really got into trouble we couldn't even go in that direction unless you could get the voters to increase the millage and then all the benefits were reduced to 50%. I am just concerned over the long term and maybe not that long that we stand a chance to get on a downward spiral where you can not get out of it without terrible cuts to your benefits. I would like to avoid that. A lot of the people that would be cut the most are sitting in this room because you are some of the younger members, you are going to live longer, your spouses are going to live longer and they are going to be the ones in the future that are most susceptible to losing benefits. You are the trustees and you make the decisions. Pete Reagan: Do we need to vote? Marion Doss: We do not have a second yet. I don't have a problem with waiting until the full board is here. The Mayor is the only one that is missing, if it is proper to wait until he is here, on the other hand we are just asking for the study to see if we can do it. Ted O'Neal: It may come back that we can't. Dennis Ledbetter: At this point in time, my concern as a trustee if we get an actuary, we need to get to the members and lay it out to them so they know fully. I feel it may be okay but it may not too. I feel we need to sit down and lay it out to the members and let them know what we are looking at. It is a simple fact of just keeping them informed. Kit Williams: That is a good idea. Pete Reagan: I think there is a meeting scheduled in December or November. It would nice to have that information by then to show it to them. Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes September 28, 2006 Page 15 of 20 Sondra Smith: I want both pictures shown. I want the cash flow shown and the actuarial study shown. I don't want these members fooled. If you show them a cash flow study and it shows a different picture they will not understand the difference. I am not going to stand for that. I want them to know the true story and the full picture which is the actuarial study because this affects their lives and this affects your lives. I want them to know both pictures not just the rosy picture, if the cash flow says we can increase. I will not agree to doing a cash flow study and showing that to the pensioners and not giving them the full picture. Pete Reagan: I have no problem with that Sondra. I want to make sure that you are invited like you were the last time. I am not trying to hide anything from anybody. If you will remember at the last retiree dinner that we had I asked if anyone had any objections to the continuation of the 3% COLA and nobody said anything. Sondra Smith: But they don't know. They don't know that the fund has dropped drastically in the past few years. I would be jumping up and down and saying sure I want a COLA but if it is pointed out to me that by doing this COLA I may have to in the near future decrease my benefits to 50%, I would look at it twice, I would forego a COLA to keep my benefits at 90%. Pete Reagan: I understand that. Sondra Smith: That's what they need to be told. If someone came in and told me you are going to get a 10% raise I would jump all over it but if they told me two years from now you are going to go back to 50% of your salary I would say forget the raise. I'll stay where I am right now. Pete Reagan: I fully understand that. There are several of those members that have served on this board through their longevity at the Fire Department so most of them are aware of it that have served on the board and know how this works. A lot of them have not but there is a bunch of them that have. Dennis Ledbetter: I just feel like a special meeting needs to be called to let them know we are going to discuss the pension fund and have a meeting just for that. I think we need to have a meeting, lay it out and show them. They may be perfectly happy with this but I want them to be happy because I don't want to come back later and then say you boys got us into this jam. Sondra Smith: That's exactly what I don't want. Dennis Ledbetter: I want everybody's blessing on this. When I came on this board I had several calls and they said they wanted to be informed. I am trying to do what I told them I would do, represent them. If they say do it, it is kind of like being an elected official if your constituents want it then you do it. I just want everybody to know. Kit Williams: The more education and information the better. Dennis Ledbetter: It may come out just fine. Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes September 28, 2006 Page 16 of 20 Pete Reagan: My thoughts exactly, that's all I am asking. Ronnie Wood: I will go along with that. I don't want to make a decision with somebody in the dark. I don't know how many we can get together but I think they need to have the opportunity. Dennis Ledbetter: If we send out letters and we only have 20 of them show up then I will feel a lot better sitting on this board and making decisions then. Sondra Smith: Would it be better to have the meeting in the evening? Dennis Ledbetter: Yes. Marion Doss: I think the biggest interest we have had from the retired members was when we were discussing going to LOPFI. Dennis Ledbetter: That can also be brought up at that meting. Kit Williams: That is a big issue because if you look at what happened to the unfunded liability which the city would have to pick up, it went in 2001 from $4 million to in 2005 almost $10 million so it is making it less likely that the City Council is going to say that we are going to spend $10 million of taxpayer money in order to send you all to LOPFL If the city would do that it would protect your benefits, but it has gotten so expensive that I don't know if that will happen and if that doesn't happen then you are just stuck on your own with your own money and if you run out then you run out and that is what has me concerned. Marion Doss: That concerns us very much because that's what we are living on. Sondra Smith: I need to make you aware that we are supposed to give a report to the Council in open session and that has not been done in the past. Kit Williams: But it will certainly be done in January. Sondra Smith: It will be done in January, 2007 and it will be done every year hereafter as long as the state law requires it. I do not want you to think I am taking this to the Council because of the unfunded liability; it is because we are in violation of the state law and we have to do it. Kit Williams: We have to do it. Pete Reagan: It was my understanding that the Mayor as Chairman was including that in his State of the City address. Kit Williams: It needs to probably be its own separate report. State law says it shall be done, so it must be done. Marion Doss: You mean it has not been done? Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes September 28, 2006 Page 17 of 20 Kit Williams: If it has, it has only been glossed over it has not been done to the kind of detail that it needed to be done. Pete Reagan: What statute number is it? Kit Williams: It is ACA 24-11-412. Board of Trustees shall report to the city through the Council or City Commission the condition of the pension fund on the first regular meeting in January of each year. Pete Reagan: I would hope we would have the opportunity to review the report before it is given. Sondra Smith: Sure, it is your report. Pete Reagan: The Mayor is chairman of this board so it would be his responsibility to give it. Sondra Smith: It wilt be on the agenda and all the information will be in the agenda. Pete Reagan: Where are we at Mr. Chairman? Marion Doss: We have your resolution and we are waiting for a second. Dennis Ledbetter: Do you think we should wait, we are just asking for a cash flow study. Sondra Smith: I think it would be better; it takes 6 out of 7 board members to pass this resolution. I think it would be better if you voted on the resolution when all the members were here. That is just my opinion, you do not have to, it is strictly up to you, it is whatever you want to do. Pete Reagan: It also takes 6 out of 7 to give an increase in benefits. Sondra Smith: Right. Pete Reagan: I would venture to say there were 30 members at the last meeting; we have another meeting scheduled in November how are we going to make a presentation to them? Ronnie Wood: If we go ahead and do this cash flow study that would give us a piece of information that we need to make a presentation to them along with the full actuary study. Like Sondra said I think they need to see the difference. They need to know the difference between them. Sondra Smith: They need to understand the difference between a cash flow study and an actuarial soundness study. Ronnie Wood: That is what I was talking about. Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes September 28, 2006 Page 18 of 20 Pete Reagan: The full blown actuary is the worse case scenario. Marion Doss: If I understand the cash flow method if I want to buy a house but I can't go out and write a check for the house but my credit will allow me with my income to buy one. Sondra Smith: The way I understand the cash flow study is they estimate over a certain number of years that you will have enough money in this fund to cover the money being paid out over the same number of years. Everything is a guess, they are guessing at the life expectancy, they are guessing that your funds will earn a certain percentage, if the fund goes down and you do not earn the money they estimated their guess was not a good guess if the fund goes up and you are earning more their guess was not a good guess because you are making more than what they anticipated. We do not know what the market is going to do ten years from now; we do not have that crystal ball to predict it. The cash flow study paints a prettier picture than the actuarial soundness study that is my understanding. My concern is when you look at the fund you can see that the fund started dropping in 1993. In 1993 you only had a $544,000 unfunded liability, from 1993 to 2005 that has gone from an unfunded liability of $544,000 to $9,876,000. Is that due to lack of investments, or to benefit increases, it looks like to me it is due to benefit increases because there is an asterisk beside the years that benefit increases were done. You still have three people that are on DROP and that are going to draw a big lump sum distribution from this plan. That could be anywhere from $500,000 to $750,000 for those three people, that is going to hit the fund pretty quick. Pete Reagan: The actuary takes that into affect in their calculations. Is my motion going to die for lack of a second or are we going to sit here all day? Dennis Ledbetter: I will second it and we can get a cash flow. Can we get it by November? Sondra Smith: No. Dennis Ledbetter: I think a letter needs to go out and there needs to be a specific meeting for retirees in the evening for this. Marion Doss: Everyone needs to know the whole picture. This is to only have a study completed. We will have to have a separate resolution for the COLA if we decide to do that. Sondra Smith: The resolution is also asking for a permanent COLA. Pete Reagan: I thought it was temporary. Sondra Smith: You are voting on having a cash flow study completed, we have to have a resolution to have a cash flow study completed. Marion Doss: If we get the information back and it says we can increase benefits we would have to have another resolution to give the benefit increase. Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes September 28, 2006 Page 19 of 20 Sondra Smith: Right. Pete Reagan: For the record we are asking for two things. A three year compounded temporary COLA and a study to increase all current and future retiree's benefits by a permanent COLA, so we are asking for two things. Sondra Smith: This resolution is asking for a cash flow study and approving the expenditure of at least $2,000 to pay for the study. Dennis Ledbetter seconded the motion to have a cash flow study completed. Upon roll call the motion failed 5-1. Marion Doss, Dennis Ledbetter, Ted O'Neal, Pete Reagan and Ronnie Wood voting yes. Sondra Smith voting no. Sondra Smith: I feel the full board needs to be here to pass a resolution. I will be happy to reconsider this next month if everyone is here. We extended that courtesy last month. We said we wanted the full board here before we did this, that is the reason I am voting no because I think the full board should give it consideration before we spend $2,000 out of the fund. Pete Reagan: So are you telling me this resolution just failed? Sondra Smith: Yes. Marion Doss: I would like to have it back on at the next meeting. Sondra Smith: Okay. I will be happy to reconsider this at the next meeting. I think the Chairman of the Board needs to be here. Ted O'Neal: There is a time problem in getting the information out. Marion Doss: That is what I want. I know if you ask anybody if they want a raise they will say yes but they need to know the full picture. We need to be able to explain. Ted O'Neal: We need to be able to explain what the cash flow is. That is one side of it. Sondra Smith: You need to be able to explain what the cash flow is versus what the actuarial soundness study is. They need to see both studies. Pete Reagan: But we are not going to have both studies. Sondra Smith: We can go ahead and set up a time to have a special meeting as soon as the Mayor is back and vote on this again if you do not want to wait until the end of October. Pete Reagan: At the earliest convenience of the Mayor. Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes September 28, 2006 Page 20 of 20 Marion Doss: I would just like to have the information for our retirees, so they can see both sides of it. They are expecting that COLA. Sondra Smith: I am not saying I will note vote to have the cash flow study completed, the only reason I voted against it because everyone was not here. It would not have mattered who was absent on something like this everyone needs to be here. The Mayor can meet this Monday at 2:00 PM. We will redo the resolution and have it ready by Monday. Longer Investments: Approval of Equity Overawe — Equities area at 52.5% Pete Reagan moved to approve the equity overage. Ronnie Wood seconded the motion. Upon roll call the motion passed 6-0. Monthly Report• Meeting Adjourned at 12:20 PM