HomeMy WebLinkAbout2006-10-02 MinutesFiremen's Pension and Relief Fund Board of Trustees
Meeting Minutes
October 2, 2006
Page l of 11
Firemen's Pension and Relief Fund
Meeting Minutes
October 2, 2006
A meeting of the Fayetteville Firemen's Pension and Relief Fund was held at 2:00 PM on
October 2, 2006 in Room 326 of the City Administration Building
Mayor Coody called the meeting to order
Present: Mayor Coody, Marion Doss, Dennis Ledbetter, Ronnie Wood, Pete Reagan, Ted
O'Neal, City Clerk Sondra Smith, City Attorney Kit Williams, Finance Director Paul
Becker, Chief Tony Johnson, Trish Leach, and Wendy Moore, Accounting.
Old Business:
Extension of Temporary COLA
Mayor Coody: Thank you for waiting until I came back because this is very important for
everyone tax payers, pensioners, everyone to get a handle on this. I understand that there was a
motion and a second at the last meeting to do an actuarial study to see if there was a way to do a
permanent or temporary 3% COLA is that right? You will have to catch me up on this I've been
off for 3 weeks. I also know that it got voted down because there wasn't a majority of votes.
Kit Williams: It requires six to pass it.
Mayor Coody: Right. That's what I mean not enough of the majority to pass it. Do you have
any input for me on that?
Pete Reagan: My stance is that we need to have a professional actuary that's actually hired by
the Arkansas Pension Review Board to review it. The big question was if they review it and say
that we can do it does it automatically go into effect? I spoke with David Clark at PRB this
morning and it is my intention to have the study done and bring it back to the Board and our
retirees for review.
Mayor Coody: Alright so what was his answer on whether it's automatically approved or not.
Pete Reagan: It is not. We've got to take action on this.
Mayor Coody: That's what I would assume. Alright let me ask a couple quick questions here
because like I said I'm trying to get caught up on all of this. When you look back at the
comparison for prior years and the percent funded we were 98.4 % funded back in 1995 a few
short years ago and now we are down to 51% funded, how on earth could a study come back and
say anything is going to be approved. It looks like somebody has been milking this fund to the
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Meeting Minutes
October 2, 2006
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point of it being unsound to where it's going to dry up and all the pensioners are going to lose
benefits all together one of these days. Is this the responsible way to do business to keep milking
the fund that's 51% funded right now? Who can answer that for me?
Pete Reagan: I can tell you that we were at a retirees dinner several months ago and not anyone
there objected to the continuation of the 3% COLA.
Mayor Coody: Was everyone aware of this being so financially unsound.
Pete Reagan: No sir, we did not have the actuary back at that time.
Mayor Coody: Do you think that had the pensioners known their fund was drying up faster than
a lake in the sunshine that they would continue to try to ask for more benefits when they are
obviously going to run out.
Pete Reagan: I would think that it would be their view and I represent their view as we all do to
have both studies to look at before they do. Now you have to also understand what the market
has done in the last six years. We are assuming a 6% rate of return on the market and last year, I
don't have the information in front of me, but I think it was 3.2% and the year before it was
worse than that so its market driven and we all understand that. We are making the money to
allow the benefit increases in the market and we haven't done that in the last three years.
Mayor Coody: So is the market going to continue to climb?
Pete Reagan: I better not say.
Mayor Coody: I agree. This was 2005 and I can not imagine that the percent funded has gone
up very much in the last year. Sondra do you have any information on that or does anyone have
any information. Are we up to 52% or 53% funded?
Kit Williams: Do you know what our current assets are?
Pete Reagan: Our current assets are approximately $10 million. Last month when we looked at
Elaine Longer's report at our meeting our profit last month was $723,000. We had a good month
but we may lose all of that next month.
Mayor Coody: Whose responsibility is it to educate all the pool of retirees on the status of this
fund? Is it my responsibility or is it your responsibility?
Sondra Smith: Mayor, first of all there is a report that needs to go to the City Council in open
session that we have not been doing as a Board. That is supposed to be done at the first meeting
in January. That will be done from now on in every January. So any pensioners that get our
agenda or anybody that wants to hear that open report can come to that City Council meeting or
they can come to any of these meetings. That is one thing I want to make you aware of that we
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Meeting Minutes
October 2, 2006
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have not been doing, we need to do it, its state law that we do it, and we will be doing it in the
future.
Mayor Coody: How did you all find out about this and how come I didn't know about it?
Sondra Smith: By reviewing the statues and by going to the clerk's meeting that I go to I found
out and I discussed it with Kit and he confirmed that it is suppose to be done. He agrees that it
needs to be done.
Kit Williams: It needs to be done on the first meeting.
Mayor Coody: Has this being going on for awhile.
Sondra Smith: I don't know that it's ever been done.
Mayor Coody: Well we need to fix that.
Marion Doss: Isn't that included in the financial report that the Council gets?
Kit Williams: I don't know if it is actually in there or not, part of it probably is.
Sondra Smith: The state statue is very clear on how it needs to be done.
Kit Williams: The first meeting in January is what it says. At one point I called it to their
attention but we still haven't got it done so we just need to start doing that.
Pete Reagan: Sondra is it in the Police, too?
Kit Williams: I would imagine it would be the same thing.
Sondra Smith: Right.
Mayor Coody: When it comes time to put together the State of the City address I'll be doing
that. It's specifically the first meeting in January right?
Sondra Smith: It states the first meeting in January.
Mayor Coody: I think the State of the City address is first or second meeting. Make sure this is
on the agenda for a report to the City Council first meeting in January please.
Sondra Smith: I already have it on the agenda.
Mayor Coody: Good thank you. We will need someone there to really explain the ends and outs
of this. It would take longer than that to get the study back if we approved one now. Would it
take longer than that to get an actuarial study back?
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Meeting Minutes
October 2, 2006
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Sondra Smith: Pete thinks we might be able to get one back in three months. I've never seen
them that speedy before.
Mayor Coody: Usually it's five or six months.
Pete Reagan: For a cash flow it's not Mayor. They already have all the information.
Mayor Coody: What about actuarial because we can't relay on just one.
Kit Williams: We know actuarially it is not going to pass because we are at 50%.
Mayor Coody: So if it's actuarially not going to pass we just try to cherry pick the way that it
could pass so we can increase the benefit.
Pete Reagan: No sir, the reason that the Arkansas Pension Review Board allowed the cash flow
study to be implemented was because this actuary is the absolute worse case scenario and the
absolute worse case scenario is if a tornado came through town and killed everybody.
Kit Williams: Except the Fire Pensioners.
Pete Reagan: No a tornado doesn't normally kill everybody in the whole town.
Kit Williams: I think and Paul help me understand this, the actuarial study is a very very
conservative review, correct me if I am wrong, but they do not consider future revenue coming
into the system, the millage and revenue like that. Therefore that's probably overly conservative
because there is at least in the foreseeable future millage that's going to continue to come in.
That doesn't mean that state law could not be changed at some future point so that the millage
might not be required to continue to fund a program especially if the program gets down to not a
whole bunch of people. In the past there was a big property tax issue that they wanted to outlaw
all property taxes in the state. They tried to get that on the constitution a couple of times but it
did not pass but you never know when something like that might come back so it's not
guaranteed. I do think that the actuarial method is overly conservative because there will be
some revenue coming in but I think the cash flow method on the other hand is probably overly
rosy in that it assumes that there will not be changes for 20 to 30 years in your revenues that will
be coming in. I think that is not reasonable to assume either. If there are three people getting
pensions and drawing a whole bunch of money and people have to pay property taxes for that I
don't know if the voters wilt want to continue to do that. I think there is a tipping point that you
get to that at some point your pension fund needs to be on its own and to have saved up enough
so that your members are actually living off of it and not counting on future revenue which will
probably be directed toward the new LOPFI plans. That is where the vast majority of the
employees are now and soon we will start having retirees in that plan too, I imagine we already
do but I mean it will start growing. This actuarial method where they don't count on any further
revenue at all I think is to pessimistic and I think that is why they have allowed this other method
of a 30 year cash flow and I think that is probably too optimistic. The problem is where we go
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October 2, 2006
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from here. I share your concerns that the drop that we have had in two things not only in the
funded percentage that in six years has gone from 96% to 50%, that's a terribly big drop, and
during this same period in the last four years the fund has gone down $2.7 million. The fund
cannot sustain a $700,000 a year drop and as your fund goes down there is less money to earn
interest on so it can accelerate. That is one thing that has me concerned as this thing is going
down. On the other side I think there are only 3 more DROP people and the DROP cost several
hundred thousand dollars when you add them up all at once, after three more that ends all the
DROP people will be drawing money. I'm still concerned that we are on a downward path. I
would be concerned about adding new benefits at this point in time with this downward path no
matter which study. I think one is too rosy and one is too conservative. Unfortunately you all are
probably in the middle although they might even say the rosy one might be good enough at this
point. I don't know.
Sondra Smith: The other thing is if we do send this to LOPFI in the future, which we have
talked about but I don't know that we are even interested doing that now, is the unfunded
liability will have to be funded to send it to LOPFI. Is that correct?
Kit Williams: Yes, I think it has probably gotten too expensive. I know in years back when it
was $4 million then Steve Davis at that point was thinking that maybe we should send it down to
the state, now it's almost $10 million. I don't think that's political palatable for the City Council
to finance that kind of deficient. I think we our kind of in it in ourselves now and we are
managing it and we can't count on the hope that the City Council would send it down to LOPFI
because that is getting to be probably more expensive. Now it might turn it around but it won't
turn it around if you keep adding benefits.
Mayor Coody: Paul do you have the actuarial comparison 5 years in front of you.
Paul Becker: I don't have that in front of me.
Mayor Coody: When you look at the assets the $10.2 million and you look next to it at the
unfunded actuarial liability of $9.9 million those numbers are pretty close to each other aren't
they?
Paul Becker: Yes.
Mayor Coody: Then how on earth can this possibly work in the future?
Paul Becker: What this is doing is this is taking a snap shot at a point in time. They're saying if
we don't have the income this is where it's going to be. When I say income don't forget that
you're still going to get investment on assets that return. It is also assuming that return comes in
and although you might think 6% is very conservative it could be aggressive to. It's not the
worse case scenario the investment income could go down you never know. You could have a
paw on these assets if the flows don't keep up. The cash flow method that Kit was talking about,
that's assuming that your income streams stay consistent. That's millage, that's also turnback.
Tumback is controlled by the legislature you don't know what that's going to do. If something
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October 2, 2006
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happens there and that changes you're certainly going to put a strain on the fund and if it goes
down to low you're going to have to cut benefits period. So that's the reality of the situation. I
don't know if that answers your question.
Mayor Coody: Yes it does. If we continue on this current course what does our unfunded
liability look like in another say 10 years?
Paul Becker: That would be speculative. It would build for a while; it would build depending
on the demographics, how many people are in the system, when they decease.
Kit Williams: And what the benefits are.
Paul Becker: The benefits certainly. If the benefits increase it's going to get worse.
Mayor Coody: Well I just can't see where we have a 49% unfunded liability and we can even
consider raising benefits more. I think that would be just unbelievably irresponsibility. As much
as we would all like to make as much as we can I think the long term cost of this would be
astrominical and it's not fair to the pensioners as well as everybody else in town. Regardless of
what any study would come back and say, if the rosy scenario came back and said I think that the
cash flow method means that you can probably add benefits yet actuarially it's crazy to consider
doing, I think it would be completely irresponsibility to increase benefits with this looking at us.
What would be the options if we increase benefits or even if we stay where we are and the
money runs out one day.
Paul Becker: If the money runs out one day the benefits will have to be cut.
Kit Williams: Well that would depend on the revenue source coming in. All the benefits reduce
pro rata depending on what they are getting to whatever the money is coming in. Assuming they
would still get the millage coming in or something coming in then that would be divided up and
the benefits would be reduced to that level whatever it would be.
Mayor Coody: I just think benefits have increased to the point to where it has gotten out of
control and I hate to see it. I would rather see something financially sound. I think in the long
run this is going to be a huge problem for pensioners as well as everybody else. All of us have an
obligation to look out for all of the pensioners, not just you five but everybody. I think they need
to be totally aware of what is going on here because I'm under the impression that they haven't
been brought up to speed on all of this. I haven't been in contact with them; I'm assuming that
since you are the pensioners of the Pension Board that you have been communicating this to your
fellow pensioners and your peers. I don't know if that's been done or not but if it hasn't been
done it needs to be done.
Kit Williams: We were talking at the last meeting that we were going to have a meeting with
them to explain as best as we can. Obviously this is very complicated stuff it's not simple stuff.
We are trying to look into the future and that is never easy, nobody can really predict the stock
market if we could we wouldn't be sitting in this room. There are a lot of difficult things in here
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October 2, 2006
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to figure out. They should be informed as much as we can and you were talking about that at the
last meeting that you are going to have some sort of meeting.
Dennis Ledbetter: We are going to get together at some point and explain to them everything.
Whether they will listen or not I don't know but I feel like I'm trying to represent them the best I
can and I feel like they need know everything.
Mayor Coody: I think that is a fair assessment.
Dennis Ledbetter: I'm very concerned about this but we represent those guys and I think they
need to be informed about everything. The best we can do is be in the middle and explain both
sides and not lean either way and say here it is guys this is what we are looking at.
Pete Reagan: How can we do that without having the other study done? Our purpose here today
is to vote on a resolution to have a cash flow evaluation done and spend $2,000 to get it done by
the same folks that did this. I'm not going to guarantee anything but I guarantee you I feel very
safe that we will have it back by mid November. They already have our current numbers from
2005 and that's what there going to be doing it on. That's why we have always waited until after
the full blown actuary was done before we asked for a cash flow.
Dennis Ledbetter: It's my understanding we can get the cash flow for this meeting but it
doesn't mean its automatic.
Pete Reagan: That's correct.
Dennis Ledbetter: We have to vote on that.
Pete Reagan: That's correct.
Kit Williams: That's my understanding. That would require 6 out of 7 to put it into effect.
Pete Reagan: Right.
Sondra Smith: The resolution just states that you are going to authorize the expendure of the
Fayetteville Firemen's Pension and Relief Fund monies to pay for a cash flow projection
evaluation study by the Arkansas Fire and Police Pension Board it doesn't say that we are going
to grant that increase at all. It just says that they are going to look at the study on a 3 year
temporary, 3% compounded COLA and the study to increase all current and future retiree's
benefits by permanent 3% compounded COLA. So that is what the resolution says and it is just
to do the study.
Mayor Coody: Regardless of what the study comes back with, I don't see how they are going to
come back with any kind of scenario no matter how rosy that's going to change this 50.9%
number. That's the thing that has me concerned.
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October 2, 2006
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Sondra Smith: The letter that we received in 2001 when they requested to do a 3% COLA on a
temporary basis or on a permanent basis the actuary on a cash flow basis did state that the plan
could not sustain a permanent COLA at that time and the plan looked better at that time than it
does now. I don't feel like they will come back and say you can do a permanent COLA at all.
Mayor Coody: Then why would we go through this exercise?
Sondra Smith: For a temporary COLA, because they did say at that point and time that we
could do a temporary COLA but we couldn't do a permanent COLA. We are asking for the
same thing again this time, temporary or permanent either or.
Mayor Coody: Alright is there any other discussion on this?
Ron Wood: I guess in all honesty my feelings on getting the study done is just basically when
we have that meeting with our pensioners that we can sit down here and say here is this set of
figures here is why we can this is why we can't. You have the whole ball of wax right out here
in front of you and this is where we are at. We've talked about an informational meeting I think
we need to do an educational meeting for our pensioners.
Sondra Smith: Yes.
Ron Wood: We've got a lot of the guys out there that don't understand. All they know is that
they get a pay check. They've never been interested in looking at the figures, they don't have a
clue but as everybody has heard they say, "I just want my fair share."
Pete Reagan: The pensioners say when am I going to get a raise?
Ron Wood: When am I going to get a raise? My way of thinking, if we do this study, it would
be worth, $2000 is a lot of money, but it would be worth the money to say here it is. This is your
cash flow, this is your actuary, here are these figures we have and this is where we are at.
Sondra Smith: It my be dead in the water when it comes back because it could come back that
it is not sound on a cash flow basis.
Ron Wood: That's right. Whichever way it comes back then it is sitting there and this is what it
says.
Pete Reagan: That will help us tremendously at the meeting.
Sondra Smith: Right. If it comes back and says you can't do it on a cash flow basis you have
something to back yourselves up that you have done everything you can possibly do as a Board.
Ron Wood: To me it would be worth that much money when we go in front of those pensioners
and say this is why you are not going to get a raise and this is why we've got to stop here until
we get our pension built back up or whatever.
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October 2, 2006
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Dennis Ledbetter: I think we may have got the cart before the horse if we would have had the
informational meeting before I don't know that they would have said go ahead and get that cash
flow study done.
Mayor Coody: Yes, I agree with you on that.
Dennis Ledbetter: Now they want the cash flow and then this information has come out and
they are the ones that kind of want it.
Sondra Smith: What's to say you can't go ahead and have that meeting before we do the cash
flow? There is nothing stopping you.
Mayor Coody: If Sondra says, and everything she says so far to me has been right, so if she
says the cash flow scenario looked bad last time and the situation is worse now I think that if the
pensioners knew that I don't think they would be willing to waste $2000 to do something that
they see the hand writing on the wall about.
Dennis Ledbetter: Back to what he says they can't see it in black and white, I want my fair
share and what are you all doing up there this and that. The only reason I'm voting for this cash
flow is because they want it. It is going to have to come back real good for me to vote for any
kind of raise. They may tell me that they do not want me to represent them any more but I'm
concerned about it.
Mayor Coody: Well I appreciate that you are not willing to bankrupt the system for a short term
gain.
Dennis Ledbetter: I want an honest picture for everybody to see and sometimes honesty hurts a
little bit. They want this cash flow.
Mayor Coody: Alright, that's the only argument I could use to support this because I just think
its pouring money down a rat hole but based on your perspective that it would good to get all of
the ducks in a row before you go to the Pension Board. They are going to have to have an honest
assessment this isn't going to take some people standing up there with rose colored glasses and
saying we can get ourselves some benefits here even though the paper work doesn't quit explain
it trust us on this. That can't happen I'm assuming that won't happen.
Sondra Smith: This motion was actually brought forward at the meeting on Thursday and it
failed so since it did fail the person that voted against it has to move to reconsider the motion. I
voted against it because we didn't have full representation of the board here.
Sondra Smith moved to reconsider having a Cash Flow Study completed. Pete Reagan
seconded the motion. Upon roll call the motion passed 7-0.
Mayor Coody: Marion did you have a question?
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Marion Doss: I would appreciate when this meeting takes place with the retirees that there are
more than just us. We are the elected board they elect us and if they don't like what we are doing
when we represent them they will elect other members to the board which is their right. So I
would just appreciate some people like the Finance Director some people that can explain better
than I can the money part of it.
Mayor Coody: We can make a joint effort to get Sondra, Paul, Kit and myself to back you up
because you will need some enforcement on this. Is there a motion and a second to approve the
study?
Pete Regan moved to approve having a Cash Flow Study completed based on a temporary
3% compounded COLA for three years and a permanent 3% compounded COLA. Ted
O'Neal seconded the motion. Upon roll call the motion passed 7-0.
Sondra Smith: I have the resolution here if everybody wants to sign it then I can get a letter
drafted to them and get it processed as quickly as I can.
Mayor Coody: Paul have you been keeping up with the LOPFI stuff I really want to get up to
speed on it because I have to go down to Little Rock to the LOPFI Board. We will need to know
what the hit is for Fayetteville in the long run looking at where we are in the world. Did you get
brought up to speed on the LOPFI information?
Paul Becker: I've worked on it somewhat.
Mayor Coady: I need you to be the smartest guy in the world on it.
Dennis Ledbetter: On ours?
Mayor Coody: On LOPFI in particular and Fayetteville in specific. Not just this I'm talking
about the whole ball of wax.
Dennis Ledbetter: Okay.
Pete Reagan: We just got done with a LOPFI meeting on the 21st. The Pension Review Board
is the 26th. We don't have another LOPFI Board meeting set until December 8th I think?
Sondra Smith: Do you want to go ahead and set the meeting for the pensioners and decide on a
place to have it? We can have it here at the City. I think in the evening would be better for
everybody.
Ron Wood: Do you think the report will be back by the middle of November?
Pete Reagan: Yes, I think we should make a phone call to Carreiro and Associates.
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Mayor Coody: I'm going to be gone a few days in November make sure Lana knows what my
schedule looks like.
Sondra Smith: I'll get with her and find out.
Marion Doss: We can't really set a date until we get the study back.
Sondra Smith: I don't know that we can either because it took me about six months to get a
cash flow study on the Police Pension.
Pete Reagan: That's because they were working on everybody's and they can't release
anybody's actuary study until they have all of them done.
Sondra Smith: Right, they are finished with all of that so it maybe quicker by doing it in the
fall.
Ron Wood: Okay let's just wait.
Sondra Smith: Okay.
Meeting Adjourned at 2:45 PM