HomeMy WebLinkAbout2005-01-27 MinutesFiremen's Pension and Relief Fund
Board of Trustees
January 27, 2005
Page of 7
Firemen's Pension and Relief Fund
Meeting Minutes
January 27, 2005
A meeting of the Fayetteville Firemen's Pension and Relief Fund was held at 11:00 a.m.
On January 27, 2005 in Room 326 of the City Administration Building
Pete Reagan called the meeting to order
Present: Pete Reagan, Ronnie Wood, Robert Johnson and City Clerk Sondra Smith, City
Attorney Kit Williams, Trish Leach, Accounting, Elaine Longer and Kim Cooper with
Longer Investments.
Absent: Mayor Coody, Marion Doss and Danny Farrar.
Approval of the December 30, 2004 Meeting Minutes:
Pete Reagan moved to approve the minutes. Ronnie Wood seconded the motion. Upon roll
call the motion passed 4-0.
Approval of the Revised January 2005 Pension List and the February 2005 Pension List:
Sondra Smith: Trish sent a revised Pension List for the month of January that shows the 3%
COLA for the DROP pensioners. I will have the Mayor sign the revised copy.
Pete Reagan moved to approve the pension list for January and February. Robert Johnson
seconded the motion. Upon roll call the motion passed 4-0.
Longer Investments:
Elaine Longer: The amendment to the policy that we made at the Police Pension meeting we
would also like to make it on the Fire Pension policy as well.
Kit Williams: I recommend that you give your financial advisor a little lead way in her targets.
She will keep the same targets about how much should be invested but with a plus or minus 5%
and if she varies from that then she will report back to you at your next meeting and you will say
that it is fine or no go back to the range that we had agreed upon. That prevents her from having
to sell if the stocks go up in value above the 50%. I think it makes since to give her that lead
way.
Firemen's Pension and Relief Fund
Board of Trustees
January 27, 2005
Page 2 of 7
Elaine Longer: That keeps us from having to sell when you are at 52 '/2%. I think it would be
better if we put that in the policy, plus or minus 5%.
This report is dated as of December 31, 2004.
Page 1 shows the common stock part of the portfolio is about 52% when you include the
Japanese mutual fund your equities are really 53.6%. We are pretty much at the same place we
were the last time. We are hovering a little bit above your 50% range. At this point in time I
would hate to have to raise 3.5% of your portfolio which would be about $300,000 out of the
stock side because I sure don't want to go buy a 10 -year treasury at 4%. That was the whole
reason behind putting that amendment in your investment policy if you are not opposed to that.
On Page 5 the year end market value on the portfolio was $10.4 million and the income yield is
3.4%. That is close to the 5 -year treasury yield which is a 3.7%. You have a 53% growth
component but on your overall portfolio the income that comes in regardless of what the stock
market does is still about the same as a 5 -year treasury.
The next page summarizes your realized gains and your income for the year. Total realized
gains were $390,000. Those are the stocks that we sold that we took gains on. It is not your total
return it is just the ones that we harvested the gains on. Your net income which is just dividends
and interest was $241,000.
The next page shows your bonds. All of your corporates are A rated or better. General Motors
which we sold is now down to a BBB-.
On page 10 your weighted average yield to maturity on your bonds is about 4.8% and the
average maturity 7.6 years. To give you a comparison the 10 -year is at a 4.10%. So you have a
higher yield and a lower maturity. You have about 26% of the bond portfolio that matures
within a three year time period that is our flexibility in the portfolio if interest rates increase this
year. They increased last year in the short end but the 10 -year maturities on out did not increase.
This year if economic growth continues to come through fairly strong and in fact continues to
tighten we can see an opportunity to purchase in the longer maturities we would be polling from
those bonds that mature within the next three years to extend maturities and be able to increase
the interest rates.
On Page 11 are your largest holdings. We monitor those to keep you within policy constraints.
Nothing is supposed to exceed 5% of the portfolio.
The next report is your industry sector allocation. Basically last year we were overweight in
energy, capital goods and underweight in consumer, technology and financial. We have shifted a
little bit as we came into this year. We have taken some profits on some of the capital goods
companies and we have bought more in the defensive consumer stocks like Clorox, Colgate
Palmolive, Kraft and Sara Lee. We have taken some and put it in the more defensive category
this year.
Firemen's Pension and Relief Fund
Board of Trustees
January 27, 2005
Page 3 of 7
The 4th Quarter rally that we had really didn't start until November 1, 2004. If you look at the
performance of the stock markets through October 31, 2004 every market average was down
either 1% on the DOW or 4% on the NASDAQ. It wasn't really until we got through the
election that the market took off. The entire year's return was taking place in two months. We
kind of borrowed from this year's first quarter in that December rally. Month to date in January
the S&P is down about 3% the NASDAQ is off about 7% so we are giving back some of what
we got post election.
The contributions and distributions are on page 17. Your distributions exceeded contributions by
about $1.4 million since inception.
Page 18 shows your performance report. Last year your equity return for the year was 7.6% and
that compares to the S&P of about 8.9%. The DOW was about 5.3% so we were kind of in
between. Total return for the year was 6.6%. The annualized return from inception to date, your
equities have annualized 12.2%; your fixed income component has annualized 4.6%, REITs
24.8% and the total has annualized 7.8%. By comparison the S&P 500 has done 11.8% and
13.8% with compounded dividends. The DOW is at about 11.1% and the Salomon Brother
Treasury Index has done about 4%. You have out performed the indices in both the equity
markets and the fixed income net of all of your expenses. Given the turmoil that we went
through to get you going, the turn over and everything like that, that adds increased cost I am just
glad to report that you really didn't miss anything while we were restructuring. You really came
through just fine. On the bottom of the page it shows the beginning value of $9.9 million and
then the deposits and withdraws so your net withdraw has been about $1.2 million and your net
investment return is $1.77 million so your are still keeping up with the distributions inception to
date.
Last year was a harder year than 2003. 7.6% is not as much fun as 29.5% but it was a year that
you had to fight for every percentage point that you got. I think this year is going to be the same
way. There is still a lot of uncertainty out there and in a rising interest rate environment that
kind of puts the wind at your face instead of the wind at your back. I look for the returns to
pretty much track earnings growth this year which we estimate will be 7% to 9%. I would not be
surprised to see the same kind of year as last year where ultimately stocks should out perform
bonds. It will be modest returns versus the bond returns.
In your investment policy we need to address that asset allocation which is listed on page 3.
Equities at 25% to 50%. Basically all that will change on that is 25% to 50% plus or minus 5%
at the margin to be addressed at each meeting if we have an overage either way. That would just
give us a little bit more flexibility in between meetings.
Pete Reagan: Are you proposing language or under number 3 equities 25% to 50% just adding
plus or minus 5%?
Kim Cooper: Kit was going to write some language for the Police Pension and we could use the
same language.
Firemen's Pension and Relief Fund
Board of Trustees
January 27, 2005
Page 4 of 7
Pete Reagan: I never did like having to sell and take money away from money managers
because they have made too much money which requires them to sell at a time when they really
didn't need to sell because they could have left money in the market and made more.
Elaine Longer: Yes, to rebalance.
Pete Reagan: Should we put language in section three that allows our money manager to go
over the recommended percentage only for the cases where you would be forced to sell to stay
within those boundaries?
Elaine Longer: I think that is pretty much how it will be drafted. Then at each meeting we
always review what the asset allocation is and so if we are over we will have the option to say
that you would rather us get back to the 50%. We will not go over the 55% we are still targeting
50% but if you are at 50% and we have a 5% rally in the market in a month you are at 52.5%. If
I think it is going to go up more then I have to sell to get back to 50%. We are still going to
target 50% but know that we can go to 55%.
Pete Reagan: I have no problem with you going to 55% I would just hate to see you come to a
meeting and it was at 55% and you were forced to sell the one company that's booming or the
sector that is booming we are going to have to get out of it just to stay within these guidelines.
Elaine Longer: The investment policy is really incorporating your goals for the long term
which is the growth plus the income and the stabilization of the portfolio in a down market. I
think that is were the range comes from. That gives you a good combination of the growth plus
the income and some defensive characteristic in the event of a bear market. I think probably the
range is set for that reason in the policy.
Pete Reagan: I understand that. I am trying to help you out if we get into a bull market where
you wouldn't have to be forced to sell if it got to 56%.
Sondra Smith: You feel 5% is enough variance don't you?
Elaine Longer: I do.
Pete Reagan: Okay.
Elaine Longer: In the bear market we dropped under in the other account by over 10% on the
low end, if it got to a point where we really felt compelled we would bring that up at a meeting.
Policies are just on paper, we abide by them but they can be changed at a meeting.
Firemen's Pension and Relief Fund
Board of Trustees
January 27, 2005
Page 5 of 7
Pete Reagan moved to change the policy in the Equity Portion to read the Manager can
operate outside the Equity guidelines by not more that 5% with a report on the variance to the
Board at their next monthly meeting. The Board will then authorize or reject the variance for
the next month. Ronnie Wood seconded the motion. Upon roll call the motion passed 4-0.
Pete Reagan: What were our management fees for 2004?
Elaine Longer: That is on page 6. The total management fees are $79,000 and Northern Trust
fees are about $6,800. Your total expense ratio is about $85,000 which comes to about 80 basis
points or .8% on your total value.
Old Business:
John and Eileen Jenkins Qualified Domestic Relations Order: A copy of the order was
attached for the Board to review.
Pete Reagan: It says we have to give her one half of his monthly benefit.
Kit Williams: I generally recommend that you obey the Judge.
Pete Reagan: We had a question about that Kit in the past. The Judge had ordered us to pay the
divorced wife but State statue says we can only write a check to the actual pensioner. Jerry
Rose told us it would be advisable to do whatever the Judge said.
Kit Williams: I think we have to follow this as you are aware if the pensioner dies she losses
her check. She does not get 50% of the fund she only gets what the Judge tells us what she is to
get from his pension when he dies she is not a surviving spouse any more because she divorced
him.
Sondra Smith: Unless he has a surviving spouse and has had that surviving spouse for a length
of time.
Kit Williams: If he remarries the Board would be entitled to grant that person that normally
would not be a surviving spouse that has been married, I think five years after they got retired,
they could become a surviving spouse but that is only with Board action. That would be
considered a benefit increase because you would be entitling someone that was not entitled to get
anything. That is a recent change in the law.
Ronnie Wood: That would be up to this Board to make that decision?
Kit Williams: That is right. Right now if they are not married both at the time of the retirement
and the time of death, they are not the surviving spouse.
Pete Reagan: Right.
Firemen's Pension and Relief Fund
Board of Trustees
January 27, 2005
Page 6 of 7
New Business:
Kelly Skelton — College Enrollment:
Sondra Smith: I have not received Proof of Enrollment therefore I have sent a letter requesting
a copy. Kelly will cease receiving a check this year due to her age.
Kim Skelton — College Enrollment:
Sondra Smith: I have not received Proof of Enrollment therefore I have sent a letter requesting
a copy.
Trish Leach: Do we need to hold their check until you contact us?
Sondra Smith: Kit says we can not hold their check.
Kit Williams: We can if they don't have proof. Don't send a check out until you check with
Sondra or me. If they do not provide proof no money goes out if one of them provides proof she
gets all the money.
Sondra Smith: If they enroll in Northwest Arkansas Community College they will not give a
proof of enrollment until after the first of February due to classes that might be dropped.
Pete Reagan: Once their benefits stop they can't reapply for it?
Kit Williams: I don't know. I will check that out.
Other:
Pete Reagan: I did some checking on the cost of the NCPRES conference that we talked about
at the last meeting. The trustee seminar, the pre -conference registration fee is $395. The regular
conference registration is $595. The estimated airfare that I was quoted yesterday was $398.
The conference is headquartered at Mandalay Bay Hotel in Las Vegas, Nevada and the room rate
is $189 per night for one or two. I got the cost of some hotels in Las Vegas through a travel
agent. The Luxor would cost $815 for seven days and Mandalay Bay Hotel would be $1,523.
The cost for using the Luxor, hotel, convention registration and airfare is $2,205 estimated cost
and using Mandalay Bay the cost would be approximately $2,913. To send two people there
would be an additional cost of around $1,400. If we are going to go I would strongly
recommend the pre -conference seminar.
Sondra Smith: This cost does not include meals. I asked for $4,000 to be added to the budget.
When is the conference?
Pete Reagan: May 6 through May 12. I would like to go. I would suggest we go ahead and
book the rooms.
Firemen's Pension and Relief Fund
Board of Trustees
January 27, 2005
Page 7 of 7
Sondra Smith: That sounds expensive for airfare to Las Vegas because usually you can get
those package deals.
Pete Reagan: I asked the travel agent to check on a package deal. Right now is the busy time
for Las Vegas.
Ronnie Wood: I would book it. You can always cancel it.
Pete Reagan: Let's just decide at the next meeting.
Sondra Smith: I don't think the City would reimburse any fees if you cancelled.
Pete Reagan: The City is not going to reimburse anything it is the pension fund.
Sondra Smith: But it is through the City's travel and training policy. Is it not?
Pete Reagan: That was brought up the last time. Our money here is not intertwined with any
City money.
Sondra Smith: Right.
Pete Reagan: I think we could just bring the receipts back and pay it. I don't think our travel
and training through the City would apply.
Trish Leach: You would think if the Board voted to cover it and you cancelled then it would be
up to the Board to decide to cover the cost of cancellation. I personally would recommend that
all the receipts be turned in. We are very strict on the travel and training forms.
Sondra Smith: That is because of the auditors.
Trish Leach: It's just to protect you.
Pete Reagan: The Stars and Stripes conference is $1,695. We will just wait until the next
meeting.
Meeting Adjourned at 11:55 AM.