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HomeMy WebLinkAbout2004-01-29 MinutesFiremen's Pension and Relief Fund Meeting Minutes January 29, 2004 Page l of 1 l Firemen's Pension and Relief Fund Meeting Minutes January 29, 2004 A meeting of the Fayetteville Firemen's Pension and Relief Fund was held at 11:00 a.m. on January 29, 2004 in Room 326 of the City Administration Building. Present: Danny Farrar, Pete Reagan, Robert Johnson, Marion Doss, Ronnie Wood, Sondra Smith, Secretary, City Attorney Kit Williams, Kim Cooper, Elaine Longer, Attorneys Darin Williams and Ken Kieklak. The meeting was called to order by Marion Doss. Approval of the Minutes: July 9, 2003 Special Meeting Minutes November 25, 2003 Special Meeting Minutes December 18, 2003 Meeting Minutes Marion Doss: Sondra, why are we approving the July 9th and the November 25th minutes. Sondra Smith: Those were both Special Meetings. At the December meeting the minutes for the Special meeting in November had not been completed. I do not show in the minutes that we approved the special meeting in July minutes. I think as a matter of record we need to go back and approve those and have it in the records that those meeting minutes were approved. Pete Reagan: On the December I8th minutes on page 4 where we are talking about the ten year DROP, I do not recall hearing Mayor Coody voting no on that resolution. Sondra Smith: I did not hear anyone vote no, but I did not hear the Mayor call for anyone opposed either. When I took the Resolution to Mayor Coody to have him sign it, he stated that he voted no on the ten year DROP. I do not know what you can do in a situation like that. I would prefer that we do all votes by roll call vote from now on. Pete Reagan: I think that is an excellent idea of doing roll call vote. Kit Williams: Anything like that where you have an important vote needs to be individually counted. Marion Doss: I think that is a good idea and that would solve this problem in the future. I didn't hear any no votes either. I don't recall hearing anybody ask for any no votes. Sondra Smith: It was not on the tape that anyone asked for any no votes. It was just all in favor and all I heard was aye's. The other two resolutions were done with roll call vote. Firemen's Pension and Relief Fund Meeting Minutes January 29, 2004 Page 2 of 1 l Marion Doss: That is the one that you called us later and we clarified our votes. Each of us gave our vote to you over the phone. Sondra Smith: Yes. Since we did not do roll call vote and Mayor Coody stated that he voted no, we needed six out of the seven on the Pension Board to pass the Resolution I called each one of you to make sure that I didn't miss someone else wanting to vote no. Pete Reagan moved to approve the July 9th Special meeting minutes, November 25th Special meeting minutes and the December 18, 2003 regular meeting Minutes. Danny Farrar seconded. The motion to approve the minutes passed 6-0. Mayor Coody was absent. Approval of the Pension List for February, 2004. Marion Doss: It looks like Dennis Ledbetter has been moved from DROP to retired. Pete Reagan: Madge Schader has been added and Earvel has been removed. Pete Reagan moved to approve the Pension List. Robert Johnson seconded. The motion to approve the Pension List passed 6-0. Mayor Coody was absent. Old Business: Ken Kieklak Report: Ken Kieklak: Thank you for putting us on the agenda. Darrin Williams and I wanted to present some information to you today. We haven't seen you in some time but let me assure you that we have been doing quite a bit of work as well as the people that we have hired to analyze the information that you retained us to look at. During that time as you know we hired an analysis to go through the numbers, we also hired an expert out of Chicago to go through some of the information. Darin's firm has done both an in house review of the information and also obtained an independent expert to come in and take a look at everything that we had complied to really get to the bottom line. Darrin has passed out some information. Darrin Williams: I would like to thank the Board for allowing us to make this presentation. We have completed a detailed analysis of your trade history and your investment objects. When we were here before we talked in general terms about what may or may not be there with regard to this case. We have done a full blown analysis and I will quickly go over this. Financial Outsourcers a group out of California we have used from time to time and they are very reputable experts. We have given you a one page summary to review. This analysis goes from late 1998 or early 1999 to 2002 and looked at your trade history during that period of time. When we started this analysis there was about $14.7 million in investments through Merrill Lynch. During that trade time, remember that was during a significant decline period for the market, the market was down tremendously during that time. At the end of the analysis in 2002 the value of the portfolio was about $13.9 million. That is about a $797,000 decline, of that number $200,000 plus was general commissions and charges that Merrill Lynch would charge Firemen's Pension and Relief Fund Meeting Minutes January 29, 2004 Page 3 of 1 l over a four to five year period of time, so it leaves a loss of about $579,000. If you look at that about $2.3 million was loss in trading but you made $1.8 million in the debt market because you were heavily invested in that market. Basically what we are saying is looking at this analysis it really changes the dynamic that looks like a large number, a half a million dollars but you have to look at in terms of what the market was doing. To find a case you have to figure out where fog is, there has to be a fraudulent reason to attribute the $500,000 loss to, it can't be just because the market is down. You can't hold your money manager accountable to a toss in the stock market unless there is some fraudulent activity. What we had to do is analysis your investment objectives to see if your manager traded in accordance with the guidelines that you set forth. It took some time to figure out which ones were the correct investment objectives; we had several different copies when we went through the files. Initially your investment objectives included such things as no investments in foreign securities, if you look at your portfolio you will see what appears to be foreign securities, companies like Mitsubishi, which are really not US based stock market companies, they are not traded on the US exchange they are traded on the Foreign exchange. Many investors both individual and institutional trade in what is called ADR American Depository Receipts, Mitsubishi trades ADR's in the US. Is that a foreign security, yes and no, yes it is not traded on the US exchange but it is a type of security that I think you would look to invest in. When we talk about foreign securities generally we are talking about those fly by night things that you don't know about. You have as much information on Mitsubishi as you will have on Wal-Mart. About 2,000 banks hold these ADR's, standard operations, institutions like yourselves as well as smart individual's trade in ADR's all day. That within itself may not be a prohibited trade; it would be left to your understanding as to what you meant when you wrote that objective of no trading in foreign investments. One conversation we had with you Pete, you didn't think that meant those everyday common household securities. Then you are left with what possibility could be prohibited. Your investment objectives are not quite clear but it does say that you want to be in investment grade securities. The objectives again are not clear, investment grade debt securities is triple B or better. You in your investment policy talk about A rated securities and then you talk about investment grade rate which that is not the same, triple B is investment grade. There are some securities that arguably may have been purchased below grade depending on the A or triple B which you meant by your objectives. There are some that clearly fell below investment grade while you held them. If you had an objective that you couldn't be investing below investment grade and you held that, the manager should get out of that stock in a reasonable period of time, the question is what is reasonable, that is something to debate. To get out of that trade there has to be a market for it, so it may not be unreasonable for your broker to continue to hold investments like that because there is really no market for it. After considerable analysis both in-house, outside and by ken and his folks is that based on the investment objects, based on your loss, overall you did much better than the market during this period of time. There is no real fraudulent activity that I can pin these losses to. I would prefer to come here and tell you that I am going through with the arbitration route. I do not think you will be successful in arbitration in this litigation based on the things that I have talked about. When you look at arbitration if you get 50% of your damages you have done decent in arbitration. There is a reason these folks put arbitration clauses in your contract; it is not to help you. If these were and they are not all prohibited trades and you discount that by what could be possible in arbitration then you discount the cost and attorneys fees, I'm not sure it is reasonable Kit Williams: I can also say that they have spoke to me for about an hour this morning and we went through this in depth. This is not an easy conclusion they have made because they had thousands of dollars in expenses, not only in time but in expenses in hiring the expert to go through all this. I am glad that we went through this process, it has been good for the board because you have certainly done due diligence in looking at this very carefully and I encourage any questions that you might have. It looks to me that they have done everything possible in examining this. Pete Reagan: Darrin could you go over the last two columns, the annualized turnover rate and explain that. Darrin Williams: The expert does things that are above and beyond what I need and what I use. That is something they would need to explain. Ken Kieklak: We can find out if you want us to. Pete Reagan: I was just curious. I think we should note for the minutes that Ealine Longer and Kim Cooper of Longer Investments have entered the room. Do you have a couple of extra reports for them? Darrin Williams: I sure do. Mr. Williams gave Elaine and Kim a quick overview of what he presented to the board. Pete Reagan: I would like to thank Darrin, Ken and Mark for their hard work on this. You took the risk and the expenses. Ken Kieklak: We certainly appreciate the confidence you put into our firm. We have went above and beyond investigating whether or not there was any fraud by the investor that you hired in the past. That is what you that sit on the board are to do. I want to thank the Clerk's office because we went to your office and went through your files a number of times to go through the information. I wish we had a different result but I think we have done above and beyond to find out if there is a claim. Kit Williams: Do you need any kind of formal action by the board, a resolution saying that they have decided not to go forward and take your advice because we do have this attorney client agreement that you are going to look into it. Do you want some formal closure from this board at this point? Ken Kieklak: We talked about that, I don't know if we necessarily do need something. We are probably going to have some correspondence back and forth. That is up to you, if you want to vote on it that's fine. Firemen's Pension and Relief Fund Meeting Minutes January 29, 2004 Page 4 of 1 l for you to proceed with those numbers based largely on the fact there is no fraud to pin the lose to it looks more like a bad market. I really wish I was coming here to bring a check and say we received a bunch of money back. I unfortunately cannot advise you to move forward in a case like this because of the numbers. Kit Williams: I can also say that they have spoke to me for about an hour this morning and we went through this in depth. This is not an easy conclusion they have made because they had thousands of dollars in expenses, not only in time but in expenses in hiring the expert to go through all this. I am glad that we went through this process, it has been good for the board because you have certainly done due diligence in looking at this very carefully and I encourage any questions that you might have. It looks to me that they have done everything possible in examining this. Pete Reagan: Darrin could you go over the last two columns, the annualized turnover rate and explain that. Darrin Williams: The expert does things that are above and beyond what I need and what I use. That is something they would need to explain. Ken Kieklak: We can find out if you want us to. Pete Reagan: I was just curious. I think we should note for the minutes that Ealine Longer and Kim Cooper of Longer Investments have entered the room. Do you have a couple of extra reports for them? Darrin Williams: I sure do. Mr. Williams gave Elaine and Kim a quick overview of what he presented to the board. Pete Reagan: I would like to thank Darrin, Ken and Mark for their hard work on this. You took the risk and the expenses. Ken Kieklak: We certainly appreciate the confidence you put into our firm. We have went above and beyond investigating whether or not there was any fraud by the investor that you hired in the past. That is what you that sit on the board are to do. I want to thank the Clerk's office because we went to your office and went through your files a number of times to go through the information. I wish we had a different result but I think we have done above and beyond to find out if there is a claim. Kit Williams: Do you need any kind of formal action by the board, a resolution saying that they have decided not to go forward and take your advice because we do have this attorney client agreement that you are going to look into it. Do you want some formal closure from this board at this point? Ken Kieklak: We talked about that, I don't know if we necessarily do need something. We are probably going to have some correspondence back and forth. That is up to you, if you want to vote on it that's fine. Firemen's Pension and Relief Fund Meeting Minutes January 29, 2004 Page 5 of 1 I Kit Williams: It is up to you, these are the guys that make the decisions, I can't do anything formally. Darrin Williams: I don't know that that is required. They told us to look into it and I think we have done that, so we are fine. Kit Williams: The minutes will probably be enough. Ken Kieklak: That is what we had discussed and I think what we will do is send you a confirmation letter stating what we went over and I think that will be sufficient. Kit Williams: Okay. Marion Doss: We do appreciate what you have done on everything. Kit Williams: Now you know why in our attorney client agreement that I drew up I said we will not be responsible for any cost if it doesn't work out. Not only did they have a lot of hours, normally in a contingent fee contract you pay for their expenses, their travel and the hiring of the experts. In contingent fee cases there can be a big loss for the attorneys which they just took a loss on this. We really do owe them a debt of gratitude. None of the cost incurred are coming back against the Fireman's Fund. Elaine Longer, Longer Investments: Does this cover the period of 1998 until 2002? Kit Williams: Until you took over I think. Elaine Longer: And the net loss on the total portfolio during that time was $797,000? Kit Williams: That is the way that they computed it out. Pete Reagan: That was 1999. Kit Williams: Was it 1999. That's not bad. Although it probably went up in 1999 and then it came back down. Elaine Longer: Probably the fall was higher from the peak. Longer Investments, Investment Report: The year end portfolio appraisal year close, your stock holdings were 47% in common stock and approximately 51% in stocks if you include the mutual funds which are foreign stocks. We are just a little over the 50% number but if you look at book value we are still under it. We are right there on the wire as far as your maximum equity exposure. The rest of the portfolio is bonds, preferred debt and real estate investment. We still show the Enron Bonds, the last bid we had on October 6 was $8.00 through Northern Trust and $11.00 through Southwest Security. The current bid indication is $15.00 that would Firemen's Pension and Relief Fund Meeting Minutes January 29, 2004 Page 6 of II give us a loss of about $20,000 or so if we sold at that price. Since you are not going into litigation I would recommend that we get out of it. Kit Williams: What ever the Board decides. We certainly are free now to do that. I guess it has been going up because there is movement toward going after some of the principles and trying to recover money from them? Elaine Longer: I don't think they will recover enough to pay the bonds off. Kit Williams: Do you think this is about as high as it is going to get? Elaine Longer: At this point it is just guess work if it goes higher and it does violate your policy. Your realized gains year to date this year are about $91,000, so you have the net gains to take a $20,000 loss, so you have the gains to wash the loss. Kit Williams: You should try to follow your policy now that you are not involved in litigation. Pete Reagan moved to give Longer Investment authorization to sell the Enron Bonds. Robert Johnson seconded the motion. Upon roll call the motion passed 6-0. Mayor Coody was absent. Elaine Longer: The year end value was $10.567 million and the income on the portfolio which is just dividends and interest income is at a $310,000 level now with 3.2%. You have the equivalent of a five year treasury yield on a portfolio that had the 50% growth component, so that is real good, we want to keep seeing that income yield go up. Your largest stock holdings as a percent of total portfolio at historical cost is 1.4%, and 3.2% of equity. That is still a very well diversified portfolio. Your policy states we can go up to 5% of total equity exposure. We have some bonds that will probably be called in 2004. That is good because we are projecting a rising interest rate environment for this year and a better buying opportunity in the fixed income market. Net Income was $255,000 but that doesn't include the overall increase in portfolio values which is composed of unrealized appreciation, the realized gains of $162,000 and the income of $255,000 and the total was about $1.25 million increase in portfolio value. Your weighted average yield to maturity on the bonds is about 5.3% and the weighted average maturity is about 9 years, however we have about 11 % of all of your bonds maturing in the next three years, so what that means is as interest rates go up this year we have not only the cash balances to apply to bonds but also this 11 % of portfolio can be rolled forward to get a higher income yield and lock it in for a longer period of time. You had a contribution of $350,000 and total distributions of $950,000, so net distributions were about $600,000. This year the investment return was about $1.25 million so your net increase of distributions was about $625,000.00. Firemen's Pension and Relief Fund Meeting Minutes January 29, 2004 Page 7 of I l Equity return last year was 29.5%, fixed income return was about 3%. You still earn that 5.3% on your bonds, but on a rising interest rate environment like what we had last year the price of bonds go down. The prior three years we earned coupon plus which means we earned the coupon on the bonds plus price appreciation as the price of those bonds went up in the declining interest rate environment. When you get into a rising interest rate environment you still get that 5.3% income but the price on the bonds will fluctuate to a down side so that you net return which includes market change plus income is 3%. We have not had a year like this since about 1994 where we had a rising interest rate environment sufficient to off set the interest. Your real estate investment trust is up about 21.9% so your total return for last year was 13.3%. Your cumulative annualized return, you have earned about 15.6% annualized return on the stock which compares to about 13.8% on the cash S & P, 15.9% on the S & P with dividends compounded and 15.4% on the DOW with dividends compounded. You are still right in line with all the major indices and these returns are net of your expenses. Your fixed income has annualized at about a 5.4% rate and your total return annualized is 8.6%. That compares to your 6% return mandate. We are over weighted in capital goods in cyclical industry, energy and technology and we are under weighted in consumer and financial stock. Financial stock typically under perform in a rising interest rate environment. The ones that we own are really well positioned so we don't have a lot of exposure in financial stock. We are still seeing very good earnings reports. Your investment policy we are adhering to a maximum equity exposure of 50%. We do have your foreign investments up to that 10%. Kit Williams: I have a notice of a class action settlement on Sprint stock from October 4, 1999 to September 19, 2000. I do not know who to give this to. Elaine Longer: We can file them for anything that comes in from the time we started managing because we have to document that you owned it at that time, prior to that we can't. Sondra Smith: When we get copies of things like that we take it to accounting. Tracy knows who to give that to in accounting. We will take care of that for you. Letter from Arkansas Fire and Police Pension Review Board Marion Doss: We have the letter from the Arkansas Pension Review Board regarding our 10 year DROP, Working after DROP and the 3% COLA. Pete Reagan: The 10 year DROP and Working after DROP both have to go to the City Council for approval. Kit Williams: I will draft two separate resolutions to take this to the City Council for approval. Marion Doss: Since you have our signed resolutions you don't need us to sign anything else. Kit Williams: I don't think so. Firemen's Pension and Relief Fund Meeting Minutes January 29, 2004 Page 8 of 1 l Marion Doss: Do you think this can be on the consent agenda. Sondra Smith: I doubt it. They will probably want an explanation at the City Council meeting. Kit Williams: I would guess that is correct, especially if the Mayor voted against it he is not going to want it on consent were it will be accepted without any discussion. He will probably want to explain why he is not in favor of it. Resolution Number 03-03 — Enacting a Temporary 3% COLA Start Date of COLA Does the COLA Apply to DROP participants? Marion Doss: The 3% temporary COLA if I understood it applied to everyone on the list. Sondra Smith: Accounting asked me if that 3% COLA was to be applied to the DROP participants. I told them we would discuss that at the meeting today. Pete Reagan: We do have an Attorney General's opinion that states those who have signed up on DROP and are actually still on the job are considered retirees. Marion Doss: For COLA purposes? Pete Reagan: No for every purpose, the board makeup and everything else. Pete Reagan moved that the 3% temporary COLA be applied to volunteers, retirees and DROP members. Danny Farrar seconded the motion. Upon roll call the motion passed 6- 0. Mayor Coody was absent. Sondra Smith: The other question that accounting has is the letter from the Arkansas Fire Pension Board states the 3% temporary COLA can be enacted beginning January 1. The Pension List that you approved did not include the 3% temporary COLA because we did not set a start date for that to go into effect. We need to set a start date for the 3% temporary COLA. Pete Reagan moved that the effective date of the temporary COLA be January 1, 2004. Ronnie Wood seconded. Upon roll call the motion passed 6-0. Mayor Coody was absent. Sondra Smith: Accounting will back pay for January and they may be able to get the increase on the February check. Pete Reagan: Sondra will you draft a letter to the Pensioners explaining the 3% temporary COLA for three years and that that is the reason for their increase. Sondra Smith: I will draft a letter. Ashland Management: Firemen's Pension and Relief Fund Meeting Minutes January 29, 2004 Page 9 of 1 l Kit Williams: I sent them a letter stating what I feel is the most accurate amount that we should pay. I have not heard back from them. If they invoice us for the $428.91 then we should pay it, I would like to get your approval that if they invoice us for that amount we will pay that fee. Pete Reagan moved to pay Ashland Management $428.91 if we receive an invoice for that amount. Danny Farrar seconded the motion. Upon roll call the motion passed 6-0. Mayor Coody was absent. Kit Williams explained how he figured the amount that he thinks is due to Ashland Management. Copies of Dennis Ledbetter's Retirement Papers: Sondra Smith: You asked for a copy of his retirement papers therefore I have attached a copy to the agenda. New Business: Thank you letter to Kathryn Stout: Sondra Smith: I thought it would be nice for her to know that we received her donation and that we appreciated her sending it to the fund. Schedule of Fireman's Pension Meetings for 2004: Sondra Smith: We changed the November's meeting to the week before Thanksgiving. Therefore the meeting in November will be on November 18, 2004. Budget Information: A copy of the Firemen's Pension budget was attached to the agenda. Kim Skelton College Registration: Sondra Smith: We received Kim Skelton's Proof of Registration form showing she is enrolled at the U of A. Kelly Skelton College Registration: Sondra Smith: I continue to have a problem getting Kelly Skelton's Proof of Enrollment. She has turned an early registration form but that does not mean she is enrolled. She told me she could not get Proof of Registration unless I sent a letter to NW Arkansas Community College stating that I needed Proof of Registration. I sent the college a letter stating that we had to have a copy of her Proof of Registration by February 1, 2004 and I have not received Proof of Registration yet. I also sent a letter to Kelly stating that I had to have the Proof of Registration by February 1, 2004. Firemen's Pension and Relief Fund Meeting Minutes January 29, 2004 Page 10 of 11 Marion Doss: Is Kelly aware that her check can be stopped if she doesn't provide Proof of Registration. Sondra Smith: Accounting does not want to send the February check to her unless we have the Proof of Registration. Marion Doss: Do you run into a problem with the college not releasing information to you? Sondra Smith: Yes, I have called NW Community College in the past and they will not release any information to me. A discussion followed on Kelly Skelton and her Pension Payment. Danny Farrar: Why don't you send her a certified letter? Sondra Smith: I can do that; I will try to get it in the mail today. Should the deadline still be February 1, 2004? Marion Doss: Yes and explain to Kelly that Accounting can not release the check until she provides the Proof of Enrollment. NCPERS 2004 Annual Conference: A copy of the dates for the NCPERS Annual Conference was attached to the agenda. The Monitor: A copy of the Monitor was attached to the agenda. Parking Permits for 2004: Parking Permits for 2004 were handed out. Sondra Smith: Marion Doss suggested that we add the Fireman's Pension minutes to the Web. We can add the minutes; if you want them on line we will be happy to add them. Pete Reagan: Have we had any request to do that. Marion Doss: No. I use to make copies and send them to the stations. What might serve the purpose just as well and might be a lot easier, you already email them to us; we could email them to the people that are on DROP and that would serve the same purpose. If I were retired and wanted to know about the meeting, I would call and ask to be put on your email list. Pete Reagan: I know it is a lot of trouble to put them on the web page. I don't think there is a need to put them on the web that is a lot of extra work for Sondra's office. If the folks that are retired want a copy of the minutes they should call the City Clerk's office and get on the email list. Sondra Smith: I can automatically put them on the email list if you want me to. Pete Reagan: If they don't want them they are just going to delete the email. Firemen's Pension and Relief Fund Meeting Minutes January 29, 2004 Page 11 of 11 Sondra Smith: I have the Board set up as a group so it is no problem to add then to the group, it is whatever you want me to do. I can add them to the email group to receive the minutes or I can add the minutes to the web. Marion Doss: Let's just add the DROP members to your email group. Sondra Smith: If you want more information on the web under the Fireman's Pension Board we can put it on the web, just let us know. Pete Reagan: I wouldn't put anything out there unless some asks for it. Sondra Smith: Right now we just have your meeting schedule and the makeup of the board on the web. Meeting adjourned at 12:20 PM.