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HomeMy WebLinkAbout2003-10-30 MinutesFireman's Pension and Relief Fund Board Meeting October 30, 2003 Page 1 of 6 MINUTES OF A MEETING OF THE FIREMAN'S PENSION AND RELIEF FUND BOARD October 30, 2003 A meeting of the Fayetteville Firemen's Pension and Relief Fund was held at 11:00 a.m. on October 30, 2003 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, Marsha Farthing, Elaine Longer and Kim Cooper. The meeting was called to order by Marion Doss. Approval of the Minutes October 3, 2003: Pete Reagan moved to approve the minutes. Danny Farrar seconded. The motion passed unanimously. Approval of the Pension List for November, 2003. Pete Reagan moved to approve the Pension List. Robert Johnson seconded. The motion carried unanimously. Pete Reagan: We have asked Kit for an opinion from the Attorney General and it is attached to the minutes. Kit Williams: It is basically as we thought it would be. I was just concerned by the way they titled their Act and wanted them to clarify it. Marion Doss: They are saying it is okay the way that we are doing it. Kit Williams: I think so; I don't think it changes any thing that we have done at this point in time. Pete Reagan: Act 833 money goes to the fire department account not the pension board account. Sondra Smith: Yes, I didn't know if you wanted to be aware of these funds or not, if you do not I will not put them with the agenda in the future. Marion Doss: Act 833 money goes into the fire department to purchase certain things. Fireman's Pension and Relief Fund Board Meeting October 30, 2003 Page 2 of 6 Sondra Smith: Should someone from the fire department sign this letter on the Act 833 money or should I continue to sign it. Kit Williams: You probably need to sign it as the City Treasurer. Kit Williams: This Ashland Management invoice, I don't think the Fire Pension Board actually contracted with Ashland Management, I think Merrill Lynch did. I guess you did have to approve the purchase of that didn't you. Pete Reagan: I think every quarter or once a year, whenever we paid Ashland, Merrill Lynch would bring a paper for us to sign agreeing to pay them. Whether we have done that and Merrill didn't pay them I don't know. That could be incorporated in the proposed litigation. Kit Williams: It is probably independent of that unless we are going to sue Ashland and we are not I don't think, so that is probably a separate obligation even though it is related to Merrill Lynch. It concerns me that this is way after the fact that Merrill Lynch has been relieved, and then all of a sudden we get this bill. Did we ever issue a check for that Marsha, do you know. Marsha Farthing: It usually just showed up on the statement that we received and we would record it. Pete Reagan: What would be your recommendation Kit? Kit Williams: Eventually we will probably have to pay it; we paid them in the past even though it was through Merrill Lynch, as long as it was for the period of time that Merrill Lynch was your financial advisor. We would have to go back and look at the records and make sure that was the time they were your advisor, as soon as Merrill Lynch was let go that should have ended their fees. You would need to ask Elaine Longer about when they quit being a part of your fund; we will probably have to pay up to then. Pete Reagan: Would you recommend that we write them a letter requesting the date? Kit Williams: No, I think I would just ask Elaine Longer about that and see when Merrill Lynch was terminated. Pete Reagan: I spoke to Jody Carreiro with Osborn, Carreiro and Associates in Little Rock today because we have still not received a costing of working after DROP or the ten year DROP. If we are going to adopt either one or both of those there would have to be a resolution from this board and it would have to be taken before City Council and then the actuary's would have to redo it to make sure that their numbers are correct. Kit Williams: So the resolution would come from the City Council before the actuary would see if it is possible? Fireman's Pension and Relief Fund Board Meeting October 30, 2003 Page 3 of 6 Pete Reagan: The actuary is going to give us a costing of it and say yes you can do this and this is what it is going to cost. We have currently two guys that are getting towards the end of their DROP and have expressed an interest in staying, either working after DROP or going to a ten year DROP. To expedite that there may be a need for a special meeting. Steve will get the information from Osborn, Carreiro & Associates because he is the one that asked for it. Marsha Farthing: Don't you have to be actuarially sound to do the ten year DROP? Pete Reagan: He said you could do it on a cash flow study and on a cash flow study we are actuarially sound. He said the number will not be significant at all to do it. Kit Williams: Elaine, we have an old bill from Ashland that was hired through Merrill Lynch. When did you take over for Merrill Lynch and terminate them. They have sent us a bill and we do not want to pay for a period of time that they were no longer working for us. Elaine Longer: Kim do you remember an account that was managed by Ashland? Kim Cooper: I don't think we actually knew any of the names of the other managers. Kit Williams: What happened when you took over for Merrill Lynch did you immediately cancel all of them? Kim Cooper: The board signed a letter stating to terminate the relationship immediately and to follow the instructions of Longer Investments to transfer the assets to Longer Investments. Elaine Longer: We can find that letter and the date. Kit Williams: Just get me a copy of that letter so we can compare that with their bill to see if we actually have to pay them some money. Elaine Longer: As of the date of that letter their responsibility ceased, unless their contract called for a 30 day grace period at the end of their contract. Kit Williams: I don't think we ever signed a contract, I think Merrill Lynch did. Elaine Longer: The bill that they are sending you does it give a date through which they are billing you? Kit Williams: If it doesn't, then we will request it. Investment Report - Elaine Longer, Longer Investments: We have the September 30th portfolio and we have put in the updated one as of October 2gth in your reports Fireman's Pension and Relief Fund Board Meeting October 30, 2003 Page 4 of 6 because for the month of October the stock market is up about 5% so it has been a significant difference since the last time. The amount invested in common stocks is 46.8% and the mutual funds that are foreign stocks are 3.5% so you are right at the 50% maximum on your policy. The current market value is back up over $10 million, the income on the portfolio is $324,000 a year or 3.4% yield. The important thing about that income yield is that, that comes in regardless of what the stock market is doing. You are earning the equivalent of a five year treasury note on a portfolio that has a 50% growth component. That is where we want you, I would actually like to see it closer to a 4% yield on the total portfolio but we haven't been able to buy the 6% type bonds yet. The cash balances that you see of about $238,000 are ear marked to go into bonds, our impression has been that we can wait a little bit and get a better buying opportunity. Today the GDP numbers came out for the third quarter and they were over 7% which was a big surprise, people were expecting 6.2%, back when I wrote the news letter in September it was 5%. It went from an estimate of 5% in September up to 6% and I think it came in at 7.7% which is the highest quarterly growth rate since 1984. It is a really big growth rate and that has helped to push stock up this morning and push bond prices down and interest rates up. The cash that you see there is just really sitting to wait to get into bonds at a better buying opportunity. You still have the Enron Bond and we do now have a bid on the bond, we were able to get a bid of $11.00 on the bond which would give you about $5,500 if we came out of it versus a cost of $32,000. I wanted to mention that to you to see if you wanted to just keep the bond in the portfolio, I know that you are in litigation with Merrill Lynch, we can kick it and take a loss or you can just keep it in the portfolio but I did want you to know that we did finally have a bid showing up if you want to get rid of it. Kit Williams: I would be concerned about selling it at this point in time unless you could get to a point that you could actually get your money back. I can see the other side arguing that this is kind of a settlement that you agreed to go ahead and take this money. I would talk to the lawyers that are handling your case and see if they think this would have any ramifications on their case. Where did this bid come from if they went from nothing to $11.00? Elaine Longer: They are in the process of settling with the creditors and the bankruptcy courts, so once that process begins to move forward they can tell whether the creditors are going to get 25 cents on the dollar or 20 cents on the dollar, so then firms are more willing to bid for outstanding bonds. I think that is probably what has happened. As long as you keep it, it is still in violation of the policy just because it is a junk bond. Kit Williams: I think you need to get some advice from your attorneys about whether or not they feel it would have any impact on their suit and then you decide. Pete Reagan: I think that is an excellent idea. Danny Farrar: How long is that bid good for? Fireman's Pension and Relief Fund Board Meeting October 30, 2003 Page 5 of 6 Elaine Longer: That is just good for the day they bid. That is just an indication of the market today. We did get two bids one was for $8.00 and another firm passed on bidding and the other bid was for $11.00. Kit Williams: I think if you eventually get to the point that you want to accept something, I would give some basic parameters to Elaine and let her snatch the one that looks the best. Elaine Longer: We will just bring that up at the next meeting and bring a fresh bid. On page 13 you have the break down of your largerest equity holdings and you can see that as a percent of total portfolio 3.3% is your largest exposure and 1.3% of total portfolio based on cost is your largest exposure to any one equity and that is well within you portfolio parameters. Page 14 shows your credit rating of your corporate bonds and then you have the government bonds and the government agencies securities with the call features showing next to the agency. We don't have much call risk you have a 6% that's callable on October 6, since it wasn't called this will roll forward. It is kind of a long bond and 2017 is the maturity so it's probably not going to be called immediately. Other than that you don't have anything that is coming up for call that would be very difficult for us to achieve at least that interest rate on a reinvestment. Page 18 is a summary of your realized gains year to date, $99,000, I think as of today they are closer to about $128,000 and the net income of $194,000. Page 19 gives you an idea of what the income on the fixed income securities is which is your bond and on the total portfolio. The yield on book value for your bonds is 5.3% and the weighted average maturity is 10 years. You have a very high income in the 10 year average maturity compared to say a 10 year treasury which is trading at about 4 '/4. Fixed income securities that mature within three years or less are 5.3% of the total portfolio so even once we use the $2.5 million that we have in cash if we want to extend maturities forward we can use any of that 5% of the portfolio that it is in the shorter maturities to lock in higher yield. On page 20 we have a summary of your contributions and distributions year to date and page 21 is your summary of performance. Looking across the columns your equity performance has been about 13 %z % and that is from inception to date. The S&P 500 on a cash basis has done 12 %2 % with dividends reinvested 15% and 13.2% on the Dow Industrials with dividends reinvested. Even though we had all that activity in the fourth quarter last year you really haven't lost anything in terms of performance, this is net of expenses and net of commission. Fixed income has delivered about a 7.2%, the real estate investment trust 24.8% on the total return basis, the cash shows a minus 1.2% but that is because the fees are billed against the cash and cash is earning .5%. When we bill fees against cash you will end up with a negative return. The total investment return has been 7.5%. On page 22 it shows the break down of the stocks and how we rate them. According to your policy they need to be rated at least a weighted average of B+ or better and your weighted average of 3.5 would put it between an A- and a B+. Fireman's Pension and Relief Fund Board Meeting October 30, 2003 Page 6 of 6 Your investment policy follows and the key consideration is the asset allocation which in your policy is 25% to 50% equity and we are right at 50%. I think given the cash flow analysis that your actuary did, I think your policy is still very valid as far as the appropriate assets allocation to get you to where you need to be. According to their cash flow analysis you are not having to shoot for 14% or 15% returns to get back to actuary sound he is assuming a 6% return on investment. So you don't have to go out there and assume a lot more risk than what is in your policy. Pete Reagan: Our insurance turn back check what do we do with it? Marsha Farthing: Deposit it into your fund. Kit Williams: I looked at this bill from Ashland Management and the date that the account was terminated was August 8, 2002. We would be responsible for the fees up to that point in time. The part that we may want to argue about is the advisory group terminates 30 days after written notice. They have charged you for a month after they were terminated; they have charged us through September 7, 2002. They charged us $1,100 during that time frame. I would suggest that we send them a letter stating we did not contract with them and that if they want to get this other $1,100 they can get it from Merrill Lynch and that the only thing that we will be willing to pay is the other portion up to when they were terminated and if they are willing to accept that and not harass us any more then we will send them a check, if not and they want to fight it out, then they can sue us. Pete Reagan moved to send Ashland Management a letter stating we would pay them the amount of money that would be due up to their termination but only if they agree not to harass us for the other amount. Danny Farrar seconded. Motion carried unanimously. Kit Williams: I will write Ashland Management a letter. Pete Reagan moved to adjourn. Danny Farrar seconded. Motion carried unanimously. Meeting adjourned at 11:50 AM. Next meeting will be November 20th at 11:00 AM due to Thanksgiving.