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HomeMy WebLinkAbout2006-10-19 MinutesPolicemen's Pension & Relief Fund Board of Trustees Meeting Minutes October 19, 2006 Page l of 29 Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes October 19, 2006 A meeting of the Fayetteville Policemen's Pension and Relief Fund Board was held on October 19, 2006 at 1:30 p.m. in Room 326 of the City Administration Building located at 113 West Mountain Street, Fayetteville, Arkansas. Mayor Coody called the meeting to order. Present: Mayor Coody, Jerry Friend, Tim Helder, Eldon Roberts Sondra Smith, Kit Williams, Marsha Farthing, Elaine Longer, Kim Cooper and audience. Approval of the Minutes: Approval of the July 20, 2006 Meeting Minutes Tim Helder moved to approve the minutes. Jerry Friend seconded the motion. Upon roll call the motion carried 4-0. Approval of the Pension List: Approval of the Revised May, 2006 Pension List Sondra Smith: After we approved the May pension list we made some changes to it. We had not received an affidavit from Warren Dennis so we went back and did back pay for him because we received the affidavit. The other one was the increase in survivor's benefits. We approved this before we had the survivor's benefits on this pension list. Eldon Roberts moved to approve the revised May Pension List. Tim Helder seconded the motion. Upon roll call the motion carried 4-0. Approval of August, September and October 2006 Pension Lists Sondra Smith: The change in these lists begins in September that's when we added Frank Johnson to the list. His retirement amount was $7,517.02, that's the gross amount beginning in September. That is the difference from August to September in your totals. Eldon Roberts moved to approve the August, September and October Pension List. Tim Helder seconded the motion. Upon roll call the motion carried 4-0. Policemen's Pension & Relief Fund Board of Trustees Meeting Minutes October 19, 2006 Page 2 of 29 Old Business: 3% COLA Discussion Mayor Coody: Welcome to the 3% COLA discussion because I know that is going to have an impact to the benefits. Who wants to start? Sondra Smith: We talked about requesting a 3% COLA but we wanted to wait and see how the actuarial valuation came back and we just received that. I think Kit did a memo and all the board I believe received my packet with the minutes, memo and valuation in it. Our unfunded liability increased, it is on page 10 of the actuarial valuation report. Our unfunded liability has increased from 2003 to 2005. The funded percent is now 52.5%. Mayor Coody: That's a problem to drop from 103% funded to 68, 71, 59 and 52 percent in just a matter of seven to eight years that is pretty substantial. I don't see how it can stand another eight year drop like that. Sondra Smith: What the board wants to do is to see the valuation before they decided to do a cash flow study to see if they would qualify for the 3% COLA or any benefit increase in the future on a cash flow basis. Mayor Coody: Yes. Sondra Smith: Because on an actuarial soundness we do not qualify for any benefit increase. Mayor Coody: Yes. Tim Helder: How many times have we qualified on actuarial basis? Jerry Friend: We never have. Kit Williams: Well you probably would have back in 1997. Eldon Roberts: 1997 yes. Mayor Coody: There was a time and I don't remember when it was when the benefits went from 50% to 90%. Eldon Roberts: 55% to 90%. Kit Williams: 55% to 90% in 1999. Mayor Coody: I think that must be when it really started taking a nose dive. Sondra Smith: Right. Policemen's Pension & Relief Fund Board of Trustees Meeting Minutes October 19, 2006 Page 3 of 29 Kit Williams: As I told the Fire Pension Board which is in the similar situation you all are in 51% or something very similar. The actuarial soundness study that you have received is probably more negative than your condition really is. Just like the cash basis one is more optimistic than is reasonable also. The reason for that is this study you just got back says that with the cash you have in hand, can you pay the benefits and you can't. It's like 52% of the benefits could be paid and that's not good because if you run out of benefits in the future then everybody's benefits are dropped proportionally down, so at that point you might not be living on nothing but the millage, if the millage is still in existence, and have nothing in the bank so your payments would be much less. The reason why the actuarial study is unreasonably low is that there will be almost certainly continued millage payments going into your fund. The voters can vote that down. They don't have to continue that, but I don't see that happening. I think the voters will certainly for the foreseeable future continue to have the four tenths of a mill that is paid into your fund. But that is not enough money in and of itself to get you to actuarial soundness. Although it will make it look a lot better than what the actuarial study shows at 52%. That's unreasonably low. It's the money you have right now and anticipated earnings, but nothing else going into it. Hopefully there will be turn back funds and there will also be the millage going into it for many years to come. At one point I thought you were going to have to cut benefits so that you don't run out in the end. Well I don't think that is probably true. I think what needs to be done is you can't keep adding on benefits. That would be extremely risky for the long term health of your fund. Then the question might be what happens if you run out of money? Doesn't the City have to pay regardless and the answer is no. That is not correct. The city would only have to pay for your fund and guarantee its benefits if the city chose to sent the fund to LOPFI. That's a decision the City Council would make. It says they may designate the fund as inactive. If they do, then it would be sent to LOPFL Now that you don't have any active members that are still paying into the fund. The City Council could, if they chose, designate the fund as inactive and send it to LOPFI and that would lock in your benefits as is. The problem is that right now there is a $10 million unfunded liability and the City Council would have to bite the bullet and say we would pay that and they also lose control of the fund. There could be additional benefits voted by the legislature and paid for by the city. So the City Council would be held by what the legislature decided to do in the future. So I think at this point in time with both funds the Fire and Police Funds almost at $10 million unfunded liability each, it would be to expensive for the City Council to send either one of funds to LOPFI. That should be a goal that this board would have. The way to do that is to get your unfunded liability down and I think you could do that by not raising the benefits. Leaving the benefits where they are. Which are very generous benefits at 90% and you have a COLA, so the benefits have been pretty reasonable better than any other city employee? If you leave the fund as is for awhile then when a millage comes in that was not considered in this study and the turn back funds come in then hopefully after a few years that unfunded liability instead of increasing like it has over the last eight years, it's increased from a surplus of $255,000 back in 1997 to a decrease of $9.5 million. So you can see it has gone from having a surplus down to almost a $10 million decrease. Before the City Council would be willing to consider paying the money to send it to LOPFI that needs to be sufficiently lower so that their costs to send it to LOPFI will not be so high. Policemen's Pension & Relief Fund Board of Trustees Meeting Minutes October 19, 2006 Page 4 of 29 Tim Helder: Kit we have broached the subject of going to LOPFI before and we don't have total consensus on this board about going to LOPFI in my mind, I don't think. The protection was there because of the amount of money and we'd get out from under the city. I think there may be a consensus that the city as a whole probably is not really out there to protect our interest on this pension thing. You just said it if it will support itself that's fine but I don't think the tax payers are going to be wilting to help us out in the long run. I think what my mind set was get us to LOPFI and that way we lock in the benefits that we have and the way it was explained to us when Steve was here two years ago I think it was talked about that it would be beneficial for the city to send us on because something about their bond rating is much more attractive without us hanging out there. What I'm curious about is how much worse has it gotten since then as far as our unfunded liability that really caused you to think this was not a good thing to go to LOPFI, whereas a year and a half ago it was the thing to do and the reason he wouldn't recommend it at the time was because of the turn backs. Jerry Friend: Because we were in too good of shape or something. Tim Helder: The turn backs were still coming in. That was the reason we set the time table to reevaluate and the turn backs would have decreased to the point that it would be much more attractive for the city to send us on. Now we find ourselves having waited that amount of time and now the recommendation would be not to let us go. Sondra Smith: I think since that point and time you did a benefit increase to. Kit Williams: I can't say that I will always agree with Steve Davis and his rational. I would disagree with him that this should have any effect on our bond rating. Maybe he is right and I am wrong but if it is not a city requirement to pay any money when you are unfunded and the way I read the statue is it not. I think maybe he was not sure on that for awhile. I've looked back and I have seen some old memos and I thought I that I made sure that he understood that this was something that the city could do. It was a City Council decision in whether they could do it or not. He did think there was more of this money coming in for you. Eldon Roberts: It was the actuaries in Little Rock that talked us into not wanting to go to LOPFI because of the increase amount that the insurance turn back check was. What they specially said was just sit there and stay on your own for a few more years. It went up from around $100,000 a year insurance turn back to $300,000. I don't know what it is this year I haven't heard. It was their idea to let us sit here and not join LOPFI and draw that large insurance turn back check and when it finally caught up and got to the point where it wasn't as much as it had been being then they said it was time to go to LOPFI that was the deal. Kit Williams: I noticed that if you look at your assets they have not made dramatic changes and that is better than the Fire. You are at $10.5 million in 1999 and you're at $10.5 million now. You have gone up to $11.4 million and then $11.1 million and now you are at $10.5 million. Your assets have not changed dramatically. However in that time you have had two benefit increases and so that drives your unfunded liability. That's the one thing that we're really talking Policemen's Pension & Relief Fund Board of Trustees Meeting Minutes October 19, 2006 Page 5 of 29 about now is that my recommendation is that you don't have anymore benefit increases that you keep it as is. I think the COLA is going to continue anyway. Eldon Roberts: Two more years. Sondra Smith: It was a five year COLA. Kit Williams: So that is another 6% plus that you're going to get if you don't do anything. Hopefully they figured that in to this since they should know its coming and if they did this could be the bottom right now this 52.5% and hopefully it won't get worse and hopefully it will start improving because we will be having revenue come in. I think after a number of years that this unfunded actuarial liability of $9.5 million will start retreating and start going back and when it gets back to a more manageable level, back in 2001 it was $4.5 million and in 2003 it was $7.5 million and now it is $9.5 million so it's going in the wrong direction. We need to get it turned around and start going back the other way. I think when we get it lower then I think the ultimate goal for everybody would be that we can get it low enough that the City Council can be convinced that the price is not so high that they can't send you to LOPFI. Then your work will be done as a board, the board won't have to meet anymore, everything will have to be handled through the state and whatever benefits you have then will be assured. This all came up really in context about a question in whether you should get additional benefits and that's what has me concerned. Even if they can do a cash flow study that says yes I think it would be a big mistake to do it because I think there is too many uncertainties. We don't know for sure if the millage is always going to be there. What if we go through another property tax rollback instead of getting four tenths of a mill you get three tenths of a mill. We don't know about the turn back we don't know if the state might decide to put it all in their state fund and not let any of it go into the old funds. We don't know what the state legislatures will do. My recommendation is just one of caution at this point you don't try to get any more increases and we just try to protect the plan that you have now. Mayor Coody: Politically it's going to be tough for the pension board to say we need to send this off to LOPFI and have the city tax payers fund a $10 million unfunded liability because we made a decision to go 55% to 90% benefit increase back in 1999. That would make the public say wait a minute they gave themselves huge raises and now we've got to bale them out. If you want to see this unfunded liability decrease to where it could be sent to LOPFI which it would be good for you because then you would have stable certainty instead where you are now. Then Kit is right about needing to get that unfunded liability down to something a lot more palatable we could wait and hope for the best and take our chances. There is always the option of reducing the benefits that you collect now from 90% down to say 80% and see what that does. I think that when the public knows that back in 1999 that you all voted to give yourselves a big raise and because of that the funded percent dropped a third of value in that two year period its going to look like someone is raiding the fund and now the public is going to have to pick up the bill. I just wonder what do you all think about making a minor adjustment now and retrieve some space here by voluntarily cutting your own benefits in order to make the fund sounder so it could be sent back to LOPFI. Jerry Friend: We don't like to think about that. Policemen's Pension & Relief Fund Board of Trustees Meeting Minutes October 19, 2006 Page 6 of 29 Mayor Coody: I know but we don't like to think about what's in front of us either. Jerry Friend: One thing I want to ask Kit and I will probably need to ask Elaine later. When they do an actuary some where back in my mind I think they look at what the stocks that we hold cost, not what they are worth today. Eldon Roberts: Yes. Jerry Friend: So if we have lots of stocks that cost $25 dollars a share and now they're worth $50. It could be one of the pluses you were talking about because I think they figure the actuary on the cost that doesn't mean that we are out of the woods. Kit Williams: Don't they assume a 6% growth? Eldon Roberts: That number has been out there for along time that if we maintain a 6% growth on our assets on a yearly basis that it will continue to fund this plan but I remember when that study was done and I think that meant if we stayed at 50% of the benefit. Jerry Friend: I do to. Eldon Roberts: Since we have increased it some I don't think 6% and we have been turning about 6% of that close to that on average and it's not keeping up. So I think that study was 6% to keep the fund sound if we remain at 50% benefit which that is what we initially were told we would receive when we went to work here. Kit Williams: I just thought the accountant that did the studies assumed some growth for your money in the bank and I wasn't aware of that. We need to confirm that. To me that wouldn't make any sense at all that they were not looking at the current market value that you can get in a second by selling stock. Jerry Friend: I think they look at the cost. Marsha Farthing: They get market. On the report that we fill out they get market and cost. Eldon Roberts: Market and costs? I think cost is the number they actually use. You have to report both number to them. Kit Williams: Let's find that out because that makes a difference. Jerry Friend: Right and Elaine could probably tell us how they do that. Kit Williams: I don't know if she could or not because she is just managing your funds. Whether or not it is actually sound is really not part of her thing, it's done down there. We need to check with them and see what they're basing this study on the one that says nothing is actuarially sound and you are at 52% and see if they're basing that on what the market is worth Policemen's Pension & Relief Fund Board of Trustees Meeting Minutes October 19, 2006 Page 7 of 29 right now or what you paid for it. To me what you paid for it would be stupid because it could be down. Jerry Friend: I thought that at the time I heard that. If we sold some of those stocks we bought cheap and bought back them back or bought some more at a higher price, it would make it look better and I thought that was fuzzy math for sure. Kit Williams: Let's confirm that. We need to do that because that makes a difference. Jerry Friend: I agree with the Mayor this looks pretty dismal but I would hate to go in a panic and just cut benefits now myself but I certainly think we need to be thinking about it and study and see what's happening. Mayor Coody: To complete that thought I had a minute ago there are not many people out in the public that have been able to retire with 90% of their salary and a 3% COLA. Jerry Friend: Right. Mayor Coody: I'm looking at how the public looks at things. Jerry Friend: Right. Mayor Coody: I'm not sure this soundness abused itself. Jerry Friend: I certainly agree that if I was on the city board and it came before me that we had a $10 million liability because the police had raised their pension I would be very concerned. I understand that I said it months ago. Kit Williams: It needs to start going back down. Jerry Friend: So it needs to start going down. Tim Helder: The Mayor put out would you be willing to go 80% and I don't even think I would even contemplate it until if in our mind there were some assurances that we would then go. Instead of just setting back and reducing benefits and saying well we still don't know lets reduce them again. I think that could be dangerous and get on that slippery slope. The other thing I have a question and it seems like we discussed this once if the City Council were to make a decision to send us to LOPFI do we even have the right to not go to LOPFI. Kit Williams: I don't think you do. The statue says, in 24-11-406, those local Police Pension and Relief Funds which cover fewer than four active members, that's one qualification, a local board of trustees may no longer exist and the fund maybe be designated as inactive by the employer. So it doesn't say that you all have any rights to do anything. Jerry Friend: Kit let me ask you a scary question. If the City Council decided to send us to LOPFI can't they make the rules? Can't they say we are going to cut them back to 50%? Policemen's Pension & Relief Fund Board of Trustees Meeting Minutes October 19, 2006 Page 8 of 29 Kit Williams: I don't think they can do that. I mean they can do that as a condition they can negotiate with you and say we are not going to send you to LOPFI unless you reduce benefits. Jerry Friend: Right. Kit Williams: I don't think they can lower your benefits. Now there is a provision in there when funds get in trouble. The problem with that is we don't meet the test that is required with the two factors that must be in place to send one down. The first factor is there must be a full mill being assessed. We only have four tenths of a mill that would require a vote of the people. The second thing is all the benefits must be minimum and of course we are not near minimum benefits. So we don't qualify for the one when funds that are in trouble and so the best way is still eventually being able to get it to go down to LOPFI. I think if you were ever thinking about reducing benefits initially the only thing I would think about is foregoing any of the remaining COLA's. You might not have to do that but you certainly don't need to be adding new benefits at this time. I am a little bit nervous about these additional COLA's because those are really pretty big hits to the system. This is 3% for everybody and then another 3% on top of that for everybody. Those are big shots which mean that's going to be that much longer before the unfunded actuarial part is going to go down. I think if you all just put on the brakes right now and hold where you are and give it another four years or so and take a look at it then, maybe we can see some improvement on this. Eldon Roberts: Did you say the millage wasn't figured into that and did you say why? Kit Williams: My understanding is that the actuarial study doesn't include the income coming in in the future. It's what you have in the bank right now. Eldon Roberts: Oh, what you got in the bank right now. Right Kit Williams: There's not a guarantee that the millage will come in because it can be voted down by the citizens. They're not required just because there is a pension fund to continue it. I don't see that happening any time in the near future at all so I think that the millage will continue to come in and hopefully that will make this picture a little brighter. Eldon Roberts: I think you are right, that's the reason we can't ever pass an actuarial study. They deal with the amount of assets that you actually have compared to what you owe down the long haul. The reason we have always passed the cash flow valuation is because what you just mentioned a while ago our cash on hand has been remaining about the same right around $10 million. Even though we have increased benefits and we're paying out more. Cash flow means to me how much is coming in verses how much is going out right now. Kit Williams: It has got to show that it will pay off in 30 years. Eldon Roberts: That's the actuarial study. Kit Williams: No that's the cash flow. Policemen's Pension & Relief Fund Board of Trustees Meeting Minutes October 19, 2006 Page 9 of 29 Eldon Roberts: Okay. Kit Williams: Why ever do a study, you know whether you can pay next year or not. Jerry Friend: Right. Eldon Roberts: Right. Kit Williams: It must be good in 30 years. Well that assumes the millage and the turn back funds and all of that goes on for 30 years and that might not be a completely accurate assumption. Eldon Roberts: We have already lost the employee contribution when Frank Johnson left he was the last one. It wouldn't have been that much anyway and then the city was more than matching the employee contribution. We have no active employees any more. Now we are just down to what we can make on our investments, fines and forfeitures, property tax and millage. Kit Williams: The millage is still the big one and that hopefully is your ace in the hole. I don't think you will see any improvement two years from now or very little because if you continue these 3% COLA's those will continue to put stress on the fund. After that then with no additional COLA's maybe we can see a turning of this with the millage coming in and maybe we can start moving in the other direction. Eldon Roberts: I see an error they have made on page 14 in the actuarial study under retirement benefits. Looks like they've used 95% of the final salary and that is not the case. That's what came before this board back in January we had the opportunity to go 95% of the salary but the board voted it down. That would make some difference in our favor because we are only at 90% of salary. Kit Williams: Keep in mind the next two years that's an additional 6%. Eldon Roberts: Sure. Kit Williams: Regardless I do think that that was their mistake. Sondra Smith: There was some confusion with the Fire Pension COLA. If you do not implement a new COLA you do not go back to what you are making previous to the COLA. You continue at the rate of pay that you're making when that COLA's over with. Some on the Fire Pension thought they would automatically take a decrease in pay. Eldon Roberts: You just don't go forward. Sondra Smith: You don't get an additional 3% added on to your current rate of pay. There were several of you that were not here at the last meeting and it is in the state statues that we have to give a report to the City Council on the first meeting in January of each year. We have not been Policemen's Pension & Relief Fund Board of Trustees Meeting Minutes October 19, 2006 Page 10 of 29 doing that so we've got to give a report to the City Council about the pension fund in January of every year from now in the future. Jerry Friend: You've picked a poor January to start. Sondra Smith: I know. Kit Williams: I think it can be explained that the actuarial report is more negative than reality. Mayor Coody: We can explain it but the numbers are going to be what gets printed in the newspaper. We will try to make it look as good as we can but its going to be tough to put lipstick on this hog as they say. Kit Williams: We do need to find some of these other questions and see if they are using market value for the stocks or are they using what we bought them for. Mayor Coody: Surely they are using market value. Our responsibility is to make sure that the pension lasts as long as the pensioners and if something blows up then we haven't done our job. I wasn't saying I was going to try to get anybody to vote on reducing benefits today but I think it might be something, even if it is just 5%, just to slowly get us back to where we need to be. I was just throwing it out there for consideration because I tend to say things that nobody else wants to so that was my job today. Eldon Roberts: One thing that it would look bad in the newspaper for the public to see that we have raised our benefits and yes we have a good pension plan I don't deny that but we did not just arbitrarily raise them we followed state law. Kit Williams: I know you did. Eldon Roberts: Everything we did was above board we didn't violate any law. We didn't just come in here and say let's just raise our benefits; we went through and jumped through all the hoops. Kit Williams: It not going to be characterized any other way. Eldon Roberts: That won't make it look any prettier. Kit Williams: I think it is the Mayors responsibly as chairman to give the financial report. I will help him word it; honestly he will probably say it's a very rich benefit program, which it is. But on the other hand we will try to explain the fact that they did not put in or take into consideration money that is flowing into the plan that we assume is going to flow into the plan for a long long time. Yes if everything was cut off right now this is our problem. We have $10 million we've got to find but that is not what's going to happen, the millage is going to continue, this other funding the turn back, fines should continue and therefore in a few years things should improve. Policemen's Pension & Relief Fund Board of Trustees Meeting Minutes October 19, 2006 Page 11 of 29 Eldon Roberts: I have to agree with Jerry because I'm sure I've heard that before that they consider our stocks at what we gave for them not what they're worth. I'm almost positive that he is correct on that. It certainly would make a difference. Kit Williams: It is certainly a very stupid thing if that's what they are doing and you can quote me on that. Sondra Smith: Regardless of what the plan might look like in the future if they vote to send it to LOPFI they still have to fund that unfunded liability. Kit Williams: I don't think this is the time. I think it would be fruitless to go and ask them at this point in time. Tim Helder: It will be. That's why I asked the question if the city can force us to LOPFI and I think they can. I would rather be where we have achieved the benefit level that we are satisfied with and that you all are at a point where you want to get rid of us bad enough for your bond rating or whatever but if we go low enough that our unfunded liability is so low why would we want to go to LOPFI. Do you see what I'm saying because we can do our own money and do the benefit package however we want but I see the city at that point will kick us on to LOPFI is what will happen. Kit Williams: Tim you are a young guy so you may see that. Sondra Smith: I don't think they would because you had a 102% funded liability and they didn't kick you to LOPFI. Tim Helder: You couldn't back then. We had active members. Sondra Smith: You didn't have that many active members. Kit Williams: If your unfunded liability is not very much it won't affect the city's bond rating if at all if it does anyway. I don't think that is something you have to worry about. IF you are running everything and everybody is happy and there is not a drag on the city nobody is not even going to look at it. Eldon Roberts: You mentioned earlier that the city is not responsible for the $9 or $10 million unfunded liability in any manner, shape or form. If we run out of money we run out of money. There's no law that says the city will step in and pick up the difference and keep sending us our benefits. Kit Williams: That's true. Eldon Roberts: Now, if they opt to move us to LOPFI they have to sign a contract. Kit Williams: They have to pay. Policemen's Pension & Relief Fund Board of Trustees Meeting Minutes October 19, 2006 Page 12 of 29 Eldon Roberts: After they sign a contract LOPFI will pay whatever it takes to keep this plan going at the same level you took it in at. So why should the city be so quick to jump out there and take us to LOPFI and sign that contract when if they set here and we run out of money so be it. They don't have to step up to the plate and help us out. Kit Williams: I think the only reason the city would send you to LOPFI is when the plan got fairly small and couldn't find any members to sit on the board and it would have no affect one way or the other on the city budget and they would send it off unless you all wanted to go some time in the interim and it didn't cost the city to much. I think the city would primarily do that in that case for your benefit. To make sure that when it came down to just a few people the money didn't run out for the last two or three people or something like that. It really wouldn't cost the city very much to send it down to handle that and that way you won't have two or three guys at the end holding the bag. The long and short of it is my recommendation is that you don't really do anything right now you just sit tight. I think the fund will keep going for a while. In the future there is a possibility that there might have to be some retrenchment you could avoid the likelihood of that by not going for the next two COLA's. I would certainly not recommend any other reduction or you could just roll the dice and it might be okay and then after four or six years things might be looking better. I think you are pretty close to your top benefits now. I think just from the way everything looks unless the stock market goes crazy or we have some sort of plaque that goes through here and knocks off everybody, I think you are pretty near the top of what you can get. Eldon Roberts: I agree we had a 95% benefit increase available to us in January and we passed the cash flow valuation test and it failed to pass this board. I don't see that being brought up again for a long time so that's one benefit increase that is out of the way. That's not going to happen any time soon because we had one on the table and didn't vote it in. We do have the 3% COLA that was a five year temporary and there is two years left on that 2007 and 2008. The only other benefits I see is Rick Hoyt and myself having another benefit coming when we turn sixty and that's the only benefits I see that are out there. Kit Williams: Didn't you all raise the spouse. Eldon Roberts: We raised the spouses to 90% of salary. Your spouse will go ahead and draw the very check you are drawing when ever you pass away. It was 50%. We did pass that but other than that I don't foresee anymore benefit increases. Like I said we had the option to do one in January and didn't do it so I don't see going back and asking them to study it again and see what the chances are of a benefit increase. We have two more COLA's. Kit Williams: One advantage that your fund had that the Firemen's didn't is they had a lot of DROP employees and they were taking very substantial amounts out of the fund and that is the reason their fund has really gone down. Eldon Roberts: I was told when the DROP was made available to us from someone in Little Rock that the DROP on these old plans was not good for the plan. That is one reason why I never Policemen's Pension & Relief Fund Board of Trustees Meeting Minutes October 19, 2006 Page 13 of 29 brought it up or never tried to go with a DROP because it is hard on these pension plans and that is proven out in the Fire Department because they did. Before I would vote to move to reduce any benefits and that's the COLA's or anything else I would want to wait and see for a year or so to see what happens and I would also want to hear from the actuary's in Little Rock to see what they think we might need to do. Let's face it those guys are the one's that knows what's happening. We can sit around here and talk and everything we have said today makes sense. I understand if we cut the COLA's off the next two years obviously the plan is going to do better, I guess. But if investments come forward and do better we are going to do better anyway. But before I could go with cutting benefits I would want those guys to come up here or if we could think of enough questions to send them a letter. We are not having a very good response getting any answers from them. We have had a letter down there for going on six months or longer about can we make the COLA permanent and they have failed to answer us. We don't know the answer to that yet. Before I could vote to reduce benefits in any way I would want to hear from them and let them tell me yes you need to reduce benefits. Like the one year COLA go back to 85% instead of 90%. I would want to get that number of what they thought we needed to reduce by from them before I could vote for it. Kit Williams: Well we need to make sure they understand our program. We do need some how ask them about how they value the stocks. Is it market value or is it on the basis that we bought. That's important information we should know. Eldon Roberts: We have a good crowd here today is there anyone that has any questions about what we discussed or wants to bring up anything. Larry McCawley: Eldon what happens to you at sixty? Eldon Roberts: I receive about $12,000 more a year. Sondra Smith: That's on our agenda to talk about to let you all know about that. Larry McCawley: I didn't receive it. Eldon Roberts: Larry its 1.25% of your final salary multiplied by the number of years that you were employed past 25 years and I had about eleven years. Larry McCawley: Okay. I would like to ask one favor before you all decide to do COLA or not do COLA that we have an opportunity to come back here and talk before you pass it. Eldon Roberts: What COLA are you talking about? Larry McCawley: I'm sorry the 3%. Tim Helder: It's already in. Eldon Roberts: It's already a done deal for 2 more years. Policemen's Pension & Relief Fund Board of Trustees Meeting Minutes October 19, 2006 Page 14 of 29 Larry McCawley: I mean if you decide not to do it. Eldon Roberts: Oh if we decide not to do it. Larry McCawley: If you decide to do it I would like to come back and talk again. Eldon Roberts: Were going to do it for two more years. Larry McCawley: I want to talk then. Kit Williams: Right now it's set to continue for two more years. It was approved three years ago. There is another one due this January and then the January after that. Jerry Friend: Nothing about the existing COLA can be changed. Kit Williams: I think you could probably say you don't want it do it, but that would take an affirmative act by this board to notify them that we don't want to go forward with the COLA. Audience: It has already been figured in this study. Kit Williams: I think it has already been figured in this study. Eldon Roberts: Yes it's in there. Its plain it says temporary COLA for five years and it started in 2004. Larry McCawley: So basically what you are saying is that you are going to go ahead with the 3% this coming year. Kit Williams: This coming year and the next year. I think it's feasible to do that I would not do anything further. Larry McCawley: That was one of the things I was going to say. Let's not do anything else. Let's leave it alone. Eldon Roberts: Well we won't. We had a chance to go to 95% of salary in January and it got voted down. So we are not going to go any further. Larry McCawley: I'm thankful it got voted down. The next thing I would like to ask is on this 3% there's some of us old guys that 3% amounts to $30 bucks. There are some other guys that amounts to $200 or better. Why could that not be giving to us across the board equal raises? Eldon Roberts: I guess it could be if this board would vote it in. Policemen's Pension & Relief Fund Board of Trustees Meeting Minutes October 19, 2006 Page 15 of 29 Larry McCawley: It's a crying shame that we draw $1,000 and another guy draws $7,000. Seems to me like it should be equaled up a little bit. We paid into it and were not getting very much from it. Eldon Roberts: Larry you should think about what you paid into it verses what other people paid into it. Larry McCawley: Eldon I don't care. Eldon Roberts: You've got to care. You've got to care because that's where the difference is right there. It's what your contribution was to that pension plan verses what mine might have been. Larry McCawley: Right, can I finish. Eldon Roberts: Yes sir. Larry McCawley: The thing is you were drawing $7,000 to $8,000 a month and I was drawing $2,000. I drew half salary for twenty years. You retired at 90% a month... That's not fair to us. Eldon Roberts: You have two or three more pensions you're drawing from other places that you went and worked. I'm not getting any of that. Larry McCawley: That's my business. Eldon Roberts: Well this is my business. Larry McCawley: This pension fund belongs to everybody here. Eldon Roberts: That's right. Larry McCawley: If you don't take care of it, we should be treated equal. Kit Williams: The pension board can suggest different ways to raise benefits. Larry McCawley: That's all I'm asking. To divide the 3% equal among the old guys and the guys that is drawing the big retirements and the big salaries. Give us just a little bit of a break. I have to live my widow has to live this will help her. She is not going to draw $5,000 or $6,000 a month. She will draw $1,500 a month. Kit Williams: That's a policy decision that the pension board could make. Larry McCawley: That's the reason I want to throw it out there. Kit Williams: Sure. Policemen's Pension & Relief Fund Board of Trustees Meeting Minutes October 19, 2006 Page 16 of 29 Larry McCawley: That is the reason I want to throw it out there and I think it could be done Sondra Smith: I would like to remind everybody that in a letter that Steve Davis received on August 7, 2003 from Osborne and Carreiro which is our actuaries that at that time they did say that a 3% permanent COLA cannot be sustained under the current assumptions and the plan would be projected to deplete all assets in about 20 years. They said that in 2003 when the plan looked a little better so I don't think we will qualify for permanent COLA. Eldon Roberts: Might not. Kit Williams: The unfunded liability has increased. That kind of thing has such a dramatic change on the pension fund that it is almost impossible to think that it could sustain that. Jerry Friend: We have to remember that hopefully things move slowly in a pension fund. If we go the next two or three years however long we are getting the COLA and then a year or two beyond that or maybe three or four years beyond that if things look really rosy we can still always do something else. Kit Williams: The pension board is elected by the members so it's up to the members to decide who they want to represent them and make decisions for the benefit of all the beneficiaries who now are all retired. Larry McCawley: We have two members to elect don't we? Kit Williams: Yes you will have to elect two. Sondra Smith: That is on our agenda today. Dennis Taylor: I have to go but I'd like to say something to Eldon they might not have paid in what you paid in because of their salary but they sure put in their time. Eldon Roberts: Thank you Dennis. Kit Williams: Most of the funds really came from the millage more than anything else and the taxes and turn back funds more than anything else. Larry McCawley: Can we divide it equally to where we older guys will get a little bit of the benefit to live on. A little bit more for our widows to live on? Eldon I did not mean to get cross with you. Eldon Roberts: This COLA that we have in place right now the standards are already set and when it got voted in for five years it was at 3% every year. Like Kit mentioned about the only thing we could do with the remaining two years of the 3% COLA was say were not going to give it to you period. I'm not for that. Policemen's Pension & Relief Fund Board of Trustees Meeting Minutes October 19, 2006 Page 17 of 29 Kit Williams: If you stop that then you could say now we want to check and see whether or not we could raise the benefits maybe by a set dollar amount as apposed to a percentage but you would have to have a new cash flow study to do that. Eldon Roberts: I for one can not set here and vote to have a cash flow study done because that cost us money and we have to pay that out of our pocket. I cannot vote to spend pension fund money to have a cash flow done in Little Rock for this board to not do what they recommend doing. Larry McCawley: My theory wasn't spending more money. We would take 3% of everybody's salary get a total divided by how every many people are retired, not taking more money out of the fund not cost a penny more. Eldon Roberts: I don't see anymore benefit increases coming out of this. Larry McCawley: I don't either. Kit Williams: With the shape we are in right now I just don't see it happening. Larry McCawley: That's the reason these next two years I would like to see it divided equally among all of us so we would gain just a hair for us and our widows. Eldon Roberts: The 3% COLA has already been set as to how it was suppose to be done on, voted on so I don't see changing it other than stopping it. I'm not for stopping it. Larry McCawley: Kit said the board would have to make a discussion to divide it equally. Tim Helder: Kit did you say that we have to stop those two years of benefit then do another cash flow study before we can change it even. Kit Williams: I think you probably would have to do another cash flow study even though here you are talking about the same money. Larry McCawley: Yes. Kit Williams: We're also dealing with state law and it says every time there is a benefit increase this would technically not really advantage to the fund because it would be the same but it would be a benefit increase so we would have to send it down to them. I'm sure that they would say we have already proved it basically that is the same amount of money so that shouldn't be a problem. Tim Helder: We can't do anything today but can we commission you to find out if we chose to look at that what would we have to do with the current packet? Would we have to vote to stop the increase? How much money are we talking about and if you took it for however many members that are across the board what would those increase levels be? That's the kind of information that we would be could even look at it intelligently to make a decision. Policemen's Pension & Relief Fund Board of Trustees Meeting Minutes October 19, 2006 Page 18 of 29 Larry McCawley: it would be worth seeing. Eldon Roberts: Marsha will you be talking to those people in Little Rock and mention that they have this benefit figured wrong it's not 95% of salary its 90%. That would make a little bit of difference. Kit Williams: I don't see what would have changed. Although we did put spouses in that would have changed it. Eldon Roberts: Does it break that out in here. Yes, it does. On the last paragraph it says widow receives the same benefit as member is eligible to receive. Jerry Friend: We talked about the actuaries based on what our stocks costs not what they are worth now. Do you remember that and if they do that? I remember someone told us it would be an advantage to sell some stock. Elaine Longer: I remember that on book value. Jerry Friend: If you buy it at $50 and it raises to $100 to them its still $50. Eldon Roberts: Which way do you think it is? Elaine Longer: I can remember one year we did execute some realized gains to move it from market value to book value for that reason but I can't really say. Jerry Friend: So that would be something to ask the actuaries how that works. Elaine Longer: Yes, because if you look at the portfolio you have unrealized gains of about $800,000. Kit Williams: That would make an $800,000 difference. Jerry Friend: Better. Elaine Longer: Yes, that would be a good question. Letter to Merrill Lynch Sondra Smith: You asked me to send a letter to Merrill Lynch telling them that we were not interested in them coming to our meeting. I did that and I included a copy of the letter in the packet. Policemen's Pension & Relief Fund Board of Trustees Meeting Minutes October 19, 2006 Page 19 of 29 New Business: Frank Johnson Retirement — Approval Sondra Smith: We haven't had a meeting since Frank retired so we need to approve his retirement. Eldon Roberts moved to approve Frank Johnson Retirement. Tim Helder seconded the motion. Upon roll call the motion carried 4-0. Additional Benefits for Certain Officers Sondra Smith: This is what Eldon was talking about earlier about the extra benefits for people that turn the age of sixty and it depends on if you were hired prior to January 1, 1983. A copy of the state statue is in the packet. It tells the percentage of extra benefit you get after you turn the age of sixty. I think accounting is keeping up with the date of births and if you were hired prior to January 1, 1983. The two I know of right now are Eldon and Rick Hoyt. Eldon Roberts: Richard Watson is already drawing it. There is nobody else that is drawing it. I've looked at it over the years and I know there is not anybody else that's eligible. Sondra Smith: I just wanted to make everyone aware of the extra benefit. I didn't know if the board knew that there was an extra benefit that you will be paying. Tim Helder: It doesn't require board action either does it. Eldon Roberts: No, its state law. I might ask Marsha where they have computed the amounts that Rick and I will draw. What is that number? I calculated that this will be $3,270.66 for what period of time? The remaining time of 2007 or what? Marsha Farthing: I didn't do that but I think that would be an annual amount but I don't know. Eldon Roberts: No it wouldn't be an annual amount. I assume that means the rest of 2007. I'll turn 60 on October 9th. Sondra Smith: It's 1.25% of your total amount and then times the number of years over 25. Eldon Roberts: The salary that you retired at. Eldon Roberts: There's been some argument about that that you had to work until you are age 60 and you still had to be working at age 60 to draw that and that is not the case. I have already discussed that with Kit the day that that come up. It's when you turn 60 whether you are still employed or not. Policemen's Pension & Relief Fund Board of Trustees Meeting Minutes October 19, 2006 Page 20 of 29 Sondra Smith: It does go on to say provided the maximum of 75% of final salary shall no longer apply to benefits payable on April 30, 1993 and thereafter to persons retiring hence forth to those persons who retired on or after July 1, 1987. Kit Williams: That means don't worry about it. Don't worry about the 75%. Sondra Smith: Okay. Actuarial Valuation 12/31/05 Sondra Smith: Actuarial Valuation was the next thing on the list and I think we already we've already gone into that. Elections — Replace Doctor Mashburn and Frank Johnson Sondra Smith: We voted at one of our meetings to go ahead and do the elections by sending out a ballot and having people nominate who they want to fill those positions. Kit Williams: Has Frank resigned from the board? Because remember Mashburn was ineligible statutorily but since he had been properly elected we were going to let him complete his term and that would apply to Frank also unless Frank resigns from the board. Just because he has resigned as an officer now he's no longer automatically on the board but he was properly on the board and so he should complete his term unless he quits. If he quits then his position is open but other than that I think he is probably still a member of the board even though he is no longer automatic and the next time his position comes up he would have to run like anybody else. Tim Helder: If that is your opinion I think that's what we need to go with. Eldon Roberts: That's what we were doing with Dr. Mashburn. Jerry Friend: I think it would be the same. Sondra Smith: Do I need to check with him and see if he has resigned. Kit Williams: You can say he needs to come to the meetings or he needs to resign. Sondra Smith: I will give Frank a call; if Frank resigns then we will have two positions. Dr Mashburn's position will end May, 2007. Do we need to set a term end date for the other position? Kit Williams: The rest of Frank's term whatever that would be. Sondra Smith: His term was indefinite because he was the last active one. Policemen's Pension & Relief Fund Board of Trustees Meeting Minutes October 19, 2006 Page 21 of 29 Eldon Roberts: He was on automatically. Tim Helder: He wasn't really voted in it was an automatic plug for him to be on the board the membership may want to make a change but I don't know that I care. Kit Williams: It's normally a two year term, right? Sondra Smith: Yes right now we have two that expire in 2007 and then two that expire in 2008. We will have to have three expiring in 2007 or three expiring in 2008. Eldon Roberts: Because there is five total now. Kit Williams: I will let you as a board decide that. It will be a two year term once you decide when the ending date is. Eldon Roberts: Dr Mashburn's is a given because we know that his time was going to expire May of next year. You're going to have to spell out if we have two positions which positions they are running for. Or how are you going to do that? How are you going to know whose term ends in May 2007? Kit Williams: You can make them both end May 2007. Sondra Smith: Yes you can make them both end May 2007. Kit Williams: Although that would mean we have three and we don't want four at any one point and time. We want three and two. So would that be three at that point? Sondra Smith: Yes I think so. Kit Williams: That's what I would recommend. Eldon Roberts: If you do that how are you going to spell it out? Kit Williams: You just designate. Position one and position two. Jerry Friend: In your ballot the person with the most votes gets position one the person with the next most votes gets position two. Eldon Roberts: It will have to be spelled out. Kit Williams: Both of these will be expiring at the same time anyway right. Next year there is only one expiring is that right? Eldon Roberts: No there are two Tim, I and then the doctors. Jerry Friend: I'm in 2008. Policemen's Pension & Relief Fund Board of Trustees Meeting Minutes October 19, 2006 Page 22 of 29 Kit Williams: Then the other needs to be 2008 we need to have one that expires in 2008. Sondra Smith: So we will have one that expires 2007 and 2008. Kit Williams: That would be Frank's. Frank's would be 2008. Jerry Friend: If we are going to have three why not making them both 2008? Kit Williams: The doctor was already set for 2007. Eldon Roberts: His runs out May of 2007 if he had lived. He couldn't have sought reelection because his position had been done away with and we would have had to elect another retired policemen and that is where we are at now it just came sooner by his death. Kit Williams: Frank's current one goes to 2008 and if he doesn't want to run that will be up. Are these positions numbered at this point and time? Sondra Smith: No. Kit Williams: Let's do that lets number them. Sondra Smith: My question is on the people that we are going to elect right now to fill Dr Mashburn's spot are they going to have to run again in May? Kit Williams: Yes. Sondra Smith: Okay. Kit Williams: This is only for the remainder of that term. Sondra Smith: Okay that's what I want to make sure that I explain it in the letter. Eldon Roberts: If Frank opts to resign and not be on the board his position would run until 2008. Sondra Smith: So do you want to assign positions today? Kit Williams: Won't you do it from the top down. Sondra Smith: We don't need to assign the Mayor. Kit Williams: Top down would be Eldon one, Jerry's two, Tim's three, whoever replaces Dr Mashburn is four and Frank's five. Policemen's Pension & Relief Fund Board of Trustees Meeting Minutes October 19, 2006 Page 23 of 29 Sondra Smith: When I do the letter I'll say position number four replacing Dr Mashburn and it will expire may 05/31/07. Eldon Roberts: Frank's is still up in the air as to whether or not he wants to serve. Jerry Friend: Someone brought up one thing on the elections on the ballot there was a place to put your name and then you voted. One or two people told me they felt uncomfortable putting their name because they wanted it to be a secret ballot. Kit Williams: I don't know if you can let it be a secret ballot. You've got to be able to confirm that whose voting is a pensioner. Jerry Friend: I can see wanting to be anonymous sometimes in an election but we sure need to keep track. Sondra Smith: No one ever knows about that but my office. I don't let anybody on the board know who voted for whom. Jerry Friend: Right. Kit Williams: The only way to keep their vote anonymous though would be to have some sort of signature line on the envelope with their name and then the ballot wouldn't necessarily have to show it. Jerry Friend: That would work. Kit Williams: We need some way to make sure that whoever is voting is actually a pensioner. Audience: Why would someone be ashamed to sign their name? Eldon Roberts: I didn't think there was a place for your name on the last ballot. Jerry Friend: I think there was. Sondra Smith: I think I put on there "I ". The other thing if I remember correctly we did not send the ballot out to widows. Eldon Roberts: That's correct. Sondra Smith: It only went to direct pensioners. Eldon Roberts: Right that's correct. The spouse is not a retired member they are a member but not a retired member. Sondra Smith: That is all I had on the elections. I will send the ballots out. Policemen's Pension & Relief Fund Board of Trustees Meeting Minutes October 19, 2006 Page 24 of 29 Jerry Friend: We need to wait until we hear from Frank. Kit Williams: Yes we will wait and hear from Frank. Tell Frank we will need something in writing if he wants to resign or email. Eldon Roberts: We are under new business you said you had something else. Jerry Friend: Would it be cost prohibited to send the minutes of the meeting to every active member not the widows just the active members. I know some made an effort to be here today but more of them would then know what was going on. Kit Williams: If you just did the minutes not the whole agenda which is too long. Jerry Friend: Just the minutes. Tim Helder: How many of them have email? Jerry Friend: Entails change so fast. How many members are there? Sondra Smith: There's 50-60. Are you talking about widows to? Jerry Friend: No just members. Tim Helder: I think there are 51. Sondra Smith: There were either 50 or 51 when we did the last election. Eldon Roberts: Actual retired members? Jerry Friend: I know we have talked about it once. Kit Williams: I shouldn't cost more than about $30 for supplies and postage. Eldon Roberts: It would just be about ever three months unless we had a special meeting. Jerry Friend: Does the city have to pay for that or does it come out of the pension fund? Kit Williams: The pension fund would have to pay for that. Jerry Friend: They would. I would like to suggest that we do that now. Whether or not we do it is not really going to matter to me that much. Sondra Smith: We talked about putting them on line. Our City Council minutes are online but I don't know if you all want to do that or not. Tim Helder: I don't think a lot of these people have email. Policemen's Pension & Relief Fund Board of Trustees Meeting Minutes October 19, 2006 Page 25 of 29 Kit Williams: If you really what them to know you will have to mail them the minutes. Eldon Roberts: That would be the same minutes that we get with our agenda. Jerry Friend: Not the report from Elaine just the minutes. Eldon Roberts: When is our next meeting? Sondra Smith: It will be the third Thursday in January. Eldon Roberts: Okay. Jerry Friend moved to send the meeting minutes to the active members. Tim Helder seconded the motion. Upon roll call the motion carried 4-0. Longer Investments: Monthly Investments Report Elaine Longer: Page 1 is the portfolio appraisal as of September 30th and again we need to ask for the approval to be at 54'/2% equities. Jerry Friend moved to approve the equity overage. Eldon Roberts seconded the motion. Upon roll call the motion carried 4-0. Mayor Coody was absent during the vote. Elaine Longer: Page 4 shows the ending value on September 30th of about $10.5 million. We included an update through last Friday which is right behind that portfolio appraisal because stocks through last Friday were up about another 2 1/2% month to date and have gone higher since. So the report on page 8 shows the market value as of last Friday of about $10.62 million. We came into this year thinking that it was a reasonable assumption given the fact that last year was fairly flat and the earnings had improved over 20% on these companies. We came into this year the first half of the year earnings continued to improve and the market was only up about 4% through the middle of the year. We thought that once you get the relief from the Fed that the market was posed to go higher and that's exactly what you saw. As of the June meeting they did raise another quarter of a percent but they gave a little less hawkish statement at the end of that meeting. I wrote in the news letter in July that I didn't know if we were in the bottom or top of the ninth ending but as far as we were concerned we were in the ninth as far as the rate tightening cycle was concerned and that was exactly what happened that was our last rate increase. Since then the economic numbers have weakened somewhat and it looks like the Fed's next move might be to cut rates before the end of the year. That has relieved a lot of pressure in the stock market. What you are seeing now the market is moving to reflect the earnings growth that we had this year and last year. We still don't think we are over valued. Going into the election with the polls being what they are, the market doesn't like change. As we get closer to the election Policemen's Pension & Relief Fund Board of Trustees Meeting Minutes October 19, 2006 Page 26 of 29 some of these gains that we have seen since June might dissipate a little bit because of the uncertainty of the election. Eldon Roberts: When does the Federal Reserve Board meet again? Elaine Longer: I believe they will meet in November and December. Kit Williams: The market value that you show on October 13th was $10.6 and I know from the actuary their December 31, 2005 market value was $10.5. It has gone up a little bit since that. Elaine Longer: There using that number but your distributions year-to-date have $650,000. Kit Williams: So they were using your $9.8 number. Elaine Longer: They were probably using the book value because if you take distributions of $650,000 that would put you right at about $10.5 million. So the appreciation year-to-date in stocks through September 30th has been about 10.6% and total portfolio 6.8% with bonds included. So on a beginning value of $10.5 million what you are looking at is basically the distributions have about equaled the appreciation in the portfolio. Page 9 you will see that short term realized gains $319,000 in realized gains year-to-date and that is not the total account appreciation that is just the executed gains that we have realized in the portfolio that move it from unrealized gains to book value. Net income has been $179,000. Page 10 shows the bond portfolio. What's been exciting about this year is we are always trying to stay structured in the bond portfolio to be able to capitalize on rising interest rates as they occur without subjecting the portfolio to what we call a reinvestment risk which means your income would drop if interest rates decline. On page 10 you see in the right hand corner the yield to maturity as of September 30th is 5.5% that is up from 5.2% at year end. Yet the average maturity of the bonds you own has declined from 7.8 years to 4.2 years. With the rising interest rates this year we have continually moved to reinvest any maturities that were coming up in the next twelve months to try and lock in those higher interest rates. With the yield curve flatting and the short term interest rates going up so much we have been able to raise the income on the portfolio while reducing the price risk on the maturity level on the overall portfolio. So you have a higher income and you have less price risk in the portfolio. Now we are really pretty well situated. We still have about 49% of the bond portfolio maturing within three years so there is still plenty of flexibility that if interest rates should go up on the long end of the yield curve again we can still tap into higher rates. Page 11 you have the largest holdings. The earnings have come through very well in this quarter so far. Page 12 is the consolidated industry weighting report. We're continuing to be over weight in capital goods, energy and technology. We're under weight the consumer cyclical thinking that the consumers the weak link in the economy as the economy slows going into the second half and we are about even weight in health care and consumer non cyclical. Policemen's Pension & Relief Fund Board of Trustees Meeting Minutes October 19, 2006 Page 27 of 29 Page 13 is your contributions and distributions year to date and you can see your contributions have been about $1,100. Distributions have totaled $648,000 year-to-date. Page 14 is the performance report. Stocks are up 10.6% through 9/30/06, and as of last night we are looking to more like 15.5 % to 16% year-to-date. That's why I say I think the returns are in for the year. I would not be surprised to see that we end the year about these levels after some backing off and then maybe a Christmas rally but it has exceeded what I thought we would get for the year. At that point in time the S&P was up about 7% year to date and the NASDAQ over the counter index is up 2.4% so this has been a real good year in terms of out performing the S&P by about 300 basis points. The equity mutual funds which would include your foreign holdings are up about 8.5%. Fixed income is still trailing the stock market up 2.6% and that's because the first half of the year you had a rising interest rate environment which hurts the price of your bonds but you still earned the 5.5% income. Total return is 6.8% year-to-date and your compound annual net of all expenses inception to date is 6.9%. So in your actuary study the return that they are looking at to maintain their expectation of soundness is 6% and from inception to date you have done 6.9% compounded annual. Down at the bottom is your account reconciliation inception to date and you can see this one line here says withdrawals of about $4.43 million from where we started in 1990. Your investment return has been about $5.94 million. So it is still running ahead of what your distributions have been. Eldon Roberts: What is the market doing today? Elaine Longer: It was pretty flat today. It's up about 2 points. Eldon Roberts: So it's 11.9. Elaine Longer: It's at 11.995. We went over twelve thousand yesterday. That does bring some sellers in and in fact we sold a little bit today. Kit Williams: What about foreign stock markets. Do you have much exposure? Elaine Longer: We do, the foreign exposure as a percent of total is about 6.3% and as a percent of total equity exposure it's about 11%. Foreign markets are up about 8.4% in your return history year-to-date. That compares to about 10.5% in the US, but you know the foreign markets last year really out performed the domestic markets. So this year the US market is out performing the international. We are still largely favoring the large cap stocks and they have really out performed this year. The DOW is up stronger than the S&P 500 much stronger that the NASDAQ. Stronger than the Russell 2000 which are the small caps and still the relative valuation in the large caps relative to the small and mid caps still favors the large caps stocks. Policemen's Pension & Relief Fund Board of Trustees Meeting Minutes October 19, 2006 Page 28 of 29 Jerry Friend: Lately you hear all of this talk that there are several big builders that are upside down. To me the next step is the banks hurting that has fronted all of this. Are we still happy with banks on a larger view? Elaine Longer: The big banks that we own they are in international markets, big capital markets, they are doing underwritings they've got brokerage arms. Jerry Friend: So the housing bubble would not affect them? Elaine Longer: No we sold Wells Fargo about a year ago because we didn't want exposure to the California real estate market should it decide to soften and it definitely has. Investment Policy Review A copy of the Investment Policy was given to the board for them to review. Quarterly Report A copy of the Longer Investment Quarterly Report was given to the board to review. Other: Eldon Roberts: Sondra can you find out how much our insurance turn back was for this year? That will be coming up this next legislative session that is all done by state legislators we have no control. They have just done a big study on all of these old pension plans out here of the ones that are actuarially sound and the ones that are not. They are figuring out some method about which they are going to change up about how they disburse that insurance turn back money. I don't know if we are going to do better or worse off that. I don't know if we started going down, like this year I'm anxious to see what this years is. Marsha Farthing: I think it was $316,000. Eldon Roberts: Okay so it was still at least 300,000. Marsha Farthing: You all get a couple supplements the turn back and those supplemental's were $300,000. I think the turn back itself was $270,000. Sondra Smith: It looks like it is on your October pension list. It says September check future supplement was $60,000. Eldon Roberts: That's talking about that $50 a month deal isn't it. I'm talking about that out and out turn back check that we get. Policemen's Pension & Relief Fund Board of Trustees Meeting Minutes October 19, 2006 Page 29 of 29 Sondra Smith: I've got that in my office if you want me to go get it. Eldon Roberts: It's gone down a little bit then... If I figured this right we are paying out a little over $1.3 million a year out of the plan to the pensioners. Does that sound right? Sondra Smith: I have a year-to-date amount through October of $1,200,899.51. Eldon Roberts: Are you figuring through October? Sondra Smith: Yes, and the year-to-date amount and total should be on your pension report. Eldon Roberts: Roughly closer to $1.5 million a year. Sondra Smith: The year-to-date regular benefit amount is $1,200,899.51 through October. Eldon Roberts: Yes. So two more months at $127,000 a month will run it on up there to about $1.5 million. Marsha Farthing: Was Frank on there? Sondra Smith: Frank is on the September and October pension list. Eldon Roberts: Yes, so that is every body that's on there now. Meeting Adjourned at 3:15 PM