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HomeMy WebLinkAbout2004-01-15 MinutesPolice Pension and Relief Fund Board of Trustees Meeting Minutes January 15, 2004 Page t of 5 Police Pension and Relief Fund Board of Trustees Meeting Minutes January 15, 2004 A meeting of the Fayetteville Policemen's Pension and Relief Fund Board was held on January 15, 2004 at 1:30 p.m. in Room 326 of the City Administration Building located at 113 West Mountain Street, Fayetteville, Arkansas. PRESENT: Mayor Coody, Randy Bradley, Jerry Surles, Jerry Friend, Dr. James Mashburn, Tim Helder, City Attorney Kit Williams, City Clerk Sondra Smith, Michele Bechhold, Marsha Farthing, Chief Hoyt and Eldon Roberts, Mayor Coody called the meeting to order. Approval of the Minutes of the July 17, 2003 Meeting, August 28, 2003 Special Meeting and the October 16, 2003 Meeting: Dr. Mashburn moved to approve the minutes. Tim Helder seconded the motion. Upon roll call the motion passed unanimously. Approval of Pension List for January 2004 and February 2004: Jerry Friend moved to approve the pension list. Randy Bradley seconded the motion. Upon roll call the motion passed unanimously. Schedule of Meetings for 2004: A copy of the meeting schedule for 2004 was given to the Board. Arkansas Fire & Police Pension Review Board Letter: Sondra Smith: This is a copy of the letter from Cathym Hinshaw stating that we can implement the 3% COLA. Parking Tags: The board was given new parking tags for 2004. Police Pension and Relief Fund Board of Trustees Meeting Minutes January 15, 2004 Page 2 of 5 Investment Report: Elaine Longer, Longer Investments: The first page is the combined portfolio from 12/31/2003. The equity exposure on the total portfolio at year end is about 41% on common stock and then your mutual funds which are equity mutual funds are 4.2% so you are about 45% equity. The policy guideline gives you an upper range of 50%. We are pretty fully invested at this point compared to where we have been in the prior few years. We have a cash balance of $263,000; we were just basically holding a little bit of cash in the portfolio, we have some of that targeted to go into the fixed income market after the first of the year. The total portfolio value is $10.871 million and the annual income current yield which is the interest and dividends that you receive regardless of what the market does is 3.9%. The next tab is the stock part of the portfolio. We still hold some bonds in there but we have really pretty much moved back up to 45% or 46% equity so the bonds are really part of the fixed income portfolio. It shows an over draft but that's because the bond portfolio has cash so your total account is not over drafted. Page 10 has our largest holdings, Pfizer, GE, Cardinal Health, Citigroup, and Microsoft. Even in those five largest holdings the largest percent of total portfolio is Pfizer at 1.4% so it is still very diversified. We sent out the statements yesterday and the news letters. What I talked about in the newsletter is the fact that going into this next year we think the consumer will probably take a step back and the back side of the economic cycle which is the business end, capital investments, transportation stock will probably move to the forefront. To look at the year to year change in consumer spending we think the consumer will be taking a backseat to the industrial sector. In your industry weighing you will notice that we are over weighed on capital goods, defense stocks, more of the cyclical industries. We are over weighted in energy and also technology. We are under weighted in consumer stocks and financial stocks. We think that this year looking at how the stock market is positioned coming off a very big year, we have the rubber band stretched pretty far between a three year under performance of stocks, which was the first time we've had three years of negative returns since 1939 and three years of out performance of bonds so the relative performance of the stocks versus the bonds we really had that rubber band stretched pretty tight. Then we came out of the Iraq invasion and that pressure was released which lead to this big run up in the stock market. Looking at this next year we think that there are a number of factors to look at, earnings growth should be about 13% to 17% and historically in an election year you have an 8% return, but if an incumbent wins the average return is 13%. The economy does seem to be picking up speed. We have a strong economic growth outlook and for that reason we probably will have stocks out perform bonds again. We are anticipating there will be a more moderate rate of return more in line with what the earnings growth is going to be. Police Pension and Relief Fund Board of Trustees Meeting Minutes January 15, 2004 Page 3 of 5 Ms. Longer went on to explain how she thinks the market is going to perform during the upcoming year. On the bond portfolio, basically we still have the A rated bonds, corporate bonds, we have the real estate investment trust which returned in excess of 20% this year, the government bonds, and the government agency bonds, so the income yield on the bond portfolio is about $238,000. On page 19 you will see that the yield on book value or the price that was paid for the bonds is approximately 6% but the average maturity is 7.1 years. To compare that with what the yield curve is right now the ten year treasury is at 4% today. Your income yield on the bond portfolio has stayed fairly stable even throughout a declining interest rate environment. Page 20 gives you more information about the bond portfolio. The important thing about this report is the distribution by maturity. We did move most of your bonds that matured within the year; they have already been reinvested so only 3% of your bonds mature this year. In the three year maturity we have about 14 %2% of portfolio. What that means is that we have the flexibility if in deed the economy continues to pick up and interest rates rise with the recovering economy we do have short maturity bonds that we can reinvest to capture higher yields. Page 21 has the realized gains for the year, $11,800. Basically when we realized a gain this year we take a loss and clean the portfolio up. By the end of the year there are no more losses in the portfolio to take. The total increase in the portfolio value on the investment side is about $1,087,000. Page 22 has the contributions and distributions report $290,000 came into the portfolio and distributions were about $627,000. You are back up to a 7.4% annualized return since inception. Your total account is up 6.6% since 1999, so we weathered the storm. The most important consideration in your Investment Policy is the asset allocation which is 35% to 50% equity. All of the other parts of your policy we monitor on a weekly basis to make sure that your weighted average stock weightings are within your policy constraints and that there are not any bonds being down graded that need to be sold and all the other assets of your policy are intact. Dr. Mashburn: So you think the 35% to 50% threshold is still alright, just leave it as it is? Elaine Longer: I would, because you have plenty of growth to meet your actuary plan assumptions. Jerry Friend asked about the foreign stock. Elaine Longer said we are okay on the foreign stock. She thanked the Board for their business. Police Pension and Relief Fund Board of Trustees Meeting Minutes January 15, 2004 Page 4 of 5 Other Business: Randy Bradley: Did we get a letter from Craig Westbrook. Michele Bechhold: When I was originally asked to contact Craig it was to find out if the GUST amendments would affect this plan and if anything needed to be done to bring the plan into compliance with GUST. I made a phone call to Craig and he said that he thought for the most part that there would not be anything the plan would need to do; there might be something that would affect the plan. He said that the plan has been set up by state code and that we ourselves could not necessarily amend the plan, that we should check with the actuaries of the plan because they should be keeping the plan in compliance with any laws that might change to affect the plan. He suggested that we write a letter to David Clark and ask some specific questions, which we did on September 17tH Sondra Smith: David Clark responded by phone stating that we did not need to do anything to comply with the Gust requirement. We can probably get something from him in writing. I will request that he send us something in writing. Michele Bechhold: There were some specific questions in the letter, I don't know if you have seen the letter or not. There were three questions, has a determination been made as to whether or not these local plans carried statue are subject to these requirements, if these plans are covered by GUST are changes in the plan provisions needed to obtain compliance and if changes are needed has a process to accomplish this been established and what entity has been charged with responsibility for this task. Basically they were direct questions, have you determined if the plan has been covered, are changes necessary if it is covered and have you started any process to make any necessary changes. David Clark's response to that was that everything is okay. Craig Westbrook had also stated I suspect many such plans do nothing as there is no audit activity for governmental plans. Jerry Friend: How does that make our attorney feel? Kit Williams: It is always better to get something in writing. It probably means that we are okay. I would like for us to request David Clark to see if he responds in writing. Sondra Smith: I will send him a letter asking him to please respond to our questions in writing. Jerry Friend: Westbrook is the one that we paid the money to right? Michele Bechhold: Yes. It would cost an additional amount for a letter from Westbrook. He bills on a time basis, when I call I get a bill for the phone call, if it is an email, I get a bill for the email. Sondra Smith: That is the question to you, if you want something in writing from Westbrook it is probably going to cost more money, do we want to do that? Kit Williams: How much is he charging per hour? Police Pension and Relief Fund Board of Trustees Meeting Minutes January 15, 2004 Page 5 of 5 Michele Bechhold: This is a statement for $90.00, it does not state a per hour rate. Kit Williams: This was $90.00 for the email? Michele Bechhold: This $90.00 was for the original phone conversation on September l Ith Kit Williams: I can guarantee that if we ask for a letter where it is in black and white and he is saying something that he could be liable for it would cost a lot more than $90.00. Sondra Smith: That is the reason before I told Michele to go ahead and get a letter from him I wanted to talk to the Board to see if they wanted to spend more money to receive a letter. Kit Williams: Let's ask David Clark to respond in writing because he will not charge us since he works for the state. Jerry Friend: Larry McCawley had something he wanted brought up, I asked him to put it in writing and he is working on it but will not have it completed until the next meeting. It is some kind of increase. A discussion followed on what Larry McCawley might present at the next meeting. Tim Helder moved that the meeting be adjourned. Jerry Surles seconded the motion. Meeting adjourned at 2:05 P.M.