Loading...
HomeMy WebLinkAbout2003-04-17 MinutesPolice Pension Minutes April 17, 2003 Page 1 of 16 Minutes Of A Meeting Of The Police Pension Board Of Trustees April 17, 2003 A meeting of the Fayetteville Fire Pension Board was held on April 17, 2003 at 11:00 a.m. in Room 111 of the City Administration Building located at 113 West Mountain Street, Fayetteville, Arkansas. PRESENT: Dr. James Mashburn, Randy Bradley, Jerry Friend, Eldon Roberts, Jerry Surles, Steve Davis, Marsha Farthing, Kit Williams, City Attorney, Sondra Smith, City Clerk, Longer Investment and the Audience. Eldon Roberts called the meeting to order. Minutes from the January 16, 2003 meeting were distributed along with the revised minutes from the October 17, 2002 and July 18, 2002 meetings. Approval of the January 16, 2003 minutes: The minutes from the January 16 meeting were discussed and corrections were identified. Approval of the revised minutes from October 17 and July 18, 2002: Jerry Friend moved to set a special meeting on Thursday, April 24 at 1:30 to approve the revised minutes of the October 17, 2002 and July 18, 2002 meetings and the January 16, 2003 minutes. Eldon Roberts seconded. Motion carried unanimously. Approval of Retirement for Deputy Chief Tim Helder: Eldon Roberts: Chief Helder retired from Police Department after 21 years of service. His retirement was effective on April 6, 2003. His retirement was voluntary and needs to be approved by the Police Pension Board. Dr. Mashburn moved to approve the retirement of Deputy Chief Tim Helder. Randy Bradley seconded. The motion carried unanimously. Review of Pension List: The Pension Lists for April and May were distributed and reviewed by the board members. Police Pension Minutes April 17, 2003 Page 2 of 16 Investment Report — Longer Investments: Elaine Longer with Longer Investments: The first report is the portfolio appraisal for the end of the quarter, March 31st. That is there for accounting purposes because you need a quarter end cutoff. Page 8, is a more recent portfolio printout. Going back to June 30th we had intended to discuss this in the meeting too, but we had dropped down to a fairly low assest allocation to equities at about 20% and even knowing that in the long term scheme of things that was fairly underweighted and conservative giving your policy, but at the time we didn't see any reason to push the petal to the metal just to be within policy guidelines showing the market still had a lot of risk. To give you a progression on June 30, we were at 19.8% equities on September 30, we were at 18.3% equities and by December 31 we had increased the equity allocation to 27% so during that October dip we get down to 7200 or so we were able to start doing some buying. On March 31, you are still at 27% and on April 16 at 29%, so you can see the progression to get a little bit more. We have had a great opportunity to slowly increase the equity allocation and get back into a closer range with what your investment guidelines are. We have done that as bonds have matured or been called; we call that cash for stock side, so we have been able to earn 6 to 61/4 percent on the reserve while we were waiting to do a more accurate equity -purchasing program. So your current portfolio is listed as April 15 and you have about 3% in real estate investment trust, 29% in stocks, 10% in corporate bonds and corporate preferred securities, which are a method of debt, 9% in US treasury bonds, 46% in government agency securities which include Federal Bond Credit, Federal Home Loan, Federal National Mortgage Association, the government sponsored enterprises. This quarter with some of the money that matured off of fixed income securities we invested in the GNMA (General National Mortgage Association) pool which is a 5/ percent government guaranteed income. GNMA's are a little bit messier than a straight bond because it's like a home mortgage with every interest payment you are going to get some principal payment. So you see that 300,000 ended up going down a little bit each time that's because you get your interest payment and your principal but 51/4 percent in government guaranteed security with an extended maturity is still a real attractive thing and we can keep up with the accounting on our computers, it is just that it will look different than most bonds that you have in your portfolio. So the total value is about 9.8 million. If you look at the last column, we are going to yield a little bit more on the fixed income report but the total income yield on portfolio even with 29% invested in stock is 4.8%. That is the income that comes in from bonds and dividends on stocks; and our target has always been to go for a 4% income yield and we are up to 4.8%. That provides a lot of downside protection in a market like this because you are bringing in that 4.8% no matter what stocks do. The next report on page 14 just breaks out the stock accounts back to March 31. The largest holdings report on page 17 just shows the largest stocks as a percent of portfolio both on a historical cost basis as a percent of equity but also on total portfolio and they are well within the guidelines of 5% of equity not to be overexposed to any individual stock and so General Dynamics, Citigroup, Pfizer, Alcoa, and Exxon are the largest holdings. Through March 31, the realized gain loss position was a loss of $17,000, net income, that is the income received on bonds and dividends, was $93,000. The next report is a summary of your bond part of the portfolio. There are bonds in both the stock and bond account but we segment it so that we've got the bonds that are held in Police Pension Minutes April 17, 2003 Page 3 of 16 the stock account. If they were fully invested in stocks you would be at a full stock position, but we haven't been there for awhile so we still do have bonds over there. All of your bonds are investment grade. You have not suffered any kind of disruption to the portfolio because of what has been going on in the credit markets that we've seen in the past two years a large increase in the credit risk in bond market. We have presold some bonds, for instance Ford, General Chrysler, and General Motors running in front of a potential downgrade and most of those bonds have been downgraded. Your bond portfolio is A rated bonds or better, government securities, and government agencies (high quality). On page 23, this a report that we do each time it breaks out your yield on book value. On your fixed income securities alone is still 6.1% and on the total portfolio about 4.9%. That compares to last year you were running about 6% on fixed income and last year we saw a dramatic decline in interest rates. But we have been able to maintain your portfolio income yield by extending maturities during opportunistic times. A lot of times we don't wait for a bond to mature or get called if we see a spike up in interest rates that we can take advantage of, we go looking for anything that is callable or matures in the next 12 months so we are preselling all the time. So we have been able to keep your income yield at about 6% even though the market interest rates have dropped down to about 4% on the 10 year maturity and about 5% on a 30 year bond. The weighted average maturity is only 7 years which means that you don't have a lot of price risk in your portfolio if interest rates go back up; you are at a 6.1% yield without holding a lot of 30 year bonds, so your income yield has come up since year-end to 6.10% and your weighted average maturity is about 7 years that compares to 7.1 years at year-end. The next report on page 24 shows the distributions that have taken place year to date. You have had a couple of contributions from litigations that were won. The next page, on page 25, just shows your return history. What is really interesting about the return history through year end is that we just recently did a pension report on Monday and went back and looked at the 5 year returns now in stocks as measured by S&P are about a minus 9.6% and is measured by the NASDAQ down about 14 and if you go all the way back to a ten year period and look at how far back do you have to go now where stocks have out performed bonds you have to go back to prior to 1987. So you actually have now a 15 year history where the compound annual return on fixed income is actually higher than the compound annual return on stocks, which is really unprecedented. This is really an amazing time. The 3 years back to back that we've been through in the negative stock market we haven't had 3 consecutive years of negative return since 1939-1941. That compares to about minus 40% on the S&P and minus 67% on the NASDAQ, so you have had the negative returns in stocks like other investors but the returns we have been able to achieve in the bond market have offset that so that the big impact to the real core, the capital of the account has been minimal and we still have capital to build on. That is the thing about a bear market like this; if you go down 33% then you have to make 50% on what is left to break even. If you can just minimize that downward hit then you've got all the capital to rebuild and we are starting into the rebuilding process now. So your average annual return at the end of 1999 on the total portfolio was about 9% even though you haven't been hit hard three years of standing still in the water which has been a good performance but it still leaks away of what the annualized return is even so at 6.5% or 6.8%, which is the 13 year average annual return, that still more than satisfies your actuary assumptions of 6%. I think it also demonstrates the importance of the bond part Police Pension Minutes April 17, 2003 Page 4 of 16 of the portfolio and is holding the value together. At the bottom of the page it just shows the summary from inception to date, the contributions, distributions, and the components of return. You can see now that the net income and changing accrued income as the components of return have overtaken the realized and unrealized gains, which are the growth components. That will not last forever; it's interesting the relative performance in the past 3 years bonds versus stocks. The fixed income part of the portfolio has returned close to 35% and while the market has gone down so you have this divergence between bonds and stocks that has produced about a 50% spread in performance over the last 3 years now you are sort of at the opposite end of spectrum. In 1999, we got pretty overvalued on stocks relative to bonds and now we are sort of swinging over to where the bonds still overvalued relative to stocks are after this 3 year period. The last time that we were together we talked about how we viewed the stocks and weight them based on their S&P rating, how we assign a numerical value to that so that we don't have to look at each individual stock satisfying a certain S&P rating but we look at the whole portfolio and what the S&P weighted average rating would be and this is written in your investment policy that the weighted average needs to be B+ or better which would be a 4 or lower; and you are at a 3.1. So you are right at approximately A- on your stocks that you own. The last report is the industry weighting report that we include for more interest if people are interested in looking at it. It take the stocks in your stock portfolio and puts them in the way we look at them, economic sectors ratings which are capital goods. Within capital goods you have several industries aerospace and defense, electrical equipment, machinery, and manufacturing. So you kind of look at how the ratings sort of stack up in your economic sectors. We are a little bit more exposed to economic recovery through the capital goods exposure that we have and also the cyclical industry exposure where underweight consumer because a lot of the consumer stocks have the place to be in the past two or three years the ones like Proctor Gamble, Clorox, Coca-Cola, Wal -mart, and Pepsi and those security type stocks are really not where the cheap stocks are. Where we are shopping is with companies that really haven't participated or have had a significant decline in past several years, so we are weighted more heavily on the cyclical side looking for rebound in the economy and we're increasing our exposure to the technology just a little bit at a time. As we said at the last meeting we were sort of sticking one toe at a time in the water. We have just over the past 9 months or so nibbled away at some of the technology stocks. Most recently we added IBM before their earnings report; the earnings that come out this week on Microsoft, Intel, and IBM have all been greeted favorably by the markets. I think you are getting sort of a collective sign of relief out there that things are not quite as bad as people had expected. And we still have some of the MDY, which are mid cap depositories and SPY, which is the S&P 500 proxy. We have about 13% of equity exposure in those two. We use that as a tool for allocation to the equity market, we have some of those on and as the market ran up during the initial stage IRAQ war we had 1,000 point run up in a very short time period. We took some of that off; it's a way we can reduce equity exposure without disrupting the portfolio structure and then we have cash again. The market backed off about 500 points from that high and we bought them back in. So it is kind of a lever that we use just to have a 5 or 7% swing factor in the allocation to the stock market without having to sell 10 different positions or disrupt the portfolio. As things settle down we will be using that more as purchasing power to add to our core positions, but in this kind of volatile trading range Police Pension Minutes April 17, 2003 Page 5 of 16 down market it is a real good tool to use. We had talked about some of the changes that we recommended to the investment policy at the last meeting but I don't think that there was a quorum to address them. Basically, after dealing with the firemen and helping them to arrive at a new investment policy that really addressed what they needed to be doing and incorporated what their portfolio structure would look like we went back and reviewed your policy to make sure that it was still current and all regards with what is going on in the portfolio. We only made a few changes; they are all in bold and basically it just represents what is actually going on in the portfolio and mostly from the administrative standpoint I am going to let Kim cover all of those bold points and just tell you in more detail because then what we will do is ask you to approve the changes either at this meeting or if you want more time to look at it, we could meet tomorrow and discuss it again I think that they are all good changes to make because when we did go in and look at your policy and there were some things that probably needed to be updated. Kim Cooper: All the changes are listed in bold on the policy, so the 1s` page there are no changes that we are recommending. On the second page, we just added some text that we put in all our clients' investment policies under number 4 and it had to do with the fact that we don't make a phone call to you every time we place a trade. They are all done on a discretionary basis; all your transactions are listed on your monthly statement. Elaine Longer: Some of this is because of the changes that are imposed upon us by the SEC as registered investment managers because of the scandals and all of that. The SEC now has a 50% increase in their budget so they are coming around and making us do more disclosures so this is nothing new that we do buys and sells without calling you but now it has to be in everything that we do. Kim Cooper: Under 4A, the information that has been added there has to do with the credit rating on the portfolio. Nothing has changed in the way that we do it but had just added the text to show the way we look at stocks that are not rated. What we do is we assign a rating higher than any of the worst ratings on the stocks so that it won't affect your portfolio at all and won't make it look like it's higher than what it is with non -rated stocks in there. So we just assign a rating lower than D- to it. On page 3C we have added instead of "all bonds carry an investment rating of A" we've added "a rating of investment grade." The reason we put that in there is because last year when there were some downgrades in some of the automotive bonds we had to come to the meeting and ask for special permission to hold the bonds until we could get out of it at a good price for you. So this will just keep it at investment grade but not hold it at that rating of A. Under D, refers to the money market funds that you hold. Your current policy says "just good quality" and we think it very important that funds should be held in the US Treasury Money Market Funds then there is no risk to principle there, so we like to put "US Government Money Market Funds." Under E, we added that investing in international securities will be limited to 10% of equity portfolio at cost; that is something that has been discussed in meetings in the past but has never been officially put in your investment policy so we have added that. Under F, the needs of options for hedging your portfolio that has also been discussed at meetings but had not officially been put in Police Pension Minutes April 17, 2003 Page 6 of 16 policy. On page 4, this is number 9 that's another thing that has been added by the SEC the way that we look, which brokers we use for doing transactions, it can't be just based on commission or just based on price, we have to also look at the level of service that they provided, under a whole picture opposed to just commissions only. Under liquidity, number B at the bottom of the page we added a paragraph related to what your annual benefit payments are and what your annual contributions are to the plan just to help us in planning; we talked about this at the last meeting and we do now have what your monthly amount, the maximum monthly amount that will come out so that we know that in advance every month sometimes it may be reduced somewhat but we will always have enough cash in the account to meet your distributions without having to sell something on a next day basis that we had talked about. But we will just need to get those figures from the accounting department to fill that in. On page 5, number 1 changing money market to say "US Government" as opposed to "good quality." Number 2, changing your minimum bond rating to invest grade and the holdings in any one issue we changed that from 15 to 11 and that's to match what is listed earlier in the policy on page 4. It indicates that 11% of your fixed income portfolio can only be held without board approval. So we just changed that so it matched the rest of the policy and also that does not apply to treasuries or government agencies securities. Under equities, we have taken out "private placements are permissible." We don't feel that is appropriate for your portfolio. On page 6E we have taken out that the board would use payments through commissions to pay for performance service if that is something you would want to do we really don't have a way that commission could be used to pay for that type of service so we just took that last sentence out. As I said a lot of this has been approved in the past and other things are just housekeeping type issues. Elaine Longer: Any questions on any of those? Jerry Friend: Page 3, options may be used for hedging only, what's the other? Elaine Longer: There are two ways to use options; one is to use an option against an underlying position so when we are selling a covered call, we're selling a call on a stock we own if it gets called away from us there is no loss; there's a loss of appreciation potential to print on a hedge. You could use options for leverage or speculation if you go out and buy or sell options naked is the way it is called that you don't hold the underlying security, then it is pure speculation. Jerry Friend: We don't want to be speculating. Elaine Longer: No and all of our policies, everything that we are approved to do on the options is just as hedging. Eldon Roberts: Do you have questions in mind? Do you feel comfortable with waiting on this until a week from today? Elaine Longer: Yes Police Pension Minutes April 17, 2003 Page 7 of 16 Eldon Roberts: So you all can take this home and read it. Steve Davis — Investment's: Eldon Roberts: Steve Davis is the City's Chief Financial Officer and Chief Administrator of Finances. I had the occasion to talk to Steve the other day and spoke to him for some time about how long he thought we should sit here as a board and watch the investments continue to go down though no problem with you all. I think you all have done a superb job, may have kept our losses lower than anyone else could have. So no one feels bad toward you all, but I know what fiduciary responsibility means. I read nearly everyday in my office on the information I get from different investment firms and seminars. I feel like at least somewhere down the road we need to have someone look at this and advise us on how low we go. What you said the amount of our portfolio is today is $2 million dollars down from a couple of years ago. I know everyone else is in the same boat but that doesn't make me feel well just because everybody else is too. But I just wanted to visit with Steve about this and he told me at that point in time when I asked him those questions he said, "Well let me tell you something else that we are looking at here in the city. The city is possibly looking at the old fire plan and old police plan putting those together and turning those over to the state for administration." So I asked Steve if he would like to come to the next pension board meeting, which is today, and kind of break the ice and explain to the board and the people that are here what exactly their thoughts and ideas are. So Steve took me up on that and here he is. Jerry Friend: Elaine do you have time to stay for this? Elaine Longer: I'm fine. Steve Davis: Between 2004-2005 the City is going to come under new guidelines for accounting purposes; we will begin bookkeeping all our contingent liabilities. Between the police pension plan and fire pension plan there are approximately $9 million unfunded approved pension liability that we would have to put in general budget. Jerry Friend: Do you know how that divides up? Steve Davis: It is about half or about equal. I don't know the exact general split but a little bit over 4 million for each fund. Under state law there are this pension board and the fire pension board can stay in existence and basically there are a couple of questions that I have related to this pension board and the fire pension board staying local. We don't really know for sure what would happen when you get to the point where we are about out of money, whether your benefits would be cut to stretch it out through the remainder of the beneficiaries wives or whether the City would have to take general revenue and fund the current expense. We don't know exactly how that will work out. Indications are that it would be pension benefits would be cut or the City would have to step up and send more money over to the pension boards. Going through our City Council and funding pension benefits for retired workers in the future might be problematical if they have to choose between funding pension expense for retired employees or funding current expenses for current service deliveries. I don't know how Police Pension Minutes April 17, 2003 Page 8 of 16 the City Council would react. The other option would be send both pension plans down to Little Rock and let LOPFI Board manage the pension plans. They would take the City's approved pension liability and amortize it over 30 years. There are still some options on benefits that would be available at the time it ships down. The primary purpose of me for being here today was I wanted to share my theory in the City. We were wanting to develop a more thorough report in writing for distribution to this board and the fire pension board for consideration sometime this summer, hopefully at the next quarter meeting for you all which I guess is in July. Is that correct? Eldon Roberts: Yes, the next regularly scheduled meeting is in July. Steve Davis: We need to start thinking about what the options are from not only the two pension board's perspective but also the City at large perspective to do what is best for all concerned. This report will be developed by my staff and we will distribute it. The City Council, as I understand the state law, cannot move these without; the way the mechanism is that the pension boards petition City Council to move the pension plans from the local governments to state governments so that really tells me City Council can't come in and just move it unless the plan is in a serious financial problem. Kit Williams: The good news on that position is that the pensions would not be cut by the state if they were moved to the LOPFI plan. Steve Davis: Well, that's what this report will flush out, I don't think they would be cut but I want to make sure. Jerry Friend: But they are going to amortize these plans, but it says that they may be cut. Steve Davis: They will amortize the actuarial unfunded liabilities. They would amortize the 9 million dollars. Randy Bradley: Who came up with this figure, where and how? Steve Davis: What the unfunded? Randy Bradley: The $4 million. Eldon Roberts: Probably the last actuarial evaluation we had. We haven't been actuarially sound since we raised the benefits to 90%. Randy Bradley: Where did the $4 million come from that was not mentioned before? Eldon Roberts: It's in the actuary report. We have not been actuarially sound since we raised our benefits to 90% of salary, it started downhill along with the increase in benefits being nearly doubled, then the investment end of the situation made a lot less money. You know everybody is in that boat. I have my again. Steve Davis: June 25, 2002, the actuary report Review Board placed the unfunded actuarial $4,549,239. Police Pension Minutes April 17, 2003 Page 9 of 16 doubts if it will ever be actuary sound from the Finch Arkansas Fire Pension accrued liability for this pension at Eldon Roberts: We need to thank our lucky stars that we got actuary sound enough in 1999 or whenever it was to be able to give a benefit increase though Little Rock and get it granted. You all are recipients of that, but ever since that point in time that hasn't been a chance of getting a benefit increase because of where we stand actuarially. I asked Steve some pretty pointed questions when he brought this up the other day. I asked him what happens to the benefits. I know that 50% is all that we were ever promised basically, he told me nothing would happen, and nothing would change. I asked him about additional benefits that some of us have whenever we reach age 60, he said nothing would change there and another thing he said that sounded even better was that we would be guaranteed a cost of living increase of 3% a year. Steve Davis: That's an option. The City could request LOPFI Board to grant the close pension participants a cost of living increase and it would be the same as the COLI that the LOPFI members currently have which would be 3%. It would be factored into the 30 -year amortization. Eldon Roberts: I'm hearing you say that the City could ask the LOPFI Board to do that? What would it take to get the City to ask them to do that? Steve Davis: Well, we've got a couple of steps to go through first. My staff has to prepare this report that will examine what could happen if the plan stays local, what could happen if it goes to Little Rock, what could happen in both scenarios, and then if this board and the fire pension board choose to request City Council to move it, then City Council can say in order to do this. That would be a City Council decision that could be requested by either pension board or both pension boards, that we want you to move it there and we would like to take advantage of the 3% cost of living. Eldon Roberts: Which the City would ultimately pay, because somebody has to pay it. It would be the City and they would understand that they were going to pay that 3% if they were going to grant it to us. Jerry Friend: Why would the City pay the 3%? I wouldn't if I was the City. Kit Williams: Nine million dollar debt that they are looking at; I don't know if they are going to make that bigger. Chief Hoyt: It seems to me that I don't know if it is clear or unclear whether the City can do this without the pension board initiating it? So it sounds to me like the pension board holds the cards though. Police Pension Minutes April 17, 2003 Page 10 of 16 Steve Davis: My reading of it, it indicates that the pension board does hold the cards. Kit Williams: It holds the cards on getting it transferred but not on future benefits. Chief Hoyt: I understand that, but it looks to me like they hold the cards as to say, look we are not doing this unless the stipulation is that there is a benefit increase in the future or the 3%. Or we are not turning it over to the City Council. Eldon Roberts: At least the benefits that we are currently drawing are protected some. Kit Williams: But that endangers future benefits. It's like playing chicken and then if the City Council says okay we are going to fund you when you run out of money, then you are playing with your future benefits and really taking a big chance. Randy Bradley: I think we need to see the report. Steve Davis: Yes, you need to see the report and I didn't want to just dump the report on you or the fire pension board; I wanted to have this initial conversation first. I will come back at your next pension board and I will get the reports to the City Clerk so that she can distribute them prior to the meeting. Marsha Farthing: Cathyrn Hinshaw said she would be glad to come if you are interested. She would be glad to come and talk to you about this. Chief Hoyt: How much is the City going to save by not having to mess with this? Steve Davis: I'm not sure what the City will save or if there will be a savings. A discussion followed on what the City might save or if they would save any. Eldon Roberts: I guess the next thing to do is to let Steve get his report together. I'll not be in position to vote on it when the time comes but the rest of these people will and whoever takes my place here will be able to, but you are going have to be able to convince them, because I know the policeman pretty well; beyond a shadow of a doubt which way is the best way. Jerry Friend: It is going to take a lot of convincing before I trust the State. Eldon Roberts: I'm not saying that doing that is not the best way to go. Be ready for some pointed questions and have all your ducks in a row. Randy Bradley: I want to thank Elaine Longer for what all she has done for us. Eldon Roberts: Anybody have any further questions for Steve? Marsha do you have anything? Police Pension Minutes April 17, 2003 Page 11 of 16 Marsha Farthing: You all still do have another option to increase your millage. Eldon Roberts: Does that take a vote of the people? Dr. Mashburn: Right. Marsha Farthing: That will get you back to where you are on a level playing field. Eldon Roberts: How high would they have to go? Marsha Farthing: I would go ahead and get the one mil. Steve Davis: Right now it is at .4. Dr. Mashburn: Right, if it turns around and starts going back up equivalent to the past three years that it has dropped, it's not necessarily being used but it would be a whole a lot better off. Steve Davis: Just reading out of the actuary report, in 2001 your total income was $997,000 and your total expenses were $969,000, looking at your 2002 financial, your income was $437,000 and your expenses were $1,000,062. So there were $625,000 expenses over revenue. At that rate, your 9.8 million dollars will last 16.3 years. Jerry Friend: But this downturn in the economy is not going to last that long. Steve Davis: Also remember, what the economy did after Gulf I, it didn't come back. Kit Williams: One of the problems is your principle has been knocked down by this, even when it starts going back up its not going to fill back. Eldon Roberts: You've got to play a lot of catch up to ever get back to where you were. Steve Davis: We are bringing this to you to prepare you for a report that is going to get to you in July. Jerry Friend: Right and we can't really argue either way until we see the report. Steve Davis: That's right and hopefully there won't be an argument then, it will just be a discussion of the details. Jerry Friend: It will still be an argument. Eldon Roberts: Anybody have any further questions of Steve or Marsha about this? The report will be out by the next meeting. All the members will have it to look over and go over it. Police Pension Minutes April 17, 2003 Page 12 of 16 Jerry Friend: Can that report go to Elaine Longer also? Steve Davis: Absolutely. Do you want us to give her an advance copy? Jerry Friend: She has advised us on a lot of things and I would like to have her input. Eldon Roberts: Okay, no further questions of Steve? Thank you Steve and Marsha for coming by. Election of Policemen's Pension and Relief Board of Trustees: Eldon Roberts: The seventh item on the agenda is the Election of Policemen's Pension and Relief Board of Trustees. I assume we are talking about the retired member that has been elected to serve in Hollis Spencer's place. Sondra Smith: There are other terms that according to my records that expire in April of this year. According to the records that I have which I am not for sure if they are correct, there was a term that expired last year, did you do an election last year? You should be doing an election every year. Eldon Roberts: Amongst the retired people? Sondra Smith: Members of the board. Eldon Roberts: They are staggered terms they all don't come due at the same time. I don't know who you refer to? Sondra Smith: Did you all do an election last year? There was an expired term last year. Jerry Friend: I got called last year. Eldon Roberts: The law doesn't spell out how those elections are to be done because I have looked at it time and time again. What the retired people generally do is they take a phone poll of all the retired people and get a consensus of someone to serve and then it is brought before the board. I think Randy bas the results of the last one. Because it doesn't say it has to be a written ballot or a secret ballot or that you have to have a meeting with nominations. Sondra Smith: I put a copy of the state statues so you all could look at that in your packet. But I think Randy's term is the one that is up this year. Isn't it? Randy Bradley: To be honest with you, I couldn't tell you. Sondra Smith: I think it is. Police Pension Minutes April 17, 2003 Page 13 of 16 Eldon Roberts: I know mine would have up anyway in May but of course the State Legislature has done away with my position totally so this is the last meeting. Jerry Friend: We really need to elect two. Sondra Smith: Right. Sondra Smith: I think Eldon and Randy's expire at the end of April. Eldon Roberts: Somebody that is already here and someone to take my place. This is the last meeting other than the special meeting that we've got targeted a week from today. Randy Bradley: Mine expires at the end of April. Sondra Smith: I think it expires at the end of April. I will bring that to our meeting next week and then we can look at and determine what we want to do. Eldon Roberts: The Doctor is elected by the rest of the board members. Sondra Smith: That is my understanding; he is appointed or elected by the board. Eldon Roberts: It is hard to keep track of all them because they are staggered. Sondra Smith: It says one member shall be a reputable physician and he shall represent the Board of Trustees. Eldon Roberts: There is no representation on the active side now, it is all retired people. Jerry Surles: Can you still be elected by the local board? Kit Williams: I don't think so. Eldon Roberts: Not unless I was retired. Jerry Surles: To fill one of these spots that's coming open. Eldon Roberts: If I was retired would be the only way. Every police member on this board has to be a retired police officer. Kit Williams: Once you get to 75%. Jerry Friend: But you could come to every meeting and advise us. Eldon Roberts: I will be sitting right out there. I won't have a vote but I'll have a voice. Police Pension Minutes April 17, 2003 Page 14 of 16 Randy Bradley: Here are the results of the election of Jerry Surles if they need to be filed anywhere. Sondra Smith: Okay. Eldon Roberts: This is an election we had just because a member passed away. I don't know if his time was up. Sondra Smith: His time was not up. Kit Williams: Why don't you make a motion to accept the election results and just acknowledge them in the minutes? Dr. Mashburn moved to accept the election results of Jerry Surles as the replacement for Hollis Spencer. Jerry Friend seconded. Motion carried unanimously. Randy Bradley: So we need to be coming up with a couple of candidates then to replace. Eldon Roberts: Well at least one candidate to replace my position. But one of you all may be run again. Randy Bradley: But you will have to be elected. Kit Williams: There are some good things about having some transition, some knowledge about what has gone on in the past especially with some of these big decisions coming up. Randy Bradley: That one is a very big decision. Eldon Roberts: We are not very likely to have to look to someone else for guidance, you all may be on that rather than taking City's guidance. Jerry Surles: I think that Steve needs to send that report to all the pension members not just the Board. Randy Bradley: I want every single member to look at it and get an opinion on it. Eldon Roberts: I understood him to say the other day that the 3% deal was pretty much a given, but it doesn't sound so good today. The City has to stand good for the short fall, that's why they want the plan to go down there to give them more time. I don't know if they will be necessarily in favor of giving us a 3% raise every year. But I don't know if we have a chance of getting one staying like it is either. You all will have to weigh all Police Pension Minutes April 17, 2003 Page 15 of 16 that, I won't be involved other than sitting out there listening; you all will have to take a vote on it when the time comes. Chief Hoyt: Currently, does the current plan offer a cost living? Eldon Roberts: No sir. LOPFI does, but not the old plan. We received a benefit increase in 1999 of 90% but there has not been an increase since. It will be awhile before there is one. That was for current retirees and future retirees. Jerry Friend: That was quite a cost of living increase. Eldon Roberts: That was. Jerry Surles: 3% would be good if you could get it. Eldon Roberts: Yes it would be annually. Jerry Friend: But what do you have to give up to get it? Eldon Roberts: The City has to give up. They have to give up tax money; they have to come up with revenue that is what they have to give up. Jerry Friend: But there is no reason for them to do it. Eldon Roberts: The other option is, apparently the way they are looking at it, and the report will bare this out, sometime in the future they have us projected as going broke, before everybody has quit drawing a pension. That will be a problem too when that comes. Jerry Friend: I would want another opinion. Eldon Roberts: You may well want to go outside anybody in the City or anybody associated with this board in any manner, shape, or form and get an outside opinion on which is the best route to go here. Before you do that, you are going to have to see what each route offers. Randy Bradley: Elaine says history is on our side, it is going to turn around, not to the point it was a couple of years ago, I don't think we will see that for a long time. Eldon Roberts: Any other business to come before the board? Jerry Surles: Answer one question for me; on the widow's benefits do they get our 90% now? Eldon Roberts: No, 50%. Police Pension Minutes April 17, 2003 Page 16 of 16 Kit Williams: We got an Attorney General's opinion on that. That was my opinion and I thought that was the way it read but we've got an Attorney General's opinion to clarify it. Eldon Roberts: When we asked for the benefit increase to 90%, we had two or three scenarios that we could ask for. One was for current retirees only, not even future retirees, one was for current and future retirees and one was for current and future retirees, and spouses. We opted to go with the one that we thought would cost the least. So we could get it passed in Little Rock and that was to leave the widows off of it and leave it at 50%, the benefit increase would not apply to those, we got it through Little Rock and got it passed. You got your 90% but with the widows staying at 50%, it cost more if the widows were going to draw 90% too. Jerry Surles: I was just curious because I know the Fire Department got their widows 90%. And there is no way of us getting that for ours. Kit Williams: I don't think there is according to the state statues; of course they have different statues for the different pension funds. They use slightly different language and actually your statue was contradictory. It has two different sections that said different things. One section said amount equal to the pension and the other section said shall not exceed one half of the salary. So I wrote to the Attorney General and said which one do you follow? And that said shall not exceed half the salary. Eldon Roberts: We brought that up it had to do with Irene Haskins whenever Ronald passed away, and I didn't know where to go with this, pay her 90% or drop her back to 50% of what Ronald was making when he retired. So I brought it up and pointed it out to Kit that we had two conflicting statements in this one code, so we asked the Attorney General's opinion. Kit Williams: I agree with the Attorney General's opinion that was my opinion before I sent it out, that the other one, the not to exceed language, was much stronger and clearer than the other language. Eldon Roberts: The next meeting will be this special called meeting on Thursday a week from today at 1:30. Meeting adjourned at 2:50 PM.