HomeMy WebLinkAbout2003-07-17 MinutesPolice Pension Meeting Minutes
July 17, 2003
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Police Pension and Relief Fund Board of Trustees
Meeting Minutes
July 17, 2003
A meeting of the Fayetteville Police Pension and Relief Fund Board of Trustess was held on July
17, 2003 at 1:30 p.m. in Room 219 of the City Administration Building located at 113 West
Mountain Street, Fayetteville, Arkansas.
PRESENT: Mayor Coody, Jerry Friend, Tim Helder, Dr. James Mashburn, Jerry Surles, Randy
Bradley; City Attorney Kit Williams, City Clerk Sondra Smith, Marsha Farthing, Denise Grizzle
and audience.
LOPFI PRESENTATION:
Cathyrn Hinshaw: This is the cost study; this is what it would actually cost you to convert.
The purpose of this meeting is to discuss the theory and mechanics of conversion. The purpose
of this study is to reveal to the Board of Trustee's of the city how much it will actually cost to
convert.
Page 5 of the report that I have handed out, you will see under Column A, for a straight
conversion of your benefits as they are now, to LOPFI administration it would be 9.85% of
payroll. In the second paragraph at the bottom you will see that would be a cost of $370,093 in
the first year, again as your payroll changes this dollar amount changes and the percent changes
every year based on your experience. For a simple COLA the employer contribution rate in the
first year would be 14.87% which generates a cost of $558,709 in the first year. To go to a
compounded COLA for your old plan members the cost will be 16.25% of payroll or a cost of
$610,560 based on the payroll that was reported to us. The state projection of police state turn
back funds for this year will be approximately $605,360, when you compare that against
$610,560 it looks like the city would have to come up with $5,200 to give you guys a 3%
compounded COLA this year. Again these numbers change every year. The $605,360 is just
state insurance turn back; you have other revenue resources also.
You have other revenue sources and again under law they can't be spent anywhere but on your
pension fund or LOPFI cost. It certainly for this year looks to be very affordable for a
compounded COLA. We have experienced recently LOPFI rates, because of superior
investment performance for the past ten years, that's gone now, but LOPFI rates come down
because we had earned so much more money over our investments assumption that your LOPFI
rate this year is 7.92% of payroll. It will not be that low again in future years. So if you're going
to make this move now is the time but again, so everybody understands the rate is recomputed
every year, it might not always remain this low and it can up. It can go up one percent of payroll
every year.
The second paragraph, based upon the combined annual payroll submitted for this evaluation,
$3,357,290, that's what you told us your police depaitulent payroll was in 2002. If you apply
these percents against the payroll you reported to us, these are the dollar contributions from the
Police Pension Meeting Minutes
July 17, 2003
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City of Fayetteville that we'd have to receive to support this level of payment. That's the LOPFI
and the old plan.
Tim Helder: How do you figure the 3% COLA on $3,357,000?
Cathyrn Hinshaw: 16.25% times $3,757,290 comes to $610,560.
Jerry Surles: But the LOPFI people already receive the 3% COLA.
Cathyrn Hinshaw: That's correct.
Jerry Surles: So what would the cost be for just the old pension plan?
Cathyrn Hinshaw: The financing advantage for the city is that they can pay off debts of the old
plan across the lives of the younger LOPFI guys. We have a 30 year amortization period in
LOPFI; the old plan is done amortizating debt years. Everybody's allowed to retire after 20
years and everybody can retire this year.
Jerry Surles: What makes that sound like is for us to be able to get a 3% COLA is that it is
going to cost the city $610,000 a year.
Cathyrn Hinshaw: It is.
Eldon Roberts: In addition to helping pay off the unfunded liability of $3,000,000. That's what
the city is going to owe in one year to help retire the debt that we have and fund the 3% COLA.
Jerry Friend: And to pay in on the guys that's on LOPFI.
Cathyrn Hinshaw: Right, those three things.
Jerry Friend: What we're going to cost them on the old fund, we need to separate that out.
Cathyrn Hinshaw: I don't know that that's a useful number because the financing mechanism
here is to let the city have the thirty years over the lives of the young guys to pay for the more
mature guys on the police pension fund.
Sondra Smith: The $610,000 is for current employees and retirees, is that correct?
Cathyrn Hinshaw: It would pay toward retirement benefits it is 16.25% against payroll.
That's what you pay us, your monthly payroll report form the police in Fayetteville times
16.25% and that is what you send to LOPFI.
Jerry Friend: Before you send that $610,000 to LOPFI do they subtract all the income first?
Cathyrn Hinshaw: It doesn't work like that. The first month if you bought the compound
COLA you do 16.25% against that monthly payroll and you remit that to LOPFI.
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July 17, 2003
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Jerry Friend: The turn back fees, millage, and other income are used to offset the $610,000
cost.
Cathyrn Hinshaw: The city is allowed to use all the funding sources they have now to pay for
this.
Sondra Smith: That's what Cathyrn was saying when she said the $605,000 would probably be
covered by current state revenue and revenue coming in so that the difference might be $5,000.
Randy Bradley: That they're putting towards our pension anyway?
Sondra Smith: Yes.
Pete Reagan: Cathyrn what happens to the millage rate when the system is retired and
completely turned over to LOPFI, when the last dependent on the fund passes away there's still a
.04 of a mil for police and .04 for fire.
Cathyrn Hinshaw: Current law allows the City of Fayetteville to use that for their LOPFI
only members, as long as there's an existing old plan member it can only go to the old plan but
it's allowed for departments who have LOPFI only coverage, it's allowed for the voters to vote
to use it for the LOPFI plan.
Eldon Roberts: Do they have to vote again or does it just roll over to LOPFI?
Cathyrn Hinshaw: Oh no, it just continues since it's already approved.
Jerry Surles: When do the LOPFI checks go out for retirees?
Cathyrn Hinshaw: First day of the month.
Jerry Surles: Who is going to take this to the City Council or ask them if they will go along
with the COLA and the transfer to LOPFI?
Eldon Roberts: Steve Davis. The fire and police pension boards are to complete resolutions
asking for what we want and what we hope to gain. Steve said to give the resolutions to him and
he would go before the City Council and Cathyrn has also agreed to come back up the night it
goes before the City Council in case they want more information than Steve can give them. Steve
will explain to them the financial setting of why they should endorse this and adopt it. That's
basically how I understood it was going to work.
Cathyrn Hinshaw: This study is good for one year from the date that is on it, this study will
expire July 15, 2004, in a year so much changes, the numbers become unreliable. Given the
revenue sources as we understand them and again I can not emphasis this enough, as we
understand them in 2003, this looks like a very affordable deal for the City of Fayetteville and
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July 17, 2003
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advantageous to the old plan members. The old plan members will get the same COLA that
LOPFI has.
Eldon Roberts: For the police pension board members that are here, Pete has given me a copy
of their resolution that they have drawn up if you want to look at it.
Cathyrn Hinshaw: Does everybody understand that all power will leave here and go to
LOPFI, on the plans that we've converted, the biggest problem has been that you have no control
locally, specifically to approve disabilities.
Rick Hoyt: You stated that they will get paid on the first of month and that's an electronic fund
transfer, right now they're getting paid around the 15th so if this was done, say it was voted on in
September and they've already received their September retirement check from the city, then in
October they will receive the next one, are we behind when they get that?
Eldon Roberts: I think that when they receive their benefit around the 15th of each month the
check is for that month.
Rick Hoyt: So the check they receive from LOPFI on the first would be for the current month
that you are in.
Cathyrn Hinshaw: It would be a very smooth transition.
Denise Grizzle: What you get your check on the 15th is for the month that you're in.
Rick Hoyt: Okay.
Cathyrn Hinshaw: I'd like to think we work very well with retirees when they have questions.
We'd love to administer you. We'll do a very good job I promise.
Rick Hoyt: Will everything stay the same? Like the amount of withholdings from your check?.
Cathyrn Hinshaw: Yes sir, we do tax withholding. Do you offer health insurance?
Eldon Roberts: Not through the pension.
Cathyrn Hinshaw: Funeral benefits? Okay, we'll just make that part of the contract.
Pete Reagan: How many old plans, fire and police that you have under your management have
COLA's that have changed their benefit structure?
Cathyrn Hinshaw: Using the specific cities, Fort Smith police and fire bought a 3% COLA in
1996. Hot Springs police and fire just bought a 3% COLA in 2003. Mountain Home paid fire,
bought a 3% COLA in 2003.
Eldon Roberts: But those are cities that bought the COLA after they transferred to LOPFI.
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Cathyrn Hinshaw: That's right.
Eldon Roberts: We're talking about doing ours on the front end once we start being
administered by LOPFI.
Jerry Friend: We just hate the idea of thinking that we don't have a say.
Person in Audience: I'd like to thank our pension board for all the service they've done for us
over the years they've been doing this. I'd also like to thank Elaine Longer as our money
manager because she's been wonderful. Our pension board has been really great.
Person in Audience: The first of the month when the check is deposited, is that done by the
state?
Cathyrn Hinshaw: It leaves our bank goes to the Federal Reserve System and posts to your
account.
Person in Audience: If you're already drawing a retirement check from the State of Arkansas,
this will not affect it.
Cathyrn Hinshaw: Not for me.
Well I hope we have the honor to serve you in this capacity. It's always a pleasure and I guess
we're going to see you again.
End of LOPFI presentation.
Jerry Friend called the Police Pension regular board meeting to order.
Tim Helder: I would like to discuss a resolution to transfer our pension to LOPFI.
Dr. Mashburn: If we're going to do this today do we want to have a motion to put that 3%
compounded COLA in there prior to sending this to the City Council.
Eldon Roberts: You need to get the resolution together of what we're going to ask for from the
City.
Jerry Friend: I think our resolution is to ask the city to look into it. We can't vote to go until
the contract is all made out.
Eldon Roberts: You can vote today to proceed forward with it and to prepare the resolution to
present to the city. Denise told me that they would like to have the fire and police moving ahead
on this by early August.
Jerry Surles: Does some one have a strong objection to changing over to LOPFI?
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July 17, 2003
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Jerry Friend: Depending on what kind of contract the city wants to give us.
Tim Helder: What can we do with LOPFI?
Sondra Smith: I think if you're moving in the direction of LOPFI or the COLA you just need
to propose a resolution as you see fit and let it be taken before the Council as you have proposed
it.
Jerry Surles: What did the firemen do?
Tim Helder: They asked for the 3% compounded COLA. I think that's what we need to do.
While it is attractive to the city to get rid of us and if I understood her right, it's only going to
cost the city an additional $5,000?
Jerry Friend: The first year no body knows the future.
Kit Williams: Surely by August they will know what the turn back amount will be.
Sondra Smith: The $5,000 is the cost to city including the turn back fees that cost may decrease
depending on other revenues that have not been factored in.
Eldon Roberts: That's why you are guaranteed your benefit, because LOPFI sends the city a
bill every year for the amount that is determined to keep your benefits at 90%, the amount could
fluctuant. That's not going to guarantee that our benefit will never be cut because if something
bad happens then the city has to pay the money to keep our benefit at 90%. LOPFI computes the
money it takes to keep this plan going at the current level and they send the city a bill. That bill
may change yearly according to a lot of things that factor in. It has to be to enough to keep our
benefits at 90%. LOPFI can never go broke, whatever has to be paid to keep the plan solvent the
city has to pay it.
Sondra Smith: If I understand correctly Eldon correct me if I'm wrong, but right now there is
millage of .4 on the old plan but they can raise that even after it goes to LOPFI to up to 1 mil.
Tim Helder: Up to 1.
Eldon Roberts: My understanding was to raise millage it had to go to a vote of the people.
Tim Helder: Well I think what we need to know first of all how quickly we need to have this
thing in and then maybe we can make a motion. I'd be willing to work on it with somebody.
Sondra Smith: You need to decide how you want the resolution to read that you want to go
before the City Council. It will be up to the City Council to approve the resolution as you have it
written.
Tim Helder: I'd be more than happy to work on it.
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Dr. Mashburn: Tim, I'd like to see that 3% COLA in the resolution.
Sondra Smith: I would just move to adopt a resolution to go before the City Council to move
the pension benefits to LOPFI with the 3% compounded COLA.
Tim Helder moved to draft a resolution to move the pension benefits to LOPFI with a 3%
compounded COLA. Dr. Mashburn seconded the motion.
Randy Bradley: Elaine, do you have anything either way you want to say or add?
Elaine Longer: I will hate to lose the fire and police pension but a $9 million liability is huge. I
can't blame the City Council if they approve it; I just think it's great. There's no other way to
guarantee the benefit increase liability. I think to secure those benefits there's no way to do it.
Jerry Friend: We appreciate Elaine's work and I think she's done a fantastic job above most
other investment counselors. So I just want to say that I appreciate your work.
Sondra Smith: The Mayor just walked in the door so we might read to him the motion.
Randy Bradley: A motion has been made and seconded.
Sondra Smith: There's a motion on the floor Mayor to do a resolution to move the pension
benefits to the LOPFI program with a 3% compounded COLA, if the City Council approves it
with a 3% compounded COLA.
Mayor Coody: Is the COLA 3% regardless of what the actual consumer price index reflects.
Pete Reagan: Yes sir. It is whether it's higher or lower.
Mayor Coody: Shall the motion pass. All in favor say aye.
Board: Aye!
Mayor Coody: All opposed say no? The motion passes unanimously.
INVESTMENT REPORT:
Elaine Longer: The first page of your report shows your portfolio appraisal as of June 30th. It's
changed a little bit since June 30th so we have an update right behind it. June 30th your weighting
in equities was about 25.7% and that doesn't include the stock mutual funds up 2.5%. So your
equity weighting was getting close to 30% which is still within the guidelines of your policy but
up from the low level that we had last year. The total portfolio value is on page 6. You're at
$10.142 million and an income yield of 4.5%. We've been trying to keep that income yield
above 4% and even in the declining interest rate environment you've got 30% of your portfolio
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invested in stocks but you're still earning about the yield on a 30 year treasury on the total
portfolio.
The combined portfolio on July 15th follows, the equity exposure has increased to about 33% in
July, part of that is from appreciation that the market has had this month but also we had some
cash reserves we applied to the equity side, so your total portfolio value as of July 15 listed on
page 12 is roughly $10.15 million.
The next report we have the stock accounts which is broken out separately from the bond
accounts. The largest holdings, I don't think anything has changed there since our last meeting.
Realized gains year to date on page 17 are about $10,000 and Net Income is about $183,000, so
we've used the market appreciation in the portfolio, we've taken some gains, when we take the
gains we offset them with a loss. As you can see on the July 1 lth report pretty much of all of the
unrealized losses on the stock side of the portfolio have been cleaned out. We've used this
advance to sort of cleanup the whole portfolio, get all the high cost stocks out of there and net
your realized gains year to date. Your portfolio shows unrealized gains at this time.
The industry report, I won't go through that, there is not that much change from the last time we
were here we're slightly over weighted in technology and that's been real good as far as the
equity performance is concerned.
We're in the middle of an earnings reporting season so everyday the sentiment changes. Intel
came out with real good numbers and the market went up. IBM disappointed a little bit
yesterday so the market's down. So it's still very volatile out there but over all I think the market
still has a pretty good tone to it.
The fixed income portfolio follows on page 23 and the over all income on the portfolio on the
fixed income side is still 6%, that's without taking any less than investment grade bonds into
your account, and really without extending maturity to the point to where you have a lot of price
risk from the bond maturity spectrum, so you really have an excellent bond portfolio. On page 27
your weighted average maturity is only seven years, the income is about 6%. The long end of the
bond market since the feds cut interest rates, the feds cut rates by 25 basis points and interest
rates on the 10 year to 30 year have gone up by almost a full percent. Mortgage rates have gone
up by almost a full percent but the fed cut rates. People don't understand how can that happen,
the 10 year treasury is what the mortgage market keys off of and the interest rate on the 10 year
treasury has gone up to about 4% from 3.13 when the feds cut, what that means in terms of price
is that the 10 year treasury is down about 8 points in price and the 30 year bond has come down
about 14 points in price. The longer your maturity out there the more risks you have to any kind
of an increase in interest rates and with a six or seven year maturity you're in a good spot as far
as price risk is concerned but you still have a very high income.
The next page shows the contributions and withdraws year to date and about $417,000 has gone
out in distribution.
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The performance on page 29 just gives a performance summary from the inception to date and
year-to-date through June 30th equities are up about 8.8%, bonds which have been the support
for the portfolio in the last three years are under performing now, they are at 2.5%. The total is
up about 4.5% and through yesterday your equity is worth about 12.5%, and total was up over
5% year-to-date. The important thing is that you only declined by about 5% from 12/31/99 so as
of June 30th your portfolio has fully recovered from the bear market which is real important
because you know the whole thing that we've been playing is defense, keeping the portfolio
whole and now you've got the capital to make it back up. You can see how quickly you can get
back to break even as long as you don't lose a lot.
I really appreciate the support and comments that have been made because as you know we
really do work hard and we've enjoyed this relationship since 1989. We really hate to lose the
account but I really appreciate the effort the people in this room are making to protect us from
any misrepresentation of our performance or investment advice, because we do operate in a kind
of high visibility position. I appreciate your positive comments. For the city to take this and
guarantee the liability, I think it's really a wonderful gift to firemen and to the policemen
because we certainly couldn't do that. To look at the expected returns on the investment side to
get you to fully funded with the increase in benefits that went through in 1999, it exceeds what
we project as expected returns on asset classes.
Mayor Coody: How much has it exceeded?
Elaine Longer: When we were looking at the firemen and trying to run the projections, if you
say that the unfunded liability I think at the end of 12/31/02 was approximately $6 or $7 million
and the fund value was down to $10 million, to be at a fully funded position at $16 million, to
stay funded they need to achieve a 6% annual return, that 6% is not on the current $10 million
it's 6% on $16 million, just to stay funded. When we back into that, that requires on the $10
million that's left about a 10% average rate of return. When you are in a balanced portfolio
between fixed income and stocks and the bond side is only yielding, current rate is only 4%, 5%
if you get creative, then that makes the stock side have to carry a 15% annual return compounded
and that's quite a bit higher than what our expected returns are, going forward from this level.
When I looked at it and I mentioned it several times in the first meetings that we'd had, there are
three parts of the equation, there are the benefits, the contributions from the active members, the
pay backs and then there's performance. It's too hard with realistic expectations of return to dig
out of the hole assuming that the markets will get you there.
Mayor Coody: Let's assume that they will not be met does that mean that the city is going to
have to boost the contribution?
Elaine Longer: I didn't have a copy of Cathryn's report so I don't know what her assumptions
are. I have the best of interest in not seeing them go like I said and I say go, it's really the best
way to secure the benefits to the retirees and the ones that are currently active.
Mayor Coody: Well it's also good for us too because we get to plan for and budget for these
numbers instead of having to panic later on.
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Elaine Longer: It's a win-win situation. I'm just really happy for the firemen and the
policemen that there's a resolution like this for them.
Mayor Coody: Well I think everybody will say that you have done a great job for us.
Elaine Longer: I appreciate that. We've enjoyed a long relationship with the policemen. It
goes back to 1989.
Jerry Friend: I don't know of any hold stocks.
Elaine Longer: What will happen is that your assets will transfer into their big pool.
Jerry Friend: Just like they are?
Elaine Longer: Yes.
Jerry Friend: We don't have to sell everything?
Elaine Longer: No.
Mayor Coody: What I understand that they will do is they will take our investment portfolio
and they will compare it to their investment portfolio and if there are some stocks that we own
that really don't go well with their theory then they'll have us sell the odds and ends that they
don't want. Then they will absorb it, so there may be some transactions to go through before we
get transferred.
Elaine Longer: That won't be a problem, that's a real easy thing to handle. We'll just have
wiring instructions and be able to handle that without you having to worry about it.
Mayor Coody: Anything else? Thanks Elaine.
Sondra Smith. Thanks Elaine you have done an excellent job. We really appreciate it.
OTHER BUSINESS:
Mayor Coody: Approval of minutes of the April 17, 2003 and the April 24, 2003 meetings. I
would entertain a motion and second to approve the minutes.
Jerry Friend moved to approve the minutes. Jerry Surles seconded the motion.
Mayor Coody: All in favor say aye.
Board: Aye.
Mayor Coody: Any opposed? The minutes are approved unanimously.
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Mayor Coody: Approval of the Pension List. Are there any modifications to the pension list?
I would entertain a motion for them to be approved.
Jerry Friend moved to approve the Pension List. Randy Bradley seconded the motion.
Mayor Coody: If there's no discussion we have a motion and second, shall the pension list
be approved? All in favor say aye.
Board: Aye!
Mayor Coody: Opposed? The pension list is approved unanimously.
Mayor Coody: Parking Permits.
Sondra Smith: I gave out your parking permits, they're good until December 31, 2003 then you
need to let me know if you want a new one.
Jerry Friend: That's a popular thing. I appreciate that, we need to have it.
Mayor Coody: Approval of $1,500 for the consolidation study.
Sondra Smith: That is the expense for the study that was done.
Jerry Friend: Is ours half of that?
Sondra Smith: The police and fire boards paid $1,500 each for a total of $3,000.
Mayor Coody: Is there any discussion on this $1,500 if not I would entertain a motion to
approve the payment.
Jerry Friend moved to approve the payment of $1,500 for the study. Randy Bradley
seconded.
Mayor Coody: All in favor say aye.
Board: Aye!
Mayor Coody: Any opposed? The motion carried unanimously.
Mayor Coody: Discussion on House Bills 1122, 1226, 1228, 1239 and 1254.
Sondra Smith: These are some house bills that pertain to pension plans, so I wanted to make
sure that everyone had a copy of them.
Mayor Coody: Is there any discussion on any of the House Bills?
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Jerry Friend: They look pretty self explanatory.
Mayor Coody: The Signed Investment Policy.
Sondra Smith: That is a signed copy of the investment policy that we signed with Longer
Investments, for your records.
Mayor Coody: Is there any discussion on that? Is there any other business?
Sondra Smith: Yes. We need to elect a vice -chairperson so that when the Mayor is not able to
attend the meetings someone is in charge of running the meetings.
Jerry Friend moved to elect Randy Bradley as Vice Chairman. Tim Helder seconded.
Mayor Coody: We have a motion and second to elect Randy as Vice Chair. All in favor
say aye.
Board: Aye!
Mayor Coody: Any opposed?
Randy Bradley: Aye.
Mayor Coody: The motion passed.
Meeting Adjourned at 3:30 PM