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HomeMy WebLinkAbout2003-08-28 MinutesPolice Pension August 28, 2003 Page 1 of 13 Police Pension Board of Trustees Minutes of a Special Meeting August 28, 2003 A special meeting of the Fayetteville Police Pension and Relief Fund Board was held on August 28, 2003 at 1:30 p.m. in Room 111 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, Marsha Farthing, Steve Davis, City Clerk, Sondra Smith, and audience. Randy Bradley called the meeting to order. Randy Bradley: Eldon I think you're up to speed on everything aren't you. Will you enlighten the board? Eldon Roberts: A merge with LOPFI was on the City Council agenda for the City Council members to discuss and possibly vote on a merger of this old police pension plan with LOPFI. Prior to this meeting, Steve Davis asked the actuaries in Little Rock to do an up to the minute study on the old fire plan and the old police plan so that the city would know, and we would know exactly where we stood at the time that we might merge. The city wanted to know what their liability was and we wanted to know too. The actuary report came in at noon on the day this was to go to City Council. Steve Davis called Tim Helder and told him that we had just gotten the report that he had requested from the actuaries on the old fire and police pension plan. The actuary is recommending that at least with the old police pension plan that we should not merge with LOPFI at this time. This is the letter that I received today from out of the actuary's office. The reason that the actuary recommended that we not merge right now at this point in time is that at the last legislative session there was a change on the method or the formula that's used to disperse the insurance turn back money. Kit Williams: A good change. Eldon Roberts: Yes for us. For years the police and fire plans that didn't really need that money were still getting it. They were already fully funded or actuarially sound therefore they did not need that money but they were still getting it. It was just going into their fund. The cities that have those kinds of pension plans that were already fully funded actually did not take that money and do anything else with it because it's prescribed primarily for pension plans. Therefore this brought about the change in the method of passing out the insurance turn back money. They are going to quit funding all the funds that are fully funded or actuarially sound and not give them anymore insurance turn back money. They are going to take that money from those plans and they are going to give it to the plans that really need it. The total check that came in this time to the city for the LOPFI and the old police plan, not counting fire pension, was $605,000 of which the old police plan is scheduled to receive Police Pension August 28, 2003 Page 2 of 13 $385,000 of that. Last year I think we received approximately $135,000, this is a substantial increase. The actuary was saying in short just continue on like you are and you will receive this additional money is what he is basically recommending. He said if you merge with LOPFI right now we would look somewhat stronger financially on paper, if you look better on paper then you are not going to get as much turn back money. Therefore he recommended that we look at merging with LOPFI sometime between the next five and ten years. Kit Williams: We're going to actually look at it in two years if the legislative changes anything. Hopefully they won't change the insurance turn back again for a while. Eldon Roberts: They have the option of doing that. They can change the formula again in the next two years. I don't know what their plans are and nobody knows what their plans are for the future. I talked to the actuary's in Little Rock and they said that we passed on the cash flow study to be able to do the 3% compounded COLA, on the actuarial study that was done regarding sending the plan to LOPFI. There's two ways to do a benefit increase, one is the actuarial soundness test the other is the cash flow evaluation test. We passed on the cash flow evaluation test according to the actuary in Little Rock and we have a letter from them to verify that we can do a 3% COLA on the old pension plan right now. The COLA has to be labeled a temporary 3% compounded temporary COLA and in five years we will want to look at it again, by then we will be somewhat financially stronger. The insurance turn back money would be less because of us being somewhat financially stronger, so therefore we would be getting less insurance turn back money, at that point in time if we merged with LOPFI we wouldn't be leaving as much money on the table, unless they change the formula over the next five years. The actuary says that in five years it will be a less cost to the city but the city has that approximate $9 million debt. Tim Helder: What percentage of that nine million dollar debt is ours, as far as the police? Kit Williams: That's police and fire together. Tim Helder: It's mostly fire though isn't it? Kit Williams: They're in worse shape than you are. Randy Bradley: You know how much approximately? Eldon Roberts: I think our amount is a little less than $3,000,000. Tim Helder: That's what I thought. Jerry Friend: The night the City Council tabled the police pension merger with LOPFI they tabled the fire pension merger also. Police Pension August 28, 2003 Page 3 of 13 Kit Williams: Yes. Mayor Coody: This situation is the same for both organizations. Dr. Mashburn: I believe the City Council tabled this to a meeting in October. Eldon Roberts: My understanding is the fire department is in a different boat. They have litigation against Merrill Lynch and I think LOPFI mentioned to the Fire Pension Board of Trustees that they don't really want them to move to LOPFI as long as their plan is in litigation. They would rather them wait until they get the lawsuit settled. Dr. Mashburn: Does the city want the fire and police to merge with LOPFI at the same time? Mayor Coody: Yes. We don't want to move one organization to Little Rock without moving both. It sounds like that both organizations have an advantage of staying where they are right now. Kit Williams: The Merrill Lynch suit is a potential two million or more. Mayor Coody: Well I was talking about what the actuary said about leaving money on the table, that's outside the lawsuit. Eldon Roberts: They had a number on what they thought we might lose in the insurance turn back if we moved the funds to LOPFI at this time. Mayor Coody: That's outside the lawsuit. Eldon Roberts: Assuming no mergers we estimate that over the next eight years the plan would receive about $2 million more in turn back money than under a merger. Mayor Coody: How many years. Tim Helder: Eight. Kit Williams: The real key time we're looking at really is two years. In two years the legislature might meet again and you don't know what they're going to do when they meet. Hopefully the case that the fire pension plan has will be resolved and so they will receive whatever money they have in litigation. Dr. Mashburn: I am assuming that the city prefers that we wait a couple years. Kit Williams: From your perspective and the city's perspective both I think that makes sense. Randy Bradley: Even though we're showing as a debt to the city? Police Pension August 28, 2003 Page 4 of 13 Mayor Coody: You may appear as a debt but that is just relieving ourselves of debt on paper, we don't think that's worth loosing a potential couple million bucks. Eldon Roberts: The current plan with no changes, that means without a 3% COLA, they think will be fully funded in 10 to 15 years. Jerry Friend: I heard someone say that the city would like to put the fire and police together. Randy Bradley: Does that mean going to Little Rock or not? Kit Williams: No they can't really; I don't think they can actually put your plans together. They just treat you the same way. Mayor Coody: We deal with both organizations the same way at the same time is what that means. Eldon Roberts: LOPFI would not know how much to bill the city for our old plan every year if they just threw all of our money in with theirs, it would all be commingled. There will be a separate ledger kept in Little Rock for the old fire plan and the old police plan so that way the actuaries know how to compute what to bill the city for every year. Tim Helder: So the question was asked of the people doing the actuary if they would do a cash flow study which they have already done. Kit Williams: That is correct. Tim Helder: With that cash flow study in your hand, could we handle this compounded COLA and they say yes. Kit Williams: That's correct. Tim Helder: On a temporary basis which means what? Eldon Roberts: They mentioned something like five years. They looked at three different scenarios, no changes made to the old plan, a permanent 3% compounded COLA is added to the old plan and a temporary five year 3% compounded COLA is added to the old plan. Scenario two is a permanent 3% compounded COLA added to the old plan, it won't work, the report states that the 3% permanent COLA in scenario two can not be substained under the current assumptions. The plan would be projected to deplete all assets in about 20 years and this could not be considered actuarially sound. Scenario three, a temporary five year 3% compounded COLA added to the old plan for the next five years, those benefit levels are projected to have assets sufficient to meet all benefit obligations in the future. This benefit increase would be considered actuarially sound under the rules of the Arkansas Fire and Police Pension Review Board. Police Pension August 28, 2003 Page 5 of 13 Kit Williams: Does that mean in five years they could stop the compounded COLA or go back to the level like it was before it was started? Eldon Roberts: He states that at the end of five years should the city and the police pension decide to merge with LOPFI at that point in time you reclassify your temporary COLA as a permanent COLA. The city stands to do better by getting the insurance turn back because it will cost less when you do merge, because we're going to be financially stronger and our unfunded liability should not be as high as it is now. Jerry Friend: I don't see how we can be actuarially sound to the point that we can give a COLA. How can we be actuarially sound enough to give a COLA and still be shown as a debt to the city that does not compute. Kit Williams: I don't know how that works either. Mayor Coody: What he's saying is how can we be actuarially unsound and have a COLA adjustment. Is that right? Jerry Friend: If we're unsound in the city's view and we're shown as debt on the city how can the actuary say that we're actuarially sound? Eldon Roberts: But we're not actuarially sound. Jerry Friend: It said if we give them a temporary we'd be alright. Kit Williams: I guess they're just talking about on a cash flow evaluation. Eldon Roberts: That's right according to the cash flow evaluation we are sound. Kit Williams: Instead of looking at the whole thing all the way to the end they're just talking about what's going out now. Eldon Roberts: Cash flow means what's coming in now and what's going out now. Mayor Coody: I guess the fund will just go bankrupt a little bit earlier with a 3% COLA. Dr. Mashburn: I have a question along those lines. There's four still on this plan that have not retired. Jerry Surles: Three. Dr. Mashburn: Those three when they retire their pension will amount to about the first 30 that retired on the police pension list, is any of the three planning to retire in the next two to five years? I mean as long as you haven't retired you won't be hitting this fund during the next five years. Police Pension August 28, 2003 Page 6 of 13 Kit Williams: In fact money would be going into the plan. Dr. Mashburn: I guess that is kind of an important question. Are you all going to stay on and keep us sound? Eldon Roberts: The actuary knows that the three of us could walk out today and start drawing our retirement, so they calculated that and took that into consideration. The longer we stay, the less we're going to live and draw a pension. I know I'm not going to be here that much longer. Dr. Mashburn: If the three of you would retire, that would hit the plan big and it would change from money coming into the retirement plan to going out, those three would be the three highest we'd be paying of the entire retirement list. Eldon Roberts: What did the fire department do this morning, are they even allowed to consider a 3% temporary COLA? Kit Williams: They can do a 1% COLA. They are concerned about the same thing you are concerned about, that it didn't really look financially sound I think basically they decided that they were going to stand pat for a couple of years and get through the litigation with Merrill Lynch. Dr. Mashburn: Did they have to make a motion to do that. Kit Williams: They actually did nothing officially. They just talked about it. Tim Helder: Well they're in a lot different situation then we are in because they are in the middle of that litigation. They're also not nearly as sound as we are. Eldon Roberts: They're less sound. Tim Helder: If they've done the cash flow study, and they say we can do the COLA on a temporary basis, in my finite thinking I don't see why we don't move in that direction. I would rather have something in place before we have to go to Council. Mayor Coody: We will be making the recommendation to the City Council. Kit Williams: City Council still has to decide though. Mayor Coody: They'll decide but we're going to make the decision easy for them. We're going to make a recommendation and I'm sure they'll follow it, with the police and fire department behind it. Tim Helder: Are you talking about moving it to LOPFI? Police Pension August 28, 2003 Page 7 of 13 Mayor Coody: Yes. Steve will work with the police department and the fire department. We're going to make a recommendation to table sending the fund to LOPFI until further notice to the City Council. Tim Helder: That aside, why would we not as a local board go ahead and do the temporary COLA? Jerry Friend: I'm with you on that except that as Mayor Coody said I think Steve has to present this to the City Council. I think it would be better to wait until October to hear what he has to say. Tim Helder: I'm brand new to the Pension Board; tell me how this process works. Do we just make a recommendation to adopt a COLA as a local pension board but the Council has to approve it? Board: No. Tim Helder: Okay what are you talking about then? Randy Bradley: If this goes to LOPFI. Mayor Coody: We're talking about the LOPFI, keeping the fund locally or sending it to LOPFI. Tim Helder: That's one issue. Mayor Coody: Right. Kit Williams: We're talking about the COLA now. Tim Helder: I'm talking about the old plan, adopting a 3% COLA now on the old plan. Why couldn't we do that? Eldon Roberts: All the hoops have already been jumped through to adopt a 3% COLA on the old plan today. Whether you do that or not, that's your call. Tim Helder: Right. Eldon Roberts: This board can act on that, it doesn't take Council action. Dr. Mashburn: Right I agree with that. Jerry Friend: I know we can vote on the COLA, if we listen to Steve and Steve says yes then when the move to LOPFI comes up later he will say this board acted reasonably. Tim Helder: I've had conversations with Steve about this study, its basically already common knowledge about the 3% COLA on the cash flow study. Steve is not in the dark on this. Police Pension August 28, 2003 Page 8 of 13 Eldon Roberts: I spoke to him yesterday and he didn't say either way, I don't think you should do that or that's okay. I didn't ask him if he intended on being here. All our investments are with Longer Investments at this time and they will remain there as to such time as we decide to merge with LOPFI. Randy Bradley: I move that we put the merger with LOPFI on hold. Dr. Mashburn: I second that. Mayor Coody: We have a motion and second to withhold any further action on the merge with LOPFI. All those in favor of that motion say aye. Board: Aye! Mayor Coody: Any opposed? There was no opposition. The motion passed unanimously. Mayor Coody: What about this 3% COLA, how is that going to have a bearing on the future if they vote to adopt this 3% COLA? Will it look like an irresponsible decision? Randy Bradley: It's a temporary COLA. Kit Williams: I've got a question for the pension board because I only know what your powers are. I know that the state law says that if there's a minimum payment that you have to make at least the minimum. Can this board actually raise that minimum? I mean if you were really trying to help the people that were getting so little because they retired a long time ago and some of them don't receive very much, can you actually raise the minimum or is that something that is beyond your power? Do you know? Eldon Roberts: It would be a benefit increase. We would have to go through Little Rock, because this board doesn't have the power to raise benefits one dollar without doing what the state law requires. We would have to go through Little Rock and the actuaries. Everybody is at the minimum of $350 and the state supplement money that they've been given the last several years is $50 a month. So we don't have anyone drawing less than $400 a month. That is way over 100% of what a lot of those people were drawing when they were working here. Jerry Friend: It would be nice to raise their minimum pension amount. Eldon Roberts: I've heard that argument for the 21 years I was on this pension board, from my standpoint, what those people contributed to this plan, they're doing well. Tim Helder: I'm prepared to make a motion based on the letter that we have to adopt the temporary 3% compounded COLA. Steve, the actuary did the cash flow study and said that we could do a compounded 3% temporary COLA for up to five years, would that be the responsible Police Pension August 28, 2003 Page 9 of 13 thing to do? Whenever we go before the Council in the next few years to go ahead and move to LOPFI would that affect your thinking on making a representation of our plan if we're acting responsibly? That's why you were called in. Steve Davis: Is it responsible for this board to take this action at this time and then ask the City Council to merge us with a permanent COLA at some level, the City Council is really the ones in whose eyes you should be concerned not mine. Jerry Friend: But Steve they're going to listen to you. Kit Williams: You can ask them for an opinion through a resolution. Steve Davis: Regardless of what you all do, I'm going to look at the financials at that time and express an opinion. The options that you have according to the actuary's findings, their recommendation would be a temporary COLA for up to five years and then present to City Council for merger. When it is presented to the City Council for merger with LOPFI, at that point the City Council and this board have the opportunity to look it over and say okay do we want to lock it in at either the base rate or whatever the rate would be when the proposal is brought before City Council for a merge with LOPFI. Those kind of questions have to be answered in the context of what does the financial future look like for the city to what the cost is going to be at that time and I can't answer that question because I don't know. Tim Helder: Steve you don't stand in total opposition if we were to take that action now? Steve Davis: Your state turn back money is going to increase if you retain control of the pension plan here. The actuary estimates that that number is in the range of $2,000,000. He also recommends that we look at this every couple of years to make sure that these projects are still on track and that the future that he is looking at today doesn't materially change from the conditions that he's thinking they are going to be like. The dollars of revenue coming in on the turn back fund from the foreign insurance companies, the foreign insurance companies have a limited amount of money that the state can raise from the foreign insurance company so if they raise the tax too much they can say we're not writing any more policies in Arkansas and the revenue source dries up, then the next time the state legislature meets they will say they no longer have as much revenue and that they will have to reduce the insurance tax rate or we're going to have to change the formula. Tim Helder: That's when we make our merger with LOPFI. Steve Davis: That's right. Eldon Roberts: If I understand this right Steve, the actuaries are telling this board that they can go ahead and adopt a 3% temporary compounded COLA to date for this old plan for the next three to five years whatever the case may be. Tim Helder: As long as the term lasts. Police Pension August 28, 2003 Page 10 of 13 Steve Davis: This fund is partially funded by millage. The millage aspect of funding is going to grow. They expect that if no changes are made to the plan in 10 to 15 years with no COLA it will be fully funded and the millage could drop off. With the COLA the millage will have to stay especially if it goes to Little Rock. Tim Helder moved to adopt a 3% compounded temporary COLA for the next five years effective October 1, 2003. Eldon Roberts: You have the option of having it reviewed anytime you want to if you want to pay the money. Jerry Friend: Don't we have to have an actuary completed. Eldon Roberts: They do one free for you every two years but that's an actuarial study as opposed to a cash flow evaluation. Tim Helder: Read the motion please. Sondra Smith: Adopt a 3% compounded temporary COLA for the next five years effective October 1, 2003. Randy Bradley: Who's this letter from? Eldon Roberts: The actuarial firm under contract by the State of Arkansas to do actuarial evaluations and other financial computations for police and fire pension plans. Dr. Mashburn: If all the projections are any where at all correct with the growth that's predicted for this area then I think we would continue to be actuarially sound on a cash flow basis. Randy Bradley: Okay we have a motion, do we have a second? Dr. Mashburn seconded the motion. Randy Bradley: The motion is a cost of living, compound cost of living adjustment of 3% for five years, effective October 1, 2003. Do we want an evaluation date in there or do you want it as it stands? Steve Davis: We will probably do one any way, an annual evaluation, every time the legislature meets and concludes we're going to ask for another one. Jerry Friend: What did this last one cost? Steve Davis: $3,000. Eldon Roberts: Police pension paid half, $1,500. Police Pension August 28, 2003 Page 11 of 13 .Randy Bradley: We have a motion and we have a second. All in favor say aye. Board: Aye! The motion carried unanimously. Dr. Mashburn: I'd like to have a copy of the actuary's report. I want that to be made a part of the record so we have something to show that we acted in a sound manner. I want to show that we had a recommendation from the actuary and that we were acting in a sound manner. Sondra Smith: I will make copies of the actuary report and give it to the board before you leave today. Kit Williams: We'll probably need to get a letter from them. I want something in black and white. Eldon Roberts: I asked specifically for one and they said the cover letter that was on this first report that was sent to Steve, August the 5th would suffice. I received a fax today but it doesn't have the heading on it of the Pension Review Board and LOPFI out of Little Rock which is where Cathym Hinshaw is. Kit Williams: Have they told us in writing, we want to be able to point to something in black and white and not have someone say well I really didn't say any of that. Jerry Friend: We want something in writing. Eldon Roberts: I can't believe they didn't send me a letter signed by Cathyrn Hinshaw stating that after reviewing the actuarial evaluation and the actuarial firm's computation we grant a benefit increase. I asked for it specifically and could not get it in writing. Kit Williams: How do we force them to give us something in writing? Eldon Roberts: When you apply for a benefit increase you send a letter to Cathyrn Hinshaw's office asking her office for approval of the benefit increase. Kit Williams: Steve sent that letter. Eldon Roberts: Steve sent a letter asking the old fire and police pension plan to be studied and brought up to date. Steve Davis: Right. Jerry Friend: Seems like we still need to send a letter saying we plan to raise the benefit. Eldon Roberts: They told me no, they said we don't have to do that. Kit Williams: I want that in black and white. Police Pension August 28, 2003 Page 12 of 13 Steve Davis: I think what we're talking about is that we've got an actuarial report that says you can do this from an actuarial standpoint on a cash flow basis. But there's a block on the check list that isn't checked and that is the letter from PRB saying that we ratify the conclusion of the firm of Osborn and Carreiro, the actuary. Kit Williams: Do you send a request for that or does the city send that? Steve Davis: It's the pension board. What the city does relative to the pension board is we implement whatever they tell us to pay. Eldon Roberts: In the past a letter has come from the Pension Review Board stating that you can grant the increase, after they received the information back from the actuaries. Randy Bradley: But if we've never requested one how are they going to send us one back? Marsha Farthing: This study was requested under different circumstances. You didn't ask them to do this study for a benefit increase. Randy Bradley: I think we need to send a letter to Cathyrn stating that this board voted to give a 3% compounded temporary COLA to the pensioners. Kit Williams: Cathyrn should send us the appropriate letter authorizing that action. Randy Bradley: I think they'll answer. They may not authorize it but I hope they will. Kit Williams: I think for our accounting we need to have that letter. Eldon Roberts: I asked for it and wanted it faxed to me for today's meeting, but I could not get it. Kit Williams: Well the Mayor's a member of this board right? Eldon Roberts: Yes. Kit Williams: So he can send a letter down asking for that. I'll talk to him and tell him that he needs to do it. Let me ask the mover of the motion, is your motion contingent upon the Police Pension Board of the city receiving the proper letter from the State Pension Board prior to the date of the COLA. Tim Helder: That would be my assumption overall. Kit Williams: As long as we get that letter in time then we're alright. Tim Helder: The date will just move out. Police Pension August 28, 2003 Page 13 of 13 Steve Davis: What's the date? Sondra Smith: So we need to amend the motion to include a letter from Cathyrn Hinshaw. Kit Williams: I think what you could do is to make a note that their motion stated it is contingent upon receiving the appropriate letter from the pension board. Jerry Friend: In the past we've asked the secretary to write the letter. Kit Williams: I bet they're going to send a letter they just didn't have it ready. We'll get the City Clerk and the Mayor to get together and send this motion to them. Sondra Smith: I'll draft it for the Mayor's signature. Jerry Friend: The motion was that the raise would go into effect October Is'. If the letter doesn't get there in time and the city can't implement it until the next month, can they retro it? Kit Williams: When will you send the checks out in October? Marsha Farthing: The 6th or 7th of October Kit Williams: Okay, so we have some time. Steve Davis: I think checks have to be out by the 10tH Sondra Smith: The letter needs to go to Cathyrn Hinshaw? Kit Williams: That's right. Steve Davis: In the letter to Cathyrn you might attach a copy of the actuarial study. Eldon Roberts: They have it; they just faxed it to us. Randy Bradley: Any other business to discuss if not, I will entertain a motion to adjourn. Tim Helder: So moved. Meeting Adjourned at 2:25 P.M.