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HomeMy WebLinkAbout2002-04-18 MinutesMINUTES OF A MEETING OF THE FAYETTEVILLE POLICE PENSION AND RELIEF FUND BOARD APRIL 18, 2002 A meeting of the Fayetteville Police Pension and Relief Fund Board was held on April 18, 2002 at 1:30 p.m. in Room 326 of the City Administration Building located at 113 West Mountain Street, Fayetteville, Arkansas. PRESENT: Eldon Roberts, Randy Bradley, Dr. Mashburn, Jerry Friend, Heather Woodruff, Marsha Farthing and Ted Webber. MINUTES Dr. Mashburn moved to approve the minutes. Mr. Bradley seconded. The motion carried unanimously. OTHER BUSINESS Mr. Roberts stated Marsha Farthing from the Accounting Department was present to discuss the mailing out of the pension checks to retired people. Most people believed that they were receive their checks by the fifteenth of each month. He had been receiving phone calls that they had not been receiving their checks on time. He suggested that they mail the checks by the tenth. If they could not do that, then they needed to send a letter out to the retirees stating they would not receive their checks until the twentieth. Mr. Friend asked if the date was arbitrary. Ms. Farthing stated she had looked through all the state laws regarding this board. She did not see anything about when they should send out the checks. She thought the best thing to do was to mail out the checks earlier. Mr. Roberts stated the second thing he wanted to talk to Marsha about was how much it would cost to raise the Police Officers to 100% of salary and the widows to 75% of salary. Some of the retirees would not receive anything because they were already making more than 100% of salary. His intensions were to bring this back before the board. He did not intend to go back to Little Rock with this. We had a letter on file stating that they board could increase the benefits to 100%. It did not have an expiration date on it. SOCIAL SECURITY BENEFITS Ms. Laura Bender, Social Security Office, stated when Social Security was set up they devised a benefit formula whereby someone who was working and have very low earnings would get about 60% of their average earnings back in Social Security. Someone with very high earnings would get approximately 25% of their earnings back in Social Security. It had been waited this way because they felt that people with lower earnings have fewer opportunities for savings and investing for retirement. They were often employed in jobs where they did not have a retirement plan. In 1983, they recognized that people who had a pension from work that was not covered by Social Security, yet had had some Social Security work in their lifetime were wanting Social Security benefits and they were getting that higher percentage, as if they had no other annuity or pensions. So Congress passed the Winfall provision to try to balance that out. Basically, when someone retires, the computation that they went through, they broke their average earning of their lifetime, in today's dollars. They broke them down into three tiers. The first tier was approximately $580 of that the average worker will get back 90% of those earnings in Social Security. Earnings above the $580 a lower percentage is applied. What they have done for people with a pension from work, not covered by Social Security, that 90% factor on the first tier is reduced to 40%. That kind of balances out the inequity. There are a couple of exceptions to that. The first and primary exception to that someone who had thirty years of covered earnings under Social Security in addition to what they earned in their pension. If they had thirty years of work outside of the government pension, then the reduction was not going to apply. There were a few other exceptions for people who were working for non-profit organizations, people who on their last day of employment were converted to a job covered by Social Security on or before the last day of employment or people who reach age 62 prior to December 31, 1983. The main thing for people to recognize was that the benefit statements that they get from Social Security, they did not necessary know that they were getting an annuity from a non -covered work activity. When they applied for Social Security and they found out that they had a government pension, then they applied the offset. What they would actually get from Social Security was a lower figure than what they were expecting. It was important for them to know that this was coming down the road. She thought it was a good idea for them to go out to all their people currently receiving a pension in advance of age 62, but also, have all of their officers aware of this well in advance so that they could take that into account when they were planning their benefits for the future. He would be willing to address a group of their current employees. In response to questions from Mr. Roberts, Ms. Bender stated there were some web -sites with some legislative bills that were pending in Congress. There were a couple of them where they were looking at revising this. There were a couple of them where they looking at revising Government Pension off -sets. They were discussing softening some of them. What she believed was that if they did revise it, it would not go away completely, but they may change it from 40% to 60%. There was also another provision called Government Pension Offset for the spouse of people who draw. If they had a police officer who was covered under a government pension and a spouse who worked under Social Security covered employment, the retired officer could not go and draw a spouses benefit off of Social Security on their spouse, without having the government pension come into play there. That was another provision that they were looking at overhauling. She had heard that they were looking at a one-third offset. For survivors it did not come into play. INVESTMENT REPORT Ms. Elaine Longer presented the investment report. The Combined Portfolio as of March 31, 2002, was about 35% equity, when the take the stocks plus the equity mutual fund. It was still at the low end of their policy guidelines, which call for 35-50% stock. They had a little in real estate investment. Corporate Bonds make up about 15% of total. US Treasury Bonds make up about 15% of total. The Government Agency Security are about 35%. They were about 35% equity and approximately 65% bonds, which was on the conservative side. Their market value of the total portfolio was approximately 10.5 million The next report was their Stock Report. They still had 1.2 million in Bonds that at any point in time can go into the stock market. It did not feel that they were at that point in time. Rather than having the money sit in money markets; they had them invested to earn over 6% while they were waiting. Their Largest Equity Holdings were Pfizer, Exxon Mobil, Citi Group, General Dynamics, and Sun Guard Systems being in the top five. None of their stocks exceed 5% of equity. They had a well diverse portfolio. Realized Gains, year to date, were approximately $3,400. Net Income, dividends and interest received on the portfolio, was about $97,000. Their total portfolio income, if they were to look at everything that came in was about $451,000. That was a 4.4% yield on the total portfolio, including their stocks. In the Bond Report, they had been diligent as far as credit quality in the bond portfolio. Their corporate bonds represented approximately 24% of the bond portfolio. The rest is Treasuries and agencies. They have been able to take advantage of the increase in interest rates that they had in the first quarter, to add some more 6% coupon in the government agency securities. Mr. Webber asked if they had any bonds in the companies that were suspect to accounting irregularities. Ms. Longer stated they had monitored the credit quality. Everything was above an A rating. They only thing was that they did own some GE Capital, it was triple A, but the market has really moved to the point where a double A was coming. She was expecting a down grade on GE Capital from a triple A to a double A. It would still be within the credit rating. On their Total Portfolio Income Yield, the yield on book value of their bond fund has stayed at 6.2%. Their total portfolio income yield has gone up to 4.4% because more of the portfolio was in bonds. The weighted average maturity on their bonds was approximately 6.2 years. As interest rates go up, they were constantly rolling their shorter maturities and callable bonds out there to lock out those high yields. Even though last year the interest rates dropped dramatically, the income on their bond fund stayed stable. Now that interest rates were rising, they did not have a long enough maturity to really hurt them. Their distributions to date have been about $182,000. Their return history, 9.5% on stocks, 6.7% on bonds, and 7.9% total. That was net of all expenses. They were over weighted on capital goods. They were under weighted on Consumer. They still had Wal -mart and Proctor and Gamble. They were over weighted on energy. Energy was approximately 12% of equity verses about a 6.5% weighting in the S&P500. That was a good defensive play too. The energy stocks had a real good dividend yield. They were about even weighted on financial and health care. They were under weighted in technology. They were light on the equity side. The stock market has come off of its high. Everyone thinks that it had to go back up, but the fact of the matter is that the earnings last year had fallen off. Earning fell more than the market fell. Even though the stock market was down two years in a roll, the valuation is not key because the earnings have come down farther than the market. They were still playing it conservatively. OTHER BUSINESS Mr. Roberts stated they had a second installment coming due on the Amendment 59 refund. He questioned how much the attorneys had been awarded and if their fee had been reduced by the court. Mr. Bradley moved to pay the second half of the tax refund owed to the County on the due date. Mr. Friend seconded. The motion carried unanimously. Meeting adjourned at 2:45 p.m.