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.