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HomeMy WebLinkAbout2007-07-26 MinutesBoard Members Mayor Coody Chairman Sondra E. Smith Secretary Marion Doss Position 1/Retired Pete Reagan Position 2/Retired Gene Warford Position 3/Retired Ron Wood Position/Retired Marshall E. Mahan Position 5/Highest Ranking 17a*ye evl e ARKANSAS Firemen's Pension and Relief Fund Meeting Minutes July 26, 2007 Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes July 26, 2007 Page l of 6 A meeting of the Fayetteville Firemen's Pension and Relief Fund was held at 11:00 AM on July 26, 2007 in Room 326 of the City Administration Building Mayor Coody called the meeting to order. Present: Mayor Coody, Pete Reagan, Gene Warford, Marshall E. Mahan, Marion Doss, Ronnie Wood, Tony Johnson, Paul Becker, Trish Leach & Wendy Moore, Accounting, Amber Wood Deputy City Clerk, City Clerk Sondra Smith, City Attorney Kit Williams, Kim Cooper and Elaine Longer, Longer Investments. Approval of the Minutes: Approval of the June 28, 2007 Meeting Minutes Pete Reagan moved to approve the June 28, 2007 Meeting Minutes. Gene Warford seconded the motion. Upon roll call the motion passed 6-0. Ronnie Wood was absent during the vote. Approval of the Pension List: Approval of the August, 2007 Pension List — Supplement Amount for 2007 was added Mayor Coody: What does that mean? Pete Reagan: That's the insurance turn back funds. Mayor Coody: Any other discussion on that? Any pension list changes? Sondra Smith: Just the insurance turn back funds. Mayor Coody: Okay. Pete Reagan: So that was the Fire insurance turn back and Future Supplement. Sondra Smith: Yes, we have that later on in our discussion so you can see what we received and there is a comparison from last year to this year. Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes July 26, 2007 Page 2 of 6 Marshall E. Mahan moved to approve the August, 2007 Pension List. Pete Reagan seconded the motion. Upon roll call the motion passed 7-0. Old Business: Dennis Mullens retirement classification (Tabled from the April 26, 2007 meeting.) Mayor Coody: What is the status on this? Pate Reagan: I have been out of town Mr. Chairman and I have not had any contact with Dennis. I don't know what to do except if you would like me to I can contact him and see about a presentation for the next meeting. Mayor Coody: This is at least the fifth or sixth meeting that there is a no show. I don't think there is any real serious interest in this and I think we are spinning our wheels. Pete Reagan: Mayor with all do respect this is a pensioner that asked for and I think we should give him his day in court. Mayor Coody: Absolutely, I just think it would be nice if he could actually show up for one of the days in court we have sit aside for him. We all have a responsibility to put a little bit of effort into the things that we request. Pete Reagan: I understand. Mayor Coody: Are you making a motion to table this a fifth time? Pete Reagan: So move. Pete Reagan moved to table to the August meeting. Gene Warford seconded the motion. Upon roll call the motion passed 7-0. Pension Protection Act (Tabled from the June 28, 2007 meeting.) Mayor Coody: Any input on that? Kit Williams: What is the Act number? I saw the minutes that said I'm going to give a report. I wasn't here last time. I tried to find it but I couldn't. Pete Reagan: It is a new one that was passed. Kit Williams: Right. Sondra Smith: I don't know if we have the Act number what we received was from NCPERS. Pete Reagan: No, this was state. This was in last month minutes. Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes July 26, 2007 Page 3 of 6 Kit Williams: It might have been before last months. I remember the hand out that had several different acts. I had not reviewed that enough to give you an official report. Mayor Coody: Do you want to table it to the next meeting? Gene Warford moved to table Pension Protection Act to the next meeting. Pete Reagan seconded the motion. Upon roll call the motion passed 7-0. New Business: Supplemental Benefits Sondra Smith: That is the amount that was added to the August pension list. The amount we received and the future supplement was $38,916.72. We have to break that down and so much goes to the voluntaries and retirees. I have it broken down for you as to how much went to the retirees and the spouse. If there is a QDRO which is part of a divorce decree they do not get any of the supplemental benefits. One thing you need to be aware of is in the past they were holding back 10% of this supplemental benefit in a reserve fund. This year they released that 10% so this $38,000 is quit a bit more than we have received in past years. In 2008 that number will likely be a lot less because they released that reserve so you received a lot more this year because they are not holding any in reserve any longer. Mayor Coody: What was the purpose of the reserve? Sondra Smith: I have no idea. Pete Reagan: This is an insurance turn back supplemental fund. Each department in the state of Arkansas that qualifies sends in their paperwork, has an audit and all of that gets a return from the insurance that is written foreign and domestic in Arkansas. Part of that money was held back by the governor's office to go to his discretionary fund, and the Fire Departments that did not qualify at that time, their monies were held back until such time as they did. A lot of smaller departments didn't do that and didn't qualify so that money has been sitting there. We went to the legislature after the State Police went after that supplemental fund to help fund their retirement system because it was money sitting there that couldn't be used so we went after it and got it. Now all the money is disbursed. Sondra Smith: In the future 100% of the money will be disbursed. This $38,000 reflects the past amount and the current amount. Pete Reagan: It's think it's normally about $400. Sondra Smith: Last year it was $27,000. The $150.066.58 just goes into your fund. Pete Reagan: Was that sent to Longer or is that being keep local? Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes July 26, 2007 Page 4 of 6 Trish Leach: We keep all but $50,000 to fund the August checks and sent the rest of it to Longer. Sondra Smith: I have a copy attached to the PRB memo stating how much we are suppose to give because they regulate how much we are suppose to give to the pensioners and to the voluntaries and a copy of both checks for you. Longer Investments: Elaine Longer: The market is down 200 today. There are all kinds of concerns about the credit risk in the economy right now. We have a lot going on with the LBO's and the sub prime mortgage stuff so this is affecting the banking stocks and brokerage stocks. A lot of times the financial stocks lead the rest of the market. When the financials which are banks, brokers and insurance companies come under a lot of pressure like they have in the past week, because of the credit concerns, then the rest of the economy follows. We are in the middle of the earnings season and the earnings reports have been very good, in fact they are coming in above expectations. There have been a few disappointments like Google, Exxon Mobile but the stocks trading at 89 after just reaching a recent high of 93. It's really sort of an exhale by the market. I don't think we have done any real serious technical damage but we tagged 14,000 on the DOW. If we were to do a 5% pull back that takes us to about 13,300 and I wouldn't be surprised to see that. Mayor Coody: Where is it today? Elaine Longer: 13,583. Mayor Coody: So it could drop another 250 points and it would still be. Elaine Longer: Within a 5% direction. We had a lot in a short period of time. Page one on the report shows the June 30th cut off date portfolio appraisal. We do have to vote to approve the fact that you were about 55% to 56% equities at June 30th. Equity Allocation Overage Report Pete Reagan moved to approve the equity overage. Gene Warford seconded the motion. Upon roll call the motion passed 7-0. Elaine Longer: Page 6 is an update through Friday, July 20th' What is interesting is just in that period of time between June 30th and July 20th the stock market was up about another 3'/z %. It has been a pretty remarkable run because the first quarter of the year the stock market was flat. So if you look through July 20t11 your stocks are up about 10.6 %, the mutual funds which are foreign stock are up about 8%, all of that really happened from March 31st forward. That's a lot to compress into about a four month time period and so now what is happening is the correction has ensued and now we see how much the correction is going to bring about. I would say that giving the fact that the interest rates have really backed off again we are probably looking at 5% correction off of that 14,000. Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes July 26, 2007 Page 5 of 6 Page 10 you can see the value as of last Friday was about $8.8 million. Through yesterday we were down 1% from Friday and through today were down about another 2%. So the 3'/2% up that we had from June 30th to last Friday has pretty much been erased in three or four trading days this week. That is the volatility that we are experiencing in the market. A lot of the reason has to do with the fact that you have a lot of leverage players like leverage buy out organizations and the hedge funds. The hedge funds now make up over 50% of the trading activity in the US markets on a daily basis. So the movements that would normally take two or three months, five or eight years ago, now are compressed into two to five days. That is exactly what we have seen in the fixed income markets, we saw it in the first quarter in the month of January when the oil stocks corrected about 17% in less than a month and now they're at new highs for the year. The corrections that used to be spread out in longer periods of time take place now in much shorter periods of time. A 5% correction could be over before Wednesday of next week and it's interesting that this is just a function of the kind of markets that we are dealing with now. I think it is a good thing because what happens is the market is going to reach a state of equilibrium giving a certain piece of information or economic news or the Federal Reserve action, now we just reach that equilibrium point a whole lot faster. Page 11 shows your realized gains year-to-date of about $227,000 and net income is about $111,000. Page 12 shows the bond portfolio. The bonds have been very volatile. We had about a 4.6% yield on the ten year in May and then we had an increase in the ten year yield to about a 5.3% in June. That was a big move, that's about a 15% to 17% increase in the yield in about a one month period of time. Since then the ten year yield has backed off in the 5.30% that we had June to a 4.75% today. This is a lot of volatility in the bond market and the ten year yield is important because the thirty year mortgage rates key off of the ten year treasury. So when we popped up to a 5.30% in June then all the fears were this is really going to slow the economy in the second half. Mortgages are going to be more expensive, consumer spending will taper off and so now we have backed off to a 4.75%. Well the market has backed off from 14,000 to 13,500 so this is another reason why I am not too concerned about this pull back because the valuation of stocks is still very attractive giving the interest rates of 4 3/4 in the ten year. So once the money flees where is it going to go, 4 3/4 on the ten year treasury fully taxable is not very attractive to investors. Ultimately they will come back into a growth, the stocks because stocks are not over valued. You have a yield to maturity locked in on your bonds of 5.6%, your average maturity is only 5.6 years so this compares to a 4 3/4 % yield on the ten year treasury. You have a maturity or a risk factor in your portfolio that is half of what the ten year is and you have a much higher yield, almost a 100 basis points higher. We have a lot of flexibility if interest rates do go higher because we have 33% of the bond portfolio has a maturity of three years of less. As you've seen us in the past if we get a good buying opportunity on bonds we will sell things that mature within a year, we don't have to hold a bond to maturity. We can reinvest it and lock in higher yields but at this point in time you have a conservative maturity structure and you have a real good income yield. Page 13 shows your largest holdings as of June 30th none of which exceeds the 5% of equity portfolio restriction in your policy. Page 14 shows our industry weighting summarized. We're still overweight the capital goods, industrials, health care and technology. We're underweight consumer cyclical, consumer non- Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes July 26, 2007 Page 6 of 6 cyclical mostly because we are stilt concerned about consumer spending and the slow down in the housing market. We're underweight financials which has really helped us get through the storm this past week and utilities. We're even weighted on energy at this point and time. Page 15 we have the contributions and distributions from inception to date which is August 15, 2002 through June 301h. You can see that the contributions into the fund have been about $769,000. The distributions have been $5,047,000. Page 16 is the performance summary. Equities through June 30th were up 7.7% that compares to the S&P being up 6% year to date and the S&P with compounded dividends up 7%. Your mutual funds which are the international stocks have trailed the US market somewhat year to date are up 6.2% and fixed income is up 1.6%. The total is up 4.8% and as of Friday the numbers were 10.6% on equities. Fixed income was still flat to 1.6%. The funds were up 8% and the total was up 6.2%. So your compound annual returns have been 10.9% on stocks inception to date and 10.7% on your foreign funds, fixed income at 3.7% and then the over all return has compounded at 7.2%. That compares to your actuary assumptions at 6.0%. Are there any questions on the report? Mayor Coody: Thanks for the report. Pete Reagan: Thanks very much. Elaine Longer: Thank you. Thanks for moving us forward. Monthly Report A copy of the Longer Investments monthly report was given to the board. Quarterly Report A copy of the Longer Investments quarterly report was given to the board. Meeting Adjourned at 11:25 AM