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HomeMy WebLinkAbout2008-04-24 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 4/Rctired Marshall E. Mahan Position 5/Highest Ranking 17a*ye evl e ARKANSAS Firemen's Pension and Relief Fund Meeting Minutes April 24, 2008 Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes April 24, 2008 Page l of 11 A meeting of the Fayetteville Firemen's Pension and Relief Fund was held at 11:00 AM on April 24, 2008 in Room 326 of the City Administration Building Mayor Coody called the meeting to order. Present: Mayor Coody, Ronnie Wood, Marion Doss, Pete Reagan, Gene Warford, Sondra Smith, Trish Leach, Accounting, Amber Wood, Deputy City Clerk, City Attorney Kit Williams, Elaine Longer and Kim Cooper, Longer Investments. Absent: Marshall E. Mahan Approval of the Minutes: Approval of the January 31, 2008 Meeting Minutes Pete Reagan moved to approve the January 31, 2008 Meeting Minutes. Gene Warford seconded the motion. Upon roll call the motion passed 5-0. Marshall E. Mahan was absent. Ronnie Wood was absent during the vote. Approval of the Pension Lists: Approval of the Revised February, March and April, 2008 Pension Lists Sondra Smith: The revision was on the three people that we are paying the additional benefit, the year to date amount was incorrect. Everything else was correct. We gave you new copies with the correct year to date amount. Mayor Coody: Any other questions on that? Pete Reagan moved to approve the revised February, March and April, 2008 pension list. Gene Warford seconded the motion. Upon roll call the motion passed 5-0. Marshall E. Mahan was absent. Ronnie Wood was absent during the vote. Approval of the May, June and July Pension Lists Sondra Smith: There were no changes. Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes April 24, 2008 Page 2 of 11 Pete Reagan: Will there not be a change on Kim Skelton in July? Sondra Smith: That's on our agenda to talk about. Her birthday is not until July 1 gth and so we don't know if you want us to do a prorated check or a full check for July. Normally when someone deceases even if they decease on the second day of the month we write them a full check. If you approve paying her differently than the pension list we will do a revised pension list. Pete Reagan moved to approve the May, June and July, 2008 pension list. Gene Warford seconded the motion. Upon roll call the motion passed 5-0. Marshall E. Mahan was absent. Ronnie Wood was absent during the vote. Old Business: 2008 Pension Board Elections Nominations (Two nominations were received) State Code 24-11-801 Board of Trustees — Members Sondra Smith: We only received two nominations. I did not send ballots out but if you want me to I will go ahead and send ballots out for the two people that were nominated. Mayor Coody: There are just two positions and two nominations? Sondra Smith: Yes. Pete Reagan: It's my understanding we are not sending out a ballot for Marshall E. Mahan's old position. Is that correct? Sondra Smith: Correct. That is next on our list. A copy of the State Code is in your packet. It says when no active member is available to serve on the board all four positions shall be held by the retired members of the pension fund and shall be elected for two year terms. I had Kit read it and we both feel like that means that the board reduces to six. We had seven before. Therefore you only have two positions that we could elect for instead of three. Kit Williams: I think it was a mistake that the legislature didn't think about because you almost never see a board that has an even number. That's not the way the Police Board is set up. The Police Board still has the same number they had before they lost their last active member. The way the law is here, I think it is fairly clear that when the fire chief or the last active member is gone they didn't put another member in. Until they change the law we have a board with six people instead of seven. Pete Reagan: I spoke with David Clark who is the Chairman of PRB and he said this was caused by a Police Bill. Evidently we missed it or during the legislative session we didn't catch it. It was about two years ago. Kit Williams: It might have been when they took the doctor off. Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes April 24, 2008 Page 3 of 11 Sondra Smith: The Police section clearly states there shall be seven people on the board but the Fire section doesn't state that. Kit Williams: It's probably something that needs to be changed at the next session. It's not terrible but it's not the way you set up boards. Sondra Smith: I was surprised when I read it. I read the code and then I had Kit read it and we both agreed. That is the reason we didn't elect for Marshall's position. I sent out ballots asking for nominations for two positions and I received two names back which are the current board members. Do you want me to go ahead and send out ballots to elect those two people? At one point in time Kit wanted us to have a place for a write in name on the ballot but that's up to you. Pete Reagan: The law doesn't state that we have to have a write in position. Kit Williams: It doesn't say, it says that the board shall have the power to make all the rules and regulations needful for its guidance to implement the provision regarding the board composition. I think you need to have a motion to say that when there's only two nominations or the same number of nominations as positions available that you do not have to have an election in that case. Gene Warford moved that when there is only two nominations or the same number of nominations as positions available on the board that there will be no election of the nominees. Pete Reagan seconded the motion. Upon roll call the motion passed 6-0. Marshall E. Mahan was absent. Marion Doss: Do you think that we need to send a letter out to the people on the pension list telling them what we did so they will know who the members are? Sondra Smith: After the elections I try to send out a letter letting them know who was elected. We may not always do it but especially in a case like this we will send a letter out stating that these two have been elected due to no more nominations. NCPERS Annual Conference Sondra Smith: Pete is going to attend the conference. There is a ballot that you will probably want to fill out or someone needs to fill out. Mayor Coody: Is there any business that we have to do on that? Pete Reagan: I just need to fill out the ballot. That is for the election process. Sondra Smith: When you get your travel information just forward it to me so I can fill out your forms. Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes April 24, 2008 Page 4 of 11 New Business: Marshall Mahan & Joey Pierce Retirement — (Retirement information has been received) Sondra Smith: We received the retirement information for Marshall and Joey. Kim Skelton Proof of Enrollment Letter (Received) A copy of the letter was given to the board showing that Kim is enrolled in college. Kim Skelton Final Check July — Full Check or Prorate for July — Date of Birth is July 18, 1985. Sondra Smith: Kim turns 23 on July 18, 2008 and will no longer be eligible for benefits. We need to talk about whether or not we're going to give her a full check in July or prorate that check. Pete Reagan: In the past if someone passes away in the early part of the month before we approve the pension list we have always sent them a full check. Sondra Smith: We probably need a motion and a second to do that so we will have it as part of the record that we are going to send her a full check. Mayor Coody: How much money are we talking about just a few hundred dollars? Trish Leach: $2,400 is what she gets. Mayor Coody: So it would be about $1,100 extra if we pay the full amount verses prorate. I don't know do you all feel like giving away $1,100. Sondra Smith: We do that when someone deceases. If someone deceases on the second day of the month they get a full check for that month. Mayor Coody: Okay, but this is a birthday right. That's up to you guys. Marion Doss made a motion that we follow precedence and give Kim a full check for July. Pete Reagan seconded the motion. Upon roll call the motion passed 6-0. Marshall E. Mahan was absent. Longer Investments: Investment Report: Elaine Longer: A lot has happened since I was here in January. The credit markets are still in turmoil but in March we sort of lanced the boil with Bear Sterns nearly going under. The Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes April 24, 2008 Page 5 of 11 Federal Reserve and the Treasury Department are basically having to come together, the administrative arm of the government, Congress and the Federal Reserve, to arrange a marriage between Bear Stems and JP Morgan so as to not let Bear Sterns go under. It was really unprecedented. The government hasn't done anything like this with an investment banking firm since the depression. The reason they did it is because they were worried that with the state of the financial markets and credit markets world wide that if Bear Sterns had gone down there was enough counter party risk in that all of these brokerage firms have related entanglements. You can't have one of them sink without a lot of problems rippling through to Merrill Lynch, Citi Group, Bank of America, JP Morgan and all of them. So the Fed made the decision over the weekend to basically arrange the shot gun marriage and with that it was such a display of force, bringing the big guns out, that the markets took a collective sigh of relief and it marked a low. Basically what happened was that the low that we had in March actually defended the low that we made in January. So with that the markets kind of started coming back up. There was a lot of liquidity added to the system with the Fed putting in another two hundred billion dollars of reserves and opening up the discount window to the investment banks not just the banking firms. So all of this has sort of caused everyone to calm down, sort of sooth the nerves out there a bit, daddy's home its okay to go outside and play. With this everybody kind of got focused back on the earnings and what's going on with the economy and what do the earnings look like. The focus has shifted back to the economy and the earnings. We've got the first quarter earnings reporting season going full tilt right now. We've seen some weakness continue among the financial stocks. We're still completely out of financials, we are watching from the sidelines. We are seeing strength in technology and industrial companies like Caterpillar. Dow Chemical reported today, and Dow and DuPont have been good. Basically it's the same thing that we have seen for the last year and a half, the major multi national corporations in the United States that are well positioned internationally, are benefiting from the growth overseas. Even while the US economy slows to less than 1% growth rate their still tapped into China, India, and all these emerging economies and able to deliver strong numbers. In fact Dow Chemical's revenue was up 19%, in a quarter like this with the US economy slipping into a recession or to a no growth economic position. We are overweight the multi national large cap stocks we are underweight consumer. We still think the consumer is fragile. We own Wal-Mart and Lowe's and those have been good stocks to own. As far as consumer durables like housing, furniture, and autos were just staying away from that. We don't have the financials yet in the portfolio because we left at the right point, that is a lot of the reason why we had such a big year last year and we haven't gone back in because the matrix is still moving. You can't value them on earnings because we don't know what earnings are going to be. You can't value them on price to book value because you have no idea what book value is going to be. You can't value them on dividend yield because the dividends are still in the process of being cut even though Citi Group cut their dividend by 40% they are probably still going have to cut it if not eliminate it completely, so it's still a moving target. If we go back in we will go back in with the XLF fund which gives us an industry exposure as opposed to a single issue stock risk at this point. Basically nothing much has changed as far as our industry weightings are concerned. We are overweight tech which has been a bright spot out there in the earnings and of course they are benefiting from the international growth as well. Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes April 24, 2008 Page 6 of 11 Page one is the March 31" statement. Although we were light in equities in January we did increase exposure in March so that you were back above the 50%. We need approval to be at that level. Equity Overage Pete Reagan moved to approve the equity overage. Gene Warford seconded the motion. Upon roll call the motion passed 6-0. Marshall E. Mahan was absent. Elaine Longer: On page four the final valuation is the $7.5 million market value and the annual income yield on the portfolio even with 53% of it invested in stocks is 3.7%. The current 10 year yield is about 3.7%. You're getting a ten year yield in the portfolio that has a 55% growth component. So that's still very good. Page five is a summary of income and realized gains and losses. Pretty much the gains are off set by loss this year to date, minus $1,900 which has been off set since March 31st with gains. Net income is $51,000. Page six shows the weighting in the bond portfolio and what's significant is if you look at the average maturity in years, your average maturity is 4.7 years and your income yield is 5.3%. To give you an example at this point in the yield curve the five year treasury is yielding about 3%. That's up from about 2.5% in mid March but the five year is at 3% and you have basically a five year maturity in your portfolio with an income yield of 5.3%, largely governments. We are still well positioned for any increase in yields with 39% of the total portfolio maturing within three years. Did you read our newsletter? We feel that there's significant price risk in bonds right now because bonds do have a price fluctuation with a changing interest rates. Even if rates went from 3.5% in March to just where they were at year end which was 4.3% the price of a ten year treasury will drop by 9%. That's almost three years worth of income, at the current 3.5% yield can be eaten up in price fluctuation with just a half a point change in the interest rates. There are tremendous price risks in the fixed income market at this point and that's why we are still fairly short term weighted in the portfolio and yields have come back up quite a bit since the stock market has been performing better. There was this flight to quality and when people are scared they go to treasuries and so the T Bill yield got down to under a half of one percent in March and the two year was about 1.2%, the five year was 2.5%, and we just look at that and say there's no value here. Page seven shows top holdings in stocks. None of which is over 2% of total portfolio value. Page eight summarizes the areas where we are overweight and underweight. Energy has been a good place to be overweight as well as technology and capital goods. We are underweight financials, consumer cyclical, and utilities which are interest rate sensitive. Page nine is your contributions and distributions. This is inception to date. The contributions have been about $824,000 and distributions have been $6.28 million. Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes April 24, 2008 Page 7 of 11 Page 10 shows where the year ended last year with your cumulative annualized returns at 10.4% on stocks, 8.8% on international, 4.1% on fixed income, 21% on REITS and 7.1% compound annual with everything included. Year to date through March 31 down 10.2% on equities, down 7.8% on the international stocks and down 3.5% total and by comparison the indices are listed below down 9.9% on the S&P. The industrials were a little bit more defensive down 7.6%, the NASDAQ down 14%, and the Russell 2000 down 10%. It was a start to the year where everything pretty much continued down from the 4a' quarter. The asset reconciliation shows your beginning value and contributions to the portfolio. The net distributions of $6.2 million, so net of the contributions you've seen about $5.4 million go out and the investment return has been $3.13 million. The net distributions net of investment returns and all contributions look about $2.5 to $2.6 million. The investment policy follows. Nothing changes there the only thing that we needed was permission to be above 50%. We are about 53%. Probably today about 55%, we are knocking at the top of asset allocation again in all of our accounts. We use the S&P 500 fund for the lever between being fully invested and being some what light. The S&P 500 fund at the end of the quarter was 4.2% of total portfolio and so it represents about 10% of the stock part of the portfolio. That's a wonderful tool to use because we can move a lot of cash quickly; it's like putting a marker down. We moved all that cash into the market on the Bear Sterns day which was at about 127, on the S&P it's a 138 now so in about a month that's been about an 8% run up. It allows us to move quickly and we can control the down side with a real close stop. It's a very liquid investment so from that point once you move the cash in we continue to build the portfolio positions and we use that as our buying power but at least you have locked your place in and you have your equity performance from there. Mayor Coody: Anyone have any questions for Elaine? You guys are doing a good job, thanks. Elaine Longer: Thank you. Pete Reagan: What is Ceradyne Inc.? Elaine Longer: Ceradyne is a small mid cap defense contractor. They basically make the body amour shields that our troops are using. They also make the protective shields that go into the armed cars that they're driving. The last quarter that they reported the stock fell off pretty hard but it was trading at 5 times earnings after they reported. This was one of those stocks that the earnings come out after the close and the next trade is 25% lower. They are a debt free company. They have $7 a share in cash. They got down to five times earnings and we bought more and took it to about a 2% to 2.5% weighting. Now it has since recovered back up to about 35-36. They report on Friday and we have taken off some of that position now that they have recovered back to about our average cost. The ceramic that goes into these body armor and car amour is also important in solar in some ways. They have a growing division that is selling this ceramic to the solar industry. We've stayed in the stock and I think it's just about the cheapest stock on my board but it's a small mid cap and when they disappoint they wipe the decks. Mayor Coody: Anything else. Thank you. Elaine Longer: Thank you. Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes April 24, 2008 Page 8 of 11 Pete Reagan: We appreciate you. Elaine Longer: We appreciate you, thank you. Informational Kit Williams: I wanted to bring something to your attention if you look on page 10 of the report that Longer Investments gave you, I see a couple of numbers there that make me a little bit concerned. She has done a very good job in getting $3 million for you from the $10 million that you started with, over the last five and a half years she earned $3 million and that is very good. I wanted to draw your attention to the beginning value and ending value for that five and a half year period. You go from $10 million to $7.5 million in five and a half years. That is 25% of your savings. That concerns me. When you get down to zero on that the law won't allow you to do anything but pay what you can out of the millage each year, which is obviously not going to be near enough. Everyone would have a terrific cut in benefits if that happens. I don't think she can beat $3 million over the next five and half years on a $7.5 million nest egg, if she can I'm going to give her everything I've got. That concerns me. Pete Reagan: One thing you have to look at there Kit is it is a closed plan so the folks going off of it who have retired which is all of us and the City's part of the contribution, the 12% that the city was paying on payroll for each one of those is no longer going in. Kit Williams: That's right. Pete Reagan: The employee's part is no longer going in. I know it's calculated in the actuary. The actuary this year should tell us a lot more than what it did two years ago and that will be out in August I think. Sondra Smith: July or August. Pete Reagan: It will be on 2007 numbers. Kit Williams: I'm just concerned just looking at this. Pete Reagan: I understand. Kit Williams: It makes me nervous. Marion Doss: We are probably more concerned than you are. Depending on how it comes will PRB make an overture bid or anything to us about absorbing the plan or do we have to ask for that? Kit Williams: To have it go to LOPFI or something is a City Council decision and there's certain things that have to be done that aren't done right now. I think the benefits are only supposed to be 50% not 90% or 100% and then the City Council will have to be willing to make up the difference. Obviously revenue for the city isn't going up either so this would be a multi million dollar obligation that the City Council would be taking on. There is a real question in my Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes April 24, 2008 Page 9 of 11 mind as to whether they could do that at this point in time. I don't see a good rescue strategy at this point in time. Maybe there's one out there and maybe something else will happen. I know that's it's a closed plan and as you die you don't take as much, you are betting on the death of people. We don't want to hope for that and hopefully that's not going to be happening a lot. Of course it's you all who have retired later who are drawing more and are younger so the people that have retired a long time ago who aren't getting very much and when they die it doesn't make as much difference to the plan. Mayor Coody: What are you saying Kit? Pete Reagan: I think he is saying it is our fault for retiring. Kit Williams: If it goes down by $2.5 million in five and a half years when your investments went up over $3 million that makes me nervous. Sondra Smith: At March 31, 2007 you were at $8,657,442. So in one year it has gone down over $1 million. Pete Reagan: But we had four retire. Kit Williams: We won't have the big DROP payments. Sondra Smith: Right. Kit Williams: That is some what of a help. Pete Reagan: We received all the interest off their money that was in it for five years or however long they were in the DROP also. Kit Williams: The DROP payments won't be as big of a drain in the future because we don't have anymore but I don't know if that is the total answer. On that happy note I have not actually looked at that in the report before. The Police are not in that kind of a bad situation. I looked at theirs and theirs was much more stable. It had gone down a little bit but it had not gone down dramatically like this one. Sondra Smith: They didn't have the big DROP hits. Pete Reagan: No, they didn't have DROP. Most of their guys left at twenty or right after. Marion Doss: On the other hand when people stayed in they were still contributing a percentage of their salary plus the city put in a percentage. So that helped. Kit Williams: I was just looking at net to net and that's what got me concerned. Marion Doss: My question was I was wondering if LOPFI was proactive when they get an actuary. Do they look at it and say this fund needs some attention. Would they make an overture that way to us? That's what I was thinking. Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes April 24, 2008 Page 10 of 11 Kit Williams: They haven't been in the past and we have been showing that we are not allegedly financially liquid in the past and they haven't said anything. But this is more dramatic now. Marion Doss: A few years ago we had a movement to go to LOPFI and then we started getting some additional money in. Kit Williams: Maybe there will be more insurance money coming in. That is something we can hope for, the tumback funds Pete Reagan: We will be part of the guarantee fund which is the left over insurance turn back supplemental fund. Marion Doss: Should we get any of that? Pete Reagan: Yes, we have got it the last three years. Kit Williams: But even with that we are still net to net $3 million down. Pete Reagan: But the ones that are in worse shape get the most money out of that fund. Sondra Smith: I think everything else that is on the agenda we have already gone over. Pete Reagan: Sondra I would like to commend you on doing such a fine job. Sondra Smith: Thank you. Kit Williams: She does a good job in many areas. She has many responsibilities. Longer Investment Survey Results A letter was given to the board with the results of the survey. Investment Policy Update — Meeting Date Changed to Quarterly: Section III. B. 3 Asset Allocation/Diversification Sondra Smith: This is a copy of the investment policy that you signed. They changed the meetings from monthly to quarterly in the investment policy. Longer View Sondra Smith: The Longer View is the news letter that they send out. Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes April 24, 2008 Page 11 of 11 Monthly Report — March 31, 2008 A copy of the Longer Investments monthly report was given to the board. Quarterly Report Dated March 31, 2008 A copy of the Longer Investments quarterly report was given to the board. Meeting Adjourned at 11:45 AM