HomeMy WebLinkAbout2008-07-31 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
17a*ye evl e
ARKANSAS
Firemen's Pension and Relief Fund
Meeting Minutes
July 31, 2008
Firemen's Pension and Relief Fund
Board of Trustees Meeting Minutes
July 31, 2008
Page l of 16
A meeting of the Fayetteville Firemen's Pension and Relief Fund was held at 11:00 AM on July
31, 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, City Attorney Kit Williams, Chief Johnson, Eldon
Roberts, Elaine Longer and Kim Cooper, Longer Investments.
Approval of the Minutes:
Approval of the April 24, 2008 Meeting Minutes
Ronnie Wood moved to approve the April 24, 2008 Meeting Minutes. Marion Doss
seconded the motion. Upon roll call the motion passed 5-0. Mayor Coody was absent
during the vote.
Approval of the Pension Lists:
Approval of the August, September and October 2008 Pension Lists
Sondra Smith: Kim Skelton's amount is no longer being paid. Your pension lists have changed
by the amount of her pension.
Marion Doss: She has reached age 23?
Sondra Smith: In July. We paid her for the entire month of July. That's a little over $2,000 per
month.
Pete Reagan: Are you planning on taking her off the roll.
Sondra Smith: She will probably stay on through the end of the year.
Pete Reagan: Age 23 in July.
Sondra Smith: There is no amount beside her name.
Firemen's Pension and Relief Fund
Board of Trustees Meeting Minutes
July 31, 2008
Page 2 of 16
Marion Doss moved to approve the August, September and October, 2008 pension lists.
Gene Warford seconded the motion. Upon roll call the motion passed 5-0. Mayor Coody
was absent during the vote.
New Business:
Election Results
Pete Reagan: Sondra is this informational?
Sondra Smith: It is just informational. You should have received a letter and a list of who is on
the board.
NCPERS Conference Travel Expenses
Sondra Smith: Attached is a copy of how much we paid Pete for the NCPERS conference. The
amount was $2,548.88. The board approved $3,000 so he came in under the approved amount.
Kim Skelton termination of benefits letter
Sondra Smith: This is just informational. Attached is a copy of the letter I sent Kim letting her
know she is no longer eligible for benefits.
Bob Poduorny, Dow Jones Indexes letter
A copy of the letter was given to the board.
Sondra Smith: I know you are probably not interested but I like to let you know when we get
information like this.
Pete Reagan: He was president of NCPERS and he didn't run this last time.
Actuarial soundness letter from Kit Williams
Kit's memo was given to the board.
Mayor Coody: This is something we have been talking about for quit awhile now. When a
discussion of new benefits and extension of benefits has come up we have always tried to impart
the importance of being fiscally conservative and not tapping the fund to hard. We have been
trying to avoid a day like today but I think the day is here and we need to discuss it. Have all of
you read Kit's memo? If you haven't read it I would like you to take a minute to read it. This is
something that we have been talking about for quit awhile and we are concerned.
Firemen's Pension and Relief Fund
Board of Trustees Meeting Minutes
July 31, 2008
Page 3 of 16
Kit Williams: I tried to explain my concerns in the memo. My concern is that the fund is going
down in value rapidly. One of the main draws from the fund was the DROP payments and that is
now over, there are no more people going out on DROP. That is a help but I still think that it
looks like the fund is being rapidly exhausted and could be exhausted within ten years.
We have not received the report of the biannual actuarial study yet. That's something you
should consider. Certainly when that report comes in we need to look at it very carefully. You
need to look at it because you have fiduciary responsibilities to all the pensioners to try to insure
that the fund does not go bankrupt and that benefits don't have to be drastically slashed.
You never know what is going to happen with the legislature. We have made copies of a
newspaper column that was written by Mike Masterson about turnback funds and how not all of
the turnback funds have been going to the pension plans. Maybe in the future the legislature will
actually send them to the pension plans but we don't know what the legislature is going to do.
You can't really hope that the legislature is going to bail you out, they might but they might not.
This is something I think you need to look at very seriously especially when you get the actuarial
report. I think it requires more action than just not increasing benefits anymore. I don't think
that would be allowed but you might have to actually look at about whether or not you can
maintain the benefit level that you have already established. That's always a bitter pill to even
think about swallowing. The trouble is if you don't look at anything like that then you might be
looking at even a worse scenario on down the line. You might have pensioners coming to you in
ten years saying how did you let this happen, you owed us a duty, and instead of following your
duty you let the fund be totally be depleted and now we can't live. We were counting on the
pension, this is what we are living on, and now we don't get it. That's a concern that I have to.
I'm sorry that Jodi Carreiro and the actuarial people have not gotten their study in yet because
that's really some key information. Looking at the Longer report, even though they did an
excellent job for you in about five and a half years, while working on about a ten million dollar
bundle of money, to earn as much money as they did, three million dollars, and still your fund
has gone down. I don't think that we can count on the investment market to be able to pull you
out of this. There will be some growth in the millage as long as it stays at four tenths of a mill. I
think the millage will increase, but I think it will increase enough, just looking at what is
happening to your bottom line as this has been going down. That's why I am very concerned. I
want to make sure that you as the responsible body, the trustees of the plan, are well aware of the
general trend at this point in your assets.
Mayor Coody: We have been discussing this problem for awhile now. A lot of benefit requests
have come up that Sondra and I have had to be in an uncomfortable position of being kind of
hard nosed about it because we didn't want to be in this position. I'm hoping we can find a way
to resolve this because there is no way that we can go out to the public and say we need a tax
increase so people can retire on your dime taxpayer for more money than you are getting from
your own pension plan. I don't think that is going to work. I don't know the answer to this.
I'm going to rely on you guys to help rein this in such away that this thing will be sustainable at
some point. This is where we've got to head. We can't count on anybody else to bail us out.
Kim Cooper: I'll let Elaine take the floor.
Firemen's Pension and Relief Fund
Board of Trustees Meeting Minutes
July 31, 2008
Page 4 of 16
Mayor Coody: We have been discussing Kit's memo.
Kit Williams: I supplied a copy of this to Elaine just so that she would know my concerns.
Mayor Coody: We have been hashing this around for a couple three years now, going back to
when we were looking at investors and just trying to get this train turned around.
Elaine Longer: I got a copy of Kit's memo and so I went back to August, 2002 when we did
our presentation and also September when we were developing the investment policy to go back
to the actuary report at that time. I have a copy we've taking excerpts from those minutes and I
will hand those around. I agree with you that you can't grow your way out of it. We said this
back in August 2002 because at that time the actuary Cathryn Hinshaw sent an email that
basically said the fund needed $4.1 million more in assets to cover the existing liability and that
was as of December 31, 2001.
We took over management, I think it was September, 2002, and by June, 2002 the fund had
dropped another $2 million in assets since where she had said it was a $4.12 million short fall.
What I said, and it is in the minutes, is that you are looking at it could be a $6.4 million unfunded
liability on a $10 million asset base. The actuary return assumptions are 6%. Our expected
return in equities at that time was 6% to 8% equity return and 4.5% in the fixed income market.
We thought with reasonable expectations of return you should be able to get to your actuary
assumption of 6%. Actually it has been about 7.1% and the equity return has been 10.5%, which
is higher than what we were expecting, from that evaluation stand point going forward. So the
thing is the equity side has out performed our expectations. It has out performed the S&P 500
index and you've out performed your actuary assumptions at 7.1% compounded instead of 6%.
You are starting from a point where you would have had to get a 60% return to get back to the
$16.6 million, which would have giving you fully funded, upon which then you need to earn the
6% going forward. We had mentioned that in September, 2002 just from the stand point of the
investment out look, it wasn't something that you could really look to the investment side to be
able to right the ship. We said you would have to get to $16.6 million and earn 6% on that and
that would be a 60% return to get back to where you earn 6%. It's always been a function of the
benefit as opposed to the asset value. We talked about that in August that it would be difficult,
with expected returns like interest rates at 4.5% and a balanced portfolio structure of 8% or so on
stocks, you can't go out there and shoot from the hip and go 100% equities because you're are in
a situation where you have to be a fiduciary and you can't afford a 30% downside risk on the
equity side given the fact that you're towing the line there. From a stand point of an investment I
think you have not been overly risky and you haven't been overly conservative. Your asset
classes have out performed both our expectations but also the benchmarks. It's not something
that you can look to a magical return in the market to right the ship.
Mayor Coody: If we can't expect any increase in revenue what would be the logical, obvious,
choice to have to cut?
Elaine Longer: I don't know that, because I always have to take a step back, I'm not an actuary.
June 30th is your cutoff date for your new actuary report is that correct?
Mayor Coody: I'm not sure.
Firemen's Pension and Relief Fund
Board of Trustees Meeting Minutes
July 31, 2008
Page 5 of 16
Sondra Smith: December 31st is the cut off date. They are working on it now we just haven't
received it. We usually have it around this point and time.
Pete Reagan: It's usually August, anywhere between the middle of July to the middle of August
before we get them.
Elaine Longer: I think that will be important to see, because the cut off of the evaluation would
not have included this most recent decline in the market, which has been fairly moderate
compared to what the market has done. You are down about 2.9% year to date and equity return
through June 30th was down 8.9% with the markets off 14.5% to 15.5%. Your account is
weathering the storm really well, but the evaluation that they will base the actuary study off of is
December 31st before this lull. I think that is the best case scenario to look at that and see where
it stands at that point and time.
Mayor Coody: Do you all have any questions, comments, or input.
Pete Reagan: I would like to say a couple things. Number one is we're concerned about this
statewide. We are not the only fund that's like this for the firefighters. We have had two
meetings with a combination of LOPFI and the Pension Review Board; it is called Interim Study
Committee. Jodi Carreiro is running numbers. We can't find when this was actually established,
but the insurance turnback fund was originally established to help fire and police pension funds.
I'm thinking its back in the 1940's. I don't know that for a fact.
Kit Williams: It says in this article that we just handed out.
Pete Reagan: It's not all correct Kit.
Kit Williams: He's probably not 100% correct. You think its back in the 1940's?
Pete Reagan: The 100% portion was never divvied up between the fire and police pension
funds. The governor always kept his pocket lined with what he thought was the needed money
to be left over. When LOPFI came in 1983, LOPFI is taking the biggest chuck of the insurance
turnback fund, and now the state police because of legislative action. We still don't know, and
Jodi will be able to tell us at the meeting on August 12, how much money was actually collected
and how much went to each fund. We do know that there is somewhere in the neighborhood,
Jodi mentioned $26 million to right the amount of the top twelve old pension funds in the state
that actually needed the money the worst, Fayetteville being one of them. Because of the
distribution, the way the money is distributed through the finance department there's a lot of
cities that get paid back 100% of their benefit through the insurance turnback fund. At one time
they were actually receiving more of it because of the way it was distributed.
Kit Williams: That was for the old plan or the new plan?
Pete Reagan: Both plans. It was land mass and population and there was an equation that was
used to do that. For example, Lake Village, don't quote me on the numbers, but they have a
voluntary fire department and they needed lets say two million dollars to fund their part of the
pension funds for both LOPFI and the old fund, they were receiving over twice that amount.
They were receiving more and it was costing the big cities more money than what they were
Firemen's Pension and Relief Fund
Board of Trustees Meeting Minutes
July 31, 2008
Page 6 of 16
getting. We tried to work a deal with Municipal League and Don Zimmerman several legislative
sessions ago and we couldn't do it because as you know the legislature is controlled by rural
legislatures and any time you try to take money away from rural fire departments and rural fire
districts and give it to bigger cities there is not enough votes for the big cities to be able to do
that. After the August 12th meeting we are going to try to have a sit down with the governors
office. If we can get the twenty four million or whatever Jodi says he thinks it will take to right
all of this it will definitely help out the funds. I want know anything until after that meeting but I
do plan on being involved with the meeting with the governors office.
Kit Williams: Do you know is this written into the law? How it is divided out or is it
something they do administratively?
Pete Reagan: I think it's administratively. I don't know that for a fact, that's what Jodi is
doing, he is going to have a full report at the August 12th meeting. I will not be able to be at that
meeting I'm scheduled out of town at a fire fighter convention but we will have representatives
there.
Kit Williams: Is this meeting in Little Rock?
Pete Reagan: Yes, it is at the LOPFI office. After that is when we plan on sitting down with
the governor. We are going to have another meeting with Jodi and our statewide fire fighters
meeting on September 6th and Jodi will have available at that time an out line of how much
money is collected and where it goes and how much the governor receives out of his pocket. We
think, with the amount of dollars that the state has collected over what they have anticipated, we
think we might have a real shot at getting this from the governor's office. We won't know
anything until early September.
Mayor Coody: In Kits memo it talks about the 90% retirement benefit and the three or four
COLA's that brought it up to 104% of ending salary for the retirement benefit. Maybe there are
some CEO's that get that, but is there any chance at all that the board might be interested in
reducing the benefit down to be more in line with what most people get in a retirement benefit
packages or are you all going to insist on keeping it at 104%?
Pete Reagan: We should not do anything hastily. We don't have the actuary report and when
we do get the actuary report I haven't talked to Eldon yet but there was talk early on of having
Jodi Carreiro come up and have a joint meeting with the fire and police pension boards. I think
Elaine was okay with that and explain how they figure it. I can read one and you can read one
and were going to come up with two different conclusions.
Mayor Coody: Maybe three or four.
Elaine Longer: His report has always been so different from Cathyrn Hinshaw's report. It
would be very helpful to have him in person and be able to ask questions.
Kit Williams: I don't like either one of theirs because the one that Jodi does doesn't take into
account the future millage if I'm not mistaken. It just looks at what you have invested right now
and is it enough to pay it. That's not a fair test because there is going to be more millage coming
in. The one that Cathym Hinshaw did, I didn't think that was a fair assessment either, I thought
Firemen's Pension and Relief Fund
Board of Trustees Meeting Minutes
July 31, 2008
Page 7 of 16
it was to liberal in allowing benefit increases to go forward when they were not going to get paid
within twenty years.
Pete Reagan: You said Cathyrn did the actuary. Cathyrn didn't do the actuaries she had Jodi do
it at our request.
Kit Williams: It was on a different basis. It was a twenty year pay out or something.
Pete Reagan: They had a five year smoothing and all that thrown in. I think, before we do
anything, I would like to hear from Jodi on his projections. He just looks at the past year and he
has to use the millage because it's an income to the fund.
Kit Williams: I don't know if he actually does that. We need to ask him. We need to ask him
if he is counting on the millage coming in for future years and it's still this far down.
Pete Reagan: He also has to figure the mortality rate of the retirees, all of that is figured in.
would like to have him before our bodies, to ask him, how he comes up with the final numbers.
Kit Williams: The key thing is that the only extra revenue that I see that you might be able to
get is this insurance tumback. If some how the insurance tumback can be apportioned out to
funds like ours that are in trouble, then that might be the one saving grace. Other than that I
don't see anyway to increase the revenue enough to make up for the benefits that are out there.
Pete Reagan: The current equation that we have now, there was supposedly a second pass of
the insurance turnback, which means everybody got their handful of money out of the bucket and
then those funds that needed it got to take a second handful. This year there is no second pass.
Kit Williams: What I don't understand is if we have been getting insurance tumback funds and
we are this far down, ten million dollars according to the latest appraisal of it why wouldn't we
get additional money and does that go into our big fund or is that just automatically disturbed?
When we get insurance turnback funds what happens to that Trish?
Trish Leach: They tell us which fund it is credited to.
Kit Williams: It just gets put into the general fund of that. It doesn't get disturbed. There are
some funds that get distributed right?
Trish Leach: They will tell us, you are getting this much for the new plan, this much for the old
fire, and this much for the old police. They specifically tell us what to do with the money.
Kit Williams: It's not distributed that year it's just put into the plan.
Sondra Smith: There are two different amounts.
Trish Leach: When we received the checks in the past month it was immediately put into the
fire pension back account and the police pension back account. In fact we are wiring money to
Longer today. We keep the money, we are using part of the money to pay benefits for August,
and we wire the remaining money to them.
Firemen's Pension and Relief Fund
Board of Trustees Meeting Minutes
July 31, 2008
Page 8 of 16
Kit Williams: How much was the fire pension? Do you remember?
Trish Leach: I don't remember. I think it was around $300,000.
Kit Williams: It has to be vastly increased from that or its not going to make any difference.
Pete Reagan: Right, we understand that.
Trish Leach: As I remember, it was less money this year than you received last year.
Sondra Smith: It was.
Pete Reagan: Because it's based off of the number of pensioners.
Kit Williams: If they count volunteers as a pensioner as opposed to just full time like what we
have, then that is a very unfair way to do it.
Sondra Smith: On the future supplement we received for fire $30,723.84. Last year we got
$38,916. This year on the larger amount that goes into the fund we received $146,031.32 and
last year we got $150,066.58.
Pete Reagan: I understand the concern but like I said I wouldn't suggest doing anything until
we have an actuary in place and questions we can ask him.
Kit Williams: I think that makes sense. You want to know exactly where you are at before you
make any moves.
Mayor Coody: The thing we need to agree on now is to wait until we get Carreiro up here and
we can visit.
Pete Reagan: Eldon would you all be interested.
Eldon Roberts: Absolutely. I don't want to be sitting were you all are anytime soon.
Mayor Coody: You guys are in a lot better shape.
Eldon Roberts: We're not in good enough shape to suit me, but yes we are maybe better than
fire. I would be interested in meeting with them. I've thought that all along, that we would
need to hear from them on what their take is, on where everyone is at now in these particular
situations.
Kit Williams: I would hope that they are going to release some of that tumback money in real
amounts that can help your fund.
Elaine Longer: That would make a big difference because anything in present dollars
compounds out. It takes a lot less at this date than five years down the road to make it whole. I
would think that he can speak more clearly about the out look now that the DROP is finished.
Firemen's Pension and Relief Fund
Board of Trustees Meeting Minutes
July 31, 2008
Page 9 of 16
That is kind of big unknowns as opposed to when they run the actuary tables it's pretty much cut
and dry.
Kit Williams: Sure.
Elaine Longer: Now that the DROP is over they should be able to speak specifically.
Trish Leach: Sounds like Elaine would be someone good to have at this meeting.
Pete Reagan: Most definitely.
Elaine Longer: I would love to because I always have so many questions. If I could have the
material ahead of time it would be really helpful.
Kit Williams: Is that a private meeting and when in August is that?
Pete Reagan: August 12, it's open. The Mayor in Harrison is the one that brought this up.
Kit Williams: That looks like a pretty important meeting to have somebody at.
Pete Reagan: We will be represented. I won't be there but we will have folks on board.
Kit Williams: Would any other board member be able to go down to represent this board?
Pete Reagan: Are you planning on going Eldon?
Eldon Roberts: No.
Kit Williams: What time does that meeting start?
Pete Reagan: I think its 2:00.
Eldon Roberts: There will be minutes of that meeting. If we could get the minutes of that
meeting to us, Sondra could copy them and get them passed out to us. We would still know what
went on pretty well.
Kit Williams: What is the address? You said the LOPFI building?
Pete Reagan: LOPFI office at 3rd and Gaines.
Kit Williams: Will there be any comment allowed?
Pete Reagan: Yes.
Kit Williams: I think we need more than minutes. We need somebody out there advocating that
they use that turnback for what it was suppose to be used for and shore up some of these funds
that are in dire straights.
Firemen's Pension and Relief Fund
Board of Trustees Meeting Minutes
July 31, 2008
Page 10 of 16
Pete Reagan: Kit it's not them that distributes the funds it's the Department of Finance
Administration and they are under the governor.
Kit Williams: Right. The result of this meeting is going to make a difference with how the
governor looks at it, would be my guess. I think there will probably be media there that might
help influence the governor to go back and use the funds for what they were originally intended
for.
Eldon Roberts: Speaking of the insurance Turnback, I'm not sure when that law come into
existence, but I do know that there has been numerous times that they, whoever they are, are
meeting to redefine the formula of how it is distributed. I don't think we come out better ever
time that that formula is remanufactured.
Kit Williams: That's why we need to be at the table so that you can head it off before the deed
is done.
Eldon Roberts: There's a lot of money that's going places that it shouldn't be going, before it's
going to the fire and police pension plans. I have followed that for a lot of years and we are
getting a lot less money now. There were a few years there that the Police Department was
getting an access of $300,000, our part to the old pension plan not to be divided between LOPFI
and fire. This year we have $140,000 something. My insurance premiums aren't going down
that I am paying. I'm thinking they are bringing in just as much money or more probably. I
don't know if this article is right or not but he says $126,000,000 came into state coffers in 2007.
I don't know if his figures are right but that can be found out. I'm just saying we are not getting
a fair shake on that insurance turnback money, because every time they figure that formula we
get less.
Pete Reagan: It's going to the LOPFI side of it, because it is based on the number of
pensioners.
Eldon Roberts: Even if the state government collected $127,000,000, I think he is talking about
the total amount that was turned back to LOPFI and the old fire and police was only
$44,000,000. That's not even about a third of it.
Kit Williams: I think that if we do something from a political point of view we have to have a
unified position with all the pension plans. I think all the pension plans should be unified, saying
the money is for pension, and it's not for all these other projects. Once you fund all the pensions
use the excess.
Eldon Roberts: I think there is enough money to do that and then what's left over okay. I don't
think we are getting our fair share right off the bat.
Kit Williams: We sure don't want to fight amongst ourselves. We need to have a unified front.
Eldon Roberts: No. The police and fire should be right together on this I should think for them
both stand to benefit from it.
Firemen's Pension and Relief Fund
Board of Trustees Meeting Minutes
July 31, 2008
Page 11 of 16
Pete Reagan: We have to have Municipal League on board and Don Zimmerman at the
Municipal League Convention made a commitment to the Mayor in Harrison that the Municipal
League would be on board to try to get more money for the larger funds in Arkansas.
Eldon Roberts: They should be because that would just be less that the cities would have to
come up with out of their pocket to help pay there LOPFI contributions.
Kit Williams: This should not be an urban, rural dichotomy, it's a pension funds against
everybody else dichotomy. That's the way it needs to be structured. That way we have a much
better chance of getting the kind of funds that need to be gathered to try to make yours sound and
others ones that might be threatened sound. Is anybody going to go down? I might even go
down myself even though I not a member.
Trish Leach: I made a note to find out more about the meeting. How did you know about this
meeting?
Pete Reagan: I'm on the mailing list for the Arkansas Professional Firefighters, LOPFI and
PRB. You all can be too.
Trish Leach: Paul may already know about this, he is out of town. I made a note that maybe
Paul should attend. If you could send that information to Kit or Paul about this meeting I think
Paul would be interested.
Sondra Smith: I'm already going to be there on the 7th and 8th so I can't turn around and go
back.
Kit Williams: I don't think we need a tremendous delegation but I do think we need to have a
voice. It certainly wouldn't be bad if one of the trustees could go down.
Marion Doss: I wouldn't mind going I just don't know how persuasive or informative I could
be.
Longer Investments:
The Longer View
A copy was given to the board.
Quarterly Report Dated June 30, 2008
A copy of the Longer Investments quarterly report was given to the board.
Elaine Longer: Page one is your report as of June 30th. Your policy is for 25% to 50% equities
and as of June 30th between your international funds and domestic funds you are around 38% to
39% stocks. We are still hovering on the lower end of where we have been. That's been real
helpful this year as the market has fallen by about 14.5% through June 30th. We have come up a
Firemen's Pension and Relief Fund
Board of Trustees Meeting Minutes
July 31, 2008
Page 12 of 16
little bit as of today we are around 42% or 43%, but we are still letting the dust settle. There's a
lot of stuff out there that's unclear as far as the economic indicators. The credit crisis, none of us
really knows, but my guess is that we are in the fourth inning. But, with government
intervention and manipulation at the level that we are seeing in this crisis nobody can really tell
where we are.
My concern is that we have pulled all of the rabbits out of the hat that we can pull and if we have
another Bear Sterns event, Fannie Mae or Freddie Mac event, or if one of the bond insurance
companies MBIA or AmBAC defaults we don't have many more rabbits left. I think that it will
get to that point because whenever the government draws a line in the sand whether its time
implement price controls during the Nixon administration, trying to artificially support a
currency, whatever it is the markets charge against it. It is like, if the government tries to set a
line the markets are the super cop and they go and they try to break it down. I think the line in
the sand right know is the thought that the FED can back stop the whole financial system. I think
that we are testing that. Bear Stearns gave us that rally from March to May was the collective
sign or relief that the FED is there it's okay to go back outside. Now where we came off of the
May highs we actually violated the March lows and we got down to 10,825 and now there is the
question of I wonder if the FED really can save the financial system? You are seeing this
orchestration, almost on a daily basis, between the FED opening the discount window to
brokerage firms for the first time since the depression. Now they going to open the window to
Fannie Mae and Freddie Mac, normally this is a situation that only the national banks that are
under their over sight have the pleasure of. This is dramatic intervention and then we have the
treasury department the executive arm of the government coming up with plans on almost a
weekly basis.
You also have the congress because it's an election year clearly cannot throw enough at this
between the hundred fifty billion dollar stimulus program, which that money is pretty much
gone, and then the three hundred billion housing rescue program that they just passed on Sunday.
All of this is creating a lot of turmoil in the market, it is creating a case of nerves among people
who manage money because it's like nobody really knows what the variables are to put into the
equation, so everybody sort of takes a collective step back and waits for the next card to be
turned up on the table. That's why you see so much volatility and for as much as you see on the
surface you can't imagine what's going on under the surface with the sector rotation. The
financials hit a low in March came off that low pierced the low and then in a period of about
three days, when they announced the Fannie Mae and Freddie Mac bailout they rallied 33%.
These are companies like Citi Group, JP Morgan, Bank of America, and Merrill Lynch. These
are not little companies, these are blue chip financial stocks, but that is the kind of rotational
turmoil that you are seeing in the market. At this point we still don't own financials. There are
values that are turning up on our systems but I still want to see some more about the variables
that we are using, which are earnings, book value, and dividends. Still very conservative as far
as consumer exposure in the portfolio. You're underweighted consumer, underweighted
financial, at zero and overweight the health care technology and energy sector which is where we
have been overweight for sometime.
Pages four, your realized gains year to date, are about $95,000. The net income is about
$107,000.
Firemen's Pension and Relief Fund
Board of Trustees Meeting Minutes
July 31, 2008
Page 13 of 16
Page five, this is the summary of your fixed income report and we have been able to maintain an
average yield to maturity of 5.1% on the portfolio. That compares to a five year that is about 3%
and a ten year that is about 3.90% today. Your weighted average maturity is only 4.9 years.
You are still in a very conservative structure. We have added the ten year both in June we were
able buy a 4.25% nine year at par that is due in 2017. We were able to get that at par and then
we added to it when it went back over 4%. We have the cash that we are not using for stocks we
have it stashed in two year and ten year treasuries where we are going to be earning a higher
return than money market funds but we are still very liquid I can convert that to cash tomorrow.
Page six the primary holdings are blue chip companies. All of the health care stocks have done
really well. In the reporting season they've been the ones that have been the stand out. Today
AstraZeneca, which is a European drug company reported, and it is up about 7%. Your
healthcare stocks Johnson & Johnson, St Jude Medical, Teva, which is generic, all of these
companies have done real well. The technology stocks have been a bright spot. Oracle,
Microsoft, and Intel we are pared back to just owning the majors.
Page seven shows the industry allocation.
Page eight is the contribution and distribution report. This goes back to August, 2002,
contributions have been about $824,000 and distributions have been about $6.5 million.
Page nine gives you your performance by asset class inception to date. Through year end it
shows that your annualized return in equities has been 10.4%, international stocks have returned
8.8% compound annual, fixed income is up 4.1%. The REITs that we held 21.2% and so your
total compound annual return has been 7.1 % inception to date through year end.
Through June 30th stocks are down 8.9%. The International markets have been more negative
than the US market this year down 10.8%, but your total is down 2.9%, because as the markets
started coming off we moved to more conservative asset allocation. You have a lot of liquidity,
we have room to increase exposure, and your hit so far is just minimal as far as total down draft
in this market. To give you an example the index returns year to date are down 12.8% on the
S&P 500,14.4% on the DOW, and 13.6% on the NASDAQ.
One thing we did while we were preparing quarterly statements is we went back to where this
credit crisis started a year ago. It really started the first part of July when the two first Bear
Sterns funds went belly up. The performance returns twelve months to date for the indices are
anywhere from minus 15% to minus 15.5%. The small caps have faired worse at minus 17%.
Your stock performance has been minus 6.1 % and your total return has been unchanged. You
have gotten through this credit crisis without taking a hit to principal. We haven't been able to,
during that time earn the actuary return assumption, but this is how we have always managed.
We have prepared to be very defensive and we can scale back very quickly and then we will
come back in at some point as we see the dust settle. We always tend to air on the conservative
side. That has held all of our accounts well. I was real pleased to go back and look at where this
crisis started. It's easy to make money in a good year as long as you have capital to do it. The
main thing is to not lose money in the bad year.
Page ten shows your asset reconciliation inception to date. The beginning value was
approximately $10,000,000, with the deposit that came in secondarily at $824,000. Withdrawals
Firemen's Pension and Relief Fund
Board of Trustees Meeting Minutes
July 31, 2008
Page 14 of 16
have been $6.5 million and total invest return has been $3.1 million. Are there any questions on
the reports?
Pete Reagan: Elaine we will try to get with you on dates and keep you in the loop.
Elaine Longer: Okay that's great. I would really like to attend if I'm in town. Kim can talk to
Sondra.
Monthly Report
A copy of the Longer Investments monthly report was given to the board.
Other:
Eldon Roberts: If and when the time ever comes what is the possibility, if you have to reduce
benefits, that you can suspend benefits, the same end result would still be there, because if you
ever give up a penny of your benefit it's gone. If you say we are going to reduce our benefits by
10%, that is for the rest of your life you can pretty much figure on that, but if you suspend them
you're still reaching the same goal. Then if things turn around and start looking better maybe
you could get them back but if you ever give them up permanently you are giving them up
permanently.
Kit Williams: I don't know we have never cut benefits. I've never looked at that.
Eldon Roberts: The laws pretty much dictates how you go about benefit increases, but no
where in there have I seen the rules and regulations for a benefit decrease. Therefore, unless
something comes up to prevent you or a board that is in this situation, from doing what I
mentioned, suspend is a key word and then if things turn around it may be easier to get it back.
Kit Williams: You would have to go through the same hoops to get them back again.
Eldon Roberts: That's right and it's not going to happen.
Kit Williams: Not unless they actually start paying the turnback funds like they should. That's
the key that is the only thing I can really see that can turn this around. That is why I think both
boards need to be active in that effort.
Eldon Roberts: They could begin to do that over a period of time. It doesn't need to be done
next year. Your not broke to the point that you need all of that money now. If they would just
make some kind of an effort to start helping these plans, in four or five years you would be out of
that crunch. It's not like they have to give it all to you right now. You are dealing with
legislatures and politicians and we have dealt with them for years.
Pete Reagan: It's tough with the rural legislatures.
Eldon Roberts: Everyone has their own agenda.
Firemen's Pension and Relief Fund
Board of Trustees Meeting Minutes
July 31, 2008
Page 15 of 16
Kit Williams: That is why we can't make it that way; we have to be on the same page.
Pete Reagan: That is up to the governor; if we get a commitment from the governor that he is
going to give us say twenty four million dollars. That's a one time deal.
Eldon Roberts: Can he do that? I thought it took the legislature?
Pete Reagan: If we go after the governor's money through the legislature we aren't going to get
it, I can tell you that, because the governor will put a squeeze on every one of them sitting on the
committee. It will never get out of the committee.
Eldon Roberts: So you have to have him on board.
Kit Williams: We don't know right now what he has been using that money for.
Eldon Roberts: Everyone has their own little plans about what they want to do with this public
money. The people that have the power get to do what they want with it. That is the way it has
been of years.
Pete Reagan: I don't know but we are going to find out.
Ron Woods: Where does Act 833 money come from?
Chief Johnson: Act 833 would be insurance money that is tum backed.
Eldon Roberts: I would want to think if that is insurance turnback money that goes into the
State, however how ever dollars it is, if it has been growing ever year since inception of that law
I would want to think that the part that they are turning back to everybody would be growing
along with it but that is not the case. I think they are taking in more and we are getting less.
Kit Williams: I wouldn't even care about that if we weren't in financial straights.
Eldon Roberts: Right, if you are fully funded so what.
Kit Williams: I think you have the right plan. Let's wait and see what the actuarial says and
hopefully we can also do something through this turnback fund that will help your fund get more
liquid.
Pete Reagan: Kit this is not the final meeting of the Interim Study Committee. They have been
meeting very regularly. What they are charged with is going over legislation that affects LOPFI
and the old system. That is the Fire, Police, and the Municipal League sitting down at the table
with the LOPFI Board and PRB Board.
Kit Williams: Why don't you give me a call sometime brief me a little bit more about what you
are doing there.
Firemen's Pension and Relief Fund
Board of Trustees Meeting Minutes
July 31, 2008
Page 16 of 16
Eldon Roberts: I would for sure try to get the minutes of those meetings. Can we get those
forwarded up here every time they meet?
Pete Reagan: Tracy can do that for us.
Eldon Roberts: Okay, if we can get those forwarded to Sondra she can get us copies and put
them in our agendas. We can keep up that way too with what is coming out of these meetings
instead of having to drive down there as often.
Pete Reagan: Just for the record the Mike Masterson editorial of July 12d' was handed out to all
the members and some of the numbers in there are not correct. That was addressed to the
Interim Study Committee.
Informational
Sondra Smith: I also handed out a copy of a spreadsheet on the turnback funds. There should
have been an additional $609.60 that we should get. Trish caught that so we need to thank her
for staying on top of this. She has been following up to make sure you get the additional money.
The other thing I wanted to point out on the tumback funds, the Fire Department old plan
received $146,000; the LOPFI plan received $365,000 so they do get a lot more. The Police
Department old plan received $186,000 in 2008 and the LOPFI plan received $477,000.
Marion Doss: That's the reason they are going down every year and that is the reason the plans
should be combined too. It would be a lot simpler.
Pete Reagan: What plan combined?
Marion Doss: Ours should be with LOPFI. We should be under LOPFI.
Sondra Smith: The Police portion of the LOPFI plan has gone up tremendously since 2002. In
2002 they received $248,000 and now it is $477,000. In 2002 the fire department received
$112,000 on the LOPFI plan and now they are getting $365,000. In six years it has gone up a
lot.
Pete Reagan: Just for the record can we all thank Trish for catching $609.60.
Sondra Smith: She does a good job.
Pete Reagan: Yes, she does if you would please extend to her our thanks for catching that.
Sondra Smith: I will.
Meeting Adjourned at 12:05 PM