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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