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HomeMy WebLinkAbout2009-02-11 MinutesBoard Members Mayor Jordan 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 February 11, 2009 Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes February 11, 2009 Page 1 of 8 A meeting of the Fayetteville Firemen's Pension and Relief Fund was held at 1:00 PM on February 11, 2009 in Room 219 of the City Administration Building. Mayor Jordan called the meeting to order. Present: Mayor Jordan, Ronnie Wood, Marion Doss, Pete Reagan, Gene Warford, Sondra Smith, Trish Leach, Accounting, Assistant City Attorney David Whitaker, Paul Beck, Finance and Internal Services Director, Elaine Longer and Kim Cooper, Longer Investments, Jody Carrerio, Osborn, Carrerio & Associates, Inc., Actuary, and David Clark, Arkansas Fire & Police Pension Review Board Executive Director. Approval of the Minutes: Approval of the September 30, 2008 Meeting Minutes Pete Reagan moved to approve the September 30, 2008 Meeting Minutes. Ronnie Wood seconded the motion. Upon roll call the motion passed 6-0. Approval of the Pension Lists: Approval of the February, March and April 2009 Pension Lists Sondra Smith: Currently there are no changes to the pension lists. Pete Reagan moved to approve the February, March and April 2009 pension lists. Gene Warford seconded the motion. Upon roll call the motion passed 6-0. New Business: 2008 Pension Report to the City Council Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes February 11, 2009 Page 2 of 8 Sondra Smith: Mayor that is a copy of the report for the Board that you gave to the City Council in January. That's the required report that you have to give according to state law. I wanted the board to have a copy. Pete Reagan: That's just informational. Sondra Smith: Yes. Signature authorization for transfers Sondra Smith: Because we have a new Mayor we had to change the signature authorization to give Mayor Jordan permission to sign your pension transfers. I wanted to make you aware of that. I think you have already authorized the Mayor, City Clerk, and Deputy City Clerk to sign those transfers. 2009 Board Member Elections Sondra Smith: We elect board members in May. I wanted to put that on the agenda so that if you have any changes to the election process we can go ahead and discuss those changes. Pete Reagan: Did we have any problems that you know of last year in the election process? I think it went rather smooth. I'm not sure who's up for election. Do you know? Sondra Smith: We did not have any problems with the last election. It went pretty smooth. Gene Warford and Ronnie Wood are up for election. That will be Position 3 and Position 4. Pete Reagan: The announcement of election will take place at our next meeting? Sondra Smith: We will probably send out asking for nominations in April. When we get the nominations then we send out who was nominated. Pete Reagan: The same time frame will be used as in the last election? I think we gave them two weeks to send in nominations. Sondra Smith: We will do it exactly like we have done in the past if that worked well for everyone. Pete Reagan: I think it went very smooth thanks to your help. 2009 NCPERS Conference — Approximate cost $3,000 Pete Reagan: Mayor this is an association that the Pension Board is a member of. It is the National Conference of Public Employees Retirement Systems. They have an office in Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes February 11, 2009 Page 3 of 8 Washington D.C. and stay apprized of the changes and problems that we have with the defined benefit plans. I know the Arkansas Pension Review Board is also a member of it. Because of the cost this year I don't think we can really afford to spend the money to send someone to that conference this year. It's really an expensive conference but I would like to stay members of that association. Sondra Smith: We have paid the membership dues. It is about $150.00 a year. The board voted at the last meeting to go ahead and pay the membership dues. 2009 Parking Permits Sondra Smith: There's no action required on that. I think Lisa has already handed them out to everyone. Longer Investments: Elaine Longer: This report is as of the end of the year 2008. The first report is your portfolio appraisal that gives your investment positions. One thing to note is that the stock positions in the portfolio are weighted at 39%, the foreign equity is 7.2%. Your total stock portfolio positions are approximately 46%, within policy guidelines of 25% to 50%. On the fixed income side we hold investment grade corporate bonds, preferred debts, government agencies, treasury securities, and a CD. The over all income yield on the total portfolio including the 46% you have invested in stocks is 3.4%. To give you some comparison the current income yield on the ten year treasury is 2.8% so you have an income yield on the total portfolio that's in excess of the ten year treasury. This is the first time in fifty five years that you have had the dividend income on stocks exceed the ten year treasury yield. The income on the portfolio has remained strong even in the declining interest rate environment. Page four is my concerns going forward. On your bond portfolio your weighted average yield to maturity is 4.8% and that's within a maturity structure of 4.3 years. Your average maturity is 4.3 years and you have a 4.9% income locked in on mostly investment grade and government bonds. The problem is that the current five year treasury which would be your comparable maturity is yielding 1.74%. As these bonds roll off without going outside investment grade corporate's or government agencies, like what we have used in the past, your reinvestment rate in a comparable maturity will drop to 1.74%. We haven't faced a big decline in the income on the portfolio. It has held pretty constant at 5% or so since 2002, because as bonds mature we were reinvesting out the yield curve but now the ten year treasury is at a 2.8%. Even that is not going work as we come up with reinvestments on the fixed income side. Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes February 11, 2009 Page 4 of 8 Page five is contributions and distributions from inception to date which is August 2002 where we started managing the account. The total contributions have been $901,000, distributions have been $6,933,000. Page six is the summary of returns through December 31, 2008, which we summarized and annualized because that coincides with the actuary report that we are discussing today, you can see that the equity side has returned 10.4% average annual return, bonds are about 4.1% with the total coming in at 7.1% as opposed to the assumptions of return of 6%. For 2008 the equity returns are minus 40%, the foreign funds are minus 38%, fixed income was 5.3%, so the total account was down approximately 20%. The indices are listed for comparison below. The S & P is down about 38.5%, the DOW was off about 34%, NASDAQ off 40%, MSCI which is an index of foreign funds was off 45%. As bad as the US was last year it was one of the bright spots in the world performance of markets. Lower part of page six shows the beginning value of the portfolio, the deposits and distributions that have taken place and then the components of return which are net income, accrued income, and realized and unrealized gains from the stock part of the portfolio so that the total investment return inclusive of 2008 has been $1,900,000. That's against distributions net of deposits of roughly $6,000,000. The investment policy follows and basically it is a policy that allows for 25% to 50% exposure in the equity market. The rest is in investment grade bonds with an expected return of 6%. Are there any questions about the reports or about the outlook? Pete Reagan: I would like to once again thank you Elaine and your staff for the diligent work that you have preformed for us over the last seven years. I think you have done an excellent job and however this turns out we hope to be with you through the easy times and the hard times. Elaine Longer: I appreciate that. We don't go back as far with the Fireman as we do with the Policemen. Some of the pensions that we have managed for twenty years, what we are doing is we are looking back on the best years and the worst years and this was just a horrible grizzly year but it's not unrecoverable once we get room to run again. In the past twenty years we have had three years that top that on the plus side even in a balanced fund portfolio. I like to leave on good note that as bad as it seems out there, we have been through bear markets before, not with you, but there is light at the end of the tunnel. I will leave you with that thought. Thank you. Longer Investments November 3, 2008 letter regarding the market A copy was given to the board. Longer Investments December 18, 2008 letter regarding the market A copy was given to the board. Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes February 11, 2009 Page 5 of 8 Longer Investments letter regarding the Bernard Madoff scandal A copy was given to the board. Longer Investments 2008 3`d Ouarter Report A copy of the Longer Investments quarterly report was given to the board. Longer Investments 2008 4th Quarter Report A copy of the Longer Investments quarterly report was given to the board. Other Business: Pete Reagan: We have both Jody Carreiro and David Clark here in the audience with us. We had the meeting this morning and I know that they are the bearer of bad news, nothing that we didn't know, but we didn't know it was that bad. I would like to publicly thank them for putting that together and delivering that to Fayetteville for us to hear. I appreciate you taking a day out of your time and coming up here. I would also like to say that while we have the bad news I think there are several articles that we need to look at and think about and discuss and that being where do we go from here and the different options that we have here. I would like to first ask David or Jody either one, what does it cost for an evaluation if we were to choose that route? David Clark: For the consolidation valuation it's $600 for the base fee, that's for up to twenty participants in fund, participants being retirees as well as beneficiaries, then you add $20 for each additional person over that twenty. You have about 62, so somewhere in the neighborhood of $1,400. Pete Reagan: How many questions can we ask in that evaluation? David Clark: The evaluation that I just sited would actually provide a fee showing the benefit structure currently as it is right now today and then a fee or employer contribution with a 3% compounded COLA built into the plan structure. If you want to run various scenarios I would need to check with our actuaries to find out what the additional cost would be on that. I would need to know the number of scenarios and what you are looking at. Pete Reagan: I would say no more than three others besides those. David Clark: I would have to get that number and then get back with you. I can send an email while we are still in the meeting and hopefully get a response for you. Pete Reagan: Okay, that would be fine. Thank you, David. I think we need to look at the different avenues of which we have to travel with this information and it's going to take some time doing it. Jody referred to some legal questions that we have and I know Mr. Becker, Ms. Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes February 11, 2009 Page 6 of 8 Longer, and the Mayor have some concerns. I would think that we would take that approach and see what we can come up with and reevaluate it. Sondra Smith: What scenarios do we want to propose because we will have to put that in the letter? Pete Reagan: I would like to see what the cost is. I have no idea. I just think that a starting point has been made here today. I would think that would be up to the board for discussion on what questions they would want asked in the evaluations. Mayor Jordan: I don't have any problem with that but I would agree that we kind of need to know where we are going with all of that. Who pays for the cost and how does all that work? Sondra Smith: The cost comes out of the pension fund, Mayor but in the letter that I have to send down to the Pension Board to request the study, I have to let them know what scenarios that we would like for them to base the study on. I don't know if we want to get a cost on three or four different studies and then make a motion to do the studies or if we want to go ahead and make a motion to do the studies depending upon the cost. Gene Warford: Didn't you say three different scenarios and he is working on that right now. Pete Reagan: Yes, but then we have the legal question. David did you come up with anything on the numbers it would take to do that and the legal ramifications of that? David Whitaker: Primarily, and that is all I can give you at this point because I had a total of 56 minutes to do the research since the questions were asked. I'm not ready to except a laymen's conclusion that silence equals a prohibition on adjustments to your rate, as far as reductions. I think there are strong arguments that your fiduciary duty as trustees could allow you to make adjustments in the express interest of preservation of the fund for the evidential long term benefit of the members and beneficiaries. I don't want to site chapter and verse on that right now because of the limited amount of time I have had to look at it. If you were to choose to go the route of seeking prudent reductions in current benefits, since the code itself is silent on reductions, our recommendations in order to show diligence on your part would be that you would adhere to the requirements set fourth in the code for an increase that is the three fourths margin. The reasoning is that if the general assembly felt that it was important that upward benefit adjustments need to be passed by three fourths, it seems by extension to be also prudent that any reducing or other downward adjustment of benefits should also be accomplished by a simple majority. We will get you more information when Mr. Williams returns to town and as we get a little deeper into our research. Pete Reagan: Thank you I appreciate your research over the lunch hour. Mayor Jordan: The board is not necessarily opposed to a reduction if they have to, but you want to look at the information and what is brought back? Is that what you are saying? I just want to get this clear in my head? Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes February 11, 2009 Page 7 of 8 Pete Reagan: Personally Mayor I am not in favor of a reduction of our benefits but I understand that we are going to have to do something. Before I commit to doing anything I need to visit with the folks that I represent. There are 58 retired firefighters and widows that we represent. Mayor Jordan: Okay, I understand that. Pete what would be the time line on that? Would you wait for them to get back to you or is it at the next meeting? What are we looking at here? Pete Reagan: I would say anytime between now and the next meeting. Mayor Jordan: When is the next meeting? Pete Reagan: April. Marion Doss: Due to the current situation, we were meeting last year once a month, and then we changed to quarterly meetings, maybe be need to meet a little more often. Mayor Jordan: We can do that. Marion Doss: That's up to the board that is just my suggestion until we work this out. Pete Reagan: We can always call a special meeting. It's tough getting everybody in the same place but I think if it's necessary we can sure do it. I think we should have time to meet with our constituents and get their feelings on it. David Whitaker: Mr. Mayor and to the other members of the board, I think due to the gravity of the situation, I think the prudent course would be to have more information rather than less before you make any decisions that you and the beneficiaries are going to deal with for a very long time. Also from what I have learned about the situation I don't expect that while the gravity of it is immense, I don't see anything that we have been presented as an imminent collapse of the fund in the next six months. I think if you can do the homework and get all the options from the folks down state. I think that is well advised. Mayor Jordan: What we are saying is we don't need to get into a panic. Pete Reagan: I for sure don't want to get into a panic mode about anything. David Clark: The evaluation fee for the three additional scenarios would be $2,200. Pete Reagan: On top of the $1,400? David Clark: No, that is total. We would need a letter clearly stating what your three scenarios would be, the payment for the fee, and the annual financial report for December 31, 2008 to be filed with the PRB first. Mayor Jordan: Do we need some sort of motion and second to do that business? Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes February 11, 2009 Page 8 of 8 Pete Reagan: I don't think so. I think it is just recorded in the minutes. Mayor Jordan: Unless there is some legal requirement that we have to do that. Marion Doss: I guess we need to come up with our scenarios first and then state those and then see. $1,800 and $2,200 for additional scenarios seems like a bargain really. Sondra Smith: Are we not going to decide on the scenarios today? Pete Reagan: I would like to personally meet with our folks that we represent to find out what their thoughts are. A lot of them were present for the morning presentation. I think before I can represent their thoughts I need to hear from them. Ron Wood: I would like to give every pensioner out there the opportunity to have a say in what we do. Mayor Jordan: Okay, I guess you will get with the pensioners and get back to us? Pete Reagan: If the need arises that we need a special meeting we can do that. Sondra Smith: Will we have something by the April meeting? Pete Reagan: I would sure hope so. Mayor Jordan: Keep us posted when you do get something. I don't know what the time frame is on all of this. Pete Reagan: I have a question for Mr. Becker, do you know when the 2008 financial report will be filed with PRB? Paul Becker: We will send it down in a couple of months. How long does that take to complete? David Clark: March 31st. Pete Reagan: That has to be done before we can do anything. That is part of the process. Sondra Smith: I have new investment policies that need to be signed by the Board that was given to me today by the investment advisor. The change in the policy is changing the name of Mayor. Meeting Adjourned at 1:35 PM