HomeMy WebLinkAbout2009-12-03 MinutesBoard Members Policemen's Pension and Relief Fund
Mayor Jordan Chairman Board of Trustees Meeting Minutes
Sondra E. Smith Treasurer TayeVI
December I of 09
16Eldon Roberts Retired Positi n Position 1 Pagc l of 16Jerry Friend Retired Position 2
Tim Helder Retired Position 3Melvin Stanley Retired Position 4 K A N S A S
Frank Johnson Retired Position 5
Special Policemen's Pension and Relief Fund
Board of Trustees Meeting Minutes
December 3, 2009
A special meeting of the Fayetteville Policemen's Pension and Relief Fund Board of Trustees
was held at 1:30 PM on December 3, 2009 in Room 326 of the City Administration Building
Mayor Jordan called the meeting to order.
Present: Frank Johnson, Melvin Stanley, Eldon Roberts, Jerry Friend, Mayor Jordan,
Sondra Smith, City Clerk, Kit Williams, City Attorney, Paul Becker, Finance and Internal
Services Director, Trish Leach, Accounting, Press, Audience, and Staff.
Absent: Tim Helder
Approval of the Pension List:
Revised Pension List for December, 2009 Irene Haskins Deceased
Revised Pension List for January, 2010 Irene Haskins
Sondra Smith: You approve the pension list three months in advance. You have already
approved the pension list for December 2009 and January 2010. Accounting was nice enough to
send us revised lists so that we could go ahead and re -approve them.
Eldon Roberts moved to approve the Revised Pension List's for December 2009 and
January 2010 due to Irene Haskins who deceased. Melvin Stanley seconded the motion.
Upon roll call the motion passed 6-0. Tim Helder was absent.
Eldon Roberts: She deceased in November and we sent her check for November. We send a
check in the month they decease.
Sondra Smith: We don't prorate the check. Because she was a widow she does not get the
death benefit.
Eldon Roberts: The $250 you're correct.
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Board of Trustees Meeting Minutes
December 3, 2009
Page 2 of 16
New Business:
Irene Haskins Deceased
Sondra Smith: That's a copy of Ms. Haskins obituary that was in the paper.
Revenue/Expense Report — October 31, 2009
Sondra Smith: That is a copy of the report that Trish does. Trish is here if you have any
questions. Your book value is down from 2008 but your market value is up just a little bit. This
is as of October 31, 2009.
Eldon Roberts: Our net income loss is a loss but it looks better for 2009 than it does for 2008.
Mayor Jordan: It's not as bad of a loss.
Eldon Roberts: That's what I said but it is still a loss.
Mayor Jordan: Our sales tax dollars are down but it's not down as much as everybody else.
Paul Becker: Let's' put it in perspective and consider that you have a very good market that
you are looking at.
Eldon Roberts: Right, seems like the market dictates a lot about this.
Paul Becker: Once your plan is closed that's the way it is. It is totally market driven.
Sondra Smith: There's no approval on that. It's just something we put in the agenda for you to
review.
Jerry Friend: Thank you.
Eldon Roberts: It's been really handy. I'm glad you came up with the idea to do this. It keeps
us abreast of what's going on and we can compare it to last years and the year after that. It's
handy to look at in a heart beat and see what's going on.
Frank Johnson: What is miscellaneous revenue?
Trish Leach: I sometimes get money on a settlement and that's where we put the money.
Frank Johnson: I noticed there was quite a variance.
Kit Williams: A variance but it is always small.
Frank Johnson: Just curious.
Policemen's Pension and Relief Fund
Board of Trustees Meeting Minutes
December 3, 2009
Page 3 of 16
Eldon Roberts: The State insurance tax is taking a nose dive. Paul and I went to Little Rock to
the Pension Review Board meeting and that's one of the biggest topics that they seem to discuss
is the formula for funding this insurance turn back check. I promise you and I think Paul will
agree with me that nobody really knows what's going on with that. Everybody just talks in
circles about it, but at least it's a good thing that it is being brought to the fore front. There's a
lot of light beginning to be shown on this insurance turn back and the way it is done. They are
going back to the drawing board. Some people asked pointed questions to the people that are
suppose to know and they give around about circle answer.
Kit Williams: Do you know who sets the formula?
Eldon Roberts: I would assume it's the legislatures.
Kit Williams: You think they set it every two years?
Eldon Roberts: They study it and they tweak it every time they get a chance. They are some of
the state representatives whose districts fall within certain areas that can get more or less money.
Jerry Friend: What criteria do they use?
Paul Becker: It's a very complicated issue and its set by legislation. If you read the legislation
it's very difficult to figure out. It goes down, if you have plans that are picked up that didn't use
to be, that makes the pot for everybody to go down and that's the major drive of why it's going
down. The way it's split goes back to a formula on how it was split back in 1999 and those
municipalities that where involved at that point of time was guaranteed the same percentage.
Some of them got 100% and some of them got over 100% we did not. Back in the legislative
session before last that formula was changed a little bit to make it that everybody would have to
pay at least 3% of their cost. 3% of cost doesn't drive it enough to change the formula for
everybody else. That hasn't been effective. It's a very complicated formula it's applied by
LOPFI and the actuary they decide exactly its application and it is confusing. We get a lot of
data on it but it's certainly not easy to understand.
Eldon Roberts: The Mayor from Harrison is on their case down there and he asked pointed
questions to people that should know. The best I could tell, from sitting in the audience, I don't
understand the answer that he gets but he is on their case, the Pension Review Board and the
actuaries. Jody that has been up here a few times, trying to get some hard and fast answers about
how it is figured and it gets changed every so often and we are not really finding out a lot about
it. I'm highly concerned about that. This police department pension fund might very well be a
member of LOPFI today if it hadn't been for this insurance turn back check. About three or four
years ago, and I think the City was probably agreeable and everybody else was too, but we were
told don't join right now because this insurance turn back check the formula has changed and
you stand to get a whole lot more money. That happened for about two years in a row then it
started nose diving again, but that's the sole reason the local board and the members and maybe
the City didn't enter in some kind of agreement then to go to LOPFI. We were really close and
that was the reason why we didn't pursue it any further.
Policemen's Pension and Relief Fund
Board of Trustees Meeting Minutes
December 3, 2009
Page 4 of 16
Kit Williams: I remember a number of years ago, I think it might be longer than five years ago,
that Steve Davis who was the Finance Director did say that he thought that there was going to be
an increase in the money coming out of turn back funds so that you would not have to go at that
point in time. He couldn't speak for the City Council and they were the only people that could
actually have sent you. The problem with something like that is that if it's done by statute or by
some other group that we have no control over then you never know what it's going to be two
years from then. We are kind of at the mercy of the legislature or whoever designs the formula.
I need to see those statutes that you are talking about Paul to see if I can figure them out. I know
the Mayor of Harrison has been very concerned about that and certainly both of our boards are
concerned about that too. If there's additional money that could come in to the pension boards
that's about the only place it could come from unless we go the citizens and ask them to increase
the millage. That's the only way to get additional revenue but at this point in time I'm just not
sure. I've actually talked to another attorney about this and he's still researching it. He is trying
to figure out what these formula's are and what they mean.
Paul Becker: What we are discussing is the total distribution of all the premium taxes and how
it's distributed to different municipalities. There is a group that is discussing potential changes
to that legislation on a fairer basis. It was frozen to certain percentages that were distributed I
think in 1999. You have to remember as a legislative change it's going to be difficult because
some municipalities are going to lose while some municipalities are going to gain. It's nothing
that's going to be very easily done. The change in the distribution I don't think is enough money
to address some of the problems that we have. Even if they do change the allocation which
would make it fair for everybody it's not going to solve the problem.
Eldon Roberts: I agree with that.
Sondra Smith: That's exactly what I was told when I went to some of the meetings at the
Arkansas Municipal League and the Mayor from Harrison was at those meetings. By changing
that distribution you're going to help a few cities but you are also going to hurt a lot of cities.
That's the reason even the Municipal League is reluctant to support that.
Kit Williams: Especially if you're fighting over the same pie and the pie's not big enough to
solve the problem. The fight over the pie shares is not very important.
Paul Becker: That's pretty much the situation. However there are people interested in looking
at a fair distribution for everybody but that's not going to solve the problem.
Sondra Smith: No.
Eldon Roberts: I don't know exactly what the insurance turn back money was designed for
initially but I was lead to believe at the time it happened it was for municipal fire and police full
paid. The volunteer fire departments have come on board now and the state police have got
involved in it.
Kit Williams: Some of it goes to the state police now?
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Board of Trustees Meeting Minutes
December 3, 2009
Page 5 of 16
Eldon Roberts: It was just in the newspaper that Governor Beebe reached into it and took out
$9,000,000 and put into the State Police Pension fund. We are getting a lot of help from about
ever angle to use up this money. You are right there's just one pie and a whole bunch of people
are trying to get their share of that one pie. If the pie does get larger I think there maybe more
money come into it.
Kit Williams: Is it large enough is the question.
Eldon Roberts: It's not large enough to fix everybody's problem.
Paul Becker: There are roughly two issues as we talked about and I am pretty familiar with a
lot of this. The method of distribution on what's left to go to the municipalities and the old
pension plans and some of that revenue goes to state police and some goes to the general state
revenue also. The Governor for one hasn't seemed interested in entertaining a change. If more
of it went into that distribution certainly it would help people more than it is now. The chances
of that are remote at this point I would think.
Kit Williams: I have not seen those particular distribution statutes if you have them I would like
to take a look at them.
Paul Becker: Sure.
Kit Williams: If they're totally within the discretion of other entities like the Governors office
to decide where it goes then there's not anything legal to be done. I would like to see them to see
what they say.
Eldon Roberts: I don't think there's anything illegally being done about it. I think everything
is above board and would stand the test in a court of law.
Kit Williams: I'm sure that's correct.
Eldon Roberts: The people realize that are in those positions they would be called in on the
carpet in a minute if somebody could find where they had broke the law. I'm just not sure that
it's being disbursed in an equal manner.
Kit Williams: I would just like to look at them and make sure that some innocent mistake was
not being made that might help the pension funds because you need all the help you can get
obliviously.
Sondra Smith: It could also go against us. If they changed the distribution who's to say that
it's going to benefit us it may go the other direction.
Eldon Roberts: Change is not always for the best.
Sondra Smith: That's right.
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Board of Trustees Meeting Minutes
December 3, 2009
Page 6 of 16
Eldon Roberts: Change doesn't have to be for the better every time.
Paul Becker: Depending on the distribution and there were several different methods discussed,
this goes back to the interim study group who looked at that earlier, some of the methods of
distribution we would have gotten less. It's something that carefully has to be looked at.
2010 MeetinE Schedule
Sondra Smith: That's our purposed meetings for 2010. They are the third Thursday of the first
month of the quarter. I went ahead and gave everyone the dates so you can mark your calendars.
Jerry Friend: The first quarter is January?
Sondra Smith: Yes.
Arkansas Attorney General Opinion No. 2009-102
Sondra Smith: I think that was the main reason that Frank requested that we have a meeting
today so that we could discuss the Attorney General's opinion that we received back and Kit's
memo regarding that Attorney general's opinion.
Frank Johnson: That's it. Knowing that we have quarterly meetings with standing agenda
items and in light of the fact that we received the Attorney General's response along with your
interpretation of that response I thought it only appropriate for us have a special meeting to go
over that and consider whether or not there was any action that needs to be taken now or at least
began the discussion that we can include for our regular scheduled meeting.
Kit Williams: This was the second opinion by the Attorney General and it pretty much goes
along with their first opinion. As attorneys are sometimes apt to do we don't 100% agree. We
do agree on his initial statement that the law is not very clear here. It could use some judicial or
legislative clarification. You get legislative clarification when the legislature changes the statute
and passes something new. You get judicial clarification if somebody files a case. You can't
just get an advisory opinion. I can't go up to the court and say judge tell us what to do. You
have to have what is called a case in controversy. You have to have somebody on both sides of
the issue. Then judge can decide who is right or there might be some right on both sides but
there has to be a true case in controversy.
There are two ways a case in controversy could occur. One would be if you followed what I
believe is the underlining final decision in that you have the right to reduce pension benefits if
you need to to save the fund. Not just because you want but if they were shown that without
revising the benefits the pension would likely go bankrupt. I think as trustees of the pension
board you would have the right then to reduce the pension benefits to an extent so that the
pension fund would not go broke. You couldn't reduce it below that. You surly couldn't reduce
them below 50% which is a minimum but I believe you probably could reduce benefits in order
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December 3, 2009
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to preserve the pension fund. If you did that then there could be a pensioner that says you don't
have the right to reduce my benefits, you've cut my benefits, it might be a small amount, but you
cut my benefits 5% or 10% and you don't have a right to do it so they sue the pension board for
doing it. Then we go into court and if I'm right then we know at that point in time the judge has
sustained the right to do that. If I'm wrong and the Attorney General is primarily right, although
he didn't say basically you absolutely cannot do it, he thought it would be dangerous to do. If
I'm wrong and the Attorney General is right what the person would get who won against us and
all the pensioners would get including yourselves would be the additional money that you would
have gotten except for the 5% or 10% reduction you had. That would all come out the pension
fund itself. There's money in the pension fund to pay that. The downside is the fact that if I am
wrong the attorney on the other side would probably be suing under a contract basis or basis
where he probably would be authorized to have his attorney fees paid, which would mean the
fund would have to pay that so that would be an additional expense that you wouldn't have other
wise. I don't think it would be a tremendous amount but it would be something. That's one way
to get a judicial resolution to it.
The other way is do nothing. The pension evidentially goes bankrupt and runs out of all its
money and then some beneficiary sues you all saying you violated the fiduciary duty to maintain
the pension and not let it go bankrupt. This would be far in the future for you all, it would
probably more likely happen to another pension plan before you all would ever see this. If I'm
right and you could have reduced benefits then you could be personally liable and there would be
no pension fund to pay the money it would be only what you got. It would be your own assets
that there might be a judgment against. If I was wrong then of course there would be no liability
and you would have a very strong defense because you would argue that we considered
everything and the Attorney General said that we didn't have the right to do it and so at most we
made a very minor mistake and we shouldn't be held libel. Even if I'm right and the Attorney
General is wrong I would assume that the City Attorney would still be representing you on this
and would make strong arguments that you operated totally in good faith, did as best as you
could and relied upon the top legal opinion in the State, which is the Attorney General, not me. I
think that it would be possible that you would be individually liable but I don't want to scare you
with that. I hope the court would have some understanding of the position you all are in.
The other good thing is you all are in much better shape than other pension plans so that if other
pension plans go broke that kind of suit would likely happen with them. By that time you would
know and you could reduce benefits if possible then, neither scenario is great and my
recommendation to you all is right now you're in pretty good shape. When I looked at the net
income and out go it's not just based on the stock market because if you look at net income and
loss you will see four out of the last five years is negative. Some of those years' things were
going up. That means to me that there is a down ward pressure on your funds and even though
some of the beneficiaries unfortunately are dying the beneficiaries who are dying are the ones
that retired longest ago and are receiving the least amount of money, from a pension point of
view that is having a very little effect on the amount of out go. There is downward pressure on
your funds but not near as much as it is in the fire pension. The last time Jody came here a year
ago he was predicting under some reasonable scenario it could go broke by 2016.
Eldon Roberts: What was our number? Does anybody remember?
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December 3, 2009
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Paul Becker: His comment was that you might squeak by.
Eldon Roberts: I remember.
Melvin Stanley: It was the best case, middle case, and worse case. Ours went off the chart at
about 2023 on the worse case.
Eldon Roberts: Thirteen more years on the worse case scenario.
Melvin Stanley: Yes, worse case.
Kit Williams: You all are in much better shape. Basically you and the fire pension both have a
certain amount of money in your trust everything else is equal. So that if you are both going
down you know they are going to have to hit first. I think there are pension funds out there in
other cities that are worse than either of ours. I'm not telling you to just sit back and do nothing
but I do think that you all are in much better shape and it's safer for you all to sit back than it
would be for the fire pension board.
Sondra Smith: I have received some calls from some of the pensioners that if the fund does go
broke the City has to bail the fund out.
Kit Williams: At this point in time the way the law is right now my interpretation of that is that
is not correct. It doesn't mean that the legislature won't change the law and evidentially place
the burden upon the City or the State or somebody else to make up the difference.
Sondra Smith: That is basically what I've been telling them.
Kit Williams: That is my interpretation. I've looked at it and that's been the way these pension
plans have been handled from day one. When I was on the City Council in the nineties when we
were being sued on the property tax roll back, I didn't realize it was your responsibility I thought
the City had something to do with it and I came forward with a resolution saying we ought to
settle. I didn't buy the defenses we were trying to give that we hadn't done a county wide
appraisal. I read the headlines in the paper we paid $3,000,000 to do a county wide appraisal. I
thought maybe we ought to settle and see if we could get out cheaper and I had a resolution to
that affect that I was going to present to the City Council and I was told sorry you can't do it
because only the pension board can do that. I was told at that time you all weren't interested in
doing that so I backed off. As far back as the nineties when a City Council member wanted to
try to do something we were specifically informed and understood that we have no power over
your pension funds you all have the power not the City therefore we do not have the
responsibility either.
Jerry Friend: I thought I remembered if the city board sees that the pension board is in trouble
they can forcibly take it over.
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Board of Trustees Meeting Minutes
December 3, 2009
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Kit Williams: I don't know if it has to have your approval or not, it might but the City can
consolidate with LOPFI and if the City ever consolidates your plan with LOPFI, then it in fact
does become a City liability. That's why we talked about reducing the benefits enough so that
there would be no cost to the City to consolidate with LOPFI and then everybody would know
that you are going to be protected. From the City's prospective we at least can anticipate the cost
initially being nothing but probably over time we would end up paying something because I
think you all would be awarded by the legislation some additional benefits some COLA's or
something, especially if they can do that and make the City pay rather than them pay and I think
that is liable to happen. There would probably be some cost to the City in the long term but it
wouldn't be the millions that it might be without any reductions especially in the fire pension.
Melvin Stanley: Say if we reduce benefits by 5% or 10% and there is no cost to the City and
they move us to LOPFI and then one pensioner sues this pension board how would all that get
straighten out?
Kit Williams: That would be a problem if they delayed their suit so long that we had already
consolidated then that would be very confusing. I don't know who they would be suing at that
point in time. They might have to sue LOPFL That could be a problem in just where do we get
the money from if it's wrong or whatever.
Eldon Roberts: I've heard that a police department is in worse shape than any pension plan out
there including Fayetteville Fire. They are probably going to be the ones to go to court and
figure it out.
Kit Williams: I would just as soon they do it. I don't like to be on the cutting edge.
Eldon Roberts: I agree with you. I think its Little Rock.
Paul Becker: Both of them have there problems. Little Rock has big problems.
Kit Williams: I heard about a little small one instead of being 50% or 60% funded like we are
its 30% funded. You know they are really looking at a quick crash.
Eldon Roberts: If we could move to LOPFI, at no cost to the City within the next year, do you
think that could happen?
Kit Williams: Do you mean that the City Council would approve?
Eldon Roberts: That is what I'm saying. That's what it takes.
Mayor Jordan: I can't speak for the City Council I don't know what they are going to do. I
know they will probably ask Sondra and me our opinion on what we think. I can't speak for her
either but I would have to look at the plan and see how it was constructed and then make a call
on it one way or the other. That will come to a vote of this board and then on to the Council.
There will be a lot of discussion on that. To just sit here and say that I support it I can't really
say that until I look at the plan.
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December 3, 2009
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Eldon Roberts: I'm not asking any of you to do it either because I know it's something that will
require a lot of discussion. I mentioned it at the last meeting and I'm probably going to mention
that again. I am for and I've talked to some of the retirees and they're in favor of us at least
exploring that. The LOPFI board I'm sure they've got a set of guide lines and there are a lot of
hoops you have to jump through and they have to be in a timely manner also. We have to do an
actuary in a certain length of time and they have to do their own in a certain length of time and
then you have to have all of this worked out and the City Council would have to be in discussion
and approve it by the end of the year before we can actually go to LOPFI.
Kit Williams: I think October.
Eldon Roberts: I realize we would have to get a vote of this board but I'm for exploring those
options right after the first of the year and get everything done in a timely manner that the law
prescribes or the outline that LOPFI has that people go by that's looking to go with LOPFI and
start the process and see if it's remotely possible.
Kit Williams: I want to look at those statutes just to make sure that we don't have any legal
recourse to prevent any of those funds from going to the State General Fund if those funds are
suppose to go to the pensions. I'm afraid the legislature is pretty smart on how they wrote it and
it's not just going to be restricted to just pensions or they would not have been going to the
general fund. If you can get those to me Paul or tell me the numbers I will check it out.
Paul Becker: I will get you the numbers.
Kit Williams: I just want to make sure there's no other way.
Eldon Roberts: I don't think there are any laws being broke they're too smart for that.
Kit Williams: I doubt it but you always want to look under that last rock.
Sondra Smith: I would support anything basically that would not cost the City any money that
would secure this plan because I'm concerned about the plan and the pensioners. The one thing
that concerns me is going to the Council and saying we're going to send it down to LOPFI at no
cost to the City, what we have to say is at no current cost to the City because we don't know
what the future might hold.
Eldon Roberts: It would be like signing a blank check, I understand that.
Jerry Friend: Mathematically the only way we could say no cost to the City would be if were
actuarially sound.
Kit Williams: The only way it would not be a cost is if you remain independent.
Eldon Roberts: Or if we were fully funded.
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Jerry Friend: If we were actuarially sound then we wouldn't need to go.
Paul Becker: Just because you were actuarially sound today doesn't mean you would be
tomorrow. Going in you get the best you can.
Kit Williams: I don't see you ever being fully funded. You're going to get millage coming in
that you could guess on.
Paul Becker: You will never be fully funded until you have very few pensioners. Remember
when you see your actuarial reports, when they do the analysis, that's five years which is a very
short period. So to be actuarially sound under their definition at this point in time is very
difficult.
Eldon Roberts: Can we send a letter to LOPFI or the Pension Review Board and ask them for a
set of their guidelines, rules, or their procedures for plans that are interested in exploring the
options of consolidating with LOPFI.
Sondra Smith: We have the PRB rules.
Paul Becker: They've told me them verbally I will ask them if they have anything in writing.
Kit Williams: Do that then distribute them to the board?
Eldon Roberts: I'm not that concerned except I know there are two or three different options
and they have timelines attached to them and if you miss it you're out of luck for another year or
so. If the board agrees and we vote to at least start exploring our options and see where we are at
then we've got to do it according to their rules.
Kit Williams: Hopefully 2010 will show some improvement in the economy and the sales tax to
make the City Council a little bit more amenable to assuming a new liability.
Paul Becker: We have already said that we don't want any new liability so we are not going to
take it forward with any liabilities.
Jerry Friend: One of the scenarios Kit gave earlier was we could lower but then ten years later
someone could sue and we would have to back pay. Is there anyway to force a suit?
Kit Williams: I think there would be a statute of limitations on that. I would have to look at
that. It is very possible that the statute would be three years.
Jerry Friend: As long as there is such thing as a friendly suit.
Kit Williams: We wouldn't call it a friendly suit because the courts want a true case in
controversy but any pensioner would have the right to claim that they have been wronged by that
and they could show the court that instead of getting $2,000 they are getting $1,900 and that they
have actually lost $100. That's a loss that a court can look at. That could happen. It would be
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good in fact if that was done. The concern about it if that doesn't happen, if it goes to the City
Council, I will say at this point it looks like we have reduced benefits and got down to zero but
that hasn't been tested. If we send it to LOPFI and it gets consolidated and somebody sues and
all the sudden the pension benefits are back up and LOPFI says now the City has to send a
couple million dollars, I would have to explain to the City Council that at this level it looks like
its no immediate cost but it hasn't been tested so it would be a much stronger situation more
convincing to the City Council as if the judge had actually said you can do that.
Eldon Roberts: If we could move to LOPFI with no benefit reductions there wouldn't be a
lawsuit.
Kit Williams: Right, you don't have to reduce benefits.
Eldon Roberts: I want to explore all those options.
Kit Williams: That's why I want to look to see if there's any money that we are leaving on the
table.
Eldon Roberts: $150,000 a year is what it cost the City back whenever we had it looked at and
that was dirty math as Jody called it back in February of this year when we were in a lot worse
shape than we are now. Moving us to LOPFI with no benefit reduction and no cost of living
increase ever again, and that's not going to happen again unless the State mandates it, was a
$150,000 a year cost to the City. It surely should be better than that now.
Kit Williams: I think it is better but I just don't know I'm not an actuary.
Eldon Roberts: I don't either but the market has done pretty much a turn around from what it
was in January and February.
Kit Williams: Some people are still nervous.
Frank Johnson: What were the drivers for that discussion back then? I have meeting notes up
to 2006 and it sounds like this discussion about moving it to LOPFI occurred prior to that.
Kit Williams: It's been going on for a long time. It was always understood by the board that
that was the only guarantee that once it was consolidated with LOPFI then your benefits were
guaranteed by the City. That was always something that would be good, especially if it wasn't
going to cost the City any money, or it didn't look like it would cost the City any money up
front. He came up more for the Fire fund than the Police fund but he looked at both of them.
That is who I wrote my train wreck coming memo to. I haven't written you one because it's
possible that you could skate by and not crash.
Frank Johnson: Sounds like you're saying the same thing now.
Kit Williams: I am saying the same thing now that it's possible that you all will not actually
crash. We are talking about years and in the future and I can't predict the stock market. At this
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point if you go back ten years ago the stock market is right where it is now. That has almost
never happened in our history before where over a ten year period the stocks have neither gone
down nor gone up. LOPFI estimates 6% to 7% increase every year. That would have meant
they would have doubled over that period of time and it didn't, they went down instead of
doubling so we are all guessing.
Melvin Stanley: Hypothetically let's say going to LOPFI doesn't work, the board rejects it and
we see as a board that the only way to save our fund and the solidity of our fund would be to
reduce all of our benefits 50% for two years. What are our chances after those 24 months to get
our benefits back to where they were when our fund now is not at a risk of crashing? With us
having to have six votes to raise our benefits would that ever happen before this pension plan?
Kit Williams: It could but it could be a long time before you really would have recovered
enough to meet the test. That's why I would not recommend that you cut more than you
absolutely have to under a fairly reasonable scenario.
Eldon Roberts: That's another thing nobody knows the answer to.
Kit Williams: That's why you have to have an actuarial study.
Eldon Roberts: They don't know the answer to that either. If they say cut 20% and then later
on down the road everything turns around and 5% would have been enough then that's not going
to look all that good either.
Kit Williams: In the future you could raise them if you can meet their test.
Eldon Roberts: Yes, if you can meet all the test.
Kit Williams: You wouldn't have to meet all the test right now all you have to do is meet the
cash flow test.
Eldon Roberts: Right.
Kit Williams: If you over cut your rates then it wouldn't be too long before it would be obvious
you could pass your cash flow test. I still don't recommend a major cut from this board. You
are pretty close. The fire is probably not going to have to cut except to in the lower 20% for
theirs to be able to go to zero cost.
Melvin Stanley: That's my main point is if we make that sacrifice and then our fund has lots of
money in it would we be able to give ourselves maybe even 150% of salary.
Kit Williams: I don't know if they allow that. I would have to look at the statutes to see if you
can go over 100%. You might not be able to go over 100% without longevity.
Melvin Stanley: I don't think that we would ever get the votes necessary to bring us back up to
where we were.
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Jerry Friend: Why would we not if we had lots of money.
Melvin Stanley: I just think there would be some hold outs.
Paul Becker: Theoretically it depends on who's on the board at that point of time.
Mayor Jordan: And how did you get raises before?
Frank Johnson: Are far as the scenarios go the likelihood of that happening is pretty remote.
Kit Williams: I might recommend that you don't have the power to cut rates anymore than you
absolutely have to. I think you have some inherent power as the board to reduce benefits if you
have to to save the fund. If you don't have to then you wouldn't have that inherent power. If
you said we want to have the fund be robust not just saved you might not have that inherent
power so I certainly would not recommend that to you.
Frank Johnson: I know we are talking about the fund itself but I was as interested in the
Attorney General's opinion and in light of some of the other information regarding some other
funds is there a possibility that this court test will occur in another venue.
Kit Williams: Yes, it certainly would.
Frank Johnson: Okay.
Kit Williams: You all have the luxury at this point, even though you're some what over the
barrel you're not really over it. Other places it is coming up on them and they can't dodge the
issue so that these would be much more likely to be the pension funds that will have to make
some attempts to resolve the issue and you can sit back and watch them do it. Then we will have
the courts telling us what kind of powers you have.
Jerry Friend: That's good advice.
Frank Johnson: I find it interesting that the power to change the benefit structure, that there
seems to be much clarity if you're talking about increasing the benefits, yet I'm not finding the
same clarity to make an adjustment downward.
Kit Williams: No, there is no clarity. There's very little in that whole section of a book that
talks about how you go about lowering that or whether you have the power. That's one reason
the Attorney General is suspicious that you can't.
Frank Johnson: This has a feel of a contractual agreement and at least in terms of our
exposure, if we were in an attempt to keep the plan solvent with do diligence to our fiduciary
responsibilities, that if we did something without any precedence at least that we're violating the
terms of the contract.
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Kit Williams: That's certainly one of the arguments that the Attorney General has raised and I
think there is some merit to that argument. A lot of times when you deal in a case you have
rights on both sides and the court has to decide which right is the highest right.
Frank Johnson: That concerns me.
Kit Williams: You're correct. If I was representing the person that would be challenging the
lowering of the pension benefits I would say that you don't have the statutory power for it and it
violates the contract of my client.
Frank Johnson: In response to a question that was included in the 2009 049 opinion that was
received in May in response to the questions if so will members of the pension board in the City
of Fayetteville be exposed to liabilities should a lawsuit be filed on behalf of any retiree. Part of
the response I'm referencing here that any potential exposure in this regard will probably depend
upon the success of the complaint to the Federal Court alleging violation of clearly established
rights under the federal contract laws. Would that be the court of venue in the event we were
sued?
Kit Williams: It could be either federal or state court. I would actually prefer it to be state court
because it's a state court question. The states can enforce the federal constitution and the
contract clause that's a regular power and right that everybody has that could be brought just as a
breach of contract. Who knows where the plaintiff might want to go. I would think that it would
not be either the City or you all individually if that happened but it would be the board because
the board only takes actions as a board. None of you all can individually reduce somebody's
benefits. You can only do it through the action of the board and therefore the board would be the
proper party to be sued, not any of you individually and not the City, the City cannot reduce the
benefits. The proper party in that case would be the board and not the City or any of the
individual members. Anybody can get sued, but if in fact that was tried in this particular case,
then I would certainly try to limit the suit only to the board. Again I am not recommending that
this board at this point in time attempt to reduce any benefits. You all have the luxury of being
able to sit back and let some other board jump in the water first because they are so close to the
edge somebody is going to go into the water.
Eldon Roberts: Kit then would it make a difference how each individual board member voted?
If I voted no to reduce someone's benefits who sued this board for reducing their benefits.
Kit Williams: I don't think that would make a difference in that context because I think you're
only acting as a board. If you don't do anything and the fund went bankrupt then if somebody
had voted to reduce the benefits but nobody else would go along it might be that would be
individual liability for not following your fiduciary duty. I think each one of you individually
have a fiduciary duty to the beneficiaries not just the board as a whole. That was where it's more
likely there might be some possible individual liability. Again that would be far from now,
because you're not in a situation where you're not going to be able to pay benefits. I'm still
advocating caution and waiting and not taking that action but making some other pension board
jump in first.
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Frank Johnson: As a matter of record I think it's important that we at least move forward to
this degree. I can only assume that the Council would want to see maybe not a good faith effort
but willingness on our part to even consider.
Kit Williams: I think this discussion is very good evidence.
Frank Johnson: Not just the Council but the constituents that they would like to at least know
that were taking this very seriously.
Eldon Roberts: We are highly concerned about it and have been for several years. We realize
that it's a potential problem that is not going away.
Kit Williams: I agree with you Frank and I appreciate you asking for this because you all are
taking a very proper move at this point in time to look very seriously at the Attorney General's
opinion and at the whole circumstance and at what Trish has given you showing the cash flow
and what your situation is. This is very appropriate and I'm glad you have done this.
Frank Johnson: Are there any next steps as far the next meeting.
Kit Williams: Paul is going to get that information for you and hand that out about how you
would join LOPFI.
Eldon Roberts: Then it will have to come before this board and I assume a majority of the
board has to vote that we want start the process of exploring the possibilities. We've got to start
somewhere and maybe we can get some answers whether it's even feasible or not from our stand
point and from the City's.
Alliant Driver Specialty Group Letter
Mayor Jordan: This was sent to Mayor Dan Coody.
Eldon Roberts: I guess it's so we can take out insurance to protect us if we get sued.
Discussion Items:
The board thanked Kit for his hard work.
Meeting Adjourned at 2:30 PM