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HomeMy WebLinkAbout1987-08-27 MinutesMINUTES OF A FIRE PENSION BOARD MEETING A regular meeting of the Fayetteville Fire Pension and Relief Fund Board of Trustees was held on Thursday, August 27, 1987 at 1:30 p.m. in Room 313 of City Hall, 113 West Mountain Street. PRESENT: Acting City Manager Linebaugh, Fire Chief Jackson, City Clerk McWethy, Firemen Bonaduce, Dill and Reagan, and Retiree Springston. Also present were Accounting Supervisor Zelda Parson, and representatives from Merrill -Lynch CALL TO ORDER The meeting was called to order by Chairman Linebaugh. MINUTES It was moved by Reagan, seconded by Dill, and unanimous, to approve the minutes of the July 15, 1987 meeting with the following correction: Change the first paragraph of page two to read: Chief Jackson said Roy Skelton had negotiated with the City to repay some salary he was overpaid, which has now been completely repaid. Jackson said 6% of the overpaid salary was held out for pension purposes, and Skelton has asked to have that pension money returned to him. Jackson said Skelton had emphasized that the City should be reimbursed by the Fire Pension Fund for matching funds which were contributed at the same time. It was moved by Jackson, seconded by Dill, and unanimous, to approve the minutes of the July 30, August 11 and August 11 meetings. PENSION LIST It was moved by Dill, seconded by Reagan, and unanimous, to approve the pension list for September. Fire Pension Minutes August 27, 1987 Page 2 OLD BUSINESS DANNY FARRAR A letter was introduced by Pete Reagan from Fireman Danny Farrar, who had resigned in 1983 and withdrew his pension contributions from the Fire Pension Fund, and who was rehired in 1985 and assigned to the LOPFI pension system. Farrar requests reinstatement in the Fire Pension Fund. It was moved by Reagan, seconded by Dill, and unanimous, to approve the request. TROY SCHADER Carl Springston said he received a call from Troy Schader who thinks he should receive more pension benefits as a result of the "holiday pay" lawsuit. Springston asked if a letter could be sent to Mr. Schader explaining the settlement which was made was a lump sum payment and was not to be added to the monthly pension check. It was decided Scott Linebaugh would write a letter to Schader. ROY SKELTON Reagan asked if Roy Skelton had received a letter and signed it expressing his satisfaction with the check he was to have received. Linebaugh said he would check to see if Skelton had signed for the receipt of the check. NEW BUSINESS MERRILL-LYNCH REPORT Richard Yada, representing Merrill -Lynch, reported on the status of the Board's Equity and Income portfolios. Addressing the Equity portfolio, Yada said the Board's total investment as of August 26, 1987 amounts to $507,657. He said the present market value of that investment is $637,963, an increase of $130,306, or a 25.67% gain since inception. On the Income portfolio, Yada said $1,647,585 has been invested and theportfolio value is now worth $2,001,856, an increase of $354,271. Yada presented an analysis of the entire portfolio, distributing a chart to the Board showing the makeup of the portfolio as Fire Pension Minutes August 27, 1987 Page 3 compared to what Merrill -Lynch considers to be a "model" portfolio. Yada said 28.8% of the investment is in stocks, 51.3% in bonds, and 19.9% in cash. He said M -L recommends 45% in stocks, 35% in bonds and 20% in cash. In answer to a question from the Board, Linebaugh said he thought the total Fire Pension Fund amounts to $4,280,992.84. Yada said the market value of the funds being handled by Merrill -Lynch amounts to $2,638,000. M -L LEE LEVERAGE BUYOUT PROGRAM Yada said he wished to try and answer some questions raised in the minutes of the last meeting. Yada said some people thought Curtis Williams was asking the Board to make a decision (whether to participate in the leverage buyout program) in two days. Yada said it was felt that the program "would come out and be gone within a day or two" after it became marketable, but since that time it has been raised to $1 billion. Yada said there seemed to be some misinformation he would like to clear up. Chief Jackson said his comments in the minutes were never intended to be anything in the nature of "lack of trust or confidence" in the presentation. He said he felt like Curtis Williams had given good information but there was also information that, for a North Little Rock pension board, RNC had not recommended the purchase, and that the State LOPFI Board would not participate, and to him that was a "caution flag" that the Board should take a "wait and see" attitude. John Dill said the decision which was made was a result of the question of whether the Board had to use a money manager. Yada said when he heard of that concern he immediately called Mona Mizell,head of the Arkansas State Pension Review Board. Yada said she stated "the Board can vote on any prudent investment and carry it through and what Merrill -Lynch could not do is charge you a fee as an adviser...giving you financial advice, and at the same time sell you a particular investment and also collect a commission." Yada said M -L is not charging the Board for its advice. Bonaduce asked what Cathyrn Hinshaw's reason was for LOPFI not participating in the program. Yada said LOPFI had never been presented this program. He said the only reason LOPFI makes investments through a money manager is because that was a prudent investment method that a lot of professionals suggested they do. He said the reason they don't need any higher returns is that, "if they run short of money, all they do is bill the cities." Fire Pension Minutes August 27, 1987 Page 4 Yada said the "warning statement" on the prospectus is not unique and is contained on all prospectuses. Linebaugh said this was a very risky investment which is why the warning was printed on the prospectus. He said although all prospectuses have a warning they all don't say "high degree of risk" and "speculative". Linebaugh said in his opinion this program did not follow "prudent man rules" and subjects the Board to liability. Bonaduce asked if leverage buyouts would be a higher or lower risk than the Equity account. Yada said there would be less risk and it would be a "kind of a bond substitute". He said M -L brought it to the Board as an alternative to the investment portfolio, and felt it was safe and would "act like a bond and give you a quarterly return." He said "at the worst, you could get your money back." A gentleman who was present to speak on behalf of M -L Lee told the Board that they could get their money back before the stockholders would. In answer to a question from one of the pension board members, Yada said he did not know if the initial cost mentioned by Williams, of 7 1/2%, would be that high. He said there would be an ongoing management fee not to exceed 1% every year. He said it would be taken out of proceeds and the return would be based on the amount of money invested. John Dill said he backed out on being in favor of the program because of the possibility that he could be liable. He said he regretted it because he thought it was a good deal. He said if the Board did not have to go through RNC he would be in favor of it. The representative from M -L Lee said there weren't any guarantees but they felt the risks have been mitigated and everybody is well -safeguarded. Bonaduce said he would like to reconsider the Board's decision. Linebaugh said he called two brokers for the A. G. Edwards firm which handles some Fayetteville Police Pension funds and they advised against the program, said they wouldn't carry it in their portfolio, and said it was something this pension board should not be getting into. Reagan asked how many other pension boards were participating. Some of those mentioned by Yada were North Little Rock, Texarkana, Little Rock and Eldorado. Fire Pension Minutes August 27, 1987 Page 5 Dill asked if money not used by buyouts would draw interest. Yada said it would draw at least what money market is paying. Linebaugh pointed out the prospectus stated it did not guarantee the money market rate. Yada projected an 18-25% return on investment. Bonaduce asked about liability. Linebaugh said the law states a money manager has to be used to invest pension funds. He said Merrill -Lynch was a broker, but the board had RNC as a money manager. He said if the board invested with someone who is not a money manager the board members could be personally liable and liable as a board. Yada said that there was legislation which defines a "financial advisor". He said Merrill -Lynch was considered a financial advisor "just like RNC". John Dill said there was no law that says the Board has to have a money manager. He said the Board could invest in whatever they think is prudent. He said he didn't think the Board could lose $100,000 in M -L Lee because the investments would be diversified. Linebaugh recommended the Board get a third opinion from someone like A. G. Edwards, and an opinion from the City Attorney. Pete Reagan made a motion to reconsider the investment into the M -L Lee Fund, of $100,000. The motion was seconded by Bonaduce and passed, 4-3, with Jackson, Linebaugh and McWethy voting in the minority. Linebaugh said he would check the statutes to determine whether a simple majority or a 3/4 majority vote is required. Yada recommended the Board move the Equity Account into "an automated account" CMA. He said this would allow an automatic transfer of funds to a money market account, and the fee would be taken out of RNC's fee. TURNBACK REPORT Zelda Parson reported that from 1984 to 1986 a total of $62,457.78 was erroneously deposited, from turnback funds, into the Fire Pension Fund, when it should have gone to LOPFI. She said this included $11,686 in 1984, $18,196 in 1985 and $32,585 in 1987. She said the funds must be paid back to the LOPFI Plan. Fire Pension Minutes August 27, 1987 Page 6 Linebaugh reported that a $354,885 investment would mature on September 19, suggesting the $62,000 turnback debt and the $100,000 M -L Lee investment might come from this investment. Pete Reagan said $168,000 from the recent turnback funds received had been deposited in the M -L cash management account and was designated for the M -L Lee program. It was moved by Jackson, and seconded by Bonaduce, to place the investment due to mature in the M -L cash management account. The motion passed unanimously. Yada told the Board that the cash management account was actually a "ready asset account" which needs one day's notice for withdrawals. Reagan, seconded by Dill, moved to pay back the General Fund the amount which was erroneously deposited in the Fire Pension Fund. The motion passed unanimously. ADJOURNMENT The meeting adjourned at about 3:20 p.m.