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.