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HomeMy WebLinkAbout1988-05-26 MinutesMINUTES OF A MEETING OF THE FIRE PENSION BOARD A regular meeting of the Fayetteville Fire Pension and Relief Fund Board of Trustees was held on Thursday, May 26, 1988 at 1:30 p.m. in Room 313 of the City Administration Building at 113 West Mountain Street in Fayetteville, Arkansas. PRESENT: Members: Chairman Jim Pennington, Secretary Suzanne McWethy, Fire Chief Mickey Jackson, Firemen Pete Reagan, Mike Bonaduce and John Dill Others: Assistant City Manager Scott Linebaugh, Accounting Supervisor Zelda Parson, Merrill -Lynch representatives Curtis Williams and Richard Yada ABSENT: Retiree Carl Springston The meeting was called to order by Chairman Pennington. Minutes The April meeting having been cancelled, the Board considered approval of the minutes of the March meeting. It was moved by Reagan, seconded by Dill and unanimous, to approve the minutes. Pension List It was noted by the Secretary that the May pension list contained no changes from April, but that requests would be before the Board for additions to the June pension list. It was clarified that Troy Osburn's request for retirement, effective May 1, would mean the payment made to him in June would be retroactive to May 1. It was clarified that Darrell Judy's request for retirement, effective May 16, would mean the payment made to him in June would be retroactive to May 16. Zelda Parson provided the Board members with material which showed figures which were used to compute the final pension benefits for Osburn and Judy, as well as information on a request from Karl Rochier for pension withdrawal. It was moved by Jackson, seconded by Bonaduce and unanimous, to add Troy Osburn and Darrell Judy to the June Pension list. Fire Pension Board Minutes May 26, 1988 Page 2 Request for Withdrawal Chairman Pennington introduced a request from Karl Rochier to withdraw all funds due him from the Pension Fund. It was clarified that this would be done with no action necessary from the Board. Board Liability Linebaugh said City Attorney McCord's opinion is that the pension board is covered by the City's liability policy for anything that is considered "prudent man and legal." Credit Union Bidding on Investments Linebaugh said the board had asked him to look into the possibility of investing pension funds with the local credit union. Zelda Parson distributed information on this. Linebaugh said it did not appear to be an authorized investment by the "Code Book". He said he had contacted Cathyrn Hinshaw (Executive Director for the Arkansas Fire and Police Pension Review Board) and she will bring the question before her Board. He asked the Board to review the material to discuss at the next meeting. Meeting Times Mike Bonaduce said the Board had made a motion that meeting dates would be changed by majority vote. He said changing meeting dates was inconvenient for him. He said we had changed two meetings and attempted a third change but everyone could not get together. Fire Chief Jackson said it was immaterial to him when the Board met but he preferred something that was fairly consistent. Bonaduce said he had no problem with the day and time of the meeting (the last Thursday of every month) but had a problem with changing the date. He said the April meeting had been cancelled and re -set for May 12, and the May 12 meeting was later cancelled. Pennington said a situation where he and/or Linebaugh may be out of town was liable to happen again but he felt, as long as there is a quorum, the Board should still meet. Jackson commented that the potential would be there no matter what day the Board chose to meet on a regular basis. Pennington said Thursday was better for him than Monday or Tuesday. Jackson suggested the regular date not be changed. Bonaduce agreed, stating the Board should meet as long as there is a quorum. Fire Pension Board Minutes May 26, 1988 Page 3 Investments Zelda Parson presented information on active securities for the fund. Parson said she re-evaluated our negative cash flow with a new retiree added to the list and it will increase by about $6,800. She said the investment due to mature on June 9, 1988 ($59,661.67) should carry us through until the December 1 investment matures. Parson recommended one of two $100,000 investments due to mature on May 29 and June 1 be invested for one year, with the Board deciding what to do with the other $100,000 investment. Fireman Reagan asked the Merrill -Lynch representatives if they had any advice for the Board on the investments. Curtis Williams said he thought rates were going lower long-term, and recommended investing in treasury bonds or AAA corporate bonds in the telephone utility sector with as long a maturity date as you can get. Richard Yada said most of the fire fighters will retire in the next ten to fifteen years, so growth must be achieved within that time period. Williams said at that point in time all the cash flow will be going out and the Board won't be able to tie the money up in long-term investments. Fireman Reagan asked if Merrill -Lynch could give the Board any help on solving our short-term negative cash flow. Williams said the corporate bonds and treasuries will pay semi-annual income, so if payment dates in the portfolio are staggered, the portfolio can pay monthly and offset the negative cash flow. Reagan said he thought the Board should adopt such a strategy. Williams said a lot of the checking account could be freed up and invested over a period of about nine months, setting up CD's to mature every month, with the income being used to pay pension benefits. Bonaduce asked if all the money needed over the course of the year comes from a checking account. Linebaugh said excess is invested in treasury bills, with very little kept in the checking account. Linebaugh said he thought the Board would be discussing a possible investment policy today, since the Board had been given surveys to fill out with questions regarding investment philosophy. Curtis Williams said he had a sample generic investment policy. Linebaugh suggested a policy be adopted before making any investment decisions today. In answer to questions from Dill, Williams said his firm prefers investing in telephone utility bonds, and highly recommend AAA and AA bonds. He said they check the balance sheets of companies whose bonds they recommend. He said two rules of thumb were to never invest short term when rates are going down, and never invest long term when rates are going up. He recommended investing in "exchange listed" bonds only, and not in "over the counter" bonds. He said "over the counter" bonds are bought from a brokerage firm at a very competitive rate. Fire Pension Board Minutes May 26, 1988 Page 4 Chief Jackson asked the Board to consider making a decision on the $200,000 of investments introduced by Parson. Williams said he wanted to discuss with the Board their perception of the plan today and what they want it to be in the future. He said once the Board has established guidelines, Richard Yada would work out a cash flow scenario. He said Merrill could figure out today how much of the $200,000 needs to cash flow, could recommend a corporate bond and treasury mix on what is left, and could tell the Board which bonds Merrill thinks are good at this point. Reagan asked if the money could be invested for thirty days so Merrill could come back at the next meeting with a plan for the Board. Dill said he would like to see a proposal. Dill asked if the Board or Merrill -Lynch would buy the bonds. Williams said the Board would have to buy the bonds through a brokerage house and Merrill would be happy to do that. He explained that RNC buys bonds for the Board's Fixed Income Portfolio and allows Merrill a brokerage rate to do that. He said Merrill could show the Board which bonds are good and do the trades for a little less than RNC would charge. Linebaugh asked if the money didn't have to go through RNC. Williams said that RNC was going to charge 1 1/2%. Linebaugh said he remembered that was not legal. Williams said the Attorney Generalissued an opinion that gave that impression. He said there was nothing in the law that says the Board can't, with investment advice, do its own investments. He added that government bonds were a legal investment under the law, as well as AAA rated utility bonds. Bonaduce suggested the Board, for now, work on a cash flow plan with the $200,000. Williams said Merrill -Lynch could handle that fairly quickly. Richard Yada distributed copies of a general investment policy which he said could be defined for our Pension Board. Linebaugh asked about the status of the questionnaire which Merrill had distributed to the Board. Yada said only Suzanne McWethy's questionnaire had been returned to the firm. Linebaugh asked if the Board members could have new questionnaires to fill out. Williams said he would provide each Board member with a new questionnaire. Bonaduce and Reagan expressed an interest in seeing policies from other cities. Linebaugh asked for a motion to handle the maturing investments over the next thirty days. Zelda Parson said that part of the $59,661.67 investment maturing on June 9 would be needed for cash flow purposes. She estimated $6,500 to $7,000 would be needed. Linebaugh said the remaining portion of the June 9 investment plus the other two $100,000 investments should be put into a thirty -day investment. It was agreed that the $100,000 investments should not be combined but should be invested separately. The recommendation was so moved by Bonaduce and seconded by Reagan. Fire Pension Board Minutes May 26, 1988 Page 5 Zelda asked for clarification on which banks or savings and loan associations should be contacted for bidding. It was clarified that the $100,000 investments would be offered to everybody for bidding. The motion passed unanimously. Merrill -Lynch Report John Dill asked for a report on the M -L Lee investment. Williams said the stock market crash was the best thing that happened to M -L Lee. He said as a result there was a larger selection of deals to choose from and a much higher rate of return. He said on deals consummated to this point the average coupon was 15 1/4%. He said the partnership is not completely invested but will be soon. Yada passed out portfolio evaluations for the Board's Equity and Income Accounts, managed by RNC, dated 5-25-88. Yada reported that the Equity Account, which started at $507,000, was presently worth $479,905. Reporting on the Income Account, Yada said it started with $1,647,000 and its present value was $1,836,808. Yada distributed a "portfolio analysis" for the fund which showed Merrill-Lynch's model portfolio. He explained our portfolio's asset allocation was presently 15% in stocks, 65.8% in bonds and 19.3% in cash. He said the model portfolio's allocation would be 40% in stocks, 45% in bonds and 15% in cash. Curtis Williams distributed some additional information on the allocation of assets for the fund. Bonaduce asked where RNC fits into the picture, as far as new recommendations from Merrill -Lynch. Yada said Merrill-Lynch's recommendation will be not to use RNC. Williams said the Board really didn't have to pay someone to simply buy treasury bonds. Yada said questionnaires would be sent to the Board members. Next Meeting It was clarified that the next meeting would be held at 1:30 p.m. on June 30, the last Thursday of the month. Adjournment The meeting was adjourned at about 3:00 p.m.