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HomeMy WebLinkAbout1988-07-28 MinutesMINUTES OF FIRE PENSION BOARD MEETING A regular meeting of the Fayetteville Firemen's Pension and Relief Fund Board was held on Thursday, July 28, 1988 at 1:30 p.m. in Room 313 of City Hall. PRESENT: Chairman Jim Pennington, Secretary Suzanne McWethy, Treasurer Scott Linebaugh, Fire Chief Mickey Jackson, Firemen Mike Bonaduce, John Dill and Pete Reagan; and retiree Carl Springston. Also present was Accounting Supervisor Zelda Parson. CALL TO ORDER The meeting was called to order by the Chairman, with six members present. MINUTES It was moved by Jackson, seconded by Reagan and unanimous to approve the minutes of the last meeting. COMMENTS ON LAST MEETING Scott Linebaugh, noting that he had missed the last meeting, said he wished to discuss some comments which were made at that time. Linebaugh referred to remarks by Curtis Williams that the pension plan does not have to meet the "prudent man rule" and can direct certain investments, and the opinion of the Little Rock City Attorney that the pension plan does have to meet the "prudent man rule." Linebaugh said the law clearly reads the pension plan has to follow the "prudent man rule" or can be liable for suit. Linebaugh referred to the discussion at the last meeting regarding the use of a broker. He said he sent a memo to everybody which had to do with the use of a broker instead of a money manager. He said he decided, after receiving the Little Rock City Attorney's opinion, we should get an opinion from the Fayetteville City Attorney, and he asked Jim McCord to review Cathyrn Hinshaw's views and that of the Little Rock City Attorney. He said McCord prepared a memo and discussed the matter with him. He said it was McCord's opinion that the Board should follow Hinshaw's memorandum. He added that Hinshaw has told him that the Little Rock Fire Pension Board has not even adopted the Little Rock City Attorney's opinion, that they are following Hinshaw's report on what is correct. Linebaugh advised the Board that we should follow the Fayetteville City Attorney's opinion, since he will represent us if we ever get involved in any litigation in the matter, and that the Board should follow Hinshaw's memo which states not to go through a broker, but directly to a money manager. Fire Pension Minutes July 28, 1988 Page 2 Mickey Jackson asked if the Board should contact RNC in the event it wishes to buy shares of Wal Mart stock, for example. Linebaugh said he didn't know that the Board could lawfully make a decision to buy a specific stock. He said, if the Board wishes to make investments other than Treasury bonds, it would have to use a money manager instead of a broker. He said any future investments should be made through RNC rather than through Merrill Lynch. John Dill said the only investment he knew of that the Board made outside of RNC was in the M -L Lee account. Linebaugh agreed. Dill said the Merrill Lynch ready asset account was just a holding account. Reagan said Merrill Lynch uses it to deposit funds in between transactions. He said the Board decided to use that account once because it paid a higher interest rate than the current C.D. rate at the time. Linebaugh said that account was not in question if RNC is just depositing funds in it. Reagan commented that if the Securities and Exchange Commission says an investment is approved for pension systems, we would be covered under "prudent man." Linebaugh agreed but said the board wouldn't be following Arkansas law which states how different investments must be handled. Jackson asked if all the investments so far had been within legal boundaries except the M -L Lee investment. Linebaugh agreed. Mike Bonaduce arrived at this point and Linebaugh summarized some of the previous comments which he had made. Linebaugh said in the minutes of the last meeting, Merrill Lynch reported the average coupon (M -L Lee investment) now exceeded 15.5% and the average rate of return was at 10%. He said he would like Merrill Lynch to give the Board a monthly statement of the value of that investment, because Cathyrn Hinshaw had told him recently that M -L Lee's worth was only 80% of purchase value, which he said was contrary to the last report the Board received. Following some discussion regarding conflicts between Cathyrn Hinshaw and Merrill Lynch, Pete Reagan commented that he thought it was a conflict of interest for Hinshaw to be serving on both the LOPFI and the Pension Review Board. He said last year when we wanted to count retirees in our turnback money, Hinshaw was opposed because it would take money away from the LOPFI system. Linebaugh said at the last meeting Williams said "...one problem with purchasing the CDs locally at a lower interest rate than might be obtained out of town is that there is talk that any member of the plan who wants to recover the difference can recover it from the board singly or individually." Linebaugh said that was incorrect. He said the City Attorney reviewed this and called the statement "absurd." Fire Pension Minutes July 28, 1988 Page 3 Springston asked Linebaugh about the board's liability in the matter of the M -L Lee investment it made. Linebaugh said that was not a legally permitted investment. PENSION LIST It was moved by Springston, seconded by Dill, and unanimous, to approve the pension list for the month of August. RETIREMENT BENEFIT AMOUNTS IN MINUTES Reagan asked that the minutes reflect the amount of retirement when there is a request for retirement, including the breakdown of salary, longevity, etc. It was moved by Reagan, seconded by Dill, and unanimous, to include such information in the minutes in the future. ARTHUR YOUNG REPORT Linebaugh reported on the management letter prepared by Arthur Young and addressed to the City Board, which he distributed to the Fire Pension Board. He said one thing the auditor commented on was how unfunded liability was creating a larger funding requirement for the future, and recommended we get with the actuary to develop a plan to reduce unfunded liability. He said the M -L Lee investment was mentioned as well. INVESTMENT POLICY Linebaugh said he thought it was important for the Board to develop an investment policy. He said Merrill Lynch had provided several examples from other cities which he said we could use to draft our own policy. He urged everyone to review that material and decide on a policy. He said he received a memo from Cathyrn Hinshaw which contained startling information regarding brokerage service fees. This information was distributed to the Board members. He said this information showed that on a 5/5/87 investment of $56,000 the fee was $500 from Merrill Lynch, compared to $140 quoted by Stephens. He reported that we were averaging from 25 cents to 82 cents per share, and a trade value of up to 1 3/4%, compared to quotes from Pru Bache and Stephens of 7 cents and 10 cents per share, and 25% of the trade value. He said this shows the variation between brokerage houses to be significant. Linebaugh recommended the Board consider seeking quotes on an annual basis. Reagan said when RNC wants to make an investment, they want to do it immediately and want to go through someone they can depend on. He said he thought we should check with RNC. Linebaugh said he discussed this with Jacques Devore of RNC and Fire Pension Minutes July 28, 1988 Page 4 he said he felt his instructions from pension boards were not to go out for quotes. He said they do use other brokers besides Merrill Lynch but Devore understands his instructions are to just use Merrill Lynch. Linebaugh said he thought we should ask RNC to check for quotes before making investments. Reagan said when we first entered into an agreement with RNC, they stressed that they didn't have time to go out for bids. Linebaugh said another approach would be to get the quotes ourselves. Reagan suggested we send a copy of the comparison of quotes to Jacques Devore. Following further discussion, Reagan asked if it was possible an additional fee would have to be paid if we used a different broker. Linebaugh said we would be able to find that out when we went out for bids. Dill said he was happy with the way things are, and would like to find out from Devore why he does what he does. It was agreed that RNC should be contacted. INVESTMENT REPORT Linebaugh reported on ten CDs which were purchased pursuant to action taken at the last meeting. It was noted these would mature once a month, beginning in October. Reagan expressed concern that there may not be enough funds available from the maturing CD each month to cover the total of pension benefits, noting the possibility of several more retirements this year. Linebaugh said he would check this out and report back at the next meeting. MASON RETIREMENT Chief Jackson reported that Fireman Mason may want to retire next month. He said he wanted to draw his unused sick leave in a lump sum, instead of dragging it out until he uses up all his sick leave. Jackson said he wanted to be sure this is taken care of correctly. INSURANCE TURNBACK In answer to a question from Reagan, Linebaugh said our insurance turnback check had not yet been received. Reagan said in June it was reported, at a seminar he attended, that Fayetteville hadn't turned in its financial audit which we were required to do to get the money. Fire Pension Minutes July 28, 1988 Page 5 ADJOURNMENT There being no further business, the meeting adjourned at 2:30 p.m. Chairman Secretary