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HomeMy WebLinkAbout1988-06-30 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, June 30, 1988 at 1:30 p.m. in Room 313 of City Hall, 113 W. Mountain Street, Fayetteville, Arkansas. MEMBERS PRESENT: Secretary Suzanne McWethy, Fire Chief Mickey Jackson, Fireman Mike Bonaduce, Retiree Carl Springston OTHERS PRESENT: Accounting Supervisor Zelda Parson, Merrill -Lynch representatives Richard Yada and Curtis Williams MEMBERS ABSENT: Chairman Jim Pennington; Firemen Pete Reagan and John Dill The meeting began with four members present. The question was raised about investment activities of the pension board, and Curtis Williams said that, legally, the Pension Plan is not bound by the "prudent man" rule and can direct certain investments. He referred to an opinion prepared by the Little Rock City Attorney, and said that opinion states that investments have to meet "prudent man" rules, can't be a loaded mutual fund and the Board can take investment advice from an investment advisor stipulated by the Board, and that advice doesn't have to be under a written contract nor for a hard dollar amount. Williams said there was nothing in Act 6 that said how the investment advisor is to be compensated. He said oral contracts... in. Arkansas are binding. He said Merrill-Lynch's attorney researched the law, and they know that Prudential-Bache, Shearson -Lehman, A. G. Edwards and Edward D. Jones' attorneys all researched the law, their opinions were all in line with that of the Little Rock City Attorney and were contrary to the opinion of Cathyrn Hinshaw. Williams said that shortly after the last meeting, he mailed new questionnaires to everyone on the Board. Jackson, Springston and Bonaduce said they had not received them. Williams said he had sent their information to the Central Fire Station. He said along with the questionnaire was information from the cities of Fort Smith, North Little Rock and West Helena. Suzanne McWethy said she had received that information. Following discussion about some problems the Springdale Pension Fund was having, Chief Jackson left the meeting to meet with the press regarding fireworks. Zelda Parson distributed information on active securities for the Fund. She also distributed a report prepared by Arthur Young & Company. She said this report was sent annually to the Pension Review Board. In answer to a question from Bonaduce, she said she did not know if the City Board reviewed the report, although it was addressed to them. Fire Pension Minutes June 30, 1988 Page 2 Bonaduce asked if the M -L Lee investment was illegal, noting the comment in the Arthur Young report that "city staff feels that this is a highly speculative investment which was purchased illegally." Parson said that Arthur Young requires the City to sign a representation letter stating that what the firm has compiled is true to the best of their knowledge. Williams said the investment had been approved by the Securities and Exchange Commission for pension funds. He said it was not highly speculative or illegal. Parson said that statement was added by the City staff, based on financial records the City provided to Arthur Young and Company. She said the report was required to be done by the Pension Review Board annually. Jackson returned to the meeting. MINUTES It was moved by Bonaduce, seconded by Springston, and passed, 4-0, to approve the Minutes of the last meeting. PENSION LIST It was moved by Jackson, seconded by Bonaduce, and passed, 4-0, to approve the Pension List for July. MUTJ,FNS RETIREMENT The Board considered Dennis Mullens' retirement request, effective July 11. Jackson said he had computed the amount of severance pay he will be owed. He said Mullens would be entitled to 1/2 his salary, including extra holiday pay and longevity pay. The inclusion of holiday and longevity pay was discussed, with Carl Springston stating he thought the Board was doing something wrong in including those in salary, and Jackson stating it was his understanding this was being done according to City policy and that holiday and longevity pay are considered salary. It was confirmed that Mullens should be added to the Pension list for July, with his check to be prorated for that month. CREDIT UNION INVESTMENTS Parson said she received correspondence from Cathyrn Hinshaw which included an opinion from the Attorney General. Parson said in her opinion it was not legal to invest in the credit union. She said it is specifically spelled out that Fire Pension Minutes June 30, 1988 Page 3 investments should be made in savings and loan associations, U. S. Government bonds and banks in Arkansas. Williams said the Board could fall back on the Little Rock City Attorney's opinion and simply get advice from an investment advisor on that question. He said the Board can direct specific investments under the advice of its investment advisor. He said he thought the Board had adopted Merrill -Lynch as an investment advisor at some point in the past, and said they would be happy to look at the rate of a credit union versus the rate on a C.D. Bonaduce asked how credit unions were guaranteed. Williams said credit unions had a legal list of investments in which they can invest, and it depended on whether it was a federally or state -chartered credit union. He said their investments were very secure and the local credit union is probably a better risk than the local bank or savings and loan association. INVESTMENTS Zelda Parson reported $200,000 in investments matured today ($100,000 which had matured on June 1st and been re -invested in a 30 -day C.D. and another $100,000 C.D. which matured today) and she asked the Board to make a decision on how to invest that amount. Bonaduce asked Merrill -Lynch about the C.D. plan which was proposed at the last meeting. Williams said the Board has a $7,000 a month deficit (outgoing cash flow) which he said would increase with each new retiree. He said the Board could follow a C.D. plan using approximately $60,000 per month, and right now buy a 3 -month, 9 - month and one-year C.D., and do the same thing every month to create a $240,000 portfolio of 12 C.D.'s, with one maturing each month for the next 12 months, so that funds will be available every month to pay pension benefits. He said another alternative would be to create an $84,000 C.D. portfolio by using approximately $21,000 per month by purchasing $7,000 C.D.'s. Parson suggested the Board should plan for anyone who might retire in the next year. Jackson asked if the Board would buy the C.D.'s locally. Williams said that could be done locally or Merrill -Lynch could do it. Springston and Jackson expressed a preference for purchasing the C.D.'s locally. Williams said one problem with purchasing the C.D.'s 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 (which might have been earned by going out of town) can recover it from the Board, singly and individually. Fire Pension Minutes June 30, 1988 Page 4 It was moved by Bonaduce that three $20,000 C.D.'s be purchased locally for the highest rate, one for a 3 -month term, one for a 9 -month term and one for a one- year term. Williams said the investments should be made to mature about three days before checks are cut so that large amounts of money won't be sitting in the checking account. Parson said the investments should probably mature the Thursday before benefits go out. Parson suggested the remaining $140,000 so that one would mature every month. Bills could be bid to ensure that rates banks would not be able to compete with of the country. be split into additional $20,000 C.D.'s She said, as the C.D.'s are bid, Treasury are competitive. Williams said the local rates that can be obtained in other parts Parson asked if the Board wanted to consider purchasing the C.D.'s in amounts larger than $20,000 in order to plan for additional retirees. She told the Board about $6,800 comes in each month from employee contributions which amount she said would go down every time someone retires. She said property taxes are received which average about $4,600 per month. It was decided to purchase ten C.D.'s at $20,000 each. Parson asked for guidelines as to who should bid on the C.D.'s. It was decided that all savings and loans, banks, and Bank of Fayetteville should bid on C.D.'s and Treasury Bills. The motion was seconded by Springston and passed, 4-0. Parson said she would wait until next Tuesday to take the bids because investments have already been made this week. MERRILL-LYNCH REPORT Copies of portfolio evaluations were distributed by Merrill -Lynch. Richard Yada reported on the Equity Account. He said the portfolio value presently was $513,874, up from the original investment of $507,000. Reporting on the Income Account, Yada said its present value was $1,900,818, up from the original investment of $1,647,000 by $253,000. He said that Account was yielding 8- 8/12% on dividends and interest. RNC FEE Jackson reported he had received a copy of a letter from RNC to Curtis Williams of Merrill -Lynch stating the annual bill is due for $7,108. Fire Pension Minutes June 30, 1988 Page 5 M -L LEE ACQUISITION Jackson asked Merrill -Lynch how much the M -L Lee investment is presently worth. Williams said it was doing well. He said the program involves only friendly takeovers and will never participate in a hostile takeover. He said the average coupon now exceeds 15.5%. He said the average return on the investment is approaching 10%, but that some of the money still is not invested. LARRY MASON Jackson reported he received a letter from Larry Mason's doctor stating Mason will probably take six months of sick leave and go out on disability. Jackson said he is presently on long-term sick leave and when that has expired, he will probably go out on full pension. OTHER FUTURE RETIREMENTS Jackson said he was sure Chuck Lewis and Jack Boudrey may retire this year. ARTHUR YOUNG REPORT Jackson asked if there was any significance to the statement in the report that "these financial statements, including related disclosures, are presented in accordance with the requirements of the Arkansas Fire and Police Pension Review Board, which differ from generally accepted accounting principles. Accordingly, these financial statements are not designed for those who are not informed about such differences..." Parson explained this was not an audit but just a compilation report which was required to be submitted annually to the Pension Review Board. Jackson asked if Arthur Young would recommend changes if they felt they were needed. Parson said they would. She said they merely provided information on a form which was provided by someone other than Arthur Young. ADJOURNMENT The meeting was adjourned at 3:10 p.m.