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.
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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.
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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.