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HomeMy WebLinkAbout1988-08-25 MinutesMINUTES OF FIRE PENSION BOARD MEETING A regular meeting of the Fayetteville Fire Pension and Relief Fund Board of Trustees was held on Thursday, August 25, 1988 at 1:30 p.m. in Room 313 of City Hall, 113 W. Mountain Street. PRESENT: Chairman Jim Pennington, Secretary Suzanne McWethy, Ex -Officio Treasurer Scott Linebaugh, Fire Chief Mickey Jackson, Fireman Pete Reagan, Retiree Carl Springston, Accounting Supervisor Zelda Parson, Merrill Lynch representatives Curtis Williams and Richard Yada ABSENT: Firemen Mike Bonaduce and John Dill MINUTES It was moved by Reagan and seconded by Jackson that the minutes of the last meeting be approved. The motion passed unanimously. OLD BUSINESS Linebaugh reported he sent a letter to RNC concerning questions brought up at the last meeting on the use of brokers, but there has not been enough time yet to receive a reply. Linebaugh said, in answer to a question asked at the last meeting, there would be enough funds available from the CD which will mature each month, to cover the total needed for pension benefits. He said there is enough money from payroll deductions as well as from the $20,000 in CDs. Reagan asked if this would cover the possible 7 or 8 new retirements coming up. Parson said her research assumed everyone who could retire would retire the day they became eligible. Linebaugh reported Fayetteville is on the list to get their insurance turnback check. He said it was discovered that Arthur Young turned in the necessary report late, but not late enough to create any problems. Parson distributed information to the Board which showed that the total Fire Pension turnback would amount to $163,043.10, less LOPFI's share of $61,532.47, leaving the total for the old Fire Pension Plan at $101,510.63. RETIREMENT REQUEST Chairman Pennington referred the Board to the request submitted by Jack Boudrey Fire Pension Board Minutes August 25, 1988 Page 2 to retire as of July 25, 1988. Information distributed by Parson indicated the following: Salary: $19,072.00 Extra Holiday: 432.36 Longevity: 600.00 Total: $20,104.36 divided by 12 months = $1,675.36 monthly salary 1/2 monthly salary: 837.68 Benefit July 25 - July 31 (7/31): $ 189.15 Benefit for August: $ 837.68 Total: $1026.83 It was moved by Reagan and seconded by Springston to approve the retirement as presented. The motion passed unanimously. PENSION LIST The Chairman introduced the Pension List for the month of September, with the addition of Jack Boudrey's benefits. It was moved by Reagan and seconded by Jackson to approve the pension list. The motion passed unanimously. NEW BUSINESS The Chairman asked about the status of the investment policy for the Board. Linebaugh said this had been discussed but the Board had not yet instructed the staff to draft such a policy. He said they were working on one for the Police Pension Board and he offered to show this to the Fire Pension Board. Reagan asked if this could be brought to the next meeting. Linebaugh said the draft of that policy was not ready yet. Pennington said he thought it would be a good idea for both Boards' policies to be pretty much the same. Linebaugh asked that a decision be made on how to invest the turnback funds. Linebaugh said in addition to the $101,510.63 there was an additional $58,000 which matured on August 11, for a total $159,510.63 to be invested. Pennington said the question was whether to invest over the short or the long term. Parson suggested the Board consider dividing the amount up into $20,000 CDs to begin maturing when the others run out (referring to the recent investments which were made in $20,000 CDs to mature every month). Fire Pension Board Minutes August 25, 1988 Page 3 Williams advised the Board to, at some point, start investing for growth. He said if $250,000 is invested in one-year or less CDs at a rate of 7 1/2% or less, that $250,000 is not meeting the actuary's assumed rate of return. He said if too much money is invested short-term to take care of cash flow, and too little money is invested long-term, at some point in time, too great a portion of the portfolio is going to be under -performing the actuary's assumptions. He said Merrill Lynch considers any pension investment at less than two years to be "a cash equivalent," they consider a short-term investment to be 1-5 years, intermediate term to be 5-10 years, and long term to be 10 years or more. Williams said right now CDs have "zero" potential for growth. Chief Jackson said he personally was reluctant to invest in a term for any longer than two years. Williams said Merrill Lynch prefers investing in "treasuries." Reagan asked Merrill Lynch what the cost was to invest in a Treasury Bill. Williams said the cost was about $5 per $1,000. Parson said the $20,000 CDs which were purchased are invested only through July of 1989, which she said makes for only about one year of cash flow. Jackson asked if Merrill Lynch's best recommendation was for the Board to invest the $159,510 in a long-term Treasury Bill. Yada said that would be their recommendation, if someone would manage the investment and determine when the market would increase or decrease on either a monthly or quarterly basis. Williams said Merrill Lynch got a call from RNC wanting to know if Merrill Lynch's position vis a vis the Fund had changed. He said RNC had received the impression from Linebaugh that Merrill Lynch is opposed to having RNC manage portions of the Fund. He said Merrill Lynch thinks management of the Fund is the soundest judgment the Board could possibly make. Williams said Merrill Lynch's recommended asset mix in a fixed income portfolio is 20% short term, 20% intermediate term and 60% long term. He said a long-term treasury, a zero coupon, or a long term CD would be excellent investments. He said, in the alternative, money could be invested with RNC in the Income Account. He said all Merrill Lynch is advocating is management of the total portfolio. Linebaugh asked Williams what percent of the fund is presently invested in long term investments. He asked if they considered all the money invested with RNC to be long-term. Williams said they did not, that they had a rather high cash position at this point, and they are going to more cash. Linebaugh said he thought the Board intended for the money they invested with RNC to be invested over the long term, since the Board didn't intend to use that money to pay benefits for many years. Linebaugh asked how much a month we were running short on cash flow. Parson said it averages, over a two-year period, at $20,000. She said for the current month we show a negative $17,000 cash flow. She said, in October, when property tax collection increases, we will show a $2,900 positive cash flow. Fire Pension Board Minutes August 25, 1988 Page 4 Linebaugh recommended an investment in a treasury for a term somewhere in the vicinity of five years or a little bit longer. Williams said a five-year CD would yield a higher rate than a five-year treasury. Linebaugh suggested bids be sought for both CDs and treasuries, for a term somewhere around five years. It was moved by Reagan and seconded by Jackson to invest $160,000 in a thirty -day CD and come back with bids at the next meeting, for a ten, twenty and thirty-year investment, and make a decision at that time. Linebaugh commented that bids would change from day to day. Parson suggested quotes be gotten for the day of the next meeting. The motion passed unanimously. OTHER BUSINESS Richard Yada commented that minutes of the last meeting, where Curtis Williams was stated as saying that the pension plan does not have to meet the "prudent man" rules and can direct certain investments, were absolutely wrong. He said Williams did not say that. Yada commented that those minutes also stated that Cathyrn Hinshaw had told Linebaugh that M -L Lee's worth was only 80% of purchase value. Yada stated that was "absolutely wrong and absolutely false." Linebaugh asked if the Board could receive a monthly statement from Merrill -Lynch which would show the market value of that investment. Yada said he would get the Board a copy of such a statement. Williams said the M -L Lee investment was one of the best investments the Board has made. Reagan said the problem was the Board was not receiving any statements on the investment. Williams said the Board was receiving statements, and said he would show the Board members where the market value is shown on the statement. Jackson requested that Linebaugh and Parson present the Board with a recommendation on the bids been hey are presented at the next meeting. Yada distributed information to the Board on/commission fees, which he said was in response to the minutes of the last meeting which indicated that Merrill Lynch charged higher commission fees than others. He said if LOPFI is going to be compared to our portfolio, it should be pointed out that LOPFI is a $12 million plan and invests $250,000 to $300,000 at a time. He said LOPFI pays RNC 3/4 of 1% for a management fee, and pays the bank 2/10 of 1% for a custodial fee. He said they pay a commission (the lowest of which is 1/4 of 1%). He said that totaled 1.20% plus an estimated .5% for a monitor service. He said the Fayetteville Fire Pension Fund was paying, so far this year, a rate of .241% for management of its income account, and 7/8 of 1% for its equity account. He said that was an average rate of .35%. He said we were paying RNC a 1.10% fee, for a total of 1.45% compared to LOPFI's estimated 1.7%. Linebaugh said it was an invalid comparison to compare the total value of the plan versus the brokerage fees. He said what should be compared is what is actually being traded. Linebaugh said at the last meeting he distributed a Fire Pension Board Minutes August 25, 1988 Page 5 letter from Hinshaw and a schedule he had prepared showing fees for different investments. Yada said Merrill Lynch was coming to Fire Pension meetings and giving advice based on the best information they have and, in Linebaugh's situation, he thought he was taking an adversarial role. Yada said he thought this needed to be worked out. Pennington said there is a strong feeling in Arkansas that there may be some problems with Merrill Lynch. He said he didn't think there was an adversarial situation but thought there were a lot of questions. ADJOURNMENT The meeting was adjourned at about 3:00 p.m.