HomeMy WebLinkAbout1989-03-02 MinutesMINUTES OF A MEETING OF THE FIRE PENSION BOARD OF TRUSTEES
A meeting of the Fayetteville Fire Pension and Relief Fund Board of Trustees
was held on Thursday, March 2, 1989 at 1:30 p.m. in Room 313 of City Hall,
113 W. Mountain Street.
PRESENT: Chairman James Pennington, Ex -Officio Treasurer Scott
Linebaugh, Secretary Suzanne McWethy, Fire Chief Mickey
Jackson, Retiree Carl Springston, and Firemen Mike Bonaduce,
John Dill, and Pete Reagan; also present were Accounting
Supervisor Zelda Parson and Curtis Williams and Richard Yada
of the Merrill Lynch firm
CALL TO ORDER
The meeting was called to order by the Chairman, with seven members present.
MINUTES
Scott Linebaugh requested the following phrase - "from the inception of the
Plan" - be added to the end of the second paragraph on page two of the
January 26, 1989 minutes. In the third paragraph on page two, Linebaugh
stated that "13.6%" should actually read "9%". With those corrections, it
was moved by Dill, seconded by Bonaduce, and unanimous, to approve the
minutes of the last meeting.
PENSION LIST
McWethy reported revisions were made to the March pension list, at the
request of retiree Paul Logue who wished to increase his withholding by $10,
and at the request of Randall Wright who wished to increase his withholding
from $67 to $150.
REQUEST FOR RETIREMENT
Chief Jackson said Larry Poage's retirement was effective February 25, 1989,
and his pension will be $1201.98 per month, or $14,423.74 per year. Jackson
said Poage wished to have his checks mailed directly to a bank, and gave
that address to Zelda Parson.
With the addition of Poage to the pension list, it was moved by Bonaduce,
seconded by Reagan and unanimous to approve the pension list.
Fire Pension Board
Minutes
March 2, 1989
Page 2
INVESTMENT POLICY
Linebaugh said the staff was asked to answer some questions from the last
meeting which were raised during a review of the proposed investment policy.
In reference to Section IV.C.3. of the proposed policy - "Investment counsel
shall be retained under contract awarded on the basis of competitive bid.
Award of the contract will not be required to be solely on lowest bid. All
contracts shall include a 30 day cancellation." - Linebaugh said, according
to Cathyrn Hinshaw, "they amended the Police and Fire Act to have the State
retirement rules followed by the Act." He said those rules require that
brokers take bids on trade. He said the State Review Board has interpreted
that to mean that we must bid out brokerage services at least once a year,
and we must bid out money manager services once a year. Linebaugh said he
has asked City Attorney McCord to provide him copies of the statutes
relating to this issue.
Reagan asked if LOPFI bid out each transaction. Linebaugh said they do not
bid out each transaction but, according to Cathyrn Hinshaw, they are going
to bid out services once a year on both brokerage services and money manager
services.
It was moved by Reagan and seconded by Dill to table the investment policy
until statutes are received from the City Attorney.
PENSION RAISE REQUEST
In reference to the request at the last meeting made by Springston on behalf
of the retirees, for an increase in pension benefits, Zelda Parson
distributed the following information prepared by the staff: (1) a schedule
of fire pension benefits with cost -of -living increases applied annually from
the year of retirement. Linebaugh explained this schedule showed that total
pension benefits would be $6,107.58 higher than they are now, if we had
granted cost -of -living increases every year based on the Consumer Price
Index; (2) a schedule of proposed monthly benefits reflecting a $50 increase
for full-time retirees; (3) a schedule of proposed monthly benefits
reflecting a $25 increase for full-time retirees; and (4) a schedule of
proposed monthly benefits reflecting a $50 increase for full-time and a $25
increase for part-time retirees.
.It was moved by Reagan and seconded by Jackson to table this item. The
_motion passed unanimously.
Fire Pension Board
Minutes
March 2, 1989
Page 3
NEW BUSINESS
RNC FEES
Linebaugh reported he received a call from Tim Reuling of RNC to inform him
a letter was being sent from RNC in reference to fees they would charge.
Linebaugh said his understanding is that RNC is dropping its fee down to 1%.
He said he has not yet received the letter.
DISABILITY RETIREMENT REQUEST
Chief Jackson reported Arvil King has requested disability retirement.
Jackson said King would remain on the payroll through May 15 (give or take
five days). He said his pension would be 65% by statute, rather than 50%.
He said his pension would become effective immediately after he goes off the
payroll.
In discussion about claims for disability in general, Reagan asked if the
Board should set a policy for reviewing disability cases every six months.
Pennington recommended the Board at least do a periodic check on such cases,
if they do not have a policy.
It was moved by Dill, seconded by Reagan, and unanimous, to establish a
policy or semi-annual review of disability cases.
RNC RESPONSE TO REQUEST FOR SCATTERGRAM
Pennington said he had received material yesterday from RNC but had not yet
had an opportunity to read it. Richard Yada of Merrill Lynch said that
material addresses the request for the scattergram, and each Board member
would be mailed a copy. Pennington recommended everyone read the material
prior to the next meeting.
PORTFOLIO EVALUATION
INCOME ACCOUNT
Richard Yada reported on the status of the Income Account, reporting the
account began with $1,000,000 and subsequently had $647,000 added to it. He
reported its value as of yesterday was $2,011,791. He reported 1988
performance to be at a rate of 12.53%.
Fire Pension Board
Minutes
March 2, 1989
Page 4
EQUITY ACCOUNT
Yada reported the value of the Equity Account to be $518,595, noting the
account began with an investment of $507,000.
M -L LEE INVESTMENT
Yada reported the January statement on the M -L Lee investment indicates the
M -L Lee Fund had a distribution on February 15 of $2,682, which he said was
a rate of 10.73% for the quarter.
MONEY MARKET FUND
Yada reported the money market fund, containing ready asset funds, had a
value of $11,715.43, an effective annual yield yesterday of 9.08%.
1987 PENSION FUND ACTUARIAL VALUATION
Yada said he had reviewed the Arkansas Fire & Police Pension Review Board's
1987 Pension Fund Actuarial Valuation. He said the valuation,. showed that
the fund was considered to be actuarially sound.
Yada distributed materials in reference to the actuarial valuation. He
said that our pension plan was a closed pension plan, with no new members
coming into the plan. He said benefits would go up while membership would
go down over the life of the plan, meaning that income would be decreasing.
He said millage would be the only constant income producer.
Yada said the valuation showed reported accrued assets at December 31, 1987
to be $4,460,948, and liabilities to be $1,455,161 at that time. He said
the portion of accrued liabilities covered by assets (funds in place to pay
those who will retire) is shown to be 49% at 12/31/87. He said this figure
should be 100% to be fully funded. He said the State consider your Plan to
be actuarially sound if you are at 25%. He said we were not gaining ground
towards being fully funded because we were shown to be at a 49.4% level in
1981. Williams said if we don't increase that percentage over the next six
years we won't be actuarially sound anymore. Jackson asked if the benefit
increase now being requested could adversely affect our situation. Williams
said any money taken out of the fund now will not be there to compound for
- the future. He also recommended that any increase approved should be
granted to every member, or at least by class. Jackson pointed out that any
increase approved by the Board would have to be approved by the Pension
Review Board as well.
Fire Pension Board
Minutes
March 2, 1989
Page 5
OTHER BUSINESS
Reagan asked Linebaugh to tell the Board what the Police Pension Board had
done recently as far as their selection of an investment advisor. Linebaugh
reported the Police Pension Board had terminated their contracts with RNC
and A. G. Edwards. He said they interviewed several investment firms and
narrowed them down to three top firms - Elaine Longer, Shearson Lehman and
Dean Witter, and ended up selecting Shearson Lehman. He said they selected
Oppenheimer and Liberty Capital as two money managers, with Shearson
handling the asset monitoring. He said a 1% fee covers asset monitoring,
brokerage services and money management. He said they would invest their
total fund.
Reagan moved the Board pursue going under total management with Merrill
Lynch at a rate to be 1% or less annually. Linebaugh asked Reagan if he was
proposing Merrill Lynch and RNC. Reagan said he was not happy with RNC's
handling of the Equity Account. He said he thought it was time to make a
move and be more aggressive in our growth period while we have a chance.
Pennington said he thought the Board should go through a selection process
and solicit proposals before making its final decision. Linebaugh advised
the Board to adopt an investment policy also, so that it can have guidelines
to give to the investment firm. Dill said he thought the investment policy
should be worked out with whomever is selected as money manager. Reagan
agreed, stating that if the Board adopted a policy now, it would have to re-
do it if the money manager has a different strategy. Jackson noted that the
managers selected by the Police Pension Board are required to work under the
guidelines of the Board's investment policy. Reagan said that Merrill Lynch
has been here any time they are needed, the Board knows them, and he thought
they had done a real good job.
In answer to a question from Dill, Williams said his firm would guarantee a
fee of 1% or less. Williams pointed out, however, that someone is going to
get paid for every transaction which is made for the account. He said they
would come to the Board each month and list every transaction to show if the
Board paid a commission and, if so, how much. Reagan asked what our
commission charges were last year. Yada said commission charges were less
than 9.96% on the Equity Account, and about .36% on the Income Account.
Dill said if the Board could get a 1% fee from a firm we have been dealing
with for three years, without going through the selection process, he did
not want to go through the selection process. Pennington said he could not
agree with that, stating he believed the process should be open. He said he
could not face the City Board without saying that every firm had a fair
chance. Linebaugh pointed out that, besides the question of the fee, there
were other considerations such as performance in the selection process which
was used by the Police Pension Board.
Fire Pension Board
Minutes
March 2, 1989
Page 6
Pennington said the Board ought to have a policy based on solid outside
input, and whomever the Board retains should be guided by that policy. He
said any policy can be changed. He added that he did not disagree with the
idea of total management.
Dill said part of the proposed investment policy was unrealistic, making
reference to a portion of the policy which states that the long term goal is
to realize an annual real rate of return of 5% above inflation, and a
maximum of 40% invested in stocks.
Dill asked how many presentations the Board would have to hear. Pennington
said that was up to the Board, noting that normally five or six proposals
are selected for presentations.
Williams said he believed the formulation of an investment policy was
imperative before a manager is selected, but thought the Board's advisor
should be involved in the formulation of the investment policy. Jackson
asked if Merrill Lynch had any problems with the proposed investment policy.
Williams said that, from conversations they have had with some Board
members, the proposed policy will not accomplish what those Board members
want to accomplish. Pennington asked Merrill Lynch to provide the Board
with feedback from Merrill Lynch regarding the investment policy.
Williams said he was under the impression Merrill Lynch had been appointed
as advisor to the Board. Pennington said he was operating under that
assumption as well. Williams said Merrill Lynch would like to exercise a
greater role as advisor, in formulating an investment policy and doing a
manager search.
Pennington said the City Board wants to make sure the pension boards are
acting in a financially acceptable manner. Pennington pointed out that the
Board has been discussing the need for an investment policy since he has
been on the Board and we still don't have one established. He asked Merrill
Lynch to give the Board their comments and recommended the Board set aside
time at the next meeting to consider an investment policy.
Williams said, based on historical performance of the market over the last
60 years, the goal in the proposed investment policy was unachievable. He
said the asset allocation would have to be changed, or the expectations of
the fund would have to change.
Pennington said the Board needed to get copies of the statutes as mentioned
earlier, they needed to consider an investment policy which is easily
understood, and they needed comments from Merrill Lynch for discussion at
the next meeting..
Fire Pension Board
Minutes
March 2, 1989
Page 7
Williams said Merrill Lynch will need more than the normal amount of time to
present their ideas, and asked for 1 1/2 to 1 3/4 hours at the next meeting.
Because Pennington and Linebaugh were to be out of town on the date of the
next meeting, it was agreed to meet on April 6 instead of on March 30, from
1:30 p.m. to 4:00 p.m.
Pete Reagan asked if it was known whether all the retirees on the pension
list were still alive. Carl Springston said he felt sure they were all
still alive, but thought Essie Barnes lived out of town.
Williams recommended an affidavit be submitted once a year to make sure the
retiree is still alive. Suzanne McWethy was asked to draw up a form based
on a sample she was given of one used by North Little Rock.
The meeting was adjourned at 3:10 p.m.