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HomeMy WebLinkAbout1989-10-17 MinutesMINUTES OF A MEETING OF THE FIRE PENSION BOARD A regular meeting of the Fayetteville Fire Pension and Relief Fund Board of Trustees was held on Tuesday, October 17, 1989 at 1:30 p.m. in Room 313 of City Hall. PRESENT: Chairman James Pennington, Ex -Officio Treasurer Scott Linebaugh, Secretary Sherry Thomas, Fire Chief Mickey Jackson, and Firemen Pete Reagan, John Dill, and Mike Bonaduce. Also present were representatives from Merrill Lynch Curtis Williams and Richard Yada. ABSENT: Retiree Carl Springston The meeting was called to order by the Chairman. MINUTES It was moved by Dill, seconded by Reagan, and unanimously decided to approve the pension list for the month. PENSION LIST It was noted that there were no changes in the pension list. It was moved by Dill, seconded by Reagan, and decided unanimously to approve the pension list. CONSULTING SERVICES GROUP REPORT Curtis Williams, speaking for Merrill Lynch, addressed the Board and presented them with a copy of the portfolio evaluation. He stated there were no substantial changes in the income account, and performance in the account had not been too bad. He stated the performance for the year was acceptable for the fixed income account. He further stated that RNC had requested that they be allowed to submit a proposed fixed income account to the Board. This has not yet been done. Williams stated that the market was down 7.1% on the equity account on Friday, October 13 but had recovered some ground when the market improved on Monday. The portfolio has been performing under the market and indexes as has been discussed previously by this Board. Fireman Reagan asked if the fund was down 6%. Williams stated that the market had recovered some of that loss on Monday, erasing about half of the loss from Friday. They are projecting lower interest rates relatively soon, but anticipate long term treasury bonds to stabilize at around 7%. He stated the fixed income account would still make money, just not as much as they would have liked. They are concerned about the stability of the stock market at this time. There have been 7 consecutive quarters of increase by the market which has only occurred only rarely in history, so a technical correction is expected. They also feel that the economic expansion will begin to slow down. Beyond these things, they feel the market looks pretty good. He would like to reinvest the equity account in a more conservative arena as soon as possible to avoid the market instability at this time. Fireman Dill asked if there were any late figures on the M -L Lee Account. Williams apologized again for not having the statement available, but due to the market situation on the past Friday, his office had been swamped. He stated the M -L Lee Account had made a distribution Friday, making a total return on the program for this year of just over 16%. There will be one more, possibly two, distributions before year end. Part of this distribution was from the proceeds of the sale of one of the companies. The sale of Ameraise amounted to 6.85% of the total M -L Lee program. With the distribution received Friday, the total return to the fund from that one company was an 40% return. Williams informed the Board of some of the possible company sales and/or acquisitions the M -L Lee Account might be considering next year. Some years the fund might not sell a company; therefore, the pension fund would not get a return on their equity. He reminded everyone that the initial target return on this fund was 18-22%. NEW BUSINESS Wayne Watts Retirement Date Chief Jackson stated the eligible retirement date for Wayne Watts was at this point in questions. Watts was hired by the Fire Department on December 27, 1969. In September of 1970, he was drafted into the Army. The Fire Chief at that time required him to resign. He was in the Army 533 days and was honorably discharged. Upon discharge he approached the new fire chief about a position on the fire department. The chief, Charlie McWhorter, said it would be fine because he had a good record with the department, but asked him to wait until he got an opening instead of forcing his way back into the department. Watts agreed to wait until the opening to reapply. The following January, 283 days later, an opening came up, and he was rehired. Jackson stated that he had opinions from two previous city attorneys that the time Watts was on the department before entering the Army as well as the 533 days he was in the Army should be credited toward his retirement date. This being the case, Watts' would be eligible to retire on November 5, 1990. If Watts gets credit for the 283 days he was waiting for an opening to be rehired, he would be eligible to retire on January 26, 1990. Terry Jones felt that Watts probably would not be entitled to credit for the 283 days he waited. Jackson stated he had informed Watts that this would be brought before the Board and a decision made on his retirement date. He told him it would probably the November 1990 date. Reagan asked about the money Watts withdrew from the retirement fund when he left in 1970. Jackson stated that it was his understanding that Watts would be required to buy back his retirement for the original 261 days he worked. Dill stated he felt that if the chief at that time had asked Watts to wait to apply, then Watts would be entitled to the additional 283 days. Jackson read from the Personnel Action sheet completed by McWhorter when Watts returned to work on January 3, 1973 stating "This man was hired December 1969 and resigned August 1, 1970 (which Jackson pointed out was an incorrect date that they have records to substantiate) because of Army draft. He returned to civilian status in March but waited until I had an opening before applying for old position back." Watts said McWhorter had discussed this with him, so he waited to apply. Jackson stated that Watts did not seem terribly disappointed or concerned about the 283 days. Watts originally thought he was not going to be eligible for retirement until April 1993. Dill asked who was to determine the days Watts was to be given credit for. It was decided that it was the discretion of the Board to determine eligibility of retirement. Dill further stated he felt if McWhorter asked Watts to wait, then he should be given credit for the days he waited, but only if he was asked to wait. It was discussed that after being drafted into the military, a person is supposed to be reinstated in their job position upon request. Watts had resigned from the department at the request of the Fire Chief. The consensus was that Watts should not be penalized for being a nice guy and waiting as McWhorter had asked of him. Reagan stated he would like to give Watts credit for the 283 days he waited to reapply, and made a motion to that affect. Dill seconded the motion. The motion passed unanimously giving Watts credit for the time he worked, his military service time, and the time he waited to be rehired by the Fire Department making his retirement eligibility date April 3, 1990. Roger Lewis Retirement Request Chief Jackson stated that Roger Lewis had applied for his 20 -year retirement effective December 8, 1989. He would like for the Board to approve that at this time. Reagan, seconded by Dill, made a motion to approve the retirement request. The motion passed unanimously. Merrill Lynch Contract City Attorney Rose addressed the Board regarding the contract between the Fire Pension Board and the Merrill Lynch Service Group that he is in the process of preparing. He is revising the document that Merrill Lynch provided him and proposes a few changes. He is changing "will" to "shall" in most places. He stated regarding the insurance coverage, he is putting in a clause that the insurance has to be kept current. He is replacing "will be responsible for" to "shall". He feels a copy of the adopted investment policy should be attached to the contract, so there is no doubt as to what Merrill Lynch is to follow. Regarding the investment manager selection process, he will include in his document that portion from the contract supplied by Merrill Lynch. For all money manager that Merrill Lynch may select from, there is an appointment schedule that tells which money managers are available. This gives the Board an idea of who they will be dealing with through Merrill Lynch. On each money manager, there is a Master Management Investment Agreement that is entered into with Merrill Lynch. It deals with the qualifications of the money managers and what they warrant to Merrill Lynch their qualifications to be. He feels that the Board would be benefited by seeing the agreement that Merrill Lynch has with their money managers before they enter into a contract. Williams agreed that this was a good idea, but in lieu of this form, he recommends using the ADV Part II which is required by the SEC. He pointed out that the decision to contract with the money managers will be with the Board not Merrill Lynch. Rose stated that he was not sure how the fees and commissions are to be paid. Most of the agreements he had read were paid on a quarterly basis. He asked if this was what Merrill Lynch had envisioned. Williams stated they had had a problem with this as well and were leaving it basically open-ended about how low the fees and commissions could go but were setting a 1% cap on the maximum allowable fees and commissions. The method of payment would be based on the requirements of the money managers --some managers take annual payments in advance, some use quarterly in arrears payments, and some want to be paid on a schedule they set. Merrill Lynch could then report either monthly or quarterly to the Board whichever they prefer. City Attorney Rose pointed out that either party can terminate the contract at any time. This is an advantage to both parties, but if the fund pays the money in advance, the fund then loses its advantage. He wants the fund protected so that the unused portion of the management fees are prorated back upon termination of the management contract. Richard Yada stated that the agreement could contain the clause that the managers bill quarterly in arrears and eliminate a potential problem if the contract were terminated. There was general discussion on this point with the consensus of the Board being to bill quarterly in arrears for the management services. Reagan asked whether the money manager would bill the pension fund directly or go through Merrill Lynch. Williams stated that the Board had authorized Merrill 1 Lynch to pay the fees, but in the past this has not been done without prior Board approval. It was decided that the Board should approve payments before they are made by Merrill Lynch for the money manager fees. City Attorney Rose asked how the dealer markdowns, etc. are being passed onto the fund if Merrill Lynch is acting as advisor and money manager. Williams stated that there would be limited times when Merrill Lynch would be both broker and manager. They will monitor the manager's recommendations but will initiate no transactions. So, every transaction indicates all markups, markdowns, etc., on the report. It was also pointed out that the total fees and expenses could not exceed the 1% spelled out in the contract. City Attorney Rose stated that a report of brokerage transactions should be provided the Board on a monthly Rose asked about the clause in the contract calling for the levying of custodial fees. Williams stated they were monitoring fees; however, they are included in the 1% maximum allowable fees the Board can be charged. Rose stated he would like to have the indemnification clause that Merrill Lynch receives from their managers incorporated into the contract for the Board as well. He would like to have a clause stating in effect that Merrill Lynch agrees to indemnify and hold harmless the fund, its employees, and its agents against any and all loss, liability claim, damage and expense whatsoever as it occurs arising out of or based upon this agreement for any act or omission on the part of the Merrill Lynch. He is not sure that the Merrill Lynch attorneys will agree to this clause as they are trying to eliminate negligence as a cause of action against them. He stated in other words that he is trying to protect the City and the Board from litigation if Merrill Lynch and/or the City or Pension Board were to be sued based on an act by Merrill Lynch. Chief Jackson stated that the Board had discussed several months earlier errors and omissions insurance coverage for the Pension Board. It was looked into, but no policy was ever secured. Dill asked if Merrill Lynch refused to agree to the indemnity clause would it make a great deal of difference in the overall contract. Williams stated that he would like to have this contract process completed as soon as possible to enable them to place the Fund's money in a more stable and secure money manager and get away from RNC. Linebaugh suggested that the City Attorney get with Merrill Lynch's attorneys and negotiate this contract and bring a recommendation to the next meeting that is scheduled for next week. Rose stated that he could do this and have something in writing for the board members to consider at their next meeting. He also stated that he would prefer the governing laws of the arbitration clause to be for the state of Arkansas rather than the state of New York. Reagan asked the status of the equity account and asked if the Board should act on it in some way at this time. William stated that the Board had already frozen purchases by RNC. There is 20% cash in the fund at this time because RNC is still selling but can no longer purchase. He basically recommended that the sooner this particular relationship were terminated, the better for the pension fund. There was further discussion regarding the time element in getting the new contract prepared and a new money manager on line. It was hoped that everything could be finalized that the next meeting to be held on Thursday, October 26, 1989 at 1:30 p.m. ADJOURNMENT The meeting adjourned at 2:50 p.m.