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HomeMy WebLinkAbout2011-02-24 MinutesSondrd Jordan Chairmana e e;lile Sondra E. Smith Treasurer Eldon Roberts Secretary/Retired Position I ARKANSAS Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes February 24, 2011 Policemen's Pension and Relief Fund Board d o of Trustees Meeting Minutes February 24, 2011 Page l of 22 Jerry Friend Retired Position 2 Tim Helder Retired Position 3 Melvin Stanley Retired Position 4 Frank Johnson Retired Position 5 A meeting of the Fayetteville Policemen's Pension and Relief Fund Board of Trustees was held at 3:00 PM on February 24, 2011 in Room 326 of the City Administration Building. Mayor Jordan called the meeting to order. Present: Jerry Friend, Frank Johnson, Melvin Stanley, Eldon Roberts, Mayor Jordan, Kit Williams, City Attorney, Sondra Smith, City Clerk, Paul Becker, Finance and Internal Services Director, and Kim Cooper, Longer Investments. Tim Helder was absent Approval of the Minutes: Approval of the October 21, 2010 meeting minutes Jerry Friend moved to approve the July 15, 2010 Policemen's Pension and Relief Fund Board of Trustees meeting minutes. Eldon Roberts seconded the motion. Frank Johnson asked for a few minutes to review the minutes. Eldon Roberts: I want to publicly commend Mayor Jordan and the Department of Transportation. I am in my 43rd year with the City and I have never seen anything like the way they cleaned the streets and highways. Mayor Jordan: I truly appreciate that. Upon roll call the motion passed 6-0. Tim Helder was absent. Pension List Changes: None Approval of the Pension List: Approval of the February, March, and April 2011 Pension Lists Sondra Smith: There have been no changes so far to the pension list. If something happens before we pay these lists then we will do re -approvals at the next meeting. Policemen's Pension and Relief Fund Board d o of Trustees Meeting Minutes February 24, 2011 Page 2 of 22 Eldon Roberts moved to approve the Pension Lists. Melvin Stanley seconded the motion. Upon roll call the motion passed 6-0. Tim Helder was absent. New Business: A discussion regarding the Firemen's Pension Board letter to PRB in support of State Statute changes. Sondra Smith: Frank called and wanted a copy of the letter placed in the agenda. It is the response letter the Firemen's Pension sent to PRB. The questions that PRB asked the Fire Pension are in the letter. The main item Frank was interested in was # 5. In the letter to PRB the Fire Pension Board voted on question #5 (B) "the Fayetteville Firemen's Pension Board requests the Pension Review Board to explore changes to the state statutes to allow a benefit reduction for plans above the state mandated level. " Mayor Jordan: That was a motion I made at that meeting which gave us a little more flexibility. We can't seem to have a concrete decision on whether or not you can reduce the benefits. Kit Williams: It can certainly clear it up. Jerry Friend: I'm with you on that. Mayor Jordan: I want that in there for PRB to pursue. Sondra Smith: If State statutes are changed that is no sign that the Board is going to reduce benefits but we are hoping it will give us some options for the future. It shows that we are trying to be responsible for the plan. Kit Williams: Also guidance on how you would go about reducing benefits. What kind of vote would it take? Would they have to approve it? Right now the statute is very unclear. Even if you decide, I believe you have the power to do it, how would you exercise that power? Mayor Jordan: It gives us another option. Eldon Roberts: That will never happen this session for sure. Clarification is what we are looking for as to what you can and can't do. Right now it is cloudy to say the least. I go to almost all of the pension board meetings in Little Rock. The last one was a special held meeting discussing nothing but legislation. Paul was there and he said it was so deep and so complex that you could hardly get anything from it. Jody Carriero was there speaking to the Pension Review Board members. They are still working on the guaranteed fund. At one time the statute regarding the guarantee said you had to fit two criteria, one is you never could have raised benefits and the second one was you had to be drawing a full mill. Fayetteville Fire and Police does not fit either one of those. Now they are discussing the guaranteed fund and who can and who can not apply to it. Most every fund in the state has probably one of those two criteria. Policemen's Pension and Relief Fund Board d o of Trustees Meeting Minutes February 24, 2011 Page 3 of 22 Kit Williams: I bet no fund is eligible. Eldon Roberts: If you have ever raised benefits even I% above 50% you can't apply to it and if you are only drawing four tenths of a mill or not drawing a full mill you can't apply. A lot of cities are drawing a full mill because they took it back to their voters when they got rolled back due to Amendment 59. It rolled it back several years ago and gave the Fire and Police Pensions the option of taking it back to the voters and some did. I don't know where this guaranteed fund is at. Kit Williams: Since you are at half you would have had a much more of a burden to be able to get the voters to do that because then they would have been doubling their millage. Eldon Roberts: Police or Fire is neither one of those things. We are drawing more than 50% of salary and we are only drawing four tenths of a mill not the full mill. At this point in time unless they change the statute about the guaranteed fund nobody here in Fayetteville can go and ask for anything. Jerry Friend: There were a couple of laws passed that mandated a raise to the lower paid people, does that count against you? Eldon Roberts: I don't know. Jerry Friend: Does that matter? Eldon Roberts: I know there was some state mandate. Jerry Friend: I think it hit ever pension. Eldon Roberts: It didn't matter if you were actuarially sound or not that was mandated. It had to do with widows and low paid people. Sondra Smith: Currently I am sitting on the Public Safety Board for the Arkansas Municipal League and we discuss bills coming forward. One bill that is being considered is part of the tumback money that goes to the State Police fund they are looking at trying to get the law changed to where a percentage of that will now go into the guaranteed fund for plans that are over 50%. If I remember correctly that was supported by the Arkansas Municipal League. They don't feel like the Governor is going to support it because that is taking money away from his state employees. Eldon Roberts: He made the statement a couple years ago that wasn't going to change. He can veto that. Kit Williams: That would be taking money away from the state and giving it to us. Eldon Roberts: That's not going to happen. Policemen's Pension and Relief Fund Board d o of Trustees Meeting Minutes February 24, 2011 Page 4 of 22 Sondra Smith: There is a bill out there to take money from the fund that is currently going to State Police and channel it back to the guarantee fund for the local plans. Kit Williams: The problem is the state would have to make that money up going to state police retirement funds because that has had problems too. That means they would be taking state money and giving it to us. I don't see that happening. Eldon Roberts: For years the State Police had a non contributory pension plan. They didn't contribute one cent of their salary to the pension. It has changed now. It is things like that that happened years ago that's helping bring on the short fall now. It's called under funding and they got a free ride for several years. Kit Williams: We have some problems but we are much better than many other places. Eldon Roberts: We are fortunate. If we were lucky we would be fully funded. We are just fortunate it's not any worse than it is. Frank Johnson: In the context of this letter, we all understand the background relative to the fire plan. Aside from just the answers here are you able to give us any indication of what direction the Pension Review Board will go in supporting any legislation that may amend an existing statue to allow for the adjustments? Kit Williams: They have seemed pretty hostile toward that. I doubt they are going to get behind that. Mayor Jordan: I wanted to send a clear message from the City and the Firemen's Pension Board that this is what we would like for them to do. We are under their umbrella and they work for us so I felt as though they are the folks that should be lobbying to try and get at least legislation to where when we see a pension in trouble that we could reduce the benefits. I get bogged down in common sense on that. If you get in trouble financially then what you try to do is to cut back on your expenses so you can survive. Kit Williams: Sometimes the law allows that. Mayor Jordan: I'm trying to get my head wrapped around why that would not be a legal thing to do if you saw a pension in trouble. Jerry Friend: I think Kit believes it is. Kit Williams: I believe it is. Jerry Friend: I agree. I'm not a lawyer but its common sense. Mayor Jordan: There is nobody that wants to see these pensions go down where nobody can draw anything at all. If I had a pension that was in trouble I would take cuts temporally, maybe you could gain them back later, to salvage the pension where at least somebody would get Policemen's Pension and Relief Fund Board d o of Trustees Meeting Minutes February 24, 2011 Page 5 of 22 something out of it. I've been the chair of these two committees for two years so that is about as much as I know. You all have more wisdom in how this thing works than I do. Frank Johnson: Why do you say hostile? Kit Williams: They say there is no way that there is any authority now whatsoever, despite the fact that I did point to some statutes within the pension chapter, that to me it could be easily read to say that they had some power like that. They said no, there is no way we can ever have that. When they came up to give options to the City Council and the Fire Pension Board, all their options were raising revenue. There were no options about anything else. They seemed hostile about doing anything that might possibly reduce benefits. A lot of the Pension Review Board is retirees, aren't they? Eldon Roberts: There are two fire and two police representatives on there. Some are retired some may still be active. There are mayors from different cities, and people from the public that have been appointed by the governor. There is a gentleman there by the name of Richard Drilling who is with the Department of Finance and Administration in Little Rock. He is meeting with the governor everyday. I don't know if he is a voting member on the Pension Review Board or an ex -official member but he is there at every meeting. He is a fine guy. When they were discussing short fall on a lot of the plans and getting state money, he told them how the Governor feels about all of this. He feels that all the municipal pension plans that are in trouble are the municipality's problems. Kit Williams: No matter whom the Governor is it's not going to make a difference. Eldon Roberts: It's the municipality's problem. Kit Williams: It might not be fair Frank for me to characterize them as hostile but that is my feeling. My feeling is they do not want to look at an option that would reduce benefits. Eldon Roberts: We are talking about the Pension Review Board? Kit Williams: Yes. Frank Johnson: It seems the statute clearly establishes parameters on how the decisions are made to increase benefits. Eldon Roberts: Yes, it is. Kit Williams: There is no comparable procedure set forth at all about how you would reduce benefits. Frank Johnson: I understand that but whether you are going up or down it's a change and it seems like the discussion has been centered on the reduction. We are talking about a fiduciary responsibility for board members to do that in the event we have to do it knowing there are some liabilities for our not keeping it solvent. It seems like that is the issue for us, we should have some statute authority to make adjustments. Policemen's Pension and Relief Fund Board d o of Trustees Meeting Minutes February 24, 2011 Page 6 of 22 Kit Williams: I agree. I wish the statute was clear on that because the Attorney General thinks the statute does not allow you to do that. Frank Johnson: So you can only increase benefits. Kit Williams: That's what the Attorney General says. I'm in minority here in saying you can. Frank Johnson: Everything is a matter of public record as far as I am concerned. I don't know if any of you remember this but I have a copy of it here, Steve Davis thought it was necessary to make a copy of a situation with some pension board members somewhere in the west coast who were sued for not carrying out their fiduciary responsibilities. Kit Williams: It was a newspaper article. Frank Johnson: There is a pattern of the same refrain of increasing benefits and the potential to make the plan solvent. Now here we are being responsible and from what I am hearing we are not really being heard by the Pension Review Board. I would like to know their response. Do we have any record of them saying "no, we don't support this?" Kit Williams: They have been to several meetings and it is probably in the minutes of the meetings. Sondra Smith: That they don't support lowering? Kit Williams: Yes. Frank Johnson: Or a legislative change? Kit Williams: No, they have not said anything on that. Mayor Jordan: I don't have an answer on that. We just sent the letter last week. Frank Johnson: Okay, but you have had a conversation with them? Kit Williams: Not after this letter. Sondra Smith: No. Kit Williams: No, just my gut feeling is they don't seem to be very interested in that direction. Frank Johnson: Okay. Eldon Roberts: Sondra, the bill you mentioned if you're a plan that has increased benefits you would still be guaranteed. What about the 1 mill thing? Sondra Smith: I didn't see anything about the millage but it's a very detailed bill. We can look at it. Policemen's Pension and Relief Fund Board d o of Trustees Meeting Minutes February 24, 2011 Page 7 of 22 Eldon Roberts: Fayetteville Fire and Police are guilty of both of those two things and drawing more than 50% of salary. Sondra Smith: To answer your question regarding the City not being liable for the pension fund, I was going through some old records and I found an Attorney General Opinion 96-115 from April 25, 1996. Someone was asking the same question that far back. The last sentence says `7 therefore conclude that neither the municipality nor the state is obligated to make up the shortage in an under funded fire pension plan but that shortage can be elevated by application to the Arkansas Fire and Police Pension Guarantee Fund pursuant to Act 1266 of 1995. " They keep saying go to the Guarantee Fund. That is another question we have. What can the guarantee fund do for us? Eldon Roberts: You have to qualify for it and neither of us does. Sondra Smith: You have to be at 50% and one mill so you don't qualify. Eldon Roberts: Right, on either aspect of it. Kit Williams: They did change the law after that Attorney General opinion where they would allow an increase in benefits to a town or fund in Arkansas as long as the City said they would be liable for it and if the City Council said yes then the city is on the hook. It was a plan that wouldn't even pass the cash flow basis for the increase. They wanted to allow it anyway and they took it to their City Council and they said yes we will be good for it. So they are going to be good for it. Our City Council has not done that. Frank Johnson: There are those who believe the same for a city whether you have done it or not. Kit Williams: I would agree with the Attorney General, I do not think that is correct unless it is consolidated with LOPFI. If we consolidate the plans with LOPFI then the City at that point is good for it. At that point the City has to make up a short fall. Eldon Roberts: One of the things that has everyone on hold, is there is not a decision out of a court of law in Arkansas as to whether or not the cities are or are not. I assume that is coming some where down the road. It may not ever be here. Little Rock Police or North Little Rock, I think is considered to be in the worst shape than any plan out there right now. Mayor Jordan: That is what I understand. Eldon Roberts: There were six plans, Fire and Police that got a letter from the Pension Review Board saying we need to know what your battle plan is. That's why Fayetteville Fire got their letter. There were a total of six and that might have increased the last time I was there to eight. Kit Williams: There is nothing required by statute for them to notify us. Eldon Roberts: That's right. They notify your plan if you are suspected to be insolvent in ten years or less. I understand Little Rock Police may be in worse shape than any of them so Policemen's Pension and Relief Fund Board d o of Trustees Meeting Minutes February 24, 2011 Page 8 of 22 everybody is just sitting and waiting to see if they are going to file a suit against their city. I don't know that for a fact. Then we will eventually have a court decision. Kit Williams: On that issue but not on the issue of whether or not you can reduce benefits. Eldon Roberts: Right, who would be worried about reducing the benefits if the City was going to be good for it. There is no court decision out there that spells that out either direction. It's never happened but I think its going to happen. Kit Williams: I hope it is Little Rock before us. Eldon Roberts: I think it will be. Frank Johnson: I find it interesting that the Pension Review Board would be not receptive to any changes that would allow us to make decisions to better manage the fund. It's a closed plan and we can only expect so much income from our investments and from city revenue streams. Jerry Friend: I don't think it's the Board. Kit Williams: I haven't talked with them so I don't know what their official position is. Maybe they will be in favor of having a new statute that would give you all additional powers. We haven't had a response from the letter. To me in earlier meetings they didn't seem to be very enthusiastic in that direction but I should not presume to know how they will react to the letter. Eldon Roberts: I go to all the meetings and I have never heard that discussed or brought up, getting legislation that would allow a local pension board to reduce benefits. Kit Williams: That is a new issue. Eldon Roberts: I think they are working off the premise of us trying to find more revenue streams so we won't have to reduce benefits. That's going to be tough also. Frank Johnson: I think it is appropriate to make adjustments as opposed to making a reduction. I know what the scenario is now. Mayor Jordan: Would you like the Mayor, as your chairman, to send a similar request from this Board to support legislation like that. To you give you more power for adjustments? Eldon Roberts: I would have no problem with that. We are not there, but we are maybe going to be there, then it would be cut and dry as to what we could do and couldn't do. Right now we face the same situation as the Fayetteville Fire does. The Attorney General is saying you cannot vote to reduce benefits to your members. What that does is if they were to go ahead and do that there could be a person drawing the benefits file a lawsuit against them. City Attorney Kit Williams: It would be against the Board. Policemen's Pension and Relief Fund Board d o of Trustees Meeting Minutes February 24, 2011 Page 9 of 22 Eldon Roberts: He would say you did something that the Attorney General said you couldn't do. City Attorney Kit Williams: The good news for you is that if the Attorney General is right and I am wrong then the judgment that would be received would be coming out of the pension fund to pay the back payments that should have been made. Where if I am right and the Attorney General is wrong and somebody sues a pension board because they let it go broke there is no pension fund at that point to pay the damage, so they may be looking at the pension members individually to pay the damages. That is nothing that you have to worry about anytime soon. The Firemen's Pension is in much worse shape than you. Eldon Roberts: I follow Mayor Jordan's advice. He gave me some of the best advice there ever was just don't run for re-election. Melvin Stanley: What is the purpose of us being here if our hands are tied? Mayor Jordan: I just like all the options on the table. I felt like we needed to send that letter and they asked for a letter. We need that option if we have to do it. It is still a vote of this Board what you do. If you have enabling legislation to do that it's a far cry from having no legislation at all. I am not saying let's cut this pension tomorrow, but it gives you an option if you see the thing going completely down we could have enabling legislation to allow us to do that and that is why I wanted to put that in there. Eldon Roberts: Fayetteville Fire, if they receive no help from the guaranteed fund and the insurance turnback doesn't change and they continue in the direction they are going, and then eventually they will have to take a harsh action of reducing benefits. If that was in their favor now they can do that and no member that is receiving the benefit could file a suit against anybody. Mayor Jordan: That is another reason I wanted to do it. Melvin Stanley: Then let's have the Mayor do it. City Clerk Sondra Smith: You need to make a motion and second if you want a letter sent so we have a consensus. Jerry Friend: Can you say what the letter says. City Attorney Kit Williams: It is basically going to say what the other letter did on that last issue. Eldon Roberts: It says that we support the Pension Review Board, supporting a change in the legislation to allow local fire and police pension boards to reduce benefits. Mayor Jordan: I want to be sure that you all are on board with the letter. Policemen's Pension and Relief Fund Board d o of Trustees Meeting Minutes February 24, 2011 Page 10 of 22 Sondra Smith: Actually what we did on the Firemen's Pension is we wrote the letter at the meeting and voted on each item that was going to be in the letter. Frank Johnson: I think that would be the appropriate thing to do Sondra Smith: If you want to do that we can go ahead and let Elaine do her report. Mayor Jordan: We will draw up a letter, bring it here and then vote on each paragraph. Eldon Roberts: I appreciate that but we would be pretty much right in line with what the Fire asked for on that one aspect. Eldon Roberts moved to approve sending a letter to the PRB Board. Melvin Stanley seconded the motion. Mayor Jordan: What do you all think about the letter? Do you want to make any changes to it? Frank Johnson: Can we read it again? Sondra Smith: The Fayetteville Police Pension Relief Board requests that the State Pension Review Board support a change to the state statutes to allow and clarify proper procedures for local Police Pension and Relief Boards to adjust benefits up or down for beneficiaries as required by financial considerations of the pension fund. Mayor Jordan: We don't have to vote on the letter today. You can wait until the next meeting if you want to think about it. Eldon Roberts: The letter for the Fire Pension has already been drafted and sent? Mayor Jordan: It's gone. Eldon Roberts: We can go ahead and do this but we are not under a time constraint to have to do it. Will the Fire Pension letter do for us what it is going to do for them? Sondra Smith: There is probably strength in numbers, the more people that request that the more likelihood of it happening. Melvin Stanley: I think it would show an interest on our part. We are not there but we sure could be one day. Jerry Friend: I like the wording. I would move that we send it. Frank Johnson: The draft captures what we are looking for. Melvin Stanley: I think we need to be on record. Eldon Roberts: If that gets addressed it is a long drawn out process. Policemen's Pension and Relief Fund Board d o of Trustees Meeting Minutes February 24, 2011 Page 11 of 22 Melvin Stanley: If we get there, in three or four years from now, we can say we sent them a letter for clarification back in 2011. Frank Johnson: The reality is we need that. Sondra Smith: To me it shows that you are putting forth some responsibility. Eldon Roberts: We are trying to get synchronized and get ahead of the curb. Frank Johnson: Did you guys think you could do that? When the vote was made and the decision was made to increase was there any thought process about "I wonder if we will ever have to decrease?" Jerry Friend: We talked about it in a meeting I remember. Eldon Roberts: We have never been in a situation where that even was a remote chance of something we were going to have to do. Sondra Smith: I questioned that myself and I sent a letter to PRB on my own behalf and asked that question. "Can benefits ever be reduced" and was referred back to state statutes. I assumed it could, well what they were referring me back to was the statute that says when the fund goes bust they prorate it, if you can reduce it when it goes bust that means that you can reduce. Eldon Roberts: Jerry and I have discussed that pro rata statute too. That is when you are getting to a way worse financial state than either Fire or Police plans are in now. That's when you're down to nothing. You have no assets in the bank. You're still receiving your insurance tumback, if the legislature doesn't stop that, you're still receiving the millage and court and fine forfeitures from the District Court and that is it. You don't have any assets that are earning interest like Elaine. That is when you are down to all you have coming in is the revenue streams aside from investments. At that point in time you have to go to pro rata. It doesn't exactly tell you how to do pro rata. Sondra Smith: You might have Kit clarify that because it doesn't say that you can't have any investments coming in other than your millage and stuff like that. Eldon Roberts: It's my understanding when you are down to nothing but the revenue streams that I mentioned, the only thing that you are assured you are going to have coming in. When you get to that point, even if investments are included in it, you are down to where there is just a small amount of money coming in every year or month. Jerry Friend: I don't think it matters what's coming in. I think at that time if you don't have enough money to give everybody. Sondra Smith: If you don't have enough assets to cover liabilities. Jerry Friend: You have to prorate it so each one gets a percentage. Policemen's Pension and Relief Fund Board d o of Trustees Meeting Minutes February 24, 2011 Page 12 of 22 Eldon Roberts: Right, I think it says if at any time the fund cannot pay, and I guess it means monthly, the full benefit to every member then pro rata. Sondra Smith: As the Mayor and Kit have said why do you want to get to that point? Jerry Friend: We don't. Eldon Roberts: Right. Sondra Smith: My deal with the Fire Pension is lets show the Council that we are willing to take a small cut and then they might work with us on getting it sent to LOPFI then you are secure the rest of your life. Otherwise you might run out of benefits. Which is the more secure way to handle your fund? In that meeting they were real clear until the Fire Pension made some cuts that they weren't willing to even consider sending them to LOPFI or consider doing anything to help the plan out. Isn't that right? Mayor Jordan: That would be correct. I know Sondra and I had made a proposal to cut the benefits once and it was voted down. Sondra Smith: Twice. Kit Williams: The Fayetteville Police Pension Relief Board requests that the State Pension Review Board support a change to the state statutes to allow and clarify proper procedures for local Police Pension and Relief Boards to adjust benefits up or down for beneficiaries as required by financial considerations of the pension fund. Eldon Roberts: Do you need to adjust them up because that is already there? Kit Williams: I don't want to just say adjustments. Eldon Roberts: I know what you are saying. Kit Williams: I wanted them to realize. Eldon Roberts: By up or down you are telling them "or down." Kit Williams: I will leave that with you. Do with as you please. Sondra Smith: There is a motion by Roberts and seconded by Stanley to send exactly what Kit has read. I will email you a draft of the letter before we mail it. Eldon Roberts: All we are doing is just asking them to go to the state legislature and try to get something in the law that tells us we can reduce benefits if and when we ever have to. Mayor Jordan: All it does is gives you another option and you don't have to use that option. If you get in a bind you will be glad you've got that. That is all I'm saying. Policemen's Pension and Relief Fund Board d o of Trustees Meeting Minutes February 24, 2011 Page 13 of 22 Sondra Smith: Without a lawsuit. Eldon Roberts: We have that option now like I mentioned awhile ago. Mayor Jordan: The legislature has backed you. Eldon Roberts: We would be following the law. Melvin Stanley: Do we need to vote on that? Upon roll call the motion passed 6-0. Tim Helder was absent. Board Election: Eldon Roberts, Tim Helder and Melvin Stanley City Clerk Sondra Smith: We will be doing the elections in May. I need your feedback if you are willing to serve again. We will be sure and call to make sure you want to continue to serve. You adopted a set process on how we do the election. Kit's memo is in there with the step by step process. Just look at that and if you have any changes to that we will meet again in April and we can discuss any changes that we might have. Eldon Roberts: Maybe the changes was just something helping you keep track with who all you sent ballots to and who you got them back from. City Clerk Sondra Smith: We can't even open the ballots until one of the meetings. So just refresh your memory on the process. City Attorney Kit Williams: I think we did it mainly for the Fire Pension Board. Discussion Items: LOPFI Eldon Roberts: This is something we are carrying forward every meeting. Melvin Stanley: We can cross that one off and save some ink can't we? Sondra Smith: It is up to you guys you asked me to leave it on the agenda so I leave it on. If you tell me to take it off I will take it off. Eldon Roberts: I don't think there is any problem leaving it on. How we can we aet the beneficiaries involved in the discussion of the future of our plan. Frank Johnson: I have that on there. It may be more to my effort than any of the other board members but we have these meetings and I like to hear from all of you. I don't hear much from Policemen's Pension and Relief Fund Board d o of Trustees Meeting Minutes February 24, 2011 Page 14 of 22 any of the beneficiaries. It's not that they are voting members but they can certainly influence any of the efforts to change any legislative activities. I think this is a matter of engagement. There should be something to get them more involved. It may not be something you guys think is necessary. Jerry Friend: We talked about a letter going out after every meeting but the cost was pretty expensive. The City couldn't bear it we would have had too. Eldon Roberts: We did a couple times and it was a big hit but a lot of work, money, and time. It would be even more now. Jerry Friend: The meeting gets posted in the paper along with all the other meetings. Sondra Smith: We don't do that. That's up to the paper to list the meetings. Eldon Roberts: I've seen it on the television on the meeting board that shows the City meetings. Jerry Friend: If I was just a member and I thought you all were doing a good job I would probably just stay home. Sondra Smith: We can put the tapes from the meetings on our website through our Granicus webcasting to where anybody can watch the meeting on a computer. At one point in time we talked about putting the agenda's and minutes on our website and no one really wanted to do that. Eldon Roberts: I don't think for the most part you are going to hear anything from most of the beneficiaries until something really serious comes up. They invited me to the retired Policemen's Christmas dinner. They wanted me to come and give a thumbnail sketch and I did. There were only eleven of us there. Basically we went over what is going on and I assured the ten or eleven that was there that if really major decisions affecting them and their benefits were coming down the pike, for us to act on, we would contact each and every one of them and set up meetings. They were all appreciative of that, if something is really serious coming down the pike that is going to affect their benefits. Sondra Smith: Anytime you all want either the minutes or the agenda's on the website all you have to do is tell me. Eldon Roberts: The report that Trish keeps, the running total for every year, I copied that for all of them and went over that briefly with them. Jerry Friend: I don't remember seeing it in this. Sondra Smith: I don't think I received it. They are busy working on the new timekeeping program. Policemen's Pension and Relief Fund Board d o of Trustees Meeting Minutes February 24, 2011 Page 15 of 22 Eldon Roberts: It is something she's got that she can bring right up to date. It's really been beneficial. I've heard a lot of people that are interested in seeing that. It gives you a thumbnail sketch of exactly what comes in and what goes out every year. Frank Johnson: I appreciate that. Eldon Roberts: It may be something they want to do every year. It is a Christmas party they have every year. Everybody is invited. I had never gone to one but they specifically asked me if I would come and give them a little run down of the pension plan and I did. Frank Johnson: I asked that Sondra put this on here as a matter of discussion knowing that, as we pursue some of the legislative initiatives that we should, as a matter of due diligence socialize the need for that with the beneficiaries so it doesn't come as a shock to them when there is some serious discussion about a possible reduction of benefits. Longer Investments: The Longer View A copy was given to the Board Northern Trust Correction Letter A copy was given to the Board Longer Investments monthly report Elaine Longer, with Longer Investments: A lot has happened already just this year. When I wrote the year end newsletter what we talked about was even though the market had appreciated by 13% or 14% last year, the earnings that the S & P 500 has generated had improved more than that. Even though the market was up pretty strongly last year it closed the year at evaluation that was still very low compared to where interest rates are. The valuation on stocks is still not richly valued. We have had a big move off the July lows about 30% through year end. At the peak that we hit at 12,400 was 100% off the low of March 2009 measured by the S & P 500. I don't know if it was exactly the same on the Dow Jones Industrial average. It's been a big move off the lows and now we are coming into a period where we are going to be discussing some very serious budget issues and there is going to be an all out war about the depths of reduction plan and this is something that the markets are keenly focused on. We had started "trimming the sails" a little bit. If you look at your first page of your report this is your December 31st report and you can see that at the bottom we were at 55% stocks and the dividend yield on the stock part of your portfolio is 3%. When you consider that the 10 year treasury spent most of last year under 3% and has just recently moved back up to about 3 'h%, we have been maintaining a pretty conservative posture in the equity market trying to emphasize those blue chip companies that have a good strong dividend yield. That has worked well in this past year. Policemen's Pension and Relief Fund Board d o of Trustees Meeting Minutes February 24, 2011 Page 16 of 22 If you go to the next page, the total foreign equities were 4.2% of portfolio so you close the year at about 59% equity exposure so we need to ask for a vote for approval to be over that 50% policy. Eldon Roberts moved to approve the Equity Overage. Frank Johnson seconded the motion. Upon roll call the motion passed 6-0. Tim Helder was absent. Elaine Longer: The updated report which is on page 4 shows the portfolio as of February 22 and actually as of February 23 equities as a percent of portfolio are 44% so you can see that we have really been trimming the sails a bit as the market continues to move higher in January and February. Mostly because some of the stocks reach our evaluation level or exceeded our evaluation level. Also we had a pretty big move up between January and February. At one point we were up about 7%. Then when the Egypt event started to unfold we trimmed even more. So we are in a pretty defensive posture closer to the lower end of your policy guidelines instead of above the upper end. So the cash reserves go into things like the five year treasury. We have plenty of cash reserves that we can pull from as this market pull back takes place. Now that we are in the beginnings of the market pull back we think that you can see a better buying opportunity. I don't know if it will be 5%, we are already down about 4% from the high, it could be as much as 10% or 15% as this whole Middle East crisis unfolds. I was looking at my computer today before I came to the meeting to see how much oil has increased in price since the end of January, 17 lh% on the nearby crude contract. This is huge, the transportation index has been hit much harder than the industrial index, the Dow Jones Industrial average, because the Dow Jones Industrial average holds oil stocks like Chevron and Exxon so it has been more defensive. If you look at the percentage decline in the transportation stocks which are sensitive to the rising cost of fuel, the same percentage decline in the Dow would have put us down about 900 points. Even though the Dow is only off about 400 points from its high there is much more weakness under the surface, that you don't see, just in that average and how it's reported. It is a serious event. The economy has started to improve although unemployment is still sticky at 9%. 9% is a fluke it's really higher than that. In the month of January because of weather a lot of people who were unemployed didn't go out to look for a job so they became discouraged unemployed. They are still unemployed but are not counted in the governments unemployment statistics as unemployed unless they have actively looked for a job within the last 30 days. So if you factored that out and some of the other tweaking in the numbers, the true unemployment rate is still about 9.8%. So the economy has started to recover. We are not completely off the government life support system though because the government budget deficit is going to be $1.6 trillion so we are still spending a $1.44 for every dollar we bring in tax revenues. You couldn't run a business or a household budget like that for very long and so what is happening is the Federal Reserve is financing the debt with quantitative easing. So what you hear about quantitative easing, QE2, basically the Federal Reserve has said we will allocate $600 billion to buying treasuries between now and June of 2011. $600 billion is about equal to the amount of debt that the Government will issue during that time period. So basically you have the Federal Reserve, which is suppose to be independent to the government, picking up Policemen's Pension and Relief Fund Board d o of Trustees Meeting Minutes February 24, 2011 Page 17 of 22 the treasury debt that is issued by the government over that six month period. This is highly simulative and could be inflationary as the economy continues to improve. We are still not running without the life support system because you have fiscal stimulus at the Government level with $1.6 trillion in deficit spending this year and then you have stimulus on the Federal Reserve level with $600 billion being applied to buy treasuries. The combination of these two has caused commodity prices to rise. First off you see asset inflation, it's not going into real estate or expanding plant capacity because we are already at 73% to 74% capacity utilization. Nobody needs to really add to plant capacity. Where does all that liquidity flow, first you have asset inflation, which is one of the reasons why the stock market is up by 30% from the time they announce QE2 but then you also have commodity inflation. That is why you see a cotton prices, food prices, energy prices, increasing in value because of that extra money that is in the system. As this all manifests itself and finds its way into the economy we have seen a pick up in economic growth, not a lot though, and not enough to take a 17 '/2% increase in energy prices without a hiccup. That is what you are seeing in the markets right now with this crisis that is impacting energy prices. It's impacting the stock market because it throws into question the economic recovery which is still somewhat fragile. It's interesting to see the spike in oil prices be greeted by the bond market as deflationary and not inflationary. What has happened since these oil prices spiked is bond interest rates on the long end have actually gone down and bond prices have gone up. You would say why would that happen because this should be inflationary and that should mean higher interest rates but what the market is saying with the stocks pulling back and with bond prices going up and the interest rates dropping is this may put the recovery on hold, this may threaten the economic recovery. That is the picture you are getting out there. One of the people that are most watched in terms of speaking is Mohammed El-Erian with Pimco. They are the largest bond fund. He has written some fabulous books but he has government background. He said the greatest risk right now is stagflation and that is actually the picture that the markets are putting out there that you have this pocket of inflation in commodities and energy prices that could negatively affect growth so that you have stagflation. It's wise to be cautious here. You have seen us for the past couple of years stay pretty much at that 55%. Each time I am here I am asking for a vote to stay above that level and so now we have trimmed the sails a little bit and gotten to a little bit more defensive posture and we will wait and see how this unfolds. At the end of yesterday you are at about 44% equities so the fund is worth $8.4 million and your overall income yield which is dividends plus interest is 3 '/2 %. So you have the income yield of a bond portfolio if you were 100% invested in bonds but you still have a good growth component. That is because we have also sought to get income off the equity side of the portfolio. The Central Fund of Canada is a gold and silver fund that we bought last year and we trimmed it by half. We had it at 1.5% of the portfolio but that was up about 30% last year so we trimmed that in half and still gold and silver as a safe haven have continued to perform well. If you go back to page 5 you will see that under Government Bonds the $300,000 that is in 2 3/8 is a five year treasury, we park cash in the five year treasury and that is as liquid as cash for us and we won't be holding that for five years. That is about 3.6% of total portfolio so when you take that into consideration and then what your cash balances are we are about 5% ready cash but we can easily raise more if we want to add back to the equity side of the portfolio. Policemen's Pension and Relief Fund Board d o of Trustees Meeting Minutes February 24, 2011 Page 18 of 22 We emphasize the high dividends on the stock part of the portfolio but if you took at the top of page 5 you can see these other income securities, a multi -asset income index which holds high dividend paying stocks, like pharmaceuticals, energy, utility companies, it yields higher than most bonds at 4.7% and then also we have a utility fund which yields 4.1% so that is just 2% of portfolio but gives you an income of 4.4%. Then you can see that we use a couple of bond funds, one of them is treasuries and the other is investment grade corporate bonds which yield close to 5% and then we have preferred debt that gives an income yield of 6.3% but again you have to limit the exposure to the total portfolio just to be on the safe side so that is only 5% of total portfolio. Then you have a McDonald's Bond and Treasury's right now are 19% of total portfolio but the way we have staggered the maturities your income yield is 3.8%. Then you have government agencies that yield over 6% so you can see that it takes a lot of diversification now to be able to achieve the income yield on the fixed income side of the portfolio, but you are well diversified and everything is the highest quality. That is what I tell people when we are talking and they want to know what the crystal ball looks like and I say I wish I had one. At this point in time the best thing you can do is just be balanced between the various asset classes which you are, you have growth components, International, gold and silver, fixed income and then you are well diversified across all of those asset categories and then within those categories each individual security represents a small percentage of total portfolio. You have got a lot of balance and diversification and across every asset class it is the highest quality. On page seven realized gains year to date are approximately $365,000. The reason that is so high is because we took gains on some of our positions that had exceeded our valuation levels. Kim just alluded to me that is 2010 realized gains but we do have significant gains year to date also as we trim the sails a little bit. Page eight is your fixed income report. In the top category your weighted average yield to maturity on the bond portfolio is 4.5%. That is within a weighted average maturity of 8.7 years. That compares to a treasury yield of 3.4% in a ten year. You have a shorter maturity than ten years but you exceed the yield on a ten year treasury by 110 basis points. The next page is a copy of your contribution and distributions for last year. The contributions were about $245,000 and distributions were $923,000. The next page gives your performance from account inception from 1991. The year for 2010 total return on equities was about 12.7%. That compares to the S&P being 12.9%. The S&P with compounded dividends was 14.8%. Your international was 9.5%. The index on international is 4.9%. The bonds were 8.5% and the bond index was 4.1%. Last year your total return was 11.7%. The domestic stocks pretty much performed in line with the averages but where the out performance came from was the international greatly out performed what the international index did. On the fixed income side, the way that you achieved 8 '/z %, was we had a couple opportunistic trades in the bond market last year where we had gone into the longer term treasuries. We got 7 or 8 points of price appreciation, we take that bond off and wait for the bond to come back down. It's been a year last year like that that you did have enough volatility in the treasury market that you could be a little opportunistic on the fixed income side. That's why you see an 8 '/z % even though your yield is 4.6%, we had capital appreciation on the fixed income side as well. Year to date equities are up 3.6%, bonds are flat and the total is up about 1.8%. Policemen's Pension and Relief Fund Board d o of Trustees Meeting Minutes February 24, 2011 Page 19 of 22 Looking down the categories you can see your total return inception to date has been a compound annual 6.3% net of all expenses. That compares to the actuary assumption that for the most part was 6% throughout that history. You have more than out performed the actuary assumption that was in place behind your plan. There was one year that they increased it to 7% and then they dropped it back to 5% so the average for the most part has been a 6% assumption and that has been achieved. Below you will see from July 26, 1990 through the end of 2010 the components of return, we call this an asset reconciliation, you have the beginning value, deposits that come in after that, transfer in of securities and then the withdraws from inception to date have been $7.934 million. The components of return basically income and growth have given you a net investment return of $6.578 million. The investment return even though it has met actuary assumptions has trailed the distributions by about $1.4 million. The ending value of the portfolio at year end was $8.515 million. Does anyone have any questions on the reports? Frank Johnson: Can you summarize what you just said with the last section. Elaine Longer: On the distributions and contributions? We started out managing $1.3 million to begin with and then additional assets came in through the years to the point to where we were managing the whole fund. That is why you see additional deposits and transfers of securities. Since the very beginning the distributions from the account as we have seen it, there may have been other distributions that took place before we managed all of it, but just in the assets we have been managing, the total distributions have been $7.93 million. The net investment return, which if you look at the 6.3% compound annual, that means in terms of dollars is $6.57 million. The net investment return is shy of the distributions by about $1.4 million. The weight of the distributions has exceeded the investment return even though the actuary return assumption has been met. Jerry Friend: That is since 1990. Twenty something years. Elaine Longer: Yes. We don't go back as far with Fire as we do with you. I don't know what their return history has been prior to 2002 because that is as far back as we can see but during that bear market of 2001 to 2002 the S & P was down about 40% and the NASDAQ was off 67% but the total decline in your portfolio was only 4%. 1 would say that is a big reason why you're still compounding above the actuary rate of return. In managing money it's so much more important to protect on the down side in a really bad market because if you lose 25% then you have to make 33% to get back to break even. It's the miracle of compound interest and reverse on the down side. We also tend to be very conservative as you have seen through the years when it looks a little bit dicey out there. I think that was probably part of the reason yours has done so well but I can't really make a comparison because we can't see back that far on the other account. The next page shows the investment policy and we are in the process of updating the investment policy because the SEC rules have changed, you can imagine post Madoff and with financial regulatory reform. The investment policies are going to be much reduced in terms of all the wording and pretty much just lay out the investment objective. The liquidity needs, which is your distribution needs. The approved list of investments that we can use and when we first started there were very few exchanged traded funds. I think there was the SPYDER (SPY) which is the S & P 500 and the Diamonds (DIA) which is the proxy for the DOW. Now you have a world of exchange traded funds and we use them in a number of ways as you've seen to Policemen's Pension and Relief Fund Board d o of Trustees Meeting Minutes February 24, 2011 Page 20 of 22 either increase industry weightings, the international and hedging. We will be incorporating more in your investment policy of the newer investment vehicles that we use besides the stocks and bonds that we have always used. We are in the process of updating that and offering back to the next meeting. Mayor Jordan: Any questions on that? Jerry Friend: You will explain them to us? Elaine Longer: In fact you can go on our website and read it because we prepared a written piece on ETF's (Exchange Traded Funds) and I will bring that with me next time. We have a print out. It is an excellent tool and we use it in a lot of different ways and the report we did that is on the website but also available by hand out explains how we use them. Jerry Friend: Do you handle a lot of funds? Are their policies close to ours? A non government might be a lot different. Elaine Longer: Every single account that we manage is managed independently and it has its own investment policy. We have everything from retirement accounts, pension profit sharing, family trusts, foundations, public money, and so every account has its own policy. But within that if we are buying Boeing for an account our systems know that you're 50% equities. Some one else might be 30%, someone else 70% to 100%. It knows yesterdays closing value. When I go into buy a stock and I want it to be 2 1/z or 3% of equity exposure the computer system knows exactly what that is for every account. Jerry Friend: So you buy Boeing all at once. Eldon Roberts: It divides it out the way it needs to be according to the investment guidelines. Kit Williams: They are going to get the tanker contract? Elaine Longer: Well that was up in the air today. In fact we took Boeing back off today at cost. We put it on last week but what has happened in the past week, just with energy prices and with the transportation stocks, makes me think we can just step out and let the dust settle and then decide if we want to go back in. If you look across our client base you would see different percentages of portfolio allocated to equities or to fixed income but the equity performance is very similar. We use for the most part blue chip stocks and stocks that would be appropriate for even people who are more risk adverse than others, we don't really deviate too much from what we can actually allocate across the portfolios. When we closed the year we manage approximately 170 million now. We appreciate you. You were way back there when we first started in 1989 and we started in 1985. Thank you for the vote of confidence when we were just a little firm. Eldon Roberts: Jerry and I remember walking over to your office and visiting with you. We had never met you before in our life and we told you we were not representing the full board. We were just two members on it but we liked what you told us and what you had to say. We came back and presented it to the Board and I think the rest of the Board only felt comfortable Policemen's Pension and Relief Fund Board d o of Trustees Meeting Minutes February 24, 2011 Page 21 of 22 with giving you half of the assets. We came back over there and told you and you said that is fine I will do a good job and have them all in another two or three years. I think we are where we are at today because of you. I certainly believe that. Elaine Longer: I appreciate that. Eldon Roberts: I certainly believe that. Frank Johnson: I think it would be good for me and any beneficiaries who would like to have an explanation of what we do here. I know there have been times when you go through the report its like walking into the wrong physics class. I get the nuggets for the most part but since we are so dependant on our investment strategy to stay afloat it may be good to have something to give us a basic understanding of the most important things we are getting from these summaries. I'm just throwing it out there for consideration at some point. I can talk to you about this sometime. Maybe if the Board is okay with me talking to Elaine sometime about putting together something as a guide to reading these things. I'm thinking out front hoping that the beneficiaries will find some value in that as well. Elaine Longer: I think it is good that it is taped because then people who aren't here who want to hear it can. You're in a balanced fund because you can't just be in fixed income which is 4% when your actuary assumptions are higher than that. You have the growth component that supplements the income return so you can achieve those requirements. That's why you have part stocks and part bonds and then within those asset categories you're diversified. It's a conservative portfolio if you look at the quality stocks and bonds, you have no junk bonds, you have only investment grade in governments. It's a conservatively managed portfolio with a growth component and an income component. You have seen as we have gone through the years that in a negative year the bonds help to hold the value of the portfolio so your recovery is much faster so you don't have a big down spike even though you have stocks. It's basically balanced between growth and income to achieve your actuary return assumption but again conservatively managed as far as the quality of everything you own is the highest quality. Frank Johnson: Thank you. Melvin Stanley: What happens to our fund if the dollar crashes? Elaine Longer: It's a good question because you hear a lot about the risk to the dollar, with what the Federal Reserve is doing by buying the treasury bonds. That's called quantitative easing, monetizing the debt. That throws a lot of dollars into the system that are pretty much created with a key stroke of a computer. We don't have printing presses anymore. It's a book entry at the Fed. It puts that liquidity into the system. One of the repercussions is decline in the dollar. The dollar could lose value relative to other currencies out there, the Yen the Euro and the dollar are the primary currency. What's happening is we are the best house in the neighborhood right now. As bad as our situation is you have serious problems in the Euro zone with the PIIGS you've heard about Greece and Ireland, Portugal is next having difficulty floating their debt. These countries have broken the bands of what their debt to GDP was supposed to be a member of the Euro 3%; many of them are 9 or 10% debt to GDP. The Euro is under a cloud also and they can't react as quickly as we can because they have locally controlled fiscal policy Policemen's Pension and Relief Fund Board d o of Trustees Meeting Minutes February 24, 2011 Page 22 of 22 but monetary policy is controlled outside the borders. In the United States we have fiscal policy is controlled in Washington by the Congress but then you have monetary policies set by the Federal Reserve its all still within the borders. The Euro zone is under pressure and the Yen is too because their economic growth has been weak. The dollar would be weaker given our policies and our deficit spending in our Federal Reserve policy if it weren't for the fact that we are kind of like the least worst right now. It is the reason why you see gold and silver going up. Gold and silver are considered the currency of last resort. If you don't want to hold the Euro, Yen or the dollar you are buying gold. That's why you see gold strengthening. Jerry Friend: As the dollar goes up and down, stocks pretty much fall? Elaine Longer: Stocks have actually been a beneficiary of the dollars decline because of the fact that stocks over time are more of an inflationary hedge than bonds are. There is a lot of volatility going on out there. It's a great question because what the DOW did today is nothing compared to all the volatility going on under the surface between the currencies, the gold and silver, the different sectors and how they respond to these various policies when QE2 kicked in there was a huge shift towards materials, energy and the inflation protecting sectors of the stock market. The more defensive sectors which have performed well going into that which is food, clothing, household products, and pharmaceuticals took a back seat. Underneath the surface all of this is creating a lot of volatility called sector rotation and it has to do with what the dollar is doing. Longer Investments 4th Quarter 2010 report. A copy of the report was given to the Board Informational: 2011 Meeting Schedule A copy was given to the Board Jerry Friend: Did our parking things come in the mail? Mine still says 2010. Sondra Smith: I'm going to have to ask. I'll check on your parking permits. Meeting Adjourned at 4:55 PM