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HomeMy WebLinkAbout2013-04-25 MinutesBoard Members Mayor Jordan Chairman Sondra E. Smith Secretary Roy Cate Position I/Retired Pete Reagan Position 2/Retired Dennis Matters Position 3/Retired Ronnie Wood Position 4/Retired Faye ,vi.le Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes April 25, 2013 Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes April 25, 2013 Page l of 7 A meeting of the Fayetteville Firemen's Pension and Relief Fund Board of Trustees will be held at 3:00 PM on April 25, 2013 in Room 326 of the City Administration Building. Mayor Jordan called the meeting to order. Present: Mayor Jordan, Pete Reagan, Ronnie Wood, Dennis Mullens, Sondra Smith, City Clerk, Paul Becker, Finance Director, Kit Williams, City Attorney, Lisa Branson, Deputy City Clerk, Kerry Watkins and Glenn Atkins of Garrison Financial. Absent: Roy Cate Garrison Financial: 1st quarter reports A copy was given to the Board Kerry Watkins: We printed out updated reports through yesterday since the market has performed quite well in April as well. In your packets is the quarter end report. There wasn't a lot of activity in the account and the account performed very well. Quarter to date was up 7.12%, last twelve months the account is up 11.37%. The markets have performed remarkably well since last September. It would not surprise to us if we were to take a breather or have a little pull back here in the summer. We feel comfortable with the stock exposure. At quarter end we were a little over exposed to stocks versus the policy, stocks continue to gain in the portfolio. We are up to about 65.5% of the portfolios in equities. We are down to about $200,000 in cash and $83,000 is coming out in a couple of weeks. We will have to raise some cash in the next few months to fund distributions and we will take that from the equity side. With interest rates and stock evaluations where they are, we are still comfortable with the stock exposure. It has served you well the last year. We had a whole years worth of gains in the first quarter. It was very strong in spite of all the issues we have going on in the economy. We are very comfortable where we are and with the holdings. Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes April 25, 2013 Page 2 of 7 Glenn Atkins: Bonds performed quite well given the environment. The Federal Reserve has continued to say they are going to keep rates low for a couple of years and perhaps longer with quantitative easing. I guess we are on number three now and perhaps it will go to four and even longer. One thing we are considering doing on the fixed income side, is selling all or a portion of the Treasury note that has a 4% coupon that comes due in 2018. We can get a premium for it now and your yield on it now is .7%. We could put that in one or two of the mutual funds we already own, some of which are yielding 4% and some yielding 2.7%. Before we make such a large move, because that is $400,000 of your portfolio, I just wanted to bring it up and see if there are any comments or questions. On the surface it doesn't make a lot of sense because it's got this 4% coupon, but the current market value on it is somewhere around $468,000 which makes the yield .7% and some of the mutual funds are at 4% or slightly less. We think that it might be a good investment decision to make. Kerry Watkins: As we creep towards maturity that $468,000 will start turning into $400,000. We can't replace a 4% coupon, but you are going to get $80,000 in interest over the next five years holding this but you are going to give up almost $70,000 in principal value. Net you will get an extra $12,000 and that's why that yield to maturity is so low at .7%. Glenn Atkins: That's what we look at. We don't look at the coupon; we look at the yield to maturity or the call date, if the bond is called. We think that is the prudent thing to do. Pete Reagan: You are recommending doing what with it? Glenn Atkins: We would put it into some of the mutual funds that we already own in your account. Kerry Watkins: It has to go into mutual funds. Our preference would be to buy some other bonds, but since we are required to buy mutual funds, we will have to put it into some additional mutual funds. That principal is going to fluctuate with interest rates as well, just like it would in your individual bonds, but you would not be giving up that premium we have locked in right now if we were to sell it and replace it. Interest rates on treasuries are so incredibly low right now. IBM is the same scenario, but that's still yielding about 2.9% to maturity and that is a decent rate, but you can see that is a 40 point premium as well because it is paying 7%. Pete Reagan: I think that is a good move to do that. Glenn Atkins: I know that you receive regular actuarial reports on the fund and I would certainly defer to that for any official policy changes or distributions. Periodically, what we do for our clients, particularly the ones making large withdrawals is to run a simulation on the portfolio to see what it might act like over a period of time. The fund is about $4.6 million and we have used an average estimated withdrawal of $60,000 a month which equates to $720,000 a year. Kerry Watkins: We have had the fund a little over a year now. It will fluctuate with tax revenue and pension withdrawals happen. We do this for our benefit and want to give this Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes April 25, 2013 Page 3 of 7 information to you as well since we have a year under our belts at seeing what kind of withdrawals are coming out of the portfolio. Glenn Atkins: Asset allocation as it is in the policy at 60% stocks and 40% bonds. We assumed that expected return on stocks might be 8% on average. Historically since the mid 1920's, it has been about 10%, but it is up 40 and down 30 and very volatile. We cut it back a little from what the average historically has been. For purposes of this, we are using a 3% estimated return on bonds. Bonds since the mid 1920's have been giving you about 5% a year so we try to be very conservative on modeling the returns. Glenn had the board refer to the charts he brought to discuss what the portfolio might look like if it were generating weighted average returns year in and year out. According to the model we ran, by year seven you have about a 68% chance of not running out of money and it falls quicker from there given how the fund is set up and the obligations of the fund. I would defer to the official actuarial report. It is something we like to look at and think about how the portfolio might perform under current market conditions in current withdrawal rates. Kit Williams: Is that 2020? Glenn Atkins: It would be 2019. Kit Williams: In 2020, it's possible to run out of money by then? Glenn Atkins: It is possible that it could. When we did it last year we were using higher withdrawal rates and I think the run out of money year then was five years. Kit Williams: It has had good response. Kerry Watkins: It has had very strong performance and that certainly helps. Pete Reagan: Do you have the mortality rate figured into this? Kerry Watkins: No, that is just on the last twelve months of withdrawals. Kit Williams: You would think the millage will go up some and the payments out will go down some. Kerry Watkins: That is what we would assume too, but we are being conservative. Kit Williams: The older members are drawing less so the deductions will be relatively small. Glenn Atkins: That is how we model things and wanted to share it with you. If you would like for us to do this at any point in time we can. Kit Williams: Do we need a motion to be above what your policy is on the investment? Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes April 25, 2013 Page 4 of 7 Kerry Watkins: We have a variance in the policy of 10%. We would not go outside that range. We are still within the confines of the policy and 5% to 6% is about all we like to let it go anyway. We know there will be some additional withdrawals and have to raise some cash, it will come from that side and get it down closer to the 50%. Glenn Atkins: Fortunately, it was caused by the good performance of the market. Paul Becker: The last schedule that we were looking in the year 2020 there is a 36% chance of surviving? Glenn Atkins: Yes, and in each year the model runs one thousand scenarios. If you look at the 36% in that particular year, of the portfolios that survive, the average balance is $888,465. You have some that do very well and some markets that do not do well. In each of those years we ran a thousand simulations and that is the probability of success of not running out of money. Paul Becker: Your scenarios are based on different probabilities, however still consistent with stocks gaining 8%, correct? Glenn Atkins: Yes. Instead of using the average return, which in a 60/40 I believe is 6%, instead of using 6% every year the model will pull in the shape of a bell curve. It will pull higher returns in some of the simulations and very low return in others. It takes all the portfolios and figures out how many survive. In this case, 36% survive and the average balance is $888,000. Kit Williams: Next year of course would be even worse. Glenn Atkins: Correct. Under this particular look, it drops to roughly 17% in year nine and half that again down to 8% in year ten. If the market keeps growing at 13% we will look at it again. I don't think we can realistically assume that it will do that. Historically, stocks have given you about 10% annually and bonds have given you about 5%. Paul Becker: Even if it continues at 13% it's just going to push it out Glenn Atkins: Correct. I did not run one at 13%. I can do that if you would like to look at it, but I think it would be inconsistent with the actuarial report. Paul Becker: This has enlightened me and I like it. Pete Reagan: It is good information. Dennis Mullens: This could be done quarterly? Glenn Atkins: Sure Dennis Mullens: I would like to see it. Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes April 25, 2013 Page 5 of 7 Kerry Watkins: With almost all our clients tweaking withdrawals and returns can change the ending value. Given what this looks like, I still think the 60/40 mix, which we are currently in has done really well. Even if you were to swing for the fences and put it all in equity it would push it out some but I am not sure we could get to the point where it would be green all the way. We are still comfortable if you are with the current policy allocation. Hopefully stocks will perform better than they have since 2000. Average annual returns since 2000 have been about 2% on stocks. Glenn Atkins: It is challenging. Pete Reagan: We appreciate what you have been doing for us. Glenn Atkins: We appreciate your business and your confidence in us and we are happy to provide you with any information we can. Pete Reagan: For clarification, do we a need a motion? Kit Williams: No, it was such a big move that they wanted to talk to you about it. Glenn Atkins: I really just wanted to explain it to you because if you saw that trade come through and think why are they selling at 4%. We have seen such a run in the bond market in the last five to thirty years that a lot of the bonds we have in our portfolio show those same kind of things. You buy them at a really good rate, they run up in price and if you sell them at a premium and reinvest it and get some higher income. It's not a lot, but every dollar helps. Kerry Watkins: We are not going to generate that much more income, but we can not take that $70,000 loss that is going to come in that bond over the next five years. Approval of the Minutes: January 31, 2013 meeting minutes Dennis Mullens moved to approve the January 31, 2013 meeting minutes. Pete Reagan seconded the motion. Upon roll call the motion passed 5-0. Roy Cate was absent. Pension List Changes: None Approval of the Pension List: Sondra Smith: At this time there are no changes to the pension lists, but they could change in the future. Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes April 25, 2013 Page 6 of 7 Approval of the May, June and July, 2013 pension lists Ron Wood moved to approve the May, June and July, 2013 pension lists. Pete Reagan seconded the motion. Upon roll call the motion passed 5-0. Roy Cate was absent. Unfinished Business: GFOA Best Practices on the Governance of Public Employee Post -Retirement Sondra Smith: This was on the agenda last time and you all asked for it to be put on the agenda for this meeting. We were going to think about whether or not we were going to do Best Practices for our plan. Pete Reagan: I didn't read it and I apologize. Sondra Smith: Would you like to put it back on for the next meeting? Mayor Jordan: We can put it back on the next meeting and give everyone more time to read it. Ron Wood: I would like to table it. Pete Regan moved to table this item until the July 25, 2013 meeting. Ron Wood seconded the motion. Upon roll call the motion passed to table 5-0. Roy Cate was absent. New Business: Revenue & expense report A copy was given to the Board Sondra Smith: This is the report that the Accounting Department does for the plan. It goes over the summary of your revenue and expenses over the past several years. It shows the current book value as of March 31, 2013 is $3.8 million and current market value as of March 31,2013 was $4.6 million. The book value is down from 2012. This is a summary of revenue and expenses. Pete Reagan: The market value is up? Sondra Smith: The market value is up and book value is down. Election — Ronnie Wood and Dennis Mullens terms will end May 31, 2013. Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes April 25, 2013 Page 7 of 7 A discussion followed about the election and who was nominated for the Fireman Pension Board. Informational: 2013 meeting schedule A copy was given to the Board Sondra Smith: The special meeting will be May 30, 2013 at 3:00 p.m. The next regular meeting will be July 25, 2013. Meeting adjourned at 3:30 p.m.