HomeMy WebLinkAbout2013-07-25 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
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Firemen's Pension and Relief Fund
Board of Trustees Meeting Minutes
July 25, 2013
Firemen's Pension and Relief Fund
Board of Trustees Meeting Minutes
July 25, 2013
Page 1 of 7
A meeting of the Fayetteville Firemen's Pension and Relief Fund Board of Trustees will be
held at 3:00 PM on July 25, 2013 in Room 326 of the City Administration Building.
Mayor Jordan called the meeting to order.
Present: Mayor Jordan, Roy Cate, Ronnie Wood, Sondra Smith, City Clerk, Kit Williams,
City Attorney, Dee McCoy, Glenn Atkins and James Bell of Garrison Financial.
Absent: Pete Reagan, Dennis Mullens
Garrison Financial:
2nd quarter reports
A copy was given to the Board.
James Bell, Equity Portfolio Manager for Garrison Financial: At the end of June 30 the portfolio
was $4.45 million. On page two, your asset allocation is 60% equities and 40% fixed income. As
you can see on the equity side we are at 60%, about 30% bonds and about 10% cash. That cash
level is there because we have sold some things on the equity side, as equity markets have done
well over the past 18 months, just to keep your portfolio allocation in line with the target as well
as to fund the distributions as they come monthly. We always keep a healthy cash balance in
anticipation of those distributions as they come out monthly. If you'll turn to the last page we can
look at performance. The portfolio is up 6.7% for the year. I'll let Glenn Atkins, our fixed income
manager speak to the fixed income portion and also the Monte Carlo Simulation.
Glenn Atkins, Fixed Income Manager for Garrison Financial: Thanks for having us again this
quarter. When we were here last we talked about the very high likelihood of selling that 4%
treasury that matured in 2018. In the information we passed out today you have a chart that is the
yield on the ten year treasury from April 25th until yesterday. Since we were here and talked about
the potential of selling that Treasury bond, the fixed income market has been straight down. The
yield is up, but as you know, prices move opposite to yields. I made the decision not to sell that
Firemen's Pension and Relief Fund
Board of Trustees Meeting Minutes
July 25, 2013
Page 2 of 7
bond in this kind of market. As it turns out, if you compare the performance of that security versus
the performance on the mutual funds that we would have put the proceeds of that in, you're actually
better off that we chose not to do that. If the markets were to stabilize there still might be some
value in liquidating that position and investing it at a higher yield but literally since the day we left
the market has been straight down the last quarter for the bonds.
You're better off relatively by about 58 basis points. We looked at that comparison several times
during the quarter and you're better off than 58 basis points at various points during the quarter. I
still think maybe longer term that we would sell that and reinvest it at a higher yield. It's certainly
been to the benefit of the portfolio for us not to have done that given this kind of market. If you
look at this market period in the last quarter, in eight or nine trading days in June, we had the
fastest move in interest rates since 1962. Since then it's been fairly stable. If it continues to be
stable, we'll invest some of the cash, but we will continue to hold a relatively large cash balance
simply because of the withdrawal needs of the portfolio over time. Having said that, I think we are
in good shape, the best shape we can be in given what we have to deal with.
Equities have been performing well except for that little hiccup during that time. The fixed income
market seems to have stabilized with the ten year around 2.6% yield. That particular situation we
talked about in April, we've been monitoring it very closely and we will eventually do something
there to try and get some more yield.
This package that we passed out today is what we call the Monte Carlo Simulation. That's
something that we have shown you periodically over time. Last quarter you asked us to do it once
a quarter and this is an update of that. On the second page I took the market value of the portfolio
right off of Schwab this morning at $4.5 million. I left the estimated withdrawals at $720,000.00.
That's the same figure we had used last quarter. The 12 months into June have been slightly less
than that in withdrawals. They have been $668,000.00. I left it at $720,000.00 because that makes
it more conservative. It stresses it even more. We've left the asset allocation at 60% stocks and
40% bonds with an estimated long-term return on stocks at 8% and bonds at 3% which is exactly
the same as it was last quarter. On the third page you can see the same sort of scenario that we had
last quarter. I think when we did this a couple of years ago, given the fact that the equity markets
have performed so well in the past couple of years, that this life has been extended a year or two.
When we did it originally a couple of years ago, it was in the five to six year range, now it's in the
six to seven year range in terms of longevity on the portfolio. That's all I have in terms of formal
comments. We'd be happy to entertain questions, observations, comments, concerns or anything
that you guys have. What can we do better or different?
Mayor Jordan: I think you are doing fine.
Ron Rood: It looks good to me. It's better than I expected.
Glenn Atkins: Equity market has been very kind to us in the portfolio over that last couple of
years. Fixed income market has too, except for the last quarter it's been a little rough.
Kit Williams, City Attorney: You think that's kind of stabilized again?
Firemen's Pension and Relief Fund
Board of Trustees Meeting Minutes
July 25, 2013
Page 3 of 7
Glenn Atkins: It appears to have been stabilized. There was talk in the market for a number of
years that this quantitative easing that Bernanke has been doing may be affecting the market about
one percentage points or 100 basis points. We've had that move from the low in rates to where we
are now. I don't see anything hugely positive in the economy that would generate any intermediate
term inflation that would cause rates to go down. He came out with his announcement I believe
June 17th or 19th that they were eventually going to stop quantitative easing which caused the
market to do what it did, which on the surface of it doesn't make any sense because he had been
saying for years that he was going to stop. He came out and said we are going to stop at some point
if unemployment gets below 7% or 6 ''/2% and the market went crazy. It appears to have stabilized
in this 2.6% range on the ten year treasury which is what we use as a benchmark. Could it go to
3%, it certainly could. My hope would be that it would not do it in eight or nine trading days like
it did this other major move.
James Bell: It wasn't the size of the move, it was the quickness.
Glenn Atkins: I think we've mentioned to you guys before that if rates were a little bit higher it
would actually be good because cash would be paying something other than zero. You could get
higher rates on everything. It would also imply that the economy was doing better which would
hopefully translate into even better stock market performance. If we get a controlled rise in rates
over the next three to five years, it'll give us an opportunity to reinvest the cash flow at higher
rates. If you get a little bit of increase in rates it portends a lot of good things, higher investment
rates on the fixed income side, better economy and better stock market performance.
Kit Williams: What about on the downside? I hear threats again from Congress saying they are
not going to raise the debt limit for the country and the other side is saying we're not going to
negotiate. Do you have any thoughts on the brinkmanship that looks like it's on the way again?
Glenn Atkins: It gives me a headache to wonder about it and think about it. I get up every morning
and ask myself "How can I not mess this up?" I think the way to not mess it up is to invest it the
way we are investing it, keep the quality of the portfolio high, the maturities on the fixed income
side relatively short and just manage through it.
James Bell: Given that scenario, if history and experience is any guide, each time this has
happened in the past there has been a sell off of the market and a dislocation but it's resolved itself,
recovered and gone even higher. To panic or do something too extreme in anticipation of
something like that historically would have been the wrong call unless you were good enough to
get it right. We try to not be smarter than the market, if you will.
Glenn Atkins: It is very frustrating for us to see that and think of all the possibilities of what
could be versus what should be or might be. At the end of the day, we have to come back to the
stocks and the mutual funds that we buy and hope to buy good companies and good mutual funds
and not get caught up in the reaction to it over time. What do you guys think about it?
A short discussion followed about how stocks affect different retirement programs.
Firemen's Pension and Relief Fund
Board of Trustees Meeting Minutes
July 25, 2013
Page 4 of 7
Joseph Schwab:
Pension Plan Information
Sondra Smith: Glenn, we received this letter from Schwab, it's a prospectus. I went ahead and
put it in the packet. They talked to Paul Becker first. I thought it may be good for the viewers that
may be listening for you to explain it.
Glenn Atkins: It looks like this is actually from a fellow by the name of Joseph Schwab at the
Collar Fund.
Sondra Smith: It's nothing that we need to be concerned about is it?
Glenn Atkins: No. That looks to me to be solicitation for what appears to be a bond hedging
strategy. I think it's only Schwab by coincidence. Without commenting on the merits of it, it's
probably something that we wouldn't recommend for the portfolio. Hedging and collars are
appropriate in some circumstances but I would suggest not in this case.
Approval of the Minutes:
April 25, 2013 meeting minutes
Roy Cate moved to approve the April 25, 2013 meeting minutes. Ron Wood seconded the
motion. Upon roll call the motion passed 4-0. Pete Reagan and Dennis Mullens were absent.
Pension List Changes:
Gary John Dill -deceased July 3, 2013
Sondra Smith: Mr. Dill passed away, unfortunately. His ex-wife was receiving benefits according
to a Qualified Domestic Relations Order. Therefore, her portion of the benefits will cease
according to the State Statute and his portion of the benefits will cease. We pay benefits out through
the month they decease, so his estate received a check for the month of July. August is when the
pension list changed, that's why there are changes to the August, September and October pension
lists.
Kit Williams: The reason her benefits ceased is because she was not a survivor under the law
because she was an ex-wife. She was only drawing half of his benefits. When he no longer has
benefits because he died there was nothing for the divorce decree to attach to anymore. That's why
even though they were paying her directly pursuant to this court order they can't anymore. I played
little league with Mr. Dill on the Elk Club Team years back. I was very sorry to hear this.
Firemen's Pension and Relief Fund
Board of Trustees Meeting Minutes
July 25, 2013
Page 5 of 7
Mayor Jordan: I certainly offer our condolences.
Ron Wood: Is that a judge's order?
Kit Williams: It is state law. You have to be married at the time you retire and not get divorced
in order for the spouse to continue to receive benefits after the death of the principal person.
Sondra Smith: If they are receiving benefits according to a Qualified Domestic Relations Order,
when we receive the turn back money they do not receive those funds.
Kit Williams: About ten or eleven years ago there was a suit on this locally. The local judge
agreed on my interpretation that it is what we have to do to follow state law.
Approval of the Pension List:
Approval of August, September and October 2013 Pension lists
Sondra Smith: They are different because of the reduction in not paying them, which is about a
$3,000.00 a month reduction in the pension list cost.
Ron Wood moved to approve the August, September and October 2013 pension lists. Roy
Cate seconded the motion. Upon roll call the motion passed 4-0. Pete Reagan and Dennis
Mullens were absent.
Unfinished Business:
GFOA Best Practices on the Governance of Public Employee Post -Retirement
Sondra Smith: You voted at the last meeting to table this to this meeting. I don't know if you are
interested in even pursuing this. The Policemen's Pension board decided it wasn't anything they
really needed to do because we have to follow state statutes. That's just up to the board on what
they want to do whether they want me to put it on the agenda for the next meeting or we can always
bring it back sometime in the future if we so choose.
Ron Wood: Let's table it indefinitely.
Sondra Smith: That means it won't come back unless we decide to bring it back.
Kit Williams: You can at any meeting bring it back.
Firemen's Pension and Relief Fund
Board of Trustees Meeting Minutes
July 25, 2013
Page 6 of 7
Ron Wood moved to table the GFOA Best Practices on the Governance of Public Employee
Post Retirement indefinitely. Roy Cate seconded the motion. Upon roll call the motion
passed 4-0. Pete Reagan and Dennis Mullens were absent.
Election Results
Sondra Smith: Everyone that was currently serving is still serving according to the election.
New Business:
PRB Evaluating Investments Memo
Sondra Smith: This is an email we received from the Pension Review Board. They show what
kind of investments you should have. It is for you to evaluate your investments to be sure you're
doing what you're supposed to be doing. It's basically for the board to review.
Kit Williams: We are following state law so I think everything is fine.
Board of Trustees List
Sondra Smith: I try to put the Board of Trustee listing in the packet every year after an election
so you can look at the information that we currently have. If there are any changes that need to be
made, please let us know.
2°a Quarter revenue & expense report 06/30/13
Sondra Smith: That's the report that Accounting graciously does for our plan. It shows the
06/30/13 book value is $3,799,612.74 and the market value is $4,451,076.02. No action needs to
be taken. It's an information item only.
Turn back from State
Sondra Smith: That is the money that we receive from the state every year. I've completed a
spreadsheet to give you an idea of what you've received over the past few years and what you
received this year. This year you received $925 per retiree and that went out in a lump sum
payment. You should have already received that. If you were a volunteer Firefighter and a
volunteer spouse, you received $185 for a lump sum payment. The total amount that we received
this year was for the future supplement was $44,215.00. Last year, we received in that category
$36,105.00. This year we received an additional allocation. Last year was the first year we
received the additional allocation. It's for the funds that aren't doing very well. This year we
Firemen's Pension and Relief Fund
Board of Trustees Meeting Minutes
July 25, 2013
Page 7 of 7
received $38,366.07 and last year we received $57,282.44. Last year, the big lump sum that we
received that goes back into your plan was $229,129.75 and this year we only received
$181,714.89. The total amount received this year was a little bit less than last year. We receive the
turn back once a year, either in July or August. There's a copy of the letter we received that tells
us how to distribute the money.
Informational:
2013 meeting schedule
A copy was given to the Board
Meeting adjourned at 3:35 p.m.