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HomeMy WebLinkAbout2014-01-16 MinutesLioneld Jordan Chairman Sondra E. Smith Treasurer Eldon Roberts Secretary/Retired Position I Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes January 16, 2014 Page t of 19 Jerry Friend Retired Position 2 e John Brown Retired Position 3 Melvin Stanley Retired Position 4 Frank Johnson Retired Position 5 Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes January 16, 2014 A meeting of the Fayetteville Policemen's Pension and Relief Fund Board of Trustees was held on January 16, 2014 at 3:00 PM in Room 326 of the City Administration Building located at 113 West Mountain Street, Fayetteville, Arkansas. Mayor Jordan called the meeting to order. PRESENT: Frank Johnson, Eldon Roberts, Jerry Friend, John Brown, Kit Williams, City Attorney, Sondra Smith, City Clerk, Dee McCoy, City Clerk's office, Blake Pennington, City Attorney's office, Trish Leach, City Accounting Office, Elaine Longer and Kim Cooper, Longer Investments. ABSENT: Melvin Stanley Sondra Smith: Melvin told us that he had already planned a trip out of town so he would not be able to be here today. Kit Williams, City Attorney: If I could, I want to introduce everyone to the Assistant City Attorney, Blake Pennington. He might eventually have to occasionally sit in here for me. Approval of the Minutes: Approval of the October 17, 2013 meeting minutes Jerry Friend moved to approve the October 17, 2013 meeting minutes. John Brown seconded the motion. The minutes were approved in a unanimous vote. Pension List Changes: None Approval of the Pension List: Approval of the February, March and April 2014 pension lists Eldon Roberts moved to approve the February, March and April 2014 pension lists. Jerry Friend seconded the motion. The motion passed with a unanimous vote. Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes January 16, 2014 Page 2 of 19 Unfinished Business: Favetteville District Court fines disbursement calculation Sondra Smith: It was brought up at our last meeting about the 10% that we are supposed to collect on fines. Trish was good enough to get that calculation for us. A copy of that calculation is in your packet as to how those fines are received through the District Court and how much comes to us. It's kind of a total calculation of all fines collected and the 10% that comes to the pension fund. Mayor Jordan: What comments do we have on that? Jerry Friend: Thank you. It's good information. I'm going to read through it. Kit Williams: So this $9,299.21, is that what goes to the pension monthly? Sondra Smith: 10%, yes it is. Eldon Roberts: It's the next line, isn't it? It's got a circle around it, number nine. $124,458.34? Sondra Smith: Yes. Eldon Roberts: On our expense list that Trish keeps for us every month the 10% city fines and forfeitures has been putting in about $112,000, last year $125,000 and 2012 $126.000. Kit Williams: This was just for a single month wasn't it? Paul Becker, Finance Director: You are looking a month's disbursement of the courts. Trish Leach: To be honest, this is not a form that I see very often. Actually someone else does this. Dena prepares this from the court. We take this from her. We it sent it to Frank. That form comes to our office and the journal is prepared from that. Sondra Smith: We probably need Dena over here to explain if there are any questions on the form or the distribution or anything like that. Frank Johnson: My only question is was this whether or not this represented all of the fines or penalties that are collected by the city, specifically those related to the parking fines? That was my only question and I didn't think it did. So, that may be just another conversation, but if this reflects all the fines collected by the city then it is what it is. Unless there's some other department over there where fines are collected in the absence of some adjudication that you would have otherwise through the court. Is that a fine or is that a penalty? That's the question I have for you Kit. Paul Becker: They are the fines collected by the court system. Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes January 16, 2014 Page 3 of 19 Kit Williams: We probably ought to invite Dena, the court clerk, to come over here and she could probably explain whether everything is included here. I would think it would be. Without her to confirm it I can't really tell you. Paul Becker: The parking fines are a separate issue from the parking system. So they are not a court fine. Frank Johnson: The statute says the fine is collected by the court or the city? Paul Becker: Kit would have to research that. Frank Johnson: I think it would be good to have that. Kit Williams: You want to know what fines are subject to the 10%. Frank Johnson: Yes. Eldon Roberts: Or is specifically the parking fines subject to the 10%. Frank Johnson: If the legislative intent for that statue involved something different than what we're doing right now in terms of collecting parking fines, how do you delineate those because in the end the city is still collecting the fines. If the statue says the court, then there's an answer. If it says the city, I think that's another discussion. Paul Becker: I think logically, for me, when the statue is passed, they were looking at fines associated with police participation. Parking fines are not, they are assessed by the parking division. Frank Johnson: That's a cogitate explanation from someone who manages city finances. It's the attorney who we really want to hear that from. Mayor Jordan: The reason I think Paul may be right on that is because the parking folks write those tickets, not you all. But that's a really good question and I really don't have an answer. Kit Williams: We'll check that out and I'll have an answer. In fact, I'll go ahead and send it out to you, we won't wait until the next meeting. I'll just send it out to you through Sondra. Mayor Jordan: If we need to bring Dena over here, we'll do that. Kit Williams: I'll get enough information from her and Sharon and make sure I understand everything. Jerry Friend: Eldon, when did we quit? We used to write parking tickets. Eldon Roberts: Yeah, we did. Years ago we did. Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes January 16, 2014 Page 4 of 19 Kit Williams: We actually got the State Law changed to make sure our people could do that. It was questionable for a while whether a non -police officer could actually write that. We got the state law clarified so that we could do that because we felt like it was not a very good use of our police officers' time to write parking tickets. Mayor Jordan: Now they can't write tickets in private lots. Kit Williams: There are few tickets they probably still can write, but not the meters. You're not meter personnel. New Business: Revenue and Expense Report: 4th Quarter -December 31, 2013 report Sondra Smith: This is the report that we get from accounting each quarter. It shows your net income, your book value, your market value of your plan. It shows an overall picture of your plan from several years to current. It shows, as of December 31st, your book value is $6,682,459.70 and your market value is $7,443,057.63. Kit Williams: That is a decline in market value of $240,000.00 from the previous year. You are still on the decline even though you had a good market year last year. The stocks went way up and with that the pension funds still went down. 2013 Local Pension Fund Report to the City Council Mayor Jordan: There's a letter in your packet that I read to the City Council. Sondra Smith: According to the state statute during the first meeting of the City Council, which is the first meeting in January of each year, the Mayor is required to give a report on the old pension plans to the council. This is the report that he gave in open session to the City Council at the first meeting in January. If you all ever choose to come to one of those meetings, you are welcome to come to them. Jerry Friend: What was your feedback? Mayor Jordan: I don't think they said anything. Kit Williams: It's kind of like more of the same as the last many years, the Mayor has been concerned and letting the council know that, in fact, there are problems. Sondra Smith: You can also watch that City Council meeting if you so choose on accessfayetteville.org. Go to city meetings online videos and that City Council meeting is there. You can listen to and read the report and if there were any comments you could listen to the comments, if you choose to do that. Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes January 16, 2014 Page 5 of 19 Mayor Jordan: I don't believe there was any comments. Kit Williams: There was a little bit of a discussion, I remember. Sondra Smith: Kit made some comments. Mayor Jordan: I was just talking about the council. Frank Johnson: No discussion, like any inherent risk to the City's credit rating or anything we've talked about in the past? Kit Williams: I did say that, at this point in time, the way the law is right now, my belief and my opinion is that the City is not liable for this. That state law could change in the future and the City could become liable. Frank Johnson: Is there a time you think, your honor, that discussion would take place as an agenda item? This was the State of the City. Kit Williams: No, it's a separate report by the Mayor. Mayor Jordan: We had one in 2010, if you remember, where we had a special meeting with the council and the pension boards. They had the charts and they showed you all sort of skimming along and the Fire Department Pension fund just sort of tanking since that time they have gone below the $5 million mark. Kit Williams: The Fire Pension Plan is continuing to lose ground fairly rapidly. Frank Johnson: What does this say here, ruin? Kit Williams: Risk of ruin. Yes, that means that they've run out of money. Mayor Jordan: It's just a matter of time. Both funds are insolvent. Paul Becker: Most of this is statics coming out of the actuarial reports. Mayor Jordan: There's just simply more going out than coming in. Paul Becker: They're not actuarially sound. Frank Johnson: Is there a pension fund in the country that is sound? There probably isn't. Paul Becker: Sure there are. There are a few. There really are not a lot that are actually funded 100%. The ones who are sound are probably more unsound than sound. Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes January 16, 2014 Page 6 of 19 Pension Review Board 2014 estimated premium tax allocation letter Sondra Smith: That's your turn back. That's estimated allocation for your turn back for 2014. Eldon Roberts: The cover page of this in the second paragraph says "The letter will inform your local police pension board of trustees of the estimated amount of the additional allocations." Are they talking about in addition to our premium tax we always get or are they talking about the premium tax? Sondra Smith: How many years ago Paul, two or three years ago they did an additional tax for funds that weren't doing as well as other funds. Paul Becker: The additional premium tax was talked about two years ago down at the Pension Review Board. Eldon Roberts: Are there some stipulations tied to that before you can even apply for it? Sondra Smith: You don't even apply for it. Eldon Roberts: I don't think we can because you have never had to ever raise benefits and you had to be earning a full mill or half mill of property tax. Paul Becker: At one time it was like that but that was changed again to they would have an additional premium tax based on the condition of the fund. Sondra Smith: That's the 10% they're talking about and they are estimating. It's an estimate that for our fund in 2014 you should get an additional $40,137 in that extra money that they are giving to funds that are not sound. Add it on to the amount you normally get. Fire Pension would get more than you guys. Eldon Roberts: What we've been earning from the state insurance tax, last year was $142,000, the year before $138,000 and in 2011 was $205.000. We would be at about $160,000 if this is the way it comes out this time. It'll be a little better than 2013 maybe. We'll take it. Sondra Smith: Last year the additional allocation for Police was $24,000. They are expecting just a little bit more than last year. At the last meeting, we talked a little about the budget that I do for you guys. There was a question about whether we pay for the actuary report that we get every year. Trish sent an e-mail about that yesterday to find out if we are paying for that or if the Pension Review Board (PRB) is paying for that out of state funds. Eldon Roberts: I thought they were supposed to do that. Kit Williams: You only pay for special ones. Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes January 16, 2014 Page 7 of 19 Eldon Roberts: That's what they pay those actuaries for and keep them under state contract. I know in times past that was paid through the PRB. Sondra Smith: I'm budgeting like $3,500 for an audit. Trish explained to me that is for the City of Fayetteville audit, because they are having to audit our pension funds too. Last year, it was about $3,400 so the $3,500 I'm budgeting out of your fund is for the actual audit of the city books because they include the pension funds in that audit. It's a prorated share of the audit costs that the funds are charged. Kit Williams: I want to call your attention to the bolded language at the very bottom of the first page where it said the additional allocation last year was reduced by 37% through a shortfall. What they are predicting might actually be reduced if they don't get enough taxes in on their insurance policies. Eldon Roberts: They are getting plenty of money. Paul knows from the meetings we go to in Little Rock, they received several million more dollars last time around that they found other places for it. Paul Becker: The original allocation was reduced because of the second. Eldon Roberts: I want to say $4 million more came in in the last insurance premium turn back money that came back in to the state. They found a lot of things to do with it without passing it out. Some pension funds got it in a roundabout way, we didn't get any help. Paul Becker: They had to have a redistribution of the premium tax. Part of that was to be distributed based on the need. Frankly, a large share of that went to Little Rock. Eldon Roberts: There's a guy that sits on the pension board that is from the Governor's office that is in charge of finance and administration. I remember hearing them talk about when this additional $4 million came in the state immediately told the actuaries we need this much and you can take what's left of this additional money that has come in and do as you see fit just right off the top. That's just the way it is. Kit Williams: It might have been to the State Police or something. Frank Johnson: What do you mean that's just the way it is? Eldon Roberts: It's Little Rock. Frank Johnson: Is there some legislative guidelines? Eldon Roberts: They get that stuff finalized and passed through law, they sure do. They know they have too. Frank Johnson: Shame on us, maybe we ought to get our legislators here on the carpet and say look let's talk about this. Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes January 16, 2014 Page 8 of 19 Eldon Roberts: I can't believe that's not happening already across the State of Arkansas. I can't believe cities are sitting by and just letting this go on because eventually somebody somewhere is going to have to do something. I don't know who. The Municipal League, I can't see them sitting idly by and just letting this go. They represent the cities and the cities make up the state. That'll all come out later down the road later I guess. Frank Johnson: As far as this board is concerned, we have to have some time to do something that's a little more progressive in getting out in front on some things. We aren't going to be able to do that an hour and a half four times a year. Perhaps that's another discussion we need to have, just how we are not more strategic necessary because we can only do so much but just to address some of the issues that you are talking about. Eldon Roberts: It would appear to me that a group of cities getting together could apply enough pressure to get something done. There are so many cities involved, it's not just Fayetteville, Arkansas. There's so many out there that's involved that's in this same predicament that we are in right here in the City of Fayetteville. I just can't believe they don't all get together and unify and try to get some kind of a movement through Little Rock to get money out the state treasury, it's there. The Governor has their own ideas where they want it to go. Paul Becker: They had this crazy premium tax distribution which was based on a distribution that had taken place back in 1998. Many cities and many pension funds were being completely paid for. A lot of this problem was buried. We saw the problem, Little Rock had a problem and there were five or six cities that saw the problem, they were paying attention. They changed the premium tax distribution based on need in a different proportion, now all of a sudden more of these cities are seeing a problem. If you sit there you can hear the discussion where more and more of the old pension funds are concerned and watch this now. If you really want to see how it works in action, anyone who gets a chance, could go down to the PRB meetings quarterly and watches them. There are becoming a lot more people watching it. I think at one point in time, frankly, there were very few cities that attended that PRB meeting. Anybody who would have the opportunity to go down and attend one of those meetings or watch the minutes from it, I would say that it would be time well spent. Eldon Roberts: It's like everybody else, it's not a problem until it's a problem. I've mentioned it before to this board where these meetings are at down there. I'm beginning to see more concern among mayors and city managers through this State of Arkansas about what Paul just said and I think that's a good thing that more and more people at the mayoral level and city manager level are beginning to look at this and say, hey Houston we have a problem. I believe if it was a unified effort put forth by all the cities that somebody would look at it down there. As long as we're fragmented it doesn't carry a lot of water. That's just my take on it. Sondra Smith: The Arkansas Municipal League has a Public Safety Board and they discuss those issue at that Public Safety Board. I've served on that board before. Mayor Jordan: I am about to start serving on that board. Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes January 16, 2014 Page 9 of 19 Sondra Smith: The Municipal League does listen to anything about the old plans. Jody Carreiro came and tried to explain how they do the calculations. He couldn't even hardly explain bow they did the calculations they're so complicated. There's several people across the whole state that sat on that Public Safety Board. Municipal League does listen to issues that are going on. I think the big focus now is the Arkansas Local Police & Fire Retirement System (LOPFI) because there's not that many old plans. The old plans are going away and a lot of people went to LOPFI so they are more concerned with LOFI then they are anything else and the cost of the LOPFI. Eldon Roberts: Basically you can say the old police and fire pension plans within all the cities in Arkansas it is not costing them anything right now and it may never depending on what the outcome is in court. They are having to pay LOPFI contracts and pay LOFPI pension funds for their fire and police. The old plans, to my knowledge, we're not costing the city a dime right now. Kit Williams: You have the millage and that's the only thing. Eldon Roberts: We don't have any employees working that the city has to match their contributions to the fund because everybody is retired on the old plans. I'd say it's like that all across the whole State of Arkansas fire and police both, because you'd have to be getting pretty old if you are still working on the old plan in any of these. It's not really a problem. It's just come to the front, a slam dunk all of a sudden because the LOPFI plan is costing cities money every month so I'm sure that's what they're paying attention to like you said. We're not costing them anything in any manner other than what Kit said about the property millage. Sondra Smith: LOPFI is going to continue unless they change pension plans for years to come and they know eventually the old plans are going to go away. Mayor Jordan: Why don't we let Elaine Longer give her report and we can come back and discuss this later if you like. Longer Investments: Longer Investments monthly report Elaine Longer, Longer Investments: Happy New Year. The first page is the portfolio appraisal, which you've seen before. Stocks closed the year at about 48% of total equity. The stock component has a 3.8% dividend yield. We've been emphasizing the conservative high dividend blue chip stock and so you still have almost a 4% yield. That compares to a ten year treasury at about 2.8%. The growth component of the portfolio exceeds the ten year yield. If you go to the next category, in 2011 we changed our investment policies to allow us to include on the income side of the portfolio some income growth investments like utility fund, high dividend paying stocks, preferred, master limited partnerships and real estate investment trusts. But still, you have to be conservative in terms of the total allocations of that category because in the event that a 2008 type credit crisis happens, these preform more like stocks than bonds. We Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes January 16, 2014 Page 10 of 19 have about 16% of the portfolio invested in this. The total income yield on this category is 6%, much higher than we can get on bonds. The Guggenheim Fund is largely high dividend paying stocks so with the 8% plus the 47% that's in the stock market, we are over the 50% where we should get approval because technically that Guggenheim Fund does hold stock. Mayor Jordan: So you need some sort of approval on the equity overage? Frank Johnson: What is the equity overage? Elaine Longer: We can be at 50% plus 10 % but I think we ask for approval. Kit Williams: That's right. You need to approve them remaining above 50%. Jerry Friend moved to approve the equity overage. Eldon Roberts seconded the motion. The motion passed with a unanimous vote. Elaine Longer: If you go down to the next category, your fixed income funds are listed below. This is an investment grade bond fund. We wrote about the price sensitivity of bonds with rising interest rates in our October newsletter. The reason that we adjusted investment policies in 2011 is because we were concerned about what bonds would do in the event of rising interest rates. This year, we had a negative return in bonds because the income — interest earned — was actually offset more than the interest income by the price decline in bonds. This follows years of declining interest rates where bond returns have been income plus capital appreciation. For an example, if you look at this investment grade bond fund your cost is $108. It's currently trading at $114.19. You still have about a 6% unrealized gain in that investment as well as having earned 4% income on it. The year before on 12-31-2012 this fund was trading at $121. You can see that during the year you had a price decline which is really giving back some of that unrealized gain that we had prior to that. That 7% drop in value was offset by 4% income yield, so that's a negative return. I think that helps to explain. We haven't had a negative return in the bond market since 1994. In 1994, we had five Federal Reserve interest rate increases. This year we didn't have any Federal rate increases, but just a hint of tapering. The quantitative easing program has caused a lot of turmoil in the bond market and caused the ten year yields to go from about a 1.6% in April to closing the year at 3%. Kit Williams: Didn't the Federal Reserve say they still want to try to keep interest rates basically at 0%? Elaine Longer: Yes. They can control the short term rates and they are going to keep that at 0%. At least until unemployment falls below 6.5%. Then they will appraise, they're data dependent is what they're saying. They don't want to tie it to a calendar but they want to tie it to the data, which is unemployment and whether or not inflation stays subdued. On the next page, you'll see the treasury bonds. Here's another example, you have a treasury bond that's 5 1/8 that matures in 2016. Its price today is $110.8. We paid $100 for it. You still have a 10.8% appreciation in it and all the while that you bond it it's been earning 5.1%. It closed the year at $115.62, so you can see it's had a decline of a little bit under 5%. But, it has a Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes January 16, 2014 Page It of 19 5% coupon so that bond return is probably close to par, or zero this year. The next one is the 4% treasury that we paid $103.76 for that matures in 2018. At the time we purchased them, they were a ten year treasury, now they are a five year treasury. They've declined in price this year from $117.50 to current price of $110.90. Again, this is a 4% treasury, we can't approach anything close to that in the market, and it is not as if you can trade in and out of these. But that explains what the negative return is in the bond market. Price declines this year, in response to rising rates, have taken back some of that unrealized gain that was due to declining rates. The next bond that you have is the 6 1/8 Federal Farm Credit. This one has declined in price but because of the 6 1/8 coupon the total return on that bond year to date is about 3%. Then we have gold at just 1.9% of total portfolio, cash is 1.7%, and another income asset that we've incorporated into the portfolio on a conservative level of 2.6% of total is a Master Limited Partnership Exchange Traded Fund that holds energy partnerships. The income yield on this part of the portfolio is 6.2%. You can see it's so different from seven years ago where you could buy government agencies and treasuries and get good income yield you kind of have to go all over the place to get income into the portfolio and incorporate a number of different types of asset classes, but at the same time not betting the ranch on any one. The total portfolio is worth $7.4 million and has a growth component that's close to 60% when you include all of the parts that have growth plus income. The income yield is 4.2% on total portfolio. The next report shows your realized gain and total income; $129,000 in realized gains and $193,000 in income. The next page shows the bond portfolio by itself. What you have in the bond portfolio is a weighted average maturity of about 3.9 years and weighted average yield to maturity of 4.4%. In the current five year, the five year yield is 1.75%. You have slightly less maturity than the current five year, but you're still earning 4.4%. The table below shows that all of your bond holdings mature within five years. Even though the fixed income part of your portfolio demonstrated a negative total return year to date, you're still in a great position to be able to capitalize on rising interest rates because of the face that you have short term. Anything that's under five years of maturity is cash to a trader. You don't have to hold the bond to maturity to reinvest it. It's a good structure for your fixed income side of your portfolio even though those high coupons treasuries and agencies still had a negative total return because of rising rates. If you look at the next page it shows your returns inception to date and it shows this year equity return was about 15%. The fixed income component was down 3.2%. That compares to the ten year treasury being down 7.7%. You're conservative price structure or maturity structure in your bonds limited the down side to 3.2%. The other income assets that we hold, those funds that have utility stocks, Preferred Build America Bond, the Guggenheim Fund, that delivered a 16.5% return so that the total return was 6.2% year to date. This is a year unlike 1999, or 2000, 2001, and 2002; in those years, stocks were negative but the bond supported the value of the portfolio so that the total hit to the portfolio wasn't that substantial. But in a year like this, bonds actually take away from the equity performance in the portfolio. The compound annual return inception to date is 6.1% after all expenses. On the column to the right, you'll see what the actuary return assumptions were for the portfolio inception to date. You can see that for a long time the actuary return hurdle rate was 6%, in 2008 it went up to 7%, and then it went back down to 5% so the Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes January 16, 2014 Page 12 of 19 weighted average hurdle rate for the actuary return assumption for inception to date has been 5.91% and the portfolio has a return of 6.1% compounded. Kit Williams: These actuarial assumptions are the ones that were given to us by PRB? Elaine Longer: Yes. Kit Williams: They really had a great call in 2008 didn't they? Elaine Longer: There's a term, the sentiment indicators, always run contrary to where the markets are. For instance, in 2009 at the bottom of the market, the percent of institutional money managers who were bullish or optimistic was down to 9%. It was hard to find anybody who was optimistic, and of course that's where the market bottomed. Contrary to that, prior to the 2008 decline, the bullish sentiment was up around 55% to 60%. Currently, we are at 56%, that's a bit of a red flag in terms of the market after such a big year because you have the party hats out and you have the bullish sentiment indicative of where it was in 2007, 1999 and 1987. Those are the three time periods that the bullish sentiment had strongly been to the side of optimism. It is an interesting phenomenon, the market is composed of humans who have emotions. It's not always just about math. The next page shows your contributions to the portfolio for the year and the distributions. The distributions have totaled $699,000. The important thing about that number is that as a percent of beginning value on 12-31-2012 it was about 9.4% of total portfolio value. Even though the portfolio has accomplished the return objective in the policy, the distributions are exceeding portfolio return. If you go to the next page, you'll see the inception to date numbers, this is called a reconciliation. The beginning value in 1990 was $1.3 million. You can see the additions that came in during the time frame while we've been managing money totaled about another $7.8 million. The total distributions over that entire time period from 1990 have been $10.23 million. The total investment return has been $8.47 million. It's interesting that even though the actuary return assumption that is behind this plan has been met and then some over that entire time period, the distributions still exceed the net investment return. The next page is my hardest report to deliver. We are asking to resign as investment manager for the City of Fayetteville Police Pension. There are a number of reasons mostly it's just that the direction of our business growth is more in the area of serving the high net worth individual investor and define contribution plans which are profit sharing, 401K and foundations. This is our only public pension plan and I feel that with the increase regulations that we are all dealing with and with the way our business growth is going it's best to offer our resignation. It's a very tough call because you came in in 1990. 1 think our firm was only 4 '/2 years old and I don't know how many millions we had under management but I'm sure it took a leap of faith to trust a small firm to even be a participant in a pension plan. We really do appreciate all the time that we've spent and been able to work in partnership with this committee and with the public pension funds and the city. It's very hard to offer our resignation but I do believe that going Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes January 16, 2014 Page 13 of 19 forward that this pension plan will be better served by a firm that has more resources to bring to the table to help you deal with what you'll be looking at in the next five years. Eldon Roberts: Do we get to vote on this? How does that contract read, can either side break the contract? Kit Williams: I think we've got them for 20 years and then they can get out. Elaine Longer: Well we did 24. I was hoping we could make it to 25. We are happy to offer a 90 day period to look for another money manager. If 90 days doesn't work we will extend it to June 30th. We don't want to put anybody into any kind of uncomfortable situation. Kit Williams: They'll have to go through a regular search committee. Mayor Jordan: Just like we did with the Fire Pension. Elaine Longer: We'll just continue to manage the way that we manage and nothing much will change unless the market conditions change and then again we would respond with as if we were still completely on deck. Eldon Roberts: Fair enough. Once someone else is selected, and I know you had to do this with the Fire Department, how big of a problem is it to move everything? This happens fairly easily? Elaine Longer: Very easily. Kit Williams: What we'll probably need to do is have a special meeting once we've been able to send out a request for qualifications or proposals and then when we get them in we'll probably have the entire board be the selection committee for that and provide you copies of their proposals. It'll probably be a two-step process depending on how many applicants we get. If we get a number of applicants it'll be a two-step process where you'll rate the top two or three and then you very well might want to interview the top two or three before you make your final selection. Eldon Roberts: I've been through this time and time again, and Jerry has. I think the other people on the board missed all that, so get ready. What are we required to do, being a public entity? We've got to take quotes, see who's got the best deal. I might not want to go with the guy that's got the best deal. Sondra Smith: It's request for qualifications. Kit Williams: You're looking for someone that's going to be very qualified and it'll be up to you all, the board itself, to rate them and their experience and previous work. A lot of the discretion is totally within this board about who they would be hiring as their new financial advisor. Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes January 16, 2014 Page 14 of 19 Mayor Jordan: I can tell you how it went with the Fire Department because I was involved in that. They sent us a great big stack of all these folks and we went through them. We sat down as a group and picked out three that we interviewed. It took us two to three meetings. Sondra Smith: We work with purchasing. Purchasing really helped us. Andrea in purchasing was a life saver on that. She sent out an invitation for a request for proposals and then once that goes out people will send in their information and then we start having the meetings. I will get with purchasing tomorrow and start working with Andrea on getting something put together and then we will have to schedule some special meetings. Eldon Roberts: Who is the Fire Department using now? Paul Becker: Garrison. Eldon Roberts: And they are here? Kit Williams: Yes, they are on Dickson Street. Frank Johnson: I have a general idea of what the process is, but who vets these candidates. Sondra Smith: We do, the board. Frank Johnson: They can say they are registered and all this other good stuff, but as a measure of success if we are looking to sustain what we've accomplished with Elaine. Eldon Roberts: I know where you are going and you're right, who are we to understand how well they manage money. Paul Becker: What we did for the Fire Department is what Lioneld said. You're not necessarily required to go through the same selection process that the City does because you are an independent board. However, we'd be happy to offer purchasing. Purchasing will go out and do an advertisement and submit the documents to you and you can review them and make a selection from that. That should all be presented in the answer to the request for proposal. Yes, you would be the ones who would evaluate them and you have to make the final selection. Eldon Roberts: Is it a fair question to ask you if the Fire Department and the guy they are using, are they doing as good of a job in your opinion as they could do. Paul Becker: Yes. Sondra Smith: Yes. Kit Williams: But you can't hold them to the standard of Elaine. Eldon Roberts: I understand that. Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes January 16, 2014 Page 15 of 19 Frank Johnson: Ask Elaine that same question. Eldon Roberts: Yes Elaine. Do you know this firm? Elaine Longer: They are a good firm. Eldon Roberts: They've got restrictions there that they wouldn't have with us because the Fire Department is under $5 million. Mayor Jordan: You might want somebody entirely different. I'm good with that. I'm just telling you what we did. Frank Johnson: That's great. It would be nice to have, instead of the process, some professional input almost like a consultant. I know it would be totally inappropriate to ask Elaine right now who she would recommend. Elaine Longer: I don't know the legalities involved but I'm happy to sit down with you and take a look at it. Eldon Roberts: I was glad to hear what Paul said and what you said. Jerry has been on this board nearly as long as I have and you other two guys are kind of new but we've been out to those big people time and time again and the way I phrase it is we've never had a good taste in our mouth anytime we left some of those name branders, Meryl Lynch, AG Edwards. My play on words to that is we are too small of a fish in their big pond. They just kind of overlook us and throw us in and lump us in. We don't get the personal touch and we might with someone locally here. I'm not a big advocate of those big firms. We've tried them time and time again. They will promise you the moon, if we pick out three people and they come in here they'll all promise you everything there is to promise you about how good they are. Elaine Longer: I know that Springdale Police went with Arvest. You probably have contacts with them to see if they are satisfied. Paul Becker: The City, prior to me being here, used Garrison for an investment firm. We were required to have governmental bonds under five years. Garrison did it for us and at that time did a good job. We went out for proposal and received a request from several of the banks, one was Arvest. We also received proposals from First Security Bank and Garrison. When we went and advertised and did an RFQ for the City's management we did get these local banks and they did give a good presentation. Eldon Roberts: Who is the City with? Paul Becker: Right now we are with First Security. Kit Williams: That's not stocks at all. It's a different situation. Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes January 16, 2014 Page 16 of 19 Paul Becker: They all handle investments in general. The proposers we looked at were Stevens, who has a good reputation in Arkansas. You can look at First Security who had a good presentation and very good track record Garrison and Arvest Bank. What I would recommend to you that you start the process. There's nothing saying that if you're not comfortable with one of them you can't step back and do it again. Certainly you would get some proposals from some local firms if that is what you would like to do. That choice is yours. Sondra Smith: That's what I would recommend, that we go through the process just like the City goes through it. I think it's a fair process and I think it has more accountability. Kit Williams: You'll see what's going on and be able to do a good job. Mayor Jordan: You really will. You'll be surprised. Of course it was their retirement but I was there and I have a vote but I wanted to be sure that they were okay with it. Eldon Roberts: Do we need to tell purchasing we want these local people or do they put one out and it goes to everybody in the world? Sondra Smith: It goes to everybody and you narrow your selection down. Paul Becker: We'll do an advertisement. Kit Williams: Sometimes it's a two -prong too where they know there are certain entities that do this and they'll send them out. They are already on the list and then they'll advertisement it so anybody else can apply. Paul Becker: We'll send it to people you know and see what they propose. For your own benefit you'll want to advertise. You want to open it up for advertisement. We're skilled at doing that. Eldon Roberts: Elaine, what's your fee right now? What's the percentage of portfolio? Elaine Longer: We have an investment policy in here. Eldon Roberts: You all deal with these people all the time, more so than we do. We deal with Elaine and you all deal with these people with the City's money so we appreciate your input on all this because you've got a working knowledge of these folks. What percentage? Elaine Longer: It's not in the investment policy it's in the contract which we don't have here. But it's staggered, so it's less than 1%. I don't know exactly what the percentage is. Sondra Smith: I have a copy of the contract. Jerry Friend: Sondra, when purchasing puts out that notice, there is a cut off time? Sondra Smith: There is a deadline. Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes January 16, 2014 Page 17 of 19 Jerry Friend: That way as soon as that cut off time comes we can start. Paul Becker: What will happen is we'll put something together and send it to you. There will be a day for them to respond. First you'll look at the proposal and see if you want anything else in it. Then we will give them a period of time that they must respond in. You will want to set up the interviews. Then you can look at what you've received. It's up to you, you can interview. Kit Williams: We hope to be able to do it maybe within 90 but it may be longer. Eldon Roberts: It'll probably be the furthest date you've got there. It'll probably be the end of June. Kit Williams: We will start the ball going though. Frank Johnson: Sondra, do you have, from when this was done with the Fire Department, the list of criteria? Kit Williams: We'll provide all that to you. Sondra Smith: I'll get with Andrea tomorrow and then you'll be getting e-mails from me. I think I've got everyone's e-mail except for Eldon. I don't know how you want me to get the information to you Eldon. Eldon Roberts: Can you mail it? Sondra Smith: I can mail it to you. Some of it, if you're working here, I may just call you and ask you to come pick it up. Some of it may be thick. Eldon Roberts: I have e-mail with the Police Department but I only work two days a week and I don't get it checked that often. I don't mind to come by and pick it up, just call me on my cell like you do about other business that comes up. Sondra Smith: I'm sorry, I have another appointment I have to be at. Do you have any other questions for me? Frank Johnson: Will all the beneficiaries be notified? Sondra Smith: We can discuss that, if you want us to notify them we can notify them. You just tell us what you want us to do. Frank Johnson: It's been such a long term relationship. Sondra Smith: I suggest that we have another special meeting as soon as we can get things pulled together. If you want us to send a letter before then we can. Jerry Friend: I don't think we need too. She's still going to be handling it for a while. Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes January 16, 2014 Page 18 of 19 Sondra Smith: Like I said, we'll have to schedule some special meetings and I'll try to get with everybody's schedule. Usually when it happens it's quick. Mayor Jordan: Yeah, it moves right along. Once we start, it moves along. I'll call some special meetings. If you don't like it, we'll back it up and do it again. Sondra Smith: It'll take Andrea a little bit of time to pull it all together. Elaine Longer: There are lots of money managers out there and we will help you any way that we can. We really appreciate everything. Sondra Smith: We really appreciate you too, you've done an excellent job. Eldon Roberts: I guess I don't realize we're the only public fund you handle. Everything else is private. Jerry Friend: We have different rules. Eldon Roberts: You have to play different ball for us only, so I can understand. You've done very well for us. Jerry Friend: But you'll come back and give a report next meeting? Elaine Longer: Yes. Once you're on our newsletter list you never get off completely unless you tell us to take you off. Eldon Roberts: I didn't find any humor, and little funny one-liners in this one this time. Elaine Longer: No it wasn't very humorous. Every day when I sit in my chair I'm just so thankful that people trust us to do what we do. We went through 2008 with total chaos. I tell people it was like a patient came into the emergency room with triage, they went off to ICU and you look around and there's blood and guts all over the walls. It was just so sloppy but people stayed with us and trusted us. That's such a tremendous honor in this business to be trusted and to be able to operate in such a very important position with people. Thank you for that. We're just truly honored to be a part of what we've been able to be a part of for 24 years. Jerry Friend: It doesn't seem like it's been that long. Elaine Longer: No it doesn't. Eldon Roberts: 1990? Elaine Longer: I don't know, all I know is I was in my 30's. Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes January 16, 2014 Page 19 of 19 Eldon Roberts: I believe Kim was your only employee. Am I right? When we came over there and visited with you upstairs on Center Street, I think it was you and Kim, that's it. Elaine Longer: A long time it was Kim and me and a student intern. Without the internet, which was really fun. Well thank you. We'll help any way we can. Eldon Roberts: Thank you Kim, Elaine. Thank you guys. We might be wanting to talk to you about the potential candidates. We are going to value your opinion very much as we do the Mayor and Paul's. Elaine Longer: I'm happy to help. There's different layers of money management expertise. There's the brokerage layer, there's the money manager layer, there's money managers who have more public funds. When you start getting a list down there's different layers of experience and expertise in that list that I would be happy to help you decipher. Eldon Roberts: Thank you, that's great. Longer Investments 4th Quarter report December 31, 2013: A copy was given to the Board Longer View January 9, 2014: A copy was given to the Board Jerry Friend moved to adjourn the meeting. Adjournment: 4:06 p.m.