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HomeMy WebLinkAbout2015-01-22 MinutesLioneld Jordan Chairman Sondra E. Smith Treasurer Eldon Roberts Secretary Retired Position 1 Policemen's Pension & Relief Fund Board of Trustees Meeting Minutes January 22, 2015 Page 1 of 8 Ruston Cole Retired Position 2 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 22, 2015 A meeting of the Fayetteville Policemen's Pension and Relief Fund Board of Trustees was held on January 22, 2015 at 3:00 p.m. in Room 326 of the City Administration Building located at 113 West Mountain Street, Fayetteville, Arkansas. Roll Call Eldon Roberts called the meeting to order. PRESENT: Eldon Roberts, Ruston Cole, John Brown, Melvin Stanley, Sondra Smith, City Clerk, Dee McCoy, City Clerk office, Kit Williams, City Attorney, James Bell, Garrison Financial ABSENT: Mayor Jordan, Frank Johnson Approval of the Minutes: Approval of the October 16, 2014 meeting minutes John Brown moved to approve the October 16, 2014 meeting minutes. Ruston Cole seconded the motion. The motion passed with a 5-0 vote. Mayor Jordan and Frank Johnson were absent. Pension List Changes: Rosemary Mueller deceased November 16, 2014 Betty Stout deceased December 30, 2014 Approval of the Pension List: Re -approval of the December, 2014 and January 2015 pension list Approval of the Februarv, March and April pension lists Sondra Smith: The list of pension changes is so you will know who deceased so that when you approve the pension list you'll know why you had to reapprove them. You have to reapprove the December one and the January one because Rosemary Mueller passed away in November, and you had already approved the Policemen's Pension & Relief Fund Board of Trustees Meeting Minutes January 22, 2015 Page 2 of 8 December list. Betty Stout passed away in December and you had already approved the January list. That's the reason you have the re -approval of those two, and the approval of February, March and April since we don't meet again until April. Melvin Stanley moved to reapprove the December 2014, and January 2015 pension lists, and to approve the February, March, and April 2015 pension lists. Ruston Cole seconded the motion. The motion passed with a 5-0 vote. Mayor Jordan and Frank Johnson were absent. Unfinished Business: None Sondra Smith: Some of you were going to meet to talk about doing a newsletter. I don't know if that ever happened. Ruston Cole: I talked with Frank about that and we haven't been able to get coordinated yet. Eldon Roberts: We did that a long time ago. We called it the Rocking Chair Review. We got a good response. People were interested and were glad to hear from it. I don't know how often we sent it out. It pretty much came together with the Board of Trustees and we would send it out. As you can see, we don't have much participation in this unless something is really important and then people begin to show up. But we might kick that around later down the road. I'd be interested in trying to help do that. New Business: Act 979 estimated additional allocation of premium for 2015 Sondra Smith: That's from the Pension Review Board. You receive state tum back and get a certain amount. On the second part of that, there's the letter that shows the estimated amount. It shows that what they are estimating your turn back to be for 2015, $120,511. You receive the additional allocation if your plan is not sound. That estimate for the additional allocation is $47,170. Down at the bottom they have a note that says "Please note that in 2014 the additional allocation was proportionally reduced by 20% due to a shortfall in premium tax revenue. Any similar shortfall would reduce additional allocation in 2015." So this is an estimate, it could be more, it could be less. Eldon Roberts: I go to those meetings in Little Rock, as a matter of fact we have one coming up in March and the last one was in December. This gets thrashed and hashed around every time with how they tweak these formulas. They keep talking about more money comes into that premium tax to the state every year, but we keep getting less. There's other people getting money out of that, the State Police and of course the Fire and the volunteer Fire. Is that list in here that Trish keeps for us, the running totals? Sondra Smith: Toni Lilley that does that list has been out ill. She apologized for not being able to get us the Revenue and Expense Report. Eldon Roberts: Yes. It keeps a running total of where we are at every year. You can see how we compare a year ago, two years ago. Like last year, what was our insurance turn back? I was wondering if we were to get what they were predicting here $120,511 plus $41,070. That would be $160,600. I wondered how that would compare to what we received last year. There was some time when we were getting a lot of money out of that insurance turn back and it was a big help. It has since dwindled down quite a bit. Policemen's Pension & Relief Fund Board of Trustees Meeting Minutes January 22, 2015 Page 3 of 8 Sondra Smith: I'll see if I can get to it and give you that report. Election of Pension Board for 2015 Eldon Roberts: That will be coming up in April. We'll still have another meeting before we actually have to start doing that. Sondra Smith: I wanted to put that in there as a reminder so if there's anything you want to change about the election process, you can let us know before we get into that process. In April, we'll be sending out the letters. Eldon Roberts: It will be Melvin Stanley, myself, and John Brown up for re-election. Garrison Financial: 4'—" Ouarter Reports James Bell, Garrison Financial: I thought I would start with a quick 4" quarter review. These three graphs that I printed out, just of markets in general are what happened in the 4'" quarter and what we're looking at going forward. The first chart that you see, is a chart of the price of a barrel of oil. I'm sure if you've been following the news you've seen what's happened in the last half of last year and into this year with the price of oil. It's fallen by over 50%. That leads me to the next page. This is for the S&P500, the broad market divided up into ten broad economic sectors. You can tell nearly every sector of the market did well except for energy. Falling oil prices was good for lots of sectors of the economy, I'm sure it was good for the city. Anyone who's bought a tank of gas recently knows that it can be good for a lot of reasons, unless you're an energy company. The third chart, again we focus a lot on interest rates, we've talked about that in prior meetings. Interest rates in the 4" quarter continue to fall. This is the Ten Year Treasury Note, kind of our proxy for what interest rates have done. They fell during the 4" quarter and have bounced back slightly here recently up to 1.90%. They were up to 2.20% when we met just three months ago. Which, at the time, seemed incredibly low. But here we are another 30 basis points lower than we were then. Kit Williams: When was the last time we were that low? James Bell: I believe back in 2012 we got just a little bit below that for a very brief period of time, kind of went down and then back up. We've fallen again since then. Kit Williams: Thanks. James Bell: Very, very near all-time historic lows in interest rates which are good for the bonds that you own, but if we were buying new bonds at historically low interest rates, that's just the world we are living in. Good if you are taking out a mortgage, not so good if you are a bank lending money. With that it's kind of the back drop of what's happened in the market. I'll go through your report, you should have one in your packet. Starting on page 2, target asset allocation is 60% equities, 40% fixed income or bonds. You can see we are right on top of that. We like to keep about three or four months of ready cash as well to fund the distributions monthly. We are at 60.6% equities, 32.8% in bonds and about 6.5% cash. We are kind of right on top of what your asset allocation is. Barring anything unforeseen in the market, unless something gets way out of whack, we'll always be pretty close Policemen's Pension & Relief Fund Board of Trustees Meeting Minutes January 22, 2015 Page 4 of 8 to that target. That's kind of our guideline. Only if we thought stocks were way overvalued or bonds were way undervalued would we deviate significantly from that policy. Turning to the next page, we'll go through some of what we've done to the portfolio over the quarter. We talked last time we met about selling a treasury note that was yielding a really low yield. It was a high coupon treasury. We talked about selling it and reinvesting it in some corporate bonds. We sold the treasury and we bought the Honeywell, Union Pacific and Walt Disney bonds. You'll probably see more of that over time as we cycle out of some of the funds, possibly the Treasury and agency bond that you're in now, into more corporate bonds where we can get a little higher yield without taking whole lot of excess risk. We talked a little bit about the maturity of the fixed income portfolio, how long it is. The longer your maturity on fixed income, the more sensitive you are to rising interest rates. We're still convinced, we're at an all- time low interest rates, that 18 to 36 months from now I think rates are going to be higher than they are today. We're trying to position the portfolio where it's not as susceptible to rising interest rates. You do that by shortening your maturity, which is what we've done. We went from 4.2 years average maturity to 3.4 years average maturity to date. On the next page, you were pretty much full up on your equity exposure when we inherited the account from Longer. We have kind of rebalanced out of some of the equities into some of the others. There's not a lot of net change in equity exposure but we have sold some things and bought some things for our portfolio. When I mentioned energy stocks earlier being down for last year, part of the reason I brought that up is it was about 8.5% in energy stocks when we inherited the portfolio. We like energy as well. We've sold some of that over the course of the last six months. We are down to about 6.7% in energy stocks now. To the extent that you own any kind of energy stocks at all was detrimental to your equity performance. Moving on to the last page, if you look toward the bottom in the quarter to date column, for the 4" quarter your account was up 1.53%. If you break that down, the fixed income was up 1.02% and the equities were up 1.95%. To the extent that we underperformed our benchmark a little bit on the equity side. It was in general due to the exposure to energy stocks and a little bit of exposure to international stocks, both Europe and Asia emerging markets. None of which performed as well as our domestic stock index that we compare ourselves to. Eldon Roberts: When you all took over, we had $7,162,000 and now we are $7,040,000. That's to be expected because we are spending more than we're bringing in. We know that. We are trying to hold on for as long as we can until we see what happens. There are a lot of other funds that are worse off than we are, Fayetteville Fire being one of them. James Bell: Right, and we work with them as well. Eldon Roberts: But, it's to be expected. I hate to see it drop below $7,000,000 but it's fixing to in a heartbeat. I know we are taking three steps forward and sliding back five. I was telling Russ a while ago, I don't like to talk about it in terms of people dying, it helps the pension fond, but it is what it is. With the two people that passed, I looked to see and its $35,000 a year. Of the thirty-nine people I believe is still drawing, fourteen are single and the pension will stop when they decease. Maybe it will all work out in the end. I hate to see it drop below $7,000,000 but that's just the way it is. It's going to go down, it's not going to go up. James Bell: That's a known issue and we were actually talking about this in the office earlier today. No mix of prudent investments is going to make up for that. We see our job to stay prudent and do as good of ajob as we can knowing those perimeters. Eldon Roberts: I think that's exactly what our desires are too. Do the best you can do with what you have to do with. We've got to have conservativism, it's a pension fund. People depend on it to live on. Policemen's Pension & Relief Fund Board of Trustees Meeting Minutes January 22, 2015 Page 5 of 8 James Bell: The only thing I would add, we think we are about through rebalancing and reallocating the portfolio we inherited. There's a little bit more to go there but we are trying to be selective and opportunistic about when we do some of those things. We think overall the portfolio is structured on the equity side. We don't think stocks are overvalued right now, we think they are fairly valued. We are full up on the equity side and shortening maturity on the fixed income side in anticipation of rising interest rates. Should we see rising interest rates, what we want are those bonds coming due quickly so we can turn around and reinvest in what are now higher interest rates. What you don't want to do is lock yourself in long term when rates are really low. Melvin Stanley: What makes you think interest rates are going up because we've thought that for five or six years? James Bell: I know and I've said that before. I would have told you the same thing two years ago and I would've have been wrong. Here we are two years later and I thought rates would be higher by now. Melvin Stanley: What causes you to still think that? James Bell: There's a lot of talk in the markets right now and we're of the same mind that the Fed is getting ready to end some of the quantitative easing, the bond purchasing, the stuff that they've been doing that's keeping interest rates artificially low. Part of their mandate is keeping inflation in check and keeping unemployment low. We're seeing reported economic growth and reported unemployment coming down. When you see the confluence of those things happening, that's kind of a signal to the Fed that what they are doing is working and they may stop this quantitative easing and start letting short term interest rates float back up. We think all rates are going to float back up when and if they start doing that. Eldon Roberts: When the Feds talk about the unemployment rate, is that the rate they are going to use? I understand its way worse than that, unemployment. If you want to look at all the people who have dropped out of the workforce, who have quit looking for a job, who's given up. They are unemployed but somehow or another they don't count in these numbers that we see each month whatever the unemployment rate is announced. So are the Feds just looking at that number? James Bell: I would hope that they're a little smarter than that. That's why I call it the reported number because we all know when people actually stop looking for a job they quit getting counted in the denominator and that can make the rate fall even though these people have never found ajob. Eldon Roberts: They are talking the true rate of unemployment could be in the double digits, 12% maybe more. That's a significate difference from 5.8%. I never hear them talk about this other number that often. James Bell: You don't and I don't know if that's just because they are all kind of Federal Government Agencies, if you will, and so they're not going to come out and question the official number. They've continued quantitative easing even now even though those numbers have gotten better. That tells me they are at least taking that into consideration. They've pared it back some and they haven't officially started raising the Fed Funds Rate, which is a very short term interest rate. All the other rates kind of key off of that. A lot of talk that they may start that later this year in the fall, possibly into next year. It's a gamble. If you honestly believe 100°/% that rates are going to be higher ninety days from now, six months from now, you'd want that super short. You would want to be all in cash or something like that. We're hedging our bets a little bit here to say that we are 3.5 years of what your average maturity is. That's not a bet that rates are going to be higher absolutely six months from now. But neither is it locking in ten years. We are trying to find that sweet spot that says we can still earn some yield but we are positioned should rates start creeping UP- Policemen's Pension & Relief Fund Board of Trustees Meeting Minutes January 22, 2015 Page 6 of 8 Eldon Roberts: What do you see that could be a potential problem for us as 2008 was? That was the housing market. It cost us a lot of money as well as a whole lot of other people. What's out there that could cause us that kind of problem again that would be that astronomical? James Bell: Some of those issues that caused the 2008 have been addressed somewhat, and there's more confidence in the market. There were a lot of questions, if you recall, back then about would the banks open on Monday. For better or worse the government has indicated they are going to back stop the banks. When I think about those things I think more of terrorism. Eldon Roberts: There's always going to be another shoe to drop. That was really tough on us. Kit Williams: It was a perfect storm. Eldon Roberts: It was. Kit Williams: They relaxed a lot of the rules and a lot of the top people in these corporations didn't actually even know what they were doing. James Bell: That's what makes ourjob so hard is that we look at companies and think Honeywell's a great company, they going to be able to pay their debts or a stock that we've invested in that we've done a lot of work on; but no amount of that kind of research can take into account those kind of exogenous events like we are talking about here. I have just one other housekeeping thing. Kerry and Glenn met with Marsha and Trish on the flow of funds. We are going to help you guys calculate the rate of return. It includes all of the inflows, not just what we see in our portfolio, but the millage money and tax money. Now they put some of that in the checking account or the general fund account. Sondra Smith: If I remember from the e-mail, they are going to have larger cash on hand. James Bell: They are going to start depositing those moneys into this account and then every month, instead of this account just making up whatever the difference is. It'll be the same amount coming out of this account each month because we are also getting the deposits. We used to not see the deposits into our account, they would just let us know how much difference needs to come from this account. Eldon Roberts: So they would just let you know the difference in what the deposit and what we had to have to pay the pension board? James Bell: Yes sir. Sondra Smith: Like if your turn back came in and you had more than enough money in the turn back to pay the pension for that month then they wouldn't ask for a draw. Now they are going to ask for the same draw every single month and keep a little bit more in the cash account. Eldon Roberts: That cash account is kept here? It is earning something, is it not? Kit Williams: Virtually nothing, but something. James Bell: Thank you guys very much. Policemen's Pension & Relief Fund Board of Trustees Meeting Minutes January 22, 2015 Page 7 of 8 Informational: Longer View January 7, 2015 Eldon Roberts: Do we continue to get this or is it just a spill over? Sondra Smith: I think it's just a spill over because of when you changed and since you were with them for part of the year. You probably won't get anything anymore. And to answer your question on the turn back, last year you received $152,519. For 2015 they are estimating $120,511. On the future supplement you received $44,280. The police supplement was $24,600. The $152,519 are the two numbers added together for the estimated premium and the additional premium. That should increase to about $160,000. It looks like it's going to be a little bit more, but you never know for sure. That's been anywhere from $186,000 in 2008 to $213,000. Some of our insurance rates may go down. I don't know if it'll effect your plan, but on the Fire we got a better rating so that should cause premiums to go down for home owners. Eldon Roberts: That's happens year to year. The better the firefighting company is, the better your rates are. I don't see it affecting us that much. Automobile insurance keeps going up, it never does take much of a fall. I think that's where our money comes from is automobile insurances. Sondra Smith: Don't you receive some from fines? Eldon Roberts: We actually receive 10% of all the fines and forfeitures that go through Municipal Court that are collected. Sondra Smith: That could fluctuate too 2015 Meeting Calendar Sondra Smith: I didn't put a copy of that in but your next meeting is April 16, 2015. And you want us to proceed with the election like we have in the past? Eldon Roberts: I think it works very well. There's not a lot of room for anything to go south on us. Sondra Smith: You do it differently and yours seems to work better than the Fire's. The Fire Pension asks for nominations first and then elections. They do not have a good turn out from the people that send back for nominations. It just kind of works better this way. Eldon Roberts: That would be confusing. The way we do here, you simply send a letter to every voting member and tell them what three are up for election and you can vote for anyone that you want too except for the three that's up for election. The way the ballots are cast and counted doesn't leave any room for error. Kit Williams: I think it's a much better procedure. The Fire is too complex. Sondra Smith: And the Fire we have to open the ballots in an open meeting. They come for a five minute meeting for us to open the ballots and read the names. Policemen's Pension & Relief Fund Board of Trustees Meeting Minutes January 22, 2015 Page 8 of 8 Eldon Roberts: We've never had any problem with ours. I've never had anyone come to me and say I'm not happy with the way the pension board elections are going. Sondra Smith: If you're okay with the process we are implementing now then we'll continue that process. In late April we will send out the letter and the election process to start. Adjournment: 3:30 p.m.