HomeMy WebLinkAbout2015-04-16 MinutesLioneld Jordan Chairman
Sondra E. Smith Treasurer
Eldon Roberts Secretary
Retired Position 1
Policemen's Pension & Relief Fund
Board of Trustees Meeting Minutes
April 16, 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 Agenda
April 16, 2015
A meeting of the Fayetteville Policemen's Pension and Relief Fund Board of Trustees was held
on April 16, 2015 at 3:00 p.m. in Room 326 of the City Administration Building located at 113
West Mountain Street, Fayetteville, Arkansas.
Eldon Roberts called the meeting to order.
PRESENT: Frank Johnson, Melvin Stanley, Eldon Roberts, Ruston Cole, Sondra Smith,
City Clerk, Dee McCoy, City Clerk Office, Glenn Atkins, James Bell, Garrison Financial,
Trish Leach, Accounting, Kit Williams, City Attorney, Paul Becker, Finance Director
ABSENT: Mayor Jordan, John Brown
Garrison Financial:
1st Quarter reports
Glenn Atkins: Thank you for allowing us to be here. We appreciate your business and confidence.
What I'd like to do briefly is walk you through your first quarterly report. I will talk a little bit on
the fixed income markets then I will turn it over to James Bell. He will talk about the stocks. Then
we'll take some questions, comments, ideas and thoughts.
My name is Glenn Atkins and I do the bond portion of the portfolio. If you will look at the pie
chart in your package we are about 63%, at the end of the quarter, in stocks and about 35% in
bonds, and a little bit in cash. Your policy is 60% equity and 40% bonds. We're essentially right
on target there. Given what interest rates are doing, we're comfortable being a little overweight in
equity. A lot of that is market fluctuations over time. We're well positioned in terms of your policy.
I will call your attention to the performance page, which is very near the back of our quarterly
report. For the first quarter, the account was down fractionally and the market was up fractionally.
We underperformed slightly, which is not unusual. We don't like it but it's not unusual as we're
structuring portfolios and getting them into things that we like. I would not put too much credence
in that as long as it doesn't continue for five or ten years. From the fixed income side, we did a
Policemen's Pension & Relief Fund
Board of Trustees Meeting Minutes
April 16, 2015
Page 2 of 8
couple of things in the quarter. We bought a couple of individual bonds that we thought had some
value, specifically AT&T, which is the big telephone company. We also bought a position in
Berkshire Hathaway, which is Warren Buffett's Company. Those two bonds, and others that we
will purchase going forward, tend to be cheap to the market. In other words, they provide more
yield than similarly rated and similarly mature securities.
We sold about $250,000 in the LQD position, which is the iShares Bond ETF that we had. The
reason that we sold that position was to try to shorten up the maturity of the portfolio a little bit.
The maturity of that ETF that we sold, actually is the duration, but it's functionally equivalent, the
duration on that ETF is 7.7 years. There is some interest rate risk in there because it's longer
maturity than we're running our portfolios now. We liquidated that position and bought those two
bonds.
We have talked in the past and we will in the future probably sell the Treasury note and the agency
security that's in there. Even though they have high coupons, the yields are relatively low and we
can go into bonds that pay more yield. We wanted to sell the EFT first to shorten the average
maturity of the portfolio. Right now, the average duration on your fixed income is about 3.5 years.
The index that we benchmark ourselves to, its duration is about 3.8 years. We are right on top of
that. Where I would like to end up, as we continue to restructure this, is a duration that is about a
year longer than the index. It's not so long that if rates rise rapidly you get hurt too bad, but it's
long enough to get just a little bit of extra yield and it should outperform almost any scenario where
the rates goes up or down. We'll be more heavily weighted in corporate bonds than index. I would
like to be about a year longer than the index. Over the next year you will probably see that average
maturity somewhere in the 4.5 to 5 range, roughly. I was telling the group that we sold some of
the long ETPs and brought the maturities down to 3.75 years right now, which is about the index.
I want to be about a year longer than the index.
Paul Becker: And that's for fear of interest rate increase?
Glenn Atkins: Well, it is and that's the reason we sold the ETF because its duration was 7.75
years. I would like to be, when we get it totally restructured, about a year longer than the index
and more heavily weighted in corporate bonds than the index.
Paul Becker: So 4.5 to 5 is what you're looking at?
Glenn Atkins: 4.5 to 5 is where I want to be. That's where we've got the majority of our other
portfolios. If we're at 4.5 years, a year from now we'll be at 3.5 years but the index will stay the
same. The Index really never changes much. That gives us a little more yield without a whole lot
of price risk. If rates stay where they are or go down slightly, we should be in a position to get a
little bit more yield in income than the market. Long way of saying we're trying to find the sweet
spot of that.
The total withdrawals for the year ended March were, and this is from our portfolio, so it is not the
entire pension payment, $465,000 went to the pension payments and about $18,000 for the year
ended March for management fees. At the end of the quarter the portfolio had an ending market
value of about $6.7 million.
Policemen's Pension & Relief Fund
Board of Trustees Meeting Minutes
April 16, 2015
Page 3 of 8
From the fixed income side we are making a lot of progress in terms of getting it restructured how
we would like to see it, in individual bonds and out of that longer maturity or ETF. We called it
the liquid, it's basically a longer corporate bond fund. I passed out some pictures. We use the 10
year yield on the 10 year Treasury as our proxy for the market. The first page is what it's done
year to date in yield. The second page is what it's done for the past year. The third page is what
it's done for the past five years. The point that we keep talking to our clients about is this volatility,
these rapid moves in the market particularly as you see on the first page. The market can move
twenty or thirty basis points in a couple weeks' time in either direction. It's a little bit harrowing
to me, so what I'm trying to do is be opportunistic in terms of restructuring the portfolio without
trying to time the market. I want to be in the market but I want to try to be opportunistic as we
restructure it. With that, I will turn it over to Mr. James Bell, who will talk about equities.
James Bell: On the stock side, as Glenn mentioned, we did underperform for the quarter. From
our perspective, any quarter like that is not really a good gage of performance. You can have great
quarters, you can have poor quarters, that's really not kind of a long term time horizon that we like
to focus on performance. Just so you know, the contributors to the underperformance mainly were
the oil field services stocks that we inherited from the previous manager. With perfect hindsight
we should have been quicker to roll out of those stocks. With the price of oil doing what it's done
over the past nine months, those stocks have been hit probably the hardest of any energy related
stocks.
We also saw, just in the quarter, a tendency for growth stocks to outperform value stocks. We're
never going to be all growth and we're never going to be all value stocks. We want to have a good
mix of both in your portfolio to the extent that we own value stocks in addition to growth stocks.
Growth way outperformed value this quarter. That contributed some to the underperformance.
Going forward, over the course of the quarter, the equity portion is essentially completely
rebalanced. The portfolio that you see on the equity side is essentially more or less where we want
to see it going forward. We have more or less cycled out of any of the securities that came from
the prior manager. We are very, very comfortable with the portfolio as it is going forward. What
that entailed was selling a number of those energy and oil field services stocks as well as a number
of the utility stocks that were in the portfolio. We sold utility for the same reasons that Glenn's
talking about shortening duration on the fixed income side. A lot of utility stocks are high yielding
dividend paying stock, but they are sensitive to interest rates just like bonds are because they do
tend to pay out a lot of income. They act kind of like bonds. We want to shift out of some of those
things in anticipation of eventually higher interest rates. We think utility stocks might be the most
affected by that scenario. What we bought were other dividend paying stocks, consumer staple
type stocks, stocks that are focused on U.S. businesses. As you know, the dollar has been very,
very strong so a lot of companies that are selling outside of the U.S. have to convert those
currencies back to dollars and that's hurt their performances. We had a particular focus on U.S.
based companies.
The market has been strong since the end of the quarter, and your stocks are up since the end of
the quarter almost 2.5%. The negative performance that you see on this quarter end report has been
erased and the account is actually up 1% through yesterday's close. We're starting to see some of
the things improve. That's where we are on the equity side. We'll continue to work for you going
forward. I'll certainly be happy to answer any questions you might have.
Policemen's Pension & Relief Fund
Board of Trustees Meeting Minutes
April 16, 2015
Page 4 of 8
Glenn Atkins: Thank you for having us. We appreciate your business and confidence. If you need
us in the middle of the quarter give us a buzz and we'll do whatever it is you need.
Approval of the Minutes:
Approval of the January 22, 2015 meeting minutes
Sondra Smith: I sent the minutes out. I send them to Garrison Financial also. They had two or
three minor changes to them, just typos. We've made those changes, so they're ready for your
approval. If you want a new copy of them we can send another copy out.
Frank Johnson: What were the changes that Garrison made?
Sondra Smith: One of them was, we had a dollar amount instead of a percentage. When they are
talking in a meeting they will say 220, we don't know when we're typing when we're transcribing
it if its $2.20 or 2.20%. Just minor things like that. I can send them out. He sent them to me in red
if you want to see it.
Frank Johnson: It was just grammar, mechanic kind of stuff? I just felt that there was a discussion
that you had about what they reported on here on our portfolio and the risk associated with interest
rates. I have an opinion on that, but anyway.
Sondra Smith: There's are what I would call scrivener's errors.
Melvin Stanley moved to approve the January 22, 2015 meeting minutes. Frank Johnson
seconded the motion. The motion passed with a 5-0 vote. Mayor Jordan and John Brown
were absent.
Pension List Changes:
None
Approval of the Pension List:
Approval of the May, June, and July, 2015 pension lists
Frank Johnson moved to approve the May, June, and July, 2015 pension lists. Eldon Roberts
seconded the motion. The motion passed with a 5-0 vote. Mayor Jordan and John Brown
were absent.
Unfinished Business:
None
Policemen's Pension & Relief Fund
Board of Trustees Meeting Minutes
April 16, 2015
Page 5 of 8
New Business:
Revenue & Expense Report: 4th Quarter — December 31, 2014 report
Trish Leach: I noticed, looking at this, we didn't update it for the end of the quarter. It's just
through the end of December. I will get with Toni and have her do the one for the quarter and e-
mail it.
Sondra Smith: I've already talked to her and she's going to do both the first and second quarter.
It will be on our July agenda.
LOPFI — Consolidation of Local Plan Letter — January 2015
Sondra Smith: That's a standard letter we get regarding if you're interested in consolidation then
this is the process that you have to go through to consolidate.
Kit Williams: I want to let you know that the city asked Representative Whitaker to have a bill
that would actually give clear authority to pension plans, to your board of trustees, to reduce
benefits if you believed that was necessary to save your plan, and if the state actuary said that your
plan is in extreme risk of ruin. In other words, about to go bankrupt. It passed through the joint
committee, it passed in the House but then the Senate defeated it. So, you're left in the same
position you were before where the former Attorney General has said that he does not believe that
the boards had that power. It's been my opinion you. Nothing has been changed in the state law. I
will say the members of the Fayetteville Firemen's Pension Board went to the state and opposed
that. They did not want that authority. They were successful in not having that authority given to
them.
Frank Johnson: In the future, I'm not asking for a civics lesson here necessarily, but I think the
language that made it to the bill that gives us the authority to reduce benefits, to me the difference
in giving us the power to reduce benefits versus the authority to adjust benefits are quite different.
In the future, if we're just part of the discussion, moving forward I think it would be really
important.
Kit Williams: You already have the power to increase benefits. The only argument or
disagreement is whether you have the power to reduce benefits. I don't think that we would have
wanted to put in just to adjust benefits, if that would circumscribe the procedure already set up for
the increasing the benefits, which is set forth in the statutes. That's why the city had suggested to
the legislature that in fact you all, every closed pension plan in the state, be authorized to have that
authority to look at that, and if the state actuary had determined that there was substantial risk of
ruin that the board could determine by a majority vote to reduce benefits. It was interesting down
there that there six very similar to the firefighters' pension and likely to run out of money within
ten years. There's another twenty that are in fairly serious position. I don't think you all are listed
in the twenty. There are over a 100 of the 160 that are not actuarially sound, which is where I think
you all are. That doesn't mean that you're likely in the near term at all to have a risk of ruin to
where you can't pay your bills. Y'all are in far better shape at this point than the Fire Pension.
Policemen's Pension & Relief Fund
Board of Trustees Meeting Minutes
April 16, 2015
Page 6 of 8
Eldon Roberts: Whenever you said the city went to David Whitaker to have this legislation
proposed, was the council involved in that?
Kit Williams: No, it was the city administration and myself. You wouldn't have the power yet
because you don't fit the criteria, but the Fire Pension Board would have the power, if they wanted
too, to adjust their benefits downwards. But, that did not pass. Everything is just the way it was.
Melvin Stanley: I think pretty much everybody's fear is that if we did have the authority to reduce
our benefits by 10%, 15%, 20%, whatever, and then five years from now our fund goes crazy with
the stock market and there's $20 million in there, way more than we'd ever need. Our fear is that
we would never get back to where we are now. We fear that we wouldn't have the votes.
Kit Williams: That can be a fear. If you look at past history, I think that any time that a fund has
requested or wants to raise the benefits because they're actuarially sound and you can do that, I
think the Mayor and the City Clerk, the city's representatives have gone with the board on each
one of those votes. I can't guarantee what future mayors and city clerks would do. Fortunately,
you all don't have to worry about that right now because you're not in the kind of financial strains
that the Fire Pension is.
Sondra Smith: I don't see this plan shooting up to an unrealistic amount of money being in the
plan. It would take an event where half of the pensioners on the plan deceased before that could
happen.
Melvin Stanley: But whenever all these benefits were increased to 100%, even the widows'
benefits, no one foresaw what was going to happen in 2008. Things can happen, or they could go
the other direction too. That's everyone's fear that even if we had the authority to reduce our
benefits by 10% or 15%, we would never see that again we would die and that would go to the city
and the state. That's our fear, at least that's mine, and that's what I understand from other people.
Kit Williams: It's legitimate for you to think about that. You need to think about your own
personal interest.
Sondra Smith: I don't think people felt like they'd get those benefits increases in the past and
they were all voted in. If it's sound, it probably wouldn't be an issue with anybody.
Kit Williams: Of course the reason that motivated the administration and me to propose this to
Representative Whitaker was to make sure there wouldn't come a time that you wouldn't get
benefits because the pension plan had run dry. They would always have the millage that comes in,
but when that got distributed for the year and was out then that would be it. There would be no
more benefits and that's something that obviously I don't think anybody in this room wants to see.
I know that we don't and I think that's why we thought at least the pension board ought to have a
right to look at it. I also believe, because of what you said and that kind of feelings that even if
they had the power you all wouldn't want to exercise it. I knew you would be the best guardians
of it. It wouldn't be reduced any more than absolutely necessary. I just thought you all should have
the power as the board of trustees looking over the pension plan to do whatever you thought was
in the best interest of your beneficiaries.
Policemen's Pension & Relief Fund
Board of Trustees Meeting Minutes
April 16, 2015
Page 7 of 8
Melvin Stanley: But you already say that we have the authority.
Kit Williams: The Attorney General and I disagree on a particular interpretation of the statue.
That can't be tested unless we actually lowered the benefits and somebody sues. You can't test it
the other way until the fund runs out of money.
Eldon Roberts: The articles I read in the newspaper, for someone who doesn't know, they sound
kind of slanted. They look like that this board arbitrarily raised the rates just to sit here one day
and raised them, not that we worked with state law, met all the criteria, the actuary signed off on
it, the mayors of the city signed off on it too. It just sounds like, to somebody who's reading it
that's not familiar with how it really works, that those guys raised their benefits now to where
they're going to go broke and good enough for them, they just raised their benefits on their own.
None of us ever speak to those people that write those articles. I see Pete Reagan's name mentioned
in there a time or two. We did everything right and we followed the law, the Mayor signed off on
it. Nothing is gone afoul of the law here. We just ran into a situation where the fund's not
generating the revenue now. I guess it's partially due to the year 2008. Everybody else that has
pension funds and 401 k's are facing the same dilemma. That doesn't make it any easier to put up
with, but that happened. I just wanted to point out that we followed the rules and regulations that
set out by Arkansas Code when we did these benefit increases, they weren't just arbitrarily done.
Kit Williams: That's absolutely correct. Both you and the Fire Pension did follow the state law as
set forth. The one thing that could be questioned is not any of that but what the state retirement
board chose as to determine what was going to be the rate of return on the pension fund. They say
it's going to make this much money per year and they were wrong. They chose an amount that
was too high. I don't criticize the actuary, he's taken there figures that they gave him to run.
Unfortunately it was too rosy a scenario and it has not lived up what they predicted would happen
in the stock market.
Sondra Smith: I can tell you, Eldon, the city does not slant that story.
Eldon Roberts: I'm just saying it sounds that way.
Kit Williams: They never hear that from us, I guarantee you.
Eldon Roberts: I didn't say that, I'm saying it sounds that way to someone who doesn't know
how it really happens.
Sondra Smith: I understand, I read that story.
Melvin Stanley: When I heard it on the local talk radio, talking about how reckless the Fayetteville
Fire Pension was in increasing their benefits.
Kit Williams: I wouldn't necessarily take all my facts out of talk radio.
Paul Becker: He does tend to slant some things. But, unfortunately, I think all of us thought there
were certain things in that article that weren't portrayed exactly fairly and unfortunately we don't
write the article.
Policemen's Pension & Relief Fund
Board of Trustees Meeting Minutes
April 16, 2015
Page 8 of 8
Eldon Roberts: Pete Reagan was just as right as you all are because it hadn't been determined in
a court of law yet. We just have differences of opinion. You say the city's not responsible for these
pension plans, we think they are. It will take a court decision. We'll have to follow suit with
whatever the court's decision is whenever some pension fund sues the city.
Other:
Sondra Smith: We're getting ready to start the election so we'll be sending out election ballots
here in the next week or so.
Eldon Roberts: It's myself, Melvin and John Brown?
Sondra Smith: I think so.
Frank Johnson: I remember reading something in the minutes, maybe there was still some open
decision that had to be made on the process?
Kit Williams: No, she just talked about how the Fire Pension does it. They do a whole nominating
process before they go to the election.
Sondra Smith: This board was happy with the way we do the process.
Eldon Roberts: Ours seems to work pretty well.
Informational:
2015 Meeting calendar
Eldon Roberts: Look at the last page, the next meeting is July 16tH
Sondra Smith: I think I am on vacation during that time. We may have to reschedule if we don't
have a quorum.
Adjourn: 3:36 p.m.