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HomeMy WebLinkAbout2015-08-06 - Minutes12, 9 Lioneld Jordan Sondra E. Smith Roy Cate Chairman Secretary Position 1 Retired Firemen's Pension and Relief Fund Board of Trustees Meeting Agenda August 06, 2015 Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes August 06, 2015 Page I of 9 Pete Reagan Position 2 Retired Dennis Mullens Position 3 Retired Ron Wood Position 4 Retired A meeting of the Fayetteville Firemen's Pension and Relief Fund Board of Trustees was held at 3:00 p.m. on August 06, 2015 in Room 326 of the City Administration Building. Mayor Jordan called the meeting to order. Present: Roy Cate, Pete Reagan, Ron Wood, Mayor Jordan, Paul Becker, Finance Director, Kit Williams, City Attorney, Kim Johnson, City Clerk Office, Kerry Bradley, Glenn Atkins, Garrison Financial, Audience Sondra Smith arrived at 3:25 p.m. Absent: Dennis Mullens Garrison Financial: 2nd Quarter reports Glenn Atkins: This is the typical thing that we show you guys, not much change from last quarter. The first page is the ten year treasury rate, during the second quarter of the year, the next page is the ten year treasury rate at the end of the year, and the final page is the ten year treasury rate for the last year. The point to take away from this is that the volatility and big moves in interest rates continue. The fixed income market in the second quarter was challenging. We considerably underperformed the market as you can see on the next to last page. We were down about 2.6%, the market was down about 0.6%. That's largely due to the fact that our maturities are about 2.5 years longer than the index. The good news is that we are getting about twice the yield as the index -too. Anytime you get the volatile rate moves to the upside we are going to underperform a little. When you get rate moves to the downside we'll.outperform because the prices move inversely to rates. Since the end of the quarter, the last five weeks or so, the fixed income portion is up about double the index because rates have come down. We are making it up, we're long to the index a couple of years, which I think is prudent to get more yield than the index is. It hurt us in the second quarter. Just Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes August 06, 2015 Page 2 of 9 for the record the duration on your fixed income portfolio is 6.4 years and the market is, 3.95 years. The plan would be, over the next few months or so, to pull that duration in slightly. We did a little of that, if I'm not mistaken, in the first quarter. Kerry Bradley: On the stock side on the first page, we are pretty close to target on asset allocation. We are still about 60% equity, which is our target allocation. We are a little light on the fixed income. We always keep a good amount of cash for you guys for a couple of months of distributions. The end of the quarter, you can see performance on the equity side was a little weak as well. It's been an interesting twelve months. What we've seen the last year to sixteen months, the market has really been driven by very high growth, high beta names, high risk stocks: the Amazons, the Netflixs; the kind of stock that we don't have in this portfolio. The blue chip good solid dividend payers that we have to throw off some income to you and hopefully grow over a longer term time frame, they have not performed well at all. As far as the twelve month period goes, your stocks are up about a percent even this year to date, the equity has actually retreated a little. In this portfolio we are holding on to some legacy individual names. We can only buy mutual funds in the portfolio now. With the draw down on the portfolio, we are almost to the point where we probably will just liquidate all of those individual stock names, just because the fear you have in there, the less diversification you have and we will just move those to the mutual fund sectors. As the portfolio is drawn down and we have to sell some of those. The smaller it gets the more • need for us to move into mutual funds to keep it diversified. These are all very solid blue chip. You can see the dividend yield is 3.5% which is greater than what you are getting on your fixed income. We like those stocks. Those are dust the stocks that haven't performed well the last twelve months. That value based style has been out of favor. What does that mean going forward? It feels a little bit like 2007, the earnings are coming in not great. They're kind of a mixed bag. We've seen good ones, we've seen some bad ones, and we've seen a lot of concern about things going forward. The dollar has really strengthened over the last year which has hurt a number of the multi- national stocks, which is up to a large jury of what we're in up here, what we've continued to hold from what Elaine had. I feel a little more comfortable. I heard a stat this morning that the DOW is about flat for the year. The majority of the stocks in the index are down more than 14%. It's varied widely. You have one company that may be up 20% that has a large price tag that's moving that index a bit. To me, the indexes are masking a little bit more weakness in the equity market than what we are really seeing on the nightly news. We don't really foresee a recession but I think ever since we've been managing this we've been looking for a correction in the market. We haven't had one in four years. If we get the 10% correction, I think what we're in now, these equity holdings will hold up quite well to the market in general because we've already had a correction in these names. I'm not too worried or concerned at this point. That style has underperformed the last twelve months. That varies year to year and quarter to quarter and I'm not concerned that any of these companies are going out of business or cutting their dividend anytime soon. We're getting a really nice yield and the stocks haven't moved much but I don't think they'll get hurt in the event that 0 1., we do have a correction. We had a couple of weeks that it feels like we are in that zone, but honestly Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes August 06, 2015 Page 3 of 9 • the market's down 5% from the high. It's not a whole lot given what the market has done the last two years. It's nothing that gives us great concern. We're still very comfortable with those names. We certainly expect to make up some of the performance against the major index over the next year or two. Pete Reagan: I think we should advise them that we are looking at consolidating our plan. I didn't know whether you all were aware of that or not. Kerry Bradley: Yes, we did get the e-mail. Whatever is best for you guys, we are happy to help facilitate whatever your decision is. Pete Reagan: I just wanted to tell you that so you don't go sell all these stocks and next month, if everything works right and the City Council passes it, then that'll be the final draw. Paul Becker: A transfer would probably take place around November. The utility trusts, those are fixed instruments? Kerry Bradley: No, those are equities. We lightened up there. It's called an exchange traded fund but it's full of utilities. It tracks an index. Paul Becker: What's your bond duration? • Glenn Atkins: The bond duration is 6.4 years and the index is 3.95. Paul Becker: Thank you. Kerry Bradley: If you were to consolidate, would that be a transfer in kind that would occur or would we need to liquidate anything? Paul Becker: I have not thought about that detail. If it looks like we are in that direction, I will find out. I would assume it would be a transfer in kind.. Kerry Bradley: If it is not in kind and they do want cash, I would suggest you let us sell it because I think the commissions would be lower for you. Everything in here is readily transferrable and easy to move so it shouldn't be a problem either way. Paul Becker: Essentially what happens is they pool it with LOPFI's investments, which are huge. I assume, over time that would be taken into consideration. I can't guarantee that, I haven't talked about that. Kerry Bradley: We can cross that bridge when we get there. Mayor Jordan: Thank you all very much. 1] Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes August 06, 2015 Page 4 of 9 0 Approval of the Minutes: Approval of the April 30, 2015 Meeting Minutes and the May 27, 2015 Special Meeting Minutes Pete Reagan moved to approve the April 30, 2015 Meeting Minutes. Ron Wood seconded the motion. Upon roll call the motion passed 4-0. Sondra Smith was absent during the vote. Dennis Mullens was absent. Pete Reagan moved to approve the May 27, 2015 Special Meeting Minutes. Ron Wood seconded the motion. Upon roll call the motion passed 4-0. Sondra Smith was absent during the vote. Dennis Mullens was absent. Pension List Changes: None Approval of the Pension List: • Approval of the August, September and October 2015 Pension Lists Pete Reagan moved to approve the August, September and October, 2015 Pension Lists. Roy Cate seconded the motion. Upon roll call the motion passed 4-0. Sondra Smith was absent during the vote. Dennis Mullens was absent. Unfinished Business: All Affidavits Received Pete Reagan: We had one person that didn't do it, and it is now done. Kim Johnson: It's completed. Paul Becker: My understanding was there was one out and she does have it now. Kit Williams: We couldn't pay anything until we got it, on that one. Consolidation Study Letter to PRB and Check Pete Reagan: That's just informational. Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes August 06, 2015 Page 5 of 9 LOPH Consolidation Study Report 06/11/15 Paul Becker: They talk about what the cost of consolidation would be. They take what's called the covered payroll, which they take all the fire current payroll and say you have to pay this much for the percentage for Fayetteville. They say if you consolidate even though the fund is not actually consolidated with LOPFI, they consolidate the rate and instead of paying this rate, which we currently pay 24.5% of the covered payroll for LOPFI now. If you read the report it gets a little confusing because what they tell you is for paid service using a fifteen year amortization, now your rate would go up to 36.96%. This is the beginning of the letter to you guys. That's without a COLA. If there is a COLA it's 42.94% of covered payroll. If we use a twenty-five year amortization that changes. The period of amortization as far as consolidation is concerned it is not going to concern you. That would be something the Council would decide on, you liquidate it earlier or later. My recommendation on that would be to use the twenty-five year amortization. I've done some preliminary studies on this, and based on the information we could forward it without a COLA at no cost to the City. With a COLA it would cost the City roughly $100,000 a year additional, above and beyond what we are getting on insurance premium taxes and property taxes. That would be my analysis at this point in time. Mayor Jordan: You're saying if it goes without a COLA then we can cover it, it doesn't cost the City anything? • Paul Becker: We should be able to cover it with the current revenue stream. The council would make a decision and we would make a recommendation, as far as the amortization period, be twenty-five or fifteen years. That only effects the size of liability we would be carrying over time. That's the results roughly of your report, that's what the analysis shows. Mayor Jordan: I've always been of opinion that if we could consolidate this and it didn't cost us anything, I would be okay with that. Pete Reagan: Paul can I ask you a question on our mileage, 4/10th of a mil? I just want to use Whataburger as an example because that is the big blow up on the front page of the paper every day. They built a new building in town which increased the property value. What would you say is the impact to us, the old fire pension system, on a new building in town on the tax rolls? Paul Becker: I'll tell you percentage wise that should generate about an addition 3%. We consistently average 3 to 4% in the property tax. This particular property tax we're receiving is $525,000 a year. We would be talking, in property taxes, getting maybe $10,000 to $15,000 a year and ten years to grow over time. Now, obviously if we go forward to the council I have to tell them all the risks and everything involved. We would, the city that is, in fact be taking a risk. Essentially what consolidation would do for you would be to pass your market risk on your investments to the city. The city would absorb that risk. We never know what's going to happen with insurance premium taxes. Pete, you and I have been down there long enough to know they bounce all over. That would be a risk. The city would assume the market risk of the investment portfolio. That • report was done again on a fifteen to twenty year amortization period. The major differences Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes August 06, 2015 Page 6 of 9 • between that and your old reports were they were done on a five year amortization basis. Also, your old reports were done on 5% discount rate which is essentially the rate that you would make on earnings. What could be expected, and this is on an 8% rate. The city then assumes that risk that the fund mayor may not earn 8%. You would be trading that for, through the city, security for you and for the city we would absorb that risk. That would be the bottom line as I would explain it. Pete Reagan: Do you see any problems with passing that through council? Mayor Jordan: I have maintained that if we could send it to LOPFI and not -cost the city anything that I would certainly entertain it. I haven't really.dug through all this thing yet. I talked to Paul about this and he feels okay. I don't think I could support sending it with a COLA, but I could certainly probably entertain sending it without any kind of COLA where there would be no cost to the city. Kit Williams: We might also have to advise the council that historically you have not made 8%, you've been making about 5%. If you don't make 8% then the cost to the city goes up dramatically. Mayor Jordan: Let's just say that I could support a recommendation to the council as long as it does not cost the city any more money. I think I've maintained that over the years. • Pete Reagan: We all understand what the assumption rate is used for. Every actuary has to have a first step on the ladder to use and that's one of them. Is that a good analogy for an actuary? Paul Becker: Kind of. What they do is they have to assume what your earnings are going to be. In this particular case, they are assuming your earnings here would be 5% or less, actually less now. It was explained to me by David Clark of LOPFI that they would pool this investment money with LOPFI and that's why they are assuming the LOPFI rate. The LOPFI rate's at risk. If you look over time, and I asked for an analysis from LOPFI of what they've earned from inception, comes out to a little under 10%. That's since 1983. If you look at the last ten years however they've earned six and some odd percent. There's a risk to that. That's the risk that we would ask the council whether or not they would entertain sharing. Mayor Jordan: Is David Clark coming to do the presentation? Paul Becker: David Clark will be up. We talked about setting the meeting for Tuesday, September 29, 2015. That's the best date we could work out to make sure we had everybody included because you need the whole council there. At that point David Clark and Jody Carreiro will do some sort of presentation to the council. It would be great to have all- of the trustees there and we expect all of the council to be there to discuss this and we'll all be able to ask questions to David Clark and Jody Carreiro. Jody Carreiro is the actuary for the PRB. LOPFI has a different actuary which is Gabriel, Roeder, & Smith. They've done your special report. One of the reasons your packet is so big is because you have two actuarial studies. You have the actuarial study done by Gabriel, Roeder, & Smith which was your study under a fifteen to twenty-five year amortization period at 8% discount. You have Jody Carreiro's for PRB which Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes August 06, 2015 Page 7 of 9 is was performed 5% with a five year amortization period. It just happens the two of them came in within a month or so of each other. Pete Regan: I know that PRB is required to have these meetings because our fund is noted as a distressed fund. If we passed a resolution today, it could go to council as early as a month from now? Mayor Jordan: If it's done in September I will see that something is taken to the council sometime in October. Pete Reagan: I thought our deadline was October lst? Paul Becker: October 31 st. When we were working on a time table I asked David Clark what our time was, he said the 31 St. That particular night may be a council meeting. Mayor Jordan: There's two council. meetings and I can call a special council meeting if I need too. Pete Reagan: I understand. For some reason I thought the 1St Mayor Jordan: We've discussed the meeting and how much time we have and Paul worked . through that. Paul Becker: Sondra didn't happen to be there, because she usually schedules, so he asked me to help him. That's the best we could do. It should give us time for the council to do the consideration and make their recommendation. Mayor Jordan: When is the next Firemen's Pension Board meeting? Kim Johnson: October 29th Mayor Jordan: After the 29th, after we've heard everybody, I can call a special meeting of this board within a day or two and we can hammer out everything we've heard and seen and come to a decision. It's difficult for me to know exactly what to do until I hear their presentation. I have maintained that if the merge of the two funds could be worked out at no cost to the city I'm okay with that. I really don't know that until I see the folks come in. We still have a month between the September 29 and the October 31, and we can call another meeting. Pete Reagan: Do we need to pass a resolution in today's meeting to start the process or are we going to wait? Mayor Jordan: We've already have them coming in on September 29 and I will call another meeting a day or two later after I've heard all the information. I would feel more comfortable being in the meeting with them and a day or two later, after I've heard all the information, make . a decision. I would prefer to sit in that meeting and ask them questions. Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes August 06, 2015 Page 8 of 9 • Paul Becker: Mayor, if I may suggest, set a meeting for either September 30`h, which is a Wednesday, or October 1` which is a Thursday to do that which would be right after the meeting. Pete Reagan: I am scheduled out of town leaving on the September 30`h. It's just a Memphis trip, I could probably delay it a day. Could we do it in the morning? Mayor Jordan: Yes. We'll do it in the morning. Sondra Smith: If we can find a room. What time in the morning are you wanting to do it? Mayor Jordan: What time is convenient for you all in the morning? 9:00? Sondra Smith: Why don't we see what room is available and either 9:00 or 10:00? We'll see if we have a room available and then we'll send you an e-mail to let you know and then call you so you can get it on your calendar. Mayor Jordan: I certainly want everyone here. Ron Wood: What time is the meeting on September 29? • Sondra Smith: That meeting is going to be after Agenda Session so we don't know exactly what time agenda Session will be over with. It starts at 4:30. Mayor Jordan: I don't know what's going to be on that agenda and if there's a presentation or something. I can't tell you, I don't know. I would arrive here at about 5:00. Sondra Smith: We'll meet down in Room 219 so they can have the microphones and everything since it's going to be an official City Council meeting. Mayor Jordan: We'll set a meeting for the next day. Sondra Smith: I'll see what time a room is available and let you all know. I have it in my notes to schedule a meeting. Mayor Jordan: We'll make sure it happens on Wednesday morning. What time are you leaving Wednesday? Pete Reagan: I just have to be there Wednesday evening, it's a five hour drive. New Business: Revenue and Expense Report 06/30/15 • Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes August 06, 2015 Page 9 of 9 • Sondra Smith: It's informational. It shows the fund and the balance over the years and what the balance is currently. 2015 Turn back Information Sondra Smith: That's the turn back funds that you receive. This year you received $165,883.50 for your fund. Last year you received $182,589.75. This year you received more in the additional allocation of $55,294.50. Last year your additional allocation was $48,691. The future supplement is the amount that goes out to the pensioners which was $1,400 if you were a regular retiree and $280 if you were a volunteer. Qualified domestic relation order people do not get any of that money. Pete Reagan: That was a nice surprise. PRB Letter Evaluating Investments 06/02/15 Sondra Smith: We receive that letter every year wanting us to look at our investments and make sure we are investing properly. It's just an informational item for you to review. I think we're doing exactly what state law needs us to do. • 2014 Actuarial Valuation 05/11/15 Sondra Smith: That is the valuation report that's done yearly by Jody Carreiro. That is a valuation of the plan telling you how much funded and unfunded the plan is. This ,year, for 12/31/2014, you're only 22.1% funded. In 2013 you were 22.8% funded. It shows your unfunded actuarial liability. That unfunded liability doesn't take into consideration future payments from the turn back money or the mileage that you have. Paul Becker: That's the five year amortization, 5% discount. Informational: Current Firemen's Pension Board of Trustees Sondra Smith: The board didn't change. Because we had an election we put in a current list of board members and their new term end date. 2015 meeting schedule Sondra Smith: We have the meeting scheduled for September 29th and now we are going to schedule the one for September 30th. Our normal regular meeting is October 291h at 3:00 p.m. 0 Adjournment: 3:37 p.m.