HomeMy WebLinkAbout2006-10-26 - Agendas - Final Firemen's Pension and Relief Fund
Meeting Agenda
October 26, 2006
A meeting of the Fayetteville Firemen's Pension and Relief Fund will be held at 11 :00 AM
on October 26, 2006 in Room 326 of the City Administration Building
1. Approval of the Minutes:
• September 28, 2006 and the October 2, 2006 Special Meeting Minutes
2. Approval of the Pension List:
• November, 2006 Pension List - No Changes
3. New Business:
• PRB Letter Regarding the 2005 Certified DROP Interest Rate
• Discussion on changing meeting date.
• Kit Williams Memo — Revenue Supporting Pension
4. Old Business:
• Martin & Kieklak Contract
• COLA — Letter regarding the study
• COLA — PRB Invoice
5. Longer Investments:
• Review of Investment Policy
• Quarterly Report
• Monthly Report
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Firemen's Pension and Relief Fund Board of Trustees
Meeting Minutes
September 28,2006
Page 1 of 20
Firemen's Pension and Relief Fund
Meeting Minutes
September 28, 2006
A meeting of the Fayetteville Firemen's Pension and Relief Fund was held at 11 :00 AM on
September 28, 2006 in Room 326 of the City Administration Building
Marion Doss called the meeting to order
Present: Pete Reagan, Marion Doss, Dennis Ledbetter, Ronnie Wood, Ted O'Neal, City
CIerk Sondra 'Smith, City Attorney Kit Williams, Finance Director Paul Becker, Trish
Leach, Accounting, Chief Johnson, Mark Martin, Darrin Williams, and Ken Kieklak.
Absent: Mayor Coody
Approval of the August 31, 2006 Meeting Minutes:
Ronnie Wood moved to approve the August 31, 2006 Meeting Minutes. Dennis Ledbetter
seconded the motion. Upon roll call the motion passed 6-0. Mayor Coody was absent.
Approval of the Pension Lists:
Approval of the Revised September, 2006 Pension List:
Marion Doss: It was .revised because of a supplemental payment and the removal of two that
deceased.
Sondra Smith: Yes there were a couple items on there that needed to be revised. The net
regular benefits had an amount for Mildred Tune and it should have had a zero amount, so that
has been changed. We had supplemental benefits in there for Mildred Tune also.
Pete Reagan moved to approve the Revised September, 2006 Pension List. Ted O'Neal
seconded the motion. Upon roll call the motion passed 6-0. Mayor Coody was absent.
Approval of the October, 2006 Pension List:
Pete.Reagan: I move to approve with no changes.
Sondra Smith: At this time there's not. That is something I want to talk to you about later on, it
might be better if we approve these pension lists after the checks go out because we are
approving October before the checks go out so if any changes have to be made then you have to
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Firemen's Pension and Relief Fund Board of Trustees
Meeting Minutes
September 28,2006
Page 2 of 20
approve the revised list. So it might be better if we start approving the October list at our October
meeting.
Kit Williams: Checks have already gone out then though.
Sondra Smith: Yes but we do that on Police Pension and we can change anything we have to. It
doesn't matter to me but we are going to see revised lists probably every month if we approve
them ahead of time because of the changes that have to be made.
Trish Leach: If someone deceases.
Sondra Smith: Yes. It doesn't matter to me, we can talk about that later on if you want to or '
you can be thinking about and we can talk about it at a different meeting.
Kit Williams: If we approve them before the fact like you are doing now they might have to be
changed if someone dies or something else happens like that or you can approve them after the
fact, where you or basically just saying what the city has done is correct and you are approving
what has happened.
Marion Doss: Actually were trusting that the checks are going out anyway and the checks are
going to go out whether we have_a meeting or not and we approve them. Whether it's before the
fact or after the fact we can do which ever works best for everybody.
Pete Reagan: Would it help solve the problem if we move the date of the meeting? We are
meeting on the last Thursday of the month; we could meet on the second Monday or second
Tuesday because the checks go out at 12:00?
Trish Leach: There has been a long standing agreement that they would always go out by the
11�' and if the 11th falls on a Saturday or Sunday we mail them slightly earlier. It's something
that has been in position for long time and we've honored that. When Denise left she told me that
was the agreement and we.have stuck with that so sometimes they do go out a little earlier. The
problem most of the changes someone will call us and they will want their tax withholding
changed and since we have that on the pension list then we would revise that:
Sondra Smith: Any change I'm bringing back before the board because the Mayor and I have
to sign the affidavit that is attached and I want to make sure the board is approving the one that
we are signing. It is usually minor changes but I just want to make you aware that we may have a
lot of revised lists due to people deceasing or changing taxes.
Marion Doss: One thing if we think about changing the meeting date is the city staff meetings
on Monday morning and other meetings.
Kit Williams: I think Thursday is a better day every other Wednesday we are working on the
ordinances that were passed at the City Council meeting and the clerk's office and my office are
Firemen's Pension and Relief Fund Board of Trustees
Meeting Minutes
September 28,2006
Page 3 of 20
busy doing that. . Tuesday's we're sometimes getting ready for that meeting. So I think Thursday
is really a better day.
Pete Reagan: I'm here to help and I like to hear from .finance and Sondra if the first Thursday
would make it better if checks are going out on the 11 th that would give a lot shorter period of
time. It would give a weeks difference in approving the pension list if everybody is in favor of
that or if you want to keep it the same and have revised lists or however you want to do it.
Sondra Smith: It doesn't matter to me I don't mind bringing you Irevised lists but I just wanted
you to know why there may be a revised list evermonth.
Marion Doss: One Thursday is as good as another Thursday to me.
Pete Reagan: Why don't we keep it on the agenda for next month and see if we can put our
heads together between now and then.
Trish Leach: Something else you could consider is the lists that we give to you for approval we
remove the tax withholding columns because what you are really approving is the gross amount
of the revenue benefit. It's not really up to you to approve what Marion wants withheld for taxes
that's Marion's decision.
Pete Reagan: I understand.
Kit Williams: That's really the way it should be it should be the gross amount.
Trish Leach: We could do that and that might eliminate some of the revisions that we do.
Sondra Smith: We could eliminate the three columns the federal, state, and net amount.
Trish Leach: Yes, on the report that we send to you. So we will do that and see where that takes
US.
Marion Doss: It's always. convient to be in there but we are approving a total amount of pay
out. I never give a thought to what someone has held out for taxes or anything else. One thing
that might help if we did change to the first Thursday or something it might be better for around
holidays because we always have problems with Thanksgiving and Christmas.
Sondra Smith: That's true.
Marion Doss: 1. think that is something to put on the next meeting.
Sondra Smith: We will talk about just changing the meeting date and I will put that on the
agenda for next meeting.
Pete Reagan: Would you like to try to keep it on a Thursday is that correct.
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Firemen's Pension and Relief Fund Board of Trustees
Meeting Minutes
September 28,2006
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Sondra Smith: If possible that would be great.
Pete Reagan: Around the same time.
Sondra Smith: That's great with me. I just know that the Mayor is busy on Tuesday's and
Monday mornings we have staff meetings and Wednesday's are bad because it is after our
council meetings and we have ordinances we are processing. That would be great.
Pete Reagan moved to approve the October, 2006 Pension List. Dennis Ledbetter seconded
the motion. Upon roll call the motion passed 6-0. Mayor Coody was absent.
New Business:
Mark Martin and Darrin Williams Update
Mark Martin: First of all I'd like to thank you for this opportunity to appear today to bring you
up to date on the monitoring that we have done for a little over three years with regards to your
stocks to determine if there was any stop losses, class action law suits, so we could report to you
what might have occurred and what to do about it. Today with me is my law partner Ken Kieklak
and also Darrin Williams with a law firm of Cauley, Bowman, Carney and Williams. Darrin's
firm and my firm have been working_ together on this project; their firm specializes in SEC
litigation.
There has been a new development that we wanted to discuss with you today that you need to be
aware of, as part of the monitoring process we have discovered a loss that this pension fund has
realized with regards to stock purchased from Baxter International between November, 2001 and
July, 2002. These are developments that will probably be revealed in the news in the future and,
litigation is very fresh in this regard.
So that you will know a little bit of history with regard to this particular stock there was a lawsuit
filed about two years ago. It was SEC litigation and basically based upon losses associated with
fraud at the corporate ,level. There were allegations of improper notification with; regards to
projections of what the corporate profits would be, what the corporate sales would be allegations
of misrepresentation and this litigation has been going on for approximately two years. The case
went before a federal district judge in Chicago the judge dismissed the case on a 12-13-6 motion
and agreed with the defense attorney that the safe harbor statue provided protection from
litigation. That case has wound its way up through the appeal process and as late as two weeks '
ago the Seventh Circuit Court of Appeals reversed that federal district court judge and said no
the safe harbor statue is not a defense in this case at least in a 12-B-6 level which was the initial
level, I want this case to go back to a hearing and we are going to hear this case on the merits. As
of yet no decision has been made with regards to class action status. The judge withheld making
a decision on that issue until the 12-13-6 motion could be determined. That case is now before the
federal district judge and sometime in the very near future a decision will be made with regards
to class action status. To give you just a basic idea of some of the fraud that was pointed out j
Firemen's Pension and Relief Fund Board of Trustees
Meeting Minutes
September 28,2006
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against Baxter International, as you know Baxter engages in making medical supplies and
medical equipment. As part of their corporate responsibilities they have to give projects of what
they would expect their stock to do in the future particularly with regards to sales and other
economic issues.
The long and the short of it is we think there is very strong evidence that Baxter International
juiced up their projections for the purpose of gaining profit. There is evidence that after making
these projections and the stocks stood at $43 a share, there is evidence that a lot of the corporate
officers dumped their stock which is usually a tip off that something is going wrong and they.all
happened to dump it within this relevant period•of time which was about seven months. When
they made there projects about the viability of the company they failed to include certain pieces
of information that were critical to folks that bought this stocks, one was that Baxter Labs
produces dialysis equipment and they were saying that they expected their sales of their dialysis
equipment to go up. What they didn't say was that there were a lot of problems with their
dialysis equipment, there was manufacturing malfunctions, and it had a product design defect,
because one of the filters on the machines was not filtering the equipment properly. A lot of
litigation has arisen in association with that and also two of the dialysis companies were closed
down one in Florida and I believe the other one was in Sweden. At the same time they were
painting a rosy picture and claimed that those sales would increase they did not disclose this type
of information. Also Baxter Labs produces plasma. and they predicted that the sales of that
operation would increase what they didn't disclose when they made these projections is they had
a lot of problem with their plasma, a large group of it wasn't sterile, because it was not sterile, it
had to be dumped and there was about ten million dollars of plasma that was dumped because of
this reason. These are things we believe they knew about and simply did not disclose. So they
paint the rosy picture, the corporate officer's dump their stocks, reality finally caught up with
them and I believe right after July, 2001 they amended their projects to take account of all of
these realities we are talking about. Stocks went from $43 a share to $32 a share and it has not
risen much above $32 as of today. Because of this we feel that there is a very strong case against
Baxter Labs, this fund had money invested in Baxter Labs and had losses associated with that.
Kit Williams: About how much did we have in there?
Mark Martin: We're estimating right now that probably about $5,700 of losses from that
particular stock from the information that we have so far through the monitoring agreement.
That could change as we get more information, Kit. I want to make it clear even though those are
losses there is no guarantees that pursuing action against them would net $5,700 but it is a loss
and we believe it needs to be recovered and action needs to be taken against Baxter Lab to
accomplish that. There are some options that this board may want to consider in deciding what to
do about your particular losses. At this time I would like to turn this over to Darrin Williams
who would like to discuss what those options are. Thank you.
Darrin Williams: Mark has given you the information about the case better than I could. Let me
add a few things to the facts, the dialysis machine that had the filter problems there are about 51
deaths that are associated with that filter and that problem. The company did a number of things
we believe to keep their stock price elevated and to maintain it throughout the class period. They
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Meeting Minutes
September 28,2006
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had two real reasons to do that, they were attempting to purchase another company called Fusion
Medical Technologies and they were going to purchase that company in a stock swap, meaning
they were going to give their stock for that company. So as long as they keep their stock price
high it was a better deal for them and they did that. Also the officers and directors of that
company have a substantial portion of their own net worth invested in that company because
they owned a lot of stock and they also had a lot of the options in that company. During this class
period 9 out of the 1 l officers and directors that we've sued traded an enormous amount of stock
more than they had in 7.years prior. One officer traded 100%more than he had in the previous 7
years during that 7 month period of time. These guys traded over 435,000 shares of stock and
reaped over $23.7 million of profits we believe at an inflated price. We also believe that because
of these inflations when Fayetteville purchased the stock they purchased at an unofficially high
price. Fayetteville subsequently sold a large portion of their stock two days after the class period
after they announced what truly happened. That $11 drop that Mark talked about happening was
in one day, a 36% drop in stock in one day. You guys sold it two days after they announced that
drop. $5,700 is not enormous amount of money but this case has unique facts and unique
procedural history that I want to share with you and tell you why I'm here.
We probably talked about this years ago if you remember when I talked about monitoring your
funds, in 1995 Congress passed an act that basically said we want institutional investors,
firefighter pension funds, state pension funds, mutual funds, big guys, folks with more than $10
invested in the .market, we want you .lead this litigation. - Prior to 1995 what happened was
individuals lead the litigation which really meant that lawyers lead the litigation because a person
may lose a few dollars in a stock and a lawyer would hook up with that person and move the case
forward and the lawyer and the individual client did not have a good relationship. So the court
thought if institutions that have a board and have governing procedures, if they get involved in
the cases these cases would be prosecuted to a much higher degree with more confident council
and that's what our firm does. We do quit a bit of litigation with institutional investors and we
do have some individual investors. To give you some idea of how we believe this act has
worked, I'll use 2003 as an example; in 2003 there were 16 cases that settled with an institutional
lead plaintiff, meaning a pension fund or public fund and those 16 cases that settled the average
settlement was $116 million. In all the cases that settled that had an individual investor or a non
public pension fund the average settlement was $7.5 million so it is about 16 times different
when you have an institution involved. The courts take it more-seriously, the defendants take it
more seriously and usually you only get involved in the better cases. I'm not guaranteeing that
kind of recovery here that's an average. Why this is important now and what we are asking is
that you give serious consideration to being lead plaintiff or class representative and leading this
litigation. We filed_ this case in 2003, at that time we filed with individuals investors who had
small losses and we have survived a motion to dismiss, several courts have looked at this
including the court of Seven Circuit Court of Appeals and allowed the case to move forward.
Now we are at the stage where the court has to certify the class and there are several things that
happen when you certify a class, the court says in order to certify the class, the class
representative of the lead plaintiff must be like the other purchasers of the stock and the
purchasers here are the folks who purchased this stock between the 2001 and 2002 date and so
you guys fit within that. You must also agreed to fairly represent all the class, you can't represent
Fayetteville more than you want to represent the other class members because just as you said it
Firemen's Pension and Relief Fund Board of Trustees
Meeting Minutes
September 28,2006
Page 7 of 20
is fiduciary to all the members of the pension fund for Fayetteville and make decisions for all
their good not just your own good. Same concept works here when you're a lead plaintiff in
litigation. When we move forward with class certification in court, the judge said I'm not going
to certify this class, I'm going to deny that motion because you guys have individuals, I want you
to find an institution to be lead plaintiff.
Honestly when we signed you up to monitor your fund I never thought you would ever be lead
plaintiff because you're not a big fund compared to some of our other clients. We have clients
that have $30 to $40. billion under investment but you never know who might be lead plaintiff
because you never know what people invested in.when. None of my other clients where invested
in this stock during that relative period of time. If this was a traditional case and we were at the
beginning of the litigation I probably would say I'm going to continue to monitor sit back and
don't do anything because somebody else bigger than you is going to be lead plaintiff. In this
case the only people that agreed to move it were individuals; no other institution has stepped up.
This is a unique opportunity for Fayetteville to actually lead litigation. There are some benefits to
leading a litigation you get to do that, you get to work with the firm, the lawyers to hopefully
settle this case in a manner that's fair for you and fair the entire class of purchasers. What does it
mean for you to be a lead plaintiff, again the responsibilities are really to supervise to lawyers,
not that you have to know the law or know legal knowledge of the case, you have to have some
fimularality with the case, pretty much what Mark has told you someone at some point in time .
may have to sit for a deposition. You will have to help us as we move forward when there are
decisions that need to be made it's not the lawyers that make the decisions it's the lead plaintiff
it's the class representative that makes the. decisions.
So those are the things that we are asking. It may sound like an enorminous amount time and
effort but it's really not. At no time if you guys allow us to move forward on this case will the
City of Fayetteville ever spend one dime to prosecute the litigation. You guys might remember
back to 2003 when you asked us to look at the arbitration case it's the same kind of context you
guys never saw a bill, we would have never gotten paid unless we were successful. In that
context we suggested that you didn't bring a law suit we incurred about $6,000 worth of cost but
you never saw that because we didn't move forward with the case. Same thing would happen
here if we move forward in this case.you guys will be lead plaintiff, you will never see a bill, the
city will never spend any money and for that person who may be deposed or for Mr. Williams if
he has to done some work your time will be reimbursed. Every time we have done this we have
asked the court to reimburse the lead plaintiff for time spent and the courts have never failed to
do that. Now I can't always say what the court is going to do but that 100% of the time it has
happened. There are no liability concerns because in the unlikely case that something happens
our firm will identify you on anything. We will cover all the costs and especially litigation and
we're only paid if we are successful. That's really what we are asking for, we are asking you to
consider stepping up, leading this litigation, not just for yourselves but for all the class of
purchases of this stock, because if a lead plaintiff doesn't step forward quit honestly this
company may get off the hook. The courts said unless you guys get a lead institution I'm not
going to certify this class.
Firemen's Pension and Relief Fund Board of Trustees
Meeting Minutes
September 28,2006
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There is a sense of urgency here because the court has asked us report back to her; the judge has
asked us to report back to her by October 6 whether we have an institution or not to lead the
litigation. I hate use such short of a notice but we just got this information from the judge just
recently. We tried to proceed with the folks we had but the judge said I want an institution and
judges can do that and that's what the judge in this case has done. That's really the long and
short of it. The most important thing for you to realize is you are taking on some responsibilities
to watch and monitor,the litigation and to work with us. You are not taking on any responsibility
for any expenses or costs, but it may take human time, somebody maybe deposed, somebody
may have to find the custodial records because we want to make sure we have exactly what you
purchased, because we don't know exactly what you purchased we won't know exactly how
much you should get back. There will be some back and forth typical for litigation. We do this
all the time we are there we probably have prosecuted over 250 of these cases across the country.
We are .very familiar with the defense council; I have about four cases going right now. The
good thing about this case is that it has moved down the pipe, it has survived a couple of motions
to dismiss. That doesn't mean that we are going to be successful but that does mean the court
thinks enough about the case to let us move forward but the court is saying I want even more
protection, I don't want these individuals who don't know any thing, I want institutions who not
only do they have processes, they have professionals who they hire to buy their stocks. You're
not required to know why you bought the stock because as a board you fulfilled your
responsibility when you hired a professional who bought the stock. That is really the long and
short and we are asking again that you authorize us to move forward with Fayetteville as lead
plaintiff or class representative in this case and prosecute this litigation.
Pete Reagan moved that the board retain the law firm of Martin and Kieklak and, Cauley,
Bowman, Carney and Williams. Darrin Williams to seek lead plaintiff status on behalf of
our pension board in an action against Baxter International to try to recover our losses.
Dennis Ledbetter seconded the motion. Upon roll call the motion passed 6-0. Mayor
Coody was absent.
Kit Williams: This of course is under the same terms and conditions we had before just kind of
extending the contact we had with you.
Sondra Smith: Do we need a new contract?
Kit Williams: Probably. I don't know what do you think?
Darrin Williams: We might want in this particular case since we have a specific case we might
want to enter into an agreement just to protect you and.spell out exactly what we want. We can
get you a copy pretty quickly.
Kit Williams: I would ask the board to authorize the Mayor as chairman of your board, upon
my advice, to be empowered to sign the retaining contract with the firm which will be very
similar to the one we agreed with them a few years ago. You that were on the board at that time
know that it was a no risk contract for the city where they agreed to cover their own expenses
and if they are successful then of course expenses can come out of any recovery but if they're not
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Meeting Minutes
September 28,2006
Page 9 of 20
they don't comeback and bill us as you heard. The first time that they investigated something for
us they found there really wasn't much of a good claim and we never saw a bill. Hopefully this
time they will be successful but we still will not see a bill if anything we will see some money
that will come back to us.
Pete Reagan: Darrin, when did you say this need to be signed? Are we looking at needing to
sign something today or tomorrow or next week?
Darrin Williams: It doesn't have to be done today. I would like to have it in place before
October 6, 2006 but it is not required.
Kit Williams: The Mayor will be back this Monday.
Darrin Williams: That's fine. -
Pete Reagan: That's the reason I was asking.
Marion Doss: I was concerned with that to.
Darrin Williams: I think that works. I probably should have entered a copy of the complaint in
the record that it has been filed. I'll give this to the clerk just so you will have a copy.
Kit Williams: Okay.
Sondra Smith: Thank you.
Pete Reagan: If he isnot available Kit sign it on his behalf.
Kit Williams: That wouldn't be me. It would be the Vice Chair.
Sondra Smith: We don't have that.
Marion Doss: We don't have that but we could get all the board members to sign.
Kit Williams: We actually have the Mayor's signature stamp and with unanimous authority of
Sondra, Gary Dumas and me we can use it, but I don't think we will need to that. I would much
rather get a real signature from him and he will be back Monday and we can explain all of that to
him.
Darrin Williams: Thank you.
Pete Reagan moved to authorize the Mayor to sign the contract with the attorneys. Ted
O'Neal seconded the motion. Upon roll call the motion passed 6-0. Mayor Coody was
absent.
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Meeting Minutes
September 28,2006
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Merrill Lynch Letter
Sondra Smith: That is the letter I sent to them stating that we were not interested in them
attending one of our meetings.
Marion Doss: Okay.
Kit Williams: It really would be inappropriate if you all decide that you want to reconsider '
financial advisors then you have to put out an RFQ just like you did before. It can't be groups
coming in and soliciting.
Marion Doss: I don't think any of us are interested in changing but if we do we will send a
letter to everyone.
Pete Reagan: I think we should note that Sondra was very polite in her wording.
Kit Williams: Do you want her to be tougher next time.
Pete Reagan: No.
Ted O'Neal: She does well.
a
Pete Reagan: She did an excellent.
Discussion on apurovine Pension List after checks are issued instead of before
Marion Doss: We have already touched on the discussion on approving the pension list checks."
Kim Skelton Proof of Registration
Marion Doss: We have a copy of Kim Skelton's proof of registration in an institution of higher
learning.
Sondra Smith: Yes.
NCPERS Membership Dues
Sondra Smith: If you wish to continue to your membership I need to pay that and I'll need a
motion and a second to approve .payment for the membership. It looks like that has gone up. I
think it was $100 and it is now $150. I wanted to make you aware of that too.
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Meeting Minutes
September 28,2006
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Pete Reagan moved to approve payment of the NCPERS membership: Dennis Ledbetter
seconded the motion. Upon roll call the motion passed 6-0. Mayor Coody was absent.
Trish Leach: Before we move on can we back to the request for custodial records. Can I
forward them to Sondra and she can forward them to you. Are you okay with that?
Sondra Smith: Yes.
Trish Leach: We will get those pulled so you will not have to wait on those.
Old Business:
Extension of temporary COLA
Marion Doss: The temporary COLA just stays like it is doesn't it?
Pete Reagan: No it dead ends the 31 St of December.
Kit Williams: Is that when it runs out? In other words you wouldn't get an additional COLA
increase.
Sondra Smith: You wouldn't have a COLA in January. You wouldn't have 3% added to your
check in January.
Marion Doss: Right, but it would stay like it is.
Kit Williams: It would stay like it is.
Sondra Smith: You retain the same amount you are currently drawing.
Kit Williams: In other words if you are getting a $1000 you will continue to get a $1000.
Sondra Smith: Yes.
Marion Doss: That's what I thought I just clarify that.
Pete Reagan moved .to seek a cash flow analysis through the Arkansas Pension Review
Board for continuation of the 3% compounded COLA for the purposes of allowing an
actuary who is a professional in the business, who does all the actuaries for the old Fire and
Police pension plans to allow them to review our funds to see if the fund can afford it.
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Meeting Minutes
September 28,2006
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Pete Reagan: I do note that in the resolution and I would ask that this be included in my
motion that under Section 2 in the second sentence after numeric number three and the percent
sign that compounded be added.
Kit Williams: Temporary COLA compounded?
Pete Reagan: That's currently what we have, is a compounded COLA.
Kit Williams: I would imagine that is probably the way they always do it.
Pete Reagan: No it's not that's why I wanted to add that because there is a difference in 3% and
3% compounded. We currently have the 3% compounded COLA and that's exactly what LOPFI
has.
Kit Williams: So you want compounded after both 3%'s in there.
Pete Reagan: In the 4th sentence after 3% - compounded COLA.
Kit Williams: Between 3% and COLA on both ones you want compounded is that right?
Pete Reagan: Yes sir.
Kit Williams: My memo was provided to you and I am concerned since the actuarial people,
the same people that you will be asking to do a cash flow study, in their latest evaluation of your
fund said that it doesn't have enough funds to pay current benefits. In fact if you look at their
Exhibit 4 apparently the funded percent that is available at this point in time is barely 50% of
what you will need in the future without counting additional increases. As was stated earlier you
all have fiduciary responsibilities to beneficiaries including yourselves to try to insure that the
fund will be around to pay the benefits. If it ever gets depleted then all the benefits will be
reduced pro rata and it is possible that the only amount of money coming in once you've spent
your reserves will be the millage, four tenths a mil which will not go very far. That means
everybody would have a tremendous benefit cut. So I urge caution on increasing benefits when
the very actuary that you would be asking to do this cash flow study said that the funded percent
of your fund right now is at 50.9%. It has been going down dramatically since 1999 when it was
at 95% and 2001 it was at 75%, 2003 it was at 60% and 2005 it is at 50%. As you cansee the
funded percent according to your actuaries has taken a tremendous dive and makes me concerned
if there will be sufficient funds to pay you right now not even considering an increase in the
benefits that you are currently getting. I would urge caution in this particular case.
Pete Reagan: With all due respect if I can comment on that, Kit we also have a fire insurance
premium tax that is allotted to this fund; it is based on the number of retirees and the active
members that will always come into this fund:
Kit Williams: As long as the legislative doesn't change it. You never know what the legislative
is going to do.
Firemen's Pension and Relief Fund Board of Trustees
Meeting Minutes
September 28,2006
- Page 13 of 20
Pete Reagan: We will be there to protect it, I will guarantee you that. We also have several
legislators and the Governor has promised to keep it there. Also I would like to note that there is
an increase in our portfolio this month of $723,673. We all know that we have been in a down
market cycle for several years now and we rode out three of these. We know that is going to
happen as nature takes its course in the stock market. We are in a down market cycle and it
looks like we are coming out of it. The stock market Was near an all time high yesterday, the last
time I saw it, I don't know whether it went over for the last six years. Things are improving
although we are at war with two different countries, I think it is our 'responsibility to our
members to allow and actuary to review this and see if the fund can afford it.
I also want to note that the last three benefit increases that we have given to our retirees we have
waited until after the full blown actuary has come out and we have always had the three check
marks'in the no column where we were not actuarially sound but we were able to give benefits
on a cash flow evaluation. That is the reason that the state legislator saw fit to allow a cash flow
evaluation to be done for the purpose of giving benefits to retirees.
Marion Doss: If I understand this right we are just asking if we can.
Pete Reagan: If the fund can afford it.
Marion Doss: When we get the information back if it says we can't then it is a mute point: That
is one thing our retirees have always wanted, some kind of COLA on this fund. For so many
years it did not have a COLA, you retired and stayed that way forever. We finally got some
benefit increases.
Dennis Ledbetter: How long will it take to get one?
Pete Reagan: It all depends on how busy the actuary is, two to three months.
Ted O'Neal: The actuary costs.the pension. fund doesn't it?
Kit Williams: Yes, you pay for it.
Pete Reagan: It is $2,000.
Sondra Smith: For a cash flow.
Pete Reagan: The full blow is like the one that we have. here that is mandated by state statutes
and is $3,000 to $3,500. The reason we wait until after the full actuary is done is they are
familiar with our numbers and they have updated our numbers. They do not have to go back and
update them for the last year or two years. It makes it easier on them also.
Sondra Smith: You might also look on Page 6 that your contributions have only been $622,000
and your withdrawals have been $4,207,000 since 2002. You can't just consider the point that
Firemen's Pension and Relief Fund Board of Trustees
Meeting Minutes
September 28,2006
Page 14 of 20
your fund is going up you also have to consider how much is going out of your fund on a regular
basis.
I am very concerned about an increase and I am even more concerned about voting on an
increase when the Chairman of the Board is not here. We were courteous enough last month not.
to vote on this because everyone was not here. I do. not feel we should vote on this unless
everyone is here. I think we owe the Mayor that courtesy also.
Pete Reagan: With all due respect all we are asking is that the professionals review this. We
are not going to institute a COLA until the actuary comes back and says we can do it. Weare
almost in October that will give us three months to look at it and decide.
Kit Williams: There-is a provision in the statutes that is set up to rescue funds that get in over
their heads, unfortunately in order to be in that, to have it taken over, two things have to be
established that this fund does not have. You have to be at the minimum levels of benefits which
are 50%, no COLA and no additional survivor's benefits and you have to have at least one mil
passed by the voters that would be funding it. If our fund really got into trouble we couldn't
even go in that direction unless you could get the voters to increase the millage and then all the
benefits were reduced to 50%.
I am just concerned over the long term and maybe not that long that we stand a chance to get on
a downward spiral where you can not get out of it without terrible cuts to your benefits. I would
like to avoid that. A lot of the people that would be cut the most are sitting in this room because
you are some of the younger members, you are going to live longer, your spouses are going to
live longer and they are going to be the ones in the future that are most susceptible to losing
benefits. You are the trustees and you make the decisions.
Pete Reagan: Do we need to vote?
Marion Doss: We do.not have a second yet. I don't have a problem with waiting until the full
board is here. The Mayor is the only one that is missing, if it is proper to wait until he is here, on
the other hand we are just asking for the study to see if we can do it.
Ted O'Neal: It may comeback that we can't.
Dennis Ledbetter: At this point in time, my concern as a trustee if we get an actuary, we need
to get to the members and lay it out to them so they know fully. I feel it may be okay but it may
not too. I feel we need to sit down and lay it out to the members and let them know what we are
looking at. It is a simple fact of just keeping them informed.
Kit Williams: That is a good idea.
Pete Reagan: I think there is a meeting scheduled in December or November. It would nice to
have that information by then to show it to them.
Firemen's Pension and Relief Fund Board of Trustees
Meeting Minutes
September 28,2006
Page 15 of 20
Sondra Smith: I want both pictures shown. I want the cash flow shown and the actuarial study
shown. I don't want these members fooled. If you show them a cash flow study and it shows a
different picture they will not understand the difference. I am not going to stand for that. I want
them to know the true story and the full picture which is the actuarial study because this affects
their lives and this affects your lives. I want them to know both pictures not just the rosy picture,
if the cash flow says we can increase. I will not agree to doing a cash flow study and showing
that to the pensioners and not giving them the full picture.
Pete Reagan: I have no problem with that Sondra. I want to make sure that you are invited like
you were the last time. I am not trying to hide anything from anybody. If you will remember at
the last retiree dinner that we had I asked if anyone had any objections to the continuation of the
3% COLA and nobody said anything.
Sondra Smith: But they don't know. They don't know that the fund has dropped drastically in
the past few years. I would be jumping up and down and saying sure I want a COLA but if it is
pointed out to me that by doing this COLA I may have to in the near future decrease my benefits
to 50%, 1 would look at it twice, I would forego a COLA to keep my benefits at 90%.
Pete Reagan: I understand that.
Sondra Smith: That's what they need to be told. If someone came in and told me you are going
to get a 10% raise I would jump all over it but if they told me two years from now you are going
to go back to 50% of your salary I would say forget the raise. I'll stay where I am right now.
Pete .Reagan: I fully understand that. There are several of those members that have served on
this board through their longevity at the Fire Department so most of them are aware of it that
have served on the board and know how this works. A lot of them have not but there is a bunch
of them that have.
Dennis Ledbetter: I just feel like a special meeting needs to be called to let them know we are
going to discuss the pension fund and have a meeting just for that. I think we need to have a
meeting, lay it out and show them. They may be perfectly happy with this but I want them to be
happy because I don't want to come back later and then say you boys got us into this jam.
Sondra Smith: That's exactly what I don't want.
Dennis Ledbetter: I want everybody's blessing on this. When I came on this board I had
several calls and they said they wanted to be informed. I am trying to do what I told them I
would do, represent them. If they say do it, it is kind of like being an elected official if your
constituents want it then you do it. I just want everybody to know.
Kit Williams: The more education and information the better.
Dennis. Ledbetter: It may come out just fine.
m
Firemen's Pension and Relief Fund Board of Trustees
Meeting Minutes
September 28,2006
Page 16 of 20
Pete Reagan: My thoughts exactly, that's all I am asking.
Ronnie Wood: I will go along with that. I don't want to make a decision with somebody in the
' dark. I don't know how many we can get together but I think they need to have the opportunity..
Dennis Ledbetter: If we send out letters and we only have 20 of them show up then I will feel a
lot better sitting on this board and making decisions then.
Sondra Smith: Would it be better to have the meeting in the evening?
Dennis Ledbetter: Yes.
Marion Doss: I think the biggest interest we have had from the retired members was when we
were discussing going to LOPFI.
Dennis Ledbetter: That can also be brought up at that meting.
Kit Williams: That is a big issue because if you look at what happened to the unfunded liability
which the city would have to pick up, it went in 2001 from $4 million to in 2005 almost $10
million so it is making it less likely that the City Council is going to say that we are going to
spend $10 million of taxpayer money in order to send you all to LOPFI. If the city would do that
it would protect your benefits, but it has gotten so expensive that I don't know if that will happen
and if that doesn't happen then you are just stuck on your own with your own money and if you
run out then you run out and that is what has me concerned.
Marion Doss: That concerns us very much because that's what we are living on.
Sondra Smith: I need to make you aware that we are supposed to give a report to the Council in
open session and that has not been done in the past.
Kit Williams: But it will certainly be done in January.
Sondra Smith: It will be done in January, 2007 and it will be done every year hereafter as long
as the state law requires it. I do not want you to think I am taking this to the Council because of
the unfunded liability; it is because we are in violation of the state law and we have to do it.
Kit Williams: We have to do it.
Pete Reagan: It was my understanding that the Mayor as Chairman was including that in his
State of the City address.
Kit Williams: It needs to probably be its own separate report. State law says it shall be done, so
it must be done.
Marion Doss: You mean it has not been done?
Y
Firemen's Pension and Relief Fund Board of Trustees
Meeting Minutes
September 28,2006
Page 17 of 20
Kit Williams: If it has, it has only been glossed over it has not been done to the kind of detail
that it needed to be done.
Pete Reagan: What statute number is it?
Kit Williams: It is ACA 24-11-412. Board of Trustees shall report to the city through the
Council or City Commission the condition of the pension fund on the first regular meeting in
January of each year.
Pete Reagan: I would hope we would have the opportunity to review the report before it is
given:
Sondra Smith: Sure,. it is your report.
Pete Reagan: The Mayor is chairman of this board so it would be his responsibility to give it.
Sondra Smith: It will be on the agenda and all the information will be in the agenda.
Pete Reagan: Where are we at Mr. Chairman?
Marion Doss: We have your resolution and we are waiting for a second.
Dennis Ledbetter: Do you think we should wait, we are just asking for a cash flow study.
Sondra Smith: I think it would be better; it takes 6 out of 7 board members to pass this
resolution. I think it would be better if you voted on the resolution when all the members were
here. That is just my opinion, you do not have to, it is strictly up to you, it is whatever you want
to do.
Pete Reagan: It also takes 6 out of 7 to give an increase in benefits.
Sondra Smith: Right.
Pete Reagan: I would venture .to say there were 34 members at the last meeting; we have
another meeting scheduled in November how are we going to make a presentation to them?
Ronnie Wood: If we go ahead and do this cash flow study that would give us a piece of
information that we need to make a presentation to them along with the full actuary study. Like
Sondra said I think they need to see the difference. They need to know the difference between
them.
Sondra Smith: They need to understand the difference between a cash flow study and an
actuarial soundness study.
Ronnie Wood: That is what I was talking about.
Firemen's Pension and Relief Fund Board of Trustees
Meeting Minutes
September 28,2006
Page 18 of 20
Pete Reagan: The full blown;actuary is the worse case scenario.
Marion Doss: If I understand the cash flow method if I want to buy a house but I can't go out
and write a check.for the house but my credit will allow me with my income to buy one.
Sondra Smith: The way I understand the cash flow study is they estimate over a certain number
of years that you will have enough money in this fund to cover the money being paid out over
the same number of years. Everything is a guess, they are guessing at the life expectancy, they
are guessing that your funds will earn a certain percentage, if the fund goes down and you do not
earn the money they estimated their guess was not a good guess if the fund goes up and you are
earning more their guess was not a good guess because you are making more than what they.
anticipated. We do not know what the market is going to do ten years from now; we do not have
that crystal ball to predict it. The cash flow study paints a prettier picture than the actuarial
soundness study that is my understanding. My concern is when you look at the fund you can see
that the fund started dropping in 1993. In 1993 you only had a $544,000 unfunded liability, from
1993 to 2005 that has gone from an'unfunded liability of $544,000 to $9,876,000. Is that due to
lack of investments, or to benefit increases, it looks like to me it is due to benefit increases
because there is an asterisk beside the years that benefit increases were done. You still have
three people that are on DROP and that are going to draw a big lump sum distribution from this
plan. That could be anywhere from $500,000 to $750,000 for those three people, that is going to
hit the fund pretty quick.
Pete Reagan: The actuary takes that into affect in their calculations. Is my motion going to die
for lack of a second or are we going to sit here all day?
Dennis Ledbetter: I will second it and we can get a cash flow. Can we get it by November?
Sondra Smith: No.
Dennis Ledbetter: I think a letter needs to go out and there needs to be a specific meeting for
retirees in the evening for this.
Marion Doss: Everyone needs to know the whole picture. This is to only have a study
completed. We will have to have a separate resolution for the COLA if we decide to do that.
Sondra Smith: The resolution is also asking for a permanent COLA.
Pete Reagan: I thought it was temporary.
Sondra Smith: You are voting on having a cash flow study completed, we have to have a
resolution to have a cash flow study completed.
Marion Doss: If we get the information back and it says we can increase.benefits we would
have to have another resolution to give the benefit increase.
Firemen's Pension and Relief Fund Board of Trustees
Meeting Minutes
September 28,2006
Page 19 of 20
Sondra Smith: Right. _
Pete Reagan: For the record we are asking for two things. A three year compounded temporary
COLA and a study to increase all current and future retiree's benefits by a permanent COLA, so
we are asking for two things.
Sondra Smith: This resolution is asking for a cash flow study and approving the expenditure of
at least $2,000 to pay for the study.
Dennis Ledbetter seconded the motion to have a cash flow study completed. Upon roll call
the motion failed 5-1. Marion Doss, Dennis Ledbetter, Ted O'Neal, Pete Reagan and
Ronnie Wood voting yes. Sondra Smith voting no.
Sondra Smith: I feel the full board needs to be here to pass a resolution. I will be happy to
reconsider this next month if everyone is here. We extended that courtesy last.month. We said
we wanted the full board here before we did this, that is the reason I am voting no because I
think the full board should give it consideration before we spend $2,000 out of the fund.
Pete Reagan: So are you telling me this resolution just failed?
Sondra Smith: Yes.
Marion Doss: I would like to have it back on at the next meeting.
Sondra Smith: Okay. I will be happy to reconsider this at the next meeting. I think the
Chairman of the Board needs to be here.
Ted O'Neal: There is a time problem in getting the information out.
Marion Doss: That is what I want. I know if you ask anybody if they want a raise they will say
yes but they need to know the full picture. We need to be able to explain.
Ted O'Neal: We need to be able to explain what the cash flow is. That is one side of it.
Sondra Smith: You need to be able to explain what the cash flow is versus what the actuarial
soundness study is. They need to see both studies.
Pete Reagan: But we are not going to have both studies.
Sondra Smith: We can go ahead and set up a time to have a special meeting as soon as the
Mayor is back and vote on this again if you do not want to wait until the end of October.
Pete Reagan: At the earliest convenience of the Mayor.
Firemen's Pension and Relief Fund Board of Trustees
Meeting Minutes
September 28,2006
Page 20 of 20
Marion Doss: I would just like to have the information for our retirees, so they can see both
sides of it. They are expecting that COLA.
Sondra Smith I am not saying I will note vote to have the cash flow study completed, the only
reason I voted against it because everyone was not here. It would not have mattered who was
absent on something like this everyone needs to be here.
The Mayor can meet this Monday at 2:00 PM. We will redo the resolution and have it ready by
Monday.
Longer Investments:
Approval of Equity Overage — Equities area at 52.5%
Pete Reagan moved to approve the equity overage. Ronnie Wood seconded the motion.
Upon roll call the motion passed 6-0.
Monthly Report:
Meeting Adjourned at 12:20 PM
Firemen's Pension and Relief Fund Board of Trustees
Meeting Minutes
October 2,2006
Page 1 of 11
Firemen's Pension and Relief Fund
Meeting Minutes
October 2, 2006
A meeting of the Fayetteville Firemen's Pension and Relief Fund was held at 2:00 PM on
October 2, 2006 in Room 326 of the City Administration Building
Mayor Coody called the meeting to order
Present: Mayor Coody, Marion Doss, Dennis Ledbetter, Ronnie Wood, Pete Reagan, Ted
O'Neal, City Clerk Sondra Smith, City Attorney Kit Williams, Finance Director Paul
Becker, Chief Tony Johnson, Trish Leach, and Wendy Moore, Accounting.
Old Business:
Extension of Temporary COLA
Mayor Coody: Thank you for waiting until I came back because this is very important for
everyone tax payers, pensioners, everyone to get a handle on this. I understand that there was a
motion and a second at the last meeting to do an actuarial study to see if there was a way to do a
permanent or temporary 3% COLA is that right? You, will have to catch me up on this I've been
off for 3 weeks. I also know that it got voted down because there wasn't a majority of votes.
Kit Williams: It requires six to pass it.
Mayor Coody: Right. That's what I mean not enough of themajority to pass it. Do you have
any input for me on that?
Pete Reagan: My stance is that we need to have a professional actuary that's actually hired by
the Arkansas Pension Review Board to review it. The big question was if they review it and say
that we can do it does it automatically go into .effect? I spoke with David Clark at PRB this
morning and it is my intention to have the study done and bring it back'to the Board and our
retirees for review.
Mayor Coody: Alright so what was his answer on whether it's automatically approved or nota
Pete Reagan: It is not. We've got to take action on this.
Mayor Coody: That's what I would assume. Alright let me ask a couple quick questions here
because like I said I'm trying to get caught up on all of this. When you look back at the
comparison for prior years and the percent funded we were 98.4. % funded back in 1995 a few
short years ago and now we are down to 51% funded, how on earth could a study come back and
say anything is going to be approved. It looks like somebody has been milking this fund to the
Firemen's Pension and Relief Fund Board of Trustees
Meeting Minutes
October2,2006
Page 2 of I 1
point of it being unsound to where it's going to dry up and all the pensioners are going to lose
benefits all together one of these days. Is this the responsible way to do business to keep milking
the fund that's 51% funded right now? Who can answer that for me?
Pete Reagan: I can tell you that we were at a retirees dinner several months ago and not anyone
there objected to the continuation of the 3% COLA.
Mayor Coody: Was everyone aware of this being so financially unsound.
Pete Reagan: No sir, we did not have the actuary back at that time.
Mayor Coody: Do you think that had the pensioners known their fund was drying up faster than
a lake in the sunshine that they would continue to try to ask for more benefits when they are
obviously going to run out.
Pete Reagan: I would think that it would be their view and I represent their view as we all do to
have both studies to look at before they do. Now you have to also understand what the market
has done in the last six years. We are assuming a 6% rate of return on the market and last year, I
don't have the information in front of me, but I think it was 3.2% and the year before it was
worse than that so its market driven and we all understand that. We are making the money to
allow the benefit increases in the market and we haven't done.that in the last three years.
Mayor Coody: So is the market going to continue to climb?
Pete Reagan: I better not say.
Mayor Coody: I agree. This was 2005 and I can not imagine that the percent funded has gone
up very much in the last year. Sondra do you have any information on that or does anyone have
any information. Are we up to 52% or 53% funded?
Kit Williams: Do you know what our current assets are?
Pete Reagan: Our current assets are approximately $10 million. Last month when we looked at
Elaine Longer's report at our;meeting our profit last month was $723,000. We had a good month,
but we may lose all of that next month.
Mayor Coody: Whose responsibility is it to educate all the pool of retirees on the status of this
fund? Is it my responsibility or is it your responsibility?
Sondra Smith: Mayor, first of all there is a report that needs to go to the City Council in open
session that we have not been doing as a Board. That is supposed to be done at the 'first meeting
in January. That will be done from now on in every January. So any pensioners that get our
agenda or anybody that wants to hear that open report can come to that City Council meeting or
they can come to any of these meetings. That is one thing.I want to make you aware of that we - .
Firemen's Pension and Relief Fund Board of Trustees
Meeting Minutes
October 2;2006
- Page 3 of I I
have not been doing, we need to do it, its state law that we do it, and we will be doing it in the
future.
Mayor Coody: How did you all find out about this and how come I didn't know about it?
Sondra Smith: By reviewing the statues and by going to the clerk's meeting that I go to I found
out and I discussed it with Kit .and he confirmed that it is suppose to be done. He agrees that it
needs to be;done.
Kit Williams: It needs to be done on the first meeting.
Mayor Coody: Has this being going on for awhile.
Sondra Smith: I don't know that it's ever been done.
Mayor Coody: Well we need to fix that.
Marion Doss: Isn't that included in the financial report that the Council gets?
Kit Williams: I don't know if it is actually in there or not, part of it probably is.
Sondra Smith: The state statue is very clear on how it needs to be done.
Kit Williams: The first meeting in January is what it says. At one point I called it to their
attention but we still haven't got it done so we just need to start doing that.
Pete Reagan: Sondra is it in the Police, too?
Kit Williams: I would imagine it would be the same thing.
Sondra Smith: Right.
Mayor Coody: When it comes time to put together the State of the City address I'll be doing
that. It's specifically the firstmeeting in January right?
Sondra Smith: It states the first meeting in January.
Mayor. Coody: I think the State of the City address is first or second meeting. Make sure this is
on the agenda for a report .to the City Council first meeting in January please.
Sondra Smith: I already have it on the agenda.
Mayor Coody: Good thank you. We will need someone there to really explain the ends and outs
of this. It would take longer than that to get the study back if we approved one now. Would it
take longer than that to get an actuarial study back?
Firemen's Pension and Relief Fund Board of Trustees
Meeting Minutes
October 2,2006
Page 4 of I I
Sondra Smith: Pete thinks we might be able to get one back in three months. I've never seen
them that speedy before.
Mayor Coody: Usually it's five or six months.
Pete Reagan: For a cash flow it's not Mayor. They already have all the information.
Mayor Coody: What about actuarial because we can't relay on just one.
Kit Williams: We know actuarially it is not going to pass because we are at 50%.
Mayor Coody: So if it's actuarially not going to pass we just try to cherry pick the way that it
could pass so we can increase the benefit.
Pete Reagan: No sir, the reason that the Arkansas Pension Review Board allowed the cash flow
study to be implemented was because this actuary is the absolute worse case scenario and the
absolute worse case scenario is if a tornado came through town and killed everybody.
Kit Williams: Except the Fire Pensioners.
Pete Reagan: No a tornado doesn't normally kill everybody in the whole town.
j Kit Williams: I think and Paul help me understand this, the actuarial study is a very very
conservative review, correct me if I am wrong, but they do not consider future revenue coming
into the system, the millage and revenue like that. Therefore that's probably overly conservative
because there is at least in the foreseeable future millage that's going to continue to come in. '
That doesn't mean that state law could not be changed at some future point so that the millage
might not be required to continue to fund a program especially if the program gets down to not a
whole bunch of people. In the past there was a big property tax issue that they wanted to outlaw
all property taxes in the state. They tried to get that on the constitution a couple of times but it
did not pass but you never know when something like that might come back so. it's not
guaranteed. I do think that the actuarial method is overly conservative because there will be
some revenue coming in but I think the cash flow method on the other hand is probably overly
rosy in that it assumes that there will not be changes for 20 to 30 years in your revenues that will
be coming in. I think that is not reasonable to assume either. If there are three people getting
pensions and drawing a whole bunch of money and,people have to pay property taxes for that I
don't know if the voters will want to continue to do that. I think there is a tipping point that you
get to that at some point your pension fund. needs to be on its,own and to have saved up enough
so that your members are actually living off of it and not counting on future revenue which will
probably be directed toward the new LOPFI plans. That is where the vast majority of the
employees are now and soon we will start having retirees in that plan too, I imagine we already
do but I mean it will start growing. This actuarial method where they don't count on any further
revenue at all I think is to pessimistic and I think that is why they have allowed this other method
of a 30 year cash flow and I think that is probably too optimistic. The problem is where we go
Firemen's Pension and Relief Fund Board of Trustees
Meeting Minutes
October 2,2006
Page 5 of I 1
from here. I share your concerns that the drop that we have had in two things not only in the
funded. percentage that in six years has gone from 96% to 50%, that's a terribly big drop, and
during this, same period in the last four years the fund has gone down $2.7 million. The fund
cannot sustain a $700,000 a year drop and as your fund goes down there is less money to earn
interest on so it can accelerate. That is one thing that has me concerned as this thing is going
down. On the other side I think there are only 3 more DROP people and the DROP cost several
hundred thousand dollars when you add them up all at once, after three more that ends all the
DROP people will be drawing money. I'm still concerned that we are on a downward path. I
would be concerned'about adding new benefits at this point in time with this downward path no
matter which study. I think one is too rosy and one is too conservative. Unfortunately you all are
probably in the middle although they might even say the rosy one might be good enough at this
point. I don't know.
Sondra Smith: The other thing is if we do send this to LOPFI in the future, which we have
talked about but I don't know that we are even interested doing that now, is the unfunded
liability will have to be funded to send it to LOPFI. Is that correct?
Kit Williams: Yes, I think it has probably gotten too expensive. I know in years back when it
was $4 million then Steve Davis ,at that point was thinking that maybe we should send it down to
the state, now it's almost $10 million. I don't think that's political palatable for the City Council
to finance that kind of deficient. I think we our kind of in it in ourselves now and we are
managing it and we can't count on the hope that the City Council would send it down to LOPFI
because that is getting to be probably more expensive. Now it might turn it around but it won't
turn it around if you keep adding benefits.
Mayor Coody: Paul do you have the actuarial comparison 5 years in front of you.
Paul Becker: I don't have that in front of me.
Mayor Coody: When you look at the assets the $10.2 million and you look next to it at the
unfunded actuarial liability of $9.9 million those numbers are pretty close to each other aren't
they?
Paul Becker: Yes:
Mayor Coody: Then how on earth can this possibly work in the future?
Paul Becker: What this is doing is this is taking a snap shot at a point in time. They're saying if
we don't have the income this is where it's going to be. When I say income don't forget that
you're still going to get investment on assets that return. It is also assuming that return comes in
and although you might think 6% is very conservative it could be aggressive to. It's not the
worse case scenario the investment income could go down you never know. You could have a
paw on these assets if the flows don't keep up. The cash flow method that Kit was talking about,
that's assuming that your income streams stay consistent. That's millage, that's also turnback.
Turnback is controlled by the legislature you don't know what that's going to do. If something
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October 2,2006
Page 6 of 1 I
happens there and that changes you're certainly going to put a strain on the fund and if it goes
down to low you're going to have to cut benefits period. So that's the reality of the situation. I
don't know if that answers your question.
Mayor Coody: Yes it does. If we continue on this current course what does our unfunded
liability look like in another say 10 years?
Paul Becker: That would be speculative. It would build for a while; it would build depending
on the demographics, how many people are in the system, when they, decease.
Kit Williams: And what the benefits are.
Paul Becker: The benefits certainly. If the benefits increase it's going to get worse.
Mayor Coody: Well I just can't see where we have a 49% unfunded liability and we can even
consider raising benefits more. I think that would be just unbelievably irresponsibility. As much
as we would all like to make as much as we can I think the long term cost of this would be
astrominical and it's not fair to the pensioners as well as everybody else in town. Regardless of
what any study would come back and say, if the rosy scenario came back and said I think that the
cash flow method means that you can probably.add benefits yet actuarially it's crazy to consider
doing, I think it would be completely irresponsibility to increase benefits with this looking at us.
What would be the options if we increase benefits or even if we stay where we are and the
money runs out one day.
Paul Becker: If the money runs out one day the benefits will have to be cut.
Kit Williams: Well that would depend on the revenue source coming in. All the benefits reduce
pro rata depending on what they are getting to whatever the money is coming in. Assuming they
would stillget the millage coming in or something coming in then that would be divided up and
the benefits would be reduced to that level whatever it would be.
Mayor Coody: I just think benefits have increased to the point to where it has gotten out of
control and I hate to see it. - I would rather see something financially sound. I think in the long
run this is going to be a huge problem for pensioners as well as everybody else. All of us have an
obligation to look out for all of the pensioners, not just you five but everybody. I think they need
to be totally aware of what is going on here because I'm under the impression that they haven't
been brought up to speed on all of this. I haven't been in contact with them; I'm assuming that
since you are the pensioners of the Pension Board that you have been communicating this to your
fellow pensioners and your peers. I don't know if that's been done or not but if it hasn't been
done it needs to be done.
Kit Williams: We were talking at the last meeting that we were going to have a meeting with
them to explain as best as we can. Obviously this is very complicated stuff it's not simple stuff.
We are trying to look into the future and that is never easy, nobody can really predict the stock
market if we could we wouldn't be sitting in this room. There are a lot of difficult,things inhere
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Meeting Minutes
October 2,2006
Page 7 of 11
to figure out. They should be informed as much as we can and you were talking about that at the
last meeting that you are going to have some sort of meeting.
Dennis Ledbetter: We are going to get together at some point and explain to them everything.
Whether they will listen or not I don't know but I feel like I'm trying to represent them the best I
can and I feel like they need know everything.
Mayor Coody: I think that is a fair assessment.
Dennis Ledbetter: I'm very concerned about this but we represent those guys and I think they
need to be informed about everything. The best we can do is be in the middle and explain both
sides and not lean either way and say here it is guys this is what we are looking at.
Pete Reagan: How can we do that without having the other study done? Our purpose here today '
is to vote on a resolution to have a cash flow evaluation done and spend $2,000 to get it done by
the same folks that did this. I'm not going to guarantee anything but I guarantee you I feel very
safe that we will have it back by mid November. They already have our current numbers from
2005 and that's what there going to be doing it on. That's why we have always waited until after
the full blown actuary was done before we asked for a cash flow.
Dennis Ledbetter: It's my understanding we can get the cash flow for this meeting but it
doesn't mean its automatic.
Pete Reagan: That's correct.
Dennis Ledbetter: We have to vote on that.
Pete Reagan: That's correct.
Kit Williams: That's my understanding. That would require 6 out of 7 to put it into effect.
Pete Reagan: Right.
Sondra Smith: The resolution just states that you are going to authorize the expendure of the
Fayetteville Firemen's Pension and Relief Fund monies to pay for a cash flow projection
evaluation study by the Arkansas Fire and Police Pension Board it doesn't say that we are going
to grant that increase at all. It just says that they are going to look at the study on a 3 year
temporary, 3% compounded COLA and the study to increase all current and future retiree's
benefits by permanent 3% compounded COLA. So that is what the resolution says and it is just
to do the study.
Mayor Coody: Regardless of what the study comes back with, I don't see how they are going to
come back with any kind of scenario no matter how rosy that's going to change this 50.9%
number. That's the thing that has me concerned.
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Meeting Minutes
October 2, 2006
Page 8 of 11
Sondra Smith: The letter that we received in 2001 when they requested to do a 3% COLA on a
temporary basis or on a permanent basis the actuary on a cash flow basis did state that the plan
could not sustain a permanent COLA at that time and the plan looked better at that time than it
does now. I don't feel like they will come back and say you can do a permanent COLA at all.
Mayor Coody: Then why would we go through this exercise?
Sondra Smith: For a temporary COLA, because they did say at that point and time that we
could do a temporary COLA but we couldn't do a permanent COLA. We are asking for the
same thing again this time, temporary or permanent either or.
Mayor Coody: Alright is there any other discussion on this?
Ron Wood: I guess in all honesty my feelings on getting the study done is just basically when
we have that meeting with ourpensioners that we can sit down here and say here is this set of
figures here is why we can this is why we can't. You have the whole ball of wax right out here
in front of you and this is where we are at. We've talked about.an informational meeting I think
we need to do an educational meeting for our pensioners.
Sondra Smith: Yes.
Ron Wood: We've got a lot of the guys out there that don't understand. All they know is that
they get a pay check. They've never been interested in looking at the figures, they don't have a
clue but as everybody has heard they say, "I just want my fair share."
Pete Reagan: The pensioners say when am I going to get a raise?
Ron Wood: When am I going to get a raise? My way of thinking, if we do this study, it would
be worth, $2000 is a lot of money, but it would be worth the money to say here it is. This is your
cash flow, this is your actuary, here are these figures we have and this is where we are at.
Sondra Smith: It my be dead in the water when it comes back because it could come back that
it is not sound on a cash flow basis.
Ron Wood: That's right. Whichever way it comes back then it is sitting there and this is what it
says.
Pete Reagan: That will help us tremendously at the meeting.
Sondra Smith: Right. If it comes back and says you can't do it on a cash flow basis you have
something to back yourselves up that you have done everything you can possibly do as a Board.
Ron Wood: To me it would be worth that much money when we go in front of those pensioners
and say this is why you are not going to get a raise and this is why we've got to stop here until
we get our pension built back up or whatever.
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Meeting Minutes
October 2,2006
Page 9 of 11
Dennis Ledbetter: I think we may have got the cart before the horse if we would have had the
informational meeting before I don't know that they would have said go ahead and get that cash
flow study done.
Mayor Coody: Yes, I agree with you on that.
Dennis Ledbetter: Now they want the cash flow and then this information has come out and
they are the ones that kind of want it.
Sondra Smith: What's to say you can't go ahead and have thatmeeting before we do the cash
flow? There is nothing stopping you.
Mayor Coody: If Sondra says, and everything she says so far to me has been right, so if she
says the cash flow scenario looked bad last time and the situation is worse now I think that if the
pensioners knew that I don't think they would be willing to waste $2000 to do something that
they see the hand writing on the wall about.
Dennis Ledbetter: Back to what he says they can't see it in black and white, I want my fair
share and what are you all doing up there this and that. The only reason I'm voting for this cash
flow is because they want it. It is going to have to come back real good for me to vote for any
kind of raise. They may tell me that they do not want me to represent them any more but I'm
concerned about it.
Mayor Coody: Well I appreciate that you are not willing to bankrupt the system for a short term
gain.
Dennis Ledbetter: I want an honest picture for everybody to see and sometimes honesty hurts a
little bit. They want this cash flow.
Mayor Coody: Alright, that's the only argument I could use to support this because I just think
its pouring money down a rat hole but based on your perspective that it would good to get all of
the ducks in a row before you go to the Pension Board. They are going to have to have an honest
assessment this isn't going to take some people standing up there with rose colored glasses and
saying we can get ourselves some benefits here even thought the paper work doesn't quit explain
it trust us on this. That can't happen I'm assuming that won't happen.
Sondra Smith: This motion was actually brought forward at the meeting on Thursday and it
failed so since it did fail the person that voted against it has to move to reconsider the motion. I
voted against it because we didn't have full representation of the board here.
Sondra Smith moved to reconsider having a Cash Flow Study completed. Pete Reagan
seconded the motion. Upon roll call the motion passed 7-0.
Mayor Coody: Marion did you have a question?