HomeMy WebLinkAbout2010-01-21 - Agendas - Final Fayetteville Policeman's Pension and Relief Fund
Meeting Date January 21,2010
Adjourn Time
Attendees:
Mayor Jordan,Jerry Friend,Time Helder, Frank Johnson, Elson Roberts, Melvin Stanley,
Sondra Smith, Paul Becker, Finance Director,Trish Leach,Accounting,Audience, and Press
Subject: Roll Subject:
December 3, 2009 Special
Meeting Minutes
Motion To: N/A Motion To: Approve
Motion By: N/A Motion By: Eldon Roberts
Seconded: N/A Seconded: Melvin Stanley
Mayor Jordan XX Mayor Jordan XX
Jerry Friend XX Jerry Friend XX
Tim Helder XX Tim Heider XX
Frank Johnson XX Frank Johnson Absent during the vote
Eldon Roberts XX Eldon Roberts XX
Melvin Stanley XX Melvin Stanley XX
Sondra Smith XX Sondra Smith XX
Subject: October 15, 2009 Meeting Subject: January, 2010 Revised
Minutes Pension List
Motion To: Approve Motion To: Approve
Motion By: Eldon Roberts Motion By: Jerry Friend
Seconded: Tim Helder Seconded: Eldon Roberts
Mayor Jordan XX Mayor Jordan XX
Jerry Friend XX Jerry Friend XX
Tim Helder XX Tim Helder XX
Frank Johnson Absent during the vote Frank Johnson Absent during the vote
Eldon Roberts XX Eldon Roberts XX
Melvin Stanley XX Melvin Stanley XX
Sondra Smith XX Sondra Smith XX
Fayetteville Policeman's Pension and Relief Fund
Meeting Date January 21, 2010
Adjourn Time J;Kc p,M .
Attendees:
Mayor Jordan,Jerry Friend, Time Helder, Frank Johnson, Elson Roberts, Melvin Stanley,
Sondra Smith, Paul Becker, Finance Director,Trish Leach,Accounting,Audience,and Press
February, March and April,
Subject: 2010 Pension List Subject: Equity Overage
Motion To: Approve Motion To: Approval
Motion By: Melvin Stanley Motion By: Jerry Friend
Seconded: Jerry Friend Seconded: Tim Helder
Mayor Jordan XX Mayor Jordan XX
Jerry Friend XX Jerry Friend XX
Tim Helder XX Tim Helder XX
Frank Johnson Absent during the vote Frank Johnson XX
Eldon Roberts XX Eldon Roberts XX
Melvin Stanley XX Melvin Stanley XX
Sondra Smith XX ISondra Smith I XX
Subject: p hange Meeting Time to 3:00 Subject:
Motion To: Approve Motion To:
Motion By: Tim Helder Motion By:
Seconded: Eldon Roberts Seconded:
Mayor Jordan XX Mayor Jordan
Jerry Friend XX Jerry Friend
Tim Heider XX Tim Helder
Frank Johnson XX Frank Johnson
Eldon Roberts XX Eldon Roberts
Melvin Stanley XX Melvin Stanley
Sondra Smith XX Sondra Smith
Lioneld Jordan Chairman • Jerry Friend Retired Position 2
Sondra E.Smith TreasurerTayve e Tim Helder Retired Position 3
Eldon Roberts Secretary/Retired Position 1 j Melvin Stanley Retired Position 4
VFrank Johnson Retired Position 5
i le
ARKANSAS
Policemen's Pension and Relief Fund
Board of Trustees Meeting Agenda
January 21, 2010
A meeting of the Fayetteville Policemen's Pension and Relief Fund Board of Trustees will be
held on January 21, 2010 at 1:30 PM in Room 326 of the City Administration Building located at
113 West Mountain Street, Fayetteville, Arkansas.
Roll Call
Approval of the Minutes:
• Approval of the October 15, 2009 meeting minutes
• Approval of the December 3, 2009 special meeting minutes
Approval of the Pension List:
• Revised January, 2010 pension list. (Forrest Lawson deceased)
• February, March, and April 2010 pension list.
New Business:
• Forrest Lawson deceased
• Revenue Expense Report
• Local Pension Fund Report 2009
Discussion Items:
• LOPFI
Informational:
• Consolidation of Local Pension Fund
• 2010 Meeting Schedule
Longer Investments:
• The Longer View
• Longer Investments 4th Quarter 2009 report.
• Longer Investments monthly report.
Board Members Policemen's Pension and Relief Fund '-
Mayor Jordan Chairman • Board of Trustees Meeting Minutes
2009
Sondra E.Smith Treasurer Taye October I of18Eldon Roberts Retired Positioed Position IPage I of 18Jerry Friend Re[ired Position 2 V 1
Tim Helder Retired Position 3
Melvin Stanley Retired Position 4 A R K A N S A S
Frank Johnson Retired Position 5
Policemen's Pension and Relief Fund
Board of Trustees Meeting Minutes
October 15,2009
A meeting of the Fayetteville Policemen's Pension and Relief Fund Board of Trustees was held
at 1:30 PM on October 15, 2009 in Room 326 of the City Administration Building
Mayor Jordan called the meeting to order.
Present: Frank Johnson, Melvin Stanley, Eldon Roberts, Mayor Jordan, Sondra Smith,
City Clerk, Kit Williams, City Attorney, Paul Becker, Finance and Internal Services
Director, Trish Leach, Accounting, Elaine Longer and Kim Cooper, Longer Investments,
Press,Audience, and Staff.
Absent: Tim Helder and Jerry Friend.
Approval of the Minutes:
Approval of July 16,2009 Meeting Minutes:
Eldon Roberts moved to approve the July 16, 2009 meeting minutes. Melvin Stanley
seconded the motion. Upon roll call the motion passed 5-0. Tim Helder and Jerry Friend
were absent
Approval of the Pension List:
November and December 2009 Pension List and and December 2009 Pension List and Januarv2010 Pension List:
List:
Eldon Roberts: There haven't been any changes since those widows' passed away.
Sondra Smith: No changes at all.
Eldon Roberts moved to approve the November and December 2009 and the January,2010
Pension List. Melvin Stanley seconded the motion. Upon roll call the motion passed 5-0.
Tim Helder and Jerry Friend were absent.
Policemen's Pension and Relief Fund
Board of Trustees Meeting Minutes
October 15,2009
Page 2 of 18
Old Business: None
New Business:
2008 Actuarial Valuation Report:
Sondra Smith: I emailed that report to everyone.
Paul Becker: Page 10 is the telling figure. The unfunded actuary liability went from $8.5
million to$9.6 million in a single year. To summarize what Elaine was saying that's based on an
aggressive 7%. It could be worse and it could be more difficult to achieve but that's what it did
in one year. If you look elsewhere in the report it will tell you that you need about a$2.1 million
in contributions or earnings to fund this plan over the next five years. If you compare that with
past even maximum earnings you were earning maybe $1.4 to $1.6.
The unfunded liability and the actuarial cost those are the biggest figures to concentrate on. The
amount that would have to be contributed to make this pension sound over the next five years is
about $2.1 million. When you extend that out your unfunded liabilities are about$9.6 million.
Mayor Jordan: In a closed plan and nobody is contributing anymore.
Kit Williams: That's true.
Mayor Jordan: Then you said that they would have to do some really good investments. Is that
the jest of that?
Eldon Roberts: We get other things the millage and insurance tumback but it won't add up to
that.
Frank Johnson: Excluding the LOPFI considerations can we actually reduce the percentage of
our benefits to actually close that gap to sustain the program?
Mayor Jordan: That's kind of what I was getting at too. I don't really understand all the ends
and outs.
Frank Johnson: I don't think so. It seems like you can stop the bleeding.
Paul Becker: You could you would have to go through an actuarial study to tell you what you
would have to do to get there. They would have to manipulate the expenses to the point that you
broke even.
Kit Williams: I believe that the board has the power to reduce the benefits if you need to to
preserve the fund from bankruptcy. The Attorney General has issued one opinion which seems
to call that into question that you would have that power. There is a second question that we
have before the Attorney General to look at a couple of the statutes that maybe they didn't look
Policemen's Pension and Relief Fund
Board of Trustees Meeting Minutes
October 15,2009
Page 3 of 18
at the first time and some case law. We have not gotten the second Attorney General opinion
back about whether or not you have that power. I believe you do, the Attorney General seemed
to imply that you did not so we are giving the Attorney General another shot. It's kind of an
open question about whether or not you can reduce benefits. It's painful to reduce benefits but if
you want to undergo that pain there is some issue about where you can or not.
Eldon Roberts: The Fire Department sent several scenarios to the actuaries and they got those
back. I wasn't able to make some of those meetings.
Sondra Smith: We haven't got those back yet.
Eldon Roberts: You haven't I thought they came back.
Kit Williams: He came back and spoke to us but he had not actually answered the questions
that they had asked.
Eldon Roberts: As far as a percentage of their benefit that they might need to take to go to
LOPFI or break even they don't know the answer to that.
Kit Williams: No he didn't give them a precise answer but he did say it looked like it would be
in the 20% or 25% range. It wasn't going to be down to 50% the initial starting point. It would
be half way in between where they are now and where they started at 50.
Paul Becker: There were some very specific scenarios they were asking. He came back
keeping everything just the way it was. At that point in time he didn't get to the zero point but
he got down to 20%. It probably would be a reasonable estimate of somewhere between 20%
and 25%. That's what they would do now. Remember your pension fund is in sounder shape
than the fire pension plan. Frank if your question is could that gap be closed, is it possible to
close that gap with a pension reduction, I would think the answer to that is yes. Exactly how or
what I can't tell you without an actuary study being done.
Eldon Roberts: I think any percentage of reduction in our benefits would close it and start
moving in the right direction but to get to where you want to get to I don't know what the
percentage would be. He mentioned 20% or 25% for the fire department it may not be quite that
bad since we are a little more financially sound than they are.
Paul Becker: When we had the combined meeting and we were talking about both pension
plans the actuaries scenarios at that point was that the fire pension program was going to have a
problem in roughly seven years and that you might squeak by. The might squeak by you need to
take into context of what Elaine has just said and the difficulty of achieving 7% discount which
would mean consistent earnings in equities of what she has estimated to be 12%to 13%.
Mayor Jordan: She is saying you have to hit no less than 12.5%to hit the 7%, right?
Kit Williams: Out of the stock returns.
Policemen's Pension and Relief Fund
Board of Trustees Meeting Minutes
October 15,2009
Page 4 of 18
Mayor Jordan: When you're looking at a negative 4%, if you look at that pattern it is just like
we keep losing ground.
Frank Johnson: Accelerate it just with the percentage of benefit structure. That's obliviously
the key question here in terms of our fiduciary responsibilities.
Mayor Jordan: Right and now it's kind of turned and went back up but it doesn't seem very
stable to me. If you've got to average around 12.5%there's got to be some stability there.
LOPFI Discussion:
Melvin Stanley: What do you think our chance would be if we did spend the money out of our
pension fund to have another actuarial study done? What would our chances be if we got our
unfunded liability down to zero to be able to be send it to LOPFI? Would we just be throwing
money out the window?
Kit Williams: I don't think you would. I think there is interest for the City to do that for two
reasons, even though they are using that 7%figure so it probably will cost the City money in the
future. One of the reasons obliviously is that if they can vote on something that is not going to
cost the Cityany money this year and not much money if anything the next year or two and they
can protect you all and your pension at a rate that they can afford then I think there is some
incentive for them to try to do that. If you do the right thing and reduce your benefits down for
them to go ahead and send you to LOPFI, which will protect you, it will protect you at the City's
cost.
The second thing is there's always risk for the City. The law could be changed, something could
happen and this could be a city liability, which it is not now, but it could be in the future. It will
become a city liability if they sent you down to LOPFI. I think it would probably be in the City
Council's best interest, if they initially did not have to spend money for the first few years, to go
ahead and consolidate you with LOPFI. I think it wouldn't be throwing money away but I think
you should wait until we get more word from the Attorney General. What if the Attorney
General says there's no way you can't lower benefits you've got to drive your plan into the dirt.
Eldon Roberts: Then we are through.
Kit Williams: You still have an option there because I think that's incorrect. The board could
reduce the rates and then let some beneficiary complain and then we can get a court decision.
The good thing about that is if you reduce the rates and we're wrong then the fund will pay the
money back that should have been paid. If you wait and drive it into the dirt and then they say
you should have reduced the rates, then it's the board that didn't make the right mistake and
there are no monies to support you to pay these guys what they are claiming they should be
receiving. It is better I think to test it now when there's money in the bank to pay if you happen
to be on the wrong side of what the judge says.
Policemen's Pension and Relief Fund
Board of Trustees Meeting Minutes
October 15,2009
Page 5 of 18
Eldon Roberts: When we had the joint meeting Jody came out with some numbers of different
scenarios for the Police Department for no benefit increases in the pensions from here on out and
no COLA's from here on out,which neither one of those things are apt to happen anyway, it was
$150,000 to the City to take us on to LOPFI. To me that is not that bad of a deal.
Paul Becker: It was in that range. That's about right.
Eldon Roberts: It should be better now with the stock market where it's at. We've gained in
our financial assets, it should be even less. That was with no more benefit increases for our
members and no more cost of living increases.
Kit Williams: If you do an actuarial study it might come up with zero right now, who knows?
Eldon Roberts: I don't think anyone in our membership would argue, because I think everyone
understands now that we are down to about where the rubber is meeting the road here, if the City
was agreeable.
Kit Williams: The City would then be assuming your risk.
Eldon Roberts: I'm talking about the Police Department plan only here.
Melvin Stanley: Is that ever going to happen?
Kit Williams: I don't know. First there would have to be an actuarial study performed so that
there could be some idea of what it would be. Would it be zero or would it be something else.
The other thing is I think you can only do'this every so often and it's probably too late to do it
this year.
Paul Becker: It has to be submitted and approved in October. There's no way it could be done
this year.
Mayor Jordan: Some of the statements that I made during that time are if we could get it to
zero at no cost to the City to send it to LOPFI, that I would entertainment. When some of the
stuff came back for the Fire Department, if I remember correctly, they would almost have to
reduce some of the benefits to get it where you all wouldn't have to.
City Attorney Kit Williams: They would have to reduce benefits.
Eldon Roberts: If the City was agreeable, it looks like a pretty good way to fix this maybe
forever. I understand the City is still on the hook for the market risk and legislatures mandate
this and that.
Kit Williams: They might give you a cost of living.
Eldon Roberts: That's just the unknowns.
Policemen's Pension and Relief Fund
Board of Trustees Meeting Minutes
October 15,2009
Page 6 of 18
Mayor Jordan: Right now when you are looking at a city budget where you are down
$2,000,000 in 2009 and you are looking at a$2,000,000 short fall in 2010.
Kit Williams: With salaries frozen.
Eldon Roberts: I understand. It is like there is$10 out there and everybody in the world is after
that same $10.
Frank Johnson: Paul from a city government's perspective there's inherent risk for a city to
have a pension plan. Would that be a fair statement?
Paul Becker: Absolutely.
Frank Johnson: Not now, 10 years or even 20 years ago, somewhere a long time ago if the City
had a vision for its fire and police department and if offering the pension plan was part of an
effort to attract more candidates for those services, then I suspect that the conversation we are
having now was a consideration then in regards to the risk that would be assumed in doing this as
opposed to us drawing social security.
Paul Becker: There's always a risk in any pension plan certainly.
Kit Williams: It was structured in such a way that it was really the voters that voted in the
millage. They made the decision for the pension plan. It had to be submitted to them, but they
made the decision to tax themselves to establish this pension plan for you. That was along with
your salaries and then the equal match by the City and turn back funds is how this plan went
forward. The actual risk to the City of having to make up short falls was not suppose to be there,
and hasn't been there, and is still not in the law. I am not saying that the legislature cannot
change the law.
Frank Johnson: It's this uncomfortable blend of financial risk or the City's ability to sustain
that commitment and really no legal risk.
Kit Williams: There's not a legal risk at this point I don't think but the legislature can always
change the law. There have been bills submitted in the last two legislative sessions that would
change the law and would require cities to send you all to LOPFI period. Obliviously that's not
something Municipal League was in favor of because several cities around the state are in much
worse shape than us with their plans. We are not in terrible shape with your plan but we are
when it comes to the fire fighters it would cost dramatic money. Other cities would be in even
worse shape and so those bills were defeated, either withdrawn, or not supported. There is
always a risk that at one point or another legislature will in fact place that responsibility upon the
tax payers of the cities.
Frank Johnson: Is there a time line with Attorney General's opinion?
Kit Williams: It has been down there a few months so we are expecting it anytime.
Policemen's Pension and Relief Fund
Board of Trustees Meeting Minutes
October 15,2009
Page 7 of 18
Frank Johnson: If the opinion is that we have the authority in this board to reduce our benefits
will there be flexibility in how we do that? I'm not sure as far as our policy goes but will that
give us an opportunity, not just a percentage against the whole plan, but if there are other
opportunities to arrive at that number with variances as to how it is applied.
Kit Williams: It might be possible. We would have to look at what your options are when you
increased benefits and I think you can use those options in reverse possibly. The easiest way
would be a straight percentage but if you want to do something besides that then you would
probably need to look at some of the increases you made in past and say that you are going to
roll back that particular increase. I don't know if you could go beyond reversing what you have
done and say we are going to go a whole different tack now. That would make me more nervous
as your attorney than just rolling back some of the increases one type or another. You've done
one for spouses, you did a cost of living, although those are done with so that would just be a
percentage. You have some other things to look at. The fire fighters asked about what it would
be if they reduced the spousal benefit only. They look at things that were not just uniform and
they haven't got the answer to that yet.
Frank Johnson: That is part of the consideration?
Kit Williams: They had four scenarios and that was one of the scenarios.
Eldon Roberts: I came up with that scenario myself but I thought you said we couldn't reduce
just the spousal benefits only because we would be discriminating between groups of people.
Kit Williams: I would prefer that you not do that. You as a board have been given the right to
increase spousal benefits.
Eldon Roberts: Spousal benefits only so that is a discriminatory thing too.
Kit Williams: It's not sexual discrimination because it works whether it's male or female. I
think that because of that it might be possible to do that. Spouses might object, who knows what
would happen. I would be more nervous about doing that but I don't think it's necessarily
clearly illegal.
Frank Johnson: Just for the record I never said spouses.
Kit Williams: No, I'm talking about that's one of the things that you did. The other things have
been percentage increases.
Eldon Roberts: Was the spousal increase not percentage too?
Kit Williams: Yes but it wasn't a percentage increase for everybody.
Eldon Roberts: Right. Every increase we have ever given was a percentage across the board.
Everybody got the same because a lot of people complained that was only making $1,000 or
Policemen's Pension and Relief Fund
Board of Trustees Meeting Minutes
October 15,2009
Page 8 of 18 -
$1,400 a month that their 3% wasn't near what the guy got that was drawing $6,000 or $8,000 a
month. I understand that.
Frank Johnson: You're not going to find too many arguments to support that reasoning.
Eldon Roberts: That works in reverse too when we go to reduce benefits. Three percent of my
salary is going to be a lot larger reduction than three percent of those persons at the lower end of
the scale.
Frank Johnson: With that being said,just in our capacity as trustees on the fund, I feel that we
should give some consideration, contingent on what the Attorney General's opinion is, on how to
meet that number without creating disparity. We would have to defer to your legal advice on
that. I think we have a responsibility to see what that number is for all the individuals on our list.
Eldon you and I can say that 3% against what we draw is a big number but I think that we would
hear someone that would say the same against drawing a third of what you and I draw on it. I
don't know how you can create a parity type of situation in this but I think it is a discussion that
needs to be had soon after we identify what that number is. No one wants to give up their
earnings. A lot of people retired from that police department only making $20,000 a year less.
Eldon Roberts: Then you have the argument that compared to what I paid into the pension plan
compared to what that person paid into the pension plan there is a huge difference.
Frank Johnson: Yes.
Eldon Roberts: I got it back the first year I understand that but so did they. Some of them paid
in $1,500 or $2,000 for the whole twenty years they worked there and mine was close to
$80,000. I don't know that there is any way to do what you are suggesting and treat every
person that you apply that formula to that is fair. Across the board percentage, like it or not it is
fair, everybody would get the same percentage cut or increase. It made a difference on how it
was on their benefit but I don't know how you would work it out any other way and be for sure
that you were fair. You're going to start taking each person on an individual amounts and trying
to figure something and I'm afraid we will get in trouble there.
Frank Johnson: Our role here on this board and hearing the financial analyst.
Eldon Roberts: We are fortunate that we are in a position we are compared to the fire
department. I'm sorry for the fire department but we can watch and see how they fair. We can
watch and see what the Attorney General's opinion is on can these boards even reduce benefits
or not. If it comes back and says we can't, I understand an Attorney Generals opinion is just that
it's an opinion, so who is the next person or body that could tell you different if the Attorney
General comes back and says no these local boards cannot reduce benefits?
Kit Williams: Judges.
Eldon Roberts: It would take a law suit?
Policemen's Pension and Relief Fund
Board of Trustees Meeting Minutes
October 15,2009
Page 9 of 18
Kit Williams: Someone would have to file a suit, probably against the board, if the board
reduced the benefits. I would defend the board.
Eldon Roberts: When the opinion from the Attorney General said we couldn't.
Kit Williams: Right, then even when the Circuit Judge would make a decision it would
probably need to go to the Supreme Court to get a real decision that we know is going to be the
law.
Eldon Roberts: Is that not happening anywhere in the United States that we can look at?
Kit Williams: Unfortunately these sorts of issues are probably pretty much controlled by the
exact state law as being interpreted. I have not seen anything in relation to ours that has gone to
court.
Eldon Roberts: Every state law is different.
Frank Johnson: When this is considered by the City Council does this originate in your
department Paul or is it a policy discussion?
Paul Becker: As far as the policies?
Frank Johnson: Yes, as far as LOPFI.
Paul Becker: The Council would have to approve that that is in fact what the City would want
to do.
Kit Williams: It would have to be a resolution by City Council.
Paul Becker: We would complete an application. That application would go in and I believe
they start taking applications in LOPFI in April. I think the period is between April and October.
At that point they have an actuarial study done by their own actuaries who are different then the
Pension Review Board actuaries. They come back to the City and say this is the number, do you
agree with that, and at that point that would be delegated by the Council to the Mayor to go
ahead and sign and push ahead any contracts possible and we would send it down there.
Mayor Jordan: It would be a decision of the legislative branch.
Frank Johnson: In terms of time lines and the discussions that need to be had and making sure
these discussions are happening within the laws as far as public notification. It just seems like
we have some work to be done that we may not be able to accomplish in a timely manner if we
are relying on the meetings to construct what we need to do.
Kit Williams: Do you want to call a meeting after we hear from the Attorney General and the
second opinion? We need to have two factors that really should be looked at one is the Attorney
Generals second opinion and the second will be when Jody Carreiro finally comes back with the
Policemen's Pension and Relief Fund
Board of Trustees Meeting Minutes
October 15,2009
Page 10 of 18
actual questions that were answered for the fire department so we have a little bit better
understanding even though it won't directly apply to you. I think we will have a better
understanding about whether or not you all will need to and how much possibly it would be.
Eldon Roberts: No more time constraints than we are facing I think once those all come back
we can address those at our regular scheduled meeting because we are not under the gun for
time.
Kit Williams: When is the next meeting?
Eldon Roberts: January.
Frank Johnson: We're not but it seems if we want to indicate a dialogue, keeping in mind the
notification requirements for this board, we would want to give the City Council or Paul enough
time to factor in how this is going to be. In the end it becomes an allocation of your budget.
Paul Becker: Essentially when it goes down there yes but if it goes down as zero it's no
allocation out of the budget. Essentially we would have to get the paperwork together, sent it
down and make sure that their actuary said there is no actuarial cost associated with it and then
we would go from there. Then it becomes an allocation to the budget when we come back and
get what our LOPFI contribution has to be. We will get it back just like we would for anyone
else in LOPFI even though that fund would stay separate that's where the cost would start
coming in.
Frank Johnson: Would it be for fiscal year 2010?
Paul Becker: In all reality it would 2011. Remember you're four tenths of a mill, premium tax,
and your fees and forfeitures that would go down with it. What we are saying is that stream is
going to be equal to your expenditures stream for starters. If it is agreed to the City would take
the market risk from there but your benefits would be secure.
Eldon Roberts: Let's just say we decide that we want to attempt to move this pension to
LOPFI. What is the earliest date that we could start the process to see if it's feasible for the
City?
Kit Williams: There are two things you are going to need to do,just like the fire pension board
you're going to need to have an actuarial study to see what it takes to get to zero. Once you have
done that then you know what you have to do about if you have to reduce benefits or can you go
as is. That's when you go with actuarial people that work for LOPFI and start the ball rolling in
that direction. There are two studies that have to be done before it finally gets to the City
Council
Paul Becker: Not before it gets to City Council.
Policemen's Pension and Relief Fund
Board of Trustees Meeting Minutes
October 15,2009
Page 11 of 18
Mayor Jordan: Sondra and I serve on this board and if you all bring something forward that we
are not agreeable to then they're going to ask our opinion and we're going to give it to them. We
all have to work together on this thing, Sondra would you agree with that?
Sondra Smith: Yes. We have never got an actuary study done in less than six months. I don't
know how the LOPFI Board is on their actuary studies, but it will be a long time from the point
you ask for a study that you get it back.
Kit Williams: Maybe only the initial study has to be done to determine what the benefits would
be.
Sondra Smith: The LOPFI study.
Paul Becker: The initial study by Jody Carreiro that would be a preliminary study, which would
be for you to make a decision. Once we go to the Council and the Council approves it and we
send it down they do another actuarial study. They will come back and let us know if it is the
same or whatever it is. Then the final decision is made and we send the paperwork down.
That's the sequence. The original actuarial study would be for an estimate to tell you
approximately what it would be.
Kit Williams: You would probably want to order that in January, at the latest, in order to get it
done in time to make the October deadline.
Paul Becker: You can call a meeting as soon as we get back the Attorney General's opinion and
at that point in time you can meet and decide what direction you want to go unless you want to
contract for an actuarial study. You might get the study and can't do anything with it but that
would speed it up. I think you would have sufficient time if you wait for the Attorney General's '
opinion to come back. If it's not here in January then you make the decision whether to go ahead
or not. That would be my suggestion.
Kit Williams: In January they might be able to use the end of this years numbers instead of the
end of last years numbers which would be getting better.
Eldon Roberts: That's what I'm hoping for.
Kit Williams: It can't be as bad as it was last year.
Eldon Roberts: I have got to hope for this whether it happens or not. I've got to hope that with
zero benefit decrease and with no cost of living increase from here on we can move to LOPFI. If
it is zero for the City that's a win win situation. I do want to explore that and if it won't work it
won't work.
Loner Investments:
Page one shows the portfolio appraisal for September 30th and then we have an update as of
yesterday's close. On September 301h the equity holdings were about 42% of portfolio. The
Policemen's Pension and Relief Fund
Board of Trustees Meeting Minutes
October 15,2009
Page 12 of 18
preferred debt is about 3.3%. The International holdings on the equity side are equivalent to
6.8% so the total equity exposure is below the 50% limit. For this meeting we do not need to
request a variance.
Page three the total portfolio value is $8,283,000 and the income yield on the over all portfolio
which is your dividends and interest income is 3.35%. The important thing about the dividend
yield is that the over all income yield, the current yield on the 10 year treasury, is about 3.35%.
The over all portfolio has an income yield equivalent to what you would have if you were 100%
invested in bonds even though you have a 50% growth component because we have really
emphasized high dividend income paying stocks.
Page four shows the update through October 14th. The portfolio value has remained about the
same. There were some distributions that took place but it is at$8,223,000 as of yesterday.
Page seven shows the realized gains year to date and the income and expenses. You can see the
realized gains are $136,000. At the end of the second quarter we were probably still roughly
break even or maybe even realized losses year to date. We have been able to take some of the
profits on stocks that have over achieved what we thought they would achieve in this year.
When we came into the end of summer we harvested some of the low hanging fruits, some of the
stocks that are not necessarily core positions like a Microsoft, Wal-Mart, or GE but had really
out performed our targets. We went ahead and booked some of those gains. You have realized
gains year to date now.
Page eight shows the fixed income portfolio holdings. The average yield to maturity is 4.6% and
that's down from 5.2% at year end. To give you an example the average maturity is 6.4 years.
The current five year is a 2.3% yield. Even though the income has dropped, as we have had
some higher coupon bonds roll off, and the reinvestment rate has declined so much you still have
enough in the longer maturities that you're over all income yield has stayed pretty high 4.6%
verses current market yields. This is something that I would like to discuss when we get to the
end of this report as it pertains to the actuary assumption that has been changed from 6% to 7%
in the new actuary studies. With the fixed income returns coming down so dramatically, with a
portfolio that is 50% invested in bonds, that part of the portfolio as we have to reinvest maturing
and called bonds, this part of the portfolio return will continue to go down unless interest rates
turn around dramatically and start rising. That's part of the concern that I have with the 7%
actuary assumption that they have started to use as of the end of last year. I think that given the
change in the interest rate environment and in a portfolio where you have 50% invested in
interest earning assets that that is hard to explain.
Page nine the contributions and distributions we've had $114,000 that have come in
contributions year to date and that's compared to distributions of $726,000. In this year the
portfolio value investment return is up by about a million dollars from year end but that's netted
against a distribution net of about $610,000. The net increase in the portfolio is only about
$400,000 net of distributions.
Page 10 gives you the returns through September 30th. The equity returns are 20.3% and that
compares to Dow Jones of 10.7%, S&P 500 of 17% and the International Stocks that you hold
Policemen's Pension and Relief Fund
Board of Trustees Meeting Minutes
October 15,2009
Page 13 of 18
are up 25.9%. The international markets have out performed the US markets almost 2 to 1 when
you look at the index return of the DOW and the S&P 500. The fixed income year to date is
3.2% so the total return through September 30th is 12.9°/x. Looking at the decline the year before
of minus 19 we are about to where we are within six percentage points or so of recovering that
whole decline. The beginning account values, additions to the account, the net distributions
inception to date, and the invest return you can see the withdraw rate of$6,800,000 has pretty
much been covered by the investment return. There is a little bit of a miss because of last year
still not being totally recovered. The actuary rate of return during this time frame has been 6%
and before last years big decline you were running about 6.8% or 6.7%. Now with this year's
recovery we are getting back to where we're close to that 6% again which was the actuary rate of
return assumption but now the return assumption has been moved to 7%.
The investment policy is part of our legal contract with the City to manage both the Policemen's
account and the Firemen's account. It sets out the objectives of the fund and then we sign on
that. My concern has to do with the fact that in the actuary assumptions now that they have gone
to a 7%rate of return assumption going forward. I was at the joint meeting earlier this year and I
had the opportunity to ask Jody Carreiro where that came from. Basically it was an arbitrary
number that they assigned to the accounts going forward that really had nothing to do with
market conditions that are out there that we have to deal with when we are investing the funds. I
have been concerned about that and I still haven't got a good explanation about where the 7%
came from except that, I think he said that the accounts had achieved close to that, so they
bumped it up.
Back in the early nineties when we start investing, and in fact in 2002 when we started managing
the Firemen's Pension plan, we felt that 6% was an achievable rate of return because the way
you get to that expected return is the fixed income side was still earning 6%. So 50% of the
portfolio earning 6% gives you 3% of that 6%. To get over the hurtle rate of 6%return required
the stock part of the portfolio needed to generate between 8% and 9%. That's inline with
historical averages and at the time that was not out of line with valuations in the market so we
felt very comfortable signing on to a 6% actuary rate of return assumption.
Now the difference is if you look at a 7% return assumption and you say the reinvest rate on the
fixed income side is between 2% and 3%, unless you go out there and you bring in risk either
related to credit risk, maturity risk, or international currency risk, we can get higher yields if we
buy Australian bonds but then you have currency risk, so unless you subject the portfolio to risk
that we have not ever subjected it to, it is hard to be able to achieve more than a 3% to a 3.5%
rate of return on the fixed income side of the portfolio. Even though your current return is higher
than that we have to look at these projections going forward because they are using this 7% from
this evaluation forward. When you have 50% of the portfolio and even if you say okay we can
say 3% then what you are saying is that the other 50%that is invested in stocks has to achieve an
average annual return between 12% and 12 % %to make the 7%. I cannot sign on to that.
Those are not the assumptions that we are using when we run retirement plans. It's not the
assumptions that I'm using when I run projections for foundations. This has been my concern.
When you look at your retirement, your actuary assumptions, and you look at what they are
forecasting as your unfunded liability,the difference between using a 6%number and using a 7%
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Board of Trustees Meeting Minutes
October 15,2009
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number, I don't have the systems to run it, but all I can tell you is the unfunded liability would be
higher if you used a 6% assumption. The numbers that you see in front of you with your actuary
packet includes the 7%return assumption.
I wasn't at the meeting where benefits were discussed and where the discussion was starting to
take place about what to do to move to LOPFI. I would say that the benefit to the Firemen and
the Policemen at this point in time is that they are giving you a 7% return assumption. If you
need to make decisions to move to LOPFI on the benefit side, what I'm saying is it's better to do
it while they are using a 7% return assumption. They're giving you a lower unfunded liability
than if they used my return assumption which would be 6%. The higher the discount rate that
they apply to that future liability the less you have to have in assets right now to satisfy it.
That's why a 7% assumption gives you less of an unfunded liability.
Paul Becker: That's set by the Pension Review Board in Little Rock. The actuary who prepares
the report bases that on what is set. What I had been told is that was based on anyone who the
previous five years gained more than I think it was 6%, they increased it to 7%. What Elaine is
saying is that is pretty aggressive so when you look at your actuarial study it's probably worse
than that because it would be very difficult to achieve.
Elaine Longer: I'm talking from the stand point for the Policemen and Firemen. I'm talking
myself out of your account because I want to see what's best for the Firemen and Policemen.
We've had this big year and stocks are up over 20% and there are reasons to think that we could
be into a period of backing and filling off that dramatic decline that we had and then we've had
this recovery which is not out of line with past historical declines of similar proportions. Now
that we've had this dramatic bounce back we could be in a period of reduced returns in the stock
market going forward. I was just at a Northern Trust conference last week and most of the
projections they are using for equity returns, they had several people not just Northern Trust
Strategists but other people from the investment community who are world renowned, everyone
is using a pretty conservative 6% to 8% expected return going forward because we are probably
facing a lower growth environment as we digest all of the excesses and the change in the credit
markets and the change in access to capital. No one is projecting 12 % % compound annual for
the next 10 years. That is the assumption that would have to take place for you to really be able
to rely upon the 7%return assumption.
Kit Williams: Correct me if I'm wrong, if the City went ahead and sent them to LOPFI using
the 7% figure, which seems like its unsupportable, would the City then have to pick up the
difference if in fact the funds did not generate the 7% return. Would it then fall on the city tax
payers to make up the difference for their plan?
Paul Becker: First the actuarial study is done by the Pension Review Board if we ask them if
they wanted to send the pension down there would be another actuarial study prepared by the
LOPFI actuaries.
Kit Williams: Still using the 7% figure.
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Board of Trustees Meeting Minutes
October 15,2009
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Paul Becker: If they use the 7% figure then that would be what they would base the unfunded
pension liability on which they would arrive to the unfunded liability and then you would have to
amortize that across 15 years. Yes that would have to be picked up, any differential.
Kit Williams: My question is a little different than that. The Fire Pension has talked about
going down to where there would be no unfunded liability for the City to pick up initially. It
would go down at zero. Benefits would be reduced to where it would be zero but if they are
using the 7% figure even if we didn't have to pay money up front would it be likely that we
would have to pay money on the back end back because in fact that they are too optimistic and
there would not be enough money in LOPFI to actually fund it because they were using the 7%
figure.
Paul Becker: Again that's the figure they would amortize it on. Then of course it is going to be
funded based on what the actual is in the future. You are going to have to pick up that unfunded
liability of whatever it is calculated to be.
Kit Williams: Let's say its zero. We send it down at zero but if in fact it didn't perform at the
7%rate.
Paul Becker: We would have to make up the difference. That's true. Once it's transferred
down the City has the liability.
Eldon Roberts: It's just like you mentioned before in the same scenario if the City signed on to
take Fire and Police to LOPFI, if the market didn't hold up and it didn't yield what we thought it
would, then the City has got to make it up. It's not that attractive for the City I'm sure and I
understand that.
Paul Becker: We have the market risk. The market risk does transfer to us if it goes down to
LOPFI.
Kit Williams: I think what Elaine was saying too is that it would be an easier for you all to get
to zero cost to the City if they are using that 7% figure than if they use the 6%.
Melvin Stanley: You don't think if we made a run at the City that the Mayor or Paul would
make sure that the Council members knew about that. I hope they would.
Kit Williams: They would but still if the initial cost was zero to the City it would be much more
likely. It would be true that it would be incumbent upon the Mayor and Paul to point out that in
fact it would be very difficult to meet that 7%figure.
Mayor Jordan: Short answer yes I would. I would be neglecting my duty if I didn't.
Kit Williams: I think as Elaine says it is a more attractive environment for you because if they
were using the 6%figure you would have to cut down more in order to get to zero.
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Board of Trustees Meeting Minutes
October 15,2009
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Elaine Longer: The benefit reduction to get to where you show a zero unfunded liability is
much lower. I don't know the numbers because I can't run the actuary assumptions but if you
are looking at what is the benefit reduction that gets us to the point where we can transfer
without a liability it is much lower using that assumption.
Kit Williams: If you use 6% instead of 7%.
Sondra Smith: Paul is there a possibility that they may change that 7% discount number, after
they see the actuarial evaluations that they have done, and see that the plans aren't doing as well
as they were doing in 2008.
Paul Becker: I would certainly hope they would revisit that. When I was there, I did tell the
actuary my uncertainty about that and that we would like to see that changed. Hopefully that
will push forward and they will review that and reset it but there is no guarantee to that. Right
now they are using the 7%. Hopefully they will look at that and take into consideration what's
happened and lower that for all the reasons that Elaine has told you. That certainly would be my
hope and if I'm there I will certainly transmit that to them.
Elaine Longer: If you look at where your benefit increase went in 1999 you were fully funded
and I know you did all the homework and got the expert opinions. What's happened is you've
experienced a historic ten year period where the stock market has had a negative return and even
though your portfolio didn't have a negative return the assumptions that they were running were
based upon 1999, when they told you yes the assets can support the increased distribution, we've
never experienced this kind of a ten year return in the history of the stock market.
Elaine Longer passed out a chart that showed the 200 year average return history by ten year
periods.
The red dots on the chart indicate those ten year return periods that approached the zero line.
Back in the 1930's you will see that there was a period during the depression and following in
1937 where the ten year return actually did go to negative, but past that point there has not been a
time when the ten year return on the stock market was a negative return, well now we have to
rewrite that. In February of this year we actually reached a ten year average annual return of
minus 4%. In fact now that we have hit 10,000, the first time we hit 10,000 was ten years ago.
What happened in 1999 you were fully funded, you asked the right questions, and you got the
right response but then you got hit by a perfect storm that historically we have not had. Now the
question is how best to go forward. You did all the right things. This was not in anyone's
computer system because it had not happened before.
The next chart is the chart of the Japanese Stock Market where they peaked in 1989 and the first
drop was by 63%, our decline from top to bottom in March was 58%. Then the first rally that
they experienced off that climatic low was a 51% increase and ours has been about 50% to 55%
depending on which index you are looking at. They came back down to test that low.
We still do not know what kind of recovery we will have. The jury is still out. What is giving us
the recovery so far this year has been the combination of fiscal stimulus, which has been at the
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Board of Trustees Meeting Minutes
October 15,2009
Page 17 of 18
treasury level, the tarp program, the flooding of the banking system with cash, and the FDIC.
Then you have monetary policy expansion also which is the Federal Reserve in their lowering
interest rates to zero percent and expanding the Feds balance sheet. You don't just have this
going on here you have it going it internationally. All the central banks of the world including
China are in expansion mode. You have a lot of liquidity in the system and there is a lot of
stimulus in the system. Right now by default it has one place to go that is real attractive and that
is the stock market. The bonds at 2.3% in a five year treasury is not particularly attractive, you
have 3.3% is you are willing to lock it for ten years and that is not very attractive. You have still
excess capacity on commercial real estate and housing so it is not flowing into new construction.
You have plant capacity at 68% so no one has to spend a lot of capital to expand plant so by
default there are not a lot of places for this capital to flow right now so you have asset inflation in
the stock market. The question becomes when you get into 2010 how do we give up the punch
bowl without crashing the party.
When you look at this chart and you look at the chart in the 1930's for the US market it is very
similar. It is because you have this spike off that climatic low but then as you can see in Japan's
case they went on for 10 to 20 years just consolidating that loss. Another concern I have when
we are talking about that expected concern going forward, it is not just the fixed income side of
the market that has changed but it is also the outlook for the equity side.
In terms of magnitude and duration of bear markets throughout our history the decline from the
high in 07 to the low in March of 09 was roughly a 57% decline. The duration has been 509
trading days. So you look at the other two 1929 and 1937 of sizable magnitude you can see that
the duration is longer. It takes time to digest an event like that. We have had a great run off
those lows by approximately 50% but we are going to get in a digestion process out there. We
are not just going to continue to go back to new highs we are going to do backing and filling. I
anticipate that will happen more towards 2010 mid year than imminently. Right now we still do
have the momentum going for us. The earnings are coming through better than expected and
there is a lack of alternatives as far as capital. I can get a higher yield on the stock market than I
can get in the fixed income market. We are still in a very good position as far as the equity
market is concerned so I do not have any concerns in the near term. My concern is in 2010 as we
have to move away from government support system. That is another reason that I would not
feel comfortable running out 12'/4%on top of what has been a 21%return year to date.
The one big risk is the deficit. What we have to use in terms of fiscal stimulus and what that
means in terms of growing our domestic debt. In the mean time the average maturity of our
outstanding debt has fallen to about 50 months. So of all the trillions that we have in outstanding
debt right now we have to roll that over roughly every four years. We are at the benefit right
now of the fact that we have very low interest rates,but if interest rates go higher because we end
up with inflation kicking in next year then the cost of that debt is going to increase dramatically
because of the fact that we are funding long term liabilities with short term debt. Of all the risk
that I see out there and the one that makes me concerned as we go into 2010 is there is a limit to
how much of this we can do. Gold has gone through a $1,000 an ounce and the dollar has gone
down to new lows relative to the euro and that tells you that our banker's, which is the
international banking system that takes our debt, is getting nervous. We at the point where
the banker is giving us a warning that this is not going to go on forever. For that reason I think
Policemen's Pension and Relief Fund
Board of Trustees Meeting Minutes
October 15,2009
Page 18 of 18
that next year is when we have to see government pull back and become less able to issue so
much debt in particular debt as a percent of our gross domestic product. What we have going on
in the international markets is the banker is willing to lend money to us but they are keeping it
short in maturity. They do not want exposure to our long term what we are going to do in terms
of inflation and the currency. The banker is on alert and next year we have to figure out how to
move the patient off the support system and that will be the big challenge for next year. So we
proceed with caution.
I think we are really in a sweet spot here going through year end. I do not anticipate any
problems before year end but as we face next year, keep in mind the market is six to nine months
ahead of the economy. So when the market starting elevating in March and everything looked so
horrible, people where saying why is the market going up and the reason is because the market
was out there in September to December. That is why the stock market is a member of the
leading economic indicators because it is always discounting the future. Now we are seeing
great earnings and the market is at 10,000 and everyone is thinking we dodged that bullet but
soon the market will be discounting mid 2010.
Those are my concerns when I review your actuary report and the minutes from the meeting that
was held about the discussion of benefits. I think that the sooner a decision is made on benefits
because it's not going to be solved by the investment side. In fact in 2002 when we were trying
to be hired by the Firemen's Pension I was quoted as saying that you would have to earn 60% on
the capital to get to the point where you earn 6% to stay whole. You can't get there from an
investment stand point. I know that it's a very hard decision. We were there when you were
exploring this and I know that you've had the actuaries run the numbers. I just think this perfect
storm was not in their computers at that time because you have out performed the actuary return
assumption before last year and you've out performed on the investment side. It's just a question
of that ten year period of returns in the market that has never been seen before.
Loneer Investments Monthly Report:
A copy was given to the board.
Loneer Investments 3rd Ouarter 2009 Report:
A copy was given to the board.
Meeting Adjourned at 2:50 PM
Board Members Policemen's Pension and Relief Fund
Mayor Jordan Chairman • Board of Trustees Meeting Minutes
Sondra E.Smith Treasurer 1 December 3,of 16
Eldon Roberts Retired Position
Position 1 aye eve Page 1 of 16
Jerry Friend Retired Position 2
Tim Helder Retired Position 3
Melvin Stanley Retired Position 4 A R K A N S A S
Frank Johnson Retired Position 5
Special Policemen's Pension and Relief Fund
Board of Trustees Meeting Minutes
December 3,2009
A special meeting of the Fayetteville Policemen's Pension and Relief Fund Board of Trustees
was held at 1:30 PM on December 3, 2009 in Room 326 of the City Administration Building
Mayor Jordan called the meeting to order.
Present: Frank Johnson, Melvin Stanley, Eldon Roberts, Jerry Friend, Mayor Jordan,
Sondra Smith, City Clerk, Kit Williams, City Attorney, Paul Becker, Finance and Internal
Services Director,Trish Leach,Accounting,Press,Audience,and Staff.
Absent: Tim Helder
Approval of the Pension List:
Revised Pension List for December.2009 Irene Haskins Deceased
Revised Pension List for January.2010 Irene Haskins
Sondra Smith: You approve the pension list three months in advance. You have already
approved the pension list for December, 2009 and January, 2010. Accounting was nice enough
to send us revised lists so that we could go ahead and re-approve those.
Eldon Roberts moved to approve the Revised Pension List's for December 2009 and
January 2010 due to Irene Haskins who deceased. Melvin Stanley seconded the motion.
Upon roll call the motion passed 6-0. Tim Helder was absent.
Eldon Roberts: She died in November and we sent the check for November. We usually go
ahead and send the check the month they die.
Sondra Smith: We don't prorate the check. Because she was a widow she does not get the
death benefit.
Eldon Roberts: The $250 you're correct.
Policemen's Pension and Relief Fund -
Board of Trustees Meeting Minutes
December 3,2009
Page 2 of 16
New Business:
Irene Haskins Deceased
Sondra Smith: That's a copy of Ms. Haskins obituary that was in the paper.
Revenue/Expense Report—October 31,2009
Sondra Smith: That is a copy of the report that Trish does. Trish is here if you have any
questions. Your book value is down from 2008 but your market value is up just a little bit. This
is as of October 31, 2009.
Eldon Roberts: Our net income loss is a loss but it looks better for 2009 than it does for 2008.
Mayor Jordan: It's not as bad of a loss.
Eldon Roberts: That's what I said it is still a loss.
Mayor Jordan: Our sales tax dollars are down but it's not down as much as everybody else.
Paul Becker: Let's' put it in perspective and consider that you have a very good market that
you are looking at.
Eldon Roberts: Right, seems like the market dictates a lot about this.
Paul Becker: Once your plan is closed that's the way it is. It is totally market driven.
Sondra Smith: There's no approval on that. It's just something we put in the agenda for you to
review.
Jerry Friend: Thank you.
Eldon Roberts: It's been really handy. I'm glad you came up with the idea to do this. It keeps
us abreast of what's going on and we can compare it to last years and the year after that. It's
handy to look at in a heart beat and see what's going on.
Frank Johnson: What is miscellaneous revenue?
Trish Leach: I sometimes get money on a settlement and that's where we put the money.
Frank Johnson: I noticed there was quite a variance.
Kit Williams: A variance but it is always small.
Frank Johnson: Just curious.
Policemen's Pension and Relief Fund
Board of Trustees Meeting Minutes
December 3,2009
Page 3 of 16
Eldon Roberts: The state insurance tax is taking a nose dive. Paul and I go to Little Rock to the
Pension Review Board meeting and that's one of the biggest topics that they seem to discuss is
the formula for funding this insurance turn back check. I promise you and I think Paul will agree
with me that nobody really knows what's going on with that. Everybody just talks in circles
about it, but at least it's a good thing that it is being brought to the fore front. There's a lot light
beginning to be shown on this insurance turn back and the way it is done. They are going back.
to the drawing board. Some people asked pointed questions to the people that are suppose to
know and they give around about circle answer.
Kit Williams: Do you know who sets the formula?
Eldon Roberts: I would assume it's the legislatures.
Kit Williams: You think they set it every two years?
Eldon Roberts: They study it and they tweak it every time they get a chance. They are some of
the state representatives whose districts fall within certain areas that can get more or less money.
Jerry Friend: What criteria do they use?
Paul Becker: It's a very complicated issue and its set by legislation. If you read the legislation
it's very difficult to figure out. It goes down if you have plans that are picked up that didn't use
to be that makes the pot for everybody to go down and that's the major drive of why it's going
down. The way it's split goes back to a formula on how it was split back in 1999 and those
municipalities that where involved at.that point of time was guaranteed the same percentage.
Some of them got 100% and some of them got over 100% we did not. Back in the legislative
session before last that formula was changed a little bit to make it that everybody would have to
pay at least 3% of their cost. 3% of cost doesn't drive it enough to change the formula for
everybody else. That hasn't been effective. It's a very complicated formula it's applied by
LOPFI and the actuary they decide exactly its application and it is confusing. We get a lot of
data on it but it's certainly not easy to understand.
Eldon Roberts: The Mayor from Harrison is on their case down there and he asked pointed
questions to people that should know. The best I could tell, from sitting in the audience, I don't
understand the answer that he gets but he is on their case, the Pension Review Board and the
actuaries. Jody that has been up here a few times, trying to get some hard and fast answers about
how it is figured and it gets changed every so often and we are not really finding out a lot about
it. I'm highly concerned about that. This police department pension fund might very well be a
member of LOPFI today if it hadn't been for this insurance turn back check. About three or four
years ago, and I think the City was probably agreeable and everybody else was too, but we were
told don't join right now because this insurance turn back check the formula has changed and
you stand to get a whole lot more money. That happened for about two years in a row then it
started nose diving again, but that's the sole reason the local board and the members and maybe
the City enter in to some kind of agreement then to go to LOPFI. We were really close and that
was the reason why we didn't pursue it any further.
Policemen's Pension and Relief Fund
Board of Trustees Meeting Minutes
December 3,2009
Page 4 of 16
Kit Williams: I remember a number of years ago, I think might it be longer than five years ago,
that Steve Davis who was the Finance Director did say that he thought that there was going to be
an increase in the money coming out of turn back fends so that you would not have to go at that
point in time. He couldn't speak for the City Council and they were the only people that could
actually have sent you. The problem with something like that is that if it's done by statute or by
some other group that we have no control over then you never know what it's going to be two
years from then. We are kind of at the mercy of the legislature or whoever designs the formula.
I need to see those statutes that you are talking about Paul to see if I can figure them out. I know
the Mayor of Harrison has been very concerned about that and certainly both of our boards are
concerned about that too. If there's additional money that could come in to the pension boards
that's about the only place it could come from unless we go the citizens and ask them to increase
the millage. That's the only way to get additional revenue but at this point in time I'm just not
sure. I've actually talked to another attorney about this and he's still researching it. He is trying
to figure out what these formula's are and what they mean.
Paul Becker: What we are discussing is the total distribution of all the premium taxes and how
it's distributed to different municipalities. There is a group that is discussing potential changes
to that legislation on a fairer basis. It was frozen to certain percentages that were distributed
back I think it was 1999. You have to remember as a legislative change it's going to be difficult
because some municipalities are going to lose while some municipalities are going to gain. It's
nothing that's going to be very easily done. The change in the distribution I don't think is
enough money to address some of the problems that we have. Even if they do change the
allocation which would make it fair for everybody it's not going to solve the problem.
Eldon Roberts: I agree with that.
Sondra Smith: That's exactly what I was told when I went to some of the meetings at the
Arkansas Municipal League and the Mayor from Harrison was at those meetings. By changing
that distribution you're going to help a few cities but you are also going to hurt a lot of cities.
That's the reason even the Municipal League is reluctant to support that.
Kit Williams: Especially if you're fighting over the same pie and the pie's not big enough to
solve the problem. The fight over the pie shares is not very important.
Paul Becker: That's pretty much the situation. However there are people interested in looking
at a fair distribution for everybody but that's not going to solve the problem.
Sondra Smith: No.
Eldon Roberts: I don't know exactly what the insurance turn back money was designed for
initially but I was lead to believe at the time it happened it was for municipal fire and police full
paid. The volunteer fire departments have come on board now and the state police have got
involved in it.
Kit Williams: Some of it goes to the state police now?
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December 3,2009
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Eldon Roberts: It was just in the newspaper that Governor Beebe reached into it and took out
$9,000,000 and put into the State Police Pension fund. We are getting a lot of help from about
ever angle to use up this money. You are right there's just one pie and a whole bunch of people
are trying to get there share of that one pie. The pie does get larger I think there maybe more
money come into it.
Kit Williams: Is it large enough is the question.
Eldon Roberts: It's not larger enough to fix everybody's problem.
Paul Becker: There are roughly two issues as we talked about and I pretty familiar with a lot of
this. The method of distribution on what's left to go to the municipalities and the old pension
plans and some of that revenue goes to state police and some goes to the general state revenue
also. The Governor for one hasn't seemed interested in entertaining a change like that. If more
of it went into that distribution certainly it would help people more than it is now. The chances
of that are remote at this point I would think.
Kit Williams: I have not seen those particular distribution statutes if you have them I would like
to take a look at them.
Paul Becker: Sure.
Kit Williams: If they're totally within the discretion of other entities like the Governors office
to decide where it goes than there's not anything legal to be done. I would like to see them to see
what they say.
Eldon Roberts: I don't think there's anything illegally being done about it. I think everything
is above board and would stand the test in a court of law.
Kit Williams: I'm sure that's correct.
Eldon Roberts: The people realize that are in those positions they would be called in on the
carpet in a minute if somebody could find where they had broke the law. As Paul says and I'm
saying it's just not sure that it's being disbursed in an equal manner as it could be.
Kit Williams: I would just like to look at them and make sure that some innocent mistake was
not being made that might help the pension funds because you need all the help you can get
obliviously.
Sondra Smith: It could also go against us. If they changed the distribution who's to say that
it's going to benefit us it may go the other direction.
Eldon Roberts: Change is not always for the best.
Sondra Smith: That's right.
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December 3,2009
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Eldon Roberts: Change doesn't have to be for the better every time.
Paul Becker: Depending on the distribution and there were several different methods discussed,
this goes back to the interim study group who looked at that earlier, some of the methods of
distribution we would have gotten less. It's something that carefully hasto be looked at.
2010 Meeting Schedule
Sondra Smith: That's our purposed meetings for 2010. They are the third Thursday of the first
month of the quarter. I went ahead and gave everyone the dates so you can mark your calendars.
Jerry Friend: The first quarter is January?
Sondra Smith: Yes.
Arkansas Attorney General Opinion No. 2009-102
Sondra Smith: I think that was the main reason that Frank requested that we have a meeting
today so that we could go and discuss the Attorney General's opinion that we received back and
Kit's memo regarding that Attorney general's opinion.
Frank Johnson: That's it. Knowing that we have quarterly meetings with standing agenda
items and in light of the fact that we received the Attorney General's response along with your
interpretation of that response I thought it only appropriate for us have a special meeting to go
over that and consider whether or not there was any action that needs to be taken now or at least
began the discussion that we can include for our regular scheduled meeting.
Kit Williams: This was the second opinion by the Attorney General and it pretty much goes
along with their first opinion. As attorneys are sometimes apt to do we don't 100% agree. We
do agree on his initial statement that the law is not very clear here. It could use some judicial or
legislative clarification. You get legislative clarification when the legislature changes the statute
and passes something new. You get judicial clarification if somebody files a case and you can't
just get an advisory opinion. I can't go up to the court and say judge tell us what to do. You
have to have what is called a case in controversy. You have to have somebody on both sides of
the issue. Then judge can decide who is right or there might be some right on both sides but
there has to be a true case in controversy.
There are two ways a case in controversy could occur. One would be if you followed what I
believe is the underlining final decision in that you have the right to reduce pension benefits if
you need to to save the fund. Not just because you want but if they were shown that without
revising the benefits the pension would likely go bankrupt. I think as trustees of the pension
board you would have the right then to reduce the pension benefits to an extent so that the
pension fund would not go broke. You couldn't reduce it below that. You surly couldn't reduce
them below 50% which is a minimum but I believe you probably could reduce benefits in order
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December 3,2009
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to preserve the pension fund. If you did that then there could be a pensioner that says you don't
have the right to reduce my benefits, you've cut my benefits, it might be a small amount, but you
cut my benefits 5% or 10% and you don't have a right to do it so they sue the pension board for
doing it. Then we go into court and if I'm right then we know at that point in time the judge has
sustained the right to do that. If I'm wrong and the Attorney General is primarily right although
he didn't say basically you absolutely cannot do it. He thought it would be dangerous to do. If
I'm wrong and the Attorney General is right what the person would get who won against us and
all the pensioners would get including yourselves would be the additional money that you would
have gotten except for the 5% or 10% reduction you had. That would all come out the pension
fund itself. There's money in the pension fund to pay that. The downside is the fact that if I am
wrong the attorney on the other side would probably be suing under a contract basis or basis
where he probably would be authorized to have his attorney fees paid. Which would mean the
Rind would have to pay that so that would be an additional expense that you wouldn't have other
wise. I don't think it would be a tremendous amount but it would be something. That's one way
to get a judicial resolution to it.
The other way is do nothing. The pension evidentially goes bankrupt and runs out of all its
money and then some beneficiary sues you all saying you violated the fiduciary duty to maintain
the pension and not let it go bankrupt. This would be the far in the future for you all, it would
probably more likely happen to another pension plan before you all would ever see this. If I'm
right and you could have reduced benefits then you could be personally liable and there would be
no pension fund to pay the money it would be only what you got. It would be your own assets
that there might be a judgment against. If I was wrong then of course there would be no liability
and you would have a very strong defense because you would argue that we considered
everything and the Attorney General said that we didn't have the right to do it and so at most we
made a very minor mistake and we shouldn't be held libel. Even if I'm right and the Attorney
General is wrong I would assume that the City Attorney would still be representing you on this
and would make strong arguments that you would operated totally in good faith, did as best as
you could and relied upon the top legal opinion in the state, which is the Attorney General, not
me. I think that it would be possible that you would be individually liable but I don't want to
scare you with that. I hope the court would have some understanding of the position you all are
in.
The other good thing is you all are in much better shape than other pension plans so that if other
pension plans go broke that kind of suit would likely happen with them. By that time you would
know and you could reduce benefits if possible then, neither scenario is great and my
recommendation to you all is right now you're in pretty good shape. When I looked at the net
income and out go it's not just based on the stock market because if you look at net income loss
you will see four out of the last five years is negative. Some of those years' things were going
up. That means to me that there is a down ward pressure on your funds and even though some of
the beneficiaries unfortunately are dying the beneficiaries who are dying are the ones that retired
longest ago and are receiving the least amount of money. From a pension point of view that is
having a very little effect on the amount of out go. There is downward pressure on your funds
but not near as much as it is in the fire pension. The last time Jody came here a year ago he was
predicting under some reasonable scenario it could go broke by 2016.
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December 3,2009
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Eldon Roberts: What was our number? Does anybody remember?
Paul Becker: His comment was that you might squeak by.
Eldon Roberts: I remember.
Melvin Stanley: It was the best case, middle case, and worse case. Ours went off the chart at
about 2023 on the worse case.
Eldon Roberts: Thirteen more years on the worse case scenario.
Melvin Stanley: Yes, worse case.
Kit Williams: You all are in much better shape. Basically you and the fire pension both have a
certain amount of money in your trust everything else is equal. So that if you are both going
down you know they are going to have to hit first. I think there are pension funds out there in
other cities that are worse than either of ours. I'm not telling you to just sit back and do nothing
but I do think that you all are in much better shape and it's safer for you all to sit back than it
would be for the fire pension board.
Sondra Smith: I have received some calls from people from some of the pensioners that if the
fund does go broke the City has to bail the fund out.
Kit Williams: At this point in time the way the law is right now my interpretation of that is that
is not correct. It doesn't mean that the legislature won't change the law and evidentially place
the burden upon the City or the state or somebody else to make up the difference.
Sondra Smith: That is basically what I've been telling them.
Kit Williams: That is my interpretation. I've looked at it and that's been the way these pension
plans have been handled from day one. When I was on the City Council in the nineties when we
were being sued on the property tax roll back, I didn't realize it was your responsibility I thought
the City had something to do with it and I came forward with a resolution saying we ought to
settle. I didn't buy the defenses we were trying to give that we hadn't done a county wide
appraisal. I read the headlines in the paper we paid $3,000,000 to do a county wide appraisal. I
thought maybe we ought to settle and see if we could get out cheaper and I had a resolution to
that affect that I was going to present to the City Council and I was told sorry you can't do it
because only the pension board can do that. I was told at that time you all weren't interested in
doing that so I backed off. As far back as the nineties when a City Council member wanted to
try to do something we were specifically informed and understood that we have no power over
your pension funds you all have the power not the City therefore we do not have the
responsibility either.
Jerry Friend: I thought I remembered if the city board sees that the pension board is in trouble
they can forcibly take it over.
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December 3,2009
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Kit Williams: I don't know if it has to have your approval or not, it might but the City can
consolidate with LOPFI and if the City ever consolidates with LOPFI, your plan with LOPFI,
then in fact does become a City liability. That's why we talked about reducing the benefits
enough so that there would be no cost to the City to consolidate with LOPFI and then everybody
would know that you are going to be protected. From the City's prospective we at least can
anticipate the cost initially being nothing but probably over time we would end up paying
something because I think you all would be awarded by the legislation some additional benefits
some COLA's or something. Especially if they can do that and make the City pay rather than
them pay and I think that is liable to happen. There would probably be some cost to the City in
the long term but it wouldn't be the millions that it might be without any reductions especially in
the fire pension.
Melvin Stanley: Say if we reduce benefits by 5% or 10% and there is no cost to the City and
they move us to LOPFI and then one pensioner sues this pension board how would all that get
straighten out?
Kit Williams: That would be a problem if they delayed their suit so long that we had already
consolidated then that would be very confusing. I don't know who they would be suing at that
point in time. They might have to sue LOPFI. That could be a problem in just where do we get
the money from if it's wrong or whatever.
Eldon Roberts: I've heard that a police department is in worse shape than any pension plan out
there including Fayetteville Fire. They are probably going to be the ones to go to court and
figure it out.
Kit Williams: I just soon they do it. I don't like to be on the cutting edge.
Eldon Roberts: I agree with you. I think its Little Rock.
Paul Becker: Both of them have there problems. Little Rock has big problems.
Kit Williams: I heard about a little small one instead of being 50% or 60% funded like we are
its 30%funded. You know they are really looking at a quick crash.
Eldon Roberts: If we could move to LOPFI, at no cost to the City within the next year, do you
think that could happen?
Kit Williams: Do you mean that the City Council would approve?
Eldon Roberts: That is what I'm saying which that's what it takes.
Mayor Jordan: I can't speak for the City Council I don't know what they are going to do. I
know they will probably ask Sondra and me our opinion on what we think. I can't speak for her
either but I would have to look at the plan and see how it was constructed and then make a call
on it one way or the other. That will come to a vote of this board and then on to the Council.