HomeMy WebLinkAbout2015-07-16 - MinutesLioneld Jordan
Sondra E. Smith
Eldon Roberts
Chairman
Treasurer
Secretary
Retired Position I
Policemen's Pension & Relief Fund
Board of Trustees Meeting Minutes
July 16, 2015
Page I of 9
Ruston Cole
John Brown
Melvin Stanley
Frank Johnson
Policemen's Pension and Relief Fund
Board of Trustees Meeting Agenda
July 16, 2015
Retired Position 2
Retired Position 3
Retired Position 4
Retired Position 5
A meeting of the Fayetteville Policemen's Pension and Relief Fund Board of Trustees was held
on July 16, 2015 at 3:00 p.m. in Room 326 of the City Administration Building located at 113
West Mountain Street, Fayetteville, Arkansas.
Mayor Jordan called the meeting to order.
PRESENT: Mayor Jordan, John Brown, Frank Johnson, Melvin Stanley, Eldon Roberts,
Ruston Cole, Lisa Branson, Dee McCoy, City Clerk Office, Glenn Atkins, James Bell,
Garrison Financial, Trish Leach, Accounting, Kit Williams, City Attorney
ABSENT: Sondra Smith
Garrison Financial:
2nd Quarter reports
James Bell: We ended the quarter on June 30 at just over $6.5 million in the entire portfolio.
Starting first with asset allocation, we are right on target. The policy is 60% equity and 40% fixed
income. We are at 59.6% equity, 35% fixed income and about 5% cash. We tend to hold a pretty
healthy cash cushion to fund the distributions that come monthly from the city.
On the equity side, over the second quarter we made a few trades on the portfolio. We sold
McDonalds in the quarter. It's a well-run company but one that we think is kind of topped out
valuation wise and execution wise. We bought Disney in the quarter. That's a company I think has
a lot of potential, a great, bright future in front of them. We did sell a few other partial positions
and that was strictly to fund some of the cash withdrawals and keep the policy in line.
Looking at performance, the equities for the quarter were up 10 basis points. Stocks were up ten
basis points versus 28 basis points for the S&P500. We had a drag this quarter from our holdings
in energy and industrials. Those two sectors underperformed a little bit. They weren't the weakest
performer in the markets; that was actually utilities. I'm happy to say that we rolled out of all of
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Board of Trustees Meeting Minutes
July 16, 2015
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your utility holdings in the first quarter. We avoided some of that weakness in the utilities. On the
positive side healthcare was very strong in your portfolio and in the market. We also own a
company called Syngenta which received a takeover bid from Monsantos, so we saw some positive
performance there. Going forward, in the equity markets we continue to think that stocks are fairly
valued at this point. It feels to us like the biggest risks to the companies in the market are coming
from outside the companies themselves. They continue to execute well, and grow their earnings.
What we see are things like interest rate risk, what's going on in Greece or there's something geo-
political maybe in the Middle East. Those feel like the bigger risks in the market than something
valuation wise or company specific. That's what we continue to monitor on the equity side.
Glenn Atkins: Performance on the fixed income still continues to be good relative to the market.
Year-to-date the fixed income portion is up 1.14% versus 0.82% on the market. Twelve months
it's up almost 2.25% versus 1.69% on the index. We took a couple of actions in the quarter that
really served us well. We sold the remaining portion of the iBoxx investment grade bond fund,
what we call the LQD. We did that for a couple of reasons. One, because the duration was 7.40
years or 7.5 years. Part of the proceeds we reinvested in an individual bond Berkshire Hathaway,
which as you know is Warren Buffett's company. We used some of the proceeds to purchase JB
Hunt Transport, which you all should be familiar with. The Berkshire purchase was late in the first
quarter. The remaining cash from the sale of the LQD was just put in the portfolio's cash and taken
out as distributions and things like that.
What we have remaining to do on the fixed income side would be at some point to sell the
remaining Treasury Bond and the remaining agency securities and we'll put those in corporate
bonds. The reason selling the LQD's helped us a lot was because the fixed income market was
down for the quarter. As we shortened our maturities we weren't down as much as the market was.
Last quarter, the duration on the portfolio was 3.60 years, right now its right at 3 years. That's
about where I want it now, but between now and a year from now you'll probably see purchases
that are longer than that to keep that duration right in that 3 to 4.5 years range. In terms of market
expectations, the volatility continues to be a problem. We try not to step into the market when rates
are really low and two weeks later there becomes a buying opportunity. Clearly there's an upper
bias in interest rates. Last quarter I would've told you that I would think the Fed would raise
interest rates in September, now I'm not so sure about that. They could do it in September to make
a point, I think the consensus would be at the December meeting. There are some folks that are
saying that an interest rate rise is not going to occur until 2016. A lot of that has to do with, as
James mentioned, factors that are really exterior to the United States, the Greece issue, the China
issue and the fact that our rates are already higher than most of them around the world.
The situation in Greece seems to be playing out in a non -worst case scenario. I guess the worst
case would have been that the banks would have run out of money the day before yesterday, or
yesterday. That seems likely to happen, but I think it was Eldon mentioning that it's just kicking
the can down the road. The flip side of that is that Greece is only 1.5% roughly of the Euros on the
economy. I think that if there were to become a worst-case situation over there that it would only
have a temporary effect on us and what the Fed intends to do with interest rates. China is a different
ball of wax, they are very significant to the world economy. Hopefully that situation will stabilize
over there. That is all we have formally prepared. We are happy to talk about anything you want
too, entertain questions, comments, ideas, criticisms, whatever you like. In addition, I included
pictures like I do every quarter just because I think its fun. The first one is the quarter, the second
Policemen's Pension & Relief Fund
Board of Trustees Meeting Minutes
July 16, 2015
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one is year-to-date, and the third one is for the last year on the ten year treasury yield that we sort
of use as our market benchmark.
Approval of the Minutes:
Approval of the April 16, 2015 meeting minutes
Ruston Cole moved to approve the April 16, 2015 meeting minutes. Eldon Roberts seconded
the motion. The motion passed with a 6-0 vote. Sondra Smith was absent.
Pension List Changes:
None
Approval of the Pension List:
Approval of the August, September and October, 2015 pension lists
Ruston Cole moved to approve the August, September and October, 2015 pension lists.
Frank Johnson seconded the motion. The motion passed with a 6-0 vote. Sondra Smith was
absent.
Unfinished Business:
None
New Business:
Revenue & Expense Report: 1St Quarter -March 31. 2015 and 2nd Quarter -June 30 2015 report
Kit Williams: This is just an informational item.
Trish Leach: Eldon and I visited Monday or Tuesday because we always get the checks from the
State that funds the future supplement, which if you received your check or your direct deposit
form hopefully by now you'll notice you had a little extra money this month, $1,110. We were late
in mailing in them because we kept waiting for the State to send us the money and they had a
problem with one of our checks. They don't send any of our checks until they get it all fixed. I
finally called them and got all the details because we wanted to put it on the agenda. This is just a
breakdown we always give of how much money we got for the plan, the future supplement, that
additional allocation that they run back through and do and it also includes the Fire information.
We actually got the checks yesterday at 2:00 and it wasn't time to get it in your packet.
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July 16, 2015
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2014 Annual Actuarial Valuation
Lisa Branson: I believe that was e-mailed.
Frank Johnson: It was. Haven't we responded to this before?
Mayor Jordan: We sent out a letter sometime in May.
Kit Williams: I think we have. This is not news.
Mayor Jordan: I gave a report to the Council in January, I think, where everything was and what
was happening.
Frank Johnson: Where's our response? I've never quite understood what's behind this, what
triggers this. We review things consistently as part of our meeting agendas. Eldon, do you know
why they're doing this?
Eldon Roberts: It's customary standard procedure for all of the funds. It's in the at -risk column.
It's just a bookkeeping deal. We can change the dates on that letter we sent them last time.
Mayor Jordan: It's a repetitious thing. The report that I gave in January is that the Fire and Police
pension both are not in good shape.
Kit Williams: You're not nearly as bad as the Fire plan.
Mayor Jordan: But it's not great.
Kit Williams: No.
Frank Johnson: There's not a great pension plan in all of the United States.
Kit Williams: There's lots of problems.
Mayor Jordan: I was at the U.S. Conference of Mayors not quite two weeks ago and they are
having trouble with pension funds all across the United States. This is not anything abnormal. It's
not a unique problem. A lot of the Mayors are changing the retirements and there's just all kinds
of things going on. I think we are seeing some of that down in Fort Smith right now, they are all
over the place. I think they changed their pension fund.
Kit Williams: I think they did. You can't really tell from the news stories exactly what they did.
Mayor Jordan: I have not had the chance to talk to the Mayor of Fort Smith on that.
Trish Leach: They went to LOPFI 1 to lower their cost. They consolidated their old plans years
ago and so that throws off their LOPFI percentage.
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July 16, 2015
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Frank Johnson: They are receiving some discussion in Fort Smith about going to the voters,
wasn't there?
Mayor Jordan: There was something I read last week on Fort Smith that the retirement that they
are putting in their non-uniform people too, they are looking at that.
Kit Williams: They have their non-uniform in retirement?
Mayor Jordan: It's kind of like their retirement plan. They are looking to take that to the voters
or something.
Kit Williams: Some other cities actually do have APERS or their employees on the state plan.
Mayor Jordan: It's certainly an issue across the state and across the nation.
Frank Johnson: You're on the board so that's good that you're considering those things. I hope
the Council is considering it too.
Mayor Jordan: We are. We are trying to figure out what we're going to do here, Frank. I've seen
this thing coming for a while. I've been talking about it since I've been in office about these
pension plans and what we're going to do with it.
Frank Johnson: A discussion seems to always default to a reduction in benefits. There's a lot of
other options other than that one. '
Mayor Jordan: Sure there is. You can consolidate and send it to LOPFI. There's any number of
things. I know my finance director a few years ago said that it would cost us about a million dollars
to take those pension plans and send them down. I think the numbers have changed now.
Kit Williams: It would be significantly more than a million dollars, unless he was talking about
annually. I think it wouldn't be that much unless you're talking about both plans annually. That's
a pretty good chunk of money.
Mayor Jordan: It's back and we're visiting with folks right now. I've been talking to the legislator
about it.
Frank Johnson: That's good. It's just something that we talk about, Eldon and I. I'm going to
draw you into this Eldon, we retired a bunch of have been cops and we made a promise years ago.
Had that promise not been made, we would have pursued other alternatives for our retirement. We
are where we're at right now.
Mayor Jordan: That's going to have to be addressed because it's not going to get any better, I
don't think.
Eldon Roberts: I know the report is back from the Fire department and they're additional or extra
actuarial evaluation, have you all had time to review that? Can anybody comment on that? They
have a meeting coming up, when?
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Board of Trustees Meeting Minutes
July 16, 2015
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Kit Williams: They are trying to have a meeting with the state people.
Mayor Jordan: September 29th. All this happened yesterday afternoon.
Kit Williams: The e-mail I saw, I didn't even know what time.
Lisa Branson: 5:30 p.m.
Melvin Stanley: What's that meeting for?
Eldon Roberts: That's when Jody Carreiro and Steve Osbom, the actuarial evaluation people in
Little Rock, come up here and want to meet with the Mayor and the Council members and go over
that special actuarial elevation that the Fire department had done, and explain how they see it.
Mayor Jordan: They've changed the numbers.
Kit Williams: What the cost would be.
Mayor Jordan: Yes. There was something to do with the rate of return was set at 5%. You all
hadn't hit 5%. There's a certain year maturity and I can't remember what that is.
Eldon Roberts: Amortization period had been moved out a lot further.
Mayor Jordan: They're going to string it out.
Kit Williams: They are also saying the rate of return is going to be better.
Mayor Jordan: 8% I think.
Eldon Roberts: It might be better compared to what we're doing here, because if that ever
materializes they're going to take that money and put it into LOPFI's money. They're running
around $500 million or maybe close to a billion. They're getting a better rate of return.
Mayor Jordan: It's kind of like an insurance policy, the more people you have paying in the better
it is. They move everything together. I'm getting into some waters here I'm not really great at, but
that's what I know so far.
Kit Williams: It's hard to beat the overall market average though. If the overall market isn't
getting 8% then it's going to be pretty hard to beat.
Mayor Jordan: I think the argument is going to be made that they say that they are. That's the
overall. They would be able to explain, I certainly would encourage you to attend that meeting.
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July 16, 2015
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2015 Evaluating Local Plan Investments Memo
Lisa Branson: That's on page 67.
Eldon Roberts: I'm not sure this is that letter that we're supposed to respond too that they send
us every year about what are we doing in this area and what are we doing in that area and what are
we doing to better ourselves. That's the one we send back and tell them we are doing all we can
do. This appears to be something different.
Frank Johnson: It kind of spelled out all the areas. It didn't seem like the previous one.
Mayor Jordan: Sondra drew up a letter, and we sent some sort of response but it's been a while.
Right now, the plan is to be looking at how to incorporate everything in LOPFI, if we were trying
to work on a plan. That's going to be for that PRB board to come up and tell us what it's going to
take. Then we're going to have to make some decisions because at the rate it's going, eventually
it's done. It's gone.
Eldon Roberts: The Fire department cancelled their regular scheduled meeting? They always
follow us.
Mayor Jordan: I got a letter yesterday asking me to postpone that meeting so we've decided to
just put it all on September 29.
Lisa Branson: They're wanting to reschedule in August
Mayor Jordan: Oh, they are? Okay.
Kit Williams: This would be just them.
Eldon Roberts: Right, just be the local board meeting just like we do.
Mayor Jordan: So we'll do one in August and one in September. That'll be fine
Eldon Roberts: I've always said the state could sure help in this matter. Here's what's happening,
I think, as time goes along, more and more people are merging with LOPFI. That is slowing down
the problem. It's getting smaller. There's not that many people out there to confront the state
representatives and senators and say we need some help, this is a big problem for the whole State
of Arkansas. I think that problem is dwindling to some degree because more and more people are
seeing fit to join their Fire and Police with LOPFI. That takes care of the problem for that part. I
don't know how prone the state is going to be to try to give us some help now because of the fact
that more and more people are joining LOPFI.
Mayor Jordan: When I talked to the Mayor of Little Rock, it's not been a month ago talking about
this very situation, when I asked him what they did, he said we took care of that and merged with
LOPFI.
Frank Johnson: How was it so easy for them to do that?
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July 16, 2015
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Mayor Jordan: I don't know.
Kit Williams: I think they actually had an election, I think it was part of a sales tax.
Eldon Roberts: It was spelled out up front on how much of it was to go towards this problem. It
passed, people voted it in. It kind of fixed that problem. That's just the Police I think, I don't know
about Little Rock Fire. I think Fire is still out on their own.
Frank Johnson: I'mjust curious, and maybe this is a conversation to be having another time, but
it just seems like they were able to accomplish that with a sales tax no less, are these discussion as
options occurring at the Council level? I don't have a sense other than your annual report that they
know they have something they're going to have to deal with and they have options.
Mayor Jordan: Frank, I made it real clear to that Council on several occasions that we have a
situation here that's going to have to be addressed.
Kit Williams: Little Rock is a different situation. We've maxed out our sales tax for something
that could be used like this. Little Rock had not because they had been unable to pass a sales tax
for a long time. Then they worked together on this, had many different little parts of it and put it
together and it actually passed. We, on the other hand, already have our operational penny
committed, we have the bond penny committed. Those are our two pennies. There are some
additional sales taxes you can use for specialized things but nothing that would qualify for pension.
That part of it doesn't appear to be possible. It is still possible for millage though. Millage would
still be available to you.
Mayor Jordan: There was some bill that they had, and I don't know if that passed or not, where
we could go up to 2 mill each.
Kit Williams: You could certainly go up to 1 mill, which is more than double of what you're
getting.
Mayor Jordan: You sure can by a vote of the people.
Frank Johnson: That's the discussion. If I were an elected official, I would be apprehensive
about going to my constituents about increasing their property taxes. I would certainly start the
conversation about that being a viable option early where it's not anything that just comes up and
they say oh we're not going to do it. In the end, they're one vote but the people that vote for them
may have a different perception about law enforcement and retired officers and public servants.
Mayor Jordan: The very first day, one of the very first things I said when I came into this office
was that we've got a problem with the pension. We brought those people up here in 2010, the same
people that's coming back in September. Eldon you were in that meeting. They told us how it was
and what we needed to do and what it would take. We took it to the Council and the Council at
that point in time did not wish to do anything. We brought things back periodically to the boards
on what direction they would like to take, you all have been a little more active. The Firemen's
Pension Board didn't want to do anything. Then we started about a year ago talking about merging
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July 16, 2015
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with LOPFI. That's a possibility, but I haven't run the numbers. Eldon, you go to those meetings.
Paul goes to those meetings.
Eldon Roberts: It's a problem. It's not really a real problem right now, but we're headed in that
direction. Everybody has a tendency to put off and put off until all of a sudden we're here. Well,
yeah we saw this coming 10 to 15 years ago. If we would have started then it wouldn't be near as
serious as it is now. That may be some of the problem, it's not needed right now. It'd be easy to
put it on the back burner, so to speak. Maybe when we have the meeting September 29 with State
Representative, Senators and all of the Council members, and all of you all, us and the Fire, maybe
we can get some concrete options laid out and maybe even begin to pursue some of them. What
this new study that has been completed on the Fire department, what it spells out and whenever
they break it down to where we can all understand it a little better then we're going to begin to see
what options are out there.
Mayor Jordan: There's going to be some kind of decision made by both boards before the end of
October. That's just me.
Eldon Roberts: I think it takes a mutual agreement between Council and the local boards to go
ahead and do it, does it not?
Kit Williams: Yes, it would.
Election Results -Eldon Roberts, Melvin Stanley and John Brown
Lisa Branson: The 2015 elections were complete. Eldon Roberts, Melvin Stanley and John Brown
were re-elected.
Informational:
Longer View July 10, 2015
Kit Williams: Do we still get something from them?
Eldon Roberts: We still get that newsletter she puts out every quarter. It's pretty interesting, I like
to read it.
2015 Meeting calendar -October 15. 2015 next meeting
Adjourn: 3:35 p.m.