Minutes 06/23/1959 - Laserfiche WebLink

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June 23rd. 1959. approximately $26,000.00. After subtracting $4,900.00, which was added expenses paid by the City, we find that the net income was only approximately $21,000.00. According to the audit, the total investment was approximately-t800,000.00. The net ~eturn on the Pension Fund has been only .O26 per cent. This per cent ~eturn should be more than double according to the returns received on most Pension Fund The net return in dollars of the Pension Fund is insufficient ~o meet the pay out requirements of those who now receive pensions - what will it be years from now if allowed to continue under the existing circumstances? City officials are quick to fire any poor workman for making a mistake, yet the managers of the Pension Fund have made many costly mistakes constantly during the past six years, yet nothing xs said. The fund is in worse shape now than when reviewed on May 29, 1959. It is the reconunendation of the Union that immediate action be taken by the City Council to put the 'Pension Fund on a sound and profitable basis. There must be qualified people in a City this sime to review .-the portfolio and recommend changes needed so badly. The City Council should appoint a Citizens Committee to review the entire Pension Fund Bystem and such committee to make recom - mendations to the Council as to its'findings. The Union also recommends that the Pension Fund be put on a competitive basis, having brokerage firms bid on the ~ob of handling and giving advice to the Fund. If the firm selected for the job fails to puE the Fund Gna performance basis comparabTe to other municipal Pension Funds, give the job ro one that will. The Union furthe~ recommends that the practice of investing Pension Funds in local building and lo~u association of which admini- strator of the Pension Fund is directly connected, should be stopped immediately. Such action is in violation of the City Ordinance. (Signed) Marion E. ~uttle, Business Representative, Portsmouth Post 3087." "By letter to you under date of June 10~ 1959, Marion E~ Tuttle, as business repre- sentative of Portsmouth Bmployees Local Union No. 733, severely criticized the management of the Supplemental Retirement Fund. Your Board of Trustees considers the contents of tha% letter to b e erroneous and misleading.~- We therefore submit below our comments with respect ~o the matters referred to in the letter so that you may h~ve' the benefit thereof at the ~me ~. Turtle's letter is officially received by you at the next meeting of Council. Mr. Tattle has prefaced his letter with the remark that the duties of the Board are to invest the funds in a wise and profitable manner° We disagree with any such thought and acknowledge a pri - mary duty to invest prudently, earning as m~ch as possible with the safest securities available in the market. The Fund is expected to earn 3% on the investment and did earn 3.88% last year. The Board h'~s not and will not use the funds of the RetirementFund to speculate in the stock market. Approximately 75% of the portfolio is now in bonds and preferred stock, with the remaining 25% in common stocks. This policy is consistent with that adopted throughout the United States by pension funds of our type. In this connection, it might be mentioned that the bonds are earning 3.72%, preferred stocks are earning 4.34%, and common stocks are earning .3.84%. Reference was made to employment of a consultant at a cost of $3,900.00 for the next fiscal year. This is an erroneous statement in that $2,400.00 of that amount will be paid under contract to Bowles, Andrews and To~vr~e for actuarial services necessary under the retirement system. The remaining $1~500.00 is the estimated cost of providing, in New York City, safekeeping and management of the securities owned by thet Fund. This service is provided by Chase Manhattan Bank. We consider that this money is well spent and no doub~ a savings when consideration .is given to the cost which would be incurred in employment of at least one clerk and payment of registered mail fees if all securities were held in Portsmouth. The bank provides safekeeping for t/~e securities, receives and accounts for dividend checks, clips coupons and accompliskes all related work for the above-mentioned service charge. It is true that the Board consults with Chase Manhattan Bank inthe matter-Of buying and selling securities for account of the Fund~ No Qharge has ever been made by the Bank for this advice. The Board is of the opinion that the combined knowledge ~ud daily attention of the staff of Chase Manhattan Bank are superior ~o consulting services which might be obtained locally from any one stock broker. Mr. Tuttle alleges that sale of the bonds now in the portfolio would produce a loss of $65,000.00 while the stock market has gone up. The two subjects are unrelated and the conclusion invited is not sound. Bonds of the t~pe to which reference is made customarily trade at a price less than their par value but aevertheless can not be redeemed for less than par value without the payment of a premium. For mn- stance, the Fund may have purchased a bond with par value of $1,000.00 for $900.00 and the market quotation on that bond might now be $850.00; however the Fund continues to receive the interest provided for in the bond and the bond may not be redeemed without the payment of the paE value: numely, $1,000.00. Mr. Tuttle contends that there was in the Eund on December al, 1958, the sum of $104,722.51 lying idle, which could have earned at least $5,000.00 for the fund, if invested. In fact, the Board received $148,1S1.00 on December 19, 1958, and, upon due consideration of the recommendations Of Chase Manhattan Bank, directed the bank to purchase certain securities which would accomplish the investment of the aforementioned sum. Orders to purchase this stock were placed on December SO, 1958, but that fact was ~eflected in the audit prepared the next .day and to which reference h~s been made by Mr. Turtle. The Board knows of no way in.which these funds could have been invested during this eleven day period to earn $5,000.00 as referred to L by Mr. Tuttle. It is the practTce of the Board to aI~ticipate receipt of large sums such as this and to have in hand the recommendations of Chase Manhattan Bank.prior to ~r~ulsfer of the fttuds to the account of the Fund, in order that investmen~ may be made as promptly as possible. The Board is unable to cencur in the system employed by Mr. Tuttle in the paragraph of his letter numbered '3' wherein he computed the net return earned by the Fund. Mr. Tuttle arrives at an ear,aug rate of .026% (we believe he meant 2.6%). As has been stated above, the standard method of computing earning mate produces a figure of 3.88% for the past year. The Board emphatically denies that the net return in dollars is insufficient to meet the pay-out requirements of the system. In fact, the high earning rate of the fund, coupled with continuing actuarial studies, have made it POssible to reduce the amount of money which the City is required to contribute to the Fund. In concluding his letter, Mr. ~uttle stated that funds had been invested in a local building and loan association of which a member of the Board xs an officer and stockholder, in violation of a