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HomeMy WebLinkAbout1995-01-26 - Agendas - FinalAGENDA FIREMEN'S PENSION AND RELIEF BOARD January 26, 1995 11:00 a.m. City,Hall Room 326 1. Approval of the minutes of the December 1, 1994 meeting 2 Approval of Pension List for February, 1995 3 Old Business 4. New Business A. Investment Report 5. Adjournment r MINUTES OF A MEETING OF THE FIRE PENSION BOARD A meeting of the Fayetteville Firemen's Pension and Relief Board was held on Thursday, December 1, 1994, at 11:00 a.m. in Room 326 of the City Administration Building, 113 W. Mountain, Fayetteville, Arkansas. PRESENT: Marion Doss, Pete Reagan, Retiree Darrell Judy (arrived late), Ron Wood, Mayor Fred Hanna, City Clerk Traci Paul, and Treasurer Glyndon Bunton. ABSENT: Howard Boudrey CALL TO ORDER Mayor Hanna called the meeting to order. MINUTES Reagan, seconded by Wood, made a motion to approve the minutes of the October 27, 1994. The motion was approved unanimously. PENSION LIST Paul stated there were no changes in the pension list. Reagan, seconded by Doss, made a motion to approve the pension list for December, 1994. The motion was approved unanimously. NEW BUSINESS INVESTMENT REPORT Richard Yada, Merrill Lynch, distributed a summary of the portfolio performance as of October 31, 1994. He stated, in comparison to last year, New Mexico Capital portfolio was down in the month of October but they are still in the positive range for the year. The Fixed Income portfolio is heavily affected by interest rate fluctuations. Darrell Judy arrived. For the total portfolio, the New Mexico fund is up 6.51% and the Income Account is up 5.16%. The minuses come from unrealized gains or losses. We are up as far as the actuary is concerned; but, the way the state calculates it, on paper we are down for the year. In the Fixed Income portfolio, we are almost at 10% on the cash side, 42% in bonds, 45% in stocks, and 2% in other categories. Money markets are paying about 4.5%. December 1, 1994 In November some cash was put into a two month CD and a three month CD and a six month CD. Interest rates are expected to go up in the near term. We will be as defensive as possible in anticipation of that. Overall we are defensive. Yada stated he would try to get a portfolio manager to a meeting in January or February, 1995. Yada also stated that he would be devising a questionnaire for board members. DECEMBER FIREMEN'S PENSION BOARD MEETING Reagan stated that the next scheduled meeting is December 22. He suggested the Board not meet until January 26, 1995. Reagan, seconded by Judy, made a motion to approve the pension list for January, 1995. The motion was approved unanimously. ADJOURNMENT The meeting adjourned at 11:15 a.m. /n 4 i FIREMEN'S RELIEF AND PENSION FUND FEBRUARY 1995 FRED HANNA TREASURER THE FOLLOWING ARE THE OBLIGATIONS OF THE FIREMEN'S RELIEF FUND FOR THE MONTH OF FEBRUARY 1995 YOU ARE HEREBY INSTRUCTED TO ISSUE CHECKS TO THE PAYEES, IN THE AMOUNTS SHOWN, AND FOR THE PURPOSE SO STATED. EMP# NAME 43 BAIRD, RICHARD H. 1 BARNES, ELIZABETH 2 BLACKARD, PAUL 63 BOLAIN, ANN 44 BOUDREY, BETTY MRS. 45 BOUDREY, HOWARD 49 BOUDREY, JACK 4 CARL, FLOYD JR 5 CASELMAN, ARTHUR 57 CATE, ROY 6 CHRISTIE, ARNOLD 7 COLE EVERETT 8 COUNTS, WAYNE 61 DAVIS, BEULAH F. 10 DEARING, EMMA MRS. 11 FARRAR, ALONZO 38 FRALEY, JOSEPH G. 33 HARRIS, BILL C. 34 HARRIS, JAMES E. 47 JUDY, DARRELL 37 KING, ARNOLD D. 54 KING, ARVIL 12 LANE, HOPE MRS 13 LAYER, MERLIN 14 LEE, HAROLD 51 LEWIS, CHARLES 60 LEWIS, MARVIE 55 LEWIS, ROGER 40 LOGUE, PAUL D. 50 MASON, LARRY 39 MC ARTHUR, RONALD A. 35 MC CHRISTIAN, DWAYNE 15 MC WHORTER, CHARLES 29 MILLER, DONALD 42 MOORE, JAMES H. 17 MORRIS, WILKIE MRS. 16 MORRIS, WILLIAM H. 62 MORRISON, ELIENE 48 MULLENS, DENNIS W. 58 OSBURN, EDWARD 46 OSBURN, TROY 53 POAGE, LARRY 20 POLLY, GRACE A. MRS. 22 REED, JOE 30 SCHADER, EARVEL 41 SCHADER, TROY 23 SKELTON, BURL L. 24 SKELTON, LEE 56 SKELTON, ROY 36 SPRINGSTON, CARL 25 STOUT, ORVILLE 27 TUNE, MILDRED MRS. GROSS FED. TAX 916.20 100.00 45.00 55.00 55.00 1,266.21 66.21 1,066.66 837.68 287.68 45.00 75.00 909.50 45.00 375.00 32.50 55.00 377.50 50.00 707.84 953.38 100.00 55.00 55.00 837.68 828.42 100.00 1,131.00 130 00 45.00 417.50 55.00 837.68 439.16 439.17 15469.38 175.00 829.35 29 35 891.62 100.00 55.00 30.00 885.14 50.00 863.01 125.00 55.00 45.00 60.00 70.00 1,114.11 1,284.63 160.00 965.81 65.81 1,201.98 200.00 45.00 55 00 915.78 783.74 20.00 692.50 42.50 390.00 1,626.02 126.02 609.88 590.36. 50.00 70.00 ST. TAX NET 816.20 45.00 55.00 55.00 1,200.00 1,066.66 50.00 500.00 45.00 75.00 909.50 45.00 342.50 55.00 377 50 50.00 707.84 10.00 843.38 55.00 55.00 837 68 10.00 718.42 1,001.00 45.00 417.50 55.00 837.68 439.16 439.17 20.00 1,274.38 800.00 791.62 25.00 835.14 738.01 55.00 45.00 60.00 70.00 1,114.11 1,124.63 900.00 30.00 971.98 45.00 55.00 915.78 763.74 650 00 390.00 50.00 1,450.00 609.88 540.36 70.00 26 TUNE, JESS 28 WATTS, DONALD 59 WATTS, WAYNE 52 WRIGHT, RANDALL 70.00 400.00 921.17 877 68 96.17 150.00 70.00 400.00 825.00 727 68 30,812.74 2,236.24 170.00 28,406.50 WE, THE UNDERSIGNED, DO SOLEMNLY SWEAR THAT THE ABOVE OBLIGATIONS ARE JUST AND CORRECT; THAT NO PART THEREOF HAS BEEN PREVIOUSLY PAID; THAT THE PENSION PAYMENTS SO CHARGED ARE IN ACCORDANCE WITH THE ACTIONS OF THE BOARD OF TRUSTEES OF THE FIREMEN'S RELIEF AND PENSION FUND; THAT THE SERVICES OR SUPPLIES FURNISHED, AS THE CASE MAY BE, WERE ACTUALLY RENDERED OR FURNISHED; AND THAT THE CHARGES MADE THEREFORE DO NOT EXCEED THE AMOUNT ALLOWED BY LAW OR THE CUSTOMARY CHARGE FOR SIMILAR SERVICES OR SUPPLIES. /11/4"4"- S RETARY CHAIRMA ND PRESIDENT ACKNOWLEDGEMENT STATE OF ARKANSAS ) COUNTY OF WASHINGTON) )SS •, SWORN TO AND SUBSCRIBED BEFORE ME THISISTDAY , 199X NOTARY PUBLIC 7 •. MY CS3MMISSION EXPIRES• AtY I L -2. -le 199(o gi .'v 6z = '. 4:- *I rr '� .d LOCAL PLAN DROP HAS BEEN ADOPTED BY: 12/15/93 Springdale Fire (has rescinded) Texarkana Fire Texarkana Police Stuttgart Fire Stuttgart Police Blytheville Fire Paragould Fire Jacksonville Fire Rogers Fire Conway Poli Little Rock Police -iv rnve Jonesboro Fire Searcy Fire Ft. Smith Fire Ft. Smith Police 'Pine Bluff Fire 1/5/94. Benton Fire 1/10/94 Jonesboro Police Van Buren Fire 1/18/94 Bentonville Fire 5/11/94 RECEIVED 1 -2(o -q5 CITY CLERK'S OFFICE. i As Engrossed: 344/93.3/9/93 1 State of Arkansas ACT 10^ 0 41993 A 79th General Assembly Bill 3 Regular Session, 1993 4 By. Representatives Mulienic, Blair, Hendrix, and Pollan 6 7 For An Act To Be Entitled RECEIVED -Zc,o-P5 CITY CLERK'S OFFICE HOUSE BILL 1624 8 "AN ACT TO ESTABLISH THE ARKANSAS FIRE FIGHTERS DEFERRED 9 RETIREMENT OPTION PLAN; AND FOR -OTHER PURPOSES." 10 11 Subtitle 12 "AN ACT TO ESTABLISH THE ARKANSAS FIRE FIGHTERS DEFERRED 13 RETIREMENT OPTION PLAN." 14 15 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF. ARKANSAS: 16 17 SECTION 1.. Deferred retirement option plan. - " 18 (a) In lieu of terminating employment and accepting a service 19 retirement pension pursuant to Arkansas Code §§ 24-11-801 et seq , any full 3) paid fire fighter who is a member of a firemen's pension and relief fund who 21 has not less than twenty (20) years of credited service and who is eligible to receive a service retirement pension may elect to participate in the Arkansas 23 Fire Fighters Deferred Retirement Option Plan and defer the receipts of 24 benefits in accordance with the provisions of this act,. providedthe local 25 fireman's pension and relief fund board of trustees approves the participation 26 in the plan. 27 (b) For purposes of this act, credited serviceshall include service 23 0 credit recognized pursuant to Arkansas Code is 24-11-801 et seq. (c). The duration of participation in the Arkansas Fire Fighters Deferred Retirement. Option Plan for active -full paid fire fighters shall not 31 exceed five (5) years. At the conclusion of a member's participation in th '. Arkansas Fire Fighters Deferred Retirement Option Plan, the member shall terminate employment with all participating municipalities as a fire fighter and shall start receiving the member's accrued monthly retirement benefit f$om the firemen's pension and relief fund. (d) When a member begins participation in the Arkansas Fire Fighters 1- r a a mak263 • As Engrossed: 3/4/93 3/9/93 HB 1624 1 Deferred Retirement Option Plan, the contribution of the fire fighter and the 2 employer contribution shall continue to be paid. Municipal matching 3 contributions for employees who elect the Arkansas Fire Fighters Deferred 4 Retirement Option Plan shall be credited equally to the firemen's pension and 5 relief fund and to the Arkansas Fire Fighters Deferred Retirement Plan. The 6 monthly retirement benefits that would have been payable had the member 7 elected to cease employment and receive a service retirement shall be paid 8 into the Arkansas Fire Fighters,Deferred Retirement Option Plan Account. 9 (e)(1) The member's monthly retirement benefit shall not change, unless 10 the plan receives a benefit increase. 11 (2) A member who participates in this plan shall earn interest at 12 a rate of two (2) percentage points below the rate of return of the investment 13 portfolio of the firemen's pension and relief fund, but no less than the 14 actuarialassumed interest rate as certified by the actuary. The interest. 15 shall be credited to the individual account balance of the member on an annual 16 basis. 17 (f) A participant in the plan shall receive at the option of -the 18 participant, a lump sum payment from the_account equal to the payments to the 19 account, or a true annuity based upon the account of the participant or may 20 elect any other method of payment if approved. by the board of trustees. 21 (g) If the participant dies during the period of participation in the 22 plan, a lump sum Payment equal to the account balance of the participant shall 23 be paid. 24 25 SECTION.2. All provisions of this act of general and permanent nature 26 are amendatory to the Arkansas Code of 1987 Annotated and the Arkansas Code 27 Revision Commission shall incorporate the same in the Code. 28 29 SECTION 3. If any provisions of this act or the application thereof to 30 any person os-circumstaace is held invalid ,-the---invalidity shall not affect 31 other provisions or applications of the act which can be given effect wit 32 the invalid provisions or application, and to this end the provisions of this 33 act are declared to be severable. —13 SECTION 4. Al]. laws and parts of'laws in conflict with this act are 36 hereby repealed. • mak263 •.. • 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 u.'.J I 2 33 As Engrossed: 3/4193 3/9/93 HB 1624 /s/Ted E. tfullenix,. et al XC.''OVED a( GOVE. • 34 v m C 35 a' mak263 4 .: • ' TD ARKANSAS FIRE & POLICE PENSION REVIEW BOARD August 11, 1993 To: All Interested Parties From: Arkansas Fire and Police Pension Review Board Subject; Adoption of Board Rule f10 P.O. DRAWER 341 64 LITTLE ROCK. ARKANSAS 72203 TELEPHONE (501) 324-9495 FAX: (501) 324-9497 On June 10, 1993 the Arkansas Fire and Police Pensicn Review Board adopted Proposed Board Rule #10 for hearing and consider- ation. A hearing on this Proposed Board Rule was held on July 14, 1993 and many comments were received by the Board. As a result of the comments received and further consideration, the Arkansas Fire and Police Pension Review Board has adopted Board Rule #10 to be effective August 13, 1993. The following changes were made from the Proposed Board Rule: 1. Change in Format. The proposed rule was in a question and answer format. The 'format has been changed to the format most normally used by state agencies in issuing regulations. This change in format was made so as not to alter the mean- ing of the proposed rule except as noted below. 2. Specific Administration Rules Removed. Many comments were received by the Board as to the extent of theirauthority to make rules that were as detailed as the proposed rule. An effort was made to allow the local boards the freedom to operate and, at the same time, give guidance to the plans who would appreciate the assistance. Although the Board believes that all aspects of the proposed rule deal with the level of benefits or funding issues, only the most signifi- cant aspects have been left intact. All other sections have been removed and made a part of a set of sample administrative rules which will be deemed appropriate by the Pension Review Board. One suggestion made at the hearing was that plans who wish to draft their own administrative rules do so, and, file those rules with the Pension Review Board. The final rule incorporates this suggestion. Adoption Notice p. I RECEIVED I-2(a-q5 I Y CLERK'S OFFICE 3/11/93 Fnal 3 Disability Benefits.. There were several different view- points about the treatment of disability benefits. The pro- posed rule did not permit disability retirement during the DROP period. Some commentators suggested that a person be allowed to receive a disability retirement and their DROP account. The final rule allows a local pension board to provide disability benefits pursuant to existing law. Inquiries concerning this Board Rule should be directed to Cathyrn Hinshaw, Executive Director, Arkansas Fire and Police Pension Review Board, at (501) 324-9495. • Cathyrn Hin awl Executive Director Arkansas Fire and Police Pension Review Board Adoption Notice p, 2 8/11/93 Fuel ARKANSAS FIRE AND POLICE PENSION REVIEW BOARD BOARD RULE #10 Administration of DROP Accounts SECTION 1. Purpose 2. Authority 3. Effective Date and Applicability 4. Local Election of DROP Program 5. Accumulation of DROP Account 6. Employee Contributions 7. Interest Rate Certification 8. Conclusion of the DROP Period 9. Death Benefits 10. Distribution of DROP Account 11. Actuarial Equivalence and Interest Equivalence 12. Reporting Requirements SECTION 1. Purpose The purpose of this Board Rule is to describe the administration of the Deferred Retirement Option Plan (DROP) as it affects the • benefit levels and funding of the pension funds., Act 757 of 1993 established the DROP for police officers. Act 1004 of 1993 established the DROP for paid firefighters. Both of these Acts are effective on August 13, 1993. • SECTION 2. Authority This Board Rule is promulgated by the Arkansas Fire and Police Pension Review Board by the authority of Arkansas Code Annotated §24-11-203. SECTION 3. Effective Date and Applicability This Board Rule is effective on August 13, 1993 and is applicable to all firefighter and police pension funds that elect to imple- ment the DROP. SECTION 4. Local Election of DROP Program Act 757 and Act 1004 make the DROP a local option. If the local pension board wishes to make it available to its members, the local pension board must vote to do so. If a local pension board does elect to make the DROP an option, a copy of the board reso- lution to elect the DROP and a copy of the local pension board's Board Rule #10 P 1 - 8/11/93 Fusel • • • rules to administer the DROP must be filed with the Arkansas Fire and Police Pension Review Board. The local pension board's rules must comply with this Board Rule #10. SECTION 5. Accumulation of DROP Account Each individual member's DROP account is credited with the fol- lowing items during the DROP period: A. DROP Payments. The DROP account is credited each month of the DROP period with the DROP payments. The amount of the DROP payment is equal to the amount of monthly benefit that would have been received by the member if they had elected service retirement on the first day of the. individual's DROP period. B. Employer Contributions. One-half of the employer matching contributions are credited to the DROP account. That is, for firefighter plans and police plans that do not partici- pate in Social Security, 3% of current salary. 2% of cur- rent salary is added to the DROP account for police plans thatparticipate in Social Security. Plans that have voluntarily agreed to a rate higher than 6% would contribute one-half of that amount. C. Interest. Interest is to be credited to the DROP account. The interest rate to be used is defined_in Section 7 of this Rule. SECTION 6. Employee Contributions The member continues to make employee contributions during the DROP period. These employee contributions are credited to the pension plan and not to the individual's DROP account. SECTION 7. Interest Rate Certification The rate of interest that is to be credited to the DROP accounts is to be certified by the actuary for the Arkansas Fire and Police Pension Review Board. The Pension Review Board will com- municate the necessary information from the annual reports that are submitted to it to the actuary for the Pension Review Board. The actuary will then from time to time issue a list of local plans which have.elected..participation in the DROP and the certi- fied interest rate for the DROP. Board Rule #10 13:2 8/11/93 Fuel SECTION 8. Conclusion of the DROP Period 411 A. Time of Conclusion of the DROP Period. The DROP period will conclude at the date of termination of employment but no later than 5 years after the date that the individual member began participation in the DROP. Termination of employment means leaving the employment of the department for any rea- son. B. Distribution of the DROP Account. At the conclusion of the DROP period the DROP account will be distributed. This dis- tribution is described in Section 10 of this Rule. C. Retirement Benefit. The monthly benefit that will be received by the member after the DROP period is the retire- ment benefit as calculated at the date the member began his DROP. The monthly benefit does NOT change after the DROP period. This same monthly amount is now paid to the indi- vidual member instead of into the DROP account. The retirement benefit at the end of the DROP period - Does NOT, change with increases in salary during the DROP period; - Does NOT change with extra service during the DROP period; - Is the SAME amount as was being credited to the DROP account. There are two exceptions: The age 60 bonus (based on having over 25 years of service earned before the DROP period) starts at age 60; Any retiree raises granted to all retir- ees, or overall benefit increases, may also be given to persons on DROP. Disability Benefits. The provisions of these rules do not restrict a local board's authority to provide for disability retirement benefits of DROP participants pursuant to exis- ting law. SECTION 9. Death Benefits If a member of a fire or police department dies during the period of participation in the DROP, a lump sum payment equal to the balance of the DROP account will be paid pursuant to Act 757 or Act 1004 of 1993. The widow's benefit will be paid pursuant to existing law. SECTION 10. Distribution of DROP Account A member who. has a DROP account must be allowed to choose to receive his or her DROP account as either a lump sum or a true annuity, as described below. At the option of the local pension board, other forms ofdistribution may also be offered. Board Rule #10 P. 3 8/11/93 Final A. Lump Sum. A lump sum amount equal to the accumulation of the DROP account as defined in Section 5 of this Rule, as of the date of the conclusion of the DROP period. B. True Annuity. A true annuity is payable'monthly during the lifetime of the member only. If the true annuity is not purchased from an insurance company licensed to do business in the State of Arkansas, the monthly amount of the true annuity can be paid out of the pension fund. In this case, the monthly amount is the actuarial equivalent of the lump sum in A. above. Actuarial equivalence is defined in Sec- tion 11. - C. Other Forms. The local pension board may choose to distrib- ute the DROP account in other forms of payment. Any other forms that might be made available must meet the following rules: 1. If the form of payment involves the life expectancy of individual or individuals, then either, an appropriate annuity must be purchased from an insurance company licensed to do business in the State of Arkansas, or any a) b) the amount is paid out of the pension fund, and the amount is the actuarial equivalent of the lump sum in A. above. 2 For all must be above. other forms of payment, the interest equivalent Interest equivalence is the amount of payment of the lump sum in A. defined in Section 11. SECTION 11. Actuarial Equivalence and Interest Equivalence Actuarial equivalence as used in this Board Rule means that the amounts produce the same lump sum based on the 1971 Group Annuity Mortality Table with 6% interest. Interest equivalence as used in this Board -Rule means that the amounts produce the same lump sum based on an interest rate or rates of not less than 6%. SECTION 12. Reporting Requirements Thefinancial and member information required to be reported annually will be supplemented by a detailed listing of each mem- ber currently on DROP and the amount of their DROP account as of the end of the current reporting period. The Pension Review Board has the right to request additional information concerning the calculation of the DROP account. Board Rule *10 P. d 8/11/93 Feud ARKANSAS FIRE AND POLICE PENSION REVIEW BOARD Administration of DROP Accounts Sample Rules for Local Pension Boards with Common Questions and Examples SECTION 1. Local Election of DROP Program 2. Individual Member Election of the DROP Option 3. Accumulation of DROP Account 4. Employee Contributions 5. Interest Rate Certification 6. Location and Administration of DROP Funds 7. Conclusion of the DROP Period 8. Disability Benefits 9. Distribution of DROP Account 10. Reporting Requirements 11. Tax Information Attachment 1 Resolution to Elect Participation in the DROP Attachment 2 Individual Member Election Form for DROP Attachment 3 Actuarial Equivalence Factors • SECTION 1. Local Election of DROP Program A. Cost of DROP The pension board understands that adding the DROP option may increase the cost of the pension plan. New factors affecting cost may be activated by the adoption of the DROP provision. Some of these factors include present plan provisions, age and service when DROP is elected by a member, and the relationship between pay when DROP is elected and pay at the time of actual retirement. B. Resolution. In accordance with Attachment 1 to these rules is an executed resolution adopting the DROP program SECTION 2. Individual Member Election of the DROP Option A. .Fliaibility. The DROP is a retirement option and can be elected when a member is eligible for service retirement; that is, anytime after attaining 20 years of service. Sample DROP Ruld p.1 8111/93 Anal C. Election Form. Attachment 2 .of these rules is an election form for the member. This form must be completed at least 30 days prior to the member beginning the DROP. When an individual elects the DROP they have agreed to two important items: First, they have fixed their retirement benefit at the amount they would receive if they retired normally at this time. The retirement benefit will }OT change during the DROP period and will NOT change when the member actually quits the department. In other words, when you go on DROP, the monthly retirement youdraw will be fixed at that time and will never' change, even when you actually retire. The member's benefit will NOT increase because of increased pay. The benefit will NOT increase because of the extra service. 'There are two exceptions: The age 60 bonus (based on over 25 years of service earned before the DROP period) starts at age 60; Any retiree raises granted to all retirees, or over- all benefit increases, are also given to persons on DROP. Second, they have agreed that they will be in the employ of the department for a period not to exceed 5 years. .. Optional. The DROP is an option in lieu of normal retire- ment benefit. A member is not required to go on DROP. This is an option that MAY be elected by a member. SECTION 3. Accumulation of DROP Account Each individual member's DROP account will be credited with the following items during the DROP period: A. DROP Payments. A member's DROP account will be credited monthly for the amount of the retirement benefit at the time the DROP is elected. These amounts are credited to the DROP. account at the end of each month. For example, an officer whose final salary is $3,000 per month with exactly 20 years of service, who is a member of a standard police pension plan, would have 50% or $1,500 per month credited to his DROP account. This member would begin receiving this same $1,500 per month at the end of the DROP period. All increases earned at the time DROP is elected are reflected in the DROP payments. For example, if the above officer had 27 years of service his benefit would be: ($3,000 X 50%) + (5 X $20) = $1,600. When he reaches age 60 his payment will be increased by (2 X 1.25% X $3,000) = $75 to $1,675. Sample DROP Rules 8/11/93 Final • • Question: What if our pension plan receives a benefit increase during the DROP period? Answer: There is an exception in the laws that would apply if the entire plan increased benefits under the usual procedure when the Arkansas Fire and Police Pension Review Board approves the increase. For example, if the pension plan:. received approval for a benefit increase to a base benefit of 60% of salary, the DROP payment in the example above would increase to 60% of $3,000 or $1,800 per month. This member would begin receiving this same $1,800 per month at the end of the DROP period. B. Employer Contributions. One-half of the employer matching contributions are credited to the DROP account. That is, for firefighter plans and police plans that do not partici- pate in Social Security, 3% of current salary. 2% of cur- rent salary is added to the DROP account for police plans which participate in Social Security. Plans that have voluntarily agreed toa rate higher than 6% would contribute one-half of that amount. These amounts will be credited to the DROP account at the end of each month. C. Interest. Interest is to be credited to the DROP account at the end of each year. One year's interest is credited to the beginning of the year's balance in the DROP account. No interest is credited to the activity during the year. No interest will be credited for the year that the DROP account is distributed. Question: Can you give an example of how the DROP account accumulates? Answer: Let's use the example of the police officer with exactly 20 years of service. The pension plan is standard, that is, 50% of final salary. They do not participate in Social Security. The officer's final salary is $3,000 per month. For this example, assume the salary does not change during the DROP period. He remains on DROP for 3 years (i.e., 36 months). _Monthly DROP amount. =5o% of $3,000 = $1,500 per month 1/2 city match = 3% of $3,000 = $90 per month Sample DROP Rules P. 3 8111193 Final • DROP payments=36 X $1,500 City Match=36 X $90 Interest DROP account at end of 36 months. $ 54,000 3,240 2.324 $ 59,564 Question: Can you give an example of the method of crediting interest? Answer: Assume the following facts. December 31, 1993 DROP balance 94 DROP payments 12 X $1,350 94 City match 12 X $81 • Interest rate The interest credited for 1994 is December 31, 1994 DROP balance 95 DROP payments 95 City match 95 Interest rate The interest credited for 1995 SECTION 4. Employee Contributions is $ 10,000 16,200 972 7% $ 10,000 X 7% $ 700 $ 27,872 16,200 972 6% $ 27,872 X 6% $ 1,672 The member continues to make employee contributions at the same rate. These employee contributions are credited to the pension plan and not to the member's DROP account. SECTION 5. Interest Rate Certification The rate of interest that is to be credited to the DROP accounts is to be certified by the actuary for the Arkansas Fire and Police Pension Review Board. SECTION 6. Location and Administration of DROP Funds A member's DROP account remain a part of the pension fund until itis distributed. Sample DROP Rules p. 4 8/11/93 Foul • • • Question: Answer: Question: Answer: Does the plan have to maintain separate and/or dis- tinct assets for the DROP accounts? No. The assets of the members'. DROP accounts are commingled with the other pension assets. The DROP accounts are simply liabilities of the plan, and are accounted for separately. DROP accounts are book- keeping items and should not affect the investment of the pension fund. Where is the DROP account administered? The DROP accounts remain part of the local pension fund during the DROP period. The amount of each DROP account is calculated separately for each mem- ber who has elected the DROP. SECTION 7. Conclusion of the DROP Period The rules regarding the time of conclusion of the DROP period, the distribution of the DROP account, and the amount of the retirement benefit at the end of the DROP, will be the same as those under Board Rule 110 of the Arkansas Fire and Police Pen- sion Review Board. Question: What happens if the individual dies during the DROP period? Answer: Death benefits are paid per section 9 of Board Rule 110. One section of the member DROP election form allows the member to name a beneficiary. If a mem- ber dies during the DROP period, the named benefi- ciary would receive the balance of the DROP account in a lump sum payment. The member's widow (if there is one) would begin to receive the normal widow's benefit based on the benefit at the time the DROP was elected. If there is no living beneficiary then the DROP account would be paid to the deceased's estate. Question: 'What happens if the individual leaves the department during the DROP period? Sample DROP Rules P. 5 8/11/93 Fusel • • Answer: A member who leaves the department after electing the DROP option but before the five years have expired would begin receiving the same monthly retirement amount that had been going into the DROP account. They would also receive the DROP account either as a lump sum or as an annuity as discussed later in these rules. SECTION 8. Disability Benefits If a member of a fire or police department becomes disabled dur- ing the DROP period, and if he is otherwise entitled to a dis- ability retirement, he may elect a disability retirement upon approval by the local pension board. If such disabled member elects to receive a disability retirement, then he will not receive his accumulated DROP account, but will instead be consid- ered a disability pensioner who never went on DROP. Question: Can you give an example of how the disability bene- fit works? Answer: Let's use the following assumptions in looking at an example of a duty related disability. This example assumes that the member was disabled at age 50 after 3 years on DROP. Assume he elected DROP at exactly 20 years of service and was earning $30,000 per year at the time. DROP payments 50% X $30,000 X 3 City match 3% of salary per year Interest credited DROP account at the end of 3 years True annuity factor Additional benefit from DROP account Benefit at end of DROP period Equivalent monthly benefit $ 45,000 2,700 2.919 $ 50,619 X .0065144 $ 329.75 1,250.00 $ 1,579.75 Salary at date of Duty Disability $ 34,000 65% of salary for duty disability X .65 "Regular" disability benefit $ 22,100 This member benefits from the disability benefit normally provided by the pension fund. Therefore, after the disability application is approved by the pension board, he would begin to receive $1,841.67 per month. He would not receive his DROP account. Sample DROP Rulea P. 6 8/11/93 Fuel • SECTION 9. Distribution of DROP Account A member who has a DROP account must be allowed to -choose to receive his or her DROP account as either a lump sum or a true annuity, as described below. A table of conversion factors for a true annuity are given as Attachment 3. A. Lump Sum. A lump sum amount equal to the accumulation of the DROP account as defined in Section 5 of these rules as of the date of the conclusion of the DROP period. B. True Annuity. A true annuity is payable monthly during the lifetime of the member only. If the true annuity is not purchased from an insurance company licensed to do business in the State of Arkansas, the monthly amount of the true annuity will be paid out of the pension fund. In this case, the monthly amount is the actuarial equivalent of the lump sum in A. above. The factors in Attachment 3 will be used. Question: Can you give an example of converting to an annuity? Answer: We are given the following situation. DROP elected September 1, 1993 DROP payments (based on $3,000/mo pay) Police plan participating in Soc. Sec. 93 City match payments ($3,000/mo pay) 94 City match payments ($3,040/mo pay) 95 City match payments ($3,162/mo pay) 96 City match payments ($3,288/mo pay) 97 City match payments ($3,420/mo pay) 98 City match payments ($3,556/mo pay) Interest rate all years (Method 1) DROP account balance 12/31/93 DROP account balance 12/31/94 DROP account balance 12/31/95 DROP account balance 12/31/96 DROP account balance 12/31/97 DROP account balance 8/31/98 Final Age nearest birthday of 55 on 8/31/98 DROP converted to monthly benefit Retirement benefit Total monthly income beginning 9/1/98 NOTE: If this member had NOT gone on the DROP, his retirement benefit on 9/1/98 would be based on $3;556 per month pay and would be: Sample DROP Rulea P. 7 $ 1,500.00/mo. 240.00 729.60 758.88 789.12 820.80 568.96 6* $ 6,240.00 25,344.00 45,623.52 67,150.05 89,999.85 102,568.81 X 0.0070869 726.90/mo. 1.500.00/mo. $ 2,226.90/mo. $ 1,878.00/mo. 8/11/93 Final S • Question: What would be 'paid when the member in the above example dies (after 9/1/98)? Answer: The $726.90 increment from the DROP stops since the true annuity has no widow benefit. If the retiree had an eligible spouse,' she would receive $1,500 per month, assuming the plan qualifies for the ACT 397 widow's benefit. Question: Does the plan have to purchase an annuity from an Insurance Company at the end of the DROP period? Answer: No, the DROP account is converted to a monthly bene- fit and the separate DROP accounting is no longer necessary. The money leaves the plan as the calculated monthly increments are paid to the retired member. SECTION 10. Reporting Requirements The financial and member information required to be reported annually will be supplemented by a detailed listing of each mem- ber currently on DROP and the amount of their DROP account as of the end of the current reporting period. SECTION 11. Tax Information The Arkansas Fire and Police Pension Review Board and the Board of Trustees of this Pension Fund assume no responsibility for any adverse tax consequences which may accrue to a participant in the DROP. Participants in this plan are encouraged to seek advice from their own tax advisors prior to enrolling for participation in this plan. If the Internal Revenue Service determines that the DROP is not a qualified deferred compensation plan, a partic- ipant may have liability for not only the tax due on the funds deposited in their DROP account, but also substantial penalties and interest may be applicable. The Arkansas Fire and Police Pension Review Board and the Board of Trustees of this Pension Fund assume noliability for such adverse consequences. Sample DROP Rules P. 8 8/11/93 Final • Attachment 1 RESOLUTION TO ELECT PARTICIPATION IN THE ARKANSAS POLICE OFFICERS DEFERRED RETIREMENT OPTION PROGRAM Whereas, Act 757 of 1993 established the Arkansas Police Officers Deferred Retirement Option Program pursuant to the approval of the local pension board; Whereas, this local pension board believes that it is to the advantage of the members ofthis pension plan and of benefit to our municipality for this option to be made available to our members; It is therefore resolved, that the Board of Trustees of the City of Police Pension and Relief Fund approves and elects that this plan have the Deferred Retirement Option described in Act 757 of 1993 available to its members. The Board of Trustees, in electing to participate in this plan, agree to abide by the following: 1. The Deferred Retirement Option Program (DROP) will be made available to all members of the plan who are eligible. 2. The DROP account will be maintained as a part of the total pension fund. 3. The DROP accounts will be administered accord- ing to Arkansas Fire and Police Pension Review Board Rule #10 and rules adopted by the Board of Trustees. 4. Once the DROP account is elected, a member's monthly retirement cannot increase due to pay raises or extra years of service worked. That is, the monthly payments made to the member at the end of the DROP period will be the same as the amount of monthly payment into the DROP account. Sample DROP Rules P. 9 8/11/93 Final • Attachment 1 (continued) There are two exceptions: Raises given. to retirees are given to members 'on DROP; Age 60 bonuses still apply to members who have .over 25 years of service when they go on DROP. . 5. A copy of this signed resolution will be filed with the Arkansas Fire and Police Pension Review Board. This election may be effective on the date of resolution, but no earlier than August 13, 1993. • DATE Chairman Secretary/Treasurer Member Member Member Member Member 411 Sample DROP Rulea p. 10 8/11/93Final Attachment 1 RESOLUTION TO ELECT PARTICIPATION IN THE ARKANSAS FIREFIGHTERS DEFERRED RETIREMENT OPTION PROGRAM Whereas, Act 1004 of 1993 established<the Arkansas Firefighters Deferred Retirement Option Program pursuant to the approval of the local pension board; Whereas, this local pension board believes that it is to the advantage of the members of this pension plan and of benefit to our municipality for this option to be made available to our members; It is therefore resolved, that the Board of Trustees of the City of Firefighters Pension and Relief Fund approves and elects that this plan have the Deferred Retirement Option described in Act 1004 of 1993 available to its members. The Board of Trustees, in electing to participate in this plan, agree to abide by the following: 1. The Deferred Retirement Option Program (DROP) will be made available to all members of the plan who are eligible. 2. The DROP account will be maintained as a part of the total .pension fund. 3. The DROP accounts will be administered accord- ing to Arkansas Fire and Police Pension Review Board Rule #10 and rules adopted by the Board of Trustees. 4. Once the DROP account is elected, a member's monthly retirement cannot increase due to pay raises or extra years of service worked. That is, the monthly payments made to the member at the end of the DROP period will be the same as the amount of monthly payment into the DROP account. Sample DROP Rules • p. 11 8/11/93 Final Attachment 1 (continued) There are two exceptions: Raises given to retirees are given to members. 'on DROP; Age 60 bonuses still apply to members who have over 25 years of service when they gd on DROP-. A copy of this signed resolution will be filed with the Arkansas Fire and Police Pension Review Board. This election may be effective on the date of resolution, but no earlier than August 13, 1993. DATE Chairman Secretary/Treasurer Member Member Member Member Member Sample DROP Rules p. 12 8/11/93 Final Attachment. 2 Arkansas Fire and Police.Local Plans Deferred Retirement Option Plan (DROP) Member Election Form I hereby elect the DROP as my retirement. benefit option from the Pension Plan in place of the normal retirement benefit. I under- stand that in electing the DROP I have agreed to the following statements: 1." The amount -of the DROP payments will be $ per month. This amount includes all service and age 60 bonuses that I have earned to this date. This amount is the same as if I retired today. 2." I understand that the monthly benefit that I will receive at the end of the DROP period is the exact same amount stated in item 1, regardless of any pay raises I receive or extra years of service I may work. 3. I understand that at the end of the DROP period I will have the option to receive the DROP account as a lump sum or convert the DROP account to a monthly annuity amount. 4. I understand that the DROP account will remain in the pension fund until I leave the department. I do not have the ability to withdraw from the DROP account until the time of my departure. I have elected to begin the DROP on The DROP will end at the earlier of when I resign or (5 years from above date). 6. I understand that neither the pension fund or the depart- ment has given any tax advice concerning the way the DROP account is taxed. I have or will consult my own tax advisor for this information. "Two exceptions to these rules: Age 60 bonuses (for members with over 25 years of service when they go on DROP) begin at age 60 whether still on DROP or not; Raises given to retirees are also given to DROP participants. Member signature Plan Representative Sample DROP Rules Date Date p. 13 8/11/93 Foal • Attachment 2 (continued) Arkansas Fire and Police Local Plans Deferred Retirement Option Plan (DROP) Member Election Form - DESIGNATION OF BENEFICIARY I hereby designate the following beneficiary to receive any bene- fits from the DROP plan if I die prior to my termination of employment: Signature of Member Date Please select one of the following: I certify that to the best .of my knowledge, the above named Member is single or that his spouse cannot be located. Signature of Plan Representative Date or Notary I certify that I have agreed with my spouse on the selection of the above beneficiary or beneficiaries. I understand that if I am not the named beneficiary, I will not be entitled to benefits under the Plan. Signature of Spouse Date I certify that I have witnessed the spouse's signature above. Signature of Plan Representative Date or Notary Samplo DROP Rules p. 14 8/11/93 Final Attachment 3 Arkansas Fire and Police Local Plans Deferred Retirement Option Program (DROP) Actuarial Equivalence Factors for converting the DROP account to a true annuity Factors for converting to a monthly annuity payable for the life. of the member only. Age nearest Bithday at End of DROP 46 47 48 49 50 51 52 53 54 55 56 57 58 Sample DROP Rules Multiply DROP account by this factor O .0061608 O .0062362 O .0063263 O .0064190 0.0065144 0.0066128 O .0067141 0.0068339 O .0069581 0.0070869 O .0072205 O .0073593 0.0075250 Age nearest Bithday at End of DROP 59 60 61 62 63 64 65 66 67 68 69 70 Multiply DROP account by this factor 0.0076984 O .0078800 O .0080704 O .0082702 O .0084996 O .0087420 O .0089987 O .0092709 O .0095602 0.0098656 O .0101912 O .0105390 p. I5 8111/93 Final