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
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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
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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
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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-
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mak263
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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.
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As Engrossed: 3/4193 3/9/93 HB 1624
/s/Ted E. tfullenix,. et al
XC.''OVED
a(
GOVE.
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mak263
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' 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