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Home My WebLink About1999-03-25 - Agendas - FinalFAYETTEV!LLE THE CITY OF FAYETTEVILLE, ARKANSAS • FIRE PENSION AND RELIEF FUND MARCH 25, 1999 AGENDA A regular meeting of the Fire Pension and Relief Fund will meeting on Thursday, March 25, 1999 at 11:00 a.m. in room 326 of the City Administration Building. 1. Approval of the minutes 2. Approval of the Pension List 3. Investment Report 4. Old Business 5. New Business 1. Drop Plan provisions 2. Calculations of annuities 3. Nominations for Pension Board 4. Discussion of proxies 6. Other 113 WEST MOUNTAIN 72701 501 521-7700 FAX 501 575-8257 • FIRE PENSION AND RELIEF FEBRUARY 25, 1999 MINUTES • A meeting of the Fayetteville Fire Pension and Relief Fund was held on February 25, 1999 at 11:00 a.m. in room 326 of the City Administration Building located at 113 West Mountain Street. PRESENT: Marion Doss, Darrell Judy, Bill Moore, Ron Wood, Heather Woodruff ABSENT: Mayor Hanna, Pete Regean. APPROVAL OF MINUTES Mr. Moore moved to approve the minutes of the last meeting. Mr. Judy seconded the motion. Upon roll call the motion carried unanimously. APPROVAL OF THE PENSION LIST Mr. Judy moved to approve -the pension list. Mr. Wood seconded the motion. Upon roll call the motion carried unanimously. INVESTMENT REPORT The Board reviewed the pension report. OLD BUSINESS Ms. Woodruff stated she had received the form the board had requested from Ashland management. NEW BUSINESS There was no new business OTHER Mr. Doss stated he had received a couple of settlement checks from a lawsuit. Meeting adjourned at 11:20 a.m. • • • Fayetteville Fire Dept. and Relief Fund Portfolio Performance 12/31/98 - 2/28/99 I41LAIVI Piivate Portfolio.Grotip` ,., (started 12/1/98) Income 12/31/97 ,47;4;15 12/31/98 .:4,565,099 .:5339,19f. Ashlan4 Asset Mgrnt ;j' 1,561;424 2,0.85,712 • i; 11,106,027 ' 11,990,002 3 Ivlonth Tsy Bills:, , DJ1A w/ Dividend Reinvest S&P 500 Index w/-DividendlRetnvest. Long Term Tsy. Bonds Htgh Glade Corp Bonds C.P.I. (Jan ) .MLA vI Private Portfolio, Giotipr' Income Account Ashland.Y&sset'Mgnt 12/31/97 • May 96 DOW Sep 14'7011:06: + 24.87 33..36 + 15.38 + 13;42.. + 1.7 12/31/98 5:23 + 18.12 • '+28.59 + 13.78 10.47 + 1.55 �2ab +.01 + 6.38 Prig. Investment 12/31/98 875=000 20/20'd LS239LS10Sl 01 1.09.600 5;000 F>'., ,'S j12. 942 • 2/28/99 4;552,041 5,262;795 '2.081;;976' 11,896,812 2/28/99 •+:0.93 + 1.61 - 4.43 3.14 + 0.24 0:28 - 1.42 :.. 0:18 1/31/99 5105;545 %.'S11,1,21.1 • yczz,cfy S27o 2z4 a, (23)0' HJNA1 YIIad3W 2J.3 SP:L0 SS,S2 ddW FAYETTEV.LLE THE CITY OF FAYETTEVILLE, ARKANSAS • DEPARTMENTAL CORRESPONDENCE • • • TO: HEATHER WOODRUFF FROM: DON BAILEY DATE: 3-4-99 SUB: DROP PLANS Heather, I thought I would share with you two items I received pertaining to' -DROP provisions. 1. An amendment to ACA 24-11-830 has been introduced in the Senate which would extend the participation period in the fire fighters pension DROP Plan to 10 years. If passed, this action will no doubt have acturial funding implications for the Plan. 2. An article in the IPMA publication calls into question possible conflicts with the Age Discrimination In Employment Act if the DROP. Plan language and associated documents are not properly drafted. You may wish to bring there items to the Board's attention. cc; Kevin Crosson • Bill Drafting Module • • 13 • http:// riw.arkleg.state.anus/ftproodbills/1999/htin/sb392.htm Stricken language would be deleted from and underlined language would be added to law as it existed prior to the 82nd 1 State of Arkansas 2 82nd General Assembly 3 Regular Session, 1999 4 5 By: Senator Bisbee 6 7 • 8 For An Act To Be Entitled A Bill 9 "AN ACT TO AMEND ARKANSAS CODE 24-11-850 (c) 10 CONCERNING PARTICIPATION IN TIM ARKANSAS FIRE 11 FIGHTERS' DEFERRED RETIREMENT OPTION PLAN; AND FOR 12 OTHER PURPOSES." • 14 Subtitle 15 "AN ACT CONCERNING PARTICIPATION IN THE 16 ARKANSAS FIRE FIGHTERS' DEFERRED 17 RETIREMENT OPTION PLAN." 18 19 20 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF ARKANSAS: 21 22 SECTION 1. Arkansas Code 24-11-830 (c) is amended to read as follows: 23 "(c)(1) The duration of participation in the Arkansas Fire Fighters' 24 Deferred Retirement Option Plan for active full -paid fire fighters shall not 25 exceed five (5) ten (10) years. 26 (2) At the conclusion of a member's participation in the Arkansas 27 Fire Fighters' Deferred Retirement Option Plan, the member shall terminate SENATE BILL • 1 of 3 2/16/99 f1:20 AM Bill Drafting Module • • http:/�vw.arklcg. state.ar.us/ftproot/bills/ 1999/htm/sb392. htm 28 employment with all participating municipalities as a fire fighter and shall 29 start receiving the member's accrued monthly retirement benefit from the 30 firemen's pension and relief fund." 31 32 SECTION 2. All provisions of this act of a general and permanent nature 33 are amendatory to the Arkansas Code of 1987 Annotated and the Arkansas Code 34 Revision Commission shall incorporate the same in the Code. 35 36 SECTION 3. If any provision of this act or the application thereof to — --------End of Page 1 1 any person or circumstance is held invalid, such invalidity shall not affect 2 other provisions or applications of the act which can be given effect without 3 the invalid provision or application, and to this end the provisions of this 4 act are declared to be severable. • 5 6 SECTION 4. All laws and parts of laws in conflict with this act are • 7 `hereby repealed. 8 9 10 SECTION 5. EMERGENCY CLAUSE. It is found and determined by the General t 11 Assembly that the Arkansas Fire Fighters' Deferred Retirement Option Plan 12 should be extended to allow firefighters to participate for ten (10) years; 13 that present law requires firefighters to terminate employment after five (5) 14 years of participation in the plan; and that this act must become effective 15 immediately to avoid forcing out firefighters who are nearing the current five 16 (5) year limit. Therefore. an emergency is declared to exist and this act 17 being immediately necessary for the preservation of the public peace, health 18 and safety shall become effective on the date of its approval by the Governor. 19 If the bill is neither approved nor vetoed by the Governor, it shall become 20 effective on the expiration of the period of time during which the Governor 2 of 3 2/16/99 8:20 AM BiII Drafting Module • • • 21 may veto the bill. If the bill is vetoed by the Governor and the veto is 22 overridden it shall become effective on the date the last house overrides the 23 veto. 24 25 26 27 28 29 30 31 32 33 34 • 35 36 • • • http:/(y�� v.arkleg.state.ar.us/ftprootmills/1999/htm/sb392.htm 3 of 3 2/16/99 8:20 AM ri R :1 fu Issues A Service of the International Personnel Management Association 1617 Duke Street, Alexandria, VA 22314 tel: 703-549-7100 fax: 703: 684-0948 Fax Finder: 800-549-FAX1 On -Line Access: http://www.ipma-hr.org/research/personnel.html Volume 23, Number 4 March 1, 1999 DROP Plans in the Workplace In recent years, many retirement plans, particularly those operated by state and local governments, have adopted some form of Deferred Retirement Option Plan (DROP). In its simplest terms, a DROP plan is an arrangement under which an employee who would other- wise be entitled to retire and receive benefits under an employer's defined benefit retirement plan instead contin- -es working. However, instead of having the continued compensation and additional years of service taken into account for purposes of the defined benefit plan formula, the employee has a sum of money credited during each year of the continued employment to a separate account under the employer's retirement plan. The account earns interest (either at a rate stated in the plan, or based on the earnings of the trust underlying the retirement plan). The account is paid to the employee, in addition to whatever benefit the employee has acquired under the defined bene- fit plan based on earlier years of service, when the employee eventually retires. To the extent that employers are initiating DROP Plans, the major reason is a concern about the ability to retain valued employees who are eligible to retire. Many gov- ernmental plans, either as a matter of plan design or due' to inadvertence, contain substantial incentives for employ- ees to retire early. For example, Employee X was making $20,000 a year by working full-time, yet could have received a $12,000 a year retirement benefit. Thus, she was getting only an extra $8,000 a year for working full- time over what she could have received for not working at all. Moreover, if Employee X had switched to ajob in the private sector, even one which paid only $15,000 per year instead of $20,000, she could normally have received the full $12,000 a year retirement benefit, in addition to her $15,000 salary. Thus, even though the pnvate employer paid her less, her total income would be $27,000 a year, instead of the $20,000 a year she would make in her public sector job. In some instances, an employer adopts a DROP as a result of pressure from employees or unions, or as a tool in labor negotiations. A DROP plan is often quite popular with employees. It enables those employees who may have "maxed out" on the benefit payable under a defined benefit plan to continue to accrue benefits. Even for those who have not maxed out, the rate of accrual is often more favorable than continued accrual under the defined benefit arrangement. In many instances, the DROP benefit is payable as a lump sum (always a popular feature with employees), while the defined benefit is available only as a lifetime annuity. In order for a DROP Plan to be successful, there must be a give and take between the employers and employees. As noted earlier, the DROP Plan enables an employer to retain valuable employees and enables the employee to accumulate a larger pension than would otherwise be payable under the existing defined benefit pension program. To the extent that (a) the decision to enter the DROP pro- gram is voluntary, (b) there is no maximum age limit for entering the DROP program, and (c) the DROP program is not being used as a subterfuge for getting rid of older employees, a DROP program alone would not create an ADEA violation, even though its effect would of course be to cause older employees (typically, the only ones eligible for DROP) to leave employment earlier than they otherwise might. • • However, certain features of a DROP program can cause ADEA issues. For example, if the program is available only between the earliest retirement age specified under the plan and normal retirement age, it would discriminate against employees based on how close they were to nor- mal retirement age. Similarly, if the DROP program were presented in a way which raised other ADEA issues (e.g., notifying older employees that if they did not accept it, they would likely be laid off anyway without the security of the DROP program), it might be part of a pattern which, as a whole, could raise ADEA issues. The fact that the employee who is participating in DROP has not retired can also raise questions under ADEA. For example, if the employee had actually retired, s/he would not normally be entitled to disability benefits if s/he became disabled. However, someone who remains an employee and participates in DROP could potentially get the full economic effect under the pension plan of having delayed retirement, while still being eligible for disability •benefits if s/he became disabled. At a minimum, employers should ensure that any employ- ee who accepts the DROP program is subject to a require- ment that if s/he terminates employment as of a certain date, the employee must sign an appropriate resignation letter (effective as of the proposed date of termination) as part of the process of obtaining the DROP benefit, and that such a letter complies with all of the ADEA require- ments for waiver of ADEA rights. And, of course, other employment practices must be examined to ensure that they do not combine with the DROP to create an ADEA violation. Moreover, many states have their own age discrimination statutes, in addition to ADEA. In general, the rule is that employees are entitled to their rights under ADEA and their rights under the state statute. Thus, an employer that complies with all the requirements of ADEA must still make sure that it complies with the corresponding provi- sions of applicable state law. • • DROP plans can be very attractive to both employers and employees. However, employers must recognize that some of the features which make DROP plans most effec- tive may also result in cost increases for the plan. And any DROP program must be carefully structured in order to avoid the various legal issues potentially presented. This information is taken from Carol V. Calhoun, Esq. Calhoun is a Shareholder with Conner & Winters PC, 1101 17th Street NW, Suite 606, Washington, DC 20036. She can be reached by phone at 202-753-5711 or e-mail: ccalhoun@cwlaw.com. You can also visit her web site at: http://www.erols.com/cicalhoun/index.hnnl. Ms. Calhoun specializes in employee benefits law. Arthur H. Tepfer, A.S.A., M.A.A.A., is president of Tepfer Consulting Group, Ltd., Northbrook, IL. • FAYETTEVILLE FIREMEN'S PENSION AND RELIEF FUND RULES AND REGULATIONS, FOR FAYETTEVILLE FIREMEN'S DEFERRED RETIREMENT OPTION PLAN (DROP) ARTICLE I -. Purpose The purpose of these rules and regulations is to implement and administer the Deferred Retirement Option Plan (DROP), authorized by Act 1004 of 1993, and adopted by Resolution • of the Board of Trustees on January 26, 1994. These rules and regulations are promulgated under the authority of Ark. Code Ann. §24-11-803(a)(3), 1992. • ARTICLE II Effective Date The effective date of the DROP shall be January 25, 1996. ARTICLE III Administration The plan shall be administered by 'the staff of the Board of Trustees of the Fayetteville Firemen's Pension and Relief Fund (the "Fund"). • 4 C • • ARTICLE IV Employee Election and Application Process • Section 4.01. Service Requirement: Applicants for DROP must have a minimum of • twenty (20) years accredited service with the Fayetteville Firemen's Pension and Relief Fund on or within sixty (60) days succeeding the date of application for participation in DROP.Section 4.02, Application: Applications fo`r participation in DROP must be received at the Fund office at least thirty (30) days prior to the effective date of participation. Application must be made on forms provided by the Fund. Participants will be notified in writing of the conditions of participation in DROP. A copy of these rules and regulations will constitute written notification. Participation in DROP is contingent upon completion of all applications and forms required by the Fund. If married, spousal signature is required. ARTICLE V. Contributions to DROP Account Section 5.01, DROP Credit: Each participant's DROP account shall be credited with the following items during the term of DROP. (a) DROP Payments: The DROP account is credited at the end of each month of DROP with the DROP payments. The amount of the DROP payment is equal to the pension benefit the participant would have received if they had elected service retirement on the first day of the participant's DROP. This amount shall not change during participation in DROP, regardless 2 • • • • • • • of interim salary increases, except under the limited circumstances described in Section 6.03. (b) Emplover Contributions: One-half (i/) of the employer matching contributions are credited to the DROP account. (c) Interest: Simple interest shall be credited to individual DROP account balances of the member on an annual basis, based upon an average annual balance computed on the date the member began participation. Said account shall earn interest at a rate of two (2) percentage points below the rate of return of the investment - portfolio of the Fund but no less than the actuarial assumed interest rate as certified by the actuary for the Fund. Section 5.02, Employee Contribution: The participant continues to make the required employee contributions during DROP. These employee contributions are credited to the Fund and not the individual's DROP account. ARTICLE VI. Conclusion of Drop Section 6.01, Time of Conclusion of Drop: The DROP period will conclude at the date • of termination of employment which shall be no later than five (5) years after the date that the individual member began participation in DROP. Termination of employment means leaving the employment of the department for any reason. 3 • • • • Section 6.02, Notification of Termination: At least thirty (30) days prior to termination of employment, the participant must select a payment method and notify the Fund administrator of that selection. Section 6.03, Distribution of DROP Account: At the conclusion of the DROP period, the DROP account will be distributed. Distribution options are described in Article VII of these Rules and Regulations. Section 6.04, Retirement Benefit: The monthly benefit received by the member after the DROP period concludes is the retirement benefit as calculated at the date the member began DROP. The monthly benefit does not change after the DROP period. The same monthly amount is now paid to the individual member instead of into the DROP account. The retirement benefit at the end of the DROP period: (a) Does not change with increases in salary during DROP; (b) Does not change with extra service during DROP; and, (c) Is the same amount as was being credited, monthly, to the DROP account. There are two (2) exceptions: (a) Age sixty (60) longevity bonus pursuant to A.C.A.. §24-11-826 (based on having over twenty-five (25) years of service earned before the DROP period) starts at age sixty (60); and, (b) Any retiree raises granted to all retirees, or overall benefit increases, shall also be given to persons on DROP. • • • • • • • • Section 6.05. Line of Duty Disability Benefits: If a member of the Fire Department who has elected DROP becomes disabled in the line of duty during the DROP period, and if he is otherwise entitled to disability retirement, he may elect a disability retirement based upon current salary upon approval by the Board of Trustees. If such disabled member, elects to receive a disability retirement based upon current salary, he shall forfeit his accumulated DROP account and shall, instead, be considered a disability pensioner who never went on DROP. Section 6.06 Death Benefits: If a member of the Fire Department dies during the period of participation in the DROP, a lump sum payable equal to the balance of the DROP account will be paid to either a designated beneficiary or to the decedent's estate. The widow's benefits will be paid pursuant to existing law.. ARTICLE VII Distribution of DROP Account Section 7.01, Method of Distribution: A member who has DROP may elect to receive his or her DROP account in either a lump sum, a true annuity, or a combination thereof as described below: • (a) Lump Sum. A Lump sum amount equal to the accumulation of - the DROP account as defined in Article V of this Rule, as of the date DROP concludes. (b) True Annuity: A true annuity which is chosen based on the participant's own research and investigation. If this method of distribution is selected, the member shall notify, in writing, the 5 • • • Board of Trustees of the insurance company selected by the applicant to furnish the annuity. The Board shall authorize the staff to forward the lump sum in • the DROP account to said insurance company. The Fund shall not be subject to any fees or charges by any annuity provider. (c) A combination of lump sum and annuity: -The member may select to apportion his distribution between a lump sum and an annuity. Section 7.02, Release of Liability: The payment of the balance of the participant's account to an annuity provider, to the participant, or to a combination thereof pursuant to written authorization by the participant shall constitute a full release of the Fund, its Board of Trustees, its agents and employees. ARTICLE VIII' Reporting Requirements Section 8.01 Annual Reports: Each member who has elected DROP will"receive an annual report of the amount of their DROP account within sixty (60) days following the crediting of interest to the member's account. 6 • • ARTICLE IX Disclaimer of Liability for Tax Consequences The Fayetteville. Firemen's Pension and Relief Fund Board of Trustees (the "Board") assumes no responsibility for any adverse tax consequences which may accrue to a participant in DROP. The Board has been provided with a copy of a private letter ruling from the Internal Revenue Service making a favorable determination of the application of the Oklahoma Police Pension and Retirement Board's submission of a plan very similar to the Fayetteville plan. The Board has instituted this plan in reliance on that letter. No independent ruling or opinion has been obtained. Participants in the 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 Fayetteville Firemen's, DROP is not a qualified, deferred pension plan, a • participant 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 Fayetteville Firemen's Pension and Relief Fund assumes no liability for such adverse consequences. 04-25-96 • -25-96 • • • MAR 11'99 09:34 FR GULLIUERS 7130 35tid pv"TTARK August 11, 199 To: All I From: Arka TRRUEL 501 442 0397 TO 575825? P.01/21 TS:ST 66. 0T as NSAS FIRE & POLICE PENSION REVIEW BOARD terested Parties as Fire and Police Pension subject: Adopt on On June 10, 19 Board adopted ation. A hear 14, 1993 and m result of the; Arkansas Fire; Rule 110 to be were made from 1. 2. of Board Rule 110 P.O. Octave= 34164 LR1tt ACC*. Alw ter is 722C Tnuv,+Owt C501) 32.4.9495 FIs: C50113241-9497 Review Board 3 the Arkansas Fire and Police Pension Review roposed Board Rule 110 for hearing and consider - ng on this Proposed Board Rule was held on July ny comments were received.by the Board. As -a omments received and further consideration, the nd Police .Pension Review Board has adopted Board effective August 13, 1993. The following changes the Proposed Board Rule: answer fo most form This Chan ing of th The proposed rule was ina question and at. The format has been changed to the format lly used by state agencies in issuing regulations. e in format was made so as not to alter the mein - proposed rule except as noted below. received make rule effort we operate a who would believes: level of cant aspe been rend. administr Pension was that rules do Board. Adortion Notice Many comments were y the Board as to the extent of their authority to that were as detailed as the proposed rule. An made to allow the local boards the freedom to d , at the same time, give guidance to the plans appreciate the assistance. Although the Board hat all aspects of the proposed rule deal with the enefits or funding issues, only the most signifi- ts have been left intact. All other sections have ed and made a part of a set of sample tive rules which will be deemed appropriate by the view Board. One suggestion made at the hearing lens who wish to draft their own administrative o , and, file those rules with the Pension Review e final rule incorporates this suggestion. r. I 1111/93 Fteal MAR 11'99 08:35 FR 0 LLIUERS TRAVEL 200 39bd • 3 points a posed rn' DROP per allowed account. provide 501 442 0397 Ti758257 P.02/21 ?S•ST E6( 01 &11 There were several different view - t the treatment of disability benefits. The pro - e did not permit disability retirement during the od. Some commentators suggested that a person be o receive a disability retirement and their DROP The final rule allows a local pension board to isabillty benefits pursuant to existing law. Inquiries con.arning this Board Rule should be directed to Cathyrn gins -w, Executive Director, Arkansas Fire and Police Pension Revisv.Board, at (501) 324-9495. • Arkansas Fire; Adoptaao Notice Execut ve D ector and Police Pension Review Board P• 2 • 8/11193 pawl MAR 11'99 00:35 FR GULLIUERS TRAUEL v00 3;R1d • ARIKANS SECTION 1. 2. 3 4. 5. 6. 7. 8. 9. 10. 11. 12. Purpo Autho Effe Local Accum Emplo Inter Concl Death Distr Actu Repo SECTION 1. The purpose o of the Deferr benefit level established established t are effective SECTION 2. This Board Ru Pension Revie S24-11-203. • 501 442 0397 11513257 R.03'21 ZS'St 66. 0T 22A1 FIRE AND POLICE PENSION REVIEW BOARD BOARD RULE #1.0 Administration of DROP Accounts ity ive Date and Applicability Election of DROP Program cation of DROP Account e Contributions t Rate Certification ion of the DROP Period merits tion of DROP Account ial Equivalence and Interest Equivalence ing Requirements ose this Board Rule is to describe the administration Retirement Option Plan (DROP) as it affects the and funding of the pension funds. Act 757 of 1993 DROP for police officers. Act 1004 of 1993 DROP for paid firefighters. Both of these Acts n August 13, 1993. thority is promulgated by the Arkansas Fire and Police Board by the authority of Arkansas Code Annotated SECTION 3. E•fectivs Date and Applicability This Board Ru to all firefi went the DROP SECTION 4. is effective on August 13, 1993 and is applicable ter and police pension funds that elect to imple- cal Election of DROP Program Act 757 and A pension board local pension does elect to lution to ele Scud RW- /10 1004 make the DROP a local option. If the local ishes to.make it available to its members, the and must vote to do so. If a local pension board ake the DROP an option, a copy of the board reso- the DROP and a copy of the local pension board's p. 1 El1USO V—' MAR 11'99 00:35 FR GiLLIUERS TRAUEL 500 9 rules to admin and Police Pea must comply vi SECTION 5. 501 442 039? 111750257 P.04'21 ZS:SI 66 et biblW star the DROP must be filed with the Arkansas Fire ion Review Board. The local pension board's rules h this Board Rule #10. ulatioa of DROP Account • Each individua member's DROP account is credited with the fol- lowing items ing the DROP period: A. DROP Paymepts. The DROP account is credited each month of the DROP iod with the DROP payments. The amount of the DROP paym:- t is equal to the amount of monthly benefit that would hav: been received by the member if they had elected service r irement on the first day of the individual's DROP period. B. contribut for first pate in S rent sal that part voluntari ons -half C. Tntarest The inter Rule. SECTION 4 The member co DROP period. pension plan One-halfof the employer matching no are credited to the DROP account. That is, hter plans and police plans that do not partici- ial'Sacurity, 3% of current salary. 2% of cur - is added to the DROP account for police plans ipate in Social Security. Plans that have agreed to a rate higher than 6% would contribute f that amount. :Interest is to be credited to the DROP account. t rate to be used is defined in Section 7 of this lops* Contributions • inues to make employee contributions during the es* employee contributions are credited to the d not to the individual's DROP account_ SECTION 7. I•terest Rate Certification The rate of i is to be cert Police Pensio municate the are submitted The actuary w plans which. fied interest Board Rine 010 terest that is to be credited to the DROP accounts fied by the actuary for the Arkansas Fire and Review Board. The Pension Review Board will com- ecessary information from the annual reports that to it to the actuary for the Pension Review Board. 11 then from time to time issue a list of local e.elected..participation in -the DROP and the certi rate for the DROP. • P. 2 aptvss Fs11 • MAR 11'99 00:36 FR GULLIUERS TRAUEL 900 3E1d SECTION s. A. Time of conclude later tha began pa means lea son. 111 501 442 0397 TO 5758257 P 05/21 B. pistribut DROP peri tribution C. Bet£remzn received ment benef DROP. The period. vidual m The ratir - Does period; - Does period; - Is the account. : There are over 25 y starts at ees, or ov persons oil D. Disability restrict a retirement ting law. elusion of the DROP Period clusian of the DROP Period, The DROP period will the date of termination of employment but no 5 years after the date that the individual member cipation in the DROP. Termination of employment ng the employment of the department for any reit- ES:ST 66. 0T 6UU n of the DROP Account. At the conclusion of the the DROP account will be distributed. This die- s described In Section 10 of this Rule. Benefit. The monthly benefit that will be the member after the DROP period is the retire - t as calculated at the date the member began his monthly benefit does NOT change after the DROP is same monthly amount is now paid to the indi- r instead of into the DROP account. • nt benefit at the end of the DROP period change with increases in salary during the DROP change with extra service during the DROP BABB amount as was being credited to the DROP wo exceptions: The age 60 bonus (based on having rs of service earned before the DROP period) ge 60; Any retiree raises granted to all retire all benefit increases, may also be given to DROP. 'Benefits. The provisions of these rules do not local boardts authority to provide for disability ,benefits of DROP participants pursuant to exis- BECTION 9. D th Benefits If a member of 'a fire or police department dies during the period of participati.n 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 19:3. The widow's benefit will be paid pursuant to existing law.' slCTION 10. Di A member who h receive his or annuity, as d board, other f Bond Raiz 110 tribution of DROP Account s a DROP account must be allowed to choose to her DROP account as either a lump sum or a true ribed below. At the option of the local pension of distribution may also be offered. p. 3 8111193 Final • MAR 11'99 08:37 FR GULLIUERS TRAVEL 501 442 0397 T[758257 P.06'21 • t'S:ST 661 et ed1.4 L00.39dd A. Lume Sum.' the DROP * the date o B. C. A lump sum amount equal to the accumulation of count as defined in Section S of this Rule, as of the conclusion of the DROP period. lifetime o purchased in the Sta annuity the monthl sum in A. tion 11. A true annuity is payable monthly during the the member only. If the true annuity is not rom an insurance company licensed to do business e of Arkansas, the monthly amount of the true be paid out of the pension fund. In this case, amount is the actuarial equivalent of the lump bove. Actuarial equivalence is defined in Sec - The local pension board may choose to distrib- P account in other forms of payment. Any other might be made available must meet the following ute the DR forms that rules: 1. 2. If the any in a) an in St th am in For al must above. b) form of payment involves the life expectancy of ividual or individuals, then either, appropriate annuity must be purchased from an - urance company licensed to do business in the to of Arkansas, or amount is paid out of the pension fund, and the unt is the actuarial equivalent of the lump sum A. 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. Au aarial Equivalence and Interest Equivalence Actuarial aqui alence as used in this Board Rule means that the amounts produc the same lump sum based on the 1971 Group Annuity Mortality Tabl with 6% interest. Interest equivalence as used in this Board le means that the amounts produce the same lump sum based on interest rate or rates of not less than 6%. RECTION 12. Rf rting Requirements The financial annually will ber currently; the end of the Board has the the calculatio seats RSc no nd member information required to be reported supplemented by a detailed listing of each mem- n DROP and the amount of their DROP account as of current reporting period. The Pension Review ight to request additional information concerning of the DROP account. P. 4 V11/93 Fml • MAR 11'99 00:37 FR GULLIVERS TRAVEL 800 Skid ARKANS SECTION 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. Local indiv ACCum Emplo Inter Locat Concl Disab Distr Repo Tax I Attachment 1 Attachment 2 Attachment 3 SECTION 1. A. B. is an ex RECTION 2. A. • 501 442 0397 TO 750257 P.07/21 45 : St 66. 0I 28i4 FIRE AND POLICE PENSION REVIEW BOARD Administration of DROP Accounts Sample Rules for Local Pension Boards with Common Questions and Examples lection of DROP Program ual Member Election of the DROP option lation of DROP Account ea Contributions st Rate Certification on and Administration of DROP Funds sion of the DROP Period lity Benefits bution of DROP Account ng Requirements formation Resolution to Elect Participation in the DROP Individual Member Election Form for DROP Actuarial Equivalence Factors cal Election of DROP Program DROP Opti factors a the DROP plan prom member, elected The pension board understands that adding the n may increase the cost of the pension plan. New !toting cost may be activated by the adoption of ovision. Some of these factors include present sions, age and service when DROP is elected by a d the relationship between pay when DROP is d pay at the time of actual retirement. In accordance with Attachment 1 to these rules ted resolution adopting the DROP program. dividual Member Election of the DROP Option elected that is, Saspk DROP Rula The DROP is a retirement option and can be en a member is eligible for service retirement; ytime after attaining 20 years of service. P.1 E!1 Ls93 Fiat MAR 11'99 08:38 FR GULLIUERS TRAVEL 501 442 039? TO 575825? P.00/21 411 411 SS:SI 66. 01 a i 600 'Med B. form for 30 days individua items: First, th amount th. time. Th DROP peri quits the the month and will member's The benef 'There ar years of age 60; all benef Second, t the depa C. Optional. went ben is an opt BSCTION 3. Each individ following it A. Attachment 2'of these rules is an election a member This form must be completed at least for to the member beginning the DROP. When an elects the DROP they have agreed to two important have fixed their retirement benefit at the y would receive if they retired normally at this retirement benefit will NOT change during the and will NOT change when the member actually department. In other words, when you go on DROP, y retirement you draw will be fixed at that time ever' change, even when you actually retire. The nefit will NOT increase because of increased pay. t will NOT increase because of the extra service. two exceptions: The age 60 bonus (based on over 25 rvice earned before the DROP period) starts at y retiree raises granted to all retirees, or over- t increases, are also given to persons on DROP. ey have agreed that they will be in the employ of ent for a period not to exceed 5 years. The DROP is an option in lieu of normal retire - it. A member is not required to go on DROP. This On that MAY be elected by'a member. cumulation of DROP Account 1 member's DROP account will be credited with the s during the DROP period: A member's DROP account will be Credited ✓ the amount of the retirement benefit at the time s elected. These amounts are credited to the DROP the end of each month For example, an officer 1 salary is $3,000 per month with exactly 20 years who is a member of a standard police pension d have 50% or 51,500 per month credited to his t. This member would begin receiving this same month at the end of the DROP period. monthly f the DROP: account a whose f i of 6ervic plan, wou DROP aced $1,500 pe All intro reflected officer'h ($3,000 X When he r 1.25% X $ sample DROP Rata ses earned at the time DROP is elected are in the DROP payments. For example, if the above d-27 years of service his benefit would be: 50*) + (5 X $20) = $1,600. aches age 60 his payment will be increased by (2 X ,000) = 575 to $1,675. p.2 8/17/97 Fml • MAR 11'99 08:30 FR GULLIUERS TRAUEL 0t0'0d Questions Answer: 8. 501 442 0397 TO 5750257 P.09/21 • 9S=SI 66. 0I LRiU t if our pension plan receives a benefit increase ing the DROP period? re is an exception in the laws that would apply the entire plan increased benefits under the al procedure when the Arkansas Fire and Police nsion Review Board approves the increase. For mple, if the pension plan received approval for a efit increase to a base benefit of 60% of salary, e DROP payment in the example above would increase 60% of $3,000 or $1,800 per month. This member ld begin receiving this same 51,800 per month at • end of the DROP period. contribut for firef pate in S rent sale which par voluntari one-half the DROP C. Interest. the end o the begi interest interest is distri One-half of the employer matching ns are credited to the DROP account. That is, ter plans and police plans that do not partici- ial Security, 3% of current salary. 2% of cur - is added to the DROP account for police plans icipate in Social Security. Plans that have agreed to a rate higher than 6% would contribute f that amount. These amounts will be credited to ccount at the end of each month Interest is to be credited to the DROP account at each year. One year's interest.is credited to ing of the year's balance in the DROP account. No a credited to the activity during the year. No ill be credited for the year that the DROP account ted. Answer: • you give an example of hoe the DROP account cumulates? t 's use the example of the police officer with actly 20 years of service. The pension plan is andard, that is, 50% of final salary. They do not icipate in Social security. The officer's final lary is $3,000 per month For this example, sums the salary does not change during the DROP clod. He remains on DROP for 3 years (i.e., 36 nths). nfhly_DRDP amount=Sot of $3,.000 = 51,500 per month 1 2 city match - 3% of $3,000 = $90 per month P- 3 E/1 U91 F:rl • • • MAR 11'99 08:39 FR GULLIUERS TRAVEL TTO 37Cd DROP p City Inters D Question: 501 442 0397 TO 5750257 • • yments=36 X 51,500 tch=36 X $90 account at end of 36 months P.10v21 95:ST 66, 0T adW $ 54,000 3,240 2.324 $ 59,564 you give an example of the method of crediting i terast? Answer: A sume the following facts. Dec 94 DR 94 Cit Intere 31, 1993 DROP balance payments 12 X $1,350 match 12 X $81 t rate The interest credited for 1994 is De 31, 1994 DROP balance 95 DRO' payments 95 Cit match 95 Int rest rate The in, est credited for 1995 is SECTION 4. The member con rate. These plan and not t loyee Contributions $ 10,000 16,200 972 7% $ 10,000 X 7k $ 700 $ 27,872 16,200 972 6% $ 27,872 X 6t 1,672 inues to make employee contributions at the same loyee contributions are credited to the pension the member's DROP account. SZC?IOH s. III *rest Rats certification The rate of in is to be cert* Police Pension erect that is to be credited to the DROP accounts ied by the actuary for the Arkansas Fire and Review Board. StCSZON 6. L tion and administration of DROP Funds A member's DRaccount remain a part of the pension fund until it is distri. •ed Sem* DROP Rules P• 4 Li:/93 Ted • • MAR 11'99 08:39 FR GULL IVERS TRAVEL Zie Boos Question: Answer: 501 442 0397 7f750257 P.11'21 LS*SI 66. Ot ZAtI s the plan have to maintain separate and/or dis- t asstts for the DROP accounts? The assets of the members' DROP accounts are ingled with the other pension assets. The DROP is are simply liabilities of the plan, and are ounted for separately. DROP accounts are book - ping items and should not affect the investment off the pension fund. Questions Where is the DROP account administered? Answer: DROP accounts remain part of the local pension during the DROP period. The amount of each P account is calculated separately for each mem- who has elected the DROP, SECTION 7. C elusion of the DROP Period The rules rega.ding the time of conclusion of the DROP period, the distributi•n of the DROP account, and the amount of the retirement bee>fit at the end of the DROP, will be the same as those under B rd Rule 110 of the Arkansas Fire and Police Pen- sion Review 8 =rd. Questions Answer: Question: Sample DROP Rules t happens if the individual dies during the DROP p:. iod2 th benefits are paid per section 9 of Board Rule O. One section of the member DROP election form lows the member to name a beneficiary If a mem- dies during the DROP period, the named benefi- ary would receive the balance of the DROP account a lump sum payment. The member's widow (it there one) would begin to receive the normal widow's nefit based onvthe benefit at the time the DROP s cleated. If there is no living beneficiary then e DROP account would be paid to the deceased's tate at happens if the individual leaves the department d. ing the DROP period? p.$ 2111,93 Fmd • MAR 11'99 00:39 FR GULLIUERS TRAUEL £T8 3bd Answer: 501 442 0397 TO 5750257 P.12'21 LS:SI 66. et r' mbar who leaves the department after electing DROP option but before the five years have ired would begin receiving the same monthly irament amount that had been going into the DROP unt. They would also receive the DROP account er as a lump sum or as an annuity as discussed in these rules. 'SECTION 8. Di •ility Benefits If a member of ing the DROP ability retir approval by t» elects to rece receive his ac ered a disabil Question: Answer: DROP City Inter DROP True Additi Benefit Equiva Salami 65% of "Regula This provi4 disabi- be wog not re a fire or police department becomes disabled dur- riod, and if he is otherwise entitled to a dis- t, he may elect a disability retirement upon local pension board. If such disabled member ve a disability retirement, then he will not ulatsd DROP account, but will'instead be consid- ty pensioner who never vent on DROP. you give an example of how the disability bona - works? 's use"the following assumptions in looking at an e:=.:•le of a duty related disability. This example a:sumes that the member was disabled at age 50 atter years on DROP. Assume he elected DROP at exactly 2. years of service and was earning $30,000 per year a,• the time. Sample DROP Rales yments 50t X $30,000 X 3 tch 3% of salary per year credited unt at the end of 3 years uity factor al benefit from DROP account at end of DROP period ent monthly benefit at date of Duty Disability salary for duty disability r" disability benefit $ 45,000 2,700 2.919 $ 50,619 X .0065144 $ 329.75 1,250.20 $ 1,579.75 $ 34,000 X .65 $ 22,100 r benefits from the disability benefit normally by the pension fund. Therefore, after the ity application is approved by the pension board, d begin to receive $1,841.67 per month Ha would eive his DROP account. . p. 6 si11/93 Foal • MAR 11'99 08:40 FR GUL IUERS TRAUEL 501 442 0397 TO 5750257 411 D20'3 idd SECTION 9. Di tribution of DROP Account P.13/21 8S'SI 66. 0T d w A member who h s 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 ds cribed below. A table of conversion factors for a true annuity : e given as Attachment 3. B. Lump Sum. A lump sum amount equal to the accumulation of the DROP a •unt as defined in section 5 of these rules as of the dat of the conclusion of the DROP period. lifetime o purchased in the Sta annuity wi the monthl sum in A. Question: Answer: We DROP e1 DROP pa Police! 93 Cit 94 Cit 95 Cit .96 Cit 97 City 98 Cit Inters. DROP ac DROP ac DROP a DROP ac DROP ac DROP at Age nee DROP c0 Retir Tota NOTE: 1 DROP, h would and wou Semple DROP Rid= A true annuity is payable monthly during the the member only. If the true annuity is not rom an insurance company licensed to do business e of Arkansas, the monthly amount of the true I be paid out of the ion fund. In this case, amount is the actuar al equivalent of the lump vet* The factors in Attachment 3 will be used. you give an example of converting to an annuity? ars given the following situation. cted September 1, 1993 ants (based on $3,000/mo pay) Ian participating in Soc. Sec. match payments ($3,000/mo pay) match payments ($3,040/mo pay) match payments ($3,162/mo pay) match payments ($3,288/mo pay) match payments ($3,420/mo pay) match payments ($3,556/mo pay) rata all years (Method 1) ount balance 12/31/93 ount balance 12/31/94 ount balance 12/31/95 • cunt balance 12/31/96 ount balance 12/31/97 ount balance 8/31/98 Final est birthday of 55 on 8/31/98 verted to monthly benefit nt benefit monthly income beginning 9/1/98 this member had NOT gone on the s retirement benefit on 9/1/98 based on $3,556 per month pay d be: p-7 $ 1,500.00/mo 240.00 729.60 758.88 789.12 820.80 568.96 68 $ 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 S 1,878.00/mo. 8/11/93 Flm% • MAR 11'99 00:41 FR GULLIUERS TRRUEL 501 442 039? TO 575825? Ste'31Cd Question: Answer - Question: • • P.14/21 8S • SI 66. 0I adS4 t would be paid when the member in the above pl. dies (after 9/1/98)? e $726.90 increment from the DROP stops since the e annuity has no widow benefit. If the retiree h d an eligible spouse, she would receive $1,500 per nth, assuming the plan qualifies for the ACT 397 w4.dow's benefit. es the plan have to purchase an annuity from an i_• urance Company at the end of the DROP period? Answer: N the DROP account is converted to a monthly bene - f t and the separate DROP accounting is no longer n cessary. The money leaves•the plan as the lculated monthly increments are paid to the r tired member SECTION 10. R porting 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 current reporting period. SECTION 11. T Information The Arkansas of Trustees o adverse tax DROP. Partic from their in this plan. the DROP is n ipant may hav deposited in and interest Pension Revie Fund assume n Sample DROP Rely ire and Police Pension Review Board and the Board this Pension Fund assume no responsibility for any nsequences which may accrue to a participant in the pants in this plan are encouraged to seek advice tax advisors prior to enrolling for participation If the Internal Revenue Service determines that t a qualified deferred compensation plan, a partite liability for -not only the tax due on the funds eir DROP account, but also substantial penalties ay be applicable. The Arkansas Fire and Police Board and the Board of Trustees of this Pension liability for such adverse consequences. P- g al1103 Feel