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HomeMy WebLinkAbout1999-09-30 - Agendas - Final2 FAYETTEVILLE THE CITY OF FAYETTEVILLE, ARKANSAS FIRE PENSION AGENDA SEPTEMBER 30,1999 A meeting of the Fayetteville Fire Pension and Relief Fund Board will be held on September 30, 1999 at 11:00 a.m. in Room 326 of the City Administration Building located at 113 West Mountain Street, Fayetteville, Arkansas. 1. Approval of the minutes 2. Approval of the Pension List 3. Investment Report 4. Other Business 113 WEST MOUNTAIN 72701 501 521-7700 FAX 501 575-8257 • • MINUTES OF A MEETING OF THE FAYETTEVILLE FIRE PENSION AND RELIEF FUND AUGUST 26, 1999 A meeting of the Fayetteville Fire Pension and Relief Fund was held on August 26, 1999 at 11:00 a.m. in Room 326 of the City Administration Building located at 113 West Mountain Street, Fayetteville, Arkansas. PRESENT: Mayor Hanna, Ron Wood, Darrell Judy, Pete Reagan, Marion Doss, and Heather Woodruff. ABSENT: John Dill. APPROVAL OF THE MINUTES Mr. Doss asked that Mr. Dill be noted as absent at the last meeting. Mr. Reagan moved to approve the minutes with the correction. Mr. Judy seconded the motion. Upon roll call the motion carried unanimously. PENSION LIST Ms. Woodruff stated corrections needed to be made to the list. Mr. Bonaduce had withdrawn from the Drop. He had cashed out of the drop plan. He would need to be added to the retired list. In addition the amount would have to be changed on Eddie Bachman and Ronnie Wood. Mr. Doss noted Eddie Bachman and Ronnie Wood had been switched several times. He asked to get a total for each account to make sure the right amount was going to the correct account. Mr. Reagan moved to approve the pension list with the corrections. Mr. Wood seconded the motion. Upon roll call the motion carried unanimously. INVESTMENT REPORT Mr. Reagan noted they were still down. Ashland was doing the best of all the funds. He noted they were strictly stock. During their last meeting they had discussed increasing their portfolio on the equity side because bonds were not doing that well. They were scheduled to have a meeting with the Ashland managers next month. He asked if anyone had a problem meeting in the evening. There was a general consensus that late afternoon or early evening would be best. Meeting adjourned at 11:20 a.m. • )ARKANSAS FIRE & POLICE PENSION REVIEW BOARD P.O. DRAWER 34164 .. LITTLE ROCK, ARKANSAS 72203 TELEPHONE (501) 682-1745 FAX: (501) 682.1751 Agenda Arkansas Fire and Police Pension Review Board 10:00 a.m., Tuesday, September 28, 1999 Suite 940, One Union National Plaza Building Little Rock, Arkansas 1. Call to Order Recognition of a Quorum and Notification of the News Media 2. Approval of Minutes of the June 29, 1999 Meeting 3. SPECIAL ORDER OF BUSINESS: ADMINISTRATIVE HEARING REGARDING AMENDMENTS TO PRB RULE #1, RULE #3, RULE #7, AND PROMULGATION OF NEW RULE # 11 Old Business a) Recommendation of Administrative Services Committee to upgrade Executive Director's salary, effective July 1, 1999 payroll b) Response to Blytheville Fire Pension Board of Trustees June 17 letter c) Seating of Proxies on PRB d) Request of Ms. Kathleen Bourne for assistance with receipt of benefit payment 5. New Business a) Review of Staff Actions Regarding Benefit Increase Requests: - Fayetteville Police Pension - Approved 90% and 100% of salary, pursuant to a cash flow study. - Russellville Police Pension - Approved 100% of salary to retirees. - Salem Fire Pension - Approved $165/month for 20 years of service, pursuant to random search; denied $300/month base benefit 6. Opinions of the Actuary Budget Request Other Business Election of Chair, pursuant to PRB Rule #1 8 Approval of Guest Parking 9 Set Next Meeting Date and Adjourn • • PRB Minutes June 29, 1999. Page 1 of 8 Minutes The Arkansas Fire and Police Pension Review Board Regular Meeting The Arkansas Fire and Police Pension Review Board met on Tuesday, June 29, 1999 at 10:00 a.m., in their offices in the Union Plaza Building, 124 West Capitol, Suite 940, Little Rock, Arkansas. Members Present: Bill Lundy, Fire Employee Member, Chair Cathenne Cook, Employer Member David Evans, Employer Member Jim Gates, Fire Employee Member Fams Hensley, Police Employee Member David Johnson, Public Member Tim Randolph, Police Employee Member Staff Present: Cathyrn Hinshaw, Executive Director Mildred Webb, Assistant Director Elizabeth Stephens, Administrative Assistant Others Present: Steve Osborn, PRB Actuary, Osborn, Carreiro & Associates Bnan West, Osborn, Carreiro & Associates Lee Harrod, Pension Board Member, Little Rock Police James Dickson, Pension Board Member, Little Rock Police Carol Stapleton, Legislative Analyst, Bureau of Legislative Research Johnny Reep, Trustee, Little Rock Fire Pension Board John R. Turbeville, Consultant, Blytheville Fire Pension Fund Ed Jaros, Legislative Chair, APFF & IAFF Local 34 Chairman Lundy called the meeting to order at 10:00 a.m. He recognized a quorum and notification of the news media. The first order of business was review and approval of the Apnl 27, 1999 minutes. Mr Hensley asked for clarification about which question was answered on the second page of the minutes under the Act 1171 heading. There was a typo on page 8 in the next to last paragraph. In the second paragraph on page 7, a word was left out. There were no other additions or corrections to the minutes. Chairman Lundy asked for a motion on the minutes. Mr. Evans made the motion to accept the minutes as corrected. Mr. Johnson seconded the motion, and it passed unanimously. Under old business, the board received an update from Ms Hinshaw about Act 1452 of 1999, the retired police officer's supplement fund. Ms. Hinshaw told the board that she had talked to Mr. Shelby McCook, the head of DFA accounting. He told her that DFA would cut one check to the PRB, who will in tum have to have to disburse the money to the cities, who will pay their retirees Ms. Hinshaw said it was • PRB Minutes June 29, 1999 Page 2 of 8 unclear how much DFA will allocate to the PRB in July. Chairman Lundy asked Ms. Hinshaw if she had a proposal of how to distribute the supplement fund money to the local plans. Ms. Hinshaw she would like for the actuaries to sort retiree information by pension amounts, then our data processor can cut checks to the cities based on the actuaries' lists, and staff will send the money to the cities for them to disburse to their retirees. Chairman Lundy said that the act states that each retiree has to file an application with the PRB in order to receive his or her money, and that it insinuates that the money is to be distributed monthly What happens if the member dies during the year? Ms. Hinshaw said that under police law, spouses are eligible to receive the same pension amount as the retiree received. After further discussion, the board directed staff to set up a policy for the police supplement program, make the distnbution, and report back to the board about it at the next meeting. The board can formally adopt the procedure for the next year. Ms. Hinshaw said the staff would use the actuary's database, cut one check to each pension board, with a cover memo and a copy of Act 1452. The memo will direct the pension boards to distribute the money to their retirees by July 315'. Mr. Randolph said this assumes that everyone who is eligible will apply for the money. Mr. Randolph made the motion to approve this method. Mr. Hensley seconded, and the motion passed unanimously. The board reviewed the actuaries' recommendations for amendments to Board Rule #10, and to implement Act 1293 of 1999. Act 1293 will allow the board to use different asset valuation methods for local plans. Mr. Osborn referred to his June 21, 1999 letter in the board packet regarding asset valuation methods. He said that when he and his staff do an actuarial cost projections of what local plan employers and employees should be contributing to the plan, one component the actuaries look at are the plan's assets. The actuanes consider aspects such as how much the assets are worth and how they should be valued. Under law, the board is allowed to use the amortized cost basis, or book value, regardless of the market value of assets. Act 1293 allows the PRB to determine a different asset valuation method. Mr. Osborn said he would not recommend using the pure market value of assets as an asset valuation method. The main reason is that by 2002, all local plan members should have at least 20 years of service and be eligible to retire. Since this 2002 is only three years away, using a pure market value would mean wide cost fluctuations, which would make it difficult for plans trying to get totally funded during the next three years. DROP interest rates are based on the cost basis. Members of some plans think rates ought to be based more on market value. The act is not effective yet, and Mr. Osborn said it would probably only affect 1999 DROP rates at the earliest. Part of Mr. Fields' opinion on DROP was that if DROP interest rates were based solely on the market value, then the plan would not be tax qualified,. This would cause many problems for the local plans. There are three areas under "actuarial considerations" in the letter for the board to consider. First ,the current asset valuation method does not recognize PRB Minutes June 29, 1999 • Page 3 of 8 market value. Secondly, until now, local plans could not invest in stocks unless they had at least $500,000 in assets. This amount has been lowered to $100,000. This will allow about 100 more plans to hire investment managers and invest in areas other than CD's and gbvemment bonds: And the third area, previously touched on, is that the life cycle of the local plans is getting shorter, because everybody should be eligible for retirement soon. The other statewide systems all use the same cost method. Mr. Osbom explained the LOPFI smoothing method of assets. The actuaries for LOPFI take the total market return that is in excess of the assumed retum. They amortize it over a five-year penod. This is called the smoothing method. State Highway Retirement also uses the five-year method APERS and Teachers smoothing method recognize the excess monies over a four-year penod instead of five: Mr. Osbom gave the board a handout on alternate valuation methods. Mr. Osbom said he believes that the asset valuation method ought to remain conservative for two main reasons: there are many local plans that are limited in their investment options, and the local plans are mature The actuaries suggested maintaining what the board uses now, the five-year smoothing method similar to what LOPFI uses, or some combination of the two. Mr. Osbom said he thinks the act can be interpreted as allowing the board to apply different cost methods to different kinds of local plans. The board could use a smoothing method for plans that have $5 million or more, and use the cost basis method for the other plans. Chairman Lundy asked Mr. Osbom to explain the difference between the five-year smoothing method and five-year averaging. Mr. Osborn said it is the same thing. But there is a difference between the LOPFI method and the private sector method, as illustrated in his letter. In the LOPFI method the actuaries take the total retum that is in excess of the assumed return and spread that out over a five-year penod. In the private sector method they consider all appreciation; real and unrealized gains, even if it is more or less than the assumption, and amortize it. Chairman Lundy asked the other board members if they had any comments. Mr. Evans and Ms. Cook said they favored the LOPFI smoothing method. Mr. Osbom said the board might consider keeping the prior cost method for plans with assets of less $5 million, which would include most of the big plans. Chairman Lundy asked for a vote on the previous motion; it passed unanimously. Referring to his letter, Mr. Osborn said the board asked him to review all of the PRB Rules to see how the new laws impact them. The actuaries found several changes that needed to be made: Board Rule #1 pertains to board composition. Mr Osbom said the wording was changed to reflect that the board composition has changed from seven voting members to nine voting members. A sentence was added to show that an employer representative and the director of the Department of Finance and Administration are • the new board positions. Chairman Lundy asked Ms. Hinshaw if the board has to hold a public hearing to consider the changes in Board Rule #1. Jr • PRB Minutes June 29, 1999 Page 4 of 8 Ms. Hinshaw said no, because the changes in the board rule reflect changes in the law; it is not something the board has a choice about. Chairman Lundy asked if there was any discussion about the change in Board Rule #1, or a motion. Mr. Gates made the motion to accept the recommended changes from the actuary for Board Rule # 1. Mr. Randolph seconded the motion and it passed unanimously. Board Rule # 3: Mr. Osborn said this rule was changed by two acts -- Act 711 and Act 573 One of the acts eliminated many of the reporting requirements on the annual financial disclosure form, and the other act allowed additional city officials to complete the annual financial disclosure form. Chairman Lundy asked Ms. Hinshaw if the change in Board Rule # 3 requires a public hearing. After some discussion, Chairman Lundy suggested that if the board members were unsure about holding a public hearing, then they should schedule one for the next board meeting to discuss the changes. Chairman Lundy asked for a motion that the board adopt these changes and discuss them at a public heanng. Mr. Randolph made the motion, and Mr. Hensley seconded The motion passed unanimously. Discussion about changes in Board Rule # 3 will be conducted during the public heanng at the next board meeting. Board Rule #7: Mr. Osborn said that this rule addresses how benefits are calculated and the definition of salary. In the board rule, it is stated that the minimum pension for a police officer is $250 per month The change would state that the minimum is $350 per month, if the officer is eligible under Act 1197 of 1995 Chairman Lundy asked Ms. Hinshaw if these changes were okay with her. Ms. Hinshaw said yes, the changes are recitation of fact and law, and should not require a public heanng. Chairman Lundy asked for a motion to adopt the actuaries' recommendation for changes on Board Rule #7. Mr. Randolph made the motion and Mr. Johnson seconded. The motion passed unanimously. Board Rule #10: Mr. Osbom handed out a marked -up copy of changes that has the new language underlined. The actuanes added a new section on the ten-year DROP, which was passed two sessions ago and amended this session. There is a zero percent interest rate floor on the second five years of the DROP. Act 1457 defines how member and employer contributions are split between the local plan and the DROP, which is a new option for cities that have populations of more than 20,000. Ms. Hinshaw said all underlined language is new, except the underlined formula of the three distribution amounts in section 10, which reflects current law. Chairman Lundy said the changes reflect direct language in law, so the board should not need to hold a public hearing. He asked for a motion on Board Rule #10. Mr. Gates made the motion to adopt the actuaries' recommendations for changes to Board Rule #10. Mr. Randolph seconded and discussion followed. Chairman Lundy asked the other board members if they wanted to hold a hearing on Board Rule #10. Mr. Hensley said he would prefer to, since the board is going to have one anyway. Chairman Lundy asked if any board members objected to this; there were none. The Chairman asked for a motion that the board members discuss changes in Board Rule #10, as proposed, in a public hearing. 4 PRB Minutes June 29, 1999 • Page5of8 Mr. Hensley made the motion and Mr. Randolph seconded. The motion passed unanimously. There was no vote called on the previous motion for Board Rule #10, because it is going to be discussed in a public. hearing. Chairman Lundy asked Mr. Osbom if the board had to do anything about investment returns and how interest is certified, as they relate to DROP accounts. Mr. Osbom said that for 1999 and forward, the board probably does not have to do anything. If the board wants to make a change for certifying interest for 1998, they should probably run it by their attorney. Mr. Osbom said he and his staff are certifying interest for '98 now, and most DROPs have received their certifications. Chairman Lundy asked if it would be a problem to go back and re -certify the interest. Mr. Hensley said during the previous discussion he understood that the board would go back to '96 through '98. Mr. Osborn said that while the board goes back to start the smoothing method, it is a different situation as to whether the board can go back and credit a different interest rate for DROPs for 1998. Mr. Osborn said the law is not effective until July 31st, which means that the board does not have to go back further than '98. • Mr. Osborn said the actuaries are going touse the smoothing method for the December 31, 1999 actuarial valuations. They will also calculate the '99 smooth return that plans can credit for '99 to their DROPs. But because the law was not effective in 1998, Mr. Osborn said that he thinks that the DROP rates for '98 are as they stand, unless the board does something different. Mr. Gates confirmed with Mr. Osborn that he has certified most of the DROPS for 1998. Mr. Osborn said yes, but it would not be too difficult to re -certify them, unless the plans have already implemented the interest rates or the members have taken their distributions. Ms. Cook questioned why the board would want to change its focus in midstream. Mr. Hensley asked when the change becomes effective -- at the end of '98 or the end of '99? Chairman Lundy asked what would happen if the board had to tell some local plans that their rate of return was lower than the one certified. Mr. Osbom replied that he did not think that this would be the situation with any of the plans. Chairman Lundy asked what the preference of the board was. Mr. Johnson said he did not see any reason why the board needs to go back to '98, since the actuary has already certified the rate to the plans. If it is not required of the board, then the board should not do it. Ms. Cook agreed with Mr. Johnson. She said she understands the viewpoint of the employee members, but since the certification has been partially completed the board should finish it, and implement the new policy for 1999. The board should not go back and apply it to 1998. Mr. Hensley said if it would benefit hundreds of people to backtrack to '98 and does not hurt anyone, then why not? Mr. Evans said if the board can legally do it, then he does not have a problem with it. After further discussion, Chairman Lundy ruled that unless a board member made a motion, the board would not go back and pick up 1998, but move forward and implement the change for the 1999 reports. Mr Hensley made a motion that the board go back and implement the interest rate change for DROPs for 1998. The PRB Minutes June 29, 1999 • Page 6 of 8 motion died for lack of a second. The board took a break from 11:50 to noon. When they reconvened, Chairman Lundy thanked Mr. Osborn for his help on guiding the board through their last discussion. Under new business, the board reviewed staff action regarding benefit increase requests. Mr. Hensley made a motion to approve staff action for each benefit increase, with the exception of Blytheville Fire, which was discussed separately. Mr. Gates seconded the motion, and it passed unanimously. Blytheville Fire — approval of 62% of salaiy/base. Ms. Hinshaw said the benefit increase was approved at a benefit percent that the plan did not want. As a courtesy, the actuaries approved a benefit increase for 62% of salary, so that the plan members could receive.a small increase. Plan members were previously at 60% of salary. Mr. John Turbeville represented the Blytheville Fire Pension Fund. He said that the members of the Blytheville fund wished to appeal the decision regarding their benefit increase request. Mr. Turbeville referenced two letters. The first letter is one to Ms. Hinshaw from the actuaries dated May 3. In the letter, the reason for the denial of the benefit increase to 65% of salary is explained by the fact that the actuaries discovered that the fund had underreported DROP balances by $238,000. The Blytheville plan, like all other local plans, has an annual financial report prepared by a CPA The report is then sent to the PRB for review and filed. Mr. Turbeville said that the members of the Blytheville fund are at a loss as to why the DROP balance was underreported, and why the error was not caught, since the DROP balances are certified every year. The second letter to Ms. Hinshaw from assistant fire chief Bill Crowder, also has a couple of other questions regarding the benefit increase. One of the questions is about "active lives" and "unfunded accrued liabilities. The members of the Blytheville plan do not understand why the unfunded accrued liabilities and active lives liabilities would increase so dramatically for a 70% of salary benefit increase The plan currently pays 60% of salary; the proposed increase was for 70%. The liability for active lives and unfunded liabilities would increase from $5,900 to $123,000 and the employer rate would increase from 33% to 104%. Net employer contributions would increase from $61,000 to $190,000, which is almost triple for a 10% increase in benefits. Mr. Osbom said the answer to all of Blytheville's questions is the same. Going from a 60% of salary increase to a 70% of salary increase is a 14 15% increase in employer contributions. If a plan has $4 million in liabilities, then 14% is going to be added to that, which is about $500,000 to $600,000 more in liabilities. There is not much difference between Crossett's benefit increase request to go from 70% to 90% of salary, which was denied. Crossett's employer rate would have increased to almost 100% of pay. Chairman Lundy asked Mr. Osbom how long of a time penod a plan has to pay back or amortize additional liabilities under current standards. Mr. Osborn said at least five years, which makes a big impact now, because these are closed plans. When a plan accrues a new liability, it has to be paid off for active members and current retirees between now and the time the fund is closed. • t • PRB Minutes June 29, 1999 Page 7 of 8 The chairman asked Mr. Osborn if he knew why the DROP balance was underreported by $238,000. Mr. Osborn said he did not know. He gave the board members a copy of the financial report for the Blytheville Fire Pension Fund, which shows that the member DROP balances as $43,000. The person who filled out the report did not list -individual DROP balances, which is normally how the actuanes would have venfied the total DROP balance. Chairman Lundy asked Ms. Hinshaw and Mr. Osborn if they had responded to the June 17`h letter from Blytheville. Ms. Hinshaw said no. Mr. Osborn said the Blytheville board should address questions about the DROP balances to their auditor or whoever filled out the report and ask him where he got his figures. Chairman Lundy asked Mr. Osborn and Ms, Hinshaw to respond to Chief Crowder's letter. Mr. Osborn said he would respond that numbers for the benefit increase are not disproportionate to amount of the raise. Chairman Lundy said the plan also asked why the error in the DROP balance was not caught. Mr. Osbom said his staff checks many things on 280 plan reports, and sometimes they miss some things. They also send back a lot of reports that do not balance. Mr. Turbeville said that however the error occurred, the Blytheville plan is not trying to hold someone accountable for an omission of a fact. What they are trying to do is get some clanfication so that they are comfortable with the benefit increase they are entitled to. They are not expecting any more than or any less than what they are entitled to. They just need some understanding on how the figures were arrived • at. Chairman Lundy said the plan's questions should be responded to in writing. Mr. Hensley made a motion for Ms Hinshaw to respond in wnting to the Blytheville Fire Pension Fund. Mr. Gates seconded the motion and it passed unanimously. Booneville Fire — approval of $195 per month Crossett Fire — denied 90% of salary to paids/$75 per month to volunteers. Mr. Gates asked if the plan had asked for the random search. Mr. Osborn said they can do a random search on paid plans, but Crossett did not ask for it. Even with a random search, Mr. Osbom said he did not think Crossett could qualify for an increase to 80% of salary. Mena Fire— approval of $90 per month base to volunteers Pine Bluff Police — approved minimum benefit to current retirants and beneficiaries to $650 per month. Texarkana Police — approved increase of $200 per month to all retirants, beneficiaries, and DROP members. Ms. Hinshaw gave the board an update on the 1999-2000 Guarantee Fund allocation. She said the money is available, and applications have been mailed to the plans. The Pension Review Board Mission Statement was noted by the board. Ms. Hinshaw said the statement is required by law. The board noted submission of DROP rules from Bella Vista Fire, Malvern Police, and Pine Bluff Police. Ms. Hinshaw said that Board • Rule #10 requires that local plans submit copies of their DROP rules to the board. %/ • • • PRB Minutes June 29, 1999, Page 8 of 8 Attomey General opinions were noted by the board. Ms. Hinshaw said that most of the opinions were not in response to board requests, but did affect local plans. After some discussion, the board asked that Ms. Hinshaw seek clanfication on opinion 99-039, because the last page is confusing. Mr Evans asked Ms. Hinshaw to send him a copy of the clanfication as soon as she receives it. Under other business, the board went back and reviewed the actuaries' letter about maximum benefits. Mr. Osborn said the law addresses 100% of pay for paid firefighters, but since volunteers are not paid, his opinion is that the maximum is $30 or $50 for Act 1197 plans, plus $10 per month for every year of service over 20 years, which would be up to a $50 maximum or a $70 maximum. This amount can be increased to any amount using the benefit increase procedure. For full paid firefighters, the actuaries believe that the maximum is 100% of pay plus $100 per month for a person with 25 or more years of service. For part -paid firefighters they think that it is the greater of the benefit if the member was a volunteer, or 100% of pay plus $50 per month for a person with at least 235 years. If a member has less than 25 years, it is a little bit lower. For police members, the maximum is 100% of pay. Chairman Lundy asked for a motion on guest parking. Mr. Hensley made the motion for approval and Ms. Cook seconded. The motion passed unanimously. There was no other business to discuss. The next board meeting is set for Tuesday, September 28, 1999 at 10:00 a.m. in the board's offices. The meeting adjourned at 12:30 p.m. Respectfully Submitted, Elizabeth Stephens Recording Secretary to the Board r. FAYETTEVILLE • THE CITY OF FAYETTEVILLE, ARKANSAS September 13, 1999 Merrill Lynch Richard Yada 2200 N. Rodney Parham Rd. Suite 300 Little Rock, Arkansas 72212 Dear Mr. Yada: On behalf of the Fayetteville Fire Pension and Relief Fund, please transfer by wire fifteen thousand dollars ($15,000.00) to the Bank of Arkansas. Credit to Fayetteville Fire Pension. 082901392 routing ABA Account number 1063401. • Please complete the transfer today or tomorrow morning. Sincerely, Heather Woodruff City Clerk/Treasure red Hanna Mayor anon Doss Assistant Fire Chief 113 WEST MOUNTAIN 72701 501.521-7700 FAX 501 575-8257 09/13/99 14:55 V1 501 575 8257 City of Faye 01001 TRANSMISSION OK ACTIVITY REPORT e*:$ TX/RX NO. 3862 CONNECTION TEL 915012287431p5897 CONNECTION ID START TIME 09/13 14:55 USAGE TIME 00'29 PAGES 1 RESULT OK • • • F1 VETT EVE] THE CITY OF FAYETTEVILLE, ARKANSAS September 13, 1999 Merrill Lynch Richard Yada 2200 N. Rodney Parham Rd Suite 300 Little Rock, Arkansas 72212 Dear Mr. Yada: • On behalf of the Fayetteville Fire Pension and Relief Fund, please transfer by wire fifteen thousand dollars ($15,000.00) to the Bank of Arkansas. Credit to Fayetteville Fire Pension. 082901392 routing ABA Account number 1063401. • Please complete the transfer today or tomorrow morning. Sincerely, AltaTz ad/ Heather Woodruff City Clerk/Treasure red Hanna Mayor anon Doss Assistant Fire Chief 113 WEST MOUNTAIN 72701 501 521-7700 FAX 501 575-8257 Post -it® Fax Note 7671 COJOePI. THE CITY OF FAYETTEVILLE, ARKANSAS September 13, 1999 Merrill Lynch Richard Yada 2200 N. Rodney Parham Rd Suite 300 Little Rock, Arkansas 72212 Dear Mr. Yada: • On behalf of the Fayetteville Fire Pension and Relief Fund, please transfer by wire fifteen thousand dollars ($15,000.00) to the Bank of Arkansas. Credit to Fayetteville Fire Pension. 082901392 routing ABA Account number 1063401. • Please complete the transfer today or tomorrow morning. Sincerely, AltaTz ad/ Heather Woodruff City Clerk/Treasure red Hanna Mayor anon Doss Assistant Fire Chief 113 WEST MOUNTAIN 72701 501 521-7700 FAX 501 575-8257 Post -it® Fax Note 7671 COJOePI. F4YETTE R ILLE • THE CITY OF FAYETTEVILLE, ARKANSAS • • September 1, 1999 Richard Yada Memll Lynch 2200 N. Rodney Parham Road Suite 300 Little Rock, Arkansas 72212 Dear Richard: On behalf of Fayetteville Fire Pension and Relief Fund, please pay Ashland Management $4,406.97 for management fees. Our account number is 56305G88. Thank you, eather Woodruff City Clerk 113 WEST MOUNTAIN 72701 501 521-7700 FAX501 575-8257 .11 RB eip. ARKANSAS FIRE & POLICE PENSION REVIEW BOARD • • P.O. DRAWER 34164 Lmte Root, AwuwsAs 71203 Tae to (501) 682 -1745 FAx (501) 682 -1751 email: infoOlopfrprb.00m website: www.lopfi-ptb.com TO: The Board of Trustees Fire Pension and Relief Fund of FAYETTEVILLE FROM: Arkansas Fire and Police Pension Review Board RE: 1999 Pension Fund Actuarial Valuation DATE: September 13, 2000 In accordance with State law, the actuary under contract to this office periodically tests all local fire and police pension funds for actuarial soundness. The 1999.actuarial study of your pension fund is attached. The financial tests for the pension fund are to answer the following questions: 1. Is there enough annual income to the pension fund to fully fund it? (See page 4 of the actuary's report.) 2. Are there enough assets in the pension fund to cover all active member contributions, all payments to current retirees, and at least 85% of future payments earned by active members (See page 11 of the actuary's report), OR are current assets sufficient to cover 94% of all accrued actuarial liabilities (See page 10 of the actuary's report). 3. Is this pension fund considered actuarially sound under State law? RFrFIVED SFP 27; 2000 ciYC.E aCFFwE YES NO B • • FAME 11 EVILLE FIREFIGHTERS PENSION FUND ACTUARIAL VALUATION AS OF DECEMBER 31, 1999 • 1 • • Osborn, Carreiro & Associates, Inc. • ACTUARIES • CONSULTANTS • ANALYSTS • September 11, 2000 Board of Trustees Fayetteville Firefighters Pension Fund One Union National Plaza,Sulte 1690 124 West Capitol Avenue Little Rock, Arkansas 72201 (501)376-8043 Gentlemen: This report presents the results of our actuarial valuation of the assets and liabilities of the Fayetteville Firefighters Pension Fund as of December 31, 1999. This valuation is required by Arkansas Code Annotated 24-11-205. The purpose of this report is to (l) evaluate the actuarial status of the Fund, (2) determine the level contribution requirement needed, (3) review the development of the Fund aver the past several years, and (4) present certain actuarial items on page 9 for disclosure under Govemmental Accounting Standards. This report is not intended for any other purpose. The member and financial information used in this report was supplied by the Arkansas Fire & Police Pension Review Board, whose cooperation is appreciated. We did not audit this information, although we did review it for reasonableness and consistency. I certify that this report has been prepared in accordance with generally accepted actuarial principles and practices. In my opinion, the actuarial methods used are appropriate and the actuarial assumptions produce results which, in the aggregate, are reasonable. Sincerely, 04, Steve Osborn, F.S.A., M.A.A.A. Actuary • • • EXHIBIT 1 EXHIBIT 2 EXHIBIT 3 EXHIBIT 4 EXHIBIT 5 EXHIBIT 6 EXHIBIT 7 EXHI IT 8 TABLE OF CONTENTS CONTRIBUTIONS COST AND LIABILITIES SUMMARY OF FINANCIAL INFORMATION COMPARISON WITH PRIOR YEARS SHORT CONDITION TEST EMPLOYEE AND RETIREE PROFILES PRINCIPLE PROVISIONS OF THE PLAN ACTUARIAI, METHODS AND ASSUMPTIONS • • EXHIBIT 1 CONTRIBUTIONS The following contribution level reflects the payment of the current year Normal Cost for benefits attributable to said year (see Exhibit 2) plus an amount sufficient to pay off the Unfunded Actuarial Liability over a 8 -year period (5 -year period for any unfunded retiree liability). These costs DO NOT include the contributions due to the Local Police and Firefighters Retirement System ("LOPFI") for persons hired after 1982. 2000 Necessary Annual Contribution to pay: 1 Normal Cost, plus 2 Pay off the Unfunded Actuarial Accrued Liability Full Volunteer or Emil Part -Paid $ 138,448 80,898 3 Total necessary $ 219,346 $ • Less 4 Expected Employee Contribution - 22,031 - (6.00% of salary. $12 per active volunteer) Necessary Employer Contribution (This is the amount needed in addition to investment income) Covered Payroll Necessary Employer Rate 0 $ 138,448 0 • 80,898 0 $ 219,346 0 22,031 $ 197,315 $ 0 $ 197,315 $ 367,188 N/A $ 367,188 53.74% $ N/A 53.74% These contributions assume that the dollar contribution grows at a rate of 4% per year. The contributions are assumed to be made continuously throughout the year. The actual 1999 contribution was $514,019 from the employer. 4 • • EXHIBIT 2 COSTS AND LIABILITIES A Normal Cost (Cost to fund current active members) 1 Regular Retirement Benefits 2 Voluntary Termination Benefits 3 Survivors' Benefits 4 Disability Benefits TOTAL B Actuarial Accrued Liability • 1 Active Lives Regular Retirement Benefits Voluntary Termination Benefits Survivors' Benefits Disability Benefits TOTAL ACTIVE LIVES 2 Deferred Retirement Option DROP Accounts Future DROP Payments & Pensions TOTAL DROP 3 inactive Lives Retirees Disability Retirees Widows & Children TOTAL INACTIVE LIVES 4 Total Liability C ssets D Unfunded ActuariaiAccrued Liability 5 December Dollar Amount 128,798 3,100 3,096 3,454 138,448 $ 2,920,335 0 1,065 2,261 $ 2,923,661 536,713 3,602,298 4,139,011 31 1999 Percent of pay 4,750,833 622,995 504,343 5,878,171 12,940,843 12,352,475 588,368 35.08% 0.84% 0.84% 0.94% 37.70% • • EXHIBIT 3 SUMMARY OF FINANCIAL INFORMATION (Items D -E, and G determined by Osborn, Carreiro and Associates, Inc.) Year Ended Year Ended Year Ended A. INCOME 12/31/1997 12/31/1998 12/31/1999 1 Contributions Employee $ 44,797 $ 48,397 $ 45,668 Donations 0 300 1,792 Employer/Court Fines/Other 89,593 97,650 91,337 Insurance Tax 154,075 154,468 158,596 Local Millage 237,469 246,287 264,086 Adjustment to prior year asset value 2 Net Investment Income TOTAL INCOME 0 877,202 0 0 418,145 789,774 $ 1,403,136 $ 965,247 $ 1,351,253 B. EXPENSES 1 Administrative $ 3,000 $ 4,583 $ 3,000 2 J3enefitg 452,558 452,558 520,122 3 Re nds 0 0 0 TOTAL EXPENSES $ 455,558 $ 457,141 $ 523,122 6 • EXHIBIT 3 (Continued) C ASSETS (at book value) 12/31/1997 12/31/1998 12/31/1999 1 Cash & Checking Accounts $ 0 $ 0 $ 0 2 Bank Deposits 66,202 69,621 244,627 3 Savings and Loan Deposits 0 0 0 4 Other Cash Equivalents 650,784 1,735,365 1,013,861 5 US Govt. Securities 2,184,012 2,226,356 2,110,212 6 Non -US Govt Securities 0 0 0 7 Mortgages 0 0 0 8 Corporate Bonds 2,377,472 2,514,935 2,691,957 9 Common Stocks 5,401,209 4,605,621 5,932,541 10 Other 118,007 153,894 140,725 11 Payables 0 0 0 TOTAL ASSETS $ 10,797,686 $ ' 11,305,792 $ 12,133,923 ' D. RATIO OF ASSETS TO - ANNUAL EXPENSES: 23.7 24.7 23.2 E. NET INVESTMENT RETURN: • 8.9% (Book Value Basis) 7 3.9% 7.0% • Exhibit 3 (Continued) • • F. TOTAL MARKET VALUE I. Market Value, end of year (Used for GASB calculations, page 9) 2. Market Value, beginning of year 12/31/1995 12/31/1996 12/31/1997 12/31/1998 J2/31/1999 8,870,878 9,826,212 11,225,602 11,854,130 12,880,300 8,870,878 9,826,212 11,225,602 11,854,130 G. pEVELOPMFNT OF ACT'UARIAT. VAT TE OF ASSETS 1. Actuarial Value of Assets, beginning of year 2. Non Investment Net Cash Flow 3. (a) (b) (c) Development of Investment Income Total Market Investment Income (Fl -F2 -G2) Amount for Immediate Recognition (6% Gl) Amount for Phased In Recognition (G3a-G3b) (d) Phased In Recognition Current year • 20% of 3(c) First Prior Year Second Prior Year Third Prior Year Fourth Prior Year Total Phased In Recognition (e) Actuarial Value Investment Income (3(b)+3(d)) 4. Actuarial Value of Assets, End of year (1+2+3(e)) Note: Net Investment Return on the Actuarial Value of Assets 8,897,591 108,269 9,602,357 70,376 847,065 1,329,014 533,855 576,141 313,210 752,873 0 62,642 0 10,462,091 11,375,162 89,961 38,357 538,567 987,813 627,725. 682,510 (89,158) 305,303 150,575 (17,832) 61,061 62,642 150,575 (17,832) 0 62,642 .150,575 0 62,642 0 62,642 213,216 195,385 256,445 596,497 789,358 823,110 938,955 • 8,897,591 9,602,357 10,462,091 11,375,162 12,352,475 6.7% 8.2% 7.8% 8.2% The Pension Review Board's Board Rule #11 first applies this methodology to determine the Actuarial Value of Assets for the 12/31/99 actuarial valuation report. Different methods were used to determine the Actuarial Value of Assets for the 12/31/98 and earlier reports. 8 • • EXHIBIT 3 (Continued) ACCOUNTING INFORMATION This page is included to provide the information required by the Governmental Accounting Standards Board Statement No. 25 and 27, effective January 1, 1998. The values below are based on the assumptions contained in Exhibit 8. The Annual Pension Cost disclosed in this exhibit will almost always differ from the actual cash contribution to the fund. We must emphasize that these disclosures are shown in the city's financial statements; Sound actuarial projections should be used to determine the actual cash contribution requirements. • RECONCILIATION OF NET PENSION OBLIGATION (NPO) 1: Actuarially Required Contribution 2. Interest on NPO 3. Adjustment to (1) 4. Annual Pension Cost (1)+(2)-(3)- 5. Actual Contribution Made 6. Increase in NPO (4)-(5) 7. NPO Beginning of Year 8. NPO End of Year (a) Actuarial Valuation • Date 12/31/1993 12/31/1995 12/31/1997 12/31/1999 (b) Market Value of Plan Assets* 7,271,255 8,897,591 11,225,602 12,880,300 r Note: ** Note: 1998 292,026 (94,050) (175,639) 373,615 498,405 (124,790) (1,567,498) (1,692,288) REQUIRED SUPPLEMENTARY INFORMATION (c) Entry Age Actuarial Accrued Liability 7,816,034 9,045,983 12,093,450 12,940,843 (d) Unfunded Accrued Liability (UAL) (c) -(b) 544,779 148,392 867,848 60,543 (e) • Funded Ratio . (b)/(c) 93.0% 98.4% 92.8% 99.5% 1999 292,026 (101,537) (189,622) 380,111 . 514,019 (133,908) (1,692,288) (1,826,196) (t) Annual Covered Payroll** 620,116 676,847 608,602 367,188 • 2000 124,741 (109,572) (251,093) 266,262 (1,826,196) (g) UAL as a% of Covered Payroll (d)/(f) 87.9% 21.9% 142.6% 16.5% 12/31/93 and 12/31/95 are at amortized cost value. For volunteer/part paid members, Annual Covered Payroll is $200 for such active members 9 • • • EXHIBIT 4 COMPARISON WITH PRIOR YEARS This exhibit compares current valuation results with those of prior years. Valuation Date 12/31/1982 12/31/1984 12/31/1986 12/31/1987 12/31/1989 12/31/1991 12/31/1993 12/31/1995 12/31/1997 12/31/1999 Full Paid Active Members Annual No. Payroll 50 810,926 45 807,438 37 723,894 38 788,348 27 639,962 23 585,898 22 620,116 21 676,847 17 608,602 10 367,188 Actuarial Computed Employer Contribution Percent of Pay Total Plan Unfimded Normal Actuarial Liability Dollar Cost Funded Amount Assets Percent Percent 22.1% 179,271 2,202,969 811,186 18.5% 73.1% 27.7% 223,455 3,078,619 1,193,660 22.1% 72.1% 29.6% 213,935. 4,006,484. 1,379,340 21.8% 74.4% 31.3% 246,479 4,460,948 1,455,161 23.4% 75.4% 36.0% 230,328 5,189,846 1,976,463 26.6% 72.4% 33.3% 195,273 5,999,964 . 1,427,422 25.5% 80.8% 25.2% 156,484 7,271,255 544,779 25.4% 93.0% 25.6% 173,401 8,897,591 148,392 29.8% 98.4% 55.9% 339,974 10,797,686 1,295,764 38.0% 89.3% 53.7% 197,315 12,352,475 ' 588,368 37.7% 95.5% • *Benefits or assumptions changed Note: Normal cost prior to 12/31/89 is net of 6% employee contributions. Valuation Dalt 12/31/1982 12/31/1984 12/31/1986 12/31/1987 12/31/1989 12/31/1991 12/31/1993 12/31/1995 12/31/1997 12/31/1999 Part -Paid/ Volunteer Active Members 1 1 0 0 0 0 0 0 0 0 Actuarial Computed Employer Contribution 10 227 274 0 0 0 0 0 0 0 0 • • • • EXHIBIT 5 SHORT CONDITION TEST The Arkansas General Assembly has stated that the funding objective for these plans is to pay for benefits with contributions that remain level as a percentage of employee payroll. Thus, the long-term condition test is met when the actual contributions are fairly level and are paid when due. A short condition test can be used to measure a plan's progress. Under the short condition test, the fund's assets are compared with: 1) Active member contributions; 2) The liabilities for future benefits to the present retirees and inactive members; 3) The liabilities for service already rendered by active members. If the plan has been following level cost funding, liability (1) and liability (2) above will almost always be fully covered by the rest of the present assets. In addition, liability (3) above will at least partially . funded. The larger the funded portion of liability (3), the stronger the condition of the fund.For a closed fund i.e., one like yours, where no new members are admitted), the funded portion of liability (3) should be steadily increasing. The following table illustrates the history of the short condition test for this plan: Valuation Date 12/31/1982 12/31/1984 12/31/1986 12/31/1987 12/31/1989 12/31/1991 12/31/1993 12/31/1995 12/31/1997 12/31/1999 • Computed Actuarial Liabilities (1) Active Meinbers Contributions 160,669 236,541 263,129 308,829 274,405 292,477 353,891 418,412 401,937 267,239 (2) Retirees, Inactives, and DROPS 898,272 1,464,696 2,753,772 2,754,276 4,560,672 5,072,169 5,005,131 5,101,995 7,315,705 10,017,182 (3) Actives - Employer Financed 1,955,214 2,571,042 2,368,923 2,853,004 2,331,232 2,062,740 2,457,012 3,525,576 4,375,808 2,656,422 Portion of Liabilities covered by Assets • Valuation Assets . (1) (2) (3) 2,202,969 3,078,619 4,006,484 4,460,948 5,189,846 5,999,964 7,271,255 8,897,591 10,797,686 12,352,475 100% 100% 59% 100% 100% 54% 100% 100%. 42% 100% 100% 49% 100% 100% 15% 100% 100% 31% 100% 100% 78% 100% 100% 96% 100% 100% 70% 100% 100% 78% • A Exhibit 6 Employee Profile Employee data needed for the valuation was obtained from the records furnished by the Arkansas Fire and Police Pension Review Board. The following table shows a detailed breakdown. of the present participants by the number of participants and total salary. Actives Years of Service 20-25 25-30 30 and Over Total Se Under 25 Count 0 Salary 0 0 0 0 0 0 0 0 0 0 0 0: 25-29 Count 0 0 0 0 0 0 0 Salary 0 0 0 0 0 0 0 '. 3034 Count 0 0 0 0 0 0 0` Salary 0 0 0 0 0 0 0 €4 35-39 Count 0 0 0 0 0 0• 0,� Salary 0 0 0 0 0 0 0 40-44 Count 0 0 0 6 2 0 0 Salary 0 0 • 0 197,724 72,780 0 0 $*%k 45-49 Count 0 0 0 1 0 0 0a Salary 0 0 0 36,582 0 0 _ 0 ff 50-54 Count 0 0 0 0 0 0 0 Salary 0 0 0 0 0 0 0'�h 55-59 Count 0 0 0 0 0 0 1 Salary 0 0 0 0 0 0 60,104 f,�Cyr- .�, I• ,I 60-64 Count 0 0 0 0 0 0 0 0 • 0 0 0 0 0 0-= ?c Salary 65 & Over Count 0 0 0 O 0 0 0 Salary 0 0 0 0 0 0 0 rv' l u Unknown Age Count 0 0 0 . 0 0 0 Salary 0 0 0 0 0 0 0 °' Total Count* 10 '`�y'•k n„Qw' a 0 '.0, �r .0 r -0 '''< N ' z3 all3D Salary -�. �t� �_ 12 • Age Exhibit 6 Employee Profile Employee data needed for the valuation was obtained from the records famished by the Arkansas Fire and Police Pension Review Board. The following table shows a detailed breakdown of the present participants by the number of participants. Volunteers/Part-Paid Actives Years of Service 0-5 Under 25 25-29 Count Count 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65 & Over Unknown Age Total 5-10 10-15 15-20 20-25 25-30 30 and Over Total Count 0 Count 0 Count Count 0 Count 0 Count 0 Count 0 Count 0 Count 0 Count 0 0 0 0 0 0 0 0 0 0 0 0 0 13 • • A Exhibit 6 Inactive Profile Employee data needed for the valuation was obtained from the records furnished by the Arkansas Fire and Police Pension Review Board. The following table shows a detailed breakdown of the present payees by the number of payees and total annual benefit. Retirees and Survivors Years Since Retirement 0-1 1-2 2-3 3-4 4-5 5-10 10 and Over Total This includes This includes This includes 39 retirees with annual benefit of $368,861 . 5 disableds with annual benefit of $56,403 . 12 survivors with annual benefit of $49,382 . 14 Under 40 Count Benefit 0 0 0 0 0 0 0 0 u 0 v 0 v y4# ,3 O' `II 40-44 Count 0 0 .0 0 0 0 0 4i, °r..1. Benefit 0 .0 0 0 0 0 0 * 45-49 Count 1 0 0 0 0 1 0 ;i k Benefit 23,705 0 0 0 0 5,014 0.' 50-54 Count 0 0 . 0 0, 0 4 4: d `. Benefit 0 0 0 0 0 61,295 58,453`+ 55-59 Count 0 0 0 0 0 3 7i i ie Benefit 0 0 0 0 ". 0 33,454 • 107,278 r 1 60-64 Count 0 0 0 0 0 0 6 1% Benefit 0 0 0 0 •• 0 0 53,725 65-69 Count 0 0 0 0 0 0 7 Benefit 0 0 0 0. 0 0 64,378 70-74 Count 0 0 0 0: 0 0 3 x qx-Kt/. t ala Benefit 0 0 0 0 0 0 12,39639 . y' 75-79 Count 0 0 0 0 0 0 8 ,, - Benefit 0 0 0 0• 0 0 26,118 - K1n3. 80-84 Count 0 0 0 0• 0 0 8 E r y i Benefit 0 0 0 • 0 0 0 14,370:.,14' 85 & Count 0 0 0 0 0 0 4g' Over Benefit 0 0 0 0• 0 0 14,460 s 1. Unknown Count 0 0 0 0 0 0 0 Age Benefit 0 Total Count Benefit k a. fa# w O -„0 4 1 ' R% 4 h as a rs.df7 5 1_ , Y�F l This includes This includes This includes 39 retirees with annual benefit of $368,861 . 5 disableds with annual benefit of $56,403 . 12 survivors with annual benefit of $49,382 . 14