HomeMy WebLinkAbout2001-10-18 - Agendas - Final FAYE TTEVILLE
THE CITY OF FAYETTEVILLE, ARKANSAS
POLICE PENSION AND RELIEF FUND BOARD
AGENDA
OCTOBER 18, 2001
A meeting of the Fayetteville Police Pension and Relief Fund Board will be held on Thursday,
October 18, 2001 , at 1 :30 p.m. in Room 326 of the City Administration Building located at 113 West
Mountain Street, Fayetteville, Arkansas.
1 . Approval of the minutes
2. Pension List
3. Investment Report
4. Lora Bender, US Social Security Office
How Civil Service Benefits affect Social Security.
5. Other Business
•
113 WEST MOUNTAIN 72701 501521-7700
FAX 501 575-8257
JOINT SPECIAL MEETING
OF THE •
FIRE AND POLICE PENSION BOARDS
MAY 179 2001
A special joint meeting of the Fayetteville Fire and Police Pension Boards was held on May 17,
2001 at 11 :00 a.m. in Room 326 of the City Administration Building located at 113 West
Mountain Street, Fayetteville, Arkansas.
PRESENT: Ron Wood, Danny Farrar, Marion Doss, Gene Warford, Eldon Roberts, Hollis
Spencer, John Maguire and Steve Davis.
Mr. Williams stated the judge had made his rulings that the attorney fees were 25% of the total
amount. The total amount which was determined to illegally exacted. It had been determined
that $213,469 .50 had been paid to both the Pension Board, more than what the constitution
allowed. The judge had made the determination that the attorneys for the plaintiffs were entitled
to their 25% and they were entitled to it within fourteen days of the judges order. The judges
order was entered on May 11 , 2001 . It was filed on May 14, 2001 . He did not know exactly
what they means. He stated if they were to be more careful they needed to assume the fourteen
days stated on the 110'. The total amount of the attorney's fees was $53,367.38. When they had
the funds and the checks were cut, he would write out a release so that they will be totally clear
from the attorney. When they receive the money, they had to sign the release. They could not •
come back again. In the future, there would be the remainder of the money that they would have
to pay. If they did not pay within the fourteen days, then the attorney could start charging
interest.
Mr. Roberts asked if their boards had to act on this. They did not have a quorum here.
Mr. Williams stated he would feel safer with a quorum. They might alert their investment people
that they would have to do this. He thought it would be better to officially do this. They did not
have an option, because the judge had ordered this. They could garnish this if they wanted to.
He asked that they get a quorum as quickly as they could to go ahead and authorize this action.
Mr. Roberts asked if they were going to be required to pay all of this back, aside from attorney
fees or was it a portion of what was actually returned.
Mr. Williams stated it was his understanding that there was a set amount that they agreed to pay.
He was not involved in this case. He knew that not even half of the money was returned. The
25% had been based on the entire amount, not what had been returned. He thought that once
they paid the attorney fees, then it would only be the amount that the tax payers actually asked for
back. They had already rolled back the millage at the County. Be thought that in order to get
back to a higher millage, that the City Council could not just go back to the higher millage, but
they would need a vote of the people to go back to the original millage. He knew that the various
other entities were facing terrible problems with this and had voted to go back to the millage, •
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• Fire and Police Special Meeting
May 17, 2001
Page 2
even though, it had been rolled back temporary by this suit. He thought they could go back to the
citizens and have it reinstated.
Mr. Davis stated the $213,000 that the court system had declared illegally exacted. That was the
total. That included the legal fees and the refund amount. The only payments which had to come
out of the money was the legal fees at $53,000 and our portion of what the taxpayers actually
claimed. The County was going to send out the first checks on the refund on June 30.
Special meetings were set for Monday, May 21 , 2001 at 1 :30p.m. and 2:00 p.m. for Police and
Fire Pension Boards
•
•
MINUTES OF A MEETING
OF THE
FAYETTEVILLE POLICE PENSION AND RELIEF FUND BOARD
MAY 219 2001
A special meeting of the Fayetteville Police Pension and Relief Fund Board was held on May 21 ,
2001 in Room 326 of the City Administration Building.
PRESENT: Mayor Coody, Eldon Roberts, Hollis Spencer, Dr. Mashburn, Randy Bradley,
Heather Woodruff, Steve Davis, Kit Williams and John Maguire,
Mr. Williams stated they would need a motion to pay the amount ordered by the Judge for the
attorney's fees that amount is $26,683 .69. He added the Fire Pension Fund would be responsible
for the other half.
Mr. Roberts stated he had contacted their investment person and asked them to get with our
accounting department to make sure that amount was in our checking account in order to pay this
bill.
Mr. Williams explained the judge had ordered this amount to be paid. There was a stipulated
amount of $213,000. Attorney fees were twenty-five percent of that.
Mr. Spencer moved to pay the bill for attorney fees. Mr. Roberts seconded the motion. The •
motion carried unanimously.
Mr. Williams stated there was also a bill from the County which represented one-half of what
was owed to the tax payers.
Dr. Mashburn asked if this took into account the people who did not request their money back.
He had not requested his money back. He wanted it to stay where it could do the most good.
Mr. Williams replied it did. This was only the amount that was actually going to paid back to the
tax payers. In response to questions from Mr. Roberts, Mr. Williams stated in order for the
attorneys to collect their check they would have to sign a release stating the attorney fees were
paid in full.
Mr. Roberts asked when the other half of the County's fees would be due.
Mr. Williams replied it would be next year. There would also be some administrative fees,
however, that would be a pretty small amount.
Mr. Roberts moved to pay the refund amount to the county. Mr. Bradley seconded the motion.
The motion carried unanimously.
Meeting adjourned. •
• MINUTES OF A MEETING
OF THE
FAYETTEVILLE POLICE PENSION AND RELIEF FUND BOARD
JULY 199 2001
A meeting of the Fayetteville Police Pension and Relief Fund Board was held on July 19, 2001 at
1 :30 p.m. in Room 326 of the City Administration Building located at 113 West Mountain Street,
Fayetteville, Arkansas.
PRESENT: Randy Bradley, Hollis Spencer, Eldon Roberts, Jerry Friend, Dr. Mashburn, Heather
Woodruff, and Kit Williams.
ABSENT: Mayor Coody.
MINUTES
Dr. Mashburn moved to approve the minutes from April 19, 2001. Mr. Spencer seconded the
motion. Upon roll call the motion carried unanimously.
Mr. Roberts stated the meeting on May 17, 2001 was not a regular meeting and they did not have a
quorum, but they did discuss the information regarding the Amendment 59 law suite.
Mr. Spencer moved to approve the minutes from May 17, 2001 . Alderman Roberts seconded
• the motion. The motion carried unanimously.
Mr. Friend noted he was not present at the May 17, 2001 meeting and did not second the motion
regarding the taxpayer refunds. Mr. Friend moved to approve the minutes amending his
attendance and replacing his name with Mr. Bradley who seconded the motion and addition
of the exact amount of the payment. Mr. Bradley seconded the motion. The motion carried
unanimously.
PENSION LIST
Mr. Roberts stated the State supplemental money had not come in and the retirees did not receive
it on their July check. A letter had been sent out with the July checks explaining the shortage. There
had been a law passed this last session which increased the State Supplemental benefit to fifty dollars
per person. It was fifteen dollars for everyone except for those drawing less than four hundred
dollars, who received fifty dollars.
RON HASKINS
Mr. Roberts stated when he heard Mr. Haskins had passed away he had called accounting and asked
them to send a check the estate of Ron Haskins. They needed to formalize the expenditure of
$200.00.
Mr. Friend moved to approve the $200.00 funeral expense for Ron Haskins. Mr. Bradley
• seconded the motion. The motion carried unanimously.
Police Pension
July 19, 2001 •
Page 2
ELECTION OF BOARD MEMBERS
Mr. Roberts stated there were three retired representatives on the board, JerryFriend, Hollis Spencer,
and Randy Bradley. Randy' s term had expired.
Mr. Spencer stated a telephone poll had been taken to reappoint Randy Bradley.
Mr. Roberts stated his term had also expired. The law did not define how the elections were to be
held. He presented a letter from the remaining seven active members with signatures supporting his
reappointment.
AMENDMENT 59
Mr. Roberts stated an invoice had been presented regarding the administrative cost for the refund.
Dr. Mashburn moved to approve the payment in the amount of $1 ,257.02 to Washington
County. Mr. Spencer seconded the motion. The motion carried unanimously.
INVESTMENT REPORT
Ms. Longer stated that they had received copies of their actuarial reports from 1997 and 1999. She •
had gone through them and looked at the differences. She had not be successful in getting a hold
of Kathryn Hinshaw. However she had contacted Jody Cario. She stated they could go over what
she had found out and they could formalize some questions then she could come back with more
information.
Their first report showed the portfolio appraisal for the equity and fixed income portfolio as
of June 30, 2001 . Their equity weighing was approximately 38.55 with stocks plus their equity
mutual funds. That was a little above the lower range of 35-50% that was in their policy. The
portfolio value went up this quarter by about 2%. The cash balance was about $ 100,000. The
market value was approximately $ 10,821 ,000. The market was down in July.
In the Stock Account there were ample reserves. They had maintained their core holdings.
They had been able to hold onto cash reserves, looking for better buying opportunities. They were
close to 40% stocks . They had the potential to go up to 50%, which would be adding another million
dollars to the stock side of the portfolio. They had the cash reserves and the short term bonds in
order to do that. They were trying to keep the buying power in their pocket. General Motors was one
of their best performers this year. This was the first year in eighteen years that she had bought
General Motors. There were a lot of reasons for them to be purchased this year. General Motors was
capturing market share from Ford, because of all of Ford's problems. They had received about a
20% return on GM this year.
Their Realized Gains year to date were about $62,000. Their Net Income, dividends and
interest, was $7911 ,000.
In the Bond Account, they had continued to extend maturity and take advantage of the higher
interest rates. The short term rates had dropped, but the long term rates were back up. They had •
Police Pension
• July 19, 2001
Page 3
been able to buy some of the 6% longterm bonds. They had been able to buy some very attractive
government agency with above a 6% coupon with some call features. The yield on book value, fixed
income securities has gone up from 331 , the yield on book value is about a 6.3%. They had been
able to increase that to 6.5% yield. They had extended the maturity from 3.5 years, average maturity,
to 4.3 years. They had been able to take advantage of the yield curve that they had to move some
money out into the longer maturities and to increase their yields on income yield. Yesterday, the
thirty year bond was at 5.5%. The three year treasury was at 4% or a little lower. They had 6.5%
locked in treasuries going from agencies and high grade corporate. They did not have a lot of price
risk in there because their weighted average maturity was 4.5 years. They always had enough the
short maturities to use that for purchasing power for when the opportunity is there to increase yield
and to extend maturity, which is what they had done.
Contributions and Distributions, the withdraws, year-to-date, were approximately $295,000.
In the Performance Report, the Equity and Fixed Income at the end of last year, their average
annual return for the prior ten years was about 12.5% on stock, 6.6% on fixed income, and about 9%
over all. Last year, their total account was about unchanged. That was because of the mix between
the bonds and the stocks. Basically, the stocks were down in-line with the S&P500, which was
minus 10%. With their bonds up 9%, their total account value held its value really well in the midst
of a terrible market. The same kind of thing was happening this year to date. Their stocks were
• down 11 .6%, but their stock portfolio was just down 7.4% because they had so much of it sitting in
cash reserves and short term bonds. Their total account was down about 2.4% thru June 30. It was
still holding its value. It compared to year-to-date, the S&P500 was down 7.50/opercent. The
NASDQ was down about 12.6%. They still had a lot of purchasing power and flexibility in the
portfolio. Fixed Income had done well year-to-date it was up about 3 .5%. Yesterday, the bonds
dropped and the bonds performed very well yesterday.
The Equity Portfolio which showed their industry weighing. They had just started stepping
back into some of the tech stocks. A lot of these companies were down about 70-80% off their
highs. They had been able to do some shopping a little at a time. They had added Dell Computer
to the portfolio, at 27.5 she felt that was a good value. With Microsoft announcing that their revenue
this quarter was running ahead of expectations, that was good news for Dell. They were so dominate
in the industry now. Microsoft had a new plat form coming out. It was a completely new operating
system, Microsoft Window ST, it was support to leapfrog the Windows 95, 98, 2000 upgrade. They
were looking at another upgrade cycle. The last time every one upgraded in mass was going into
Y2K. She knew they had done it in their office. They had to buy all new computers. They had to
go the Windows 98 because Windows 95 was not compliant. That took more speed and more
memory, so they had to buy new computers. To go into the SP cycle, which was suppost to be
revolutionary compared to 95,98, 2000 platform. She thought Dell would be the beneficiary of
another upgrade cycle. They had also be able to add a few other tech names in there. She was very
comfortable with the ones that they had were strong.
A summary of their investment policy was also included in the report. They had the balanced
investment approach. Even though the growth side over the last two years had not done much, it has
• help supplement what the income return would have been in a straight bond portfolio. They were
Police Pension
July 19, 2001 •
Page 4
starting to see indications where the bad news does not cause the stocks to go down any more.
People were starting to look past this quarter and look into next year.
Dr. Mashburn stated Walmart would probably benefit more from the tax cut than anyone.
Ms. Longer stated they had increased their Walmart, because he was right. There would be billions
of dollars coming into consumers hands right at back-to-school time. The tax cut would not be
enough to make a car payment or to buy something big.
1997 and 1999 actuaries were distributed to compare.
Mr. Roberts asked what had caused them to go from over funded to under funded.
Ms. Longer replied it was just taking the benefit from 50% of paid to 90% of paid. There was
nothing else changed. Their portfolio value had not gone down. The only thing that had changed
was the liability to the current beneficiaries and the future. On page four the contributions were
listed. The big difference was the necessary employer contributions, the amount needed in addition
to the investment income. In 1997 the amount was $74,000. In 1999 the amount was $847,000.
That was because they went from over funded to under funded. This contribution assume that the
dollar contribution grows at a rate of 4% per year and that they are made continuously throughout •
the year. The actual contribution from the employer has not changed that much. In 1997 the
employer contributed was $588,261 . In 1999 the employer contributed $618,023 , so they could see
that the difference was the contribution rate. It had remained fairly constant. The major differences
were listed on page five. The liabilities in 1997 were $8,870,530. Their assets were $9, 126,449.
Their unfunded liabilities was a positive credit of $255,946. In 1999 the liabilities for the total
inactive lives jurnped from 5.9 million to 10. 5 million. The liability for the total asset jumped from
2.9 to 5.2 million. Their total liabilityjumped from 8.8 million to 15 .36 million. It was all just the
change in the formula, from 50% of pay to 90% of pay. What that did when it was factored into the
liability of going forward the whole difference between the two reports was the difference in the
liabilities. Their liabilities go from 8.8 million to 15.3 million, Their asset value still improved by
about 15% during that time from 9. 1 million to 10.5 million. But, their unfunded liability, even
though their asset grew by 15%, their unfunded liability when up to 4.78 million.
Mr. Roberts noted most every thing had doubled, but then the benefits had doubled.
Ms. Longer stated it was all in the liability equation, because their assets had grown. Their actuary
assumption was 6% a year asset growth. They had been growing at 9%. During this two year period
their growth had been 15%. Their employer contribution was keeping up with what it was doing
before. Factoring out everything, the only thing that she could come up with in this report was the
liability side.
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• Police Pension
July 19, 2001
Page 5
Mr. Williams asked how they could get back in order, because they would get to the point that they
could not pay.
Ms. Longer stated that was why they needed to talk to the actuary about. She wanted to see the age
of the work force and how they had attrition the retired people. There was a hump there were they
were facing the maximum payout, then the attrition would start to take the payout down.
Mr. Roberts stated all of this was done through the actuary in Little Rock, which was the state law.
They had come back in 1999, they could pay their benefit to the retired people at 100% of pay.
Dr. Mashburn stated they had ordered a special study in 1999. The study had come back say they
could pay up to 100% of salary. They did not think that was wise and went with 90% of salary.
Mr. Roberts stated there were two methods which the State allowed the actuaries to use to determine
if a fund could increase benefits. One of them was an actuary evaluation, the second one was called
a cash flow evaluation. They had to have at least fifty participants on the pension plan to do that.
That was the route they had taken. It passed with flying colors and that was why they and received
a letter back from them stating they go to 100% of salary. He had called the actuary and talked to
• them. They had advised him to do 90%, because that was more conservative and more safe. He then
came to the board and told them what he had learned. In August of 1999, the board raised everyone
to 90% of salary. Then they received their actuary evaluation, which was done every two years, that
was when they found out they were in sad actuarial standing. Everyone was wondering why this had
done so much damage to their plan, when they had been told they could do 100% of salary and they
only did 90% of salary. He had expected it to affect the plan adversely, but not this bad. He
questioned what the actuaries were taking into account. They were suppose to take everything into
consideration. They knew everything about everyone on the pension plan. They factored in salary
increases, the economy. They were normally very conservative. If they erred it was on the side of
conservation. The State would really be concerned if they knew that the fund had lost some of their
funding. They had lost one-fifth of a mil on real estate property tax. They had lost nearly $70,000
in pay out. Another thing to consider was new formula they used in figuring their insurance turnback
check which they received every year. They were not sure how that was going to effect them. The
fire department had gone down considerably. He did not know where they were at. Last year they
had recieved $364,000. That was to be divided between them and LOPFI. Their share had been
around $ 150,000. The check was due in anytime. The third thing was that when people retired from
the force, 18% of their salary no longer came into the pension plan. When those seven people retire,
that money would not be coming in and that money would be taken out. They should have factored
that into the equation. But they probably factored in that the millage would stay the same and they
probably figured the tum back check would stay the same. They may get more, he did not know, but
it was still up in the air.
They had received information from the actuaries several years ago stating they had to
• average 6% annual rate of return on their investments to satisfy their actuarial projects, but what they
Police Pension •
July 19, 2001
Page 6
were talking about was 50% of salary, they were not talking about what the benefits were today. He
had assumed Ms. Longer knew what was going on, but he could tell by her reaction at the last
meeting that she was surprised what happening. She had replied investments alone would not
support the 90% of salary to the end of time. The other things were changing. That was why he
wanted her to review the actuary reports. He did not know where they were to go from here. He was
concerned about this.
Ms. Longer stated she was glad he had brought it up.
Dr. Mashburn stated the seven that were still down there were on very high salaries. When they went
off that would make a big change to the fund, plus the ones they were losing through attrition were
at the low end of the pay scale. It would take eight or ten to make up for their salaries.
Ms. Longer stated on page ten, 1989, which was where they started, they could see that their
unfunded liabilitywas 2. 175 million ofwhich represented about 36% oftheir total requirement. They
were only funded at 64% of their liability. That was when they got involved in doing the investment
policy and strategy. As their 6% acturary assumptions, but then their returns had come in higher than
that 6%. By 1997, they were 100% funded. What has happened now, was that increased benefit has
brought them back down to 68% funded. Which is about where they were in 1989. Going forward •
if they had a situation where the returns exceeded that 6% assumption, then they were going to be
closer to fully funded. That was where the 6% to 9% came in and that was what moved it from 68%
funded to 102% funded. Now with the benefit increase what that did to the actuarial computer
program when they ran that forward and the back dated it to the present value and liabilities. What
it had done was put them back where they were in 1989 as far as their funding.
Mr. Roberts stated he did not know how the cash flow evaluation that they had done compared to
the actuary study. He did not know if they looked at the actuary study or not. Coupled with their
current returns lately he did not know where they stood. He questioned if they send something to
Little Rock asking them where they were and where they needed to go. They had told them they
could do 100% of salary and they only did 90% and now they were in trouble.
Ms. Longer stated from 1997 to 1999 their returns were an average of 8.5% which exceeded their
expected return. It was not a return issue, it was more of coming future liabilities. Their liabilities
were coming up faster than their asset side could accommodate. She stated it was a dramatic change.
She questioned what their factors were that they were putting into the computer.
Ms. Longer stated she would contact Osborn, Carreiro and Associates and ask some questions. She
suggested having someone from their firm come to their next meeting.
Mr. Roberts did not know if they would be able to, but maybe they could send a letter. He did not
believe that they had factored in everything. Currently, they were paying out approximately $80,000 •
Police Pension
• July 19, 2001
Page 7
per month, approximately one million dollars a year and that was without the seven people still
working.
Ms. Longer stated that was 8.7% of principle value, if there was no money coming in to off set the
outgo. With an asset allocation which was 50% bonds, yielding 6.5%, it would require a 12.5%
annual yield per year consistently on stock to get to 8% of weighed average return. How this
effected investment policy, they had a situation where their capital needed to be protected, but at the
same time it needed to be protected, because without it they could not possibly make it. She thought
that they needed some clarification and then see how it effected their investment policy. At the
present time she felt the balanced approach was still very valid. They could not go fully into stock
and risk a lot. They can't really go more into bonds. If they were to take money off their stocks to
put into bonds they would be lucky to get 5%. The more they went over there they pretty much
guaranteed they could not get to where they needed to be. At this point the policy was still very
valid, but it was real important to get the questions answered and what were their assumptions. Was
it really as bad as it looked on paper. They might have put some assumptions that they did not show.
There was a missing link.
Dr. Mashburn stated they had not received large returns in 2000 and 2001 . It was no fault of Ms.
• Longer.
Mr. Roberts stated he would not be so concerned but other things had taken a turn for the south too.
Ms. Longer stated the two year return period between the 1997 and the 1999 report, the returns had
actually exceeded the actuary assumption by 8.5% per year.
Mr. Roberts stated they had been under the assumption that 6% was all that they needed to turn on
their money every year, however, that was talking about 50% of salary. And that was all that was
ever promised to people. They have done better than that.
Ms. Longer stated she would call the actuary and go through the two reports, then they would see
if they needed to come to the next meeting.
Mr. Roberts stated he would like to know what assumptions they had made in the cash flow study,
because the actuary report did not support what the evaluation and supported. Now there was more
going out and less coming in than when they did the report and it was going to get worse.
Mr. Friend stated that they hired Ms. Longer to manage their portfolio and they had asked her to do
this extra stuff, when would she be billing them for this additional work.
Ms. Longer replied they did this for their clients. They were involved in estate planning for their
• clients.
Police Pension
July 19, 2001
Page 8
OTHER BUSINESS
Mr. Roberts stated a retired member had asked if they could start receiving the minutes of the
meeting.
Dr. Mashburn asked if they wanted to mail them to everyone or if they wanted to mail a letter stating
they were available in the City Clerk's office and not to be out of the expense.
Mr. Spencer suggested sending a notice of the meetings to the retirees. If they wanted to know what
was going on then they could come.
Mr. Williams stated that it did not make sense since they were looking over the benefits that they
were letting them know why. Since they might behaving to go the other direction that they let them
know what was going on.
Dr. Mashburn suggested a slip be put into their check inviting them to come the meetings. If anyone
was unable to attend the meeting then they could receive the minutes of the meeting. That way the
ones that were interested then they could come.
Mr. Williams stated he was concerned because they were heading toward a decision where they •
might have to lower the benefits. The more notice you could give people the better.
Mr. Friend asked if Ms. Woodruff could also send out a list of the pension members and their phone
numbers.
Ms. Woodruff clarified that they wanted a letter sent out listing all the meetings for the remainder
of the year. She asked if they wanted her to send the minutes from this agenda along with this
meeting minutes and an invitation to come to the meetings.
Mr. Roberts added they could do the same for next year. Mr. Roberts stated he hoped people
understood that when they did something like this it was not this board doing it. When they raised
the benefits to 90% it was not this board, the people in Little Rock allowed them to do it. It was their
responsibility to act on what those people told them. It was their responsibility to do what was right
and correct for the pension fund. If the report came back gloom and doom and hoped most people
would understand that.
Meeting adjourned at 3 :05 p.m.
•
. FAYETTEVILLE
THE CITY OF FAYETTEVILLE, ARKANSAS
To: Police Pension and Relief Fund Members
From: Heather Woodruff, City Clerk
Date: October 10, 2001
Re: Police Pension Meetings
On behalf of the Police Pension and Relief Fund Board, I would like to invite you to our next
regularly scheduled meeting on Thursday, October 18, 2001 , at 1 :30 p.m. in Room 326 of the City
Administration Building located at 113 West Mountain Street, Fayetteville, Arkansas.
Enclosed you will find our agenda as well as the minutes from our last three meetings. I have also
provided our schedule for 2002. All of our meetings are open to public and members are encouraged
to come.
•
•
0
113 WEST MOUNTAIN 72701 501521-7700
FAX 501 575.8257
THE CITY OF FAYETTEVILLE, ARKANSAS
To: Police Pension and Relief Fund Board and Members
From: Heather Woodruff, City Clerk
Date: October 10, 2001
Listed below are the dates for our Police Pension Fund Board meetings for the year 2002. If any
changes need to made please call me at 575-8323.
First Quarter
1 :30 p.m. Thursday January 17
Second Quarter
1 :30 p.m. Thursday April 18
• Third Quarter
1 :30 p.m. Thursday July 18
Fourth Quarter
1 :30 p.m. Thursday October 17
cc: Elaine Longer, Longer Investment
Retired Members
113 WEST MOUNTAIN 72701 501521-7700
FAX 501575-8257 -
e 1690
Osborn , Carreiro & Associates , Inc . One Union
124 West Capitol Avenue
• ACTUARIES • CONSULTANTS • ANALYSTS Little Rod`' Arkansas 72201
(501 )376-6043
0
October 3, 2001
Board of Trustees
Police Pension and Relief Fund of Fayetteville. AR
113 West Mountain
Fayetteville, AR 72701
Gentlemen :
This report presents the results of our actuarial study of the the assets and
liabilities of the Police Pension and Relief Fund of Fayetteville, as of January
1 . 1999. The report analyzes the effect of the recent benefit increase.
The purpose of this report is to evaluate the current and projected status of
the plan under current plan provisions and under the proposed (and implem-
- ented ) 90% of salary bas benefit.
PROCESS
We prepared a cash flow analysis. This was done by first projecting out the
benefit payments from the fund for the next 50 years. Next, the contribution
income to the fund was projected. This contribution income includes the 6%
member contribution , the 69 city match , local millage contributions, insurance
premium taxes, and some fines. Exhibit 1 details the assumptions we made
regarding these contributions.
Once the benefit payout . and contribution income projections were prepared , 6%
j investment return was added. The benefit payout stream was also projected
based on the current plan and the proposal. Exhibit 1 shows the results.
STATUS OF PLAN BEFORE BENEFIT INCREASE
Exhibit 1 shows the projected benefits, income, and assets based on current
contribution levels. The fund was fully funded at this point in time, that is ,
there were no unfunded liabilities. We project that the pension fund will not
be depleted over the life of its members.
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t
- Board of Trustees - page -2 - Osborn , Carrelro & Associates, Inc .
. Police Pension and Relief Fund of FayetAMWARIES CONSULTANTS ANALYSTS
October 3 , 2001
BENEFIT INCREASE '
We reviewed the effect of the increase mentioned above for all present and
future retirees. The projections (see graphs in Exhibit 1 ) indicated that a
proposed and implemented; 90% ' base benefit, while it would slow the growth of
the amount of assets in the fund , is not expected to deplete the fund . In
s fact, the projection show that the total assets of the .fund would remain about
the same over the next several years.
Since this final report was not issued at the time the benefit increase was
granted , we have also projected the fund using the actual experience of 1999
and 2000. You will notice on the chart the increase in 2000 because of the
better than expected investment income results. You will also notice that I
reduced income in future - years to reflect the reduction of millage because of
the lawsuit. As you can see, the projection stills shows good long term
results.
In our opinion , the cash flow projections show that the fund would be actu-
arially sound based on Arkansas Fire and Police Pension Review Board Rule 4
if benefits were increased as described above, that is, a 90% base benefit for
future and current retirees , and surviving spouses .
t
t
These results depend , of course, upon the actuarial assumptions being met.
Note also that actual results will vary on a year- by- year basis from the pro-
jections. This report is based on the participant and financial data you
F supplied to the Arkansas Fire and Police Pension Review Board. We did not
G audit this data, although we did review it for reasonableness and consistency.
j. The purpose of this report was described earlier. This report is not intended
for any other purpose or for use by persons who are not familiar with such
matters.
i
If you have any questions or comments, please let me know.
_ Ir
Sincerely ,
J d Carreiro, . A. S . A. , M . A. A. A.
Associate Actuary
{
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I
EXHIBIT 1
PROJECTION OF ASSETS LEVELS
The graph on the following page projects the asset levels in the future . based
on three sets of assumptions :
( 1 ) Using the assumptions used by the Arkansas State Fire and Police Pension
Review Board ( these are the assumptions used in the December 31 , 1997
actuarial valuation , and the graph is labeled as "Current Plan" ) ; and
( 2 ) Using the same assumptions in ( 1 ) above , except increase all current and
future retireees , and surviving spouses to a 90% base benefit .
( 3 ) Using the same assumptions in ( 2 ) above , except substitute the actual
experience of 1999 and 2000 . The future millage was also reduced to
reflect a recently concluded lawsuit .
The graph shows that the current income will maintain the fund under either
projection .
• In addition to the assumptions listed in Exhibit 5 , the following assumptions
were also made :
( I ) The local millage of one mill was assumed to produce $250 , 000 in income
per year increasing 27 per year . This amount averaged about $260 , 000
over the past three years . We reduced this amount in the experience
adjusted projection down to $224 , 000 with a 27 per year increase .
( 2 ) The City ' s matching contribution was' assumed to be 67 of covered payroll .
( 3 ) The insurance premium tax turnback has averaged around $ 170 , 000 for the
last three years . This amount was assumed to be $ 165 , 000 in 1999 , drop-
ping evenly to $ 150 , 000 in the year 2005 . For the year 2009 and later ,
the amount was assumed to be proportional to the number of retirees .
( 4 ) The amount of income generated from city fines has averaged about
$ 110 , 000 per year over the last three years . This amount was assumed to
continue at $ 110 , 000 per year without increase .
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EXHIBIT 3
SUMMARY OF FINANCIAL INFORMATION
(Items D-E determined by Osborn, Ca reiro and Associates, Inc.)
Year Ended Year Ended Year Ended
A. INCOME 12/31/1998 12/31/1999 12/31 /2000
l Contributions
Employee $ 31 ,882 $ 29,940 $ 28,412
Donations 401 331 300
Employer/Court Fines/Other 189,475 183,581 183,834
Insurance Tax 169,271 1707356 160,748
Local Millage 246,287 264,086 274,399
• Adjustment to prior year 0 0 0
asset value
2 Net Investment Income 838,702 3879891 353,232
TOTAL INCOME $ 11476,018 $ 1 ,036, 185 $ 11000,925
B. EXPENSES
I Administrative $ 31725 $ 4,825 $ 31000
2 Benefits 479,245 650,771 8929592
3 Refunds 0 0 0
TOTAL EXPENSES $ 482,970 $ 655,596 $ 895,592
•
EXHIBIT 3 (Continued)
C ASSETS (at book value) 12/31 / 1998 12/31 /1999 12/31/2000
l Cash & Checking Accounts $ 0 0 0
2 Bank Deposits 33476 22,846 6, 149
3 Savings and Loan Deposits 0 0 0
4 Other Cash Equivalents 496,526 50,981 5569257
5 US Govt. Securities 31701 ,380 315929780 39795,671
6 Non-US Govt Securities 0 0 0
7 Mortgages 0 0 0
8 Corporate Bonds 1 ,7409520 23161 ,348 2,2961916
• 9 Common Stocks 41050,975 4,573 ,841 3 ,845,361
10 Other 126,620 104,739 110,555
11 Payables 0 (61449) (5,490)
TOTAL ASSETS $ 10, 119,497 $ 10,5005086 $ 10,605,419
D. RATIO OF ASSETS TO
ANNUAL EXPENSES: 21 .0 16.0 11 .8
E. NET INVESTMENT RETURN: 9. 1 % 3.8% 3.4%
F. TOTAL MARKET VALUE 11 ,374,032 11 ,665,225 111412,261
(Used only for GASB calculations)
Fayetteville Police Pension Fund
•
,F
Exhibit 3 (Continued)
12/31 / 1996 12/31 /1997 12/31 /1998 12/31/1999 12/31 /2000
F. TOTAL MARKET VALUE
I . Market Value, end of year - 8,455, 191 9,970,550 11 ,374,032 11 ,665,225 11 ,412,261
(Used for GASB calculations, page 9)
2. Market Value, beginning of year 71675,316 8,455, 191 9,970,550 11 ,374,032 11 ,665,225
G. DEVELOPMENT OF ACTUARIAL VALUE OF ASSETS
I . Actuarial Value of Assets, beginning of year 71187,710 7,806,933 8,655,598 9,692, 117 10,572,573
2. Non Investment Net Cash Flow 147,798 163,371 154,346 (7,302) (247,899)
3. Development of Investment Income
(a) Total Market Investment Income (FI -F2-G2) 632,077 1 ,351 ,988 1 ,249, 136 298,495 (5,065)
(b) Amount for Immediate Recognition (6% GI ) 431 ,263 468,416 519,336 581 ,527 634,354
(c) Amount for Phased In Recognition (G3a-G3b) 200,814 883,572 729,800 (283,032) (639,419)
(d) Phased 1n Recognition
Current year : 20% of3(c) 40, 163 176,714 145,960 (56,606) ( 127,884)
First Prior Year 40, 163 176,714 145,960 (56,606)
• Second Prior Year 40, 163 176,714 145,960
Third Prior Year 40, 163 176,714
Fourth Prior Year 40,163
Total Phased In Recognition 40, 163 216,877 362,837 306,231 178,347
(e) Actuarial Value Investment Income 471 ,425 685,293 882, 173 887,758 812,701
( 3(b) + 3(d) )
4. Actuarial Value of Assets, End of year
( I + 2 + 3(e) ) 7,806,933 81655,598 9,692,117 10,572,573 11 , 137,375
5 . Net Investment Return on the 6.5% 8.7% 10. 1 % 92% 7.8%
Actuarial Value of Assets
Note: The Pension Review Board's Board Rule H I I 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.
•
Exhibit 3
Employee Profile
Employee data needed for the valuation was obtained from the
records furnished by the administrator. The following table shows
a detailed breakdown of the present participants by the number of
participants and total salary.
Actives
Years of Service
30 and
Age 0-5 5-10 10-15 15-20 20-25 25.30 Over Total
Under Count 0 0 0 0 0 0 0 fl
25 Salary 0 0 0 0 0 0 0 fl<
25-29 Count 0 0 0 0 0 0 0 V
Salary 0 0 0 0 0 0 0 0
30-34 Count 0 0 0 0 0 0 0 fl'
Salary 0 0 0 0 0 0 0 Ilt
35-39 Count 0 0 0 3 0 0 0 3'
Salary 0 0 0 121 ,894 0 0 0 12:,1!94;
4044 Count 0 0 0 1 2 0 0 3
I9s Salary 0 0 0 37,659 84,378 0 0 122,037.:
45-49 Count 0 0 0 2 0 0 0 2
Salary 0 0 0 73,339 0 0 0 73,330:
50-54 Count 0 0 0 1 1 0 1
.................................
........_.......................
.................................
... ...._................._....
...._._........................
.................................
Salary 0 0 0 42,076 42,650 0 61 ,030 a46,756i
55-59 Count 0 0 0 0 0 0 0 U'¢
Salary 0 0 0 0 0 0 0 0
60-64 Count 0 0 0 0 0 0 1 1
Salary 0 0 0 0 0 0 68,356 68,356:
65 8 Count 0 0 0 0 0 0 0 0'
Over Salary 0 0 0 0 0 0 0 0
Unknown Count 0 0 0 0 0 0 0 fli
Age Salary 0 0 0 0 0 0 0 fli
Total Count 0 :: 0 0 7 12
Salary d i} fl 274,967 !27,028 <t 129:386 534,383'
•
Exhibit 3
10 Inactive Profile
Employee data needed for the valuation was obtained from the
records furnished by the administrator. The following table shows
a detailed breakdown of the present participants by the number of
participants and total annual benefit.
Retirees and Survivors
Years Since Retirement
10 and
Age 0-1 1 -2 2-3 3-4 4-5 5.10 Over Total
Under Count 0 0 0 0 0 0 0 fl":
40 Benefit 0 0 0 0 0 0 0
40-44 Count 0 1 0 0 0 0 0
Benefit 0 19,393 0 0 0 0 0 19,393:
45-49 Count 0 0 0 1 0 0 0 . 1=i
Benefit 0 0 0 30,864 0 0 0 30,864::
50-54 Count 0 0 1 0 0 2 1
.................................
.................................
Benefit 0 0 19,943 0 0 31 ,225 17,315 68,4831;
55-59 Count 0 1 0 0 0 2 6 9
Benefit 0 16,350 0 0 0 27,661 69,033 113 043::
60-64 Count 0 0 0 0 0 3 4
Benefit 0 0 0 0 0 50,795 38,714 :::89450$:
65-69 Count 0 0 0 0 0 0 6 6:
Benefit 0 0 0 0 0 0 48,947
.:,. .... .;48,94 :#
70-74 Count 0 0 0 0 0 2 6 B'
Benefit 0 0 0 0 0 27,639 47,399 75,03$;
75-79 Count 0 0 0 0 0 0 6 6
Benefit 0 0 0 0 0 0 36,655 36,655:
80-84 Count 0 0 0 0 0 0 0 0
Benefit 0 0 0 0 0 0 0 0
85 & Count 0 0 0 0 0 0 5 ,. ;';,,;,,;_,,,,,5,:
.................................
..............................._
.................................
.................................
.................................
Over Benefit 0 0 0 0 0 0 26,55926,859:
Unknown Count 0 0 0 0 0 0 0 6'
Age Benefit 0 0 0 0 0 0 0 0!
Total Count fl 2 1 1 0 ' 9 .-:3 4 4r
Benefit 0 : 35,743 19;943 30 864 0 ? 137,320 284;821 508,4911.
•
10/ 23/ 2000 02 : 21 5u13ibiudi UUbUNH k-4AI (L1r.0
One Union National Mau.Sulte 1690
Osborn , Carreiro s . Associates , Jnc . I Z4 West Cwpltot Avemre
Little Rock. Arkanw 72201
ACTUARIES CONSULTANTS ANALYSTS (501 )376-W43
October 19, 2001
c/o Elaine Longer
Bow ofTrustees Investments
nv
In er est
Police Pension and Relief Fund of Fayetteville, AR P LoP.O. est
269
113 West Mountain Fayetteville, AR 72702
Fayetteville, AR 72701
Gentlemen:
You have received and reviewed our report dated October 3 , 2001 concerning the assets and
liabilities of the Police Peilsion and Relief Fund of Fayetteville, as of January 1 , 1999. A j
question has been raised about the following paragraph from page 2 of the report .
'la our opinion, the cash flow projections show that the fund would be actuarially sound based 't
on Arkansas Fire and Police Pension Review Board Rule 4 if benefits were increased as
• described above, that is, a 90°/a base benefit for future and current retirees, and surviving
spouses."
The question is whether we included surviving spouses in our projections and, if so, could the
board go ahead and increase this group of recipients:` The answer is that we did include the
current surviving spouses in our projections and that the board may go ahead and increase this
group of recipients without further study or filing with the Pension Review Board.
if you have any questions or comments, please let me know.
Sincerely,
ot1 r Carreiro, A. S .A., M. A. A.A.
Associate Actuary
ce; Cathym Hinshaw, Executive Director
Arkansas Fire and Police Pension Review Board
�.
• POLICE PENSION AND RELIEF FUND BOARD
AGENDA
SEPTEMBER 219 2000
A meeting of the Fayetteville Police Pension and relief Fund Board will be held on September 21 ,
2000 at 1 :30 p.m. in 313 of the City Administration Building located at 113 West Mountain
Street, Fayetteville, Arkansas.
1 . Approval of the. minutes
2. Pension list
3 . Investment report
4. Other business
5. Information: Revised Actuarial Report for 1999.
•
•