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Home My WebLink About2009-08-27 - Agendas - Final Fayetteville Fireman's Pension and Relief Fund Meeting Date Adjourn Time Attendees: L €IS$ 4749 411 Subject: Red Subject: wt,,e Motion To: Motion To: 0 o to Motion By: Motion By: Seconded: Seconded: Mayor Jordan ✓ Mayor Jordan Marion Doss Marion Doss Al Pete Reagan t/ Pete Reagan Al Gene Warford Gene Warford Ronnie Wood i✓ Ronnie Wood Al Sondra Smith Sondra Smith Subject: h 4J74 '1114,10 Subject: Motion To: ,pprove Motion To: Motion B Motion By: Seconded: Seconded: Mayor Jordan V/ Mayor Jordan Marion Doss Marion Doss Pete Reagan i/ Pete Reagan Gene Warford Gene Warford Ronnie Wood ✓ Ronnie Wood Sondra Smith Sondra Smith Lioneld Jordan Chairman PeteReagan Position 2/Retired Sondra E.Smith Secretary Gene Warford Position 3/Retired Marion Doss Position 1/Retired Ta e e0i Ron Wood Position 4/Retired ARKANSAS Firemen's Pension and Relief Fund Board of Trustees Meeting Agenda August 27, 2009 A meeting of the Fayetteville Firemen's Pension and Relief Fund will be held at 1:00 PM on August 27, 2009 in Room 326 of the City Administration Building. Approval of the Minutes: • July 16, 2009 Firemen's Pension and Relief Fund Board of Trustees meeting minutes. Old Business: • Osborn, Carreiro &Associates, Inc. letter and report dated August 27, 2009. • Letter requesting actuarial study. • City Attorney letter dated July 16, 2009 regarding Attorney General's Opinion No. 2009-049. Longer Investments: • Longer Investment— Investment Report—July 31, 2009 Board Members Firemen's Pension and Relief Fund '.. ® Board of Trustees Meeting Minutes July 16,2009 Mayor Jordan Chairman a e evl e Pagel of8 Sondra E.Smith Secretary Marion Doss Position]/Retired Pete Reagan Position 2/Retired Gene Warford Position 3/Retired A R K A N S A S Ron Wood Position 4/Retired Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes July 16, 2009 "MR cr. A meeting of the Fayetteville Firemen's Pension and Relief Fud' pard of Trustees was held at 3:00 PM on July 16, 2009 in Room 326 of the City Administration li` 1ng. r k.n Mayor Jordan called the meeting to order. }1A O Present: Mayor Jordan, Ronnie Wood, Marion TYuSNPeter gap, Gene Word, Sondra Smith, City Attorney Kit Williams Trish Leach,%',',bD fiting; Paul Becker Finance & Internal, Elaine Longer, Longer Investments Kim CodALonger investments, Audience and Press. Vk *&��h 8111-E Approval of the Minutes r iss March 12,2009 and Ap>f tI 9 OQ9.Special Ffrinen's PensYon meetine minutes } Pete Reagan moved to.'$Approve,',py eMarch 12, 2,OU9 and April 9, 2009 Special Firemen's Pension meeting minutes, Ronmerroygd seconded the motion. Upon roll call the motion passed unan aP—y 01. u s h k ro y Toy dX N 11 $ May,4409.99 Firemen's$P itsion mi Yi g minutes Pete Reagan x►:4ved to app}bve the May 14, 2009 Firemen's Pension meeting minutes. Ronnie Wood`secdnded the motion. Upon roll call the motion passed unanimously. Approval of Pension hist: August, September, and October.2009 pension lists Sondra Smith: There are no changes to the pension lists. Pete Reagan moved to approve the August, September, and October, 2009 pension lists. Gene Warford seconded the motion. Upon roll call the motion passed unanimously. 113 West Mountain 72701 (479)575-8323 TDD(Telecommunications Device for the Deaf)(479).521-1316 Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes July 16,2009 Page 2 of S Old Business: Election results Sondra Smith: There are no changes. The two people that were up for election were re-elected. Election process discussion ^^t, Sondra Smith: You asked me to put the election process on:;:3fhe agenda. We send out nominations and after we get the nominations we send out aie. The Policemen's Pension does not do it that way, they just sent out a ballot. We seinations letters for the Firemen's Pension and only received 17 back. One was afE rt deadline so we really only received 16. The Firemen's Pension sent out 47 ballotsgld;only received 2(}1?ack. Policemen's Pension sent out 50 ballots and received 33 back. Th are more than 50% `re a lot less than 50%. �.N Ronnie Wood: They get a lot better return on there ball4f5 Pete Reagan: They don't have the nomi:Slation process and fathgught about this and I know it's i fiyf h � j an extra letter to send out but there needs Ioh� a-nomination prpc ss-5.From what I understand Sondra sends out the names of the people that ate. " hle on the Pp aee Pension list, and you put an X by the one you want to vote for? i Sondra Smith: No they gljillh I i' blank. We d'b it baslcally`fhe same except on the Fire Pension you nominate who yp want Otte;we get the nominations in then we send those nominations back for a vote. On iii`; hq� ce we send out the hst4 who is eligible they can pick from that list and choose who they want to serye�* s ,: Kit William§'. ' ilgff f" ;our of 34aAA,fonnatio}n the two board members that could be re-elected were re;giected using their system:'aY ti - �a , .. Marion D *r You said on ours you sent out 47 nominations and got 16 back? Sondra Smith:^:.Wey actuallytrgpt 17 back but one was after the deadline so we can't count it. Marion Doss: And ts50� vote? Sondra Smith: We sent out 47 and only received 20. Police sent out 50 and received 33 back. Marion Doss: If you send out the list of names and people just check you might get some back that the person that's elected might not want to serve. Where at least with the nomination you can contact that person and ask them if they are willing to serve. I guess you can do the same thing the other way too. 113 West Mountain 72701 (479)575-8323 TDD(Telecommunications Device for the Deal)(479)521-1316 Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes July 16,2009 Page 3 of 8 Sondra Smith: We do. We take the ones with highest number of votes and call them just like I do the fire pensioners and ask them if they are willing to serve and they tell me yes or no. If that first person that got the most votes isn't willing to serve then we just go down the list. You would have to do the same thing on nominations. It doesn't matter to me you just asked me to put it on the agenda. Ronnie Wood: I was a little bit afraid that maybe we had some confusion in the way we did it. Sondra Smith: I didn't compare to see if the 17 that sent back the noft'nations were the same that voted. Al Jan Judy: In the past I thought that the widows voted but I ci+1n't get.a:;:lJallot this time. Sondra Smith: The Firemen's Pension it's different,tlarvth Policelriel3'$vPension. On the Firemen's Pension the widows are not allowed to vote. On the Policemen?: Pension they are allowed to vote: The state law changes all the hmb:;r, It's juste,, hanged m the zp stytwo or three years allowing the Policemen's Pension widows"'to vol We h ,e.no control ove y''t that's state k law. I always check the state statutes before I send anything oast torymake sure thefe haven't been any changes. Mayor Jordan: I don't think we need a m6ft, t»%tq leave it the fa why 1t>St<a Oth[HM, i3?s:y. Sondra Smith: I don't think you do. v" qq � ,'y cJi•M�f�`G�y Y xz Actuarial studv unda SM, Kit Williams: We dldn't�get anyft, dad we Sond a? T r fl 3�u ,i}n r� Sae t^7 Truk�t Sondra SmYt)li j en5ahled\lum f See where he'was at on the study because I hadn't heard and he thought eve were meehn%`R IX Th :They were planning on coming up but I didn't know they, er anPim that the meeting changed. He thinks he will have somethQ;g,ft',Uus in August 4(tiv:� vY Kit Williams can meet With the pension board then? �;n�nfn'g ikv \l ' Sondra Smith: I assLfne�Y Pete Reagan: We should see if he has the numbers for us. Sondra Smith: He doesn't have them yet. Pete Reagan: I understand that but if he has them on the 19'h or 20th then maybe we can call a special meeting. 113 West Mountain 72701 (479)575-8323 TDD(Telecommunications Device for the Deaf)(479)521-1316 Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes July 16,2009 Page 4 of 8 Kit Williams: Why would he want to meet with them if he doesn't have the numbers? Does he have questions? Marion Doss: That would be good, if he has it ready to have a special meeting, to find out what he has to say. Sondra Smith: That's close to your meeting time anyway so you might just want to schedule your meeting on that week. r'{'iQnijfi. Pete Reagan: I think it would be best if we contact him and say whwen yd`u get the numbers let us know. Then we can set a meeting on the 18th or 19th and goa; there. Sondra would you „.: contact him and when he gets the numbers have him contact.lis+''and- ill set the meeting date at that time. Sondra Smith: Yes. m ` New Business: Revenue/expense report , M`d> IM Sondra Smith: Trish does this report to sslon board where we are at and where we have been. According to our year to date lcula i(�rlutl?&:vbook.R clue is at $5.5 million. The market value is about$5.5 q Ilign. Pete Reagan: Trash t♦ wlc you viymuch for dpi this. That is good information. y\,,ltnly{ V'Y Turn back information ; r SondraSmith That i§�a(xsport'{o t}}e thlarnback funds that we received for this year. I put a cop xe:ole PRB letter 111 There tokriw that each volunteer was paid $96 and each paid part iclpate,, ^?i:.$0. Trish has also done a calculation showing the turnback that you received from 2002 forwardd the fluctuation in the turnback amount. That was sent out to you in a separate check because > eceived it earlier than what we normally do. Accounting was nice enough to go ahead and cut"a' econd c eek for you but normally they will not be doing that it will be added s, hr+if or to your regular (,�>r 2008 DROP interest Sondra Smith: That's just the DROP interest that we had to pay for 2008. We do not have anyone else on DROP and that's the final interest that we will be paying for DROP participants. You will not be seeing that in the future. That comes from PRB. They give us a calculation of how much we have to pay out of DROP interest. 113 West Mountain 72701 (479)575-8323 TDD(Telecommunications Device for the Deaf)(479)521-1316 Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes July 16,2009 Page 5 of 8 Attorney General's opinion dated May 14 2009 sent by Kit Williams City Attorney May 29, 2009 memo Pension Board Power to Reduce Benefits to Avoid Exhaustion of the Pension Fund Kit Williams as you can see in the agenda packet a couple weeks before the Attorney General gave their initial opinion about this, I asked Senator Madison to add a supplemental request to the Attorney General to answer a couple questions about your rights and powers to reduce benefits if needed. Senator Madison sent that forward about the sam(j: tre the o inion came on P May 27th two weeks after my letter, where the opinion from the A "'ineyfGeneral basically was that she doubts that you would have that power. After the Attgr 61 Qeneral issued his opinion, which was written by an assistant Attorney General in the al3�:nioris�gf,�rce, who is a long term very smart and good assistant Attorney General that writes ibr him, Tote a memo to you all saying I still believe that you do have the power to do,that NThe Attornu� General often is not given all the facts that might be necessary to give a c.9 w Tete and accurate oplri on. I don't think the Attorney General knew that your fund was pro edged to be dgpleted totally of ds`by 2016. n nv \� �Wt u\ yal:#F,44 ir/ Gene Warford: What difference would it make the 1av�at th�e¢" aw. Kit Williams: The law is always ]nil acontext of the parlous facts that can go into the Attorney General when they interpret thl s f'fa, The Attorney Gen al also did not mention, refer to, or consider a couple of different atufe9, ! t I had talkecbout that to me implied to give you all the ower to reduce the benefifst Thes 'w Ge eraI did not find a case that I g Y p r� , � ��Y 31 found where a trustee who,wg, administenin' afprlvate that rovhere the document of the trust didn't give the trustee hold back any of the mane of the trust in order to preserve the assets of the trust�to"perform.; � duties that'heed to be done. Yet the trustee did it and the benefi11 ciary didn't Met so the B leficlary sued t le, stee saying you can't do that it's not in the trust document. e'Q t)a1d4t at was anniiherent ower within the trustee in order to to rese ' '' p try p lytkl ,trust to Tythold a eeT�oJwportion of the income in order to cover future problems `or .ekpers'ee ) the truss �o preserve t le trust for the future. After I read the Attorney Generopimon the Attey General does site the same statute that I sited which states should the ftaJ2d rovided for u dflkMU chd�rerybe insufficient to make full payment of the amount of pensionsi persons entitl thereto; then the fund shall be prorated among those entitled by the proper atetorities as mag deemed just and equitable. The statute further, t proration maybe considered just and equitable if The board of trustees decreases all zz tfrenis to all eligible beneficiaries in an equal proportion for the fiscal year and does not allo.the assets in the fund to become fully depleted. The Attorney General says that I find clear authority under A.C.A § 24-11-807 (Supp. 2007) for the Board to reduce benefits if the assets of the fund are insufficient to pay full benefits in the current fiscal year. It doesn't say anything in that fiscal year it says full benefits. My understanding of pensions are that they are suppose to last a lifetime and if the fund doesn't have money to pay full benefits for a lifetime then it doesn't have enough to fund to pay all benefits. The assistant Attorney General and I read that statute a little differently and she put in the fiscal year in her interpretation and I don't think it's there. If you followed her interpretation or the 113 West Mountain 72701 (479)575-8323 TDD(Telecommunications Device for the Deaf)(479)521-1316 Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes July 16,2009 Page 6 of 8 Attorney General's official interpretation, because he has adopted it, then basically the board of trustees couldn't do anything to you until you drove your fund right into the dirt. If you land it in the dirt in 2016 when there's no more money and then you can prorate funds. I don't think that's correct. I think if you can see into the future by your actuarial studies that within a few years the fund is going to go broke if you don't do something. I think that particular statute says you shall prorate the benefits. You have two different ways to do it but the one that I think is by far preferable is if you prorate it before it goes broke and that's number two on that particular statute. We will see if the Attorney General wants to revise their opinion or not. I usually agree with the Attorney General opinions they are not like a court case which controls but they are often very well reasoned and researched and I have only disagreed:: Qrth a"few but if this was to as:t, be the final decision by the Attorney General I would disagree,, h,:,it and say not only do you have the power but I think you have the fiduciary responsihi, to<#7 'e,pensioners not to drive your fund into the dirt but instead to do what you can to pre sef e it. Faw P, `�h< * Parking Permits should be used at meter Darkut ronly Sondra Smith: Parking Management asked that you u4t dark on"the square. Please park at a you are using your permit. metered parking spot if Longer Investments: 'k, Longer Investment—Investment Report rkh Elaine Longer the rep'xt that yoiave is the quatter end report and then we have an update for yesterday's close. ,�� o ? ; >r, Page two the iWrggttonal stoc o-t+are X170 ° IM o oA�x� , „ttl Y, tt: ,7yi�You closed the quarter at about 57/0 of equity exposure e ile@t�an aproval to be 7%over the 50%. A�i3Y,°rM Petq,A' j#n made a md{ on to ap Ilise the equity overage. Gene Warford seconded the motion V,.'on roll call the Motion passed unanimously. Page three theloho valud las recovered back up to $5.5 million. The last column shows a 3.1% income yfeId klat's the dividends and interest income that you earn regardless of what the stock market doe1" 11 y comparison the 10 year treasury yield is at 3.4%. The five year treasury is at 2.4%. Yat have the equivalent of a seven year treasury portfolio yield even though you have a 57% growth component. Page four is an update as of this week and we have trimmed the sails a little bit as we came off the June 30th close of the quarter because from the low that we reached in March through the high that we reached in June the market rebounded 40%. We've taken some chips off the table and turned a little bit more conservative waiting to see what this quarter's earnings look like. 113 West Mountain 72701 (479)575-8323 TDD(Telecommunications Device for the Deaf)(479)521-1316 Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes July 16,2009 Page 7 of 8 Page six shows the market value through yesterday was about where it closed the quarter. We had a pretty strong decline in the market, down about 5%from the end of the quarter and now we are back up so quickly that we are about unchanged within this month. There are still a lot of uncertainties. Page seven is the summary of your fixed income portfolio and you can see that the average yield to maturity on your bonds has remained at 4.7% even though the average maturity is under four years. The importance of that is you are earning the yield on a 30 year bond but you don't have anymore price risks then if you were holding a four year bond. Bon do have price risk for a 1% increase in interest rates, a 10 year treasury will lose 8% of its t ue iff terms of price. That is why at this point in time when we don't know what th�g6,',P`E outcome is of what the government is doing, whether it is inflation, once we gain g tion,\vt?JJ we have inflation as a result of all this monetary stimulus, for that reason we„have to bei conservative on how we structure the bond portfolio. We don't want reach for y fW'A'gd extend the'.t, *,,turities to the point where we have price risk in the portfolio. v k v"x The percentage of your holdings that mature �ltfiin three yeg$ is almost 55°f of your total bonds. What that means is your bond portfolio will be�esable even if interest rates go higher and we can be opportunistic because as far as we're cori }ed anything that matures within three years is cash because we can sell it\'diid have cash in haiid'tomorrow. We are structured in intertat est rates the income higher. stayed high bu tiv taue plenty of fleck l it ty,:to be opportunistic if the u\;v } hY Nn Page eight shows your largotvtock holdingsgMs a percentFportfolio. Microsoft, Intel, Wal- Mart, AT&T, and Johnsof� & Jtlnson are yollt argest holdings. Intel reported yesterday and their numbers were re good `kfhnology seer to be a bright spot in the over all look. Page nine 1s a summary 1. xerformanee. Your stock portfolio is up 8.9% year to date. The S81b0k}s up 1 $ :and the D \ ,v1s down 3.8%. You're far out performing the indices yeai^ o date in dYur equit nmutual funelstthat would be your foreign holdings, they are up 9.6%. , 0 which Y' e\index\q foreign stock markets is up 5.6% year to date. The fixed incorieup 2% and your tfal year tb;lae is up 5.3%. Your cumuld ea\ret urn with t%e fixed income, the equities, and the foreign has been 21.8% from where we begarf;y�ith the Firovhension. If you look at the lower level, the S&P weighting at 50% and Lehman Gove$'. entQtld index has returned 17%. You're about almost 5% ahead of the �^ Sa`U combined indices of' >atsi 50% stock and bond portfolio would be. Loneer View—July 1,2009 A copy of the letter was given to the Board. Loneer Investments second quarter 2009 report 113 West Mountain 72701 (479)575-8323 TDD(Telecommunications Device for the Deaf)(479)521-1316 Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes July 16,2009 Page 8 of 8 A copy of the report was given to the Board. Meeting Adjourned at 3:40 PM VU N't "NO M A„1 %, \fin. nFf `111 n\�'"NO �v<'�"�'�:n.Mn7 r kCya, ;ny;ry �I Mh`5 yy 22w vv§.. 113 West Mountain 72701 (479)575-8323 TDD(Telecommunications Device for the Deaf)(479)521-1316 Osborn, Carreiro & Associates, Inc. One Union National t C Suite 1690 124 West Capp itol Avenue ACTUARIES • CONSULTANTS • ANALYSTS Little Rock,Arkansas (501)376-804-804 3 FAX(501)376-7847 August 27, 2009 Fayetteville Fire Pension and Relief Fund c/o Ms. Sondra Smith,City Clerk 113 West Mountain Fayetteville, AR 72701 RE: Fayetteville Firefighters Pension Fund Ladies and Gentlemen: This report presents the results of our January 1,2009 actuarial study of the assets and liabilities of the Fayetteville Fire Pension and Relief Fund(the "Pension Fund"). This report goes beyond the present value of the liabilities calculated in the regular valuation to show the timing and development of the income and expense streams. These streams are then reviewed with various benefit proposals under consideration. The purpose of this report is to project the income and expense streams under various scenarios. We are also asked to discuss various options available. PROCESS We prepared a cash flow analysis. We first project out the benefit payments from the Pension Fund for the next 50 years. Next,the contribution income to the fund was projected. This contribution income includes the 6%member contribution,the 6%city match, local millage contributions, and insurance premium taxes. Exhibit 1 details the assumptions we made regarding these contributions. Note that in the 2003 legislative session,the methodology for allocating insurance premium taxes was changed. This report reflects that change. Once the benefit payout and contribution income projections were prepared, 7%investment return was added. The benefit payout stream was also projected based on the current plan and the proposals. Exhibit I shows the results. Osborn, Carreiro S Associates, Inc. Fayetteville Fire Pension—p 2 ACTUARIES CONSULTANTS ANALYSTS August 27,2009 CURRENT STATUS OF FUND If no changes are made,the Pension Fund is expected to deplete its assets in about 10 years from now. Both of these projections are based on the level investment return of 7%per year after 2008. A chart of results and graph are included in the report in Exhibit 1. Please note these are the same charts and graphs presented during our meeting. We also prepared a simulation of the plan assets using a portfolio structure that mirrors the current investment police and structure of the plan. Roughly half of the simulated results showed that the plan would be depleted in 10 to 15 years,which validates our other projection. Therefore,we would conclude that without some significant change in the income or payout,the plan will run out of money. BENEFIT DECREASE We were asked to look at possible benefit decreases and the effect they would have on the projections. Any decrease in the payouts,would serve to reduce the risk that the plan's assets would be depleted. These decreased payout scenarios were completed with no change in other income sources. The regular cash flow projection remained solvent with a 15%decrease in benefits, but still left the plan with a risk of ruin of about 45%. A 20%decrease in benefits reduced the risk of ruin(or complete depletion of assets)to less than 15%of the results. You would typically have an acceptable level of risk of about 5%. Please note that these projections of reduced benefits were for the purpose of our discussion. I am not an attorney and as actuary to the Pension Review Board, I have no authority to recommend a reduction in benefits. If the plan wishes to further pursue this as an option, I would suggest working with your attorney. This course of action would have significant legal hurdles to cross,and to my knowledge has not been done in Arkansas history. CONSOLIDATION WITH LOPFI We also discussed in our meeting and questions after the meeting have arisen concerning consolidation with LOPFI. If any fund wishes to consolidate with the LOPFI system,they must first request a consolidation study from the LOPFI actuary. If the fund decides to consolidate, then the city must agree in writing that they will pay the actuarially calculated cost of the consolidated plan. The benefit structure remains as it was before consolidation and the benefits are now guaranteed by the LOPFI system because of the guaranteed employer contributions. Osborn, Carreiro & Associates, Inc. Fayetteville Fire Pension—p 3 ACTUARIES CONSULTANTS ANALYSTS August 27,2009 Although we are not the actuaries for the LOPFI system,we do understand how those calculations are made and we gave a rough estimate of what the calculated contribution and the increased city out of pocket cost would be under different scenarios which are shown below. These amounts give you the relative magnitude of moving in this direction. I would reiterate that if the fund wishes to pursue any form of consolidation that the cost of the study is worth knowing the exact amount of contribution that the city would be required to make. Estimated Current Net City Contribution Local Income Out of To LOPFI Sources Pocket Current Plan,No COLA $900,000 $575,000 $ 325,000 Current Plan,3% compound COLA 1,400,000 575,000 825,000 15%Benefit Decrease,No COLA 700,000 575,000 125,000 15%Benefit Decrease, 3%compound COLA 1,150,000 575,000 575,000 20%Benefit Decrease,No COLA 625,000 575,000 50,000 20%Benefit Decrease, 3%compound COLA 1,000,000 575,000 425,000 Note that the results shown in this study are projections, and not predictions. The results of our projections depend, of course, upon the actuarial assumptions being met. The actual results WILL vary on a year-by-year basis from the projections. Because of the size of the group, some of the results may vary materially from these projections. This report is based on the participant and financial data you supplied to the Arkansas Fire and Police Pension Review Board. We did not audit this data,although we did review it for reasonableness and consistency. 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. If you have any questions or comments,please let me know. Sincerely, Jo Carreiro,A.S.A.,M.A.A.A. Actuary TABLE OF CONTENTS EXHIBIT I PROJECTION OF FUTURE CITY OUTLAYS EXHIBIT 2 SUMMARY OF FINANCIAL INFORMATION EXHIBIT 3 DATA PROFILES EXHIBIT 4 SUMMARY OF THE PLAN'S PROVISIONS EXHIBIT 5 ACTUARIAL ASSUMPTIONS EXHIBIT 1 PROJECTION OF ASSET LEVELS There are two charts followed by several graphs of results of the asset level projections. These are based on two sets of assumptions: (1) Using the plan provisions in effect on January 1, 2009 and the assumptions used by the Arkansas Fire and Police Pension Review Board that were used in the December 31, 2008 actuarial valuation. This includes the new interest and mortality assumptions. This chart and graph are labeled as"Current Plan". (2) A 15%decrease in benefits,a 20%decrease in benefits and a different asset allocation with the 20%decrease. The graphs show that the simulated asset levels under the various scenarios. The usual graphs normally show an area around the most likely scenario line that represents other possible results tested. This range of reasonable results typically represents 50%of all possible results found under a simulation. In addition to the assumptions listed in Exhibit 5,the following assumptions were also made: (1) The local millage was assumed to produce $450,000 in income per year increasing 2%per year. This amount averaged just more than $400,000 over the past three years. (2) The City's matching contribution was assumed to be 6%of covered payroll. (3) The actual insurance premium tax tumback of$125,711 was used for 2009. The overall premium tax was spread much thinner this year and the larger cities, like Fayetteville,were hit the hardest. Since the premium tax allocation is now based on the cost of the plan as defined by the calculated contribution,we projected the calculated contribution in future years. Then we assumed that the same percentage of that calculated contribution,6%,that was received for 2009 would be received in future years. (4) The DROP accounts were credited interest based on the projected actuarial value of assets. 1 Fayetteville Fire Pension Fund Simulation Results-15% Benefit Reduction 20,000,000 18,000,000 16,000,000 14,000,000 12,000,000 10,000,000 rrr- 8,000,000 6,000,000 _ y ..::........__..._:.. �i::r:,..... OR 4,000,000 2,000,000 0 ::::........ 1 2 3 4 5 6 7 8 9 10 1112 13 14 15 16 17 18 19 20 2122 23 24 25 26 27 28 29 30 5th Percentile -10th Percentile 25th Percentile iiiiiiiiiiiiiiiiiiiiiiiiii,tMedlan 75th Percentile -;:-90th Percentile 95th Percentile Fayetteville Fire Pension Fund Simulation Results-20% Benefit Reduction 20,000,000 18,000,000 ri 16,000,000 14,000,000 1 12,000,000 0000 •tlV" 10,000,000 ffia3i` rL i i:1Vv. 8,000,000 :r F4..,1.1..!"I1�t,:::un,li!IL`i!1:11"r'n'isnir:�::l!vi:::::siiiiiliirii::'r'rP^-' 6,000,000 v::::::..::::::-,r.::,::rl::::eliiurr!i;.:;r::ri:i,: Ole 4,000,000 ..::::::... 2,000,000 Ori..niiii4gP.i1+••... 1 2 3 4 5 6 7 8 9 10 1112 13 14 15 16 17 18 19 20 2122 23 24 25 26 27 28 29 30 5th Percentile .-....::::.::::r 10th Percentile 25th Percentile Median 75th Percentile I.11-,,i.n„;90th Percentile --95th Percentile Fayetteville Fire Pension Fund 20% Reduction-30/70 Allocation 20,000,000 18,000,000 16,000,000 14,000,000 12,000,000 r r 10,000,000 h 8,000,000 6,000,000 _ :..::.:::... 4,000,000 .....:::::... 2,000,000 O 'v:c:::.yy..::'ivnnnn:n:nn:�m.::um:'c:u:::uu::::�:':' :::�:u:::u::::i:cvvl::lr I � � 1 s�:u:enu.i u:::mrt�nuva:ul:::: .r 1- 1 1 1 2 3 4 5 6 7 8 9 10 1112 13 14 15 16 17 18 19 20 2122 23 24 25 26 27 28 29 30 ---5th Percentile -..._::I::::10th Percentile ---25th Percentile —Median —75th Percentile 90th Percentile 95th Percentile EXHIBIT 2 SUMMARY OF FINANCIAL INFORMATION (Items D-E,and G determined by Osborn,Carrel ro and Associates,Inc.) Year Ended Year Ended Year Ended A. INCOME 12/31/2003 12/31/2004 12/31/2005 I Employee Contributions $ 11,863 $ 6,987 $ 1,356 2 Employer Contributions Employer/Court Fines/Other 25,854 13,973 2,713 Lrsurance Tax 151,560 150,067 146,031 Local Millage 370,649 388,877 441,697 3 Other Income Guarantee Fund 0 0 0 LOPFI Subsidy 0 0 0 Police Supplement(Act 1452 of 1999) 0 0 0 Future Supplement(Act 1373 of 2003) 27,060 38,917 31,333 Other Income/Donations 540 1,044 0 Adjustment to prior year 0 0 0 asset value 4 Net Investment Income 615,846 637,620 (530,711) TOTALINCOME $ 1,203,372 $ 1,237,485 $ 92,419 B. EXPENSES 1 Administrative $ 10,341 $ 3,855 $ 6,427 2 Benefits Paid Monthly Benefits 1,281,954 1,430,646 1,436,083 Police Supplements 0 0 0 Future Supplements 26,749 38,766 31,333 DROP Payouts 838,944 4,589 553,503 3 Refunds 00 0 TOTAL EXPENSES $ 2,157,988 $ 1,477,856 $ 2,027,346 5 EXHIBIT 2(Continued) C ASSETS(at book value) 12/31/2006 12/31/2007 12/31/2008 1 Cash&Checking Accounts $ 0 $ 0 $ 0 2 Bank Deposits 4,575 81,779 5,457 3 Savings and Loan Deposits 0 0 0 4 Other Cash Equivalents 288,565 181,873 573,102 5 US Govt. Securities 3,144,510 3,285,030 1,839,474 6 Non-US Govt Securities 0 0 0 7 Mortgages 0 0 0 8 Corporate Bonds 533,910 315,394 248,938 9 Common Stocks 4,185,381 4,136,988 3,337,250 10 Other 79,530 65,476 56,951 11 Payables (17) (70,457) (I6) TOTAL ASSETS $ 8,236,454 $ 7,996,083 $ 6,061,156 D. RATIO OF ASSETS TO ANNUAL EXPENSES: 3.8 5.4 3.0 E. NET INVESTMENT RETURN: 7.3% 8.2% -7.3% (Book Value Basis) 6 Exhibit 2(Continued) 12/31/2004 12/31/2005 12/31/2006 12/31/2007 12/31/2008 F. TOTAL MARKET VALUE 1. Market Value,end of year 10,373,147 9,636,034 8,961,980 8,725,231 5,823,185 (Used for GASB calculations,page 9) 2. Market Value,beginning of year 10,625,689 10,373,147 9,636,034 8,961,980 8,725,231 G. DEVELOPMENT OF ACTUARIAL VALUE OF ASSETS 1. Actuarial Value of Assets, beginning of yea 11,936,657 11,133,206 10,243,227 8,999,200 8,720,172 2. Non Investment Net Cash Flow (835,398) (925,904) (1,570,462) (877,991) (1,404,216) 3. Development of Investment Income (a) Total Market Investment Income(F1-F2-G2 582,856 188,791 896,408 641,242 (1,497,830) (b) Amount for Immediate Recognition(6%G1 716,199 667,992 614,594 539,952 610,412 (c) Amount for Phased In Recognition(a-b) (133,343) (479,201) 281,814 101,290 (2,108,242) (d) Phased In Recognition Current year:20%of 3(c) (26,669) (95,840) 56,363 20,258 (421,648) First Prior Year 104,899 (26,669) (95,840) 56,363 20,258 Second Prior Year (326,911) 104,899 (26,669) (95,840) 56,363 Third Prior Year (287,546) (326,911) 104,899 (26,669) (95,840) Fourth Prior Year (148,026) (287,546) (326,911) 104,899 (26,669) Total Phased In Recognition (684,253) (632,067) (288,158) 59,011 (467,536) (e) Actuarial Value Investment Income 31,947 35,925 326,435 598,963 142,876 (3(b)+3(d)) 4. Actuarial Value of Assets, End of year (1 +2+3(e)) 11,133,206 10,243,227 8,999,200 8,720,172 7,458,831 5. Net Investment Return on the 0.3% 0.3% 3.5% 7.0% 1.8% Actuarial Value of Assets Note: 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. 7 Exhibit 3 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. Full Paid and Volunteers/Part-Paid 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 25 Salary 0 0 0 0 0 00 1 25-29 Count 0 0 0 0 0 0 0 U Salary 00 0 0 0 0 0 :..:........:......._ -- — - A. 30-34 1 Count 0 0 0 0 0 0 Salary _ 0 0 0 0 0 0 0 ".,-,- -35-39 `35-39 Count 0 0 0 0 0 0 0 Salary - 0 0 0 0 0 0 40-44 Count 0 0 0 0 0 0 0 0: Salary _ 0 0 0 0 0 0 45-49 Count 0 0 0 0 0 Salary— -0 0 - 0 0 0 _ 0 0 — - 0 4 50-54 Count 0 0 0 0 0 0 Salary 0 0 0 0 0 0 - ----- - 55-59 Count 0 0 0 0 0 0 0 Q= 1 Salary 0 0 0 0 0 0 0 0 60-64 Count 0 0 0 0 0 0 0 0: Salary 0 - 0 0 0 0 0 65 & Count 0 0 0 0 0 0 0 it Over Salary 0 0 0 0 0 0 01. Unknown; Count 0 0 0 0 0 0 0 = Q- I.. Age. . Salary . ..._.. -0 ...._.-0 0 0._ 0 0 0 0?: Total 1 Count 0 0 0 9 1) 9 0 6 - --- � Salary_ U _ 0 �Q _ x 0 8 ' Exhibit 3 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 nunber of payees 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 i Count 0 0 0 0 0 0 0 0 G 40 Benefit - 0 0 0 0 -- 0 0 0 = n 0 40-44 1 Count 0 0 0 0 0 0 Benefit0 0 0 0 0 0 0 _7.-i 0:; -- __..-. _.. -- - --- — I 45-49 r Count 0 0 -1 0 0 1 0 =G-Im- i Benefit 0 0 49,452 0 0 21,465 0 70? 17 50-54 ! Count 0 1 0 2 2 4 4 9; Benefit 0 43,766 0 93,630 84,648 121,934 0 3,978 55-59 Count 0 1 0 0 0 7 0 8: Benefit 0 48,927 0 0 0 223,817 - 0 60-64 Count 0 0 0 0 0 2 9 Benefit 0 00 0 0 97,106 204,909 ,; Q2,QI5 5—..—.. _ —---- -..-..... ._.. —-- .... ._. 65-69 Count 0 0 0 1 0 0 7 - $i Benefit 0 0._.- -0- 73,302 0 0 136,867 70-74 Count 0 0 0 0 0 1 4 , Benefit 0 00 0 0 40,207 50,298 5.7"-9- Coun-t-- -- — . . _..--- — 75-79 j 0 0 0 0 0 0 6 __ 6 Benefit 0 0 0 0 0 0 85,893 ,.$9.._ 80--84"Count Count 0 0 0 0 0 0 7 ._ '7= Benefit 0 0 0 0 0 __. _........_0_.._.._._32,729_,;' :; ,72g= — — — ... 85 & I Count 0 0 0 0 0 0 6 6; Over I Benefit0 0 0 0 0 0 31 127 31yT27 IUnknown Count 0 0 0 0 0 0 0 t.q. 0 Age Benefit_ 0 0 0 —0 0 0 0 y 0 Total Comet U 2 1 3 2 15 39 T 62 Benefit 0 92;693, 49,452 166;932 84,643i50,41529::: 541,823 .1,F40,07Z This includes 49 retirees with annual benefit of $1,294,604 This includes 2 disableds with annual benefit of $40,110 . This includes 11 survivors with annual benefit of $105,363 9 Exhibit 3 Deferred Retirement Option Plan 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 current participants on DROP by the niunber of participants and total annual DROP benefit. DROP Participants Pears Since Electing DROP Age0-1 1-2 2-3 3-4 4-5 5-10 Total Under ' Count 0 0 0 0 0 0 : Q° _40 Benefit 0 0 0 0 0 0 0 40-44 Comrt 0 0 0 0 0 0Ali 6. Benefit 0 0 - 0 0 0 0 45 49 Count 0 0 0 0 0 0 0 Benefit 0 0 0 0 0 0 �1 50-54 Count 0 0 0 0 0 0_ Q' Benefit 0 0 0 0 0 0"=- -U 55-59 Count 0 0 0 0 0 Benefit 0 0 0 0 0 0 0` ...._ -- - — _ 60-64 Count 0 0 0 0 0 0 0% Benefit 0 0 0 0 0 0 _ - _ _ — 0. 65-69 Count 0 0 0 0 0 0 - 0 Benefit- 0 0 0 0 0 0 _ 0; - _..----..... — - -- - 70-74 Count 0 0 0 0 0 00 Benefit 0 0 0 0 0 0 0; 75& Count 0 0 0 0 0 0 0 OverBenefit 0 0 0 0 0 0 Q' — .. -- ---- Unknow Count 0 0 0 0 0 0 0 Age Benefit 0 0 0 0 0 0 Oy - — - Tota] Count 0 A b Q 0 p �I Benefit 0 U 0 10 EXHIBIT 7 PRINCIPLE PROVISIONS OF THE PLAN EMPLOYEE Member of Fire Department EMPLOYER Fayetteville Fire Department MEMBERSHIP Condition of Employment. Firefighters hired after 1982 must join the statewide Local Police and Firefighters Retirement System CREDITABLE SERVICE Determined on basis of service since employment CONTRIBUTIONS Employee 6.00%of salary. Volunteers contribute$12/year. Refundable if member terminates before retirement eligibility. Emplover 1. Matching contribution equal to employee contribution 2. State Insurance Premitnn Tax tumback 3. Local Millage 4. 10%of all fines&forfeitures collected by the Police Department. FINAL SALARY Highest salary for any continuous twelve-month period of time worked prior to retirement. DEFERRED RETIREMENT This plan has elected to participate in the Deferred Retirement Option Plan OPTION PLAN effective January 25, 1996. Members who elect to participate have a DROP account that is increased by the monthly amount of their retirement as if they had retired as of the date DROP was elected. Has not elected coverage under Act 1457 of 1999. RETIREMENT BENEFITS Elioibili 20 Years of Service regardless of age. Benefit 90%of Final Salary,but not less than$4,200. ($1,200/year for volunteer/ part-paid). If service exceeds 20 years,the annual benefit is increased by $240 for each year over 20, up to$1,200/year extra. ($120 for each year over 20 up to$600/year for volunteer/part-paid). If service is more than 25 years, member receives an extra 1.25%(for each year over 25)of Final Salary,payable once the retiree reaches age 60. The benefit cannot exceed 100%of Final Salary. 11 EXHIBIT 7(Continued) DEATH BENEFITS Eli ibili Death before 20 Years of Service not occurring while performing work in gainful employment outside the fire department,or death after 20 years. Benefit I. Widow receives same amount as member is receiving or eligible for. 2. Each child under age 19 receives$1,500/year. ($300/year for volunteer/part-paid). If no surviving spouse,child receives spouse's benefit to age 19. 3. If no widow or children,widowed mother receives $1,500/year. DISABILITY BENEFITS Eli ibili Permanent physical or mental disability not acquired while performing work in gainful employment outside the fire department. Benefit Full Paid Non-duty disability Retirement benefit but not less than$4,200/year. Full Paid Duty related disability Retirement benefit but not less than 65%of Final Salary and not less than$4,200/year. Computed as voluntary retirement benefit 12 EXHIBIT 5 ACTUARIAL METHODS AND ASSUMPTIONS The assumptions for this valuation have been selected in accordance with Actuarial Standards of Practice No.27. The asset valuation method is prescribed in Arkansas Code Annotated 24-11-207. This prescribed asset valuation method directly impacts the investment return assumption. The assumed salary growth is restricted by A.C.A. 24- 11-205 in relation to the investment return assumption. ACTUARIAL COST METHOD The"entry age normal"cost method has been used. PRE-RETIREMENT MORTALITY Deaths have been projected on the basis of the 1983 Group Annuity Table for Males,set back five years for females. Mortality rates at a few sample ages are: Age Mortality rate per 1,000 25 0.464 35 0.860 45 2.183 55 6.131 The 1971 Group Annuity Table for Males,set back five years for females was used before the 12/31/2007 Valuation. POST RETIREMENT MORTALITY The 1983 Group Annuity Mortality Table was used. For females, the male table was used with a five-year setback. The life expectancy according to this table is as follows: Agee Males Females 55 24.87 29.23 65 16.74 20.68 The 1971 Group Annuity Table for Males, set back five years for females was used before the 12/31/2007 Valuation. VOLUNTARY TERMINATIONS Annual termination rates at a few sample ages are: Age Termination rate per 1.000 20 40 25, 35 30 29 35 15 13 40 6 45 5 50 5 55 5 EXHIBIT 8 (con6nuedl When a person had less than 4 years of service,we assumed that his chances of voluntary termination were a multiple of thereafter rates,with the following multiples being used: 1 st year 2.85 2nd year 2.00 3rd year 1.50 4th year 1.15 ASSUMED INVESTMENT RETURN 7.0% (was 6.0%before 2007 valuation) DISABILITIES We continued the disability rates used in prior reports. Disability rates at a few sample ages are: Age Disability rate per 1.000 20 0.8 25 0.8 30 0.8 35 0.8 40 2.0 45 2.6 50 4.9 55 8.9 60 14.1 One third of the disabilities were assumed to be service related. 14 For mortality after disability,we assumed rates based on the Eleventh Actuuial Valuation of the Railroad Retirement System, for occupational disabilities ASSET VALUATION See Exhibit 3,Part G EXHIBIT 8 (continued EXPECTED RETIREMENT AND DROP Spice the plan allows full benefits at ages younger than the PATTERN traditional 1165", an assumption that will have an important impact is what percentage of people who are eligible for this early retirement will actually take advantage of it. This will depend on intangible things such as the economy,health,financial ability to retire, Social Security eligibility, and work patterns. Based on recent experience,we are using the following assumed rates: Agee Retirement rate per L000 40-44 0 45-50 200 51 150 52-58 100 59 200 60+ 1,000 Note: Volunteer/Part Paid members were assumed to all retire by the time they had 25 years of service. Note: A member was assumed to be eligible for retirement after attaining age 45 and 20 Years of Service,' 15