HomeMy WebLinkAbout2006-11-30 - Agendas - Final Firemen's Pension and Relief Fund
Meeting Agenda
November 30, 2006
A meeting of the Fayetteville Firemen's Pension and Relief Fund will be held at 11:00 AM
on November 30, 2006 in Room 326 of the City Administration Building
1. Approval of the Minutes:
• October 26, 2006 Meeting Minutes
2. Approval of the Pension List:
• December, 2006 Pension List
3. New Business:
• Dennis Ledbetter Resignation
• Ashland Management Letter
• NCPERS Information on Pension Protection Act of 2006
4. Old Business:
• City Attorney Kit Williams Report on Baxter International lawsuit
• Appointment of Pension Board representative for the Baxter International lawsuit case.
• COLA
5. Longer Investments:
• Equity Overage Approval — 52.8%
• Monthly Report
Firemen's Pension and Relief Fund Board of Trustees
Meeting Minutes
October 26,2006
Page 1 of 10
Firemen's Pension and Relief Fund
Meeting Minutes
October 26, 2006
A meeting of the Fayetteville Firemen's Pension and Relief Fund was held at 11 :00 AM on
October 26, 2006 in Room 326 of the City Administration Building
Mayor Coody called the meeting to order
Present: Pete Reagan, Marion Doss, Dennis Ledbetter, Ronnie Wood, Ted O'Neal, Mayor
Dan Coody, City Clerk Sondra Smith, Deputy City Clerk Amber Wood, City Attorney Kit
Williams, and Trish Leach, Accounting, Elaine Longer and Kim Cooper.
Approval of the September 28, 2006 Meeting Minutes and October 2, 2006 Special Meeting
Minutes:
Pete Reagan moved to approve the September 28, 2006 Meeting Minutes and October 2,
2006 Special Meeting Minutes. Marion Doss seconded the motion. Upon roll call the
motion passed 7-0.
Approval of the Pension Lists:
Approval of the November, 2006 Pension List — No Changes
Pete Reagan moved to approve the November, 2006 Pension List. Ronnie Wood seconded
the motion. Upon roll call the motion passed 7-0.
New Business:
PRB Letter Regarding the 2005 Certified DROP Interest Rate
Sondra Smith: This is just an informational letter on the DROP money we pay interest on.
PRB tells us how much to pay. Trish gave me a copy of the letter, we will be paying interest or
we already have paid interest on Marion's check that he received last year.
Kit Williams: What was the rate?
Trish Leach: 6%.
Firemen's Pension and Relief Fund Board of Trustees
Meeting Minutes
October 26, 2006
Page 2 of 10
Discussion on Changing Meeting Date
Sondra Smith: You wanted this back on the agenda because we are approving the pension lists
before the checks actually go out and then there are changes. It doesn't matter to me I don't mind
bringing revised pension lists to you.
Mayor Coody: Doesn't matter to me. How ever you guys want to do it.
Pete Reagan: I just want it makes it easy for finance and Sondra so if you all are happy with it
we will just keep it like it is.
Kit Williams: There is some benefit to approving the list before they go out. You all are the
ones making the decisions although we are bound by law.
Pete Reagan: The only time we get a revised list is after we approve it and there is a death.
Sondra Smith: A death or when someone changes their taxes. We talked about taking the tax
amounts off the list.
Ted O'Neal: That seemed like a good idea because all we want is the total amount.
Kit Williams: Right the gross amount.
Sondra Smith: Accounting did that this time on the November pension list.
Marion Doss: When we discussed it at the last meeting we talked about keeping it on a
Thursday due to city department meetings being on Monday and we talked about any Thursday
was good, if it would help the finance department or anyone else to have it the first Thursday of
the month then I guess we would be open to doing that.
Sondra Smith: I think it will help with taking the three columns off that have the taxes because
we don't need to approve the taxes anyway.
Marion Doss: Right.
Sondra Smith: If they make changes then we have approved a list that was changed and I don't
like you doing that. Accounting has changed that and all we have is a regular monthly benefit
and the year to date amount now on the pension list. So the only changes we will have in the
future are if someone deceases.
Marion Doss: Okay.
Sondra Smith: So we should be cool.
Marion Doss: If it suits Trish and the finance department we are all for it.
Firemen's Pension and Relief Fund Board of Trustees
Meeting Minutes
October 26, 2006
Page 3 of 10
Trish Leach: It's really easier for us to meet this time of the month because the first week of the
month we are doing pension checks and payroll. This really works well for us.
Kit Williams Memo — Revenue Supporting Pension
Kit Williams: Didn't I hand this out to you already and we discussed it I guess.
Marion Doss: I think there was something attached with the minutes.
Kit Williams: The millage is almost certainly to continue. It doesn't have to. It can be voted
out, but I don't see that happening any time in the near future. And so the millage money will
continue and that supports the pension at least many years into the future. The other stuff is of
course controlled by state law which is subject to change or being diverted. You never know
what the legislature is going to do. They might decide to divert that to the new plan or whatever
else. Those are the two revenues right now primarily that are supporting the pension plan.
We discussed what happens if we send it down to LOPFI where everything will be secure and
that can happen. That is a decision that the City Council is empowered to make under the statues
as they exist now. But if the City Council made that decision then they would be committing the
city tax payers to make up this almost $10 million deficit and that's why I think at this point in
time it would be very unlikely that the City Council would want to do that. Hopefully in the
future, the fund will be in better financial shape so it won't be as much of a hit on the city tax
payers and then they would be more inclined to do that for you and the Police pension fund. Both
of you are right below $10 million in actuarially unsoundness.
As I explained to the police and I think to you, that's a little bit misleading because that assumes
that there is not going to be any more money coming in. And there is going to be more money
coming in. There will be more millage coming in, probably not enough, but at least its not going
to be as bad as it looks like. They look at how much money you have on hand right now
according to what the benefits that are out there and obviously you are only about 50% funded
which is not a good position for the pension fund to be in. But with millage in the years to come
that percentage of unfunded liability should go down. I don't know if it will go down all the way
but it should go down and maybe in a few years if you don't increase benefits and you just leave
it the same that amount will come down low enough that it will be more amenable to the City
Council to go ahead and send it to LOPFI in the future. Maybe it will not cost as much for them
to do that in the future.
Marion Doss: Kit if this went to LOPFI would there be something in there that the millage will
continue for a certain number of years, maybe for what they estimated the life of the fund.
Would it continue going to LOPFI or would that millage end?
Kit Williams: I think the millage can continue even when it goes to LOPFI. I don't think there
is a requirement that it has to continue but I think it will continue until and unless the plan is over
or the citizens vote it out.
Firemen's Pension and Relief Fund Board of Trustees
Meeting Minutes
October 26, 2006
Page 4 of 10
Ronnie Wood: Where does that millage go if we went to LOPFI?
Kit Williams: It would probably go to help pay what the city would owe. The city would owe
more on top of it but that would probably help the city pay. That would be part of what would be
presented to the City Council. In the future when it is less than $10 million lets say we get back
down to a $ 4 million level then you could make a pretty good argument that the millage is going
to be the lion's share of the burden on the city and so that would make it more likely that the City
Council would agree to it.
Dennis Ledbetter: When you send it to LOPFI and say what is it going to take for you to take
this fund does LOPFI consider that?
Kit Williams: No, they just look at what we are going to have to pay. They don't care about
where we are getting it. They are saying this is what you have to pay. We can look at that and
help share our burden. I think that what we need to do for the foreseeable future is kind of stand
pat and hopefully it will start evening out a little bit. I certainly don't recommend that you raise
benefits but I don't necessarily think you have to lower benefits at least not now but it might be
that sometime in the future you would have to. If you hold the line now then maybe the millage
will start turning the corner. After about four years or so we would have a better idea about
whether the millage is going to help bring the deficit down.
Ted O'Neal: How much does the millage bring in?
Mayor Coody: A four tenths of a mill brings in about $400,000 a year.
Kit Williams: It's not enough in itself but you are still getting interest. Hopefully we will
continue to get interest from your investments.
Dennis Ledbetter: So the bigger the city gets the more millage comes in?
Mayor Coody: You expand your millage base therefore even if the rate stays the same you're
taxing more and more property. The millage has been climbing every year forever in town I
don't think there has been a time the millage has dropped back.
Kit Williams: That's the reason it is 0.4 now rather than the 0.5 is that the property value went
up too fast and so they required a roll back. That's the only thing we don't want to happen again.
We don't want to have the property values go up so fast that you would be looking at 0.3 of a
mill.
Pete Reagan: We used to have one full mill.
Kit Williams: Divided between the two plans.
Mayor Coody: Fire and Police Pension.
Firemen's Pension and Relief Fund Board of Trustees
Meeting Minutes
October 26, 2006
Page 5 of 10
Dennis Ledbetter: So when the city annexes.
Mayor Coody: That helps.
Dennis Ledbetter: Well let's get this show on the road.
Sondra Smith: The west Fayetteville annexation helped your plan.
Old Business:
Martin & Kieklak Contract
Sondra Smith: That is a signed copy of the contract for them to do the class action lawsuit.
You authorized the Mayor to sign this contract.
Kit Williams: I have been in contact with them, they did get everything filed like they needed
to, and they think that the judge will allow you to be the lead plaintiff. I asked them to keep us
informed that we are the lead plaintiff and we have duties and one duty is to provide guidance to
them which we can't do unless they keep us informed of the progress of the suit. I can tell you
suits like these a very complicated and don't go real fast.
Sondra Smith: Accounting was very good to get the information the same day we had the
meeting so we forwarded the information to Martin & Kieklak.
COLA — Letter Regarding the Study
Sondra Smith: This was the information that I sent to PRB to ask for the cash flow study. I
called them they told me the study was $2000 but it was the secretary that I talk to. I talked to
Jody Carreiro he sent me an email that he thought it was still $2000 so we sent a check for
$2000. PRB called me back and said it had gone up to $2200 so we need to pay another $200 to
have this study done.
Pete Reagan: Do we need to approve that?
Kit Williams: The board would have to approve that. I told Sondra the board only approved
$2000 you are the ones that handle the money so you are the ones that need to make the approval
of that.
Sondra Smith: Just to let you know before they will even do the study you have to send the
resolution and the check so we have to request a check get it and send the resolution plus you
have to have the minutes completed and send the minutes with it. They will not even start the
study until they have everything. So when he called me and said we need an additional $200 I
Firemen's Pension and Relief Fund Board of Trustees
Meeting Minutes
October 26, 2006
Page 6 of 10
asked can you go ahead and start the study and I will get the check processed and he said "no"
not until we get the other $200.
Kit Williams: That is the only thing we like right now they have the resolution and everything.
Sondra Smith: They have everything else and I talked to accounting today and they are
processing the additional $200 check. We should have that in the next few days.
Pete Reagan moved to approve an additional $200 for the cash flow study. Ted O'Neal
seconded the motion. Upon roll call the motion passed 7-0.
COLA - PRB Invoice
Sondra Smith: That is the invoice for the $2200 showing that it was $2200.
Loneer Investments:
Review of Investment Policy
Sondra Smith: They sent the Investment Policy and they would like for us to review it and see
if there are any changes that you would recommend.
Kit Williams: Is this the same policy that the Police have to? I think it is basically the same.
Sondra Smith: Yes, I think it is basically the same.
Kit Williams: This is where they have the right to go up a little bit 5% over with your approval.
Mayor Coody: Has there been a problem with the investment policy?
Marion Doss: No, I guess they just like for us to review it ever so often.
Pete Reagan: I think they do it every year. We had a good month last month.
Mayor Coody: Yes that is a fact and it is still happening.
Quarterly Report
Sondra Smith: The other thing I've attached is the quarterly report. You might want to review
that to.
Firemen's Pension and Relief Fund Board of Trustees
Meeting Minutes
October 26, 2006
Page 7of10
Pete Reagan: Look on page one of the portfolio and just look at the petroleum companies and
see what they're doing. That's amazing.
Monthly Report
Elaine Longer: The first page of the report is the September 30th update and a lot has changed
since September 30th On page 6 we have an update for yesterdays close. The stock market is up
strongly in the month of October and the stock part of the portfolio is up about another 4% just in
the month of October. Your domestic stocks represent about 47% of total portfolio and on page 7
the international stocks represent 6.6% so we over still over the 50% but within the 50% plus 5
and so we just need authorization.
Pete Reagan moved to approve the equity overage. Ted O'Neal seconded the motion. Upon
roll call the motion passed 7-0.
Page 10 you will see a summary of realized gains and net income year to date. Realized gains
are $287,000 which is higher than normal but it's not a taxed account. Part of the reason that is
so high this year we have had a lot of sector rotation, we came into the year over weight energy
we took profits early a lot of that is energy gains and then as energy backed off 20% into June
we came back into energy and we have trimmed the sales again. So it's just a very volatile
market this year but a good one to make money in.
Page 11 is a summary of the bond portfolio. The average yield to maturity on the bond
component has risen from at the end of last year it was 4.9% and with the rising interest rates
through June we were able to get the income on the bond part up to 5.4%. We did that by rolling
forward as we came into that last Fed meeting, where the Fed tightened, everything that we could
roll into higher coupons we were rolling. The income yield has come up to 5.4% but the good
news is the weighted average maturity has also declined from 8 years to 5.2 years. So you can
see that the coupon has gone up by 40/50 basis points but the risk factor which is the duration or
the length of maturity on your overall portfolio has come down. So you have a higher income
and less price risk. We still have a lot of flexibility in the portfolio because we have almost 40%
of all bond holdings maturing within 3 years so if interest rates should go back up say after the
elections going into next year, we don't anticipate that at this point in time, but even though we
have been able to increase the income yield we still have a lot of flexibility to continue to do that
if interest rates should go back up.
Page 12 is a list of your largest holdings mostly blue chip stocks. We are in the middle of
earning season and all the names on that top list have come out with very good earnings. It's a
year where the blue chips are out performing the smaller stocks it's the first one in the last seven
years that you have a relative out performance on these blue chips big cap companies. We think
there is still room to go as far as that is concerned because you're coming off of a seven year
cycle were they have basically done nothing relative to the small and mid caps. So this year you
are starting to see a shift into the large cap stocks.
Firemen's Pension and Relief Fund Board of Trustees
Meeting Minutes
October 26, 2006
Page 8 of 10
Page 13 is just a summary of the industry sections and how we are over weighted and under
weighted. We are still very optimistic on the corporate side of economy, corporate America is in
the best shape it has been in in years. We are very heavily weighted in capital goods, consumer
non cyclical would be companies like Coca Cola, Wal-Mart, energy, healthcare and technology.
We are under weight cyclical companies in the consumer cyclical in particular because we think
as housing slows and as the ability of households to take money out of their home in terms of
equity to spend continues to slow down then that is going to continue to impact consumer
spending. So we are still a little concerned about the consumer and what will happen to the
consumer as the economy slows.
Page 14 is a summary of contributions and withdraws and this is inception to date. You can see
that there has been $622,000 in additions to the portfolio and $4.2 million has gone out during
that time frame.
Page 15 this is your summary of performance through September 30th and at that time stocks
were up 10.8% year to date. That compares to about a 7% return year to date on the S&P 500.
The DOW was up 10.9%, the Salomon Brothers Treasury index was up 2.4% year to date, and
your fixed income is right around that amount at 2.2%. Now as of last night the equities are now
up 15.1% year to date. The total return with your bonds was at 6.7% year to date through
September 30th it's now at 8.7%. Compound annual returns inception to date has been 9.4% on
domestic stocks 9% on your foreign stocks and 6.5% over all. You have out performed the S&P
and you have also out performed the Salomon Brothers Treasury index. The 6.5% compound
annual rate is above your actuary assumption in your plan of 6% for the 4 almost 5 years that we
have been involved in your portfolio. On the bottom of the page you have a summary of the
beginning value, all contributions, distributions and the net investment return.
We always read your meeting minutes before we come and the question about the under funded
liability even though you've been able to achieve above the actuary assumption the net
investment is still behind the distribution rate inception to date. The performance on page 15
through September 30th is 10.8% on stocks and that compares to 7% on the S&P and 8.6% on the
S&P with dividends and then the equity mutual funds would be your foreign holdings, fixed
income and then the total at 6.7%. Through yesterday's close the stocks are now up 15.1% year
to date and the total is up 8.7%. So that's just the difference that a big month like this makes.
Now I think that the returns for the year are in. I think even if we go a little bit higher we will
probably back off as we head towards the election. I would be surprised if we closed the year
much higher than the 15. 1%.
Mayor Coody: What does next year look like?
Elaine Longer: We are still pretty optimistic. This is what we have prepared it is sort of our fall
review and even though the stock market through yesterday was up 15% year to date the
earnings are running at a plus 18%. When we came into this year we were talking about the
valuation of stocks relative to bonds being a very attractive valuation especially relative to the 10
year treasury. Even though the stock market has increased it hasn't increased as much as
earnings have increased so you are still at a very attractive valuation and the 10 year treasury is
Firemen's Pension and Relief Fund Board of Trustees
Meeting Minutes
October 26, 2006
Page 9 of 10
trading approximately were it started the year. Even though the Fed continued to raise interest
rates during the year the 10 year treasury yield fell off significantly after June. So what you have
is the valuation on the stocks is still very attractive relative to the 10 year treasury even though
we have had a strong year.
The 1St page just shows what has happened in the treasury markets. The treasury market the best
indicator of what the market expects future inflation to be is the spread on the 10 year treasury
relative to the Tiff s which is the inflation protective treasury and through the end of last month
that came down to 2.5%. So what the market is saying is that the market is discounting the
inflation rate going forward is 2.5% even though this year it did pop up to 3%. The chart below
shows that the decline that we have had in interest rates from 1990 is still intact even though we
had the 10 year treasury pop up to 5 3/4% in June. It has since come off to about 4.5%.
The next several pages are basically economic indicators that show the growth is slowing. We
expect the 3rd quarter GDP growth rate, which is going to be released probably Friday of this
week, will show that economic growth slowed from the 2nd quarter rate. We expect that slowing
to continue into the 4t' quarter and 1St quarter of 2007 before you start to see it pick up going into
the 2nd half of 2007. The bottom picture shows that the leading economic indicators have turned
down and that precedes the slow down in growth. You have seen the charts before on the
household sector, basically the house hold is running a deficit, and the way that they have been
able to spend more than they make is by using the home as an automatic teller machine. The
bottom chart shows the mortgage equity extractions that have taken place during these years
when the household was engaging in more spending than they were making. So we are at the end
of this game because now you have a leveling off in home prices and you have interest rates that
have come up a bit so that's why the mortgage equity extractions have really fallen off and that
will impact consumer spending.
Page 4 you will see that the debt service ratios for the household which are the red bars are at a
high going all the way back to the 1980's even though the price of carrying that dept which is the
interest rate is at a 40 year low. So what that means is households have taken on debt and
refinanced the house and taken on more mortgage debt quicker than interest rates have dropped.
So that is why we think that the consumer is still going to feel the bite as far as not being able to
tap into the home to finance the next car or the next cruise or whatever they have been spending
on. Then we see on the next chart shows that the number of housed for sale has really increased.
The activity of homes being sold is dropping and so when you have an increase in supply and a
decrease in demand inevitably you get a decrease in price. Yesterday actually we got an update
on home prices and they dropped another 2.2% and that is the biggest back to back price decline
in a 2 month basis that we have had in 35 years.
Page 7 why is the stock market up? Earnings continue to move higher and if you look at the top
chart this is just the earnings estimate on the S&P 500 and what it has done for the 2006 estimate
as we move through the year. You can see at one point in the first part of the year the estimate
was at 85/50 now it is up to 87/10 and after what we are seeing in the 3rd quarter earnings we are
looking at closer to 87/50, 87/80 and then the same thing has happened as we look at the 2007
Firemen's Pension and Relief Fund Board of Trustees
Meeting Minutes
October 26, 2006
Page 10 of 10
earnings. Right now we are looking at a 10% growth rate and that's where we expected this year
to be when we were looking at it in 2005. So the earnings picture is still very strong.
Page 8 you will see that the red bars are the cash flow return on investment or what corporate
America is making, this is 1,900 companies their cash flow has a return on their invested capital
is at an all time high, 9.93%. The spread over what their cost of capital is 4.5 percentage points,
so they are very flush with cash. What we have seen in the past 2 years is that has resulted in
corporations paying down debt, increasing dividends, buying back stock and engaging in merger
and equation activity.
The bottom chart show the relative valuation of large cap stocks relative to small cap stocks and
even though in this year we have seen this turn up a little bit as the large stock have started to out
perform the small and mid cap stocks you can see that it is just a small change in the past 7 year
trend for large cap stocks have under performed the small and mid cap. So we believe that this is
just the beginning of a trend that favors the large cap stocks.
Page 9 our equity strategy US markets in particular large cap US companies are under valued
relative to bonds. Our favorite sectors are energy, capital goods, technology and pharmaictals.
Large cap stocks offer more value than mid or small cap stocks and were still steering our
portfolios away from consumer durables and real estate investment trust because we feel that is
the most vaunarble sector in the economy as the slowing that we anticipate starts to take place.
Page 10 shows our out look for the international component and Europe has out performed Asia
this year. Asia out performed Europe last year but as of last night the international component of
your portfolio was up 14.4% not as much as domestic but still a good addition to the portfolio.
Were still more favorable over the 5 year term with Asia as opposed to Europe even though
Japan has sort of taken a second fiddle or back seat to Europe in this year but as we move
towards the 2008 Olympics in China and also look at the benefit of Japan in a recovery mode
after years of being in a deflationary or recessionary mode Asia should continue to out perform
on a growth rate what Europe is doing.
Mayor Coody: Very good news. Good job. Glad to have you.
Elaine Longer: Thank you we appreciate you. I think that we have had a lot since June. I
wouldn't be surprised if we held back a little bit going into the elections but the market still looks
like a good value especially relative to the 10 year treasury.
Pete Reagan: Thank you very much Elaine.
Elaine Longer: Thank you.
Meeting Adjourned at 11:55 PM
FIREMEN'S RELIEF AND PENSION
Dec 2006 12 8
THE FOLLOWING ARE THE OBLIGATIONS OF THE FIREMEN'S RELIEF FUND FOR THE MONTH OF OCTOBER
YOU ARE HEREBY INSTRUCTED TO ISSUE CHECKS TO THE PAYEES, IN THE AMOUNTS SHOWN ,
AND FOR THE PURPOSE SO STATED.
DATE OF Regular Mo Year To Date
EMP# RETIREMENT NAME Benefit Reg Benefit
Q 79 11/99 ARMSTRONG (DILL), PAMELA 1,812.74 21,752.88
R 177 4/04 BACHMAN, EDDIE 2,618.55 31,422.60
S 74 3/86 BAIRD, JULIA 1,802.08 21,624.96
V 2 3/75 BLACKARD, PAUL, Deceased 7/31/06 0.00 764.89
V 63 5/72 BOLAIN,ANN 109.27 1,311.24
R 68 7/99 BONADUCE, MICHAEL 2,988.76 35,865.12
S 44 9/86 BOUDREY, BETTY MRS. 2,477.42 29,729.04
R 45 9/86 BOUDREY, HOWARD 2,089.28 25,071.36
R 49 7/88 BOUDREY, JACK 1,647.63 19,771.56
V 5 5/72 CASELMAN,ARTHUR 131.13 1,573.56
R 57 5/90 CATE, ROY 1,788.90 21,466.80
V 6 4/68 CHRISTIE, ARNOLD 109.27 1,311.24
V 8 10/76 COUNTS, WAYNE 109.27 1,311.24
R 77 11/99 DILL,GARY JOHN 1,812.75 21,753.00
188 12/05 DOSS, MARION H 5,376.91 64,522.92
R 11 2/76 FARRAR,ALONZO 998.86 11,986.32
R 192 4/06 FARRAR, DANNY 4,155.36 33,242.88
R 38 5/84 FRALEY, JOSEPH G. 1,768.12 21,217.44
R 170 5/03 FREEDLE, LARRY 3,816.75 45,801.00
R 92 03/02 GAGE,TOMMY 2,596.69 31,160.28
V 34 6/79 HARRIS, JAMES E. 109.27 1,311.24
V 70 11/99 HARRIS, MARY RUTH 109.27 1,311.24
Q 182 10/04 JENKINS, EILEEN 1,788.75 21,465.00
R 93 06/02 JENKINS, JOHN 1,788.76 21,465.12
R 86 07/01 JOHNSON,ROBERT 3,073.47 36,881.64
R 64 4/95 JORDAN, CHARLIE 2,274.95 27,299.40
S 76 5/88 JUDY, JAN 1,647.63 19,771.56
R 37 3/84 KING,ARNOLD D. 1,522.37 18,268.44
R 54 5/89 KING,ARVIL 1,711.21 20,534.52
V 12 3/60 LANE, HOPE MRS 109.27 1,311.24
R 13 10/67 LAYER, MERLIN 456.22 5,474.64
R 173 12/03 LEDBETTER, DENNIS 3,775.80 45,309.60
V 181 10/04 LEE,VIOLA LOUISE 109.27 1,311.24
R 51 10/88 LEWIS, CHARLES 1,647.63 19,771.56
R 40 9/85 LOGUE, PAUL D. 2,868.28 34,419.36
R 50 9/88 MASON, LARRY 1,631.25 19,575.00
R 39 4/85 MC ARTHUR, RONALD A. 1,753.74 21,044.88
V 35 2/82 MC CHRISTIAN, DWAYNE 109.27 1,311.24
R 15 4/77 MC WHORTER, CHARLES 1,334.51 16,014.12
R 29 8/81 MILLER, DONALD 1,304.07 15,648.84
R 73 2/00 MILLER,KENNETH 3,180.02 38,160.24
V 42 2/86 MOORE, JAMES H. 109.27 1,311.24
V 176 4/04 MORRIS, DIXIE E. 125.66 1,507.92
V 62 10/68 MORRISON, ELIENE, Deceased 7/10/06 0.00 956.13
R 48 7/88 MULLENS, DENNIS W. 2,191.30 26,295.60
R 184 3/05 NAPIER, LONNIE 3,518.28 42,219.36
R 46 5/88 OSBURN, TROY 1,899.66 22,795.92
R 81 02/01 PHILLIPS,LARRY 2,765.09 33,181.08
R 53 2/89 POAGE, LARRY 2,346.70 28,160.40
R 186 06/05 REAGAN, PETE 3,535.71 42,428.52
V 22 4/73 REED, JOE 109.27 1,311.24
S 172 12/03 SCHADER, MADGE 1,386.01 16,632.12
R 41 9/85 SCHADER,TROY 1,524.99 18,299.88
R 190 04/06 SHACKELFORD, GLEN 3,647.18 29,177.44
S 83 03/01 SKELTON, KIMBERLY 2,434.98 29,219.76
S 66 8/98 SKELTON, PAULINE, Deceased 12/30/05 0.00 0.00
R 36 5/76 SPRINGSTON, CARL 806.19 9,674.28
S 90 03/02 STOUT, IMOGENE W. 767.80 9,213.60
R 165 12/02 TATE, RALPH 3,668.10 44,017.20
V 65 3/66 TUNE, BILLIE SUE 136.59 1,639.08
V 27 3/71 TUNE, MILDRED MRS., Deceased 8/14/06 0.00 1,092.72
R 71 1/00 WARFORD,THOMAS 2,502.72 30,032.64
R 28 7/68 WATTS, DONALD 437.09 5;245.08
R 88 01/02 WOOD,RONNIE D 3,077.15 36,925.80
R 52 9/88 WRIGHT, RANDALL 1,691.34 20,296.08
109,195.83 1,281,953.54
DROP DATE DROP EMPLOYEES NEW BENEFITS
03/01/03 MAHAN, MARSHALL 4,077.28
03/01/03 PIERCE, JOEY 3,647.18
04/01/03 O'NEAL, TEDDY 4,120.99
11/29/2006 C:\Documents and Settings\ssmith.000\Local Settings\Temp\XPgrpwise\December 2006 WM
DATE OF Regular Mo Year To Date
EMP#RETIREMENT NAME Benefit Reg Benefit
WE,THE UNDERSIGNED, DO SOLEMNLY SWEAR THAT THE ABOVE OBLIGATIONS ARE
JUST AND CORRECT;THAT NO PART THEREOF HAS BEEN PREVIOUSLY PAID; THAT
THE PENSION PAYMENTS SO CHARGED ARE IN ACCORDANCE WITH THE ACTIONS OF
THE BOARD OF TRUSTEES OF THE FIREMEN'S RELIEF AND PENSION FUND;THAT
THE SERVICES OR SUPPLIES FURNISHED,AS THE CASE MAY BE,WERE ACTUALLY
RENDERED OR FURNISHED;AND THAT THE CHARGES MADE THEREFORE DO NOT
EXCEED THE AMOUNT ALLOWED BY LAW OR THE CUSTOMARY CHARGE FOR SIMILAR
SERVICES OR SUPPLIES
SECRETARY CHAIRMAN AND PRESIDENT
ACKNOWLEDGEMENT
STATE OF ARKANSAS )
COUNTY OF WASHINGTON)
SWORN TO AND SUBSCRIBED BEFORE ME THIS DAY OF 2006.
NOTARY PUBLIC
MY COMMISSION EXPIRES :
11/29/2006 C:\Documents and Settings\ssmith.000\Local Settings\Temp\XPgrpwise\December 2006 WM
November 9th, 2006
Fireman's Pension and Relief Board
113 West Mountain
Fayetteville, Arkansas
Dear Board Members;
I will be resigning my position on the Fireman's Pension and Relief Board
effective this date.
Sin ely.
Dennis W. Ledbetter
RECEIVED
NOV 0 9 2006
CITY OF FAY'E ITEViLLL
CHYCLERKS OFFICE
ASHLAND MANAGEMENT
INCORPORATED
475 ParkAvenue South, 32' lr 'Floor, New `York10016
NEW YORK TELEPHONE: (212)425-2803
NEW YORK FACSIMILE: (212) 425-6026
July 31, 2006
Ms. Heather Woodruff
City Clerk
City of Fayetteville
Fayetteville Fire Pension and Relief Fun
113 West Mountain Street
Fayetteville, AR 72701
Dear Ms.Woodruff:
Ashland has managed money for over 25 years. During that period, we have delivered consistently above average rates of return
for our clients. We would like to take this opportunity to update you regarding two new products that may be of interest to you.
Over the years, we have worked hard to improve the quality of the research that goes into our products. While we have
traditionally focused on "growth" stocks, in recent years, the income tax reduction on dividends has caused a shift toward "value"
stocks. After a great deal of back-testing and in-depth analysis, we funded two new core products in January 2003 with Ashland's
capital. Employing the same proprietary screens and fundamental analysis we have used since 1977, we allowed our screens to
permit the purchase of all undervalued stocks (value as well as growth). The work was applied to two different capitalization
groups utilizing the best 100 stocks for each core product.
Now that the two new products have moved past their three-year anniversary, we would like to update you on our success. We
have included one page of graphics for each of our products.
Some of the characteristics of the products are as follows:
1. Large Cap Growth Product
Annualized Rate of Return 15.32%, before fees (1/79-6/06).
Better rates of return than benchmark (Russell 1000 Growth) since the inception of the product with a lower standard
deviation.
Concentrated portfolio of 35-50 stocks.
Universe includes the largest capitalization 400-500 stocks in Standard and Poor's Compustat universe.
2. Large Cap Core Product
Annualized Rate of Return 15.03%, before fees (1/03-6/06).
Better rates of return than benchmark (Russell 1000) since the inception of the product with a lower standard
deviation.
Diversified portfolio of 100 stocks.
Ranked in the top 25% of the Zephyr Large Cap Core Manager universe for the recent 1 and 2 year periods.
Universe includes the largest capitalization 400-500 stocks in Standard and Poor's Compustat universe.
3. Mid Cap Core Product
Annualized Rate of Return 24.97%, before fees (1/03-6/06).
Better rates of return than benchmark (Russell 2500) since the inception of the product with a lower standard
deviation.
Diversified portfolio of 100 stocks.
Ranked in the top 25% of Zephyr Mid Cap Core Manager universe for 1, 2, and 3 year periods.
Universe includes stocks ranked 401. to 1800 in capitalization in Standard and Poor's Compustat universe.
We are confident that these products will find wide appeal in the marketplace, and hope you will consider them. I will be calling to
arrange a meeting to discuss these products.
Sincerely,
�C
-
RECEIAE
Charles C. Hickox OCT 2 4 2006
President CITY OF FAYETTEVILLE
CITY CLERK'S OFFICE
Yi
National Conference on
The Voice for Public Pensions
Public Employee Retirement Systems
OFFICERS MEMORANDUM
Robert Podgorny
President
Pat McElligott To : All NCPERS Members
First Vice President
Mel Aaronson From: Hank Kim, Executive Director RECEIVED
Second Vice President Robert D. Klausner, General Counsel
Tina Fazendine N 0 V 9. /r�
2006
Secretary Re : Pension Protection Act of 2006 (P.L. 109-280) CITY OF FAYETT EVILLE
Richard Wachsman CITY CLERK'S OFFICE
Treasurer This memorandum summarizes the three sections of the Pension Protection Act of 2006
EXECUTIVE BOARD of greatest interest to public employee retirement plans and identifies issues and actions
required to bring plans into compliance. While most of the Act takes effect for the 2007
Larry
ran
Boston,rMA tax year, some provisions do take effect immediately. NCPERS' view of a reasonable
response is outlined.
Daniel Fortuna
Chicago, IL
AS THE IRS HAS ISSUED NO GUIDANCE ON ANY OF THESE MATTERS,
Kelly L. Fox THE NCPERS VIEW SHOULD NOT BE TAKEN AS A GUARANTEE OF THE
Olympia, WA
INTERPRETATION ULTIMATELY ADOPTED BY FEDERAL AGENCIES OR
Stephan G. Fugate THE COURTS. NCPERS IS NOT PROVIDING SPECIFIC LEGAL ADVICE IN
Baltimore, MD
THIS MEMORANDUM. PLANS ARE STRONGLY ENCOURAGED TO
Rick Gale CONSULT WITH THEIR OWN LEGAL ADVISORS.
West Allis, WI
Dan Givens 10% Early distribution penalty - Effective immediately, the early distribution penalty for
Miami, FL
"public safety officers" as defined by the Federal Death Benefits Act (Title 42, Section
Ronald Garcia 3796b, United States Code) will no longer apply to payment from a defined benefit plan
Detriot, MI if the member retires after attaining age 50.
Kenneth Hauser
Chicago, IL ISSUES TO BE DETERMINED
Bill Lundy
Little Rock, AR 1 . What is the application to persons who retired prior to August 2006 who were age
Donald Phillips 50 but not over 55?
Swartz Creek, MI
Will Pryor 2. Will the new age 50 apply to persons who retire in the year in which they turn
Los Angeles, CA age 50, as was the prior practice on age 55 retirements?
John Reilly
Philadelphia, PA 3. What about a member who separated prior to age 50 but did not enter pay status
Mona Romain until after age 50?
New York, NY
Carol G. Stukes 4. Who exactly is a "public safety officer?" The definition in the federal death
Philadelphia, PA benefit statute is clear as to firefighters (professional and volunteer), paramedics,
Elmer J. Khal and traditional police and corrections positions. Will this apply to wildlife
Past President officers? Managerial personnel in corrections? Civilian fire inspectors and fire
Hank H. Kim, Esq. marshals? Civilian traffic/public service aides performing a police function? Who
Executive Director is included in the term "judicial officer?"
& Counsel
NCPERS 0 444 North Capitol Street NW, Suite 221, Washington, DC 20001 • 202.624.1456 0 fax 202.624.1439 • info@NCPERS.org 0 www.ncpers.org s4gljo2i
NCPERS VIEW
It would seem reasonable for the IRS to interpret the application of the age 50 rule in the
same manner as the age 55 rule has been applied. That is, a member who leaves in the
year in which he or she turns 50 likely would qualify for the exemption. It is less clear
about a member leaving before 50 but who begins a distribution after age 50. The plain
language of the statute refers to distributions after age 50, thereby making it a reasonable
assumption that any person separating prior to the year in which the member turns 50 will
not benefit from the provision.
Similarly, for members who are currently paying a penalty because of pre-age 55
separation but after age 50, the law would seem to call for an immediate end to the
penalty. This section became effective upon the President's signature.
A list of questions is being formulated for presentation to the IRS for guidance.
However, the Service's reluctance of late to comment on public employee plan matters
suggests that they may not respond. Plans are urged to seek advice from their own
counsel before proceeding.
The question of who is a public safety officer is dependent on the circumstances of each
employing agency. "Judicial officers" is not a defined term. It could include judges,
prosecutors, public defenders, bailiffs, and court clerks. Membership of any of those
classes in a public safety or special risk plan would assist in defending inclusion. The
same is true for public service aides, particularly if they have the power to issue citations.
Non-firefighter inspectors or fire marshals present a similar problem. NCPERS
recommends a classification-by-classification review of each such position. Guidance
will also be sought from the Justice Department, which administers the death benefit
program whose definitions have been incorporated into the Act.
$3000 tax exemption on health insurance and long term care insurance? - Beginning
in 2007, public safety officers who retire at normal retirement age or on disability
retirement may use Ftp to $3000 from a retirement plan or 457 account on a tax exempt
basis to purchase health care insurance or long term care insurance. The premium must
be paid directly to the insurer.
ISSUES TO BE DETERMINED
1. The same issue relating to the definition of a public safety officer exists with this
benefit. Who makes this determination? The plan? The employer? The Justice
Department as administrator of the death benefit program? The IRS? What are
the tax consequences for an incorrect determination?
2. What if the plan has no normal retirement age, relying instead on years of service
or a system of points consisting of a combination of age plus years of service?
3. Does disability retirement apply to both service-connected and non-service
connected disability? What if the non-service disability is the equivalent of an
early retirement with no actuarial penalty?
4. What type of insurance program qualifies? The employer's self-insured program?
A union or other association plan? An individual contract? A post-COBRA
conversion policy?
5. Can the retirement plan or 457 plan limit the type of programs it will accept?
6. How will reporting be coordinated if payment comes partly from the retirement
plan and partly from the 457 plan?
7. Does direct payment to the insurer include payment to a third party administrator
or to the employer?
NCPERS VIEWS
The same issues of coverage are presented here as with the early distribution penalty.
As to retirement age, the idea seems to have been to reward those employees who stay
until unreduced retirement eligibility. That view has been upheld by federal appeals
courts from an equal protection standpoint.
For those plans that have no retirement age, it would seem that attainment of the requisite
years of service or combination of age plus years for those plans using a "point
system"would be deemed the equivalent. Again, the IRS may opine differently. For
example, the in-service distribution rule changed to permit such distributions at age 62.
That may therefore be deemed "normal retirement age" in the absence of such a plan
provision. NCPERS believes the Act was intended to benefit public safety officers who
separated earlier than normal retirement age, but not to take effect until the member
reaches what would have been the normal retirement date. This view, however, remains
uncertain in the absence of definitive IRS guidance on the issue and caution is urged in its
application to persons separating earlier.
There is no limiting language on disability between service and non-service. Service
disability benefits in many plans are already tax exempt. Therefore, exclusion of non-
service disability, which is taxable, would defeat the purpose of allowing tax free
insurance.
Direct payment to an insurer should apply to the employer's self-funded plan, employer
provided third party coverage, a plan provided by an association or union, and an
individually purchased plan. The burden should be placed on the member to establish to
the retirement plan's satisfaction that a valid policy is in place. Plans are encouraged to
develop administrative procedures and forms to implement this program. Individual
attention to the details of this program is essential to ensure tax law compliance for both
the member and the plan.
There have been questions raised as to whether the benefit will be available to survivors.
The statute is silent. Commentators have disagreed on this issue and it will remain
uncertain until the IRS provides guidance. Again, this is an area of caution. As such we
strongly encourage consultation with your legal counsel.
Purchase ofPermissive Service Credit - Effective in 2007, the purchase of permissive
credit rules, which were enacted in 1997and 2001, are clarified to allow purchase of time
for which no service was actually performed (air time). Funds may be transferred from a
403(b) plan or 457 plan as a non-taxable rollover to make this purchase.
1. Is a Fund required to permit this purchase?
2. Can different funds of an employer or different classes within a fund have
different rules?
NCPERS VIEWS
There does not appear to be any requirement in this provision (nor was there in the 1997
or 2001 versions) for a plan to offer purchase of credit. The terms under which such
purchases may be offered, if they are offered at all, is at the discretion of the plan or the
legislative body that created it. Generally, a plan would require an amendment to the
plan document (statute, ordinance, etc) to provide this benefit.
Nothing requires that all classes of employees be offered the same option. This allows
for different focuses in collective bargaining (assuming a unionized workplace where
pension is lawfully negotiable). Additionally, equal protection jurisprudence has
uniformly held that an employer may differ benefits among classes of employees if it has
a "rational basis" for the distinction. Employee retention, cost, recruitment, etc. have all
been found to meet that test.
Transfers to purchase credit may be made from a 457 plan, 403(b) plan or a qualified
retirement plan. Rollovers may only be made to a qualified plan. Rollovers to a non-
qualified plan may result in current year tax liability to the participant.
RECEIVED
Frequently Asked Questions (FAQs) for Governmental Pension Funds NOV ? 7 2006
CITY OF FAYETTEVILLE
CITY CLERK'S OFFICE
Note: The Internal Revenue Service will have final say on how the HELPS Retirees law
will be administered. Unfortunately, it is doubtful the IRS will issue its guidance by
January 1, 2007. Thus, NCPERS is providing our answers to frequently asked questions.
Based upon our intent when we drafted the HELPS Retirees legislation, we feel the
following are reasonable, good-faith interpretations of the HELPS Retirees law and the
federal tax code. However, legal opinions may differ, so we strongly encourage funds to
consult with their legal counsel.
Q 1 : Who are public safety officers?
A: The HELPS Retirees law uses the definition of public safety officer that is used
by the Justice Department for the federal Public Safety Officers' Benefits
Program for those officers who are killed or disabled in the line of duty (42 USC
3796B(9)(A)). Thus, public safety officers are law enforcement officers,
firefighters, members of a rescue squad or ambulance crew, or chaplains to a fire
or police department. Law enforcement officers also include—but are not limited
to—police, corrections, probation, parole, and judicial officers.
Q2: Does a retired public safety officer who did not serve in one of the listed
categories eligible for this benefit?
A: Ultimately, the IRS or the Department of Justice will determine who is eligible for
this benefit. However, until then, NCPERS' view is that the determination of who
is and who is not a public safety officer for this benefit should be made by each
jurisdiction or fund based upon a classification-by-classification review of each
position. Given that the definition used in the HELPS Retirees law is taken from
the federal PSOB program, it would weigh strongly in favor of making eligible
those classifications that have received the federal PSOB benefit. Consult with
your legal counsel if you have any questions.
Q3: Which retirees are eligible to take advantage of this benefit?
A: Those public safety officers who separated as a public safety officer and have
attained normal retirement age or who separated due to a disability are eligible for
the benefit. To take advantage of this benefit, a retiree must be receiving his or
her monthly pension.
Q4: What is "normal retirement age?"
A: Ultimately the IRS will issue regulations that will determine who is eligible for
this benefit. NCPERS'position is that an employee who meets the criteria for
retirement established by their plan would be eligible for the benefit. For those
plans that have no "normal retirement age," it would seem that attainment of the
requisite years of service or combination of age plus years for those plans using a
"point system" would be deemed the equivalent of"normal retirement age."
Q5: Do public safety officers who took early retirement with actuarially reduced
pension benefit qualify for HELPS Retirees favorable tax treatment?
A: The IRS guidance will determine who is eligible for this benefit. The HELPS
Retirees law says that an eligible retired public safety officer is "an individual
who, by reason of disability or attainment of normal retirement age, is separate
from service as a public safety officer. . .." The IRS could decide that this
provision eliminates the HELPS Retirees benefit for someone who took an early
retirement with an actuarial reduction. However, NCPERS' view is that a retiree
who takes early retirement will not be eligible for this benefit until such age at
which he or she would have attained normal retirement. When NCPERS drafted
this legislation, we sought to make this benefit available to as many retirees as
possible. Our intent in using the term "normal retirement age" was not to tighten
eligibility, but to limit potential abuses of this tax benefit. Thus, if an employee
took early retirement at age 52, instead of normal retirement at 55, for the first
three years until the employee reaches age 55, he or she would not be eligible for
this benefit. In this example, once the retiree reaches age 55, NCPERS' goal in
drafting the HELPS Retirees legislation was that he or she would then be eligible
for the benefit. However, this is an area where the retirement fund must consult
with its own legal advisor as to how to proceed, pending IRS guidance.
Q6: How are funds identifying eligible retirees?
A: The HELPS Retirees law requires that eligible public safety retirees elect to take
advantage of this benefit. However, the law does not require a specific election
procedure. Thus, some funds have constructive elections where, unless the
beneficiary opts out of the HELPS Retireesbenefit, they are automatically eligible
to use up to $3,000 pre-tax for health insurance or long-term care insurance
premiums. Others are requiring formal notice of election from eligible retirees.
Regardless of which procedure your fund adopts, NCPERS strongly encourages
all funds to disseminate through normal communications media, including
newsletters, direct mail, website postings, and posting in pension offices, the
procedure that the fund will use in implementing the HELPS Retirees benefit.
Q7: Does the HELPS Retirees law require a single election at time of separation or
annual elections by eligible retirees to use pre-tax money to pay for health
insurance or long-term care premiums?
A: Section (1)(1) of HELPS Retirees (26 USC 402(1)(1)) seems to require annual
elections. However, HELPS Retirees section (1)(6) seems to require only a single
election at time of separation. NCPERS' view is that for administrative ease, a
single election at time of separation is sufficient. Since the election is revocable,
retirees may make subsequent changes during any open season(s) that funds
choose to establish.
Q8: What health insurance or long-term care insurance premium qualifies for the pre-
tax payments?
A: While long-term care insurance is defined in the legislation (26 USC 7702B(b)),
accident or health insurance is not. However, HELPS Retirees does require
coordination with 26 USC 213, which allows as deductions for the expenses paid
during the taxable year for medical care, including health insurance premiums and
certain Medicare premiums. Thus, it is reasonable to say that the premiums for
employer-sponsored, pension fund-sponsored, or self insured health plans,
qualify. Additionally, Medicare Part B, Medicare Advantage, Medicare Part D,
and Medicare supplemental insurance premiums would qualify. Individually
purchased health, dental, and vision plan premiums would also qualify.
Premiums for both single and family coverage would be covered. But the HELPS
Retirees law does not apply to reimbursements — only to direct deductions from
the pension benefit.
Q9: Can funds limit the number of insurers to which it makes direct transfers on
behalf of eligible retirees?
A: Yes, funds can limit and specifically identify insurance plans to which they will
make direct transfers.
Q10: Are direct transfers to former employers that maintain the health or long-term care
insurance plans (plan sponsors), third party administrators (TPAs), or some other
agent of health or long-term care insurance plans allowed?
A: Yes, NCPERS' view is that these entities are either agents of or have contractual
relationship with the insurer and meet the direct payment requirement. It may be
helpful to the fund and the employer to have a written agreement between the
fund and the employer.
Q11: Does the HELPS Retirees law require a specific premium disbursement interval?
A: No, the HELPS Retirees law does not require a specific premium disbursement
interval. NCPERS' position is that a reasonable and predictable disbursement
schedule that funds negotiate with insurers is proper. Thus, monthly, quarterly,
semi-annual or annual disbursements are foreseeable disbursement intervals.
Q12: Are funds requiring certification from eligible retirees? And if so, what
certifications are funds requiring?
A: Some funds are requiring that retirees who elect to take the HELPS Retirees
benefit certify that they are/were a public safety office as defined by the Public
Safety Officers' Benefits program (42 USC 3796B(9)(A)). In NCPERS view,
additional certifications that may be of value are those that show the requested
payments are for qualified health or long-term care insurance premiums and that
total HELPS Retiree benefit elections from all eligible plans do not exceed $3,000
for the year.
Q13: Does the HELPS Retirees law have survivor benefits?
A: The HELPS Retirees law is silent on this question. Commentators have disagreed
on whether there is a survivor benefit, and it will remain uncertain until the IRS
provides guidance. Again, this is an area of caution. As such we strongly
encourage consultation with your legal counsel.
Q14: Do the retiree have to separate as a public safety officer to be eligible?
A: Yes, the HELPS Retirees law states "`eligible retired public safety officer' means
an individual who. . .is separated from service as a public safety officer. . .".
Q15: How should funds that have spendthrift provisions or do not have processes for
making payments to third parties implement HELPS Retirees law?
A: Funds that lack payment procedures to third parties or have spendthrift provisions
should make changes to their plan documents and, if necessary, seek legislative
changes.
Q16: What is the limit if both spouses are eligible retired public safety officers?
A: Both spouses would be eligible to use up to $3,000 each on a pre-tax basis to
purchase health insurance or long-terra care insurance for a total family limit of
$6,000. But the premiums must be deducted from both spouses' benefits.
Q17: Does NCPERS have sample model forms and a check list for implementing the
HELPS Retirees law?
A: Yes, they are available at www.NCPERS.org.
RECEIVED
NOV 9. 7 2006
Frequently Asked Questions (FAQs) for Eligible Retired Public Safety OfficerPITM OF FAYE TEVILLE
CITY CLERK'S OFFICE
Note: The Internal Revenue Service will have final say on the how the HELPS Retirees
law will be administered. Unfortunately, it is doubtful the IRS will issue its guidance
before the January 1, 2007 implementation date of the law. Thus, NCPERS is providing
its perspective on frequently asked questions. Based upon our intent when we drafted the
HELPS Retirees legislation, we feel the following are reasonable, good-faith
interpretations of the HELPS Retirees law and the federal tax code. However, legal
opinions may differ, so we strongly encourage beneficiaries to consult with their pension
fund.
Ql: What does the HELPS Retirees benefit provide?
A: The HELPS Retirees provision of the Pension Protection Act of 2006 allows
eligible retired public safety officers to use up to $3,000 per year from their
qualified government retirement plan, on a pre-tax basis, to pay for health
insurance or long-term care insurance premiums. In order for you to get the pre-
tax benefit, the money must be paid directly from your pension fund to a health or
long-term care insurance company.
Q2: Who are public safety officers?
A: Public safety officers are law enforcement officers, firefighters, members of a
rescue squad or ambulance crew, or chaplains to a fire or police department. Law
enforcement officers also include—but are not limited to—police, corrections,
probation, parole, and judicial officers.
Q3: I believe I am/was a public safety officer, but not in one of the listed categories;
do I qualify for this benefit?
A: Ultimately, the IRS or the Department of Justice will determine who is eligible for
this benefit. However, until then, it may be a local decision as to who is deemed a
public safety officer and eligible for this benefit. Consult with your pension fund
if you have any questions.
Q4: Which retirees are eligible to take advantage of this benefit?
A: Those public safety officers who have separated from service as a public safety
officer and have attained normal retirement age or who are separated due to a
disability are eligible for the benefit. To take advantage of this benefit, a retiree
must be receiving his or her monthly pension.
Q5: What if my fund doesn't use retirement age and therefore doesn't have a
definition for a "normal retirement age?"
A: Ultimately the IRS will determine who is eligible for this benefit. NCPERS'
position is that an employee who meets the criteria for retirement established by
their plan would be eligible for the benefit. For those plans that have no "normal
retirement age," it would seem that attainment of the requisite years of service or
combination of age plus years for those plans using a "point system" would be
deemed the equivalent of"normal retirement age."
Q6: What if I took an early retirement with an actuarially reduced pension benefit. Do
I qualify for this benefit?
A: NCPERS has requested that when the IRS issues its guidance, this question is one
that should be addressed. The HELPS Retirees law says that an eligible retired
public safety officer is "an individual who, by reason of disability or attainment of
normal retirement age, is separate from service as a public safety officer. ..." The
IRS could decide that this provision eliminates the HELPS Retirees benefit for
someone who took an early retirement with an actuarial reduction. However,
NCPERS' view is that if you took early retirement, then you will not be eligible
for this benefit until you reach the age at which you would have attained normal
retirement. When NCPERS drafted this legislation, we sought to make this
benefit available to as many retirees as possible. Our intent in using the term
"normal retirement age" was not to tighten eligibility, but to limit potential abuses
of this tax benefit. Thus, if you took early retirement at age 52, instead of normal
retirement at 55, for the first three years until you reach age 55, you would not be
eligible for this benefit. In this example, once you reach age 55, NCPERS' goal
in drafting the legislation was that you should be eligible for the benefit. This is
an area where you must consult with your pension fund.
Q7: OK, I know that I'm an eligible retired public safety officer. What do I need to do
to get this benefit?
A: If you haven't been notified about the process for taking advantage of this benefit,
contact your pension fund and ask about the HELPS Retiree $3,000 pre-tax
benefit for purchasing health insurance or long-term care insurance.
Q8: What happens if both my spouse and I are eligible retired.public safety officers?
A: Both you and your spouse would be eligible to use up to $3,000 each on a pre-tax
basis to purchase health insurance or long-term care insurance for a total family
limit of$6,000. But the premiums would have to be directly deducted from both
you and your spouse.
Q9: What health insurance or long-term care insurance premium qualifies for the pre-
tax payments?
A: While long-term care insurance is defined in the legislation (26 USC 7702B(b)),
accident or health insurance is not. However, it is reasonable to say that an
employer or pension fund sponsored health plan premium qualifies. Additionally,
Medicare Part B. Medicare Advantage, Medicare Part D, and Medicare
supplemental insurance premiums would qualify. Individually purchased health,
dental, and vision plan premiums also would qualify. The HELPS provisions
cover single and family coverage. Just remember that the premiums must be
directly deducted from your pension check in order for this law to apply.
Q10: What pension money can I use?
A: Direct disbursements to health and long-term care insurance companies from your
defined benefit, 403(b), or 457 plans are eligible for the favorable tax treatment.
However, the total amount eligible to be disbursed from all of your plans for pre-
tax payments is limited to $3,000 per year.
Ql 1: If my spouse or dependent who are not eligible public safety retirees survive me,
would they be able to continue to use $3,000 on a pre-tax basis to purchase health
or long-term care insurance?
A: The HELPS Retirees law is silent on this question. Commentators have disagreed
on whether there is a survivor benefit, and it will remain uncertain until the IRS
provides guidance. Consult your pension fund to see how they are handling this
issue.
Q12: What should I do if my pension fund will not establish a program or process to
allow me to take advantage of this benefit?
A: The HELPS Retirees law does not require pension funds to make available this
benefit. And if funds chose to establish a program or process to allow eligible
public safety officers to take advantage of this benefit, they can place some
limitations on it. If your fund will not participate in HELPS Retirees or places
unreasonable limitations, NCPERS suggests you contact your fund's
administrator and trustees in writing to urge them to establish a program or
process so that you may receive this benefit.
NCPERS Model Form. This form is for illustrative purposes only and is not designed for any
particular plan. To insure compliance with laws governing your plan, consult your legal advisor.
Model Public Safety Health Insurance Premium Withholding Form RECEIVED
Participant Information NOV P 7 2006
CITY OF FAYE7TEVILLE
Name: Social Security #: Cin'CLERK'S OFFICE
Address:
City, State, Zip: Gender: MJF
Date of Birth: Retirement/Termination Date:
Health Insurance Provider Information
Insurance Company Name:
Group Number (if applicable): Policy Number:
Monthly Premium Amount: or One Time Premium Disbursement:
Insurance Type Coverage Type
(please check one) (please check one)
_ Medical _ Single _ Family
_ Dental/Vision
LTC (long term care)
Payment Remittance Address:
City, State, Zip:
Withholding Authorization and Signature
1. I hereby authorize the Retirement Plan to deduct the monthly premium amount set forth
above from my monthly pension annuity. This will result in a decrease of my monthly
pension annuity.
2. I understand it is my responsibility, as the participant, to inform the Retirement Plan of any
change related to my health insurance premium deduction including, but not limited to,
coverage, insurance company, or premium changes. I freely accept this obligation to notify
the Pension Board.
3. I understand that the Retirement Plan is not responsible for lapsed premiums or lapsed
insurance policy coverage or any other coverage or benefit issues that may arise between my
insurance carrier and myself.
4. I take full responsibility for the accuracy and truth of all the information I have provided and
certify that I am entitled to these benefits.
5. I understand that by electing to participate in the federal tax exclusion, I will be decreasing
my federal taxable income. This tax exclusion may not apply to state taxation.
6. I understand that I may not request additional tax-preferred treatment of the applicable
exclusion amount (up to $3,000.00 annually), from any other qualified retirement plans (i.e.
Governmental defined benefit plans, 457 plans, or 403(b) plans).
NCPERS Model Form. This form is for illustrative Purposes only and is not designed for any
P plan. To insure compliance with laws governing your plan, consult your legal advisor.
7. I understand that the Retirement System is complying with federal law by withholding
insurance premiums from my pension benefits. In doing so, the Retirement System is only
performing an administrative function and is only responsible for payment of premiums, as
required by law.
8. I understand that the health insurance premium withholding may affect tax withholding from
my monthly pension annuity.
Participant Signature Date
IMPORTANT LEGAL NOTICE
THE IRS HAS NOT PROVIDED GUIDANCE TO DATE ON THE APPLICATION OF
THIS PROGRAM. AS A CONDITION OF PARTICIPATION IN THIS PROGRAM, THE
MEMBER ACCEPTS ALL RESPONSIBILITY FOR TRUTH OF THE INFORMATION
PROVIDED TO THE PLAN. IN ADDITION, IN CONSIDERATION OF
PARTICIPATION, THE MEMBER AGREES THAT THE RETIREMENT FUND, ITS
STAFF OR ADVISORS, AND THE EMPLOYER HAVE NO LIABILITY FOR ANY
ADDITIONAL TAX LIABILITY, INCLUDING INTEREST AND PENALTIES THAT MAY
ARISE FROM PARTICIPATION.
AS THIS WAIVER INVOLVES YOUR LEGAL RIGHTS, YOU ARE ADVISED TO SEEK
COMPETENT LEGAL ADVICE PRIOR TO PARTICIPATING IN THE PROGRAM.
I UNDERSTAND AND AGREE THAT I HAVE HAD A FULL OPPORTUNITY TO HAVE
MY QUESTIONS ANSWERED AND TO SEEK OUTSIDE ADVICE.
Participant Signature Date
WAIVER OF CLAIMS
BY SIGNING THIS FORM, I AGREE THAT I WILL NOT MAKE ANY LEGAL CLAIM
OF ANY KIND AGAINST THE RETIREMENT SYSTEM, ITS STAFF AND ADVISORS,
AND THE EMPLOYER SHOULD MY PARTICIPATION IN THIS PROGRAM RESULT
IN UNEXPECTED TAX LIABILITY TO ME, INCLUDING INTEREST AND PENALTIES.
I UNDERSTAND THAT MY ABILITY TO PARTICPATE IN THIS PROGRAM IS A
VALUABLE BENEFIT FOR WHICH I AM WILLING TO SIGN THIS WAIVER OF ALL
CLAIMS. I FURTHER RELEASE THE RETIREMENT SYSTEM, ITS STAFF AND
ADVISORS, AND THE EMPLOYER FROM ANY LIABILITY ARISING FROM THE
ADMINISTRATION OF PAYMENTS TO ANY INSURER
Participant Signature Date
a
HELPS Retirees Provision (Sec. 845 of P. L. 109-280)
SEC, 845, DISTRIBUTIONS FROM GOVERNMENTAL RETIREMENT
PLANS FOR HEALTH AND LONG-TERM CARE INSURANCE FOR
PUBLIC SAFETY OFFICERS,
(a) In General- Section 402 of the Internal Revenue Code of 1986 (relating to
taxability of beneficiary of employees' trust) is amended by adding at the end the
following new subsection :
(1) Distributions From Governmental Plans for Health and Long-Term Care
Insurance-
(1) IN GENERAL- In the case of an employee who is an eligible retired
public safety officer who makes the election described in paragraph (6) with
respect to any taxable year of such employee, gross income of such
employee for such taxable year does not include any distribution from an
eligible retirement plan to the extent that the aggregate amount of such
distributions does not exceed the amount paid by such employee for
qualified health insurance premiums of the employee, his spouse, or
dependents (as defined in section 152) for such taxable year.
(2). LIMITATION- The amount which may be excluded from gross income
for the taxable year by reason of paragraph (1) shall not exceed $3,000.
' (3) DISTRIBUTIONS MUST OTHERWISE BE INCLUDIBLE-
(A) IN GENERAL- An amount shall be treated as a distribution for
purposes of paragraph (1) only to the extent that such amount would
be includible in gross income without regard to paragraph (1).
(B) APPLICATION OF SECTION 72- Notwithstanding section 72, in
determining the extent to which an amount is treated as a
distribution for purposes of subparagraph (A), the aggregate amounts
distributed from an eligible retirement plan in a taxable year (up to
the amount excluded under paragraph (1)) shall be treated as
includible in gross income (without regard to subparagraph (A)) to
the extent that such amount does not exceed the aggregate amount
which would have been so includible if all amounts distributed from
all eligible retirement plans were treated as 1 contract for purposes of
determining the inclusion of such distribution under section 72.
Proper adjustments shall be made in applying section 72 to other
distributions in such taxable year and subsequent taxable years.
' (4) DEFINITIONS- For purposes of this subsection--
(A) ELIGIBLE RETIREMENT PLAN- For purposes of paragraph (1),
the term ' eligible retirement plan' means a governmental plan
(within the meaning of section 414(d)) which is described in clause
(iii), (iv), (v), or (vi) of subsection (c)(8)(B).
' (B) ELIGIBLE RETIRED PUBLIC SAFETY OFFICER- The term ' eligible
retired public safety officer' means an individual who, by reason of
disability or attainment of normal retirement age, is separated from
service as a public safety officer with the employer who maintains the
eligible retirement plan from which distributions subject to paragraph
(1) are made.
(C) PUBLIC SAFETY OFFICER- The term ' public safety officer' shall
have the same meaning given such term by section 1204(9)(A) of
the Omnibus Crime Control and Safe Streets Act of 1968 (42 U.S.C.
3796b(9)(A)).
(D) QUALIFIED HEALTH INSURANCE PREMIUMS- The term
qualified health insurance premiums' means premiums for coverage
for the eligible retired public safety officer, his spouse, and
dependents, by an accident or health insurance plan or qualified long-
term care insurance contract (as defined in section 7702B(b)).
(5) SPECIAL RULES- For purposes of this subsection--
(A) DIRECT PAYMENT TO INSURER REQUIRED- Paragraph (1) shall
only apply to a distribution if payment of the premiums is made
directly to the provider of the accident or health insurance plan or
qualified long-term care insurance contract by deduction from a
distribution from the eligible retirement plan.
(B) RELATED PLANS TREATED AS 1- All eligible retirement plans of
an employer shall be treated as a single plan.
' (6) ELECTION DESCRIBED-
(A) IN GENERAL- For purposes of paragraph (1), an election is
described in this paragraph if the election is made by an employee
after separation from service with respect to amounts not distributed
from an eligible retirement plan to have amounts from such plan
distributed in order to pay for qualified health insurance premiums.
(B) SPECIAL RULE- A plan shall not be treated as violating the
requirements of section 401, or as engaging in a prohibited
transaction for purposes of section 503(b), merely because it
provides for an election with respect to amounts that are otherwise
distributable under the plan or merely because of a distribution made
pursuant to an election described in subparagraph (A).
' (7) COORDINATION WITH MEDICAL EXPENSE DEDUCTION- The amounts
excluded from gross income under paragraph (1) shall not be taken into
account under section 213.
' (8) COORDINATION WITH DEDUCTION FOR HEALTH INSURANCE COSTS
OF SELF-EMPLOYED INDIVIDUALS- The amounts excluded from gross
income under paragraph ( 1) shall not be taken into account under section
162(1). .
(b) Conforming Amendments-
(1) Section 403(a) of such Code (relating to taxability of beneficiary under a
qualified annuity plan) is amended by inserting after paragraph (1) the
following new paragraph :
' (2) SPECIAL RULE FOR HEALTH AND LONG-TERM CARE INSURANCE- To
the extent provided in section 402(1), paragraph (1) shall not apply to the
amount distributed under the contract which is otherwise includible in gross
income under this subsection.'.