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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.'.