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HomeMy WebLinkAbout2007-08-30 - Agendas - Final Fayetteville Fireman's Pension and Relief Fund Meeting Date August 30, 2007 Adjourn Time 11 :09 AM Attendees: Mayor Coody, Marion Doss, Marshall Mahan, Pete Reagan,Kit Williams City Attorney, Amber Wood DeputX City Clerk, Trish Leach & Wendy Moore, Accounting Subject: Roll Subject: Pension List Motion To: Motion To: Approve Motion By: Motion By: Pete Reagan Seconded: Seconded: Marion Doss Mayor Cood Mayor Cood Yes Marion Doss Marion Doss Yes Marshall Mahan Marshall Mahan Yes Pete Reagan Pete Reagan Yes Gene Warford Absent Gene Warford Absent Ronnie Wood Absent Ronnie Wood Absent Sondra Smith Absent ISondra Smith I Absent Dennis Mullens Retirement Subject: Minutes Subject: Classification Motion To: Approve Motion To: Table to the September Meeting . Motion By: Pete Reagan Motion By: Pete Reagan Seconded: Marshall Mahan Seconded: Marshall Mahan Mayor Coody Yes Mayor Coody Yes Marion Doss Yes Marion Doss Yes Marshall Mahan Yes Marshall Mahan Yes Pete Reagan Yes Pete Reagan Yes Gene Warford Absent Gene Warford Absent Ronnie Wood Absent Ronnie Wood Absent Sondra Smith Absent Sondra Smith Absent Fayetteville Fireman's Pension and Relief Fund Meeting Date August 30, 2007 Adjourn Time 11 :09 AM Attendees: Mayor Coody, Marion Doss, Marshall Mahan, Pete Reagan,Kit Williams City Attorney, Amber Wood Deputy City Clerk, Trish Leach & Wendy Moore, Accounting Subject: Pension Protection Act. Subject: Motion To: Table to the September Meeting Motion To: Motion By: Pete Reagan Motion By: Seconded: Marshall Mahan Seconded: Mayor Coody Yes Mayor Coody Marion Doss Yes Marion Doss Marshall Mahan Yes Marshall Mahan Pete Reagan Yes Pete Reagan Gene Warford Absent Gene Warford Ronnie Wood Absent Ronnie Wood Sondra Smith Absent Sondra Smith Subject: Subject: Motion To: Motion To: Motion By: Motion By: Seconded: Seconded: Mayor Cood Mayor Cood Marion Doss Marion Doss Marshall Mahan Marshall Mahan Pete Reagan Pete Reagan Gene Warford Gene Warford Ronnie Wood Ronnie Wood Sondra Smith Sondra Smith Firemen's Pension and Relief Fund Meeting Agenda August 30, 2007 A meeting of the Fayetteville Firemen's Pension and Relief Fund will be held at 11 :00 AM on August 30, 2007 in Room 326 of the City Administration Building. 1. Approval of the Minutes: • July 26, 2007 Meeting Minutes 2. Approval of the Pension List: • September, 2007 Pension List — No Changes 3. Old Business: • Dennis Mullens retirement classification (Tabled from the July 26, 2007 meeting.) • Pension Protection Act (Tabled from the July 26, 2007 meeting) 4. New Business: • Stephens Inc. — Informational • Kim Skelton, Enrollment Letter — Informational • 2007 Future Supplement Benefit Memo — Informational • Drop Interest Checks - Informational 5. Longer Investments: • Monthly Report • Longer Investments Informational Letter Board Members Firemen's Pension and Relief Fund Mayor Coody Chairman Board of Trustees Meeting Minutes Ju Sondra E. Smith Secretary Pa2e 120 6 Marion Doss Position 1/Retired g Pete Reagan Position 2/Retired le Gene Warford Position 3/Retired avy ARKANSAS le Ron Wood Position/Retired Marshall E. Mahan Position 5/Highest Ranking Firemen's Pension and Relief Fund Meeting Minutes July 26, 2007 A meeting of the Fayetteville Firemen's Pension and Relief Fund was/A ld at 11 :00 AM on July 26, 2007 in Room 326 of the City Administration Building r> Mayor Coody called the meeting to order. rpogli Present: Mayor Coody, Pete Reagan, Gene War ord, Marshall E. �' J II Marion Doss, Ronnie Wood, Tony Johnson, Paul Becker, T Leach<`& Wendy Mo , Accounting, Amber Wood Deputy City Clerk, City C1erk�So 'a SmitN-, ity Attorney '`t Williams, Kim Cooper and Elaine Longer, Longer Investment .� {�/Jg Approval of the Minutes: Approval of the June 28, 2007 Meeting 1V�ii%utes L J ` '' e /y ; Pete Reagan moved t apro'ye the June\$, 2007 L�!Teeting Minutes. Gene Warford seconded the motion.. YJpon 'kr A h call the motion passed 6-0. Ronnie Wood was absent during the vote. . ° r ,s v `,111 ox AW" aM A roval c lan Lis r Ann i f the August 0.07 Penton L"st — Supplement Amount for 2007 was added IV ill Mayor Co 3 What does t V,'f mean? Pete Reagan: the in ` ance turn back funds. Mayor Coody: Any o 3'er discussion on that? Any pension list changes? Sondra Smith: Just the insurance turn back funds. Mayor Coody: Okay. Pete Reagan: So that was the Fire insurance turn back and Future Supplement. Sondra Smith: Yes, we have that later on in our discussion so you can see what we received and there is a comparison from last year to this year. Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes July 26,2007 Page 2 of 6 Marshall E. Mahan moved to approve the August, 2007 Pension List. Pete Reagan seconded the motion. Upon roll call the motion passed 7-0. Old Business: Dennis Mullens retirement classification (Tabled from the April 26, 2007 meetinLy.) Mayor Coody: What is the status on this? Pate Reagan: I have been out of town Mr. Chairman and I have o had any contact with Dennis. I don't know what to do except if you would like me to I contact him and see about a presentation for the next meeting. n, Mayor Coody: This is at least the fifth or sixth meetin hat there is a _ how. I don't think there is any real serious interest in this and I think we , e spinning our wheev �f Pete Reagan: Mayor with all do respect this is p'dn a'oner th t asked for and I t we should lZ j give him his day in court. y l Mayor Coody: Absolutely, I just think\it�wouId be nice if H", could actually show up for one of the days in court we have sit aside for hirWq! e all have a respo F sib lity to ut a little bit of effort into the things that we request. , `n p Pete Reagan: I understand '% Mayor Coody: Are y F: making otion to table this a fifth time? Pete Reagan: So move. WIR" Pete Rea mvve ; 4?table" he August meeting. Gene Warford seconded the motion. Upon r call the m`nt`a n „asse 0 4 �N Pension Pra motion Act TO d from the June 28 2007 meetin . Mayor Coody: nput osthat? Kit Williams: at > Act number? I saw the minutes that said I'm going to give a report. I wasn't here last time. T tried to find it but I couldn't. Pete Reagan: It is a new one that was passed. Kit Williams: Right. Sondra Smith: I don't know if we have the Act number what we received was from NCPERS. Pete Reagan: No, this was state. This was in last month minutes. Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes July 26,2007 Page 3 of 6 Kit Williams: It might have been before last months. I remember the hand out that had several different acts. I had not reviewed that enough to give you an official report. Mayor Coody: Do you want to table it to the next meeting? Gene Warford moved to table Pension Protection Act to the next meeting. Pete Reagan seconded the motion. Upon roll call the motion passed 7-0. New Business: ~' "a �M Supplemental Benefits Sondra Smith: That is the amount that was added topens pend list. The amount we received and the future supplement was $38,916.72 -We hav to break tha W and so much goes to the voluntaries and retirees. I have it brokeN, own for you as to how =r h went to the retirees and the spouse. If there is a QDRO whihis of a d%vorce decree the o not et an IN, g Y of the supplemental benefits. One thing you need to b prof> i=n the past the- were holding back 10% of this supplemental benefit in a reserve fund. ` :_ , ear they released that 10% so this $38,000 is quit a bit more than we have rece>ved in past yea : In 2008 that number will likely be a lot less because they released that reserve so you received a, of more this year because they are not holding any in reserve any longer. Mayor Coody: What was the purpose of the rpoer�e ,.. � UR Sondra Smith: I hay o idea. _ Pete Reagan: This is an =suranc back suppe> ental fund. Each department in the state of Arkansas that afifies send; errs ape ork as an audit and all of that gets a return from the insuranc h s en n and d0s#ic in Arkansas. Part of that money was held back e e by the rn or's of i ' a go to discretionary fund, and the Fire Departments that did not quali that time, thea omesereeld back until such time as they did. A lot of smaller departure =:F didn't do that � idn ' qualify so that money has been sitting there. We went to the legisla after the Stay;` Police went after that supplemental fund to help fund their retirement sys ecause it:1"""as money sitting there that couldn't be used so we went after it and got it. Now mon ' is disbursed. Sondra Smith: In th - : tore 100% of the money will be disbursed. This $38,000 reflects the past amount and the c``urrent amount. Pete Reagan: It's think it's normally about $400. Sondra Smith: Last year it was $27,000. The $150.066.58 just goes into your fund. Pete Reagan: Was that sent to Longer or is that being keep local? Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes July 26,2007 Page 4 of 6 Trish Leach: We keep all but $50,000 to fund the August checks and sent the rest of it to. Longer. Sondra Smith: I have a copy attached to the PRB memo stating how much we are suppose to give because they regulate how much we are suppose to give to the pensioners and to the voluntaries and a copy of both checks for you. LonLyer Investments: Elaine Longer: The market is down 200 today. There are all kind ,!, concems about the credit risk in the economy right now. We have a lot going on with ,LBO's and the sub prime mortgage stuff so this is affecting the banking stocks and brolerage 3stocks. A lot of times the financial stocks lead the rest of the market. When the financials wh>c, are banks, brokers and insurance companies come under a lot of pressure like tehav in the p eek, because of the credit concerns, then the rest of the economy folloWe���are in the in d ' of the earnings �Z.\�'1 season and the earnings reports have been ver „good, m ,fact they are amm in above expectations. There have been a few disappoint<6 end 1'= e Go lg Exxon Mob le \ t the stocks trading at 89 after just reaching a recent high of 93. I ' ' allf so ®f an exhale , he market. I dont think we have done any real serious technical dam we we tagged 14,000 on the DOW. If we were to do a 5% pull back that takes us to about 13,300 d I wouldn't be surprised to see that. r �aoN%W"A %me �\`ior/.y� g5 IN`n i .. Mayor Coody: Where is it today? 1k ''1 �e f'', 4', �„ Elaine Longer: 13,583qg a ;g \\V3 y INN Mayor Coody: Sod dropat-other 250 poi n it would still be. . e\ Elaine Longer: itlun a 5 d ct on hW h lot in a short period of time. Page one on the report sho w B -3�Otn cut\off date po X01% appraisal. We do have to vote to approve the fact that ou were Z'00 to o equities at June 30th. Eauiry cation Overaz a ort Pete Reagan a, d to app ve the equity overage. Gene Warford seconded the motion. Upon roll call tli otion p ssed 7-0. Elaine Longer: Pages an update through Friday, July 20th What is interesting is just in that period of time between June 30th and July 20th the stock market was up about another 3%2 %. It has been a pretty remarkable run because the first quarter of the year the stock market was flat. So if you look through July 20th your stocks are up about 10.6 %, the mutual funds which are foreign stock are up about 8%, all of that really happened from March 31St forward. That's a lot to compress into about a four month time period and so now what is happening is the correction has ensued and now we see how much the correction is going to bring about. I would say that giving the fact that the interest rates have really backed off again we are probably looking at 5% correction off of that 14,000. Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes July 26, 2007 Page 5 of 6 Page 10 you can see the value as of last Friday was about $8.8 million. Through yesterday we were down 1% from Friday and through today were down about another 2%. So the 3%2% up that we had from June 30th to last Friday has pretty much been erased in three or four trading days this week. That is the volatility that we are experiencing in the market. A lot of the reason has to do with the fact that you have a lot of leverage players like leverage buy out organizations and the hedge funds. The hedge funds now make up over 50% of the trading activity in the US markets on a daily basis. So the movements that would normally take two or three months, five or eight years ago, now are compressed into two to five days. That is exactly what we have seen in the fixed income markets, we saw it in the first quarter in the month of January when the oil stocks corrected about 17% in less than a month and now they're at nqw highs for the year. The corrections that used to be spread out in longer periods of time takef"placnow in much shorter periods of time. A 5% correction could be over before We e ay of next week and it's interesting that this is just a function of the kind of markets tha, we a 4 :, ealing with now. I think it is a good thing because what happens is the market is gaN to r a state of equilibrium giving a certain piece of information or economic new, ederal . action, now we just reach that equilibrium point a whole lot faster. h; Page 11 shows your realized gains year-to-date o about $227000 and net income is about $111,000. % Page 12 shows the bond portfolio. The bonds have been ey volatile. We had about a 4.6% yield on the ten year in May and then we h n�i rease m the e yeag yield to about a 5.3% in June. That was a big move, that's about a l ° ``t v °o�sincrease in Qf, field in about a one month period of time. Since then the ten year yiel as bac edr'r�f in tl�e `5 30% that we had June to a 4.75% today. This is a lot of volatility in th born mark�etsdthe ten year yield is important � because the thirty year �. 4 � g �ates key off oV e ten yearn easury. So when we popped up to a 5.30% in June then the f6ftdere this is rally going to slow the economy in the second half. Mortgages ar , g° ' to be rV& expensive, -onsumer spending will taper off and so now sem,3 �, / we have backed off to a ° o J1 the market hasibacked off from 14,000 to 13,500 so this is another reason , by I am na o con erne'dab 3dulfhrs pull back because the valuation of stocks is still very - Er ving e terest raL S" ' f 41/4 in the ten year. So once the money flees where isd going to , 3/4 on t ten year treasury fully taxable is not very attractive to inve t .Ultimately they co m gs„ into a growth, the stocks because stocks are not over valued. ave a yield toturity ,ocked in on your bonds of 5.6%, your average maturity is only 5.6 ye 1,4) this compared to a 4 % % yield on the ten year treasury. You have a maturity or a risk facto' , our portIt's o that is half of what the ten year is and you have a much higher yield, almost a 1 sis pohigher. We have a lot of flexibility if interest rates do go higher because we have 33 e bond portfolio has a maturity of three years of less. As you've seen us in the past if we get good buying opportunity on bonds we will sell things that mature within a year, we don't have o hold a bond to maturity. We can reinvest it and lock in higher yields but at this point in time you have a conservative maturity structure and you have a real good income yield. Page 13 shows your largest holdings as of June 30th none of which exceeds the 5% of equity portfolio restriction in your policy. Page 14 shows our industry weighting summarized. We're still overweight the capital goods, industrials, health care and technology. We're underweight consumer cyclical, consumer non- Firemen's Pension and Relief Fund Board of Trustees Meeting Minutes July 26, 2007 Page 6 of 6 cyclical mostly because we are still concerned about consumer spending and the slow down in the housing market. We're underweight financials which has really helped us get through the storm this past week and utilities. We're even weighted on energy at this point and time. Page 15 we have the contributions and distributions from inception to date which is August 15, 2002 through June 30th. You can see that the contributions into the fund have been about $769,000. The distributions have been $5,047,000. Page 16 is the performance summary. Equities through June 30th were up 7.7% that compares to the S&P being up 6% year to date and the S&P with compounded dividends up 7%. Your mutual �;`_ ^T funds which are the international stocks have trailed the US market A` ewat year to date are up 6.2% and fixed income is up 1.6%. The total is up 4.8% and anof Friday the numbers were �gpgi, 10.6% on equities. Fixed income was still flat to 1.6%. The ds Wer up 8% and the total was up 6.2%. So your compound annual returns have been 10.9,/0 on st64 inception to date and 10.7% on your foreign funds, fixed income at 3.7% andh0O e= the"over alle has compounded at 7.2%. That compares to your actuary assumptions %. Are there any questions on the report? I M, cr 1 file Mayor Coody: Thanks for the report. Pete Reagan: Thanks very much. e �N Elaine Longer: Thank you. Thanks for mom F g us foadz % Monthly Report A copy of the Longer Ients m, nthly report was given to the board. .t uarte> l e ort A copy r,e Longer Inves _ -nts quarte y report was given to the board. Meeting Adjour 'gid at 11:2 AM FIREMEN'S RELIEF AND PENSION Septemtj< r 9 THE FOLLOWING ARE THE OBLIGATIONS OF THE FIREMEN'S RELIEF FUND FOR THE MONTH LISTED ABOVE YOU ARE HEREBY INSTRUCTED TO ISSUE CHECKS TO THE PAYEES, IN THE AMOUNTS SHOWN , AND FOR THE PURPOSE SO STATED. Added to Aug Check DATE OF Regular Mo Year To Date Act 1373 EMP# RETIREMENT NAME Benefit Reg Benefit iture Supplement Q 79 11/99 ARMSTRONG (DILL), PAMELA 1,812.74 16,314.66 0.00 R 177 4/04 BACHMAN, EDDIE 2,618.55 23,566.95 754.20 S 74 3/86 BAIRD, JULIA 1,802.08 16,218.72 754.20 V 63 5/72 BOLAIN, ANN 109.27 983.43 150.84 R 68 7/99 BONADUCE, MICHAEL 2,988.76 26,898.84 754.20 S 44 9/86 BOUDREY, BETTY MRS. 2,477.42 22,296.78 754.20 R 45 9/86 BOUDREY, HOWARD 2,089.28 18,803.52 754.20 R 49 7/88 BOUDREY, JACK 1,647.63 14,828.67 .754.20 V 5 5/72 CASELMAN, ARTHUR 131.13 1,180.17 150.84 R 57 5/90 CATE, ROY 1,788.90 16,100.10 754.20 V 6 4/68 CHRISTIE, ARNOLD 109.27 983.43 150.84 V 8 10/76 COUNTS, WAYNE 109.27 983.43 150.84 R 77 11/99 DILL,GARY JOHN 1,812.75 16,314.75 754.20 188 12/05 DOSS, MARION H 5,376.91 48,392.19 754.20 R 11 2/76 FARRAR,ALONZO 998.86 8,989.74 754.20 R 192 4/06 FARRAR, DANNY 4,155.36 37,398.24 754.20 R 38 5/84 FRALEY, JOSEPH G. 1,768.12 15,913.08 754.20 R 170 5/03 FREEDLE, LARRY 3,816.75 34,350.75 754.20 R 92 03/02 GAGE,TOMMY 2,596.69 23,370.21 754.20 V 34 6/79 HARRIS, JAMES E. 109.27 983.43 150.84 V 70 11/99 HARRIS, MARY RUTH 109.27 983.43 150.84 Q 182 10/04 JENKINS, EILEEN 1,788.75 16,098.75 R 93 06/02 JENKINS, JOHN 1,788.76 16,098.84 754.20 R 86 07/01 JOHNSON,ROBERT 3,073.47 27,661.23 754.20 R 64 4/95 JORDAN, CHARLIE 2,274.95 20,474.55 754.20 S 76 5/88 JUDY, JAN 1,647.63 14,828.67 754.20 R 37 3/84 KING, ARNOLD D. 1,522.37 13,701.33 754.20 R 54 5/89 KING, ARVIL 1,711.21 15,400.89 754.20 V 12 3/60 LANE, HOPE MRS, Deceased 6/26/07 0.00 655.62 R 13 10/67 LAYER, MERLIN 456.22 4,105.98 754.20 R 173 12/03 LEDBETTER, DENNIS 3,775.80 33,982.20 754.20 V 181 10/04 LEE, VIOLA LOUISE 109.27 983.43 150.84 R 51 10/88 LEWIS, CHARLES 1,647.63 14,828.67 754.20 R 40 9/85 LOGUE, PAUL D. 2,868.28 25,814.52 754.20 R 50 9/88 MASON, LARRY 1,631.25 14,681.25 754.20 R 39 4/85 MC ARTHUR, RONALD A. 1,753.74 15,783.66 754.20 V 35 2/82 MC CHRISTIAN, DWAYNE 109.27 983.43 150.84 R 15 4/77 MC WHORTER, CHARLES 1,334.51 12,010.59 754.20 R 29 8/81 MILLER, DONALD 1,304.07 11,736.63 754.20 R 73 2/00 MILLER,KENNETH 3,180.02 28,620.18 754.20 V 42 2/86 MOORE, JAMES H. 109.27 983.43 150.84 V 176 4/04 MORRIS, DIXIE E. 125.66 1,130.94 150.84 R 48 7/88 MULLENS, DENNIS W. 2,191.30 19,721.70 754.20 R 184 3/05 NAPIER, LONNIE 3,518.28 31,664.52 754.20 R 196 01/02 ONEAL, TEDDY 4,120.99 37,088.91 754.20 R 46 5/88 OSBURN, TROY 1,899.66 17,096.94 754.20 R 81 02/01 PHILLIPS,LARRY 2,765.09 24,885.81 754.20 R 53 2/89 POAGE, LARRY 2,346.70 21,120.30 754.20 R 186 06/05 REAGAN, PETE 3,535.71 31,821.39 754.20 V 22 4/73 REED, JOE 109.27 983.43 150.84 S 172 12/03 SCHADER, MADGE 1,386.01 12,474.09 754.20 R 41 9/85 SCHADER, TROY 1,524.99 13,724.91 754.20 R 190 04/06 SHACKELFORD, GLEN 3,647.18 32,824.62 754.20 S 83 03/01 SKELTON, KIMBERLY 2,434.98 21,914.82 754.20 R 36 5/76 SPRINGSTON, CARL 806.19 7,255.71 754.20 S 90 03/02 STOUT, IMOGENE W. 767.80 6,910.20 754.20 R 165 12/02 TATE, RALPH 3,668.10 33,012.90 754.20 V 65 3/66 TUNE, BILLIE SUE 136.59 1,229.31 150.84 R 71 1/00 WARFORD,THOMAS 2,502.72 22,524.48 754.20 R 28 7/68 WATTS, DONALD 437.09 3,933.81 754.20 R 88 01/02 WOOD,RONNIE D 3,077.15 27,694.35 754.20 R 52 9/88 WRIGHT, RANDALL 1,691.34 15,222.06 754.20 113,207.55 1,019,523.57 37,257.48 DROP DATE DROP EMPLOYEES NEW BENEFITS 03/01/03 MAHAN, MARSHALL 4,077.28 03/01/03 PIERCE, JOEY 3,647.18 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 8/24/2007 C:\Documents and Settings\ssmith.000\Local Settings\Temp\XPgrpwise\September 2007 WM DATE OF Regular Mo Year To Date Act 1373 EMP#RETIREMENT NAME Benefit Reg Benefit iture Supplement 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 : 8/24/2007 C:\Documents and Settings\ssmith.000\Local Settings\Temp\XPgrpwise\September 2007 WM FAYETTEVILLE THE CITY OF FAYETTEVILLE,ARKANSAS HIT WILLIAMS, CITY ATTORNEY DAVID WHITAKER,ASST. CITY ATTORNEY DEPARTMENTAL CORRESPONDENCE LEGAL DEPARTMENT TO: Dan Coody, Chairman Fayetteville Firefighters Pension and Relief Board FROM: Kit Williams, City Attorney ---- -- -- -~� DATE: July 27, 2007 - RE: Act 218 of 2007 I enjoyed reviewing Act 218 of 2007 as requested by the Pension Board. Unfortunately, this 14 page act dealt only with "technical corrections to the Arkansas Income Tax laws by adopting recent changes to the Internal Revenue Code." I could find nothing helpful to the pension fund in its 37 sections. The only section dealing with health insurance was section 33 "concerning health savings accounts," not premium payments. I have this act in my office for your personal review, but my review did not turn up anything helpful Stricken language would be deleted from and underlined language would be added to the law as it existed prior to this session of the General Assembly. Act 218 of the Regular Session 1 State of Arkansas 2 86th General Assembly A Bill 3 Regular Session, 2007 HOUSE BILL 1484 4 5 By: Representative Maloch 6 7 8 For An Act To Be Entitled 9 AN ACT TO MARE TECHNICAL CORRECTIONS TO THE 10 ARKANSAS INCOME TAX LAWS BY ADOPTING RECENT 11 CHANGES TO THE INTERNAL REVENUE CODE; AND FOR 12 OTHER PURPOSES . 13 14 Subtitle 15 TO MAKE TECHNICAL CORRECTIONS TO THE 16 ARKANSAS INCOME TAX LAWS BY ADOPTING 17 CURRENT INTERNAL REVENUE CODE 18 PROVISIONS . 19 20 21 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF ARKANSAS : 22 23 SECTION 1 . Arkansas Code § 6-84- 102 is amended to read as follows : 24 6-84-102 . Purpose . 25 It is the intent and purpose of this chapter to create and establish 26 the Arkansas Tax-Deferred Tuition Savings Program pursuant to 26 U. S .C. § 529 27 as in effect on February 1 , 2003 , January 1 , 2007 , to be administered by the 28 Section 529 Plan Review Committee through the adoption of rules and 29 regulations for the administration of the program. 30 31 SECTION 2 . Arkansas Code § 6-84-103 is amended to read as follows : 32 6-84-103 . Definitions . 33 For purposes of this chapter: 34 ( 1 ) "Account" means an account established in accordance with 35 this chapter; IIIIIIIIIIIII IIIIIIIIIIIIIIIIIIIII 02-13-2007 09:07 LMG119 HB1484 1 (2) "Account owner" means the person who, under this chapter or 2 the rules promulgated by the Section 529 Plan Review Committee , is entitled 3 to select or change the designated beneficiary of an account, to designate 4 any person other than the designated beneficiary to whom funds may be paid 5 from the account , or to receive distributions from the account if no other 6 person is designated; 7 (3) "Act" means the Arkansas Tax-Deferred Tuition Savings 8 Program Act; 9 (4) (A) "Arkansas Tax-Deferred Tuition Savings Program Trust" or 10 "trust" means the trust created under § 6-84-104 . 11 (B) Participation in the trust shall be open to Arkansas 12 residents and nonresidents alike; 13 (5 ) "Committee" means the Section 529 Plan Review Committee , 14 provided for in § 6-84-105 , which shall oversee the administration of the 15 Arkansas Tax-Deferred Tuition Savings Program and ensure that the program 16 complies with the provisions of this chapter and acts in accordance with 26 17 U. S.C . § 529 as in effect on February 1 . 2003 January 1., 20079- 18 007 ;18 -(6) "Contribution" means : 19 (A) Any payment directly allocated to an account for the 20 benefit of a designated beneficiary or used to pay administrative fees 21 associated with an account; and 22 (B) That portion of any rollover amount treated as a 23 contribution under 26 U. S .C . § 529 as in effect on February 1 , 2003 January 24 1 , 2007 ; 25 (7) "Contributor" means any person making a contribution to an 26 account; 27 (8) "Designated beneficiary" means , except as provided in § 6- 28 84-108 , the individual designated at the time the account is opened as having 29 the right to receive a qualified withdrawal for the payment of qualified 30 higher education expenses or, if the designated beneficiary is replaced in 31 accordance with § 6-84- 108 , the replacement ; 32 (9) "Higher education institution" means an eligible education 33 institution as defined in 26 U. S .C . § 135 (c) (3) as in effect on February 1F 34 2003 January 1 , 2007 ; 35 ( 10) "Member of the family" shall have the same meaning as is 36 contained in 26 U. S .C . § 529 (e) as in effect on February 1 ,-2803 January 1 , 2 02-13-2007 09 : 07 LMG119 HB1484 1 2007 ; 2 ( 11 ) "Nonqualified withdrawal" means a withdrawal from an 3 account that is not : 4 (A) A qualified withdrawal; 5 (B) A withdrawal made as the result of the death or 6 disability of the designated beneficiary; 7 (C) A withdrawal made as the result of a scholarship , or 8 allowance , or payment described in 26 U. S .C . § 135 (d) ( 1 ) (B) or (C) as in 9 effect on February 1 , 2003 January 1 , 2007 , received by the designated 10 beneficiary but only to the extent of the amount of the scholarship , 11 allowance , or payment ; or 12 (D) A rollover or change in the designated beneficiary; 13 ( 12) "Person" means a person as defined in 26 U. S .C . § 529 as in 14 effect on February 1 , 2003 January 1 , 2007 ; 15 ( 13) "Program" means the Arkansas Tax-Deferred Tuition Savings 16 Program established by this chapter; 17 ( 14) "Qualified higher education expenses" means tuition and 18 other permitted expenses as set forth in 26 U. S .C . § 529 (e) as in effect on 19 February-1 , 2003 January 1 , 2007 , for the enrollment or attendance of a 20 designated beneficiary at a higher education institution; 21 ( 15 ) "Qualified tuition program" means a qualified tuition 22 program as defined in 26 U. S .C . § 529 (b) as in effect February-1 , 2003 23 January 1 , 2007 ; 24 ( 16) "Qualified withdrawal" means a withdrawal from an account 25 to pay the qualified higher education expenses of the designated beneficiary 26 but only if the withdrawal is made in accordance with the requirements of the 27 program; and 28 ( 17 ) "Rollover" means a disbursement or transfer from an account 29 that is transferred to or deposited within sixty (60) calendar days of the 30 transfer into an account of the same person for the benefit of the same 31 designated beneficiary or another person as a designated beneficiary if the 32 transferee account was created under this chapter or under another qualified 33 tuition program maintained in accordance with 26 U. S . C . § 529 (c) as in effect 34 on February 1 ,-2003 January 1 , 2007 . 35 36 SECTION 3 . Arkansas Code § 6-84-105 is amended to read as follows : 3 02-13-2007 09 : 07 LMG119 HB1484 1 6-84-105 . Administration - Authority - Powers . 2 (a) This chapter shall be administered by the Section 529 Plan Review 3 Committee, which shall be composed of: 4 ( 1) The Director of the Department of Higher Education; 5 (2) The Executive Director of the Arkansas Teacher Retirement 6 System; and 7 (3) The Treasurer of State . 8 (b) The committee shall adopt such rules and regulations as it deems 9 necessary and proper to administer this chapter and to ensure the compliance 10 of the Arkansas Tax-Deferred Tuition Savings Program with 26 U. S .C . § 529 as 11 in effect on February 1 , 2003 January 1 , 2007 . 12 (c) The committee shall have the following powers , duties , and 13 functions : 14 ( 1 ) To establish, develop, implement , and maintain the program 15 in a manner consistent with the provisions of this chapter and 26 U. S .C . § 16 529 as in effect on February 1 , 2003 January 1 , 2007 , to obtain the benefits 17 provided by 26 U. S . C . § 529 for the program, account owners , and designated 18 beneficiaries ; 19 (2) To adopt rules and regulations for the general 20 administration of the program; 21 (3) To maintain, invest, and reinvest the funds contributed into 22 the program consistent with the investment restrictions established by the 23 committee and the standard of care described in the prudent investor rule 24 presently codified as §-24 3 417 [repealed] § 24-2-61O ;( and 25 (4) (A) To make and enter into any and all contracts , agreements , 26 or arrangements and to retain, employ, and contract for the services of 27 financial institutions , depositories , consultants , broker dealers , investment 28 advisors or managers , third-party plan administrators , and research, 29 technical, and other services necessary or desirable for carrying out the 30 purposes of this chapter . 31 (B) Contracts entered into by the committee may be for a 32 term of from one ( 1 ) to ten ( 10) years . 33 34 SECTION 4 . Arkansas Code § 6-84-106 is amended to read as follows : 35 6-84-106 . Investment direction. 36 Except as permitted in 26 U. S . C . § 529 as in effect on February 1 , 2903 , 4 02-13-2007 09 : 07 LMG119 HB1484 1 January 1 , 2007 , no person shall have the right to direct the investment of 2 any contributions to or earnings from the Arkansas Tax-Deferred Tuition 3 Savings Program. 4 5 SECTION 5 . Arkansas Code § 6-84-108 (b) , concerning transfers of 6 accounts , is amended to read as follows : 7 (b) At the direction of an account owner , all or a portion of an 8 account may be transferred to another account of which the designated 9 beneficiary is a member of the family of the designated beneficiary of the 10 transferee account if the transferee account was created by this chapter or 11 under another qualified tuition program maintained in accordance with 26 12 U. S . C. § 529 as in effect February 1 ,-2843 January 1 , 2007 . 13 14 SECTION 6 . Arkansas Code § 6-84-109 is amended to read as follows : 15 6-84-109 . Account withdrawals . . 16 (a) Withdrawal from an account may be made on thirty (30) days ' 17 written notice by the account owner to the Section 529 Plan Review Committee 18 or on shorter notice as the committee may by regulation provide . 19 (b) ( 1 ) An account withdrawal paid to or for the benefit of any person 20 during any calendar year shall be reported to the person and to the Internal 21 Revenue Service. 22 (2) The report shall be made at the time required by the rules 23 of the Internal Revenue Service as in effect on Febraary 1 , 20003 January 1 , 24 2007 , and contain such information as is required by law. 25 26 SECTION 7 . Arkansas Code § 6-84-111 is amended to read as follows : 27 6-84-111 . Funds exempt from tax. 28 (a) Except as otherwise indicated in this chapter, interest , 29 dividends , and capital gains from funds invested in the Arkansas Tax-Deferred 30 Tuition Savings Program or a tax-deferred tuition savings program established 31 by another state under 26 U.S .C . § 529 as in effect on January 1 , 2005 2007 , 32 shall be exempt from Arkansas income taxes . 33 (b) ( 1 ) For tax years beginning on or after January 1 , 2005 , 34 contributions to a tuition savings account established under this program may 35 be deducted from the taxpayer' s adjusted gross income for the purpose of 36 calculating Arkansas income tax under § 26-51-403 (b) . 5 02-13-2007 09 : 07 LMG119 HR1484 1 (2) The deductible contributions shall not exceed five thousand 2 dollars ($5 , 000) per taxpayer in any tax year. 3 (3) Contributions to this program that have been deducted from 4 the taxpayer' s adjusted gross income for prior tax years shall be subject to 5 recapture if the taxpayer: 6 (A) Makes a subsequent nonqualified withdrawal from the 7 account; or 8 (B) Rolls the account over to a tax-deferred tuition 9 savings program established by another state or institution under 26 U. S .C . § 10 529 as in effect on January 1 , 2005 2007 . 11 (4) The contribution shall be recaptured by adding the amount 12 previously deducted, not to exceed the amount of the nonqualified withdrawal 13 or rollover, to the taxpayer' s adjusted gross income for the tax year in 14 which the nonqualified withdrawal or rollover occurred. 15 (c) ( 1 ) Qualified withdrawals from a tuition savings account 16 established under this program or a tax-deferred tuition savings program 17 established by another state under 26 U.S .C. § 529 as in effect on January 1 , 18 2005 2007 , will be exempt from Arkansas income tax with respect to the 19 designated beneficiary' s income . 20 (2) (A) Nonqualified withdrawals from a tuition savings account 21 established under this program or a tax-deferred tuition savings program 22 established by another state under 26 U. S .C. § 529 as in effect on January 1 , 23 2005 2007 , will be subject to Arkansas income tax. 24 (B) The nonqualified withdrawal will be taxable to the 25 party, account owner, or designated beneficiary who actually makes the 26 withdrawal. 27 (d) Any earnings on the contribution that are included in the refund 28 will be subject to Arkansas income tax if an account owner receives a refund 29 of contributions to a tuition savings account established under this program 30 or a tax-deferred tuition savings program established by another state under 31 26 U.S .C . § 529 as in effect on January 1 , 2005 2007 , because of either : 32 ( 1 ) The death or disability of the designated beneficiary; or 33 (2) A scholarship, allowance, or payment described in 26 U. S .C . 34 § 135 (d) ( 1) (B) or (C) as in effect on January 1 , 2005 2007 , received by the 35 designated beneficiary. 36 6 02- 13-2007 09 : 07 LMG119 HB1484 1 SECTION 8 . Arkansas Code § 6-84-113 is amended to read as follows : 2 6-84-113 . Liberal construction. 3 This chapter shall be liberally construed to comply with the 4 requirements of 26 U. S .C . § 529 as in effect on February 1 , 2003 January 1 , 5 2007 . 6 7 SECTION 9 . Arkansas Code § 26-18-306 (b) ( 1 ) , concerning the reporting 8 of adjustments to income made by the Internal Revenue Service , is amended to 9 read as follows : 10 (b) ( 1) Notwithstanding the provisions of subsection (a) of this 11 section, if the amount of taxable income or taxable estate for a taxpayer for 12 any year, as returned to the United States Treasury Department , is changed 13 and corrected by the Commissioner of Internal Revenue or any officer of the 14 United States of competent authority, the taxpayer, within thirty (30 ninety 15 (90) days from the receipt of the notice and demand for payment by the 16 Internal Revenue Service , must report to the director the corrected federal 17 tax, taxable income , or taxable estate for the taxable period covered by the 18 change on an amended Arkansas income tax return. 19 20 SECTION 10 . Arkansas Code § 26-51-204 is amended to read as follows : 21 26-51-204 . Railroads and public utilities . 22 Every railroad or other public utility, whether organized under the 23 laws of this state or any other state or the federal government , shall be 24 subject to the provisions of this act and shall pay the state income tax 25 levied by § 26-51-201 et seq . upon that proportion of its entire net income 26 . applicable to the State of Arkansas . 27 28 SECTION 11 . Arkansas Code § 26-51-306 (a) (4) (A) , concerning 29 compensation and benefits from military service , is amended to read as 30 follows • 31 (4) (A) Sections 112 and 692 of the Internal Revenue Code of 1986 , 32 as in effect on January 1 , 2005 2007 , regarding combat zone compensation of 33 members of the armed forces and income taxes of members of the armed forces 34 on death are adopted. 35 36 SECTION 12 . Arkansas Code § 26-51-307 (c) ( 1) , concerning retirement or 7 02-13-2007 09 : 07 LMG119 HB1484 1 disability benefits , is amended to read -as follows : 2 (c) ( 1) Section 72 of the Internal Revenue Code of 1986 , as in effect 3 on January 1 , 2005 2007 , shall provide the sole method by which a recipient 4 of benefits from an individual retirement account or from public or private 5 employment-related retirement systems , plans , or programs may deduct or 6 recover his or her cost of contribution to the plan when computing his or her 7 income for state income tax purposes . 8 9 SECTION 13 . Arkansas Code § 26-51-308 is amended to read as follows : 10 26-51-308 . Trusts for qualified deferred compensation plans exempt . 11 An organization or trust described in section 401 (a) of the Internal 12 Revenue Code , as in effect on January 1 , 1983 2007 , and as that—eeetion la 13 modified by the applieable—previsiens of Publie LmF 97 248 , shall be exempt 14 from income taxation under the provisions of the A '�aa Income Tax Act of 15 1929 , § 26-51-101-,- et seq. amended, 16 17 SECTION 14 . Arkansas Code § 26-51-309 is amended to read as follows : 18 26-51-309 . Charitable remainder trusts . 19 (a) Section 664 of the Internal Revenue Code of 1986 , as in effect on 20 January 1 , 1999 2007 , and the regulations of the Secretary of the Treasury 21 promulgated under § 664 of the Internal Revenue Code of 1986 and in effect on 22 January 1 , 1999 2007 , are adopted for the purpose of computing the tax 23 liability of charitable remainder trusts and their beneficiaries under the 24 Income Tax Act of 1929 , § 26-51-101 et seq. 25 (b) Furthermore , any other provision of the federal income tax law and 26 regulations which are necessary for interpreting and implementing 26 U. S .C . § 27 664 are adopted to the extent as in effect on January 1 , 1999 2007 . 28 29 SECTION 15 . Arkansas Code § 26-51-310, is amended to read as follows : 30 26-51-310. Foreign income exclusion. 31 Sections 911 and 912 of the Internal Revenue Code of 1986 , as in effect 32 on January 1 , 1999 2007 , 26 U. S .C. § 911 regarding citizens or residents of 33 the United States living abroad and 26 U. S .C. § 912 regarding certain 34 allowances for citizens or residents of the United States living abroad , are 35 adopted for the purpose of computing Arkansas income tax liability. 36 8 02-13-2007 09 : 07 LMG119 HB1484 1 SECTION 16 . Arkansas Code § 26-51-404 (b) ( 1) - (3) , concerning gross 2 income, is amended to read as follows : 3 ( 1) Section 1033 of the Internal Revenue Code of 1986 , as in 4 effect on January 1 , 2005 2007 , relating to the exclusion from gross income 5 of gain resulting from the involuntary conversion of a taxpayer' s property, 6 is adopted for the purpose of computing Arkansas income tax liability; 7 (2) Section 121 of the Internal Revenue Code of 1986 , as in 8 effect on January 1 , 2005 2007 , relating to the exclusion from gross income 9 of gain from the sale or exchange of property owned and used as the 10 taxpayer' s principal residence, is adopted for the purpose of computing 11 Arkansas income tax liability; 12 (3) Section 101 of the Internal Revenue Code of 1986 , as in 13 effect on January 1 , 2005 2007 , concerning the exclusion from gross income of 14 proceeds or benefits paid upon the illness or death of the insured, is hereby 15 adopted for the purpose of computing Arkansas income tax liability; 16 17 SECTION 17 . Arkansas Code § 26-51-404 (b) (24) (A) , concerning exclusions 18 from gross income , is amended to read as follows : 19 (24) (A) Section 72 of the Internal Revenue Code of 1986 , as in 20 effect on January 1 , 2005 2007 , relating to the exclusion from gross income 21 of certain proceeds received under life insurance , endowment , and annuity 22 contracts , is adopted for the purpose of computing Arkansas income tax 23 liability. 24 25 SECTION 18 . Arkansas Code § 26-51-409 (a) , concerning Federal 26 Subchapter S , is amended to read as follows : 27 (a) Subchapter S of the Internal Revenue Code of 1986 , as in effect on 28 January 1 , 2005 2007 , regarding small business corporations , is adopted for 29 the purpose of computing Arkansas income tax liability. 30 31 SECTION 19 . Arkansas Code § 26-51-412 (d)', concerning the gain or loss 32 from an exchange of property, is amended to read as follows : 33 (d) Sections 351 , 354 - 358 , 361 , 362 , 367 , and 368 of the Internal 34 Revenue Code of 1986 , as in effect on January 1 , 2091 2007 , regarding 35 corporate organization, reorganization, and recognition of gain, are adopted 36 for the purpose of computing Arkansas income tax liability. 9 02-13-2007 09 : 07 LMG119 HB1484 1 2 SECTION 20 . Arkansas Code § 26-51-413 (a) , concerning corporate 3 liquidations , is amended to read as follows : 4 (a) Sections 332 , 334 , 336 , 337 , and 338 of the Internal Revenue Code 5 of 1986 , as in effect on January 1 , 1999 2007, the same being 26 U. S .G . 6 332 , 334 , 337 , and 33-9 regarding the liquidations of corporations , are 7 adopted for the purpose of computing Arkansas income tax liability. 8 9 SECTION 21 . Arkansas Code § 26-51-414 (a) ( 1 ) , concerning deferred 10 compensation plans , is amended to read as follows : 11 (a) ( 1 ) Sections 72 , 219 , 401-404 , 406-416 , and 457 of the Internal 12 Revenue Code of 1986 , as in effect on January 1 , 2005 2007 , relating to 13 annuities , retirement savings , and employee benefit plans , respectively, are. 14 adopted for the purpose of computing Arkansas income tax liability, except 15 Arkansas capital gains treatment, and the Arkansas tax rates shall apply. 16 17 SECTION 22 . Arkansas Code § 26-51-415 is amended to read as follows : 18 26-51-415 . Deductions - Interest . 19 Section 163 of the Internal Revenue Code of 1986 , as in effect on 20 January 1 , 1999 2007 , regarding deductions for interest expenses , is adopted 21 for the purpose of computing Arkansas income tax liability. 22 23 SECTION 23 . Arkansas Code § 26-51-419 (a) ( 1) , concerning charitable 24 deductions , is amended to read as follows : 25 (a) ( 1 ) (A) Section 170 of the Internal Revenue Code of 1986 , as in 26 effect on January 1 , 2005 2007 , regarding deductions for charitable 27 contributions , is adopted for the purpose of computing Arkansas income tax 28 liability. 29 (B) This adoption is for taxable years beginning on or 30 after January 1 , 2005 2007 , and will have no effect on years prior to its 31 adoption. 32 33 SECTION 24 . Arkansas Code § 26-51-423 (b) , concerning business 34 expenses , is amended to read as follows : 35 (b) Section 274 of the Internal Revenue Code of 1986 , as in effect on 36 January 1 , 2005 2007 , regarding the deductions of expenses for entertainment , 10 02-13-2007 09 : 07 LMG119 HB1484 1 amusement , recreation, business meals , travel, et cetera, is adopted for the 2 purpose of computing Arkansas income tax liability. 3 4 SECTION 25 . Arkansas Code § 26-51-423 (h) , concerning the amortization 5 of qualified reforestation expenses , is amended to read as follows : 6 (h) Section 194 of the Internal Revenue Code of 1986 , as in effect on 7 January 1 , 2005 2007 , regarding the amortization of qualified reforestation 8 expenses , is adopted for the purpose of computing Arkansas income tax 9 liability. 10 11 SECTION 26 . Arkansas Code § 26-51-428 (c) , concerning the amortization 12 of goodwill and other intangibles , is amended to read as follows : 13 (c) Section 197 of the Internal Revenue Code of 1986 , as in effect on 14 January 1 , 1995 2007 , regarding the amortization of goodwill and certain 15 other intangibles , is adopted for the purpose of computing Arkansas income 16 tax liability. 17 18 SECTION 27 . Arkansas Code § 26-51-429 (a) and (b) , concerning the 19 depletion allowance deductions for all natural resources , is amended to read 20 as follows : 21 (a) In the case of all natural resources for which a deduction for 22 depletion is allowed under § 611 of the Internal Revenue Code of 1986 , the 23 provisions of §§ 611-613 , 614 , 616 , and 617 of the Internal Revenue Code of 24 1986 , as in effect on January 1 , 2005 2007 , are adopted in computing the 25 depletion allowance deduction under Arkansas income tax law. 26 (b) In computing the depletion allowance deduction allowed by this 27 section for oil and gas wells , the provisions of § 613 of the Internal 28 Revenue Code , of 1986 shall not be in effect , but instead the computation of 29 the amount of the depletion deduction shall be controlled by the provisions 30 of § 613A of the Internal Revenue Code of 1986 , as in effect on January 1 , 31 2005 2007 , which are adopted as part of the state income tax law. 32 33 SECTION 28 . Arkansas Code § 26-51-436 (7) , concerning deductions 34 allowed in computing net income , is amended to read as follows : 35 (7) Section 470 of the Internal Revenue Code of 1986 , as in 36 effect on January 1 , 2005 2007 , regarding leasing transactions between 11 02-13-2007 09 : 07 LMG119 HB1484 1 taxpayers , is adopted for the purpose of computing Arkansas income tax 2 liability. 3 4 SECTION 29 . Arkansas Code § 26-51-439 (a) , concerning capitalization of 5 certain expenses , is amended to read as follows : 6 (a) Subsections (a) - (h) of § 263A of the Internal Revenue Code of 7 1986 , as in effect on January 1 , 1989 2007 , regarding capitalization and 8 inclusion in inventory costs of certain expenses , are adopted for the purpose 9 of computing Arkansas eerperate income tax liability. 10 11 SECTION 30. Arkansas Code § 26-51-439 (d) , concerning capitalization of 12 certain expenses , is amended to read as follows : 13 (d) Section 709 of the Internal Revenue Code of 1986 , as in effect on 14 January 1 , 2005 20079 regarding the amortization of partnership 15 organizational expenses , is adopted for the purpose of computing Arkansas 16 income tax liability. 17 18 SECTION 31 . Arkansas Code § 26-51-440 is amended to read as follows : 19 26-51-440 . Federal Subchapter M adopted. 20 .(a) ( 1 ) Subchapter M of the Internal Revenue Code of 1986 , as in effect 21 on January 1 , 2001 2007 , relating to regulated investment companies , real 22 estate investment trusts , and financial asset securitization investment 23 trusts , is adopted as state ineeme tam 1 for the purpose of computing 24 Arkansas income tax liability and shall govern all corporations which are 25 registered as investment companies under the Investment Company Act of 1940, 26 as in effect on January 1 , 2001 2007 . 27 (2) (A) However , those provisions of Subchapter M addressing the 28 tax rates applied to financial asset securitization investment trust income 29 are not adopted . 30 (B) Any financial asset securitization investment trust 31 income subject to Arkansas income tax shall be taxed at the rates set forth 32 in § 26-51-205 . 33 (b) Any election made for federal income tax purposes under Subchapter 34 M of the Internal Revenue Code of 1986 , as in effect on January 1 , 2001 2007 , 35 shall be deemed made for state income tax purposes . 36 (c) This section shall take effect and be enforced for tax years 12 02-13-2007 09 : 07 LMG119 HB1484 1 beginning on or after January 1 , 2001 2007 . 2 3 SECTION 32 . Arkansas Code § 26-51-443 (b) , concerning allocation of 4 unstated interest, is amended to read as follows : 5 (b) Section 7872 of the Internal Revenue Code of 1986 , as in effect on 6 January 1 , 1999 2007 , regarding the taxation of foregone interest on a below- 7 market loan, is adopted for the purpose of computing Arkansas income tax 8 liability. 9 10 SECTION 33 . Arkansas Code § 26-51-453 (a) , concerning health savings 11 accounts , is amended to read as follows : 12 (a) Subsections (a) - (d) , (e) (2) , ( f) , and (g) of § 223 of the Internal 13 Revenue Code of 1986 , as in effect on January 1 , 2-005 2007 , regarding a 14 deduction from income for amounts deposited to health savings accounts , is 15 adopted for purposes of computing Arkansas income tax liability. 16 17 SECTION 34 . Arkansas Code § 26-51-502 (b) ( 1) , concerning household and 18 dependent care services , is amended to read as follows : 19 (b) ( 1 ) Section 21 of the Internal Revenue Code of 1986 , as in effect 20 on January 1 , 2-005 2007 , is adopted for purposes of determining the allowable 21 credit under the Income Tax Act of 1929 , § 26-51-101 et seq. , for household 22 and dependent care services necessary for gainful employment . 23 24 SECTION 35 . Arkansas Code § 26-51-801 (d) , concerning returns by 25 individuals , is amended to read as follows : 26 (d) As used in this section: 27 ( 1) "Dependent" means the same as defined in § 152 of the 28 Internal Revenue Code of 1986 , as in effect on January 1 , 2005 2007 ; 29 (2) "Head of household" means the same as defined in § 2 (b) of 30 the Internal Revenue Code of 1986, as in effect on January 1 , 2005 ; 31 (3) "Jointly" means filing a joint return; and 32 (4) "Qualifying widow or widower with a dependent child" means 33 the "surviving spouse" as defined in § 2 (a) of the Internal Revenue Code of 34 1986 , as in effect on January 1 , 2005 . 35 36 SECTION 36 . Arkansas Code § 26-51-815 (a) , concerning computing capital 13 02- 13-2007 09 : 07 LMG119 HB1484 1 gains and losses , is amended to read as follows : 2 (a) ( 1) (A) To the extent they apply to capital gains and losses 3 realized or incurred during income years beginning after December 31 , 1996 , 4 26 U. S .C . §§ 1211-1237 and 1239-1257 as in effect on January 1 , 1999 2007 , 5 and the regulations of the Secretary of the Treasury promulgated under 26 6 U. S . C . §§ 1211-1237 and 1239-1257 , and in effect on January 1 , 1999 2007 , are 7 adopted for the purpose of computing tax liability under the Income Tax Act 8 of 1929 , § 26-51- 101 et seq. 9 (B) However , the provisions of this section shall not 10 apply to a C corporation as defined. in 26 U. S .C . § 1361 , as in effect on 11 January 1 , 1997 . 12 (2) Furthermore, any other provisions of the federal income tax 13 law and regulations necessary for interpreting and implementing 26 U. S .C . §§ 14 1211-1237 and 1239-1257 are adopted to that extent and as in effect on 15 January 1 , 1999 2007 . 16 17 SECTION 37 . Arkansas Code § 26-51-919 (b) (2) (A) , concerning the filing 18 of an annual return by a pass-through entity, is amended to read as follows : 19 (2) (A) On or before February 28 fellewing the elese ef-the pass 20 threugh entity' s tax year the due date for the pass-through entitv' s 21 composite income tax return described in subsection (d) of this section, a 22 pass-through entity shall file an annual return with the director showing the 23 total amount of income distributed or credited to its nonresident members and 24 the amount of tax withheld and shall remit the amount of tax withheld. 25 26 APPROVED: 3/6/2007 27 28 29 30 31 32 33 34 35 36 14 02-13-2007 09 : 07 LMG119 Stephens Inc. r �" AUG 16 2007 Ct7OF FAYE'i ;I=V1LLG August 14, 2007 tvRAYORI' OFFICE . Mayor Dan Coody City of Fayetteville 113 W. Mountain Fayetteville, AR 72701 E As the registered investment advisor to many of the closed police and fire pension plans across the state, Stephens is providing the following information from the 86`h General Assembly that may prove beneficial to plan participants. The State legislature addressed and passed a series of pension related bills that may have an impact on "old" municipal related plans such as yours. Listed below is a summary of a few Acts that your plan may want to review. • Act 851 (Senate Bill 158) sets minimum investment standards for Closed Fire and Police Funds that will be enforced by the Pension Review Board. t 1) Sets a minimum asset management standard by requiring Closed Plans to (a) meet regularly; (b) to be actuarially sound; and (c) to earn a rate of return that is at least equal to a one year United States Treasury note. 2) If the Closed Fire or Police Fund fails to meet the minimum asset management standard they would be required to develop a written investment policy and hire professional investment management. 3) If the Fund does not adhere to the additional requirements stated in (2), then the Fund must develop a plan of action in conjunction with the Pension Review Board on finding ways to meet these standards. k 4) Gives the Pension Review Board the authority to implement and enforce the minimum asset management standard. • Act 1056 (House Bill 1099) consolidates small Closed Fire and Police plans into LOPFI 1) Act 1056 requires that Closed Fire and Police Plans with less than five active or retired members remaining be declared inactive and consolidate administration with LOPFI. The number of members does not included surviving spouses. 2) Closed Plans that are actuarially sound will have to provide a cost of living increase after consolidation with LOPFI. • Act 1569 (Senate Bill 105) increases the maximum benefit amount to 85% (previously 80%) of final average pay. A member now will maximize their multiplier in 31 years and 6 months versus previous law of 29 years and 7 months. Investment Bankers www.stephens.corn I I I Center Street P.O. Box 3507 Little Rock, Arkansas 72203 501-374-4361 Fax 501-377-2666 • Act 614 (House Bill 1277) allows a retroactive benefit increase for widows. A Closed Fire Plan is allowed to restore the benefit of a surviving spouse who has remarried, under the circumstances of a firefighter who died in the line of duty. • Act 1571 (Senate Bill 144) allows a death benefit to be increased to no more than $6,500 (previously $4,000) at the discretion of the local board of trustees. Stephens Capital Management currently manages a large number of Closed Fire and Police Pension Fund assets across the state as well as serving as investment consultant for LOPFI. In addition to providing low cost, excellent service and professional investment advice, we maintain a working relationship with the Pension Review Board, State Actuaries and the Legislative Joint Retirement Committee. If you are interested in the services we provide plans like yours, please contact us at 800-643-9691 to coordinate a time and date. I The above summary is not intended to serve as legal advice and you are encouraged to seek your own independent counsel Sincerely, Larry Middleton Senior Vice President Managing Director Alex Jorda Senior Vice President Bo Brister Pension Plan Advisor