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OKLAHOMA LAW ENFORCEMENT RETIREMENT SYSTEM ACTUARIAL VALUATION REPORT AS OF JULY 1, 2011 TABLE OF CONTENTS SECTION Page No. Highlights Purpose 1 Summary of Principal Valuation Results 2 Effects of Changes 3 Deferred Option Plan 4 Certification 5 Section 1 Funding Results 6 1.1 Calculation of Contribution Requirement 7 1.2 Liability Detail 8 1.3 Unfunded Actuarial Accrued Liability 9 1.4 Actuarial Gain/(Loss) 10 1.5 Contributions 11 1.6 Ten-Year Projected Cash Flow 12 Section 2 Accounting Results 13 2.1 ASC 960 Information 14 2.2 GASB No. 25 Information 16 2.3 GASB No. 27 Information 18 Section 3 System Assets 19 3.1 Summary of Assets 20 3.2 Reconciliation of Assets 21 3.3 Actuarial Value of Assets 22 3.4 Average Annual Rates of Investment Return 23 Section 4 Basis of Valuation 24 4.1 System Members 25 4.2 Actuarial Basis 29 4.3 Summary of System Provisions 37 HIGHLIGHTS - PURPOSE Page 1 This report is prepared by Buck Consultants for the Oklahoma Law Enforcement Retirement System to: • Present the results of a valuation of the Oklahoma Law Enforcement Retirement System (the System) as of July 1, 2011; • Review experience under the System for the year ended June 30, 2011; and • Provide reporting and disclosure information for auditors’ reports, governmental agencies and other interested parties. The main financial highlights are: • The System’s funding method is the Entry Age Normal (EAN) method. The following table summarizes the funded status of the System based on this method. Funded Status ($000,000) July 1, 2011 July 1, 2010 Total Present Value of Benefits $ 1,104.8 $ 1,119.5 Actuarial Accrued Liability $ 900.9 $ 903.6 Actuarial Value of Assets $ 684.1 $ 664.8 Unfunded Actuarial Accrued Liability $ 216.8 $ 238.8 • The funded ratio on an ASC 960 basis, measuring the market value of System assets versus the present value of benefits accrued as of the valuation date, increased from 73.4% to 86.8%. • The required State contribution for the System decreased from $42.6 million in 2010/2011 to $41.4 million in 2011/2012. Contribution Summary ($000,000) July 1, 2011 July 1, 2010 Total Required Contribution $ 54.3 $ 56.0 Expected Member Contributions 5.7 5.9 Expected Agency Contributions 7.2 7.5 Required State Contribution 41.4 42.6 ---As a Percentage of Pay 58.3% 58.1% HIGHLIGHTS – SUMMARY OF PRINCIPAL VALUATION RESULTS Page 2 A summary of principal valuation results from the current valuation and the prior valuation follows. Any changes in actuarial assumptions, methods or System provisions between the two valuations are described in the section titled “Effects of Changes.” Actuarial Valuation as of July 1, 2011 July 1, 2010 Summary of Costs Required State Contribution for Current Year $ 41,407,550 $ 42,623,968 Actual State Contribution Received in Prior Year $ 16,964,589 $ 15,455,769 GASB No. 25 Funded Status Actuarial Accrued Liability $ 900,879,451 $ 903,567,429 Actuarial Value of Assets $ 684,063,000 $ 664,794,000 Unfunded Actuarial Accrued Liability $ 216,816,451 $ 238,773,429 Market Value of Assets and Additional Liabilities Market Value of Assets $ 713,175,855 $ 603,468,287 Actuarial Present Value of Accumulated System Benefits (ASC 960) $ 821,652,752 $ 821,935,913 Present Value of Projected System Benefits $ 1,104,836,084 $ 1,119,483,564 Summary of Data Number of Members in Valuation Active Members 1,209 1,258 Members with Deferred Benefits 28 22 Retired Members 898 886 Beneficiaries 273 261 Disabled Members 71 69 Deferred Option Plan Members 41 43 Total 2,520 2,539 Active Member Statistics Total Annual Compensation $ 70,967,284 $ 73,399,682 Average Compensation $ 58,699 $ 58,346 Average Age 41.0 40.5 Average Service 12.1 11.6 HIGHLIGHTS – EFFECTS OF CHANGES Page 3 Legislative Changes The Oklahoma Pension Legislation Actuarial Analysis Act was modified to change the definition of a non-fiscal retirement bill and by removing a certain provision that allows a cost-of-living adjustment (COLA) to be considered non-fiscal, thereby requiring that COLAs be concurrently funded by the Legislature at the time they are enacted. Changes in Actuarial Assumptions Due to the requirement that the Oklahoma Legislature must concurrently fund any cost-of-living adjustment, the valuation incorporates no assumption for future ad-hoc cost-of-living adjustments. There were no other changes to assumptions or methods since the prior valuation. See Section 4.2 for more detail. Changes in Actuarial Funding Methods There were no changes in actuarial funding methods. Changes in System Benefits There were no changes in plan provisions or system benefits with an actuarial impact as of July 1, 2011. Actuarial Experience During the Plan Year The System experienced the following gains/(losses) during the year ending June 30, 2011. 000’s Liability Actuarial Gain/(Loss) 41,238 Asset Actuarial Gain/(Loss) (10,968) Net Actuarial Gain/(Loss) 30,270 HIGHLIGHTS – DEFERRED OPTION PLANPage 4 The Oklahoma Law Enforcement Deferred Option Plan (DROP) allows members eligible for a Normal Retirement Benefit to defer the receipt of retirement benefits while continuing employment. Participation in the DROP is limited to five years. During this time, the members’ contributions stop, but the agencies contribute half of the regular contribution on base salary to the Law Enforcement Retirement System and the other half to the members’ accounts in the DROP. In addition, the monthly retirement benefits are paid into the members’ accounts in the DROP. The System also allows members to retroactively elect to enter the DROP as of a back-drop-date upon termination. The DROP accounts are credited with interest at a rate of 2% less than the total fund net earnings, with a guaranteed minimum interest rate equal to the valuation interest rate. For plan years prior to July 1, 2001, the valuation interest rate is 7.0% and for years after July 1, 2001, the valuation interest rate is 7.5%. The actual rate credited for the fiscal year ended June 30, 2011, was 19.8%. The assets reflected in these results include the account balances for the DROP. Statistics regarding the number of DROP members and total account balances are shown in the table below: DROP Statistics July 1, 2011 July 1, 2010 Number of Active Members 41 43 Account Balances $ 3.1 million $ 4.0 million HIGHLIGHTS – CERTIFICATION Page 5 We have prepared an actuarial valuation of the Oklahoma Law Enforcement Retirement System as of July 1, 2011, for the plan year ending June 30, 2011. The results of the valuation are set forth in this report, which reflects the provisions of the System as amended and effective on July 1, 2011. The valuation is based on employee and financial data which were provided by the Oklahoma Law Enforcement Retirement System and the independent auditor, respectively, and which are summarized in this report. Any changes in actuarial methods, assumptions and benefit provisions since the last valuation of the System as of July 1, 2010 are summarized on page 3 and the financial impact, if any, are incorporated in this report. Actuarial Certification The Retirement Board selected the assumptions used for the results in this report. I believe that these assumptions are reasonable and comply with the requirements of GASB 25. I prepared this report’s exhibits in accordance with the requirements of these standards. I am an Enrolled Actuary, Fellow of the Society of Actuaries and a Member of the American Academy of Actuaries. I meet the Qualification Standards of the American Academy of Actuaries to render the actuarial opinions contained in this report. This report has been prepared in accordance with all applicable Actuarial Standards of Practice, and I am available to answer questions about it. /s/ DAVID KENT _____________________________________________ October 7, 2011 David Kent, FSA, EA, MAAA SECTION 1: FUNDING RESULTS Page 6 Section 1.1 Calculation of Contribution Requirement Section 1.2 Liability Detail Section 1.3 Unfunded Actuarial Accrued Liability Section 1.4 Actuarial Gain/(Loss) Section 1.5 Contributions Section 1.6 Ten-Year Projected Cash Flow SECTION 1.1 Page 7 CALCULATION OF CONTRIBUTION REQUIREMENT C. Summary of Contribution Requirements Actuarial Valuation as of July 1, 2011 July 1, 2010 Amount % of Active Covered Comp. Amount % of Active Covered Comp. 1. Annual Covered Compensation for Members Included in Valuation a. Active Members $ 70,967,284 100% $ 73,399,682 100.0% b. Deferred Option Plan Members $ 2,596,529 N/A $ 2,608,472 N/A c. Total $ 73,563,813 N/A $ 76,008,154 N/A 2. Total Normal Cost Mid-year $ 22,416,729 31.6% $ 23,309,427 31.8% 3. Unfunded Actuarial Accrued Liability $ 216,816,451 305.5% $ 238,773,429 325.3% 4. Amortization of Unfunded Actuarial Accrued Liability over 20 years From July 1, 2001 Mid-year (1) $ 30,465,310 42.9% $ 31,480,546 42.9% 5. Budgeted Expenses $ 1,429,448 2.0% $ 1,176,362 1.6% 6. Total Required Contribution (2 + 4 + 5) $ 54,311,487 76.5% $ 55,966,335 76.2% 7. Estimated Member Contribution (8% x 1a) $ 5,677,383 8.0% $ 5,871,975 8.0% 8. Estimated Employer Contribution a. Active Members $ 7,096,728 10.0% $ 7,339,968 10.0% b. Deferred Option Plan Members $ 129,826 5.0% (2) $ 130,424 5.0% (2) c. Total $ 7,226,554 10.2% $ 7,470,392 10.2% 9. Required State Contribution (6 - 7 - 8c) Not less than $0 $ 41,407,550 58.3% $ 42,623,968 58.1% 10. Previous year’s actual State Contribution (4) $ 16,964,589 23.1%(3) $ 15,455,769 20.5% (3) (1) Funding Policy adopted by Board, effective July 1, 2001. (2) Percentage of Deferred Option Plan compensation. (3) Percent of previous years’ annual compensation for active members $73,399,682 in 2010/2011 and $75,320,336 in 2009/2010. (4) 5.0% of collected statewide insurance premium taxes have been allocated to the Oklahoma Law Enforcement Retirement System. SECTION 1.2 Page 8 LIABILITY DETAIL Total Present Value of Benefits $ 1,104,836,084 Present Value of Future Normal Cost $ 203,956,633 Accrued Liability $ 900,879,451 Normal Cost Mid-Year $ 22,416,729 Active – Accrued Liability a. Retirement $ 341,567,776 b. Disability 2,910,348 c. Withdrawal 7,417,683 d. Death 5,291,207 e. Refunds (2,253,129) f. Health 3,668,445 g. Total $ 358,602,330 Inactive – Accrued Liability 1. Members Eligible for Automatic COLA a. Retired Members $ 13,989,519 b. Disabled Members 1,088,345 c. Beneficiaries 19,691,396 d. Total $ 34,769,260 2. Members Not Eligible for Automatic COLA a. Retired Members $ 376,905,889 b. Disabled Members 22,032,713 c. Terminated Vested Members 6,388,517 d. Beneficiaries 62,197,464 e. Deferred Option Plan Members Annuities 28,998,896 f. Deferred Option Plan Members Account Balances 3,105,503 g. Total $ 499,628,982 3. Health $ 7,878,879 4. Total Inactive (1d + 2g + 3) $ 542,277,121 Accrued Liability (Active + Inactive) $ 900,879,451 SECTION 1.3 Page 9 UNFUNDED ACTUARIAL ACCRUED LIABILITY The actuarial accrued liability is the present value of projected system benefits allocated to past service by the actuarial funding method being used. Total System July 1, 2011 July 1, 2010 1. Actuarial Present Value of Benefits a. Active Members $ 562,558,963 $ 576,870,962 b. Members with Deferred Benefits $ 6,708,413 $ 5,038,465 c. Members Receiving Benefits $ 503,464,309 $ 505,084,540 d. Deferred Option Plan Members (1) $ 32,104,399 $ 32,489,597 e. Total $ 1,104,836,084 $ 1,119,483,564 2. Actuarial Present Value of Future Normal Costs $ 203,956,633 $ 215,916,135 3. Total Actuarial Accrued Liability (1e- 2) $ 900,879,451 $ 903,567,429 4. Actuarial Value of Assets $ 684,063,000 $ 664,794,000 5. Unfunded Actuarial Accrued Liability (3 - 4) $ 216,816,451 $ 238,773,429 (1) Includes DROP account balances and value of future benefit payments. SECTION 1.4 Page 10 ACTUARIAL GAIN/(LOSS) The actuarial gain/(loss) is comprised of both the liability gain/(loss) and the actuarial asset gain/(loss). Each of these represents the difference between the expected and actual values as of July 1, 2011. Regular Deferred Option Total 1. Expected Actuarial Accrued Liability a. Actuarial Accrued Liability at July 1, 2010 $ 899,569,706 $ 3,997,723 $ 903,567,429 b. Normal Cost at July 1, 2010 and DROP contributions 22,481,607 103,355 22,584,962 c. Benefit Payments for Plan Year Ending June 30, 2011 (46,906,243) (1,919,446) (48,825,689) d. Interest on a + b + c to End of Year 67,426,664 923,871 68,350,535 e. Expected Actuarial Accrued Liability Before Changes (a + b + c + d) $ 942,571,734 3,105,503 945,677,237 f. Change in Actuarial Accrued Liability at July 1, 2011 due to changes in Actuarial Assumptions $ (3,560,154) $ 0 $ (3,560,154) g. Change in Actuarial Accrued Liability at July 1, 2011 due to changes in Plan Provisions 0 0 0 h. Change in Actuarial Accrued Liability at July 1, 2011 due to changes in Method 0 0 0 i. Expected Actuarial Accrued Liability at July 1, 2011 (e + f + g +h) $ 939,011,580 $ 3,105,503 $ 942,117,083 2. Actuarial Accrued Liability at July 1, 2011 $ 897,773,948 $ 3,105,503 $ 900,879,451 3. Actuarial Liability Gain/(Loss) (1i – 2) $ 41,237,632 $ 0 $ 41,237,632 4. Expected Actuarial Value of Assets a. Actuarial Value of Assets at July 1, 2010 $ 660,796,277 $ 3,997,723 $ 664,794,000 b. Contributions Made for Plan Year Ending June 30, 2011 30,047,931 103,355 30,151,286 c. Benefit Payments and Expenses for Plan Year Ending June 30, 2011 (47,823,979) (1,919,446) (49,743,425) d. Interest on a + b + c to End of Year 48,905,170 923,871 49,829,041 e. Expected Actuarial Value of Assets at July 1, 2011 (a + b + c + d) $ 691,925,399 $ 3,105,503 $ 695,030,902 5. Actuarial Value of Assets as of July 1, 2011 $ 680,957,497 $ 3,105,503 $ 684,063,000 6. Actuarial Asset Gain/(Loss) (5 - 4e) $ (10,967,902) $ 0 $ (10,967,902) 7. Actuarial Gain/(Loss) (3 + 6) $ 30,269,730 $ 0 $ 30,269,730 SECTION 1.5 Page 11 CONTRIBUTIONS Contributions to the System are made by the Members, Agencies, and the State of Oklahoma. Member contributions equal 8% of base salary. The agencies contribute 10% of base salary. The State contribution is based on revenues from various taxes and fees. The Deferred Option Plan Members do not make employee contributions to the System. However, agencies continue contributing for them. 50% of the agency contribution is credited as an increase to the member’s account balance and the System retains the remaining portion of the agency contribution for purposes of paying benefits. The System should receive approximately $130,000 from this source during the current plan year. In 2003-2004, State funding from the Insurance Premium Tax was not paid although other state taxes and fees were paid. For fiscal years ending 2005 – 2009, 6.1% of the State Insurance Premium Tax was paid to the Retirement System. 5.0% will be paid for fiscal years ending 2010 and later. Beginning in fiscal year July 1, 2006, the System received 9% of a special allocation established to refund the System for reduced allocations of insurance premium taxes resulting in an increase in insurance premium tax credits. State Contributions Received versus Contributions Required by Funding Policy (millions) 0 5 10 15 20 25 30 35 40 45 2001- 2002 2002- 2003 2003- 2004 2004- 2005 2005- 2006 2006- 2007 2007- 2008 2008- 2009 2009- 2010 2010- 2011 2011- 2012 Actual Required SECTION 1.6 Page 12 TEN-YEAR PROJECTED CASH FLOW (RETIREMENT BENEFIT PAYMENTS) (1) Plan Year Ending Actives Inactives (2) Total 6/30/2012 7,146,465 42,890,492 50,036,957 6/30/2013 7,464,026 42,492,372 49,956,398 6/30/2014 9,272,408 42,557,187 51,829,595 6/30/2015 10,927,270 42,863,596 53,790,866 6/30/2016 13,039,804 43,199,543 56,239,347 6/30/2017 15,007,731 43,448,690 58,456,421 6/30/2018 17,042,488 43,682,527 60,725,015 6/30/2019 19,652,311 43,922,193 63,574,504 6/30/2020 22,581,379 44,079,811 66,661,190 6/30/2021 25,812,553 44,167,734 69,980,287 (1) Includes supplemental health benefits to retirees. (2) Includes Deferred Option Plan Members, Disabled Members, Beneficiaries and Terminated Vested Members. SECTION 2: ACCOUNTING RESULTS Page 13 Section 2.1 ASC 960 Information Section 2.2 GASB No. 25 Information Section 2.3 GASB No. 27 Information SECTION 2.1 Page 14 ASC 960 INFORMATION A. Actuarial Present Value of Accumulated System Benefits The actuarial present value of vested and nonvested accumulated system benefits was computed on an ongoing system basis in order to provide required information under Accounting Standards Codification 960. In this calculation, a determination is made of all benefits earned by current Members as of the valuation date; the actuarial present value is then computed using demographic assumptions and an assumed interest rate. Assumptions regarding future salary and accrual of future benefit service are not necessary for this purpose. Accumulated System Benefits July 1, 2011 July 1, 2010 Vested Benefits a. Active Members $ 252,443,775 $ 253,482,519 b. Deferred Option Plan Members 32,104,399 32,390,778 c. Members with Deferred Benefits 6,388,517 5,023,511 d. Members Receiving Benefits 503,784,205 503,809,081 e. Total Vested Benefits $ 794,720,896 $ 794,705,889 Nonvested Benefits 26,931,856 27,230,024 Total Accumulated System Benefits $ 821,652,752 $ 821,935,913 Assumed Rate of Interest 7.5% 7.5% Market Value of Assets Available for Benefits $ 713,175,855 $ 603,468,287 Funded Ratio 86.8% 73.4% Number of Members July 1, 2011 July 1, 2010 Vested Members a. Active Members 673 676 b. Deferred Option Plan Members 41 43 c. Members with Deferred Benefits 28 22 d. Members Receiving Benefits 1,242 1,216 e. Total Vested Members 1,984 1,957 Nonvested Members 536 582 Total Members 2,520 2,539 SECTION 2.1 Page 15 ASC 960 INFORMATION (CONTINUED) B. Statement of Changes in Accumulated System Benefits A statement of changes in the actuarial present value of accumulated system benefits follows. This statement shows the effect of certain events on the actuarial present value shown on the previous page. Actuarial Present Value of Accumulated System Benefits as of July 1, 2010 $ 821,935,913 Increase/(Decrease) During Year Attributable to: a. Normal Cost 22,352,181 b. Increase for Interest due to Decrease in Discount Period 61,490,644 c. Benefits Paid (48,825,689) d. System Provision Changes 0 e. Assumption Changes 0 f. (Gains)/Losses (35,300,297) Net Increase/(Decrease) (283,161) Actuarial Present Value of Accumulated System Benefits as of July 1, 2011 $ 821,652,752 The benefits valued include all benefits (retirement, preretirement death and vested termination) payable from the System for member service prior to the valuation date. Benefits are assumed to accrue/(accumulate) in accordance with the system provisions. SECTION 2.2 Page 16 GASB NO. 25 INFORMATION Supplementary Schedules The GASB has issued a statement; Financial Reporting for Defined Benefit and Note Disclosures for Defined Contribution Plans (GASB Statement No. 25). This standard became effective for periods beginning after June 15, 1996, and requires funding status to be measured based upon the actuarial funding method adopted by the Board of Retirement, i.e., for the Oklahoma Law Enforcement Retirement System, the Entry Age Normal Cost Method for all years except July 1, 1997 and the Aggregate Method for July 1, 1997. This GASB standard supersedes GASB Statement No. 5 in its entirety. A. Schedules of Funding Progress The GASB Statement No. 25 liabilities and assets resulting from the last six actuarial valuations are as follows: Actuarial Valuation Date Actuarial Value of Assets (a) Actuarial Accrued Liability (AAL) Entry Age (b) Unfunded AAL (UAAL) (b-a) Funded Ratio (a/b) Covered Payroll (c) UAAL as a Percentage of Covered Payroll ((b-a)/c) 7/1/2006 $ 651,671,000 $ 772,269,163 $ 120,598,163 84.4% $ 57,115,506 211.1% 7/1/2007 $ 697,560,000 $ 840,556,507 $ 142,996,507 83.0% $ 63,764,374 224.3% 7/1/2008 $ 730,589,000 $ 881,317,682 $ 150,728,682 82.9% $ 73,507,820 205.1% 7/1/2009 $ 659,908,000 $ 892,016,574 $ 232,108,574 74.0% $ 75,320,336 308.2% 7/1/2010 $ 664,794,000 $ 903,567,429 $ 238,773,429 73.6% $ 73,399,682 325.3% 7/1/2011 $ 684,063,000 $ 900,879,451 $ 216,816,451 75.9% $ 70,967,284 305.5% SECTION 2.2 Page 17 GASB NO. 25 INFORMATION (CONTINUED) B. Schedule of Employer Contributions The GASB Statement No. 25 Agency and State required contributions for the last six fiscal years are as follows: Year Ended June 30 Annual Required Contribution Percentage Contributed 2006 $ 30,005,975 73.39% 2007 $ 32,503,327 75.20% 2008 $ 32,667,877 76.60% 2009 $ 36,615,719 67.98% 2010 $ 48,102,643 48.10% 2011 $ 50,094,360 49.02% SECTION 2.3 Page 18 GASB NO. 27 INFORMATION Transition to GASB No.27 as if adopted GASB No. 27 June 30, 1996 Fiscal Year Ending June 30 2011 2012 ARC 50,094,360 48,634,104 Interest on NPO 2,862,717 4,615,419 Adjustment to ARC (5,032,375) (8,646,993) Actual Pension Cost 47,924,702 44,602,530 Contribution Made 24,555,337 N/A Increase in NPO 23,369,365 N/A NPO BOY 38,169,557 61,538,922 NPO EOY 61,538,922 N/A Interest Rate 7.50% 7.5% Amortization Period 11 10 Amortization Factor 7.5848 7.1168 SECTION 3: SYSTEM ASSETS Page 19 This section presents information regarding System assets as reported by the System administrator or independent auditor. The System assets represent the portion of total System liabilities, which has been funded as of the valuation date. Section 3.1 Summary of Assets Section 3.2 Reconciliation of Assets Section 3.3 Actuarial Value of Assets Section 3.4 Average Annual Rates of Investment Return SECTION 3.1 Page 20 SUMMARY OF ASSETS Asset Category Market Value as of June 30, 2011 Market Value as of June 30, 2010 1. Cash and Short-term Investments $ 11,841,024 $ 10,307,844 2. Receivables $ 4,573,633 $ 4,421,824 3. Investments at fair value a. Domestic Corporate Bonds $ 158,784,033 $ 149,509,572 b. U.S. Government Bonds 65,300,893 48,149,474 c. Domestic Stock 285,138,714 231,002,822 d. International Stock 140,997,834 114,970,037 e. Real Estate 36,666,985 29,636,927 f. Other 22,237,385 18,416,472 g. Total $ 709,125,844 $ 591,685,304 4. Total Assets 725,540,501 $ 606,414,972 5. Liabilities (12,364,646) $ (2,946,685) 6. Net Assets for Pension Benefits(1) (including DROP assets) $ 713,175,855 $ 603,468,287 (1) Includes DROP assets in the amounts of $3,105,503 for 2011 and of $3,997,723 for 2010. SECTION 3.2 Page 21 RECONCILIATION OF ASSETS Transactions June 30, 2011 June 30, 2010 Additions 1. Contributions a. Contributions from Plan Members $ 5,492,594 $ 5,638,870 b. Contributions from Agencies 7,694,103 7,778,735 c. Contributions from other State Sources 16,964,589 15,455,769 d. Total $ 30,151,286 $ 28,873,374 2. Net Investment Income $ 129,299,707 $ 71,516,362 3. Total Additions $ 159,450,993 $ 100,389,736 4. Retirement and Health Benefits $ (48,186,388) $ (45,503,100) 5. Refund of Contributions $ (639,301) $ (337,374) 6. Other Contributions Paid Out $ 0 $ (3) 7. Administrative Expenses $ (917,736) $ (1,004,453) 8. Total Deductions $ (49,743,425) $ (46,844,930) 9. Net Increase $ 109,707,568 $ 53,544,806 10. Net Assets held in Trust for Pension Benefits a. Beginning of Year $ 603,468,287 $ 549,923,481 b. End of Year $ 713,175,855 $ 603,468,287 11. DROP Assets (included above) a. Beginning of Year $ 3,997,723 $ 4,946,687 b. End of Year $ 3,105,503 $ 3,997,723 SECTION 3.3 Page 22 ACTUARIAL VALUE OF ASSETS Schedule of Assets Gains/(Losses) Year Original Amount Recognized in Prior Years Recognized This Year Recognized in Future Years 2006/2007 54,090,423 43,272,340 10,818,083 0 2007/2008 (115,135,951) (69,081,570) (23,027,190) (23,027,191) 2008/2009 (162,607,500) (65,043,000) (32,521,500) (65,043,000) 2009/2010 89,344,073 17,868,815 17,868,815 53,606,443 2010/2011 79,470,493 0 15,894,099 63,576,394 Total (54,838,462) (72,983,415) (10,967,693) 29,112,646 Development of Actuarial Value of Assets 1. Actuarial Value as of July 1, 2010 (Excluding DROP) $ 660,796,277 2. Contributions a. Member $ 5,492,594 b. Employer (Excluding DROP) 7,590,748 c. State 16,964,589 d. Total $ 30,047,931 3. Decreases During the Year a. Benefit Payments (Excluding payments from DROP, including payments to DROP) $ (46,266,942) b. Return of Member Contributions (639,301) c. Noninvestment Expenses (917,736) d. Total (a.+b.+c.) $ (47,823,979) 4. Expected Return at 7.5% on: a. Item 1 $ 49,559,721 b. Item 2 (one-half year) 1,106,427 c. Item 3 (one-half year) (1,760,978) d. Total (a.+b.+c.) $ 48,905,170 5. Expected Actuarial Value of Assets (Excluding DROP) June 30, 2011 (1.+2.+3.+4.) $ 691,925,399 6. Unrecognized Asset Gain/(Loss) as of June 30, 2010 $ (61,325,540) 7. DROP Assets $ 3,105,503 8. Expected Actuarial Value June 30, 2011 plus Previous Year’s Unrecognized Asset Gain/(Loss) (5.+6.+7.) $ 633,705,362 9. Market Value June 30, 2011 $ 713,175,855 10. 2009/2010 Asset Gain/(Loss) (9.-8.) $ 79,470,493 11. Asset Gain/(Loss) to be Recognized as of June 30, 2011 $ (10,967,693) 12. Initial Actuarial Value July 1, 2011 (5. + 7. + 11.) $ 684,063,209 13. Constraining Values: a. 80% of Market Value (9. x 0.8) $ 570,540,684 b. 120% of Market Value (9. x 1.2) 855,811,026 14. Actuarial Value July 1, 2011 (12), but not less than (13a), nor greater than (13b) -- rounded to nearest 1,000 $ 684,063,000 SECTION 3.4 Page 23 AVERAGE ANNUAL RATES OF INVESTMENT RETURN Year Ending June 30 Actuarial Value Market Value Annual Cumulative Annual Cumulative 1990 8.6% 8.6% 12.8% 12.8% 1991 8.6% 8.6% 9.0% 10.9% 1992 9.7% 9.0% 13.8% 11.8% 1993 9.9% 9.2% 11.1% 11.7% 1994 8.6% 9.1% (0.5%) 9.1% 1995 9.3% 9.1% 16.5% 10.3% 1996 11.4% 9.4% 18.7% 11.5% 1997 12.5% 9.8% 16.8% 12.1% 1998 14.0% 10.3% 17.2% 12.7% 1999 14.2% 10.7% 6.9% 12.1% 2000 12.2% 10.8% 6.0% 11.5% 2001 9.4% 10.6% 1.9% 10.6% 2002 6.5% 10.2% (2.2%) 9.4% 2003 4.0% 9.9% 2.9% 9.1% 2004 5.4% 9.6% 16.1% 9.6% 2005 5.7% 9.3% 9.2% 9.6% 2006 6.6% 9.2% 7.9% 9.5% 2007 10.0% 9.2% 15.6% 9.8% 2008 7.2% 9.1% (8.5%) 8.8% 2009 (7.7%) 8.2% (16.3%) 7.3% 2010 3.5% 8.0% 13.2% 7.6% 2011 5.9% 7.9% 21.8% 8.2% Annual Returns before 1998 exclude DROP assets. SECTION 4: BASIS OF VALUATION Page 24 This section presents and describes the basis of the valuation. The census of Members, actuarial basis and benefit provisions of the System are the foundation of the valuation, since these are the present facts on which the projection of benefit payments will depend. The valuation is based on the premise that the System will continue in existence. Section 4.1 System Members Section 4.2 Actuarial Basis Section 4.3 Summary of System Provisions SECTION 4.1 Page 25 SYSTEM MEMBERS A. Member Statistics Inactive Members as of July 1, 2011 Number Amount of Annual Benefit Members Receiving Benefits a. Retired 898 $ 29,918,860 b. Beneficiaries 273 8,575,204 c. Disabled 71 1,962,020 Total 1,242 $ 40,456,084 Members with Deferred Benefits a. Vested Terminated 28 $ 399,876 Total 1,270 $ 40,855,960 Deferred Option Plan Members 41 $ 1,633,504 Statistics for Active Members Number Average Age Service Earnings As of July 1, 2010 a. Continuing 1,229 40.6 11.9 $ 58,840 b. New 29 33.2 1.0 37,447 Total 1,258 40.5 11.6 $ 58,346 As of July 1, 2011 a. Continuing 1,178 41.2 12.4 $ 59,293 b. New 31 33.4 0.6 36,128 Total 1,209 41.0 12.1 $ 58,699 SECTION 4.1 Page 26 SYSTEM MEMBERS (CONTINUED) B. Count of Active Members Years of Service Age 0-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40+ Total Under 20 0 20-24 15 1 16 25-29 87 34 121 30-34 80 101 36 217 35-39 43 52 136 9 240 40-44 35 34 78 51 19 1 218 45-49 16 14 32 27 72 20 2 183 50-54 1 6 10 13 33 40 11 114 55-59 5 9 11 5 14 17 13 3 77 60-64 1 2 7 3 4 3 2 22 65-69 0 70-74 1 1 75+ 0 Total 283 253 311 108 142 81 28 3 0 1,209 C. Average Compensation Years of Service Age 0-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40+ Total Under 20 0 20-24 37,710 54,562 38,763 25-29 45,851 53,204 47,917 30-34 44,099 56,578 62,932 53,032 35-39 44,924 54,071 64,062 65,853 58,535 40-44 51,595 57,917 63,390 67,169 65,290 57,360 61,665 45-49 44,460 53,651 62,680 65,168 68,663 69,474 69,926 63,939 50-54 38,982 76,454 62,025 58,624 63,811 70,666 72,493 66,753 55-59 48,389 53,841 53,934 52,450 59,789 67,076 74,405 71,863 61,587 60-64 78,176 66,908 62,315 63,781 60,015 68,655 70,335 64,829 65-69 0 70-74 70,576 70,576 75+ 0 Total 45,550 56,075 63,178 64,755 65,965 69,380 73,043 71,863 0 58,699 SECTION 4.1 Page 27 SYSTEM MEMBERS (CONTINUED) D. Members in Pay Status - Annual Benefits Attained Age Retired Members Beneficiaries Disabled Members Current Payment Total No. Benefit No. Benefit No. Benefit No. Benefit Under 50 27 $ 781,523 15 $ 300,718 3 $ 76,317 45 $ 1,158,558 50-54 67 1,858,964 19 407,805 7 181,545 93 2,448,314 55-59 139 4,490,549 22 620,631 12 301,335 173 5,412,515 60-64 195 6,757,040 28 788,064 15 462,905 238 8,008,009 65-69 184 6,342,940 33 980,065 18 488,001 235 7,811,006 70-74 149 4,998,379 46 1,494,276 7 186,002 202 6,678,657 75-79 86 2,931,988 35 1,252,969 6 164,997 127 4,349,954 80-84 31 1,020,860 28 1,000,738 3 100,918 62 2,122,516 85-89 16 575,121 27 1,037,742 43 1,612,863 90 and over 4 161,496 20 692,196 24 853,692 Total 898 $ 29,918,860 273 $ 8,575,204 71 $ 1,962,020 1,242 $ 40,456,084 E. Terminated Vested and Deferred Option Plan Members - Annual Benefits Attained Age Terminated Vested Members Deferred Option Plan Members No. Benefit No. Benefit Under 40 7 $ 91,604 0 $ 0 40-44 11 158,258 1 31,727 45-49 3 38,975 3 126,331 50-54 2 37,337 11 399,143 55-59 3 38,256 13 572,602 60-64 2 35,446 12 476,234 65 and over 0 0 1 27,467 Total 28 $ 399,876 41 $ 1,633,504 SECTION 4.1 Page 28 SYSTEM MEMBERS (CONTINUED) F. Member Data Reconciliation Active Members Inactive Members Regular Deferred Option Plan Deferred Vested Members Retired Members Disabled Members Bene-ficiaries Total As of July 1, 2010 1,258 43 22 886 69 261 2,539 To Deferred Option Plan (14) 14 0 0 0 0 0 Age Retirements (21) (14) (3) 38 0 0 0 Disability Retirements (1) 0 (1) 0 2 0 0 Deaths Without Beneficiaries 0 (2) 0 (4) 0 (12) (18) Deaths With Beneficiaries 0 0 0 (22) 0 22 0 Nonvested Terminations (34) 0 0 0 0 0 (34) Vested Terminations (10) 0 10 0 0 0 0 Rehires 0 0 0 0 0 0 0 Expiration of Benefits 0 0 0 0 0 (1) (1) Data Corrections 0 0 0 0 0 0 0 Net Change (80) (2) 6 12 2 9 (53) New Entrants During the Year 31 0 0 0 0 3 34 As of July l, 2011 1,209 41 28 898 71 273 2,520 SECTION 4.2 Page 29 ACTUARIAL BASIS A. Entry Age Actuarial Cost Method Liabilities and contributions shown in this report are computed using the Individual Entry Age method of funding. Sometimes called “funding method,” this is a particular technique used by actuaries for establishing the annual actuarial cost of pension plan benefits, or normal cost, and the related unfunded actuarial accrued liability. Ordinarily the annual contribution to the system is comprised of (1) the normal cost and (2) an amortization payment on the unfunded actuarial accrued liability. Under the Entry Age Actuarial Cost Method, the Normal Cost is computed as the level percentage of pay which, if paid from the earliest time each Member would have been eligible to join the system if it then existed (thus, entry age) until his retirement or termination, would accumulate with interest at the rate assumed in the valuation to a fund sufficient to pay all benefits under the system. The Actuarial Accrued Liability under this method at any point in time is the theoretical amount of the fund that would have accumulated had annual contributions equal to the normal cost been made in prior years (it does not represent the liability for benefits accrued to the valuation date.) The Unfunded Actuarial Accrued Liability is the excess of the actuarial accrued liability over the actuarial value of system assets actually on hand on the valuation date. Under this method experience gains or losses, i.e. decreases or increases in accrued liabilities attributable to deviations in experience from the actuarial assumptions, adjust the unfunded actuarial accrued liability. Actuarial Present Value The current worth (on the valuation date) of an amount or series of amounts payable or receivable in the future. The actuarial present value is determined by discounting the future payments at a predetermined rate of interest, taking into account the probability of payment. Present Value of Accrued System Benefit (ASC 960) The present value of accrued system benefits represents the actuarial present value of benefits which are accrued based on service and salary information as of the valuation date. SECTION 4.2 Page 30 ACTUARIAL BASIS (CONTINUED) B. Asset Valuation Method The actuarial value of assets is based on a five-year moving average of expected and market values determined as follows: • at the beginning of each plan year, a preliminary expected actuarial asset value is calculated as the sum of the previous year’s actuarial value increased with a year’s interest at the System valuation rate plus net cash flow adjusted for interest (at the same rate) to the end of the previous plan year; • the expected actuarial asset value is set equal to the preliminary expected actuarial value plus the unrecognized investment gains and losses as of the beginning of the previous plan year; • the difference between the expected actuarial asset value and the market value is the investment gain or loss for the previous plan year; • the (final) actuarial asset value is the preliminary value plus 20% of the investment gains and losses for each of the five previous plan years, but in no case more than 120% of the market value or less than 80% of the market value. SECTION 4.2 Page 31 ACTUARIAL BASIS (CONTINUED) C. Valuation Procedures No actuarial accrued liability is held for nonvested, inactive Members who have a break in service, or for nonvested Members who have quit or been terminated, even if a break in service had not occurred as of the valuation date. The wages used in the projection of benefits and liabilities are pay for the year ending June 30, 2011 (including longevity bonuses). These pays were projected into the valuation year using the valuation salary scale. In computing accrued benefits, average earnings were determined using the valuation salary progression. Historical earnings for the past five years have been retained. Retired Members were assumed to be married with a beneficiary if a spouse date of birth was provided on the data tape. For those Members whose data did not have a spouse’s date of birth, they were assumed to be single. The impact from the dollar limitation required by the Internal Revenue Code Section 415 for governmental plans was considered in this valuation and was determined not to be significant on a projected basis. The compensation limit under IRC Section 401(a)(17) was considered in this valuation. On a projected basis, the impact of this limitation is insignificant. No additional liability is being carried for the guaranteed minimum interest rate for the Deferred Option Plan account balances. Stochastic studies of similar Systems have been used to quantify the cost of this benefit. Further review and analysis of this liability is recommended. Please note that this is a volatile benefit and the impact in any one-year may be large. All active, deferred vested and deferred option plan members are assumed to elect the $105 per month retiree medical benefit upon retirement. The calculations for the required state contribution are determined as of mid-year. This is a reasonable assumption since the agency contributions, member contributions and State insurance premium tax allocations are made on a monthly basis throughout the year, and mid-year represents an average weighting of the contributions. The contribution requirements are based on total annual compensation rather than total covered compensation. This is a better reflection of the overall expectations for the System. SECTION 4.2 Page 32 ACTUARIAL BASIS (CONTINUED) D. Actuarial Assumptions Economic Assumptions 1. Investment Return 7.5%, net of investment expenses, per annum, compound annually. 2. Earnings Progression Sample rates below: Attained Service Inflation Merit Increase % % % 0 3.25 5.00 8.25 5 3.25 3.75 7.00 10 3.25 2.45 5.70 15 3.25 1.25 4.50 20 3.25 1.20 4.45 25 or more 3.25 1.00 4.25 SECTION 4.2 Page 33 ACTUARIAL BASIS (CONTINUED) D. Actuarial Assumptions (continued) Demographic Assumptions 1. Retirement Rates Sample rates below: Attained Service Annual Rates of Retirement Per 100 Eligible Members 20 23 21 11 22 10 23 10 24 12 25 12 26 20 27 20 28 25 29 30 30 50 over 30 100 or 100% at age 75 without regard to years of service. 2. Mortality Rates (a) Active employees RP-2000 Blue Collar Healthy Employees (pre-retirement) with Generational Projection from RP-2000 study All pre-retirement deaths are assumed to occur in the line of duty. (b) Active employees RP-2000 Blue Collar Healthy Annuitant (post-retirement) and with Generational Projection from RP-2000 study nondisabled pensioners (c) Disabled pensioners RP-2000 Blue Collar Healthy Annuitant (set forward 7 years) No Projection SECTION 4.2 Page 34 ACTUARIAL BASIS (CONTINUED) D. Actuarial Assumptions (continued) Demographic Assumptions (continued) 3. Disability Rates See table below: Age Rate (Per 100 Members) 20 0.004 30 0.108 40 0.346 50 1.040 60 1.900 33% of disabilities are assumed to be Non-Duty related and 67% are assumed to be Duty related. 4. Withdrawal Rates See table below: Service Range Rate (Per 100 Members) 0 15.00 2 5.75 4 4.00 6 2.50 8 2.50 10 1.75 15 1.00 20 and over 0.00 SECTION 4.2 Page 35 ACTUARIAL BASIS (CONTINUED) D. Actuarial Assumptions (continued) Demographic Assumptions (continued) 5. Marital Status (a) Percentage married: Males: 85%; Females: 85% (b) Age difference: Males are assumed to be three (3) years older than females. Other Assumptions 1. Assumed Age of Commencement for Deferred Benefits: Age 50. 2. Actuarial Value of Assets: An expected actuarial value is determined equal to the prior year’s Actuarial Value of Assets plus cash flow (excluding investment returns) for the year ended on the valuation date and assuming 7.5% interest return. The (gain)/loss is measured by the difference between the expected actuarial value and the market value at the valuation date. The (gain)/loss is amortized over five years by 20% per year. The result is constrained to a value of 80% to 120% of the market value at the valuation date. 3. Provision for Expenses: Administrative Expenses, as budgeted by the Oklahoma Law Enforcement Retirement System. 4. Retiree Medical: All active and terminated vested members are assumed to elect the $105 per month retiree medical benefit upon retirement, and their surviving spouses are assumed to continue the benefit. SECTION 4.2 Page 36 ACTUARIAL BASIS (CONTINUED) D. Actuarial Assumptions (continued) Other Assumptions (continued) 5. Deferred Option Plan: Deferred Option Plan (DOP) members are assumed to remain in the DOP for the maximum of five years prior to electing a lump sum. A member is allowed to retroactively elect to join the DOP as of a back-drop-date which is no earlier than the member’s normal retirement date or five years before his termination date. The monthly retirement benefits and employee contributions that would have been payable had the member elected to join the DOP are credited to the member’s DOP account with interest. The retirement benefits are not recalculated for service and salary past the election date to join the DOP. However, the benefits may be increased by any applicable cost-of-living increases. The retirement rates reflect both regular retirement and entry into the DOP. We assume that 50% of active members who retire elect to retroactively enter into the DOP. 6. Cost-of-Living Allowance: Members eligible for the automatic cost-of-living increase are assumed to have their benefits increase by 3.25% per year. Members not eligible for the automatic cost-of-living increase are assumed to receive the greater of: (i) their benefit calculated using their actual final average earnings. (ii) their benefit calculated using the top base pay for active members, assuming 3.25% annual increases in the top base pay. 7. Cost of Living Increase Assumption: 0% per year SECTION 4.3 Page 37 SUMMARY OF SYSTEM PROVISIONS Effective Date and Plan Year: The System became effective July 1, 1947. The System was originally known as the Oklahoma Public Safety Retirement System. The plan year is July 1 to June 30. Administration: The System is administered by the Oklahoma Law Enforcement Retirement Board consisting of thirteen Members. The Board acts as the fiduciary for investment and administration of the System. Type of Plan: A defined benefit plan. Eligibility: All law enforcement officers of the Oklahoma Highway Patrol (OHP) and Capitol Patrol of Department of Public Safety, Oklahoma State Bureau of Investigation (OSBI), Oklahoma State Bureau of Narcotics and Dangerous Drugs Control (OBNDD), Alcoholic Beverage Laws Enforcement Commission (ABLE), members of the DPS Communications Division (Communications), DPS Waterways Lake Patrol Division (Lake Patrol), Park Rangers of the Oklahoma Tourism and Recreation Department (Rangers), Inspectors of the Oklahoma State Board of Pharmacy (Pharmacy Inspectors), and Gun Smith’s of DPS are eligible upon employment. Service Considered: Credited Service shall consist of the period during which the Member participated in the System or the predecessor Plan as an active employee in an eligible membership classification, plus any service prior to the establishment of the predecessor Plan which was credited under the predecessor Plan for officers of the OSBI and the OBNDD who became Members of the System on July 1, 1980, any service credited under the Oklahoma Public Employees Retirement System (OPERS) as of June 30, 1980, and for Members of Communications and Lake Patrol who became Members of the System on July 1, 1981, any service credited under the predecessor Plan or OPERS as of June 30, 1981, and for law enforcement officers of ABLE who became Members of the System on July 1, 1982, any service credited under OPERS as of June 30, 1982, and for Rangers who became Members of the System on July 1, 1985, any service credited under OPERS as of June 30, 1985, and for Pharmacy Inspectors who became Members. SECTION 4.3 Page 38 SUMMARY OF SYSTEM PROVISIONS (CONTINUED) of the System on July 1, 1986, any service credited under OPERS as of June 30, 1986 and for Capitol Patrol who became Members of the System on July 1, 1993, any service credited under OPERS as of June 30, 1993 and for Gun Smith’s who became Members of the System on July 1, 1994, any service credited under OPERS as of July 1, 1994. Members can accumulate up to 6 months 15 days sick leave which counts for pension accrual and benefits eligibility purposes. Members may also buy back service with other Oklahoma State Retirement Systems. Salary Considered: Actual paid base salary received by a Member, excluding payment for any accumulated leave or uniform allowance. Lump sum bonuses based on longevity date go into considered compensation. The lump sum bonus is $250 after 2 or 3 years, $426 after 4 or 5 years, $626 after 6 or 7 years, and so on. If an employee incurs a break in service in excess of 30 days, his longevity date is changed to his date of rehire and the longevity bonus amount becomes $0. If an employee incurs a break in service of less than 30 days or is on a leave of absence without pay for more than 30 days, his length of absence is deducted from his longevity date and the longevity bonus amount remains the same. Final average salary means the average of the highest 30 consecutive complete months of considered salary. Effective July 1, 2002: Members whose salary is set by statute and retire after 20 years receive a benefit based on the greater of the member’s highest 30 consecutive months or the top base pay paid to active members at the time of payment. Members whose salary is not set by statute and who retire after 20 years receive a benefit based on the greater of the member’s highest 30 consecutive months or the salary paid to the highest non-supervisory position in the participating agency at the time payment is made. SECTION 4.3 Page 39 SUMMARY OF SYSTEM PROVISIONS (CONTINUED) State Contributions: License Agency Fees equal to 1.2% of Drivers License Taxes, plus Motor Vehicle Inspection Fees equal to 50 cents per motor vehicle inspection sticker less $850,000, plus 5% of Insurance Premium Tax. Agency Contributions: 10% of actual base salary. Member Contributions: Eight (8%) percent of paid salary. Accumulated contributions are after-tax up to December 31, 1989 and before-tax after December 31, 1989. Normal Retirement Benefit: Eligibility: 20 years of service or age 62 with 10 years of service. Maximum of age 60 with at least 20 years of service, unless physically able to continue. Benefit: 2 1/2% of the greater of final average salary or the salary paid to active employees as described under “salary considered” multiplied by the years and completed months of credited service. There is no maximum on service. Form of Benefit: 100% joint and survivor. Form of Payments: The normal form of benefit is a Joint and 100% Survivor Annuity if the Member was married 30 months prior to death. The Joint and Survivor portion continues to eligible children under 22 if there is no eligible spouse or after the spouse dies. Termination: Less Than 10 Years of Service: A refund of contributions without interest. SECTION 4.3 Page 40 SUMMARY OF SYSTEM PROVISIONS (CONTINUED) More than 10 Years of Service: If greater than 10 years of service, but not eligible for the normal retirement benefit, the benefit is payable at the date the Member would have had 20 years of service in an amount equal to 2 1/2% of the greater of final average salary or the salary paid to active employees as described under “salary considered” multiplied by the years and completed months of credited service. Form of Benefit: Lifetime benefit. Disability Benefit (Duty): Upon determination of disability incurred as a result of the performance of duty, the normal disability benefit is the greater of: 1) 2 1/2% of the greater of final average salary or the salary paid to active employees as described under “salary considered” times years and completed months of credited service, or 2) 50% of final average salary. For members with less than 20 years of service that incur a line of duty disability due to personal injury of a catastrophic nature, final average salary is based on the salary which the member would have received pursuant to statutory salary schedules in effect upon the date of death for a twenty (20) years of service member. Disability Benefit (Non-Duty): Upon determination of disability after three years of service due to causes other than duty, the benefit equals the accrued benefit of 2 1/2% of the greater of final average salary or the salary paid to active employees as described under “salary considered” times years and completed months of credited service. SECTION 4.3 Page 41 SUMMARY OF SYSTEM PROVISIONS (CONTINUED) Death Benefits Payable to Beneficiaries: Prior to Retirement (Duty): The greater of: 1) 2 1/2% of the greater of final average salary or the salary paid to active employees as described under “salary considered” times years and completed months of credited service, or 2) 50% of final average salary. For members with less than 20 years of service that die in the line of duty, final average salary is based on the salary which the member would have received pursuant to statutory salary schedules in effect upon the date of death for a twenty (20) years of service member. Prior to Retirement (Non-Duty): After three years of service, the greater of: 1) 2 1/2% of the greater of final salary or the salary paid to active employees as described under “salary considered” times years and completed months of credited service, or 2) 50% of final average salary. After Retirement: In addition to the benefits provided under the 100% Joint and Survivor Annuity, $400 per month is paid for each surviving child to age 18, or to age 22 if a full-time student (12 semester hours) in an accredited school of learning. Lump Sum: The beneficiary shall receive a lump-sum amount of $5,000. Effective July 1, 2002, this lump sum is considered to be life insurance proceeds for tax purposes. If an active Member dies prior to retirement without leaving a beneficiary, a refund of the accumulated contributions made by the Member will be paid to the estate. SECTION 4.3 Page 42 SUMMARY OF SYSTEM PROVISIONS (CONTINUED) If the beneficiary is a child, the benefits are payable to age 18, or to age 22 if a full-time student (12 semester hours) in an accredited school of learning. If the beneficiary is a spouse (to whom the Member was married for at least 30 months prior to death, if the death was not duty related), the benefits are payable for life. Postretirement Adjustments: Occasional ad hoc increases for retirees are provided. COLAs apply to the whole benefit, not the original benefit. The most recent COLA was 4% for Members retired as of June 30, 2007, effective July 1, 2008. Effective July 1, 2002, retirement benefits will be recalculated to increase in conjunction with increases to the top base pay for active members. Postretirement Health Insurance Benefits: The System will contribute $105 per month or the Medicare Supplement Premium, if less, toward the cost of health insurance for annuitants receiving retirement benefits. These benefits commence upon retirement. Spouses become eligible for this benefit as of July 1, 2002. Deferred Option Plan: A Member who has 20 or more years of service and continues employment may elect to participate in the Deferred Option Plan. Participation in the Deferred Option Plan shall not exceed five years. The members’ contributions cease upon entering the Plan, but the agency contributions are divided equally between the Retirement System and Deferred Option Plan. The monthly retirement benefits that the member is eligible to receive are paid into the Deferred Option Plan account. Members can elect to retroactively join the DROP as of a back-drop-date which is no earlier than the member's normal retirement date or five years before his termination date. The monthly retirement benefits and employee contributions that would have been payable had the member elected to join the DROP are credited to the member's DROP account with interest. SECTION 4.3 Page 43 SUMMARY OF SYSTEM PROVISIONS (CONTINUED) The retirement benefits are not recalculated for service and salary past the election date to join the Deferred Option Plan. However, the benefits are increased by cost-of-living increases applicable to retired members. When the Member actually terminates employment, the Deferred Option Plan account balance may be paid in a lump sum or to an annuity provider. Monthly retirement benefits are then paid directly to the retired Member. This Plan became effective during the July 1, 1991 to June 30, 1992 Plan Year. The Deferred Option Plan account is guaranteed a minimum of the valuation interest rate for investment return, or 2% less than the fund rate of return, if greater.
Object Description
Description
Title | OLERS 2011 Report |
OkDocs Class# | L900.3 A188v 2011 |
Digital Format | PDF, Adobe Reader required |
ODL electronic copy | Downloaded from agency website: http://www.olers.state.ok.us/ |
Rights and Permissions | This Oklahoma state government publication is provided for educational purposes under U.S. copyright law. Other usage requires permission of copyright holders. |
Language | English |
Full text | OKLAHOMA LAW ENFORCEMENT RETIREMENT SYSTEM ACTUARIAL VALUATION REPORT AS OF JULY 1, 2011 TABLE OF CONTENTS SECTION Page No. Highlights Purpose 1 Summary of Principal Valuation Results 2 Effects of Changes 3 Deferred Option Plan 4 Certification 5 Section 1 Funding Results 6 1.1 Calculation of Contribution Requirement 7 1.2 Liability Detail 8 1.3 Unfunded Actuarial Accrued Liability 9 1.4 Actuarial Gain/(Loss) 10 1.5 Contributions 11 1.6 Ten-Year Projected Cash Flow 12 Section 2 Accounting Results 13 2.1 ASC 960 Information 14 2.2 GASB No. 25 Information 16 2.3 GASB No. 27 Information 18 Section 3 System Assets 19 3.1 Summary of Assets 20 3.2 Reconciliation of Assets 21 3.3 Actuarial Value of Assets 22 3.4 Average Annual Rates of Investment Return 23 Section 4 Basis of Valuation 24 4.1 System Members 25 4.2 Actuarial Basis 29 4.3 Summary of System Provisions 37 HIGHLIGHTS - PURPOSE Page 1 This report is prepared by Buck Consultants for the Oklahoma Law Enforcement Retirement System to: • Present the results of a valuation of the Oklahoma Law Enforcement Retirement System (the System) as of July 1, 2011; • Review experience under the System for the year ended June 30, 2011; and • Provide reporting and disclosure information for auditors’ reports, governmental agencies and other interested parties. The main financial highlights are: • The System’s funding method is the Entry Age Normal (EAN) method. The following table summarizes the funded status of the System based on this method. Funded Status ($000,000) July 1, 2011 July 1, 2010 Total Present Value of Benefits $ 1,104.8 $ 1,119.5 Actuarial Accrued Liability $ 900.9 $ 903.6 Actuarial Value of Assets $ 684.1 $ 664.8 Unfunded Actuarial Accrued Liability $ 216.8 $ 238.8 • The funded ratio on an ASC 960 basis, measuring the market value of System assets versus the present value of benefits accrued as of the valuation date, increased from 73.4% to 86.8%. • The required State contribution for the System decreased from $42.6 million in 2010/2011 to $41.4 million in 2011/2012. Contribution Summary ($000,000) July 1, 2011 July 1, 2010 Total Required Contribution $ 54.3 $ 56.0 Expected Member Contributions 5.7 5.9 Expected Agency Contributions 7.2 7.5 Required State Contribution 41.4 42.6 ---As a Percentage of Pay 58.3% 58.1% HIGHLIGHTS – SUMMARY OF PRINCIPAL VALUATION RESULTS Page 2 A summary of principal valuation results from the current valuation and the prior valuation follows. Any changes in actuarial assumptions, methods or System provisions between the two valuations are described in the section titled “Effects of Changes.” Actuarial Valuation as of July 1, 2011 July 1, 2010 Summary of Costs Required State Contribution for Current Year $ 41,407,550 $ 42,623,968 Actual State Contribution Received in Prior Year $ 16,964,589 $ 15,455,769 GASB No. 25 Funded Status Actuarial Accrued Liability $ 900,879,451 $ 903,567,429 Actuarial Value of Assets $ 684,063,000 $ 664,794,000 Unfunded Actuarial Accrued Liability $ 216,816,451 $ 238,773,429 Market Value of Assets and Additional Liabilities Market Value of Assets $ 713,175,855 $ 603,468,287 Actuarial Present Value of Accumulated System Benefits (ASC 960) $ 821,652,752 $ 821,935,913 Present Value of Projected System Benefits $ 1,104,836,084 $ 1,119,483,564 Summary of Data Number of Members in Valuation Active Members 1,209 1,258 Members with Deferred Benefits 28 22 Retired Members 898 886 Beneficiaries 273 261 Disabled Members 71 69 Deferred Option Plan Members 41 43 Total 2,520 2,539 Active Member Statistics Total Annual Compensation $ 70,967,284 $ 73,399,682 Average Compensation $ 58,699 $ 58,346 Average Age 41.0 40.5 Average Service 12.1 11.6 HIGHLIGHTS – EFFECTS OF CHANGES Page 3 Legislative Changes The Oklahoma Pension Legislation Actuarial Analysis Act was modified to change the definition of a non-fiscal retirement bill and by removing a certain provision that allows a cost-of-living adjustment (COLA) to be considered non-fiscal, thereby requiring that COLAs be concurrently funded by the Legislature at the time they are enacted. Changes in Actuarial Assumptions Due to the requirement that the Oklahoma Legislature must concurrently fund any cost-of-living adjustment, the valuation incorporates no assumption for future ad-hoc cost-of-living adjustments. There were no other changes to assumptions or methods since the prior valuation. See Section 4.2 for more detail. Changes in Actuarial Funding Methods There were no changes in actuarial funding methods. Changes in System Benefits There were no changes in plan provisions or system benefits with an actuarial impact as of July 1, 2011. Actuarial Experience During the Plan Year The System experienced the following gains/(losses) during the year ending June 30, 2011. 000’s Liability Actuarial Gain/(Loss) 41,238 Asset Actuarial Gain/(Loss) (10,968) Net Actuarial Gain/(Loss) 30,270 HIGHLIGHTS – DEFERRED OPTION PLANPage 4 The Oklahoma Law Enforcement Deferred Option Plan (DROP) allows members eligible for a Normal Retirement Benefit to defer the receipt of retirement benefits while continuing employment. Participation in the DROP is limited to five years. During this time, the members’ contributions stop, but the agencies contribute half of the regular contribution on base salary to the Law Enforcement Retirement System and the other half to the members’ accounts in the DROP. In addition, the monthly retirement benefits are paid into the members’ accounts in the DROP. The System also allows members to retroactively elect to enter the DROP as of a back-drop-date upon termination. The DROP accounts are credited with interest at a rate of 2% less than the total fund net earnings, with a guaranteed minimum interest rate equal to the valuation interest rate. For plan years prior to July 1, 2001, the valuation interest rate is 7.0% and for years after July 1, 2001, the valuation interest rate is 7.5%. The actual rate credited for the fiscal year ended June 30, 2011, was 19.8%. The assets reflected in these results include the account balances for the DROP. Statistics regarding the number of DROP members and total account balances are shown in the table below: DROP Statistics July 1, 2011 July 1, 2010 Number of Active Members 41 43 Account Balances $ 3.1 million $ 4.0 million HIGHLIGHTS – CERTIFICATION Page 5 We have prepared an actuarial valuation of the Oklahoma Law Enforcement Retirement System as of July 1, 2011, for the plan year ending June 30, 2011. The results of the valuation are set forth in this report, which reflects the provisions of the System as amended and effective on July 1, 2011. The valuation is based on employee and financial data which were provided by the Oklahoma Law Enforcement Retirement System and the independent auditor, respectively, and which are summarized in this report. Any changes in actuarial methods, assumptions and benefit provisions since the last valuation of the System as of July 1, 2010 are summarized on page 3 and the financial impact, if any, are incorporated in this report. Actuarial Certification The Retirement Board selected the assumptions used for the results in this report. I believe that these assumptions are reasonable and comply with the requirements of GASB 25. I prepared this report’s exhibits in accordance with the requirements of these standards. I am an Enrolled Actuary, Fellow of the Society of Actuaries and a Member of the American Academy of Actuaries. I meet the Qualification Standards of the American Academy of Actuaries to render the actuarial opinions contained in this report. This report has been prepared in accordance with all applicable Actuarial Standards of Practice, and I am available to answer questions about it. /s/ DAVID KENT _____________________________________________ October 7, 2011 David Kent, FSA, EA, MAAA SECTION 1: FUNDING RESULTS Page 6 Section 1.1 Calculation of Contribution Requirement Section 1.2 Liability Detail Section 1.3 Unfunded Actuarial Accrued Liability Section 1.4 Actuarial Gain/(Loss) Section 1.5 Contributions Section 1.6 Ten-Year Projected Cash Flow SECTION 1.1 Page 7 CALCULATION OF CONTRIBUTION REQUIREMENT C. Summary of Contribution Requirements Actuarial Valuation as of July 1, 2011 July 1, 2010 Amount % of Active Covered Comp. Amount % of Active Covered Comp. 1. Annual Covered Compensation for Members Included in Valuation a. Active Members $ 70,967,284 100% $ 73,399,682 100.0% b. Deferred Option Plan Members $ 2,596,529 N/A $ 2,608,472 N/A c. Total $ 73,563,813 N/A $ 76,008,154 N/A 2. Total Normal Cost Mid-year $ 22,416,729 31.6% $ 23,309,427 31.8% 3. Unfunded Actuarial Accrued Liability $ 216,816,451 305.5% $ 238,773,429 325.3% 4. Amortization of Unfunded Actuarial Accrued Liability over 20 years From July 1, 2001 Mid-year (1) $ 30,465,310 42.9% $ 31,480,546 42.9% 5. Budgeted Expenses $ 1,429,448 2.0% $ 1,176,362 1.6% 6. Total Required Contribution (2 + 4 + 5) $ 54,311,487 76.5% $ 55,966,335 76.2% 7. Estimated Member Contribution (8% x 1a) $ 5,677,383 8.0% $ 5,871,975 8.0% 8. Estimated Employer Contribution a. Active Members $ 7,096,728 10.0% $ 7,339,968 10.0% b. Deferred Option Plan Members $ 129,826 5.0% (2) $ 130,424 5.0% (2) c. Total $ 7,226,554 10.2% $ 7,470,392 10.2% 9. Required State Contribution (6 - 7 - 8c) Not less than $0 $ 41,407,550 58.3% $ 42,623,968 58.1% 10. Previous year’s actual State Contribution (4) $ 16,964,589 23.1%(3) $ 15,455,769 20.5% (3) (1) Funding Policy adopted by Board, effective July 1, 2001. (2) Percentage of Deferred Option Plan compensation. (3) Percent of previous years’ annual compensation for active members $73,399,682 in 2010/2011 and $75,320,336 in 2009/2010. (4) 5.0% of collected statewide insurance premium taxes have been allocated to the Oklahoma Law Enforcement Retirement System. SECTION 1.2 Page 8 LIABILITY DETAIL Total Present Value of Benefits $ 1,104,836,084 Present Value of Future Normal Cost $ 203,956,633 Accrued Liability $ 900,879,451 Normal Cost Mid-Year $ 22,416,729 Active – Accrued Liability a. Retirement $ 341,567,776 b. Disability 2,910,348 c. Withdrawal 7,417,683 d. Death 5,291,207 e. Refunds (2,253,129) f. Health 3,668,445 g. Total $ 358,602,330 Inactive – Accrued Liability 1. Members Eligible for Automatic COLA a. Retired Members $ 13,989,519 b. Disabled Members 1,088,345 c. Beneficiaries 19,691,396 d. Total $ 34,769,260 2. Members Not Eligible for Automatic COLA a. Retired Members $ 376,905,889 b. Disabled Members 22,032,713 c. Terminated Vested Members 6,388,517 d. Beneficiaries 62,197,464 e. Deferred Option Plan Members Annuities 28,998,896 f. Deferred Option Plan Members Account Balances 3,105,503 g. Total $ 499,628,982 3. Health $ 7,878,879 4. Total Inactive (1d + 2g + 3) $ 542,277,121 Accrued Liability (Active + Inactive) $ 900,879,451 SECTION 1.3 Page 9 UNFUNDED ACTUARIAL ACCRUED LIABILITY The actuarial accrued liability is the present value of projected system benefits allocated to past service by the actuarial funding method being used. Total System July 1, 2011 July 1, 2010 1. Actuarial Present Value of Benefits a. Active Members $ 562,558,963 $ 576,870,962 b. Members with Deferred Benefits $ 6,708,413 $ 5,038,465 c. Members Receiving Benefits $ 503,464,309 $ 505,084,540 d. Deferred Option Plan Members (1) $ 32,104,399 $ 32,489,597 e. Total $ 1,104,836,084 $ 1,119,483,564 2. Actuarial Present Value of Future Normal Costs $ 203,956,633 $ 215,916,135 3. Total Actuarial Accrued Liability (1e- 2) $ 900,879,451 $ 903,567,429 4. Actuarial Value of Assets $ 684,063,000 $ 664,794,000 5. Unfunded Actuarial Accrued Liability (3 - 4) $ 216,816,451 $ 238,773,429 (1) Includes DROP account balances and value of future benefit payments. SECTION 1.4 Page 10 ACTUARIAL GAIN/(LOSS) The actuarial gain/(loss) is comprised of both the liability gain/(loss) and the actuarial asset gain/(loss). Each of these represents the difference between the expected and actual values as of July 1, 2011. Regular Deferred Option Total 1. Expected Actuarial Accrued Liability a. Actuarial Accrued Liability at July 1, 2010 $ 899,569,706 $ 3,997,723 $ 903,567,429 b. Normal Cost at July 1, 2010 and DROP contributions 22,481,607 103,355 22,584,962 c. Benefit Payments for Plan Year Ending June 30, 2011 (46,906,243) (1,919,446) (48,825,689) d. Interest on a + b + c to End of Year 67,426,664 923,871 68,350,535 e. Expected Actuarial Accrued Liability Before Changes (a + b + c + d) $ 942,571,734 3,105,503 945,677,237 f. Change in Actuarial Accrued Liability at July 1, 2011 due to changes in Actuarial Assumptions $ (3,560,154) $ 0 $ (3,560,154) g. Change in Actuarial Accrued Liability at July 1, 2011 due to changes in Plan Provisions 0 0 0 h. Change in Actuarial Accrued Liability at July 1, 2011 due to changes in Method 0 0 0 i. Expected Actuarial Accrued Liability at July 1, 2011 (e + f + g +h) $ 939,011,580 $ 3,105,503 $ 942,117,083 2. Actuarial Accrued Liability at July 1, 2011 $ 897,773,948 $ 3,105,503 $ 900,879,451 3. Actuarial Liability Gain/(Loss) (1i – 2) $ 41,237,632 $ 0 $ 41,237,632 4. Expected Actuarial Value of Assets a. Actuarial Value of Assets at July 1, 2010 $ 660,796,277 $ 3,997,723 $ 664,794,000 b. Contributions Made for Plan Year Ending June 30, 2011 30,047,931 103,355 30,151,286 c. Benefit Payments and Expenses for Plan Year Ending June 30, 2011 (47,823,979) (1,919,446) (49,743,425) d. Interest on a + b + c to End of Year 48,905,170 923,871 49,829,041 e. Expected Actuarial Value of Assets at July 1, 2011 (a + b + c + d) $ 691,925,399 $ 3,105,503 $ 695,030,902 5. Actuarial Value of Assets as of July 1, 2011 $ 680,957,497 $ 3,105,503 $ 684,063,000 6. Actuarial Asset Gain/(Loss) (5 - 4e) $ (10,967,902) $ 0 $ (10,967,902) 7. Actuarial Gain/(Loss) (3 + 6) $ 30,269,730 $ 0 $ 30,269,730 SECTION 1.5 Page 11 CONTRIBUTIONS Contributions to the System are made by the Members, Agencies, and the State of Oklahoma. Member contributions equal 8% of base salary. The agencies contribute 10% of base salary. The State contribution is based on revenues from various taxes and fees. The Deferred Option Plan Members do not make employee contributions to the System. However, agencies continue contributing for them. 50% of the agency contribution is credited as an increase to the member’s account balance and the System retains the remaining portion of the agency contribution for purposes of paying benefits. The System should receive approximately $130,000 from this source during the current plan year. In 2003-2004, State funding from the Insurance Premium Tax was not paid although other state taxes and fees were paid. For fiscal years ending 2005 – 2009, 6.1% of the State Insurance Premium Tax was paid to the Retirement System. 5.0% will be paid for fiscal years ending 2010 and later. Beginning in fiscal year July 1, 2006, the System received 9% of a special allocation established to refund the System for reduced allocations of insurance premium taxes resulting in an increase in insurance premium tax credits. State Contributions Received versus Contributions Required by Funding Policy (millions) 0 5 10 15 20 25 30 35 40 45 2001- 2002 2002- 2003 2003- 2004 2004- 2005 2005- 2006 2006- 2007 2007- 2008 2008- 2009 2009- 2010 2010- 2011 2011- 2012 Actual Required SECTION 1.6 Page 12 TEN-YEAR PROJECTED CASH FLOW (RETIREMENT BENEFIT PAYMENTS) (1) Plan Year Ending Actives Inactives (2) Total 6/30/2012 7,146,465 42,890,492 50,036,957 6/30/2013 7,464,026 42,492,372 49,956,398 6/30/2014 9,272,408 42,557,187 51,829,595 6/30/2015 10,927,270 42,863,596 53,790,866 6/30/2016 13,039,804 43,199,543 56,239,347 6/30/2017 15,007,731 43,448,690 58,456,421 6/30/2018 17,042,488 43,682,527 60,725,015 6/30/2019 19,652,311 43,922,193 63,574,504 6/30/2020 22,581,379 44,079,811 66,661,190 6/30/2021 25,812,553 44,167,734 69,980,287 (1) Includes supplemental health benefits to retirees. (2) Includes Deferred Option Plan Members, Disabled Members, Beneficiaries and Terminated Vested Members. SECTION 2: ACCOUNTING RESULTS Page 13 Section 2.1 ASC 960 Information Section 2.2 GASB No. 25 Information Section 2.3 GASB No. 27 Information SECTION 2.1 Page 14 ASC 960 INFORMATION A. Actuarial Present Value of Accumulated System Benefits The actuarial present value of vested and nonvested accumulated system benefits was computed on an ongoing system basis in order to provide required information under Accounting Standards Codification 960. In this calculation, a determination is made of all benefits earned by current Members as of the valuation date; the actuarial present value is then computed using demographic assumptions and an assumed interest rate. Assumptions regarding future salary and accrual of future benefit service are not necessary for this purpose. Accumulated System Benefits July 1, 2011 July 1, 2010 Vested Benefits a. Active Members $ 252,443,775 $ 253,482,519 b. Deferred Option Plan Members 32,104,399 32,390,778 c. Members with Deferred Benefits 6,388,517 5,023,511 d. Members Receiving Benefits 503,784,205 503,809,081 e. Total Vested Benefits $ 794,720,896 $ 794,705,889 Nonvested Benefits 26,931,856 27,230,024 Total Accumulated System Benefits $ 821,652,752 $ 821,935,913 Assumed Rate of Interest 7.5% 7.5% Market Value of Assets Available for Benefits $ 713,175,855 $ 603,468,287 Funded Ratio 86.8% 73.4% Number of Members July 1, 2011 July 1, 2010 Vested Members a. Active Members 673 676 b. Deferred Option Plan Members 41 43 c. Members with Deferred Benefits 28 22 d. Members Receiving Benefits 1,242 1,216 e. Total Vested Members 1,984 1,957 Nonvested Members 536 582 Total Members 2,520 2,539 SECTION 2.1 Page 15 ASC 960 INFORMATION (CONTINUED) B. Statement of Changes in Accumulated System Benefits A statement of changes in the actuarial present value of accumulated system benefits follows. This statement shows the effect of certain events on the actuarial present value shown on the previous page. Actuarial Present Value of Accumulated System Benefits as of July 1, 2010 $ 821,935,913 Increase/(Decrease) During Year Attributable to: a. Normal Cost 22,352,181 b. Increase for Interest due to Decrease in Discount Period 61,490,644 c. Benefits Paid (48,825,689) d. System Provision Changes 0 e. Assumption Changes 0 f. (Gains)/Losses (35,300,297) Net Increase/(Decrease) (283,161) Actuarial Present Value of Accumulated System Benefits as of July 1, 2011 $ 821,652,752 The benefits valued include all benefits (retirement, preretirement death and vested termination) payable from the System for member service prior to the valuation date. Benefits are assumed to accrue/(accumulate) in accordance with the system provisions. SECTION 2.2 Page 16 GASB NO. 25 INFORMATION Supplementary Schedules The GASB has issued a statement; Financial Reporting for Defined Benefit and Note Disclosures for Defined Contribution Plans (GASB Statement No. 25). This standard became effective for periods beginning after June 15, 1996, and requires funding status to be measured based upon the actuarial funding method adopted by the Board of Retirement, i.e., for the Oklahoma Law Enforcement Retirement System, the Entry Age Normal Cost Method for all years except July 1, 1997 and the Aggregate Method for July 1, 1997. This GASB standard supersedes GASB Statement No. 5 in its entirety. A. Schedules of Funding Progress The GASB Statement No. 25 liabilities and assets resulting from the last six actuarial valuations are as follows: Actuarial Valuation Date Actuarial Value of Assets (a) Actuarial Accrued Liability (AAL) Entry Age (b) Unfunded AAL (UAAL) (b-a) Funded Ratio (a/b) Covered Payroll (c) UAAL as a Percentage of Covered Payroll ((b-a)/c) 7/1/2006 $ 651,671,000 $ 772,269,163 $ 120,598,163 84.4% $ 57,115,506 211.1% 7/1/2007 $ 697,560,000 $ 840,556,507 $ 142,996,507 83.0% $ 63,764,374 224.3% 7/1/2008 $ 730,589,000 $ 881,317,682 $ 150,728,682 82.9% $ 73,507,820 205.1% 7/1/2009 $ 659,908,000 $ 892,016,574 $ 232,108,574 74.0% $ 75,320,336 308.2% 7/1/2010 $ 664,794,000 $ 903,567,429 $ 238,773,429 73.6% $ 73,399,682 325.3% 7/1/2011 $ 684,063,000 $ 900,879,451 $ 216,816,451 75.9% $ 70,967,284 305.5% SECTION 2.2 Page 17 GASB NO. 25 INFORMATION (CONTINUED) B. Schedule of Employer Contributions The GASB Statement No. 25 Agency and State required contributions for the last six fiscal years are as follows: Year Ended June 30 Annual Required Contribution Percentage Contributed 2006 $ 30,005,975 73.39% 2007 $ 32,503,327 75.20% 2008 $ 32,667,877 76.60% 2009 $ 36,615,719 67.98% 2010 $ 48,102,643 48.10% 2011 $ 50,094,360 49.02% SECTION 2.3 Page 18 GASB NO. 27 INFORMATION Transition to GASB No.27 as if adopted GASB No. 27 June 30, 1996 Fiscal Year Ending June 30 2011 2012 ARC 50,094,360 48,634,104 Interest on NPO 2,862,717 4,615,419 Adjustment to ARC (5,032,375) (8,646,993) Actual Pension Cost 47,924,702 44,602,530 Contribution Made 24,555,337 N/A Increase in NPO 23,369,365 N/A NPO BOY 38,169,557 61,538,922 NPO EOY 61,538,922 N/A Interest Rate 7.50% 7.5% Amortization Period 11 10 Amortization Factor 7.5848 7.1168 SECTION 3: SYSTEM ASSETS Page 19 This section presents information regarding System assets as reported by the System administrator or independent auditor. The System assets represent the portion of total System liabilities, which has been funded as of the valuation date. Section 3.1 Summary of Assets Section 3.2 Reconciliation of Assets Section 3.3 Actuarial Value of Assets Section 3.4 Average Annual Rates of Investment Return SECTION 3.1 Page 20 SUMMARY OF ASSETS Asset Category Market Value as of June 30, 2011 Market Value as of June 30, 2010 1. Cash and Short-term Investments $ 11,841,024 $ 10,307,844 2. Receivables $ 4,573,633 $ 4,421,824 3. Investments at fair value a. Domestic Corporate Bonds $ 158,784,033 $ 149,509,572 b. U.S. Government Bonds 65,300,893 48,149,474 c. Domestic Stock 285,138,714 231,002,822 d. International Stock 140,997,834 114,970,037 e. Real Estate 36,666,985 29,636,927 f. Other 22,237,385 18,416,472 g. Total $ 709,125,844 $ 591,685,304 4. Total Assets 725,540,501 $ 606,414,972 5. Liabilities (12,364,646) $ (2,946,685) 6. Net Assets for Pension Benefits(1) (including DROP assets) $ 713,175,855 $ 603,468,287 (1) Includes DROP assets in the amounts of $3,105,503 for 2011 and of $3,997,723 for 2010. SECTION 3.2 Page 21 RECONCILIATION OF ASSETS Transactions June 30, 2011 June 30, 2010 Additions 1. Contributions a. Contributions from Plan Members $ 5,492,594 $ 5,638,870 b. Contributions from Agencies 7,694,103 7,778,735 c. Contributions from other State Sources 16,964,589 15,455,769 d. Total $ 30,151,286 $ 28,873,374 2. Net Investment Income $ 129,299,707 $ 71,516,362 3. Total Additions $ 159,450,993 $ 100,389,736 4. Retirement and Health Benefits $ (48,186,388) $ (45,503,100) 5. Refund of Contributions $ (639,301) $ (337,374) 6. Other Contributions Paid Out $ 0 $ (3) 7. Administrative Expenses $ (917,736) $ (1,004,453) 8. Total Deductions $ (49,743,425) $ (46,844,930) 9. Net Increase $ 109,707,568 $ 53,544,806 10. Net Assets held in Trust for Pension Benefits a. Beginning of Year $ 603,468,287 $ 549,923,481 b. End of Year $ 713,175,855 $ 603,468,287 11. DROP Assets (included above) a. Beginning of Year $ 3,997,723 $ 4,946,687 b. End of Year $ 3,105,503 $ 3,997,723 SECTION 3.3 Page 22 ACTUARIAL VALUE OF ASSETS Schedule of Assets Gains/(Losses) Year Original Amount Recognized in Prior Years Recognized This Year Recognized in Future Years 2006/2007 54,090,423 43,272,340 10,818,083 0 2007/2008 (115,135,951) (69,081,570) (23,027,190) (23,027,191) 2008/2009 (162,607,500) (65,043,000) (32,521,500) (65,043,000) 2009/2010 89,344,073 17,868,815 17,868,815 53,606,443 2010/2011 79,470,493 0 15,894,099 63,576,394 Total (54,838,462) (72,983,415) (10,967,693) 29,112,646 Development of Actuarial Value of Assets 1. Actuarial Value as of July 1, 2010 (Excluding DROP) $ 660,796,277 2. Contributions a. Member $ 5,492,594 b. Employer (Excluding DROP) 7,590,748 c. State 16,964,589 d. Total $ 30,047,931 3. Decreases During the Year a. Benefit Payments (Excluding payments from DROP, including payments to DROP) $ (46,266,942) b. Return of Member Contributions (639,301) c. Noninvestment Expenses (917,736) d. Total (a.+b.+c.) $ (47,823,979) 4. Expected Return at 7.5% on: a. Item 1 $ 49,559,721 b. Item 2 (one-half year) 1,106,427 c. Item 3 (one-half year) (1,760,978) d. Total (a.+b.+c.) $ 48,905,170 5. Expected Actuarial Value of Assets (Excluding DROP) June 30, 2011 (1.+2.+3.+4.) $ 691,925,399 6. Unrecognized Asset Gain/(Loss) as of June 30, 2010 $ (61,325,540) 7. DROP Assets $ 3,105,503 8. Expected Actuarial Value June 30, 2011 plus Previous Year’s Unrecognized Asset Gain/(Loss) (5.+6.+7.) $ 633,705,362 9. Market Value June 30, 2011 $ 713,175,855 10. 2009/2010 Asset Gain/(Loss) (9.-8.) $ 79,470,493 11. Asset Gain/(Loss) to be Recognized as of June 30, 2011 $ (10,967,693) 12. Initial Actuarial Value July 1, 2011 (5. + 7. + 11.) $ 684,063,209 13. Constraining Values: a. 80% of Market Value (9. x 0.8) $ 570,540,684 b. 120% of Market Value (9. x 1.2) 855,811,026 14. Actuarial Value July 1, 2011 (12), but not less than (13a), nor greater than (13b) -- rounded to nearest 1,000 $ 684,063,000 SECTION 3.4 Page 23 AVERAGE ANNUAL RATES OF INVESTMENT RETURN Year Ending June 30 Actuarial Value Market Value Annual Cumulative Annual Cumulative 1990 8.6% 8.6% 12.8% 12.8% 1991 8.6% 8.6% 9.0% 10.9% 1992 9.7% 9.0% 13.8% 11.8% 1993 9.9% 9.2% 11.1% 11.7% 1994 8.6% 9.1% (0.5%) 9.1% 1995 9.3% 9.1% 16.5% 10.3% 1996 11.4% 9.4% 18.7% 11.5% 1997 12.5% 9.8% 16.8% 12.1% 1998 14.0% 10.3% 17.2% 12.7% 1999 14.2% 10.7% 6.9% 12.1% 2000 12.2% 10.8% 6.0% 11.5% 2001 9.4% 10.6% 1.9% 10.6% 2002 6.5% 10.2% (2.2%) 9.4% 2003 4.0% 9.9% 2.9% 9.1% 2004 5.4% 9.6% 16.1% 9.6% 2005 5.7% 9.3% 9.2% 9.6% 2006 6.6% 9.2% 7.9% 9.5% 2007 10.0% 9.2% 15.6% 9.8% 2008 7.2% 9.1% (8.5%) 8.8% 2009 (7.7%) 8.2% (16.3%) 7.3% 2010 3.5% 8.0% 13.2% 7.6% 2011 5.9% 7.9% 21.8% 8.2% Annual Returns before 1998 exclude DROP assets. SECTION 4: BASIS OF VALUATION Page 24 This section presents and describes the basis of the valuation. The census of Members, actuarial basis and benefit provisions of the System are the foundation of the valuation, since these are the present facts on which the projection of benefit payments will depend. The valuation is based on the premise that the System will continue in existence. Section 4.1 System Members Section 4.2 Actuarial Basis Section 4.3 Summary of System Provisions SECTION 4.1 Page 25 SYSTEM MEMBERS A. Member Statistics Inactive Members as of July 1, 2011 Number Amount of Annual Benefit Members Receiving Benefits a. Retired 898 $ 29,918,860 b. Beneficiaries 273 8,575,204 c. Disabled 71 1,962,020 Total 1,242 $ 40,456,084 Members with Deferred Benefits a. Vested Terminated 28 $ 399,876 Total 1,270 $ 40,855,960 Deferred Option Plan Members 41 $ 1,633,504 Statistics for Active Members Number Average Age Service Earnings As of July 1, 2010 a. Continuing 1,229 40.6 11.9 $ 58,840 b. New 29 33.2 1.0 37,447 Total 1,258 40.5 11.6 $ 58,346 As of July 1, 2011 a. Continuing 1,178 41.2 12.4 $ 59,293 b. New 31 33.4 0.6 36,128 Total 1,209 41.0 12.1 $ 58,699 SECTION 4.1 Page 26 SYSTEM MEMBERS (CONTINUED) B. Count of Active Members Years of Service Age 0-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40+ Total Under 20 0 20-24 15 1 16 25-29 87 34 121 30-34 80 101 36 217 35-39 43 52 136 9 240 40-44 35 34 78 51 19 1 218 45-49 16 14 32 27 72 20 2 183 50-54 1 6 10 13 33 40 11 114 55-59 5 9 11 5 14 17 13 3 77 60-64 1 2 7 3 4 3 2 22 65-69 0 70-74 1 1 75+ 0 Total 283 253 311 108 142 81 28 3 0 1,209 C. Average Compensation Years of Service Age 0-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40+ Total Under 20 0 20-24 37,710 54,562 38,763 25-29 45,851 53,204 47,917 30-34 44,099 56,578 62,932 53,032 35-39 44,924 54,071 64,062 65,853 58,535 40-44 51,595 57,917 63,390 67,169 65,290 57,360 61,665 45-49 44,460 53,651 62,680 65,168 68,663 69,474 69,926 63,939 50-54 38,982 76,454 62,025 58,624 63,811 70,666 72,493 66,753 55-59 48,389 53,841 53,934 52,450 59,789 67,076 74,405 71,863 61,587 60-64 78,176 66,908 62,315 63,781 60,015 68,655 70,335 64,829 65-69 0 70-74 70,576 70,576 75+ 0 Total 45,550 56,075 63,178 64,755 65,965 69,380 73,043 71,863 0 58,699 SECTION 4.1 Page 27 SYSTEM MEMBERS (CONTINUED) D. Members in Pay Status - Annual Benefits Attained Age Retired Members Beneficiaries Disabled Members Current Payment Total No. Benefit No. Benefit No. Benefit No. Benefit Under 50 27 $ 781,523 15 $ 300,718 3 $ 76,317 45 $ 1,158,558 50-54 67 1,858,964 19 407,805 7 181,545 93 2,448,314 55-59 139 4,490,549 22 620,631 12 301,335 173 5,412,515 60-64 195 6,757,040 28 788,064 15 462,905 238 8,008,009 65-69 184 6,342,940 33 980,065 18 488,001 235 7,811,006 70-74 149 4,998,379 46 1,494,276 7 186,002 202 6,678,657 75-79 86 2,931,988 35 1,252,969 6 164,997 127 4,349,954 80-84 31 1,020,860 28 1,000,738 3 100,918 62 2,122,516 85-89 16 575,121 27 1,037,742 43 1,612,863 90 and over 4 161,496 20 692,196 24 853,692 Total 898 $ 29,918,860 273 $ 8,575,204 71 $ 1,962,020 1,242 $ 40,456,084 E. Terminated Vested and Deferred Option Plan Members - Annual Benefits Attained Age Terminated Vested Members Deferred Option Plan Members No. Benefit No. Benefit Under 40 7 $ 91,604 0 $ 0 40-44 11 158,258 1 31,727 45-49 3 38,975 3 126,331 50-54 2 37,337 11 399,143 55-59 3 38,256 13 572,602 60-64 2 35,446 12 476,234 65 and over 0 0 1 27,467 Total 28 $ 399,876 41 $ 1,633,504 SECTION 4.1 Page 28 SYSTEM MEMBERS (CONTINUED) F. Member Data Reconciliation Active Members Inactive Members Regular Deferred Option Plan Deferred Vested Members Retired Members Disabled Members Bene-ficiaries Total As of July 1, 2010 1,258 43 22 886 69 261 2,539 To Deferred Option Plan (14) 14 0 0 0 0 0 Age Retirements (21) (14) (3) 38 0 0 0 Disability Retirements (1) 0 (1) 0 2 0 0 Deaths Without Beneficiaries 0 (2) 0 (4) 0 (12) (18) Deaths With Beneficiaries 0 0 0 (22) 0 22 0 Nonvested Terminations (34) 0 0 0 0 0 (34) Vested Terminations (10) 0 10 0 0 0 0 Rehires 0 0 0 0 0 0 0 Expiration of Benefits 0 0 0 0 0 (1) (1) Data Corrections 0 0 0 0 0 0 0 Net Change (80) (2) 6 12 2 9 (53) New Entrants During the Year 31 0 0 0 0 3 34 As of July l, 2011 1,209 41 28 898 71 273 2,520 SECTION 4.2 Page 29 ACTUARIAL BASIS A. Entry Age Actuarial Cost Method Liabilities and contributions shown in this report are computed using the Individual Entry Age method of funding. Sometimes called “funding method,” this is a particular technique used by actuaries for establishing the annual actuarial cost of pension plan benefits, or normal cost, and the related unfunded actuarial accrued liability. Ordinarily the annual contribution to the system is comprised of (1) the normal cost and (2) an amortization payment on the unfunded actuarial accrued liability. Under the Entry Age Actuarial Cost Method, the Normal Cost is computed as the level percentage of pay which, if paid from the earliest time each Member would have been eligible to join the system if it then existed (thus, entry age) until his retirement or termination, would accumulate with interest at the rate assumed in the valuation to a fund sufficient to pay all benefits under the system. The Actuarial Accrued Liability under this method at any point in time is the theoretical amount of the fund that would have accumulated had annual contributions equal to the normal cost been made in prior years (it does not represent the liability for benefits accrued to the valuation date.) The Unfunded Actuarial Accrued Liability is the excess of the actuarial accrued liability over the actuarial value of system assets actually on hand on the valuation date. Under this method experience gains or losses, i.e. decreases or increases in accrued liabilities attributable to deviations in experience from the actuarial assumptions, adjust the unfunded actuarial accrued liability. Actuarial Present Value The current worth (on the valuation date) of an amount or series of amounts payable or receivable in the future. The actuarial present value is determined by discounting the future payments at a predetermined rate of interest, taking into account the probability of payment. Present Value of Accrued System Benefit (ASC 960) The present value of accrued system benefits represents the actuarial present value of benefits which are accrued based on service and salary information as of the valuation date. SECTION 4.2 Page 30 ACTUARIAL BASIS (CONTINUED) B. Asset Valuation Method The actuarial value of assets is based on a five-year moving average of expected and market values determined as follows: • at the beginning of each plan year, a preliminary expected actuarial asset value is calculated as the sum of the previous year’s actuarial value increased with a year’s interest at the System valuation rate plus net cash flow adjusted for interest (at the same rate) to the end of the previous plan year; • the expected actuarial asset value is set equal to the preliminary expected actuarial value plus the unrecognized investment gains and losses as of the beginning of the previous plan year; • the difference between the expected actuarial asset value and the market value is the investment gain or loss for the previous plan year; • the (final) actuarial asset value is the preliminary value plus 20% of the investment gains and losses for each of the five previous plan years, but in no case more than 120% of the market value or less than 80% of the market value. SECTION 4.2 Page 31 ACTUARIAL BASIS (CONTINUED) C. Valuation Procedures No actuarial accrued liability is held for nonvested, inactive Members who have a break in service, or for nonvested Members who have quit or been terminated, even if a break in service had not occurred as of the valuation date. The wages used in the projection of benefits and liabilities are pay for the year ending June 30, 2011 (including longevity bonuses). These pays were projected into the valuation year using the valuation salary scale. In computing accrued benefits, average earnings were determined using the valuation salary progression. Historical earnings for the past five years have been retained. Retired Members were assumed to be married with a beneficiary if a spouse date of birth was provided on the data tape. For those Members whose data did not have a spouse’s date of birth, they were assumed to be single. The impact from the dollar limitation required by the Internal Revenue Code Section 415 for governmental plans was considered in this valuation and was determined not to be significant on a projected basis. The compensation limit under IRC Section 401(a)(17) was considered in this valuation. On a projected basis, the impact of this limitation is insignificant. No additional liability is being carried for the guaranteed minimum interest rate for the Deferred Option Plan account balances. Stochastic studies of similar Systems have been used to quantify the cost of this benefit. Further review and analysis of this liability is recommended. Please note that this is a volatile benefit and the impact in any one-year may be large. All active, deferred vested and deferred option plan members are assumed to elect the $105 per month retiree medical benefit upon retirement. The calculations for the required state contribution are determined as of mid-year. This is a reasonable assumption since the agency contributions, member contributions and State insurance premium tax allocations are made on a monthly basis throughout the year, and mid-year represents an average weighting of the contributions. The contribution requirements are based on total annual compensation rather than total covered compensation. This is a better reflection of the overall expectations for the System. SECTION 4.2 Page 32 ACTUARIAL BASIS (CONTINUED) D. Actuarial Assumptions Economic Assumptions 1. Investment Return 7.5%, net of investment expenses, per annum, compound annually. 2. Earnings Progression Sample rates below: Attained Service Inflation Merit Increase % % % 0 3.25 5.00 8.25 5 3.25 3.75 7.00 10 3.25 2.45 5.70 15 3.25 1.25 4.50 20 3.25 1.20 4.45 25 or more 3.25 1.00 4.25 SECTION 4.2 Page 33 ACTUARIAL BASIS (CONTINUED) D. Actuarial Assumptions (continued) Demographic Assumptions 1. Retirement Rates Sample rates below: Attained Service Annual Rates of Retirement Per 100 Eligible Members 20 23 21 11 22 10 23 10 24 12 25 12 26 20 27 20 28 25 29 30 30 50 over 30 100 or 100% at age 75 without regard to years of service. 2. Mortality Rates (a) Active employees RP-2000 Blue Collar Healthy Employees (pre-retirement) with Generational Projection from RP-2000 study All pre-retirement deaths are assumed to occur in the line of duty. (b) Active employees RP-2000 Blue Collar Healthy Annuitant (post-retirement) and with Generational Projection from RP-2000 study nondisabled pensioners (c) Disabled pensioners RP-2000 Blue Collar Healthy Annuitant (set forward 7 years) No Projection SECTION 4.2 Page 34 ACTUARIAL BASIS (CONTINUED) D. Actuarial Assumptions (continued) Demographic Assumptions (continued) 3. Disability Rates See table below: Age Rate (Per 100 Members) 20 0.004 30 0.108 40 0.346 50 1.040 60 1.900 33% of disabilities are assumed to be Non-Duty related and 67% are assumed to be Duty related. 4. Withdrawal Rates See table below: Service Range Rate (Per 100 Members) 0 15.00 2 5.75 4 4.00 6 2.50 8 2.50 10 1.75 15 1.00 20 and over 0.00 SECTION 4.2 Page 35 ACTUARIAL BASIS (CONTINUED) D. Actuarial Assumptions (continued) Demographic Assumptions (continued) 5. Marital Status (a) Percentage married: Males: 85%; Females: 85% (b) Age difference: Males are assumed to be three (3) years older than females. Other Assumptions 1. Assumed Age of Commencement for Deferred Benefits: Age 50. 2. Actuarial Value of Assets: An expected actuarial value is determined equal to the prior year’s Actuarial Value of Assets plus cash flow (excluding investment returns) for the year ended on the valuation date and assuming 7.5% interest return. The (gain)/loss is measured by the difference between the expected actuarial value and the market value at the valuation date. The (gain)/loss is amortized over five years by 20% per year. The result is constrained to a value of 80% to 120% of the market value at the valuation date. 3. Provision for Expenses: Administrative Expenses, as budgeted by the Oklahoma Law Enforcement Retirement System. 4. Retiree Medical: All active and terminated vested members are assumed to elect the $105 per month retiree medical benefit upon retirement, and their surviving spouses are assumed to continue the benefit. SECTION 4.2 Page 36 ACTUARIAL BASIS (CONTINUED) D. Actuarial Assumptions (continued) Other Assumptions (continued) 5. Deferred Option Plan: Deferred Option Plan (DOP) members are assumed to remain in the DOP for the maximum of five years prior to electing a lump sum. A member is allowed to retroactively elect to join the DOP as of a back-drop-date which is no earlier than the member’s normal retirement date or five years before his termination date. The monthly retirement benefits and employee contributions that would have been payable had the member elected to join the DOP are credited to the member’s DOP account with interest. The retirement benefits are not recalculated for service and salary past the election date to join the DOP. However, the benefits may be increased by any applicable cost-of-living increases. The retirement rates reflect both regular retirement and entry into the DOP. We assume that 50% of active members who retire elect to retroactively enter into the DOP. 6. Cost-of-Living Allowance: Members eligible for the automatic cost-of-living increase are assumed to have their benefits increase by 3.25% per year. Members not eligible for the automatic cost-of-living increase are assumed to receive the greater of: (i) their benefit calculated using their actual final average earnings. (ii) their benefit calculated using the top base pay for active members, assuming 3.25% annual increases in the top base pay. 7. Cost of Living Increase Assumption: 0% per year SECTION 4.3 Page 37 SUMMARY OF SYSTEM PROVISIONS Effective Date and Plan Year: The System became effective July 1, 1947. The System was originally known as the Oklahoma Public Safety Retirement System. The plan year is July 1 to June 30. Administration: The System is administered by the Oklahoma Law Enforcement Retirement Board consisting of thirteen Members. The Board acts as the fiduciary for investment and administration of the System. Type of Plan: A defined benefit plan. Eligibility: All law enforcement officers of the Oklahoma Highway Patrol (OHP) and Capitol Patrol of Department of Public Safety, Oklahoma State Bureau of Investigation (OSBI), Oklahoma State Bureau of Narcotics and Dangerous Drugs Control (OBNDD), Alcoholic Beverage Laws Enforcement Commission (ABLE), members of the DPS Communications Division (Communications), DPS Waterways Lake Patrol Division (Lake Patrol), Park Rangers of the Oklahoma Tourism and Recreation Department (Rangers), Inspectors of the Oklahoma State Board of Pharmacy (Pharmacy Inspectors), and Gun Smith’s of DPS are eligible upon employment. Service Considered: Credited Service shall consist of the period during which the Member participated in the System or the predecessor Plan as an active employee in an eligible membership classification, plus any service prior to the establishment of the predecessor Plan which was credited under the predecessor Plan for officers of the OSBI and the OBNDD who became Members of the System on July 1, 1980, any service credited under the Oklahoma Public Employees Retirement System (OPERS) as of June 30, 1980, and for Members of Communications and Lake Patrol who became Members of the System on July 1, 1981, any service credited under the predecessor Plan or OPERS as of June 30, 1981, and for law enforcement officers of ABLE who became Members of the System on July 1, 1982, any service credited under OPERS as of June 30, 1982, and for Rangers who became Members of the System on July 1, 1985, any service credited under OPERS as of June 30, 1985, and for Pharmacy Inspectors who became Members. SECTION 4.3 Page 38 SUMMARY OF SYSTEM PROVISIONS (CONTINUED) of the System on July 1, 1986, any service credited under OPERS as of June 30, 1986 and for Capitol Patrol who became Members of the System on July 1, 1993, any service credited under OPERS as of June 30, 1993 and for Gun Smith’s who became Members of the System on July 1, 1994, any service credited under OPERS as of July 1, 1994. Members can accumulate up to 6 months 15 days sick leave which counts for pension accrual and benefits eligibility purposes. Members may also buy back service with other Oklahoma State Retirement Systems. Salary Considered: Actual paid base salary received by a Member, excluding payment for any accumulated leave or uniform allowance. Lump sum bonuses based on longevity date go into considered compensation. The lump sum bonus is $250 after 2 or 3 years, $426 after 4 or 5 years, $626 after 6 or 7 years, and so on. If an employee incurs a break in service in excess of 30 days, his longevity date is changed to his date of rehire and the longevity bonus amount becomes $0. If an employee incurs a break in service of less than 30 days or is on a leave of absence without pay for more than 30 days, his length of absence is deducted from his longevity date and the longevity bonus amount remains the same. Final average salary means the average of the highest 30 consecutive complete months of considered salary. Effective July 1, 2002: Members whose salary is set by statute and retire after 20 years receive a benefit based on the greater of the member’s highest 30 consecutive months or the top base pay paid to active members at the time of payment. Members whose salary is not set by statute and who retire after 20 years receive a benefit based on the greater of the member’s highest 30 consecutive months or the salary paid to the highest non-supervisory position in the participating agency at the time payment is made. SECTION 4.3 Page 39 SUMMARY OF SYSTEM PROVISIONS (CONTINUED) State Contributions: License Agency Fees equal to 1.2% of Drivers License Taxes, plus Motor Vehicle Inspection Fees equal to 50 cents per motor vehicle inspection sticker less $850,000, plus 5% of Insurance Premium Tax. Agency Contributions: 10% of actual base salary. Member Contributions: Eight (8%) percent of paid salary. Accumulated contributions are after-tax up to December 31, 1989 and before-tax after December 31, 1989. Normal Retirement Benefit: Eligibility: 20 years of service or age 62 with 10 years of service. Maximum of age 60 with at least 20 years of service, unless physically able to continue. Benefit: 2 1/2% of the greater of final average salary or the salary paid to active employees as described under “salary considered” multiplied by the years and completed months of credited service. There is no maximum on service. Form of Benefit: 100% joint and survivor. Form of Payments: The normal form of benefit is a Joint and 100% Survivor Annuity if the Member was married 30 months prior to death. The Joint and Survivor portion continues to eligible children under 22 if there is no eligible spouse or after the spouse dies. Termination: Less Than 10 Years of Service: A refund of contributions without interest. SECTION 4.3 Page 40 SUMMARY OF SYSTEM PROVISIONS (CONTINUED) More than 10 Years of Service: If greater than 10 years of service, but not eligible for the normal retirement benefit, the benefit is payable at the date the Member would have had 20 years of service in an amount equal to 2 1/2% of the greater of final average salary or the salary paid to active employees as described under “salary considered” multiplied by the years and completed months of credited service. Form of Benefit: Lifetime benefit. Disability Benefit (Duty): Upon determination of disability incurred as a result of the performance of duty, the normal disability benefit is the greater of: 1) 2 1/2% of the greater of final average salary or the salary paid to active employees as described under “salary considered” times years and completed months of credited service, or 2) 50% of final average salary. For members with less than 20 years of service that incur a line of duty disability due to personal injury of a catastrophic nature, final average salary is based on the salary which the member would have received pursuant to statutory salary schedules in effect upon the date of death for a twenty (20) years of service member. Disability Benefit (Non-Duty): Upon determination of disability after three years of service due to causes other than duty, the benefit equals the accrued benefit of 2 1/2% of the greater of final average salary or the salary paid to active employees as described under “salary considered” times years and completed months of credited service. SECTION 4.3 Page 41 SUMMARY OF SYSTEM PROVISIONS (CONTINUED) Death Benefits Payable to Beneficiaries: Prior to Retirement (Duty): The greater of: 1) 2 1/2% of the greater of final average salary or the salary paid to active employees as described under “salary considered” times years and completed months of credited service, or 2) 50% of final average salary. For members with less than 20 years of service that die in the line of duty, final average salary is based on the salary which the member would have received pursuant to statutory salary schedules in effect upon the date of death for a twenty (20) years of service member. Prior to Retirement (Non-Duty): After three years of service, the greater of: 1) 2 1/2% of the greater of final salary or the salary paid to active employees as described under “salary considered” times years and completed months of credited service, or 2) 50% of final average salary. After Retirement: In addition to the benefits provided under the 100% Joint and Survivor Annuity, $400 per month is paid for each surviving child to age 18, or to age 22 if a full-time student (12 semester hours) in an accredited school of learning. Lump Sum: The beneficiary shall receive a lump-sum amount of $5,000. Effective July 1, 2002, this lump sum is considered to be life insurance proceeds for tax purposes. If an active Member dies prior to retirement without leaving a beneficiary, a refund of the accumulated contributions made by the Member will be paid to the estate. SECTION 4.3 Page 42 SUMMARY OF SYSTEM PROVISIONS (CONTINUED) If the beneficiary is a child, the benefits are payable to age 18, or to age 22 if a full-time student (12 semester hours) in an accredited school of learning. If the beneficiary is a spouse (to whom the Member was married for at least 30 months prior to death, if the death was not duty related), the benefits are payable for life. Postretirement Adjustments: Occasional ad hoc increases for retirees are provided. COLAs apply to the whole benefit, not the original benefit. The most recent COLA was 4% for Members retired as of June 30, 2007, effective July 1, 2008. Effective July 1, 2002, retirement benefits will be recalculated to increase in conjunction with increases to the top base pay for active members. Postretirement Health Insurance Benefits: The System will contribute $105 per month or the Medicare Supplement Premium, if less, toward the cost of health insurance for annuitants receiving retirement benefits. These benefits commence upon retirement. Spouses become eligible for this benefit as of July 1, 2002. Deferred Option Plan: A Member who has 20 or more years of service and continues employment may elect to participate in the Deferred Option Plan. Participation in the Deferred Option Plan shall not exceed five years. The members’ contributions cease upon entering the Plan, but the agency contributions are divided equally between the Retirement System and Deferred Option Plan. The monthly retirement benefits that the member is eligible to receive are paid into the Deferred Option Plan account. Members can elect to retroactively join the DROP as of a back-drop-date which is no earlier than the member's normal retirement date or five years before his termination date. The monthly retirement benefits and employee contributions that would have been payable had the member elected to join the DROP are credited to the member's DROP account with interest. SECTION 4.3 Page 43 SUMMARY OF SYSTEM PROVISIONS (CONTINUED) The retirement benefits are not recalculated for service and salary past the election date to join the Deferred Option Plan. However, the benefits are increased by cost-of-living increases applicable to retired members. When the Member actually terminates employment, the Deferred Option Plan account balance may be paid in a lump sum or to an annuity provider. Monthly retirement benefits are then paid directly to the retired Member. This Plan became effective during the July 1, 1991 to June 30, 1992 Plan Year. The Deferred Option Plan account is guaranteed a minimum of the valuation interest rate for investment return, or 2% less than the fund rate of return, if greater. |
Date created | 2011-10-17 |
Date modified | 2011-10-27 |