Oklahoma Police Pension and Retirement System actuarial valuation report

              OKLAHOMA POLICE PENSION
AND 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 Summary 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
Section 3 System Assets 18
3.1 Summary of Assets 19
3.2 Reconciliation of Assets 20
3.3 Actuarial Value of Assets 21
3.4 Average Annual Rates of Investment Return 22
Section 4 Basis of Valuation 23
4.1 System Members 24
4.2 Actuarial Basis 30
4.3 Summary of System Provisions 37
HIGHLIGHTS - PURPOSE Page 1
This report has been prepared by Buck Consultants for the Oklahoma Police Pension and Retirement
System to:
• Present the results of a valuation of the Oklahoma Police Pension and Retirement 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:
• As a result of the action taken by the Oklahoma Legislature to concurrently fund any cost-of-living
adjustment (COLA), the 2% cost-of-living increase assumption has been removed from
the valuation. Accordingly, the results of the July 1, 2011 valuation are significantly improved
from recent valuations.
• The funded status of the System increased since the prior valuation as indicated by the table
below.
GASB No. 25 Funded Status ($000,000) July 1, 2011 July 1, 2010
Accrued Liability $ 1,960.0 $ 2,341.6
Actuarial Value of Assets $ 1,822.7 $ 1,754.4
Unfunded Accrued Liability $ 137.3 $ 587.2
Funded Ratio 93.0% 74.9%
• The funded ratio on a ASC 960 basis, measuring the market value of System assets versus the
present value of benefits accrued as of the valuation date, increased from 87.0% to 99.2%.
• The required state contribution for the System decreased from $113.9 million to $31.3 million.
Contribution Summary ($000,000) July 1, 2011 July 1, 2010
Total Required Contribution $ 85.1 $ 166.8
Expected Employee Contributions 20.3 20.0
Expected Municipality Contributions 33.5 32.9
Required State Contribution $ 31.3 $ 113.9
--As a Percentage of Total Payroll 12.1% 45.0%
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 herein.
Actuarial Valuation as of
July 1, 2011 July 1, 2010
Summary of Costs
Required State Contribution for Current Year $ 31,270,062 $ 113,892,443
Actual State Contribution Received in Prior Year (1) $ 24,645,000 $ 22,292,000
GASB No. 25 Funded Status
Actuarial Accrued Liability $ 1,959,976,006 $ 2,341,619,152
Actuarial Value of Assets $ 1,822,702,000 $ 1,754,372,000
Unfunded Actuarial Accrued Liability $ 137,274,006 $ 587,247,152
Market Value of Assets and Additional Liabilities
Market Value of Assets $ 1,811,460,000 $ 1,558,741,000
Actuarial Present Value of Accumulated System
Benefits (ASC 960) $ 1,825,786,845 $ 1,792,010,348
Present Value of Projected System Benefits $ 2,443,485,081 $ 2,944,906,319
Summary of Data
Number of Members in Valuation
Active Paid Members 4,368 4,305
Deferred Option Plan Members 50 50
Terminated Members with Refunds Due 583 621
Terminated Members with Deferred Benefits 124 111
Retired Members 2,292 2,241
Beneficiaries 631 616
Disabled Members 137 136
Total 8,185 8,080
Active Member Statistics (2)
Total Annual Compensation (3) $ 257,504,567 $ 249,582,676
Average Compensation (3) $ 58,285 $ 57,975
Average Age 39.7 39.3
Average Service 12.1 11.8
(1) For the fiscal years beginning July 1, 2009, the system receives 14% of the State’s revenue from insurance premium taxes. For
fiscal years beginning July 1, 2010, the amount of insurance premium tax apportioned to the System will be applied prior to the
calculation of the Home Office Credit.
(2) Statistics as of July 1, 2011 include participants in the prospective DOP program.
(3) Compensation is projected one year based on the salary increase assumptions.
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 Assumptions in Methods
Due to the requirement that the Oklahoma Legislature must concurrently fund any cost-of-living
adjustment, the valuation incorporates no assumption for future 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 Plan Provisions
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.
These amounts are developed in Section 1.4 of this report:
Millions
Liability Gain/(Loss) $ 96.1
Asset Gain/(Loss) $ (32.6)
Total Gain/(Loss) $ 63.5
HIGHLIGHTS – DEFERRED OPTION PLAN Page 4
The Oklahoma Police Deferred Option Plan (DOP) allows employees eligible for a Normal
Retirement Benefit to defer the receipt of retirement benefits while continuing employment.
Participation in the DOP is limited to five years. During this time, the members’ contributions
stop, but the employer contributes half of the regular contribution on base salary to the Police
Pension and Retirement System and the other half to the members’ account in the DOP. In
addition, the monthly retirement benefits are paid into the members’ account in the DOP. The
DOP also allows members to retroactively elect to enter the DOP as of an earlier date upon
termination. The monthly retirement benefits and employer contributions that would have
been payable had the member elected to enter the DOP are credited to the member’s account
in the DOP.
The DOP 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 of 7.5%.
The interest rate credited for the fiscal year ended June 30, 2011, was 16.18%.
Effective July 1, 2006, a retired member who has completed participation in the DOP is
allowed to transfer their account balance into a Deferred Option Payout Account and no
further contributions will be accepted. The accounts are credited with interest at a rate of 2%
less than the total fund net earnings if the fund returns more than 2%. If the fund realizes
negative returns, the accounts are reduced at a rate equal to the fund net earnings.
Alternatively, if the fund realizes a positive return of less than 2%, the accounts are credited
with a rate of zero. The interest rate for the payout accounts for the fiscal year ended
June 30, 2011 was 16.18%.
The assets and liabilities reflected in these results as of July 1, 2011, include the account
balances for the Deferred Option Plan, as in prior valuations. Statistics regarding the number
of Deferred Option Plan members and total account balances are shown in the table below:
DOP Statistics July 1, 2011 July 1, 2010
Number of Active DOP Members 50 50
Account Balances of Active Members $ 8.4M $ 7.9M
Annual Retirement Benefits of Active Members $ 1.9M $ 1.9M
Deferred Option Payout Account Balances $ 2.3M $ 2.0M
Total $ 10.7M $ 9.9M
HIGHLIGHTS – CERTIFICATION Page 5
We have prepared an actuarial valuation of the Oklahoma Police Pension and 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
Police Pension and 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 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, a 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.
_____________________________________________ September 20, 2011
R. Ryan Falls, F.S.A., E.A., M.A.A.A.
SECTION 1: FUNDING RESULTS Page 6
Section 1.1 Summary 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
SUMMARY OF CONTRIBUTION REQUIREMENT
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 $253,989,944 N/A $ 249,582,676 N/A
b. Deferred Option Plan Members 3,514,623 N/A 3,677,049 N/A
c. Total $257,504,567 N/A $ 253,259,725 N/A
2. Total Normal Cost Mid-year $ 56,906,021 22.4% $ 66,973,924 26.8%
3. Unfunded Actuarial Accrued Liability $ 137,274,006 N/A $ 587,247,152 N/A
4. Amortization of Unfunded Actuarial
Accrued Liability over 30 years From
July 1, 1988 at mid-year $ 25,013,281 9.8% $ 96,761,553 38.8%
5. Budgeted Expenses $ 3,145,550 1.2% $ 3,047,344 1.2%
6. Total Required Contribution
(2 + 4 + 5) $ 85,064,852 33.5% $ 166,782,821 66.8%
7. Estimated Employee Contribution
(8% x 1a) $ 20,319,196 8.0% $ 19,966,614 8.0%
8. Estimated Municipality Contributions
a. Active Members $ 33,018,693 13.0% $ 32,445,748 13.0%
b. Deferred Option Plan Members 456,901 13.0%(1) 478,016 13.0%(1)
c. Total $ 33,475,594 13.0%(2) $ 32,923,764 13.0%(2)
9. Required State Contribution to
amortize Unfunded Actuarial Accrued
Liability over 30 years from
July 1, 1988 at mid-year.
(6 - 7 - 8c) $ 31,270,062 12.1%(2) $ 113,892,443 45.0%(2)
10. Expected State Contribution(3) $ 25,384,350 9.9%(2) $ 22,960,760 9.1%(2)
11. Approximate period over which
previous year’s State Contribution
will amortize current Unfunded
Actuarial Accrued Liability (UAAL) $ 9(4) N/A
Not sufficient
to amortize
UAAL N/A
(1) Percentage of Deferred Option Plan Members’ covered compensation.
(2) Percent of total covered compensation.
(3) For the fiscal years beginning July 1, 2009, the system receives 14% of the State’s revenue from insurance premium
taxes. For fiscal years beginning July 1, 2010, the amount of insurance premium tax apportioned to the System will be
applied prior to the calculation of the Home Office Credit. The actual State contributions for the fiscal years ending
June 30, 2009 and June 30, 2010 were $22,292,000 and $24,645,000, respectively.
(4) Amortization period assumes that the State contribution will increase at 3% per year and covered compensation for
Deferred Option Plan members remains a constant percentage of total covered compensation.
SECTION 1.2 Page 8
LIABILITY DETAIL
July 1, 2011
Present Value of Benefits $ 2,443,485,081
Present Value of Future Normal Costs $ 483,509,075
Accrued Liability $ 1,959,976,006
Normal Cost Mid-Year $ 56,906,021
Active
a. Retirement $ 957,522,097
b. Disability (434,971)
c. Withdrawal 10,675,991
d. Death 4,529,544
e. Refunds (10,089,596)
f. Total $ 962,203,065
Inactive
1. Members Eligible for Automatic COLA
a. Retired Members $ 82,722,580
b. Disabled Members 13,660,799
c. Terminated Members 0
d. Deferred Option Plan Members 0
e. Beneficiaries 71,040,672
f. Total $ 167,424,051
2. Members Not Eligible for Automatic COLA
a. Retired Members $ 696,257,332
b. Disabled Members 12,774,855
c. Terminated Members 18,155,036
d. Deferred Option Plan Members 35,535,983
e. Beneficiaries 67,625,684
f. Total $ 830,348,890
3. Total Inactive (1f + 2f) $ 997,772,941
Accrued Liability (Active + Inactive) $ 1,959,976,006
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 $ 1,445,712,140 $ 1,774,262,162
b. Terminated Members 18,155,036 19,408,284
c. Members Receiving Benefits who are not eligible for
Automatic COLA 776,657,871 933,142,188
d. Members Receiving Benefits who are eligible for
Automatic COLA 167,424,051 177,932,599
e. Deferred Option Plan Members 35,535,983 40,161,086
f. Total $ 2,443,485,081 $ 2,944,906,319
2. Actuarial Present Value of Future Normal Costs 483,509,075 603,287,167
3. Total Actuarial Accrued Liability (1f - 2) 1,959,976,006 2,341,619,152
4. Actuarial Value of Assets 1,822,702,000 1,754,372,000
5. Unfunded Actuarial Accrued Liability
(3 - 4, not less than $0) $ 137,274,006 $ 587,247,152
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.
1. Expected Actuarial Accrued Liability
a. Actuarial Accrued Liability at July 1, 2010 $ 2,341,619,152
b. Normal Cost for Plan Year Ending June 30, 2011 66,973,924
c. Benefit Payments for Plan Year Ending June 30, 2011 103,854,000
d. Interest on a + b - c to End of Year 174,238,434
e. Expected Actuarial Accrued Liability Before Changes (a + b - c + d) 2,478,977,510
f. Change in Actuarial Accrued Liability at July 1, 2011 due to changes in
Actuarial Assumptions (422,900,906)
g. Change in Actuarial Accrued Liability at July 1, 2011 due to changes in
System Provisions 0
h. Expected Actuarial Accrued Liability at July 1, 2011 (e + f + g) $ 2,056,076,604
2. Actuarial Accrued Liability at July 1, 2011 $ 1,959,976,006
3. Actuarial Liability Gain/(Loss) (1h – 2) $ 96,100,598
4. Expected Actuarial Value of Assets
a. Actuarial Value of Assets at July 1, 2010 $ 1,754,372,000
b. Contributions Made for Plan Year Ending June 30, 2011 75,980,000
c. Benefit Payments and Expenses for Plan Year Ending June 30, 2011 105,566,000
d. Interest on a + b - c to End of Year 130,468,425
e. Expected Actuarial Value of Assets at
July 1, 2011 (a + b - c + d) $ 1,855,254,425
5. Actuarial Value of Assets as of July 1, 2011 $ 1,822,702,000
6. Actuarial Asset Gain/(Loss) (5 - 4e) $ (32,552,425)
7. Actuarial Gain/(Loss) (3 + 6) $ 63,548,173
SECTION 1.5 Page 11
CONTRIBUTIONS
Contributions to the Retirement System are made by the Members, municipalities, and the
State of Oklahoma. Member contributions equal 8% of base salary. Municipalities contribute
13% of base salary per year for plan years after June 30, 1996.
The active Deferred Option Plan Members do not make employee contributions to the System.
However, municipalities continue contributing for them, with 50% of the contribution going
into the System fund and 50% going into the Deferred Option Account. Contributions for
members who retroactively elect to enter the Deferred Option Plan as of an earlier date are
also deposited into the Deferred Option Account.
Beginning in fiscal year July 1, 2004 and ending June 30, 2009, the fund received 17% of the
insurance premium tax. For years after that, the fund will receive 14% of the taxes.
Beginning in fiscal year July 1, 2006, the system began receiving 26% of a special allocation
established to refund the System for reduced allocations of insurance premium taxes resulting
from increases in insurance premium tax credits. Beginning in fiscal year July 1, 2010, the
amount of tax apportioned will be applied prior to the calculation of the Home Office Credit.
State Contributions Received versus
Contributions Required by Funding Policy
(000’s)
As of July 1, 2003, the amortization period was changed to 30 years from 1988.
0
20,000
40,000
60,000
80,000
100,000
120,000
2007-2008 2008-2009 2009-2010 2010-2011 2011-2012
Actual State Required
SECTION 1.6 Page 12
TEN-YEAR PROJECTED CASH FLOW
(RETIREMENT BENEFIT PAYMENTS)
Plan Year Ending Actives Retirees (1) Total
6/30/2012 $ 66,747,335 $ 95,712,534 $ 162,459,869
6/30/2013 $ 46,137,767 $ 90,650,686 $ 136,788,453
6/30/2014 $ 48,394,301 $ 90,018,537 $ 138,412,838
6/30/2015 $ 57,241,693 $ 90,776,286 $ 148,017,979
6/30/2016 $ 62,676,226 $ 89,095,854 $ 151,772,080
6/30/2017 $ 61,159,334 $ 89,564,070 $ 150,723,404
6/30/2018 $ 68,696,649 $ 86,171,367 $ 154,868,016
6/30/2019 $ 74,388,044 $ 85,129,825 $ 159,517,869
6/30/2020 $ 85,116,724 $ 83,912,003 $ 169,028,727
6/30/2021 $ 92,112,808 $ 82,646,807 $ 174,759,615
(1) Includes DOP Members, Disabled Members, Beneficiaries and Terminated Members.
SECTION 2: ACCOUNTING RESULTS Page 13
Section 2.1 ASC 960 Information
Section 2.2 GASB No. 25 Information
SECTION 2.1 Page 14
ASC 960 INFORMATION
A. Actuarial Present Value of Accumulated System Benefits
The actuarial present value of vested and non-vested accumulated system benefits was computed
on an ongoing system basis in order to provide required information under FASB Accounting
Standards Codification (ASC) 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 $ 741,669,479 $ 699,073,717
b. Deferred Option Plan Members 35,535,983 35,167,874
c. Terminated Members 18,155,036 15,973,257
d. Members Receiving Benefits 944,081,922 945,525,791
e. Total Vested Benefits $ 1,739,442,420 $ 1,695,740,639
Non-vested Benefits 86,344,425 96,269,709
Total Accumulated System Benefits $ 1,825,786,845 $ 1,792,010,348
Assumed Rate of Interest 7.5% 7.5%
Market Value of Assets Available for Benefits $ 1,811,460,000 $ 1,558,741,000
Funded Ratio 99.2% 87.0%
Number of Members July 1, 2011 July 1, 2010
Vested Members
a. Active Members 2,411 2,350
b. Deferred Option Plan Members 50 50
c. Members with Deferred Benefits 124 111
d. Members Receiving Benefits 3,060 2,993
e. Total Vested Members 5,645 5,504
Non-vested Members 2,540 2,576
Total Members 8,185 8,080
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
$ 1,792,010,348
Increase/(Decrease) During Year Attributable to:
a. Normal Cost 47,578,243
b. Increase for Interest Due to Decrease in Discount Period 134,074,619
c. Benefits Paid, Including Refund of Contributions (103,854,000)
d. System Amendment 0
e. Assumption Changes 0
f. (Gains)/Losses (44,022,365)
Net Increase/(Decrease) 33,776,497
Actuarial Present Value of Accumulated System Benefits as of
July 1, 2011 $ 1,825,786,845
The benefits valued include all benefits – retirement, preretirement death and vested
termination – payable from the System for employee 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 the statement titled 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, i.e., for the Oklahoma Police
Retirement System, the Entry Age Normal Cost Method. The target value of assets is equal to
the Actuarial Accrued Liability (AAL). The actual value of assets is the Actuarial Value
developed later in this report. 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 ten 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)
07/01/2002 $ 1,370,024,000 $ 1,554,288,324 $ 184,264,324 88.1% $ 160,419,776 114.9%
07/01/2003 $ 1,392,043,000 $ 1,646,979,675 $ 254,936,675 84.5% $ 170,507,025 149.5%
07/01/2004 $ 1,399,975,000 $ 1,727,162,602 $ 327,187,602 81.0% $ 175,559,285 186.4%
07/01/2005 $ 1,423,834,000 $ 1,811,572,114 $ 387,738,114 78.6% $ 188,848,451 205.3%
07/01/2006 $ 1,490,208,000 $ 1,910,059,072 $ 419,851,072 78.0% $ 204,189,807 205.6%
07/01/2007 $ 1,627,476,000 $ 2,035,653,471 $ 408,177,471 79.9% $ 220,884,875 184.8%
07/01/2008 $ 1,752,169,000 $ 2,132,175,698 $ 380,006,698 82.2% $ 239,804,959 158.5%
07/01/2009 $ 1,717,566,000 $ 2,253,133,775 $ 535,567,775 76.2% $ 253,955,863 210.9%
07/01/2010 $ 1,754,372,000 $ 2,341,619,152 $ 587,247,152 74.9% $ 249,582,676 235.3%
07/01/2011 $ 1,822,702,000 $ 1,959,976,006 $ 137,274,006 93.0% $ 257,504,567 53.3%
SECTION 2.2 Page 17
GASB NO. 25 INFORMATION (CONTINUED)
B. Schedule of Employer Contributions
The GASB Statement No. 25 required and actual contributions for the last ten fiscal years are
as follows:
Year Ended June 30
Annual Required
Contribution
Percentage Contributed
2002 $ 54,918,091 76.9%
2003 $ 71,704,935 61.6%
2004 $ 63,511,155 37.7%
2005 $ 73,756,197 66.1%
2006 $ 85,391,444 58.6%
2007 $ 95,082,357 59.3%
2008 $ 100,561,406 55.8%
2009 $ 102,609,620 57.1%
2010 $ 132,456,043 41.2%
2011 $ 146,816,207 38.5%
SECTION 3: SYSTEM ASSETS Page 18
This section presents information regarding System assets as reported by the 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 19
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 $ 33,516,000 $ 22,931,000
2. Receivables
a. Interest and Dividends $ 2,973,000 $ 2,905,000
b. Member Contributions 893,000 870,000
c. Employer Contributions 1,472,000 1,440,000
d. Insurance Premium Tax 5,526,000 4,917,000
e. Investments Sold 0 0
f. Other Receivables 3,000 0
g. Total $ 10,867,000 $ 10,132,000
3. Investments at Fair Value
a. Domestic Government Bonds $ 14,121,000 $ 28,338,000
b. International Government Bonds 0 0
c. Corporate Bonds (1) 330,503,000 433,922,000
d. Domestic Stock 533,850,000 490,135,000
e. International Stock 185,952,000 145,685,000
f. Other 707,163,000 427,952,000
g. Securities Lending Short-Term Pool 44,578,000 48,845,000
h. Total $ 1,816,167,000 $ 1,574,877,000
4. Assets used in System Operations
a. Furniture, Fixtures and Equipment $ 913,000 $ 1,014,000
5. Total Assets $ 1,861,463,000 $ 1,608,954,000
6. Liabilities
a. Payable for Investments Purchased $ 3,753,000 $ 201,000
b. Accounts Payable and Accrued Expenses 1,672,000 1,167,000
c. Securities Lending Collateral Payable 44,578,000 48,845,000
d. Total Liabilities 50,003,000 50,213,000
7. Net Assets for Pension Benefits $ 1,811,460,000 $ 1,558,741,000
(1) Includes Domestic and International Bonds
SECTION 3.2 Page 20
RECONCILIATION OF ASSETS
Transactions June 30, 2011 June 30, 2010
Additions
1. Contributions
a. Contributions from Employers $ 31,846,000 $ 32,240,000
b. Contributions from System Members 19,489,000 19,626,000
c. Insurance Premium Tax 24,645,000 22,292,000
d. Total $ 75,980,000 $ 74,158,000
2. Net Investment Income
a. Interest $ 7,365,000 $ 7,451,000
b. Dividends 9,662,000 8,256,000
c. Realized Gain and Unrealized Appreciation 276,186,000 157,918,000
d. Income from Securities Lending 60,000 107,000
e. Other 732,000 1,222,000
f. Total $ 294,005,000 $ 174,954,000
g. Investment Expense (11,700,000) (10,236,000)
h. Net Investment Income $ 282,305,000 $ 164,718,000
3. Total Additions $ 358,285,000 $ 238,876,000
Deductions
4. Retirement Benefits $ (101,737,000) $ (107,641,000)
5. Refund of Contributions $ (2,117,000) $ (1,420,000)
6. Administrative Expenses $ (1,712,000) $ (2,379,000)
7. Total Deductions $ (105,566,000) $ (111,440,000)
8. Net Increase $ 252,719,000 $ 127,436,000
9. Net Assets Held in Trust for Pension Benefits
a. Beginning of Year $ 1,558,741,000 $ 1,431,305,000
b. End of Year $ 1,811,460,000 $ 1,558,741,000
Reconciliation of Actuarial Asset Value and Market Value
Actuarial Asset Value $ 1,822,702,000 $ 1,754,372,000
Deferred Gain/(Loss) $ (11,242,000) $ (195,631,000)
Impact of Market Value Corridor $ 0 $ 0
Market Value $ 1,811,460,000 $ 1,558,741,000
SECTION 3.3 Page 21
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 $ 154,453,918 $ 123,563,135 $ 30,890,783 $ 0
2007/2008 (164,696,917) (98,818,149) (32,939,384) (32,939,384)
2008/2009 (414,206,995) (165,682,798) (82,841,399) (165,682,798)
2009/2010 109,851,050 21,970,210 21,970,210 65,910,630
2010/2011 151,836,917 0 30,367,383 121,469,534
Total $ (162,762,027) $ (118,967,602) $ (32,552,407) $ (11,242,018)
Development of Actuarial Value of Assets
1. Actuarial Value as of July 1, 2010 $ 1,754,372,000
2. Contributions
a. Member $ 19,489,000
b. Employer 31,846,000
c. Insurance tax 24,645,000
d. Total (a + b + c) $ 75,980,000
3. Decreases During the Year
a. Benefit Payments $ 101,737,000
b. Return of Member Contributions 2,117,000
c. Non-investment Expenses 1,712,000
d. Total (a + b + c) $ 105,566,000
4. Expected Return at 7.5% on:
a. Item 1 $ 131,577,900
b. Item 2 (one-half year) 2,849,250
c. Item 3 (one-half year) 3,958,725
d. Total (a + b - c) $ 130,468,425
5. Expected Actuarial Value of Assets June 30, 2011 (1 + 2 - 3 + 4) $ 1,855,254,425
6. Unrecognized Asset Gain/(Loss) as of June 30, 2010 $ (195,631,342)
7. Expected Actuarial Value June 30, 2011 plus previous year’s Unrecognized Asset Gain
(5 + 6)
$ 1,659,623,083
8. Market Value as of June 30, 2011 $ 1,811,460,000
9. 2010/2011 Asset Gain/(Loss) (8 - 7) $ 151,836,917
10. Asset Gain/(Loss) to be Recognized as of June 30, 2011 $ (32,552,407)
11. Initial Actuarial Value July 1, 2011 (5 + 10) (Rounded to $1,000’s) $ 1,822,702,000
12. Constraining Values:
a. 80% of Market Value (8 x 0.8) $ 1,449,168,000
b. 120% of Market Value (8 x 1.2) $ 2,173,752,000
13. Actuarial Value July 1, 2011
(11), but no less than (12a), nor greater than (12b)
$ 1,822,702,000
SECTION 3.4 Page 22
AVERAGE ANNUAL RATES OF INVESTMENT RETURN
Year Ending
June 30
Actuarial Value Market Value
Annual Cumulative Annual Cumulative
1990 8.6% 8.6% 9.2% 9.2%
1991 7.9% 8.2% 8.1% 8.6%
1992 8.7% 8.4% 13.8% 10.3%
1993 10.3% 8.9% 15.1% 11.5%
1994 9.3% 9.0% 0.0% 9.1%
1995 11.0% 9.3% 17.7% 10.5%
1996 11.9% 9.7% 13.5% 10.9%
1997 12.8% 10.1% 17.3% 11.7%
1998 13.5% 10.4% 16.9% 12.3%
1999 14.3% 10.8% 9.7% 12.0%
2000 12.8% 11.0% 8.7% 11.7%
2001 8.8% 10.8% (5.3%) 10.2%
2002 4.9% 10.3% (5.6%) 8.9%
2003 2.7% 9.8% 3.5% 8.5%
2004 3.3% 9.3% 15.0% 8.9%
2005 3.0% 8.9% 8.7% 8.9%
2006 6.1% 8.8% 11.0% 9.0%
2007 10.6% 8.9% 17.3% 9.5%
2008 8.9% 8.9% (2.4%) 8.8%
2009 (0.9%) 8.3% (16.4%) 7.4%
2010 4.4% 8.2% 11.7% 7.6%
2011 5.6% 8.0% 18.3% 8.0%
Annual Returns before 1998 exclude DOP assets.
SECTION 4: BASIS OF VALUATION Page 23
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 24
SYSTEM MEMBERS
A. Member Data Reconciliation
Active Members Inactive Members
Regular
Deferred
Option
Plan
Refund
Due to
Member
Deferred
Vested
Members
Retired
Members
Disabled
Members
Bene-ficiaries
Total
As of July 1, 2010 4,305 50 621 111 2,241 136 616 8,080
Deferred Option Plan
Retirees (15) 15 0 0 0 0 0 0
Age Retirements (66) (14) 0 (5) 85 0 0 0
Disability Retirements (3) 0 0 0 0 3 0 0
Deaths Without
Beneficiaries (2) (1) (2) 0 (14) 0 (17) (36)
Deaths With
Beneficiaries (3) 0 0 0 (20) (4) 28 1
Vested Terminations (25) 0 0 25 0 0 0 0
Rehires 97 0 (74) (6) 0 0 0 17
Expiration of Benefits 0 0 0 0 0 0 (5) (5)
Termination Without
Refund (71) 0 71 0 0 0 0 0
Terminations Electing a
Refund (112) 0 (67) 0 0 0 0 (179)
Alternate Payee of a
Qualified Domestic
Relations Order 0 0 0 0 0 0 7 7
Data Corrections 2 0 0 (1) 0 2 2 5
Transfers Out 0 0 0 0 0 0 0 0
Transfers In 0 0 0 0 0 0 0 0
Net Change (198) 0 (72) 13 51 1 15 (190)
New Entrants During
the Year 261 0 34 0 0 0 0 295
As of July l, 2011 4,368 50 583 124 2,292 137 631 8,185
SECTION 4.1 Page 25
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
20-24 129 129
25-29 425 153 578
30-34 253 354 109 716
35-39 146 224 407 92 869
40-44 81 104 197 311 142 835
45-49 31 43 83 136 300 105 698
50-54 2 10 34 57 96 120 57 376
55-59 1 5 21 29 21 49 5 131
60-64 1 2 5 6 9 5 3 1 32
65-69 1 1 1 1 4
70-74 0
75+ 0
Total 1,069 888 837 623 574 255 112 8 2 4,368
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 37,511 37,511
25-29 41,532 50,087 43,797
30-34 40,740 52,718 62,418 49,962
35-39 38,343 50,342 62,865 66,716 55,925
40-44 37,605 47,568 61,020 69,155 77,013 62,823
45-49 35,962 48,692 56,691 68,677 74,046 78,650 68,375
50-54 30,899 49,317 59,212 61,839 70,473 81,958 82,425 72,850
55-59 38,288 46,555 56,486 66,067 67,105 85,271 87,210 71,731
60-64 29,229 48,588 53,895 70,931 64,742 83,675 91,681 82,485 68,126
65-69 58,120 87,841 89,506 78,046 78,378
70-74 0
75+ 0
Total 39,930 50,829 61,480 67,454 73,771 78,765 83,789 88,887 80,266 58,148
SECTION 4.1 Page 26
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 51 136 $ 4,144,862 52 $ 732,408 28 317,256 216 $ 5,194,526
51 60 1,681,455 8 182,091 4 43,027 72 1,906,573
52 47 1,358,202 10 184,236 2 26,187 59 1,568,625
53 58 1,494,918 8 82,288 3 28,546 69 1,605,752
54 71 2,010,442 12 233,592 6 65,811 89 2,309,845
55 91 2,638,533 19 366,575 2 30,327 112 3,035,435
56 72 2,153,266 12 208,428 3 40,086 87 2,401,780
57 85 2,467,292 17 373,603 5 98,203 107 2,939,098
58 113 3,275,747 10 276,540 7 60,954 130 3,613,241
59 102 3,039,849 19 335,895 5 48,600 126 3,424,344
60 97 2,892,743 15 320,545 2 35,951 114 3,249,239
61 95 3,080,987 16 327,845 7 93,361 118 3,502,193
62 110 3,280,875 16 382,630 4 81,485 130 3,744,990
63 138 4,414,628 18 349,436 6 64,939 162 4,829,003
64 104 3,171,791 14 343,842 4 113,409 122 3,629,042
65 107 3,395,707 14 343,681 1 9,120 122 3,748,508
66 84 2,595,539 17 456,435 3 55,281 104 3,107,255
67 82 2,391,690 19 545,138 3 77,192 104 3,014,020
68 69 1,992,523 15 432,724 2 24,071 86 2,449,318
69 66 2,017,705 18 472,086 3 37,652 87 2,527,443
70 57 1,665,640 6 231,972 4 96,696 67 1,994,308
71 55 1,698,040 18 538,585 4 106,437 77 2,343,062
72 55 1,718,924 15 340,899 3 76,536 73 2,136,359
73 43 1,290,173 17 567,768 2 30,193 62 1,888,134
74 34 1,047,931 16 472,518 3 83,609 53 1,604,058
75 38 1,140,442 20 635,660 3 88,461 61 1,864,563
76 37 1,141,759 7 273,581 3 67,049 47 1,482,389
77 32 1,027,405 13 402,957 2 76,508 47 1,506,870
78 16 484,448 11 336,471 1 23,859 28 844,778
79 26 857,338 14 401,099 2 56,083 42 1,314,520
80 19 656,879 19 669,329 1 31,311 39 1,357,519
81 13 429,780 23 682,627 2 46,595 38 1,159,002
82 13 422,430 22 688,639 2 80,937 37 1,192,006
83 16 577,456 10 300,156 1 36,469 27 914,081
84 12 356,009 11 349,287 1 17,189 24 722,485
85 7 237,346 16 521,534 2 63,377 25 822,257
86 6 207,684 12 344,051 0 0 18 551,735
87 8 255,737 10 277,988 0 0 18 533,725
88 6 183,454 9 249,121 0 0 15 432,575
89 5 153,021 5 127,433 1 23,403 11 303,857
90 3 95,378 8 240,545 0 0 11 335,923
Over 90 4 110,628 20 468,817 0 0 24 579,445
Total 2,292 $ 69,256,656 631 $16,071,055 137 $2,356,170 3,060 $87,683,881
SECTION 4.1 Page 27
SYSTEM MEMBERS (CONTINUED)
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 19 $ 275,316 0 0
40 9 117,099 0 0
41 9 122,397 0 0
42 5 52,514 0 0
43 3 54,698 0 0
44 4 62,203 0 0
45 8 125,352 1 $ 51,332
46 5 68,620 1 18,023
47 9 153,426 4 110,139
48 8 149,951 3 101,706
49 12 153,537 1 48,626
50 10 162,170 6 200,036
51 3 34,095 1 54,267
52 2 23,780 3 123,168
53 0 0 1 25,010
54 2 39,217 4 134,439
55 4 57,439 5 190,347
56 2 37,990 4 156,357
57 3 37,626 3 91,951
58 2 44,179 2 139,458
59 1 39,488 2 97,764
60 1 14,607 4 154,026
61 3 75,442 0 0
62 0 0 2 63,727
63 0 0 1 26,553
64 0 0 1 51,332
65 and Over 0 0 1 33,633
Total 124 $ 1,901,146 50 $ 1,871,894
SECTION 4.1 Page 28
SYSTEM MEMBERS (CONTINUED)
F. Member Statistics
Inactive Members as of July 1, 2011 Number
Amount of
Annual Benefit
Members Receiving Benefits
a. Retired 2,292 $ 69,256,656
b. Beneficiaries 631 16,071,055
c. Disabled 137 2,356,170
Total 3,060 $ 87,683,881
Members with Deferred Benefits
a. Terminated Vested 124 $ 1,901,146
b. Beneficiaries N/A N/A
c. Disabled N/A N/A
Total 124 $ 1,901,146
Deferred Option Plan Members 50 $ 1,871,894
Terminated Members with Refunds Due 583 N/A
Statistics for Active
Members
Number
Average
Age Service Earnings
As of July 1, 2010
a. Continuing 4,111 39.8 12.3 $ 58,984
b. New 194 30.6 1.0 36,599
Total 4,305 39.3 11.8 $ 57,975
As of July 1, 2011
a. Continuing 4,008 40.4 12.9 $ 59,915
b. New 360 30.7 2.3 38,470
Total 4,368 39.6 12.0 $ 58,148
SECTION 4.1 Page 29
SYSTEM MEMBERS (CONTINUED)
G. Data Tape Reconciliation
July 1, 2011 July 1, 2010
Tape Records Submitted
Records submitted 7,676 8,235
Not Eligible to Participate 0 0
Terminations/ No Benefits Payable (182) (127)
Denied Benefit 0 0
Data Corrections 0 0
Number Added 691(1) 0
Total Valued 8,185 8,080
(1) Records for 691 terminated members with contribution balances still held by the
System were provided on a supplemental file.
SECTION 4.2 Page 30
ACTUARIAL BASIS
A. Entry Age Actuarial Cost Method
The actuarial cost method is selected by the Board with the recommendation of the
actuary. Liabilities and contributions shown in this report are computed using the
Individual Entry Age method of funding. The System has used this cost method since at
least 1990.
Sometimes called “funding method”, this is a particular technique used by actuaries for
establishing the amount and incidence of 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 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.
B. Asset Valuation Method
The asset valuation method is selected by the Board with the recommendation of the
actuary. 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;
SECTION 4.2 Page 31
ACTUARIAL BASIS (CONTINUED)
B. Asset Valuation Method (continued)
• 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.
• Deferred Option Plan assets are included in the actuarial value. For all periods
following July 1, 2007, the Deferred Option Plan assets are subject to the same
smoothing method stated above. Prior to July 1, 2007, they were included at market
value but were not subject to the smoothing described above.
Besides the changes to the smoothing of Deferred Option Plan assets, the System has used
this method since at least 1998.
C. Valuation Procedures
No actuarial accrued liability is held for non-vested, inactive Members who have a break
in service, or for non-vested Members who have quit or been terminated, even if a break
in service had not occurred as of the valuation date. The actuarial accrued liability does
include a liability for non-vested terminations that have not taken a refund of their
accumulated contribution balance.
The wages used in the projection of benefits and liabilities are based upon the prior year’s
actual earnings increased by the salary scale.
In computing accrued benefits, average earnings were determined using actual pay
history.
No benefits are projected to be greater than the compensation limitation and dollar
limitation required by the Internal Revenue Code Section 401 and 415 for governmental
plans.
SECTION 4.2 Page 32
ACTUARIAL BASIS (CONTINUED)
C. Valuation Procedures (continued)
The calculations for the required state contribution are determined as of mid-year. This is
a reasonable assumption since the employer contributions, employee 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 of employees under assumed retirement age. This is a better
reflection of the overall expectations for the System.
The Entry Age Normal Funding Method has been adjusted for those members granted
prior service. The prior service is treated as occurring immediately before the
membership date. Level pay is assumed during this period before actual membership.
Entry Age costs are determined as if the member entered the System on the date the prior
service is assumed to have begun. This treatment reflects the extra cost of prior service
immediately in the accrued liability and preserves the relationship of normal cost to a year
of service accrual.
SECTION 4.2 Page 33
ACTUARIAL BASIS (CONTINUED)
D. Actuarial Assumptions
The actuarial assumptions are selected by the Board with the recommendation of the
actuary. The most recent experience study considered actual System experience for the
period July 1, 2002 through June 30, 2007.
Economic Assumptions
1. Investment Return 7.5%, net of investment expenses, per annum, compound
annually. The System has used this assumption since at
least 1984.
2. Earnings Progression Sample rates below:
Years of
Service
Inflation Merit Increase
% % %
1 3.0 16.00 19.00
2 3.0 12.00 15.00
3 3.0 6.75 9.75
4 3.0 6.25 9.25
5 3.0 5.75 8.75
6 3.0 5.50 8.50
7 3.0 5.00 8.00
8 3.0 4.25 7.25
9 3.0 4.10 7.10
10 3.0 3.90 6.90
15 3.0 2.90 5.90
20 3.0 2.00 5.00
SECTION 4.2 Page 34
ACTUARIAL BASIS (CONTINUED)
D. Actuarial Assumptions (continued)
Demographic Assumptions
1. Retirement Rates See table below:
Years of Service
Annual Rates of Retirement
Per 100 Eligible Members
20 25
21 10
22 10
23 15
24 20
25 30
26 15
27 15
28 15
29 25
30 100
2. Mortality Rates
(a) Active employees RP-2000 No Collar Healthy
(pre-retirement) Employees (Fully generational using Scale AA)
(b) Active employees RP-2000 Blue Collar Healthy
(post-retirement and Annuitant (Fully generational using Scale AA)
nondisabled pensioners) with age set back one year
(c) Disabled pensioners RP-2000 Blue Collar Healthy Annuitant
with age set forward 7 years
SECTION 4.2 Page 35
ACTUARIAL BASIS (CONTINUED)
D. Actuarial Assumptions (continued)
Demographic Assumptions (continued)
3. Disability Rates Graduated rates. See table below:
Age
Range
Annual Rate
20-24 .0002
25-29 .0004
30-34 .0008
35-39 .0008
40-44 .0012
45-49 .0012
50-54 .0012
55-59 .0012
4. Withdrawal Rates Graduated rates by years of service. See table below:
Service
Range
Annual Rate
0 .150
1 .120
2 .085
3 .070
4 .060
5-10 .040
11-15 .015
16-20 .010
Over 20 .000
5. Marital Status
(a) Percentage married: 85% of participants are assumed to be married.
(b) Age difference: Males are assumed to be three (3) years older than
females.
SECTION 4.2 Page 36
ACTUARIAL BASIS (CONTINUED)
D. Actuarial Assumptions (continued)
Other Assumptions
1. Assumed Age of Commencement
for Deferred Benefits: Age 50, or the date at which the participant would have
achieved twenty years of service, if later.
2. Provision for Expenses: Administrative Expenses, as budgeted by the Oklahoma
Police Pension and Retirement System.
3. Percentage of Disability: Members becoming disabled have a 25%-49% impairment.
4. Duty-Related Death: All active pre-retirement deaths are duty-related.
5. Cost-of-Living Allowance: Police officers eligible to receive increased benefits
according to repealed Section 50-120 of Title 11 of the
Oklahoma Statutes pursuant to a court order receive an
adjustment of 1/3 to 1/2 of the increase or decrease of any
adjustment to the base salary of a regular police officer,
based on an increase in base salary of 3%.
A 2% annual ad hoc increase has been removed effective
July 1, 2011 from assumptions upon passing of legislation
that requires the Oklahoma Legislature to fund all future ad
hoc cost-of-living increases.
6. Deferred Option Plan: Members currently participating in the Deferred Option Plan
(DOP) are assumed to remain in the DOP for the maximum
of five years. Active members leaving active service are
assumed to retroactively elect to join the DOP for the
maximum allowable period. DOP account balances are
assumed to accumulate at 7.75% (to reflect the interest rate
guarantee prior to retirement) and members are assumed to
elect a lump sum at retirement. All balances held in
Deferred Option Payout Accounts are assumed to be paid
immediately.
SECTION 4.3 Page 37
SUMMARY OF SYSTEM PROVISIONS
Effective Date and Plan Year: The System became effective January 1, 1981 and has
been amended each year since then. The plan year is
July 1 to June 30.
Administration: The System is administered by the Oklahoma Police
Pension and Retirement Board consisting of thirteen
Members. The Board shall be responsible for the policies
and rules for the general administration of the System.
Type of Plan: A defined benefit plan.
Employers Included: An eligible employer may join the System on the first day
of any month. An application of affiliation must be filed
in the form of a resolution before the eligible municipality
can become a participating municipality.
Eligibility: All persons employed full-time as officers working more
than 25 hours per week or any person undergoing police
training to become a permanent police officer with a
police department of a participating municipality, with
ages not less than twenty-one (21) nor more than forty-five
(45) when accepted for membership.
Service Considered: Credited service consists of the period during which the
Member participated in the System or predecessor
municipal plan as an active employee, plus any service
prior to the establishment of the municipal plan which was
credited under the predecessor municipal systems or
credited service granted by the State Board, plus any
applicable military service.
Salary Considered: Base salary used in the determination of benefits does not
include payment for accumulated sick and annual leave
upon termination of employment or any uniform
allowances.
Final average salary means the average paid base salary
for normally scheduled hours of an officer over the
highest 30 consecutive months of the last 60 months of
credited service.
SECTION 4.3 Page 38
SUMMARY OF SYSTEM PROVISIONS (CONTINUED)
State Contributions: Insurance premium tax allocation. Historically, the
System has received 14% of these collected taxes. For
the fiscal years beginning July 1, 2004 and ending June
30, 2009, the System received 17% of these collected
taxes. For the fiscal year beginning July 1, 2009 and
each fiscal year thereafter, the System received 14% of
these collected taxes. Beginning in fiscal year
July 1, 2006, the System began receiving 26% of a
special allocation established to refund the System for
reduced allocations of insurance premium taxes resulting
from increases in insurance premium tax credits.
Beginning in fiscal year July 1, 2010, the amount of
insurance premium tax apportioned to the System will be
applied prior to the calculation of the Home Office Credit.
Municipality Contributions: Contribution is thirteen (13%) percent as of July 1, 1996.
Member Contributions: Eight (8%) percent of base salary. These contributions
shall be “picked up” after December 31, 1988 pursuant to
Section 414(h)(2) of the Internal Revenue Code.
Normal Retirement Benefit:
Eligibility: 20 years of credited service.
Benefit: 2 1/2% of the final average salary multiplied by the years
of credited service, with a maximum of 30 years of
credited service considered.
Form of Benefit: The normal form of benefit is a Joint and 100% Survivor
Annuity if the Member has been married 30 months prior
to death.
Cost-of-Living Adjustments: Police officers eligible to receive increased benefits
according to repealed Section 50-120 of Title 11 of the
Oklahoma Statutes pursuant to a court order shall receive
an adjustment of 1/3 to 1/2 of the increase or decrease of
any adjustment to the base salary of a regular police
officer.
Termination:
Less Than 10 Years of Service: A refund of contributions without interest.
SECTION 4.3 Page 39
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
later of the date the Member would have had 20 years of
service or attained age 50 in an amount equal to 2 1/2%
of the final average salary multiplied by the years of
credited service. The Member may elect a refund of
contributions instead of the retirement benefit.
Disability Benefit (Duty): Total Disability
Upon determination of total disability incurred as a result
of the performance of duty, the normal disability benefit
is 50% of final average salary.
Partial Disability
Upon determination of partial disability incurred as a
result of the performance of duty, the normal disability is
reduced according to the percentage of impairment, as
outlined in the “American Medical Association’s Guide to
the Evaluation of Permanent Impairment.” The following
shows the percent of normal disability benefit payable as
related to the percent of impairment.
% Impairment % of Benefit
1% to 49% 50%
50% to 74% 75%
75% to 100% 100%
Disability Benefit (Non-Duty): Upon determination of disability after 10 years of service
due to causes other than duty, the benefit equals the
accrued benefit of 2 1/2% of final average salary times
years of credited service (maximum of 30 years) times:
SECTION 4.3 Page 40
SUMMARY OF SYSTEM PROVISIONS (CONTINUED)
• 100%, if permanent and total, or
• the following percentages, if partial disability.
1% to 24% 25%
25% to 49% 50%
50% to 74% 75%
75% to 99% 90%
Death Benefits Payable
to Beneficiaries:
Prior to Retirement (Duty): The greater of:
1) 2 1/2% of final average salary times years of credited
service (maximum of 30 years), or
2) 50% of final average salary.
Prior to Retirement
(Non-Duty): After 10 years of service, a benefit equal to 2 1/2% of
final average salary times years of credited service
(maximum of 30 years).
Prior to 10 years of service, a refund of the accumulated
contributions made by the Member will be paid to the
estate.
After Retirement: 100% of the Member’s retirement or deferred vested
benefit, payable when the Member would have been
eligible to receive it, payable to the beneficiary.
Death Benefit: The beneficiary shall receive a death benefit amount of
$5,000.
Beneficiary: Surviving spouses must be married to the member for 30
continuous months prior to the date of death (waived in
the case of duty related death).
SECTION 4.3 Page 41
SUMMARY OF SYSTEM PROVISIONS (CONTINUED)
If the beneficiary is a child, the benefits are payable to age
18, or 22 if a full-time student.
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 (DOP). Participation in the DOP shall
not exceed five years. The employees’ contributions cease
upon entering the Plan, but the employer contributions are
divided equally between the System and the DOP. The
monthly retirement benefits that the employee is eligible to
receive are paid into the DOP account.
A member is also 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.
When the Member actually retires from active service, the
DOP account balance may be paid in a lump sum, to an
annuity provider, or transferred to a Deferred Option Payout
Account. Monthly retirement benefits are then paid directly
to the retired Member.
The original Plan became effective during the
July 1, 1990 to June 30, 1991 Plan Year with the back-drop
and Payout Account provisions added subsequently. The
DOP account of an active member is guaranteed a minimum
of the valuation interest rate for investment return, or 2%
less than the fund rate of return, if greater. If the balance is
transferred to a Payout Account upon retirement, the account
is credited with interest at a rate of 2% below the total fund
net earnings if the fund returns more than 2%. If the fund
realizes negative returns, the account is reduced at a rate
equal to the fund net earnings. Alternatively, if the fund
realizes a positive return of less than 2%, the account is
credited with a rate of zero.