Actuarial valuation report 2010/11 |
Previous | 1 of 12 | Next |
|
small (250x250 max)
medium (500x500 max)
Large
Extra Large
large ( > 500x500)
Full Resolution
|
This page
All
|
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.
Object Description
Okla State Agency | Police Pension and Retirement System, Oklahoma |
Okla Agency Code |
'557' |
Title | Oklahoma Police Pension and Retirement System actuarial valuation report |
Authors |
Oklahoma Police Pension and Retirement System. Oklahoma Police Pension and Retirement Board. Buck Consultants, Inc. |
Publisher | Oklahoma Police Pension and Retirement System |
Publication Date | 2002; 2003; 2004; 2006; 2007; 2008; 2009; 2010; 2011 |
Publication type | Financial Report |
Serial holdings | Electronic holdings: 2002-2004, 2006-2011 |
Subject |
Oklahoma Police Pension and Retirement System--Periodicals. Police--Pensions--Oklahoma--Periodicals. |
Notes | issues through 2011 |
OkDocs Class# | P2000.3 A188v |
For all issues click | P2000.3 A188v |
Digital Format | PDF, Adobe Acrobat required |
ODL electronic copy | Downloaded from agency website: www.opprs.ok.gov |
Rights and Permissions | This Oklahoma state government publication is provided for educational purposes in accordance with U.S. copyright law. Other usage requires permission of copyright holders. |
Language | English |
Date created | 2014-08-21 |
Date modified | 2014-08-21 |
OCLC number | 192176219 |
Description
Title | Actuarial valuation report 2010/11 |
OkDocs Class# | P2000.3 A188v 2010/11 |
Digital Format | PDF, Adobe Reader required |
ODL electronic copy | Downloaded from agency website: http://www.ok.gov/OPPRS/documents/OPPRS%202011%20Actuary%20Valuation.pdf |
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 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. |
Date created | 2011-10-14 |
Date modified | 2011-10-27 |