Pension system cuts projected annual return

The Arkansas Local Police and Fire Retirement System’s trustees Thursday cut the system’s projected annual investment return from 7.75 percent to 7.50 percent a year, even though the system’s actuary advised them that the lower level isn’t reasonable.

Then the trustees learned from its investment consultant that the system’s investments increased in value last quarter by $77.2 million to $1.93 billion with the assistance of rising stock markets. The investments earned a return of 3 percent.

The system’s investment return for the year that ended June 30 is 11.46 percent and its average return for the fiveyear period that ended June 30 is 8.6 percent a year, said Larry Middleton, executive vice president of Stephens Inc.

The system’s unfunded liabilities totaled about $500 million as of Dec. 31, 2016, in the last actuarial valuation, and the projected payoff period is 16.8 years, Executive Director David Clark said. Actuaries often compare unfunded liabilities to a mortgage on a house.

System employers paid $98.5 million into the system and members contributed $22.2 million last year, Clark said. The system included 6,551 working members with an average annual salary of $49,764 and 7,391 volunteer members last year, Clark said. It also included 4,906 retired members with an average annual benefit of $12,828 last year. The average annual benefit paid to retirees who were paid employees was $22,272 and the average annual benefit for retirees who were volunteers was $1,128.

Trustee John Neal of Harrison made the motion to trim the projected return to 7.5 percent.

The action came after actuary David Hoffman said expectations for an average investment return of 7.25 percent are reasonable. A projected return of 7.5 percent a year “can’t be justified” for the system, said Hoffman, who works for the Gabriel, Roeder, Smith & Co. actuarial firm of Southfield, Mich. Gabriel officials said the same in a memo dated Nov. 20 to the system’s trustees.

Using either a projected investment of 7.25 percent or 7.5 percent a year wouldn’t have an immediate effect on the rate charged to employers, with next year’s rate averaging 21.9 percent of employers’ payroll under either scenario, Hoffman said.

This year’s average rate charged to employers is 21.04 percent, Clark said after Thursday’s meeting. He said he doesn’t have information about how much more money the higher average rate will raise because “the majority of employers still have different contribution rates. It will be a few more years before every location is at a single uniform rate.”

But Neal, the trustee, said he felt more comfortable with cutting the return by a quarter of a percent rather than a half of a percent.

Trustee Scott Baxter of Jonesboro said the long-term investment return is more than 7.5 percent a year and investments have increased in value from $1.4 billion to $1.9 billion in recent years. The average return is 9.04 percent a year over the past 34 years, Clark said after the trustees’ meeting.

Neal told his fellow trustees, “I feel like we are being arm-twisted nationally” by actuaries and others pressing public pension systems to cut their projected return.