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137.00.1-12. Premium Tax Turnback Allocation

AR ADC 137.00.1-12Arkansas Administrative Code

West's Arkansas Administrative Code
Title 137. Lopfi-Local Police and Fire Retirement System
Division 00.
Rule 1. Arkansas Fire & Police Pension Review Board Rules and Regulations
Ark. Admin. Code 137.00.1-12
137.00.1-12. Premium Tax Turnback Allocation
Currentness
A.C.A. 24-11-101 et. seq., as amended by Act 979 of 2011, affects the allocation of premium taxes that are to be turned back to Qualified Locations to defray a portion of the employer contributions to the Local Plans and to LOPFI. The Arkansas Fire and Police Pension Review Board (PRB) is authorized to determine the Qualified Locations and their eligibility to receive an allocation.
Section 1. Definitions
A. Actuarial Cost for Local Plans- The Actuarial Cost is the basis for the allocation of premium tax as provided in A.C.A. 24-11-214(b)(2). The Actuarial Cost for Local Plans is calculated using the Base Benefits of the Local Plan. The assumptions used in determining this Actuarial Cost are not necessarily the assumptions used in the actuarial valuations of the Local Plans. The actuarial assumptions and methods will be recommended by the actuary assigned to complete the premium tax allocation and approved by the PRB.
B. Additional Allocation- The Additional Allocation is described in A.C.A. 24-11-217. Beginning in 2012, the Additional Allocation will be calculated and allocated to certain qualified Underfunded Plans as provided in Section 9 of this rule.
C. Base Benefits- The Base Benefits for Local Plans are the minimum benefits defined in the pertinent law:
1. For paid service benefits, 50% of final salary plus an additional $20 per month for years of service 21 through 25 (with a maximum of an additional $100), plus 1.25% of final salary for years of service over 25 at age 60. For volunteer benefits, $100 per month plus $10 per month additional for years of service 21 through 25 (with a maximum of an additional $50).
2. For non-duty disability benefits, computed the same as a normal service retirement. Duty disability benefits are computed at 65% of final salary.
3. For death benefits, the surviving spouse paid same amount the member received at the time of his/her death, excluding the Age 60 bonus of 1.25%. For volunteer fire plans, each eligible child paid $25 per month. For paid fire plans, each eligible child paid $125 per month. For police plans, eligible children paid an aggregate $350 per month.
D. Certified Location- A Qualified Location will have its area established by the legal description of its metes and bounds. (The legal description does NOT include areas covered by mutual aid agreements.) This will be completed by the UALR Census State Data Center.
The mayor or qualified representative (police locations) must certify the accuracy of the legal description information. The fire coordinator of the city, town, or fire protection district will make the certification for fire locations. The population information for each fire and police location must be certified by the Census State Data Center. After the Executive Director receives both of these certifications a Qualified Location becomes a Certified Location.
E. Eligible Location (In Compliance)- A Certified Location that is in compliance with the laws governing Local Plans and the rules promulgated by the PRB will be eligible to receive an allocation. An Eligible Location is a Certified Location that is NOT a Non-Complying Location. A location that sponsors LOPFI coverage is considered eligible if it is not delinquent according to LOPFI rules.
F. Fire Allocation Fund- This is the portion of the Firemen's and Police Officers' Pension and Relief Fund attributable to the percentages of the lines of insurance assigned to firefighter funds.
G. Firemen's and Police Officers' Pension and Relief Fund- This term is defined in A.C.A. 24-11-301 and A.C.A. 24-11-809. This is the combination of the percentages of the assigned lines of insurance premium tax for both fire and police.
H. General Revenue Allocation Fund- This is the portion of the Police Allocation Fund and the Fire Allocation Fund that will not be distributed to locations and will be returned to general revenues.
I. Insurance Tax Revenues- A.C.A. 24-11-203 (k) and A.C.A. 24-11-214 (k) allow up to 1% to be taken from Insurance Tax Revenues for PRB administration and an additional 1% of Insurance Tax Revenues for premium tax allocation expenses. The Insurance Tax Revenues will be defined as the Firemen's and Police Officers' Pension and Relief Fund.
J. Local Plan- A plan authorized under A.C.A. 24-11-401 et. seq., or A.C.A. 24-11-801 et.seq., whether locally administered or consolidated with LOPFI.
K. Non-Complying Location- A Certified Location that is not complying with the laws governing Local Plans and rules promulgated by the PRB or LOPFI will be certified by the Executive Director to be a Non-Complying Location. The PRB may find a location in noncompliance for any of the following reasons:
1. Failure to file a complete annual report of financial and participant information on the form provided by the PRB by March 31 of each calendar year. This date may be extended by the Executive Director, but in no case will it be extended beyond May 15.
2. An annual report that does not balance or does not properly track participant information will not be considered a complete report and must be corrected by the compliance date.
3. Failure to pay benefits at the rate provided by law, or paying a benefit increase that has not been approved by the PRB. This includes administration of DROP accounts not in compliance with PRB Rule 10.
4. Other failures to comply with A.C.A. 24-11-101 et. seq., and the PRB rules.
5. A location that sponsors LOPFI coverage that is delinquent according to LOPFI rules.
6. A location that does not provide the certifications needed to be a Certified Location will be treated as a Non-Complying Location. These certifications must be provided to the Executive Director by March 31 of each calendar year, unless extended by the Executive Director.
L. Police Allocation Fund- This is the portion of the Firemen's and Police Officers' Pension and Relief Fund attributable to the percentages of the lines of insurance assigned to police funds.
M. Qualified Location- A city, town, or fire protection district that sponsors a local fire or police pension plan or is a member of LOPFI is qualified. A location remains qualified as long as it continues its pension coverage. The Executive Director will update the list of Qualified Locations by December 15 of each year.
N. Underfunded Plans- A Underfunded Plan, as described in A.C.A. 24-11-217, will be any Local Plan whose assets are less than its liabilities. The determination of the liabilities will be based on the same assumptions used to determine the Actuarial Cost for the plan. The assets used for this determination will be the actuarial (funding) value of assets reported in the respective actuarial valuation.
Section 2. Allocation Report
The actuary for the PRB will present an allocation report to the PRB by June 15 of each year. This report will show the distribution of the entire Firemen's and Police Officers' Pension and Relief Fund. After approval by the PRB, the allocation report will be forwarded to the Department of Finance and Administration to request the distributions contained in it. The allocation report will contain at least the following items:
1. The amount of the Fire Allocation Fund and Police Allocation Fund.
2. The amount of the Fire and Police Allocation Funds to be distributed to Fire and Police locations and the General Revenue Allocation Fund, reflecting applicable minimums.
3. The amount allocated to each Certified Location and which Certified Locations are eligible to receive their allocations.
4. The amount allocated to each Certified Location split between the Local Plan and the LOPFI portion as defined in A.C.A. 24-10-409.
5. Non-Complying Locations and the amount each would receive upon making corrections per Section 3 below.
6. The amount of the PRB administrative costs and the premium tax allocation expenses.
7. The amount of the Fire Protection Fund division.
8. The amount to be allocated to the Additional Allocations, Police Supplement Fund, Fire and Police Future Supplement Funds, and State Police Retirement System.
Section 3. Non-Complying Locations - Corrections
A Non-Complying Location will be able to correct any issues of noncompliance and be approved for an allocation of premium taxes after the date of the allocation report. The process to effect this correction is as follows:
1. The PRB will notify each Non-Complying Location by certified mail of the areas of non-compliance and the amount of premium tax allocation to be withheld from each fund associated with the Non-Complying Location. This notification will be made on or about June 15.
2. The Non-Complying Location must correct the areas of non-compliance and submit a letter to the PRB stating the nature of the correction and asking to receive an allocation. The corrections must be made by August 15 and the letter must be received by the Executive Director by August 15.
3. If the non-compliance issue is resolved with the Executive Director, the Non-Complying Location will be recommended for an allocation at the PRB's September Board meeting.
4. If the compliance issue cannot be resolved with the Executive Director, then a local board member or city representative must appear at the PRB's September Board meeting to demonstrate that it has fully resolved the areas of noncompliance.
If the Non-Complying Location does not demonstrate that it has fully resolved the areas of noncompliance on or before its appearance at the PRB's September Board meeting then the premium tax allocated to every fund associated with that location--including Police and Fire Local Plans, Police Supplement, Fire and Police Future Supplement Funds, Additional Allocation and LOPFI--is forfeited for that year. The amount of that forfeited allocation will be added to the next year's Police Allocation Fund (for police locations) or Fire Allocation Fund (for fire locations). This would be added back at the point after the division to the General Revenue Allocation Fund and before the allocation to individual locations.
Section 4. Changes in Location Status
A. The Executive Director may add new Qualified Locations by December 15 of each year. A Certified Location continues in the allocation formula with the same area and population for the 10-year census period. The area of a Certified Location may change over the course of the 10-year census period. These changes may occur through annexation, deannexation, dissolution, or other possible area changes. Therefore, if these changes are reported and documented to the Executive Director by December 15 of a year, then a location can become certified using the changes in area and population in the next year's allocation report.
B. Only annexations certified by the Secretary of State's office will be accepted as changes to the boundaries of an incorporated city or town. The date of certification must be before December 15 for the city to be considered an eligible location for that allocation period. Proof of the certified annexation shall be submitted by the city to the Census State Data Center as soon as possible after certification by the Secretary of State to ensure that the map reflects the current and correct boundaries. A copy of the same items required by the Secretary of State's office shall be provided to the Census State Data Center. These items include:
1. Petition order from the county containing the legal description of the property and the names of the property owners.
2. A decree of annexation.
3. The city ordinance.
4. Plat map.
5. Letter from the Secretary of State that these items have been received, accepted and certified by their office.
6. Similar requirements would exist for other changes affecting an incorporated place (such as a new incorporation).
C. If a location does not provide the documentation for an annexation or other change and the location has a previously certified map of the location, the previously certified map and area will be used in the allocation report.
Section 5. Overlapping Locations
There may be situations where locations certify maps where part of the area in those maps overlap. The locations and Forestry Commission will be notified of the overlap. The locations are encouraged to work together and with the Forestry Commission to resolve these situations.
Section 6. Division of a Location's Premium Tax between Local Plan and LOPFI
The premium tax allocated to a location is to be used for the location's local fire or police pension and relief fund and LOPFI. This division is defined in A.C.A. 24-10-409. This calculation will be done as part of the allocation report defined in Section 2 of this rule and using the following considerations:
1. The number of participants used in making the calculation will be the number of participants on the December 31 preceding the year of the allocation.
2. The number of participants will include active members, retirees and beneficiaries, and members on the DROP for both Local Plan and LOPFI-only.
3. The number of participants will not include members of LOPFI who are vested terminated participants.
4. A paid participant will count as 5 volunteer participants for this division.
5. The amount of the division will not be more than 100% of the cost used in the allocation as defined in 24-11-214. For example, a location is allocated with $5,000 and the division is $2,000 Local Plan and $3,000 LOPFI, but the cost for allocation purposes of LOPFI is only $2,300, then the division is $2,700 Local Plan and $2,300 for LOPFI.
The amount of the division for LOPFI locations and local fire and police plans administered by LOPFI will be paid directly to LOPFI.
Section 7. Transition Period 2012 - 2015 Allocations
Act 979 of 2011 added A.C.A. 24-11-214(l) which defines the percentage of the LOPFI-only cost that premium tax is allocated to cover. This subsection also states that during this transition period the Actuarial Cost less the allocation amount may not increase in any one year by more than one percent of payroll. The following steps will be used to accomplish this goal:
A. A Location Cost Percentage will be determined for each location. This amount will be the 2011 Actuarial Cost less the 2011 allocation of premium tax, all divided by the salary amount used in the 2011 allocation.
B. The Location Cost Percent will be based on the LOPFI-only paid service cost. That is, the additional cost of the consolidated Local Plan will not be included.
C. For 2012 - 2015, a Location Cost Percentage will be determined based on that year. It will be compared to the 2011 Location Cost Percentage.
D. If the Location Cost Percentage for 2012 is more than 1% above the 2011 Location Cost Percentage, the allocation will be increased until it is only 1% more. The percentage for 2013 is 2%, 2014 is 3% and 2015 is 4%.
E. The increased allocation described in D will be funded by setting a minimum on the difference in the Location Cost Percentage versus the previous year for all locations.
F. If there is not sufficient premium tax to accomplish the reallocation described in step E, then the percentage in step D will be increased to balance.
G. Any location that adopts LOPFI coverage in 2011 or later is not subject to the transition period rules.
Section 8. Payment to Local Plan when an Excess Subsidy Account Exists
The amount calculated for each Subsidy Account was determined using the 1997-2002 premium tax distributions and costs for each Local Plan and LOPFI. With the June 2012 premium tax distribution, all locations will have a calculated balance of zero for their Subsidy Account. If a location has an actual balance after June 2012, the location may transfer all or a portion of the balance to their Local fire and/or police Plan, but only after written approval of the PRB. In all cases, monies in a Subsidy Account can only be used for the retirement costs of that location's fire or police pension plan and/or LOPFI.
Section 9. Additional Allocation
As provided in A.C.A. 24-11-217, beginning with the 2012 allocation, Local Plans meeting eligibility requirements will receive an Additional Allocation. The Additional Allocation is calculated so that no Local Plan will receive less than it would have received under the Guarantee Fund during the transition period of 2012-2015. After the 2015 Allocation, no Guarantee Fund calculation will exist.
A. Eligibility for Additional Allocation. An Underfunded Plan will be considered eligible for an Additional Allocation if the Local Plan is in compliance with this rule and the previous year's employer contributions (other than premium tax allocation) were at least 80% of the Actuarial Cost.
B. Amount of Additional Allocation. An eligible Underfunded Plan will receive 10% of the plan's Actuarial Cost. For allocation years 2012 through 2015, the Additional Allocation will be no less than the amount that previously would have been provided by the Guarantee Fund as described in A.C.A. 24-11-209.
C. Transition. During the 2012 through 2015 allocations, the following transition rule will ensure that a Local Plan receives at least the amount that would have been allocated before Act 979 of 2011. If a Local Plan is not eligible for an Additional Allocation under Section 9(A), above, but would have been eligible for the assistance described in A.C.A. 24-11-209, the Local Plan will receive an allocation in the amount that would have been calculated under A.C.A. 24-11-209.
D. Reduction of Additional Allocation. The Fire Allocation Fund and the Police Allocation Fund must cover specific funding of the following items within the allocation formula before the Additional Allocation:
1. 40% LOPFI-only cost, 30% Local Plan (including Consolidation) cost, and 100% LOPFI-only volunteer cost after the required employer contribution.
2. Premium tax allocation expenses.
3. Police Supplement, Future Supplement Fire and Future Supplement Police.
4. Fire Protection Fund, State Police Retirement System, and at least $4 million to state general revenue.
If the amount returned to general revenue is not at least $4 million, the Additional Allocation will be reduced proportionately.

Credits

Adopted Sept. 28, 1983; Amended Mar. 15, 1984; Amended Apr. 30, 1987; Amended Mar. 20, 1991; Amended Mar. 15, 1993; Amended Dec. 12, 1996; Amended Sept. 25, 2001. Amended Jan. 1, 2015.
Current with amendments received through February 15, 2024. Some sections may be more current, see credit for details.
Ark. Admin. Code 137.00.1-12, AR ADC 137.00.1-12
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