137.00.1-13. Minimum Asset Management Standards
AR ADC 137.00.1-13Arkansas Administrative Code
Ark. Admin. Code 137.00.1-13
137.00.1-13. Minimum Asset Management Standards
Act 851 of 2007, codified as A.C.A. 24-11-216, establishes minimum asset management standards for Local Plans subject to the jurisdiction of the PRB and directs the PRB to promulgate rules as necessary to implement the statute.
The “rate of return earned by the local pension and relief fund” shall mean the market rate of return, which shall be calculated using the following formula and definitions:
Market Rate of Return = (2 x II) / (A + B - II)
A = Beginning of the year Market Value of Assets
B = End of the year Market Value of Assets
Income = Non-Investment Income of the plan (e.g. millage, premium tax, etc.)
Benefits = Benefits and administrative expenses of the plan
II = Market Investment Income
= B - A - Income + Benefits
The Rate of Return will be determined by the PRB and reported in the valuation reports.
The three (3) year average rate of return and the phrase “over the most recent three (3) year period” is defined as the arithmetic mean of the Rate of Return as defined in Section 1(A) of this rule. For example, if a Local Plan had Rates of Return of 4.5%, 6.2%, and 5.2% in 2004, 2005 and 2006 respectively, then the Three Year Average Rate of Return would be 5.3% ((4.5 + 6.2 + 5.2)/3).
The term Actuarially Sound is defined in PRB Rule 4. If a Local Plan is considered Actuarially Sound by virtue of a Cash Flow Projection Valuation or Alternate Cash Flow Projection Valuation as defined in that rule, then they will be considered to remain Actuarially Sound until the next regular actuarial valuation, cash flow study, or alternate cash flow study is released.
The “rate of return for one (1) year United States Treasury notes over the most recent three-year period” is defined to be the arithmetic mean of the 36 months closing yield on “U.S. Treasury securities at 1-year constant maturity,” as this term is commonly used by the Federal Reserve and investment professionals. The 36 months average will be calculated using the December 31 closing yield of the year of measurement and the 35 preceding months. The PRB will determine the 36 months closing yield from Bloomberg or another similarly authoritative standard investment community source.
For purposes of this rule, the term “compliance under § 24-11-202” shall have the same meaning as “Eligible Location (In Compliance)” as defined in PRB Rule 12. The list compiled in accordance with PRB Rule 12 will therefore also serve to determine which Local Plans are not “in compliance” for purposes of this rule.
Along with the annual financial report required to be filed with the PRB, the Local Plan must include verification by the chairperson of the local board of trustees that the Local Plan has a legally constituted board of trustees that meets at least twice annually. The PRB will make the final determination of compliance with this section.
If the PRB determines that a Local Plan does not meet the minimum asset management standards as required by law, it will notify the Local Plan and sponsoring municipality of its determination and identify the steps necessary to comply with the minimum standards established by law. The PRB will also require the Local Plan to establish a written investment policy which must address the following areas:
The PRB will provide a sample Written Investment Policy for consideration.
The Local Plan must file a copy of the written investment policy and any amendments or changes to that policy with the PRB within fourteen (14) days of their adoption.
If the PRB determines that a Local Plan does not meet the minimum asset management standards as required by law, it will notify the Local Plan and sponsoring municipality of its determination and identify the steps necessary to comply with the minimum standards established by law. The PRB will also require the Local Plan to obtain professional investment management which includes, at a minimum, the following services:
The Local Plan must file a copy of the professional investment management contract and any amendments or changes to that contract, including a description of the services to be provided, with the PRB within fourteen (14) days of its execution.
If a Local Plan does not meet the minimum asset management standards and then does not create a written investment policy and hire professional investment management within six months of notification, then they must file a Written Plan of Action. The Written Plan of Action must be developed in conjunction with the PRB and its staff. The Written Plan of Action will at a minimum address the following items:
The PRB will provide a sample Written Plan of Action for consideration.
If the Local Plan does not meet the minimum asset management standards they must create a written investment policy and hire professional investment management. The PRB will consider the Local Plan out of compliance if these are not provided to the PRB within six months of notification.
A Local Plan will continue to be considered out of compliance with this law until a Written Plan of Action is implemented by the Local Plan and accepted by the PRB.
A Local Plan that is out of compliance will risk the loss of all Premium Tax Turnback for the Local Plan and the sponsoring location as provided by Arkansas law and PRB Rule 12.
A Local Plan that is out of compliance with this law may appeal the findings of staff used to reach that decision to the entire PRB at its next regularly scheduled or specially called meeting.
If a Local Plan and the sponsoring location's Premium Tax Turnback is withheld because of noncompliance, the Local Plan may appeal that decision to the PRB under the steps found in PRB Rule 12.
Credits
Adopted Dec. 12, 1983. 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 137.00.1-13, AR ADC 137.00.1-13
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