The Arkansas Public Employees Retirement System

The Arkansas Public Employees  Retirement System


George Brezeal,
Team Chairman



Team Members:


Tom Dober
Tom Easterly
Mel Ingram
Jerry Watkins



Ill Center Street, Stephens Building, Suite 1610, Little Rock, Arkansas 72201
501-376-9967 FAX: 501-376-6556






       The Arkansas Public Employees Retirement System (APERS) Review Team was chaired by George E. Breazeal and comprised the following members: Tom Dober, Tom Easterly, Mel Ingram and Jerry Watkins. On June 12, 1997, the Review Team met with staff of APERS to become better informed about functions the Agency performs, to ask questions of the Executive Director and his staff, and to collect data.

       The following information was provided the Review Team.

1. Annual Reports for the years ended June 30, 1997 and 1996 for the Public Employees Retirement System (PERS), the Arkansas State Police Retirement System (SPRS), and the Arkansas Judicial Retirement System (JRS).
2. Annual actuarial evaluations for the three Systems at June 30, 1997 and June 30, 1996 that included a summary of benefit provisions for each System.
3.  Number and title of each regulation issued by the Board of Trustees for each System.
4.  Legislative Audit Report for PERS at June 30, 1996.
5.  Copies of all legislation passed in the 1997 legislative
6.  Session pertaining to the three Retirement Systems.
7.  Copies of the investment policy for each of the three Retirement Systems.
8.  Copy of the investment code for Arkansas’ five retirement systems.

      Five Review Team meetings were held to discuss the material provided by the Agency. The Chairman met twice with the Executive Director and Assistant Director to seek answers to questions about the information furnished and to queries by Team members.


     APERS was created by Act 177 of 1957. PERS originally provided for the retirement of state employees only, but through the years has added county employees (Act 42 of 1959), municipal employees (Act 64 of 1961), college and university employees (Act 149 of 1963), non-teaching public school employees (Act 63 of 1965), and other governmental entities (Act 286 of 1993 and Acts 398 and 1992 of 1995). Effective July 1, 1989 (Act 653 of 1989), all newly-hired public school employees are enrolled in the Teacher Retirement System.

     APERS currently has 41 employees with an authorized complement of 47. Administrative expenses were $4,144,229 in fiscal ’95, $4,644,154 in ’96, and $3,770,926 in ’97. They are estimated to be $3,800,000 in ’98. The decline in ’97 and ’98 is due to completion of a consultant’s contract and reduced data processing fees. Salaries and benefits were $1,452,070 in ’95, $1,471,390 in ’96, and $1,526,712 in ’97 with ’98 estimated at $1,680,000. APERS administers PERS, SPRS, and JRS. Offices of the Executive Director and his staff are located in One Union National Plaza, 124 West Capitol, in Little Rock. PERS owns this building and also the Atkins Building nearby. Investment in these two buildings is $17,592,593. For the year ended June 30, 1998, operating revenues from the buildings exceeded operating expenses by $292,403.

     Each of the three Retirement Systems administered by APERS has a Board of Trustees that exercises administrative direction and control over the Executive Director and his staff, and publishes rules, regulations, and polices deemed necessary in transacting business and administering the Systems. The Board for PERS is composed of three state and three non-state employees who have ten years of service with a public employer and are members or retired members of the System. The State Auditor, State Treasurer, and Director of Finance and Administration serve as ex-officio members. Members are appointed by the Governor to staggered six-year terms. This Board appoints the Executive Director who reports to the Boards of each of the Systems.

    The PERS Board has three committees, each with three members appointed by the Chair–Administrative and Budget, Finance, and Retirement Committee. In addition, there is an Executive Committee consisting of the Chair, Vice-Chair, and the Chairs of the other committees.

     The Judicial System Board has five members appointed by the Judicial Council. The State Police System has five members–one elected by the Retired Troopers Association and four by the members of the State Police System. The Director of the State Police and the Chairperson of the State Police Commission serve as ex-officio members.

     Members of each Board of Trustees serve without pay but are reimbursed for all actual and necessary expenses. The Executive Director at the time of our visits died of cancer on January 17, 1998. He was a CPA and had held the position since July 1, 1985. The Assistant Director since October 1985 was appointed Executive Director in April 1998.

     By far, the largest expenditure by APERS is the monthly payments to retirees. Other expenditures include investment expenses, and expenses of the Executive Director and his staff. A summary of expenditures for the year ended June 30, 1997 follows.



Benefit Payments $82,558,4626,308,2962,996,659
Investment Expenses10,746,407831,987103,248
Refunds of Contributions1,011,382_28,195
Administrative Expenses3,770,92652,298  31,634
 $98,087,177 $7,192,581$3,159,736

     The SPRS paid $27,550 and the JRS $16,500 to APERS for administrative services in fiscal 1997. PERS paid the balance of APERS’s expenses. APERS follows normal state budgeting procedures, but its expenditures are funded from PERS Trust Fund.

     The agency has a network of personal computers which also has access to the state’s mainframe.


     The mission of APERS is to manage PERS, SPRS and JRS in a manner that will insure that the Systems can provide present and future retirement or survivor benefits for their 56,000 plus members. Preservation of capital is of paramount importance and the agency makes every effort to manage the Systems so that benefits will be paid from earned income and not from contributions or anticipated appreciation of investments. At June 30,1997, PERS was overfunded by $269 million, mostly the result of investment returns exceeding the assumed rate of 7.75, SPRS had an unfunded liability of $26.1 million and the Judicial System, $2.9 million. The 1997 legislative session provided for amortization of SPRS’s unfunded liability over 25 years by transfers of insurance premium taxes.

The Agency’s primary responsibilities are:

1. Determining eligibility and enrolling new members.
2. Recording service credit and contributions and maintaining individual records for each member.
3. Counseling members and retirees.
4. Computing and paying benefits to retirees, survivors, and beneficiaries.
5. Collecting employee/employer contributions from over 700 employers.
6. Investing contributions and earnings which totaled $220.6 million, excluding investment gains, for fiscal ’97. At June 30, 1997, the market value of the net assets of the three Systems was approximately $3.4 billion.

Contributions, earnings and net assets by System are summarized below (in thousands of dollars).


Year ended June 30, 1997    
 Contributions$82,586 6,1115,999
 Interest and Dividends115,9147,5692,426
 Net Appreciation in Market   
 Value of Plan Investments296,95613,997 8,188
At June 30, 1997    
 Net Assets for Pension   
 Benefits at Market Value$3,199,864172,70971,852


7. Maintaining an accounting system for all fiscal activities.
8. Monitoring the investment activity of money managers for compliance with state law and Board policies.
9. Maintaining the plans’ qualified status by insuring that all federal requirements are met.

     Separate records are maintained for all aspects of each of the Retirement Systems. Funds are not commingled for investment purposes.

     APERS publishes annually a comprehensive financial report on each Retirement System that includes a financial section, an investment section, an actuarial section, and a statistical section.


     The Review Team was very favorably impressed with the APERS staff. The supervisors interviewed were knowledgeable and dedicated workers. Investment policies, asset allocation, and selection and monitoring of money managers and custodial banks are comparable to the practices in industry. The office and staff portrayed a professional atmosphere, and there was no indication of any employee morale problems. The Executive Director seemed conscientious concerning expenses of the Agency, i.e. 41 employees compared to 47 authorized.


     Currently, PERS, SPRS and JRS are separate Retirement Systems and are administered as such by APERS. Changes or enhancements are frequently enacted by the legislature for only one System without corresponding action on the other Systems. The following pertinent provisions for the three Systems demonstrate the results of having three Retirement Systems.

Voluntary Retirement





Full benefit after either Wage 65 with 5 years of service or (b)30 years of service, regardless of age. For sheriffs and public safety members, the age 65 requirement is reduced 1 month for each 2 months of actual service, but not below age 55 (age 52 for sheriff members with a minimum of 10 years of actual service). Reduced benefit after age 55 with 5 years of service. The reduction is equal to ½% for each month retirement precedes normal retirement age.







Full benefit after 30 years of actual service, regardless of age, or at age 65 with 10 years of actual service for Tier One (Officers hired prior to April 3, 1997) or 5 actual years for Tier Two (Officers hired on or after April 3, 1997): The age requirement is reduced by 1 month for every 2 months of public safety service credit, but not below age 52 for Tier One or age 55 for Tier Two. Public safety service credit is granted at the rate of 1.5 months of credit for each month of actual public safety employment. Reduced benefits once member’s age is within 10 years of becoming eligible for full benefits. The reduction is equal to ½% for each month retirement precedes normal retirement age.






Regular Retirement- An active member may retire at age 65 with 10 or more years of credited service, or after 20 years of credited service regardless of age. Persons who become members after June 30, 1983 must also have at least 8 years of actual service as a Justice of the Supreme Court, or as a judge of the Circuit or Chancery Courts or the Court of Appeals.


Compulsory Retirement-


Any judge or justice who attains 70 years of age during a term of office to which he has been elected may complete the term without forfeiting his right to retirement benefits. Any judge or justice who is not eligible to retire at age 70 may continue to serve as judge until completion of the term in which he receives sufficient credited service to retire. Otherwise, judges or justices must retire by their 70th birthday or lose their retirement benefits. An inactive member who has 14 or more years of credited service and left judicial service before attaining age 65 will be entitled to an age and service retirement benefit beginning at age 65.


Final Average Compensation (FAC)



Average of highest 48 calendar months of covered compensation.




Average of highest 60 calendar months pay for Tier One or 48 calendar months for Tier Two.




A member’s salary at the end of the last judicial office.


Age and Service Retirement Benefit

PERS1.70% of FAC (Final Average Compensation) times years and months of credited service. If retirement is prior to age 62, an additional .35$ of FAC times years of service will be paid until age 62. The minimum monthly benefit is $150 minus any age and beneficiary option reductions.


SPRSTier One: 1.55% of FAC times years and months of credited service. Tier Two: 1.65$ of FAC times credited service. If retirement is prior to age 62, an additional .322% of FAC times credited service will be paid until the retiree attains age 62 for Tier One or .342% of FAC times credited service for Tier Two. For Tier One, the minimum monthly benefit is $150 minus any age and beneficiary option reductions.


JRSOne-half the judge’s final salary for life. At June 30,1997, the average annual pay for the 125 active members of the System was $99,376.


Benefit Increases After Retirement 



Annually, cost-of-living adjustment based on CPI, not to exceed 3% of current benefit.




Annually, cost-of-living adjustment based on CPI, not to exceed 3% of current benefit.


JRSFor any person who was a member on or before June 30, 1983, the retirement benefits are increased or decreased from time to time as the salary for the particular judicial office is increased or decreased. For all judges or justices first elected after July 1, 1983, annual cost-of-living adjustment based on CPI, not to exceed 3% of current benefit.

Member Contribution








Deferred Retirement Option Plan

PERSMembers with 30 years of actual service, for a maximum of 5 years, may continue employment and have 70% of the accrued benefit (at date of participation) paid into the Deferred Option Plan in lieu of any further benefit accruals.




Tier One members with 30 years of credited service who are eligible to receive a service retirement pension may, for a maximum of 5 years, continue in employment and have their accrued monthly benefit (at date of participation) paid into the Deferred Option Plan in lieu of any further benefit accruals. This-Plan is not available to Tier Two members.



Ad Hoc Increases in Addition to Annual Cost of Living Increases Granted Retirees 1987 to Present

PERS1987-1% to 20% depending on date of retirement


SPRS1987-0% to 18$ depending on date of retirement



The Review Team perceived an attitude that an overfunded position in a Retirement System should be used for enhanced benefits, and reduction in the contribution rate was never considered.

Annual Cost as a % of Salaries











* To System


State Division10.52%(.52%)10.00%
County Division10.28%(4.28%)6.00%
Municipal Division10.02%.26%10.28%
School Division 10.65%(6.65%)4.00%
Other Non-State Division10.10%.92%11.02%
General Assembly Division 13.09%66.16%79.25%
Wildlife Division 16.86%7.70%24.56%
State Capitol Police








SPRS23.27%11.17% 34.44%
JRS22.75% 1.47%24.22%


*Normal Cost


annual contribution required to fund retirement benefits assuming actual experience does not vary from actuarial assumptions adopted.




trust fund assets exceed actuarial accrued liabilities, generally due to actual experience exceeding assumed experience.


*Underfundingactuarial accrued liabilities exceed trust fund assets due to benefit enhancements and/or assumed experience exceeding actual experience.

     These pertinent provisions are probably also different for the Teachers Retirement System or the Highway Retirement System, which were not assigned to this Review Team. The Review Team believes that retirement benefits, including changes or enhancements in the System, should not be a substitute for needed adjustments in current compensation, or the result of pressure by a particular group. The varying provisions of the five state Retirement Systems seem to indicate that this has happened in the past. In fairness to the employees, government Retirement Systems should provide each government employee the same retirement benefit based on earnings and length of service.

     During its 1997 session, the legislature passed 24 Acts that affected either PERS, SPRS, or JRS. Eight of the Acts will increase cost while four will produce cost savings. For example, Act 318 increased the multiplier in the PERS retirement formula for active members from 1.65% to 1.70% of Final Average Compensation and granted an ad hoc 3% increase for retired members. This Act added 8% to the cost of PERS; however, due to overfunding, no additional contribution will be required. Act 299 provided, among other things, that purchases of service credits in PERS include a realistic rate of interest which be a cost saving.


Boards of Trustees

     In administering the Systems, each Board of Trustees issues policies and makes decisions that affect members of the System, including all members of the Board. The Boards also propose legislation regarding the Systems. To eliminate potential conflicts of interest, the Review Team recommends a Citizen Board composed of members outside the Systems to oversee APERS.

Eligibility of Elected Officials

     State, county and municipal elected officials are members of APERS with special provisions for service credits, as follows:


three years credit for each year of service with 4 years actual service required for benefit eligibility.
Other State
2½ years credit for each year of service with 5 years actual service required for benefit eligibility.

Other Elected
Public Officials

2 years of credit for each year of service with 5 years of actual service required for benefit eligibility.

     For the year ended June 30, 1998, retirement benefits paid to retired constitutional officers and legislators totaled $1.6 million. Term limits should result in elected state officials accumulating only minimum retirement benefits in the future under existing plans.

     By adopting term limits for elected state officials, the citizens of Arkansas have indicated they do not want an elective position to become a career. The Review Team recommends that all elected officials be ineligible to participate in any state or public retirement system involving public funds in any form or manner.

     For several years prior to June 30, 1998, the Public Employees Retirement System (PERS) was audited annually by an independent accounting firm and also by the Division off Legislative Audit. For the year ended June 30, 1998, PERS was audited only by the Division of Legislative Audit. The State Police Retirement System (SPRS) and the Judicial Retirement System (JRS) have been audited only by the Division of Legislative Audit. To maintain independence, the Review Team recommends that an independent accounting firm audit PERS, SPRS, and JRS and that audits by the Division of Legislative Audit be discontinued.

     The audit reports by the independent accounting firm should be made public and be available from the Arkansas Public Employees Retirement System (APERS) within 60 days of presentation to APERS. The audits should include responses from any governing Board, or in the absence of a Board or other authority, then APERS.

Legislative Service

     If a member of the General Assembly subsequently works at a full-time position as a member of PERS, the years as a part-time legislator are added to the years at a full-time position to determine service credits for retirement benefits. The Review Team recommends that this be discontinued.

Deferred Retirement Option Plan

     This Plan allows active members of PERS with 30 years of service to continue employment and also have 70% of their accrued retirement benefit at date of participation paid into the Deferred Option Plan in lieu of any further benefit accruals. Tier One members of SPRS with 30 years of service can also continue employment and have 100$ of their accrued benefit at date of participation paid into the Option Plan in lieu of any further benefit accruals.

     The Review Team recommends that this Plan in all systems be discontinued because it results in double compensation and eliminates any motivation for performance for five years by the employee who elects this Option.

Use of PERS Overfunding

     As mentioned above, PERS was overfunded $269 million at June 30, 1997. In addition to annual cost of living increases, retired members were given increases of 6.45$ in 1995 and 3% in 1997. The retirement benefit of active members was increased from 1.65% to 1.70% of Final Average Compensation for each year of service with no Social Security offset. For comparison, the petroleum industry’s retirement benefit, usually considered generous, is generally 1.6% of Final Average Compensation for each year of service with a Social Security offset. There was never any mention by the APERS staff of the possibility of a reduction in cost because of the overfunding.

     With a benefit of 1.70% of Final Average Compensation for each year of service, no Social Security offset, and annual cost of living increases up to 3$, the Review Team believes the overfunding in PERS should be used to reduce the cost to the taxpayer. Therefore, the Review Team recommends that no contributions be made for each group whose actuarial accrued pension liability is overfunded until the overfunding for the group is reduced to zero.

Administrative Reorganization of the State’s Retirement Systems

     The Review Team recommends that management of Arkansas’ five Retirement Systems be consolidated under one agency. The Review Team is not familiar with the management of the Teachers or Highway Department Systems, but feels confident that APERS is capable of managing all five Systems. Sixteen states have one agency that manages more than one plan (from 2 to 8). Consolidation of management should result in consistent administration and policy. With today’s technology, consolidation could also result in a 20$-25% savings in administrative expenses, or approximately $2.8 million annually.

     The Review Team also recommends that the Joint Committee on Public Retirement and Social Security Programs request an appropriation by the General Assembly to engage the services of an actuarial firm to design one Retirement System to replace the present five Systems.

     In designing a single Retirement System, a number of principles should apply. These principles include:

1. Uniform years of service credits for time of employment.
2. One formula for computing retirement benefits with one percentage of final average compensation, uniform computation of final average compensation, and uniform determination of service credits.
3.  Circumvention of the uniform application of benefits to all members of the single System should be prohibited.
4.  In computing final average compensation, the highest base salary of no less than 48 months shall be used.
5. A 401-K type program that assists members of the System augment their retirement benefit should be considered. Preferably, there should be some matching by the employer to encourage participation.
6. The taxpayers’ burden for contributions to both the Retirement System and any 401-K type program should not exceed 10% of the participants’ base salary in any one year.
7. Any overfunding should be reduced by lowering the contribution rate, using sound actuarial practices.
8. No members of the System convicted of a felony shall be entitled to receive benefits provided by the System.