Public pensions in Arkansas

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Arkansas public pensions
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Pension system
Number of pension systems 7
State pension systems: Public Employees Retirement Plan
Teacher Retirement Plan
Judicial Retirement Plan
Highway and Transportation Retirement Plan
District Judges Plan
State Police Retirement System
Local Police and Fire Retirement Plan
System type: Defined benefit plan
Pension health (2012)[1]
Fund value: $19,914,988,477
Estimated liabilities: $28,060,943,009
Unfunded liabilities : $8,145,954,532
Percent funded: 71.0%
Percent funded change: Green Arrow Up Darker.svg0.98%[2]
Percent funded rank: 22[3]
Pension fund members (2012)
Total members: 241,597
Active members: 135,461
Other members: 106,136
Other state pension information
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Public pensions
State public pension plans
Public pension health by state
Arkansas public pensions are the state mechanism by which state and many local government employees in Arkansas receive retirement benefits. Arkansas operates seven distinct pension plans. The Arkansas Public Employees Retirement System administers the Public Employees Retirement Systems (PERS), the Judicial Retirement Plan (JRP), the Arkansas State Police Retirement System (ASPRS) and a District Judges plan. The Teacher Retirement Plan (TRP), the Highway and Transportation Retirement Plan (HTRP) and the Local Police and Fire Retirement Plan (LPFRP) are additional state retirement systems not administered by APERS.[4][5]

According to the U.S. Census Bureau, the state also has 30 locally-administered pension systems.[6]

A 2012 report from the Pew Center on the States noted that Arkansas's pension system was funded at 75 percent at the close of fiscal year 2010, below the 80 percent funding level experts recommend. Consequently, Pew designated the state's pension system as cause for "serious concern."[7]

Taken together, the funding ratio for the state's pension systems decreased from 74.20 percent in fiscal year 2010 to 71 percent in fiscal year 2012, a decrease of 3.2 percentage points, or 4.31 percent. Likewise, unfunded liabilities increased from approximately $6.5 billion in fiscal year 2010 to more than $8 billion in fiscal year 2012.[8][9][10][11][12][13]


Pension plans

In fiscal year 2012, according to the systems' Actuarial Valuation Reports, Arkansas had a total of at least 135,461 active members in its retirement plans (information regarding the number of active members in the Highway and Transportation Retirement System could not be located as of October 2013). Our membership figures divide plan participants into two broad categories: active and other. Active members are current employees contributing to the pension system. Other members include retirees, beneficiaries and other inactive plan participants (usually terminated employees entitled to benefits but not yet receiving them).[14]

The following data was collected from the systems' 2012 Actuarial Valuation Reports, which measured fund status as of June 30, 2012 (except the report for LPFRS, which measured fund status as of December 31, 2012). Valuation reports are annual reports produced by outside consultants, using unaudited data provided by the pension systems themselves, in order to determine what employers in the system should contribute in the coming year to maintain or improve the fiscal health of the pension funds.

Arkansas's Actuarial Valuation Reports for 2012 were produced by Gabriel Roeder Smith and Company, a national actuarial and benefits consulting services firm that focuses on services for the public sector.[15] The "percentage funded" is calculated by taking the current value of the fund and dividing by the estimated amount of total liabilities. The assumed rates of return used to calculate current fund value vary by system (see "Rate of return" below for more information). The Government Accountability Office (GAO) and Pew Research Centers cite a percent funded ratio of 80 percent as the minimum threshold for a healthy fund, though the American Academy of Actuaries suggests that all pension systems "have a strategy in place to attain or maintain a funded status of 100 percent or greater."[16][17] The column labeled "SBS figure" refers to a market liability calculation of the fund by the nonprofit organization State Budget Solutions. This analysis uses a rate of return of 3.225 percent, which is based upon the 15-year Treasury bond yield. The organization calls this a "risk-free" rate of return that would make it easier for states to achieve their pension funding requirements in the future. Since 2006, all private sector corporate pension plans have incorporated market costs into their funding schemes.[18]

Basic pension plan information -- Arkansas
Plans Current value Percentage funded Unfunded liabilities Membership
State figure SBS figure[19] State figure SBS figure[19]
Arkansas Public Employees Retirement System[8] $5,625,000,000 68.9% N/A[20] $2,538,000,000 N/A[20] 45,937 active members
Judicial Retirement System[9] $167,796,000 85.8% $27,658,000 140 active members
State Police Retirement System[10] $215,010,000 60.5% $140,290,000 534 active members
District Judges[8] $13,925,350 49.1% $14,418,018 55 active members
Teacher Retirement System[11] $11,484,000,000 71.2% $4,655,000,000 75,627 active members
Highway and Transportation Retirement Plan[12] $1,239,900,000 90.2% $134,100,000 Data not available
Local Police and Fire Retirement System[13] $1,169,357,127 65% $636,458,514 13,168 active members
TOTALS $19,914,988,477 71.0% 36% $8,145,954,532 $35,101,319,000 135,461 active members

Annual Required Contribution

Annual Required Contributions (ARC) are calculated annually and are a sum of two different costs. The first component is the "normal cost," or what the employer owes to the system in order to support the liabilities gained in the previous year of service. The second component is an additional payment in order to make up for previous liabilities that have not yet been paid for. According to a report by the Pew Center on the States, in 2010 Arkansas paid 106 percent of its annual required contribution.[7][21]

On June 25, 2012, the Government Accounting Standards Board (GASB) approved a plan to reform the accounting rules for state and local pension funds. These revised standards were set to take effect in fiscal years 2013 and 2014.[22] As a result, ARCs were removed as a reporting requirement. Instead, plan administrators and accountants will use an actuarially determined contribution or a statutory contribution for reporting purposes.[23]

ARC historical data
Fiscal year Arkansas Public Employees Retirement System[8] Judicial Retirement System[9] State Police Retirement System[10] District Judges[8]
Annual Required Contribution (ARC) Percentage contributed Annual Required Contribution (ARC) Percentage contributed Annual Required Contribution (ARC) Percentage contributed Annual Required Contribution (ARC) Percentage contributed
2012 $229,631,149 100% $5,465,079 100% $14,052,962 139.94% $1,805,741 102%
2011 $195,628,572 100% $5,220,623 100% $12,580,828 112.30% $1,950,782 95%
2010 $169,604,041 100% $4,667,612 100% $12,748,302 161.18% $1,906,776 93%
2009 $159,232,361 100% $4,466,571 100% $10,535,605 115.25% $1,581,100 102%
2008 $173,462,377 100% $5,144,958 100% $9,996,439 116.56% $1,525,167 110%
ARC Historical Data
Fiscal year Teachers Retirement System[11] Highway and Transportation Retirement System[9] Local Police and Fire Retirement System[13]
Annual Required Contribution (ARC) Percentage contributed Annual Required Contribution (ARC) Percentage contributed Annual Required Contribution (ARC) Percentage contributed
2012 $443,650,000 89.9% $17,936,000 100% $66,648,849 100%
2011 $417,320,000 95.9% $17,661,000 100% $61,818,119 100%
2010 $362,850,000 107.3% $17,999,000 100% $58,654,842 100%
2009 $344,030,000 104.4% N/A N/A $53,051,887 100%
2008 $343,990,000 101.8% N/A N/A $49,518,628 100%

Historical funding levels

Historical pension plan data - all systems
Year Value of assets Accrued liability Unfunded liability Funded ratio
2010 $18,822,981,513 $25,368,815,104 $6,545,833,591 74.20%
2011 $19,297,763,648 $26,809,225,935 $7,511,462,287 71.98%
Change from 2010-2011 $474,782,135 $1,440,410,831 $965,628,696 -2.22%

Rate of return

Arkansas presumes an 8.00 percent return rate on most of its pension investments. The JRS assumes a 7.25 percent rate of return on its investments.


According to a 2012 analysis by the Pew Center for the States, most state pension plans assume an 8 percent rate of return on investments.[24] Critics assert that this assumption is unrealistic, citing changing market conditions and significantly lower investment returns across the board over the past several years.[25] When states lower the rate of return in an effort to predict investment earnings accurately, it increases the current plan liabilities, thereby lowering the percent funded ratio and causing the ARC to increase. This is because future plan liabilities are discounted based on the rate of return, so smaller expected investment returns result in larger actuarially accrued liabilities.[26] For example, on September 21, 2012, the Illinois Teachers Retirement System voted to lower its rate of return from 8.5 percent to 8.0 percent. This change increased the state's fiscal year 2014 ARC from $3.07 billion to $3.36 billion.[27] Similarly, when California's CalPERS reduced its projected annual rate of return from 7.75 percent to 7.5 percent in March 2012, it cost the state an additional $303 million for fiscal year 2013.[28]

The 2008 financial crisis had a devastating effect on pension plans nationwide and has resulted in slower economic growth and increased market volatility. In light of this, some market strategists find the 8 percent assumption to be overly ambitious. Stanford University Finance Professor Joshua Rauh stated that using past investment performance in this economic climate was "dangerously optimistic."[29] Advocates for a lower assumed rate of return argue that the standard assumptions could cause pension fund managers to engage in more risky investments and imprudent stewardship of public funds. Further, if pension plans were using more conservative assumptions, such as the 3 or 4 percent assumed rate of return used in the private sector, and the plans grew more quickly than expected, the fund would have a surplus and smaller future ARCs, which would be preferable to using optimistic assumptions and potentially being caught with larger-than-expected deficits.[30][31][32][33][34]

On the other hand, traditional public pension plan advocates argue that the dip observed in recent years is not sufficient proof of a long-term, downward trend in investment returns. According to Chris Hoene, executive director at the California Budget Project, "The problem with [the market rate] argument is there isn’t significant evidence other than the short term blip during the economic crisis that there’s been that shift. It’s a speculative argument coming out of a very deep recession."[29]

The National Association of State Retirement Administrators compiled data on the median annualized rate of return for public pensions for the 1-, 3-, 5-, 10-, 20-, and 25-year periods ending in 2013. While the median annualized rate of return failed to meet the 8 percent assumption that most public pensions assume over the 5- and 10-year periods, it was just shy (7.9 percent) over the 20-year period, and it exceeded 8 percent for the 1-, 3-, and 25-year periods. It is important to note that the NASRA data is reporting the median returns, indicating that even though median annualized returns exceeded 8 percent in the 25-year period, the investment portfolios for half of the examined public pension funds failed to meet an 8 percent assumed rate of return.[35]

In September 2013, the nonprofit organization State Budget Solutions published an analysis of state pension funding levels. In its calculations, State Budget Solutions used a 3.2 percent rate of return, the 15-year Treasury bond yield as of August 21, 2013, to discount plan liabilities.

The research found that in all states combined, state public employee pension plans have only 39 percent of the assets they need to cover their promised payments—a $4.1 trillion gap. According to the report, Arkansas's public pension plans were 36% funded, making it the 25th most funded state.[36]

Moody's report on adjusted pension liabilities

On June 27, 2013, Moody's Investor Service released its report on adjusted pension liabilities in the states. The Moody's report ranked states "based on ratios measuring the size of their adjusted net pension liabilities (ANPL) relative to several measures of economic capacity." In its calculations of net pension liabilities, Moody's employed market-determined discount rates (5.67 percent for Arkansas) instead of the state-reported assumed rates of return (8 percent for Arkansas's largest pension plan).[37]

The report's authors found that adjusted net pension liabilities varied dramatically from state to state, from 6.8 percent (Nebraska) to 241 percent (Illinois) of governmental revenues in fiscal year 2011.[37]

The adjusted net pension liability for the two Arkansas pension systems included in the report (APERS and HTRP) in fiscal year 2011 was ranked the 36th highest in the nation.[37] The following table presents key state-specific findings from the Moody's report, as well as the state's national rank with respect to each indicator.

Adjusted net pension liabilities (ANPL) relative to key economic indicators - Arkansas
Governmental revenue* Personal income State GDP Per capita
State findings 33.6% 5.0% 4.7% $1,681
National ranking 33rd 27th 26th 28th
*Moody's uses governmental revenues as reported in each state's consolidated annual financial reports; this includes not only state-generated revenue, but federal funds, as well.[37]

Pension fund management fees

See also: Public pension fund management fees

In July 2013, the Maryland Public Policy Institute (MPPI) and the Maryland Tax Education Foundation released a report detailing the fees paid for the management of state pension systems. According to MPPI, the 10 state pension funds that paid the most in management fees relative to net assets experienced lower returns over a five-year period than the 10 state pension funds that paid the least in management fees. For example, in fiscal year 2012 South Carolina's pension system paid approximately $296.1 million in total management fees (1.31 percent of total net assets at the beginning of the fiscal year) and its five-year rate of return was 1.46 percent. By contrast, Alabama's pension system paid roughly $13.3 million in management fees (0.05 percent of total net assets) and its five-year rate of return was 7.53 percent.[38]

The table below presents the information collected by MPPI for Arkansas and surrounding states. For each state's pension system, total net assets are listed (both for the beginning and end of the fiscal year in question), as well as the total amount paid in management fees. In addition, the rates of return for the pension systems are presented. Compared to surrounding states, Arkansas had the lowest total net assets.

Public pension fund management fees, 2011-2012
State Fiscal year Total net assets at the beginning of the year Total net assets at the end of the year Total management fees Management fees as a percentage of total net assets at the beginning of the year Five-year rate of return for the pension fund
Arkansas 2012; 2011 $15,912,286,857 $17,797,373,547 $65,729,237 0.41% 1.22%
Louisiana 2012 $24,280,707,222 $23,704,758,063 $127,141,733 0.52% 1.10%
Mississippi 2012 $20,840,987,000 $20,220,476,000 $47,575,948 0.23% 1.30%
Missouri 2012 $43,421,121,472 $43,142,177,174 $407,748,659 0.94% 1.60%
Oklahoma 2012; 2011 $17,208,667,211 $18,979,092,225 $45,745,016 0.27% 2.75%
1"Three states— Hawaii, Nevada and Rhode Island—were excluded because they hadn’t published CAFRs for fiscal years ending December 31, 2011 or later. West Virginia was excluded because its June 30, 2012 CAFR lacked sufficient disclosure."[38]
Source: Maryland Public Policy Institute, "Wall Street Fees, Investment Returns, Maryland 49 Other State Pension Funds," July 1, 2013


Enacted reforms


While several bills pertaining to the administration of the state's pension plans were passed during the 2013 session of the Arkansas General Assembly, none constituted significant structural reforms to the existing system.[39]

Local public pensions

See also: Local government public pensions

According to the United States Census Bureau, the state has 30 locally-administered pension plans.[6]


See also: Public pension disclosure and Governmental Accounting Standards Board
  • The names of recipients and amounts disbursed to recipients are available upon request, provided that the request does not constitute a violation of privacy.[40]
  • Pension fund investment performance data is available on the APERS site.[8]
  • External oversight of the pension fund and financial reports are available.[41]
  • Pay to play (the practice of investment managers contributing to officials with influence over public pension fund decisions) information is unavailable, as is pension lobbying information.

Recent news

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See also

Additional reading

External links


  1. Figures below are compiled by adding up all state pension plans
  2. This figure is derived by calculating the percent difference between the current year's funding level and the system's percent funded from the prior year.
  3. Rank is relative to the 50 state pension programs. "1" refers to the healthiest pension plan while "50" would be the least well-funded plan.
  4. State of Arkansas, "Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2012," accessed October 30, 2013
  5. Local Police and Fire Retirement Plan, "Overview," accessed October 30, 2013
  6. 6.0 6.1 “Public Employee Retirement Systems State- and Locally-Administered Pensions Summary Report: 2010,” United States Census Bureau, April 30, 2012
  7. 7.0 7.1 "Widening Gap Update: Arkansas," June 18, 2012
  8. 8.0 8.1 8.2 8.3 8.4 8.5 8.6 8.7 Arkansas Public Employees Retirement System, "Actuarial Valuation and Experience Gain/(Loss) Analysis," June 30, 2012
  9. 9.0 9.1 9.2 9.3 9.4 Judicial Retirement System, ""Actuarial Valuation and Experience Gain/(Loss) Analysis," June 30, 2012
  10. 10.0 10.1 10.2 10.3 State Police Retirement System, "Actuarial Valuation and Experience Gain/(Loss) Analysis," June 30, 2012
  11. 11.0 11.1 11.2 11.3 Teacher Retirement System, "2012 Comprehensive Annual Financial Report," accessed October 30, 2013
  12. 12.0 12.1 12.2 State of Arkansas, "2012 Comprehensive Annual Financial Report," accessed October 30, 2013
  13. 13.0 13.1 13.2 13.3 Local Police and Fire Retirement System, "Compiled Annual Actuarial Valuations Report as of December 31, 2012," accessed October 30, 2013
  14. Organisation for Economic Co-operation and Development, "Pensions Glossary," accessed November 27, 2013
  15. Gabriel Roeder Smith & Company, Consultants & Actuaries, "About Us," accessed October 29, 2013
  16. United States Government Accountability Office Report to the Committee on Finance, U.S. Senate, "State and Local Government Retiree Benefits: Current Status of Benefit Structures, Protections, and Fiscal Outlook for Funding Future Costs," September 2007. accessed October 23, 2013
  17. American Academy of Actuaries, "Issue Brief: The 80% Pension Funding Standard Myth," July 2012. accessed October 23, 2013
  18. Governing Magazine, " Is There a Plot Against Pensions?" October 14, 2013
  19. 19.0 19.1 State Budget Solutions, "Promises Made, Promises Broken - The Betrayal of Pensioners and Taxpayers," accessed September 20, 2013
  20. 20.0 20.1 Analysis only available for system totals and not individual funds.
  21. Government Accounting Standards Board, "Annual Required Contribution (ARC)," accessed October 17, 2013
  22. Reuters, "Little-known U.S. board stokes hot pension debate," July 10, 2012
  23. State Budget Solutions, "GASB's ineffective public pension reporting standards set to take effect," June 5, 2013
  24. "The Widening Gap Update,” Pew Center on the States, accessed October 17, 2013
  25. The New York Times "Public Pensions Faulted for Bets on Rosy Returns," May 27, 2012
  26. Benefits Magazine "Public Pension Funding 101: Key Terms and Concepts," April 2013. accessed October 23, 2013
  27. Crain's Chicago Business "State teachers pension board lowers expected rate of return," September 21, 2013. accessed October 23, 2013
  28. Huffington Post "California Pension Funds Expect Lower Investment Return," March 14, 2012. accessed October 23, 2013
  29. 29.0 29.1 Governing "Expert: Governments Are Masking Their Pension Liabilities ," October 25, 2013. accessed October 25, 2013
  30. The Washington Post "Kansas’s pension funding gap just grew by $1 billion," September 6, 2013. accessed October 25, 2013
  31. Topeka Capital-Journal "KPERS' unfunded liability rises to $10.2B," September 4, 2013. accessed October 25, 2013
  32. Wall Street Journal "Pensions Wrestle With Return Rates," October 10, 2011. accessed October 23, 2013
  33. The Courant "Promising Too Much On Public Pensions," August 10, 2012. accessed October 23, 2013
  34. Business Wire "NCPERS 2013 Survey: Public Pension Plans Report Increasing Confidence, Lower Costs, Growing Returns," October 22, 2013. accessed October 25, 2013
  35. National Association of State Retirement Administrators "Issue Brief: Public Pension Plan Investment Return Assumptions," October 2013. accessed October 23, 2013
  36. State Budget Solutions, "Promises Made, Promises Broken - The Betrayal of Pensioners and Taxpayers," accessed September 20, 2013
  37. 37.0 37.1 37.2 37.3 Moody's Investor Service, "Adjusted Pension Liability Medians for US States," June 27, 2013
  38. Cite error: Invalid <ref> tag; no text was provided for refs named report
  39. National Conference of State Legislatures, "Pensions and Retirement State Legislation Database - Arkansas 2013," accessed November 22, 2013
  40. Arkansas Freedom of Information Act, "Data availability," accessed November 22, 2013 (dead link)
  41. Arkansas Public Employees Retirement System, "Financial and actuarial reports," accessed November 22, 2013