A R K A N S A S P U B L I C E M P L O Y E E S R E T I R E M E N T S Y S T E M ( I N C L U D I N G D I S T R I C T J U D G E S

A R K A N S A S P U B L I C E M P L O Y E E S R E T I R E M E N T S Y S T E M ( I N C L U D I N G D I S T R I C T J U D G E S ) G A S B S T A T E M E N T N O S. 6 7 A N D 6 8 A C C O U N T I N G A N D F I N A N C I A L R E P O R T I N G F O R P E N S I O N S J U N E 3 0, 2 0 1 5

November 10, 2015 The Board of Trustees Arkansas Public Employees Retirement System Little Rock, Arkansas Ladies and Gentlemen: This report provides information required by the Arkansas Public Employees Retirement System (APERS) in connection with the Governmental Accounting Standards Board (GASB) Statement No. 67 Financial Reporting for Pension Plans and Governmental Accounting Standards Board (GASB) Statement No. 68 Accounting and Financial Reporting for Pensions. Our actuarial calculations for this report were prepared for the purpose of complying with the requirements of GASB Statement Nos. 67 and 68. In accordance with the auditor s request, these calculations are made for all members of APERS (including all District Judges) as if APERS is one cost-sharing plan. Our calculation of the liability associated with the benefits described in this report was performed for the purpose of satisfying the requirements of GASB Statement Nos. 67 and 68. The calculation of the plan s liability for this report may not be applicable for funding purposes of the plan. A calculation of the plan s liability for purposes other than satisfying the requirements of GASB Statement Nos. 67 and 68 may produce significantly different results. This report may be provided to parties other than System only in its entirety and only with the permission of the Retirement Board. This report is based upon information, furnished to us by Retirement System staff, concerning retirement and ancillary benefits, active members, deferred vested members, retirees and beneficiaries, and financial data. If your understanding of this information is different, please let us know. This information was checked for internal consistency, but it was not otherwise audited. This information is presented in draft form for review by the plan s auditor. Please let us know if there are any items that the auditor changes so that we may maintain consistency with the plan s financial statements. Please see the actuarial valuation report as of June 30, 2015 for additional discussions of the nature of actuarial calculations and more information related to participant data, economic and demographic assumptions, and benefit provisions. To the best of our knowledge, this report is complete, accurate, and in accordance with generally recognized actuarial methods. Mita D. Drazilov is a Member of the American Academy of Actuaries (MAAA) and meets the Qualification Standards of the Academy of Actuaries to render the actuarial opinions herein. The signing individuals are independent of the plan sponsor. Respectfully submitted, Mita D. Drazilov, ASA, MAAA David L. Hoffman MDD/DLH:dks:sc

TABLE OF CONTENTS Section A Section B Section C Section D Executive Summary Executive Summary... 1 Discussion... 2-4 Financial Statements Statement of Pension Expense... 5 Statement of Outflows and Inflows Arising from Current Reporting Period... 6 Statement of Outflows and Inflows Arising from Current and Prior Periods... 7 Statement of Fiduciary Net Position... 8 Statement of Changes in Fiduciary Net Position... 9 Required Supplementary Information Schedule of Changes in Net Pension Liability and Related Ratios Current Period... 10 Schedule of Changes in Net Pension Liability and Related Ratios (Multiyear)... 11 Schedule of the Net Pension Liability (Multiyear)... 12 Schedule of Contributions (Multiyear)... 13 Notes to Schedule of Contributions... 14 Schedule of Investment Returns (Multiyear)... 15 Notes to Financial Statements Long-Term Expected Return on Plan Assets... 16 Sensitivity of Net Pension Liability to the Single Discount Rate Assumption... 17 Reconciliation of DROP Accounts... 18 Summary of Population Statistics... 19 Page Section E Summary of Benefits... 20-25 Section F Actuarial Cost Method and Actuarial Assumptions Valuation Methods, Entry Age Normal... 26-27 Actuarial Assumptions, Input to Discount Rates, Mortality Assumptions and Experience Studies... 28-35 Miscellaneous and Technical Assumptions... 36-37 Section G Calculation of the Single Discount Rate Calculation of the Single Discount Rate... 38 Projection of Contributions... 39 Projection of Plan Fiduciary Net Position... 40 Present Values of Projected Benefits... 41-42 Projection of Plan Net Position and Benefit Payments... 43 Section H Glossary of Terms... 44-47

SECTION A EXECUTIVE SUMMARY Executive Summary 0

Section A EXECUTIVE SUMMARY AS OF JUNE 30, 2015 Actuarial Valuation Date June 30, 2015 Measurement Date of the Net Pension Liability and Pension Expense June 30, 2015 Membership Number of - Retirees and Beneficiaries 33,247 - Inactive, Nonretired Members 13,762 - Active Members 45,765 - Total 92,774 Covered Payroll $ 1,757,056,813 Net Pension Liability Total Pension Liability $ 9,391,975,712 Plan Fiduciary Net Position 7,550,242,341 Net Pension Liability $ 1,841,733,371 Plan Fiduciary Net Position as a Percentage of Total Pension Liability 80.39% Net Pension Liability as a Percentage of Covered Payroll 104.82% Development of the Single Discount Rate Single Discount Rate 7.50% Long-Term Expected Rate of Investment Return 7.50% Long-Term Municipal Bond Rate* 3.80% Last year ending June 30 in the 2016 to 2115 projection period for which projected benefit payments are fully funded 2115 Total Pension Expense $ 218,477,138 Deferred Outflows and Deferred Inflows of Resources by Source to be Recognized in Future Pension Expenses Deferred Outflows of Resources Deferred Inflows of Resources Difference between expected and actual experience $ - $ 120,741,193 Changes in assumptions 271,800,634 - Net difference between projected and actual earnings on pension plan investments 327,154,810 418,532,251 Total $ 598,955,444 $ 539,273,444 *Based on the Bond Buyer 20-Bond Index of general obligation municipal bonds as of June 26, 2015 (i.e., the weekly rate closest to but not later than the Measurement Date). 1

Section A DISCUSSION Accounting Standard For pension plans that are administered through trusts or equivalent arrangements, Governmental Accounting Standards Board (GASB) Statement No. 67 establishes standards of financial reporting for separately issued financial reports and specifies the required approach for measuring the pension liability. Similarly, GASB Statement No. 68 establishes standards for state and local government employers (as well as non-employer contributing entities) to account for and disclose the net pension liability, pension expense, and other information associated with providing retirement benefits to their employees (and former employees) on their basic financial statements. The following discussion provides a summary of the information that is required to be disclosed under these accounting standards. A number of these disclosure items are provided in this report. However, certain information, such as notes regarding accounting policies and investments, is not included in this report and the Retirement System and/or plan sponsor will be responsible for preparing and disclosing that information to comply with these accounting standards. Financial Statements GASB Statement No. 68 requires state or local governments to recognize the net pension liability and the pension expense on their financial statements. The net pension liability is the difference between the total pension liability and the plan s fiduciary net position. In traditional actuarial terms, this is analogous to the accrued liability less the market value of assets (not the smoothed actuarial value of assets that is often encountered in actuarial valuations performed to determine the employer s contribution requirement). Paragraph 57 of GASB Statement No. 68 states, Contributions to the pension plan from the employer subsequent to the measurement date of the collective net pension liability and before the end of the employer s reporting period should be reported as a deferred outflow of resources related to pensions. The information contained in this report does not incorporate any contributions made to the Arkansas Public Employees Retirement System subsequent to the measurement date of June 30, 2015. The pension expense recognized each fiscal year is equal to the change in the net pension liability from the beginning of the year to the end of the year, adjusted for deferred recognition of the liability and investment experience. Pension plans that prepare their own, stand-alone financial statements are required to present two financial statements a statement of fiduciary net position and a statement of changes in fiduciary net position in accordance with GASB Statement No. 67. The statement of fiduciary net position presents the assets and liabilities of the pension plan at the end of the pension plan s reporting period. The statement of changes in fiduciary net position presents the additions, such as contributions and investment income, and deductions, such as benefit payments and expenses, and net increase or decrease in the fiduciary net position. 2

Section A Notes to Financial Statements GASB Statement No. 68 requires the notes of the employer s financial statements to disclose the total pension expense, the pension plan s liabilities and assets, and deferred outflows and inflows of resources related to pensions. GASB Statement Nos. 67 and 68 require the notes of the financial statements for the employers and pension plans, to include certain additional information. The list of disclosure items should include: a description of benefits provided by the plan; the type of employees and number of members covered by the pension plan; a description of the plan s funding policy, which includes member and employer contribution requirements; the pension plan s investment policies; the pension plan s fiduciary net position, net pension liability, and the pension plan s fiduciary net position as a percentage of the total pension liability; the net pension liability using a discount rate that is 1% higher and 1% lower than used to calculate the total pension liability and net pension liability for financial reporting purposes; significant assumptions and methods used to calculate the total pension liability; inputs to the discount rates; and certain information about mortality assumptions and the dates of experience studies. Retirement systems that issue stand-alone financial statements are required to disclose additional information in accordance with GASB Statement No. 67. This information includes: the composition of the pension plan s board and the authority under which benefit terms may be amended; a description of how fair value is determined; information regarding certain reserves and investments, which include concentrations of investments greater than or equal to 5%, receivables, and insurance contracts excluded from plan assets; annual money-weighted rate of return; and a description of the terms of the plan s deferred retirement option program (DROP) and the total DROP balance for those members currently participating in the DROP. 3

Section A Required Supplementary Information GASB Statement No. 67 requires a 10-year fiscal history of: sources of changes in the net pension liability; information about the components of the net pension liability and related ratios, including the pension plan s fiduciary net position as a percentage of the total pension liability, and the net pension liability as a percent of covered-employee payroll; and a comparison of the actual employer contributions to the actuarially determined contributions based on the plan s funding policy. Timing of the Valuation An actuarial valuation to determine the total pension liability is required to be performed at least every two years. The net pension liability and pension expense should be measured as of the pension plan s fiscal year end (measurement date) on a date that is within the employer s prior fiscal year. If the actuarial valuation used to determine the total pension liability is not calculated as of the measurement date, the total pension liability is required to be rolled forward from the actuarial valuation date to the measurement date. The total pension liability shown in this report is based on an actuarial valuation performed as of June 30, 2015 and a measurement date of June 30, 2015. Single Discount Rate Projected benefit payments are required to be discounted to their actuarial present values using a Single Discount Rate that reflects (1) a long-term expected rate of return on pension plan investments (to the extent that the plan s fiduciary net position is projected to be sufficient to pay benefits) and (2) tax-exempt municipal bond rate based on an index of 20-year general obligation bonds with an average AA credit rating (which is published by the Federal Reserve) as of the measurement date (to the extent that the contributions for use with the long-term expected rate of return are not met). For the purpose of this valuation, the expected rate of return on pension plan investments is 7.50%; the municipal bond rate is 3.80% (based on the weekly rate closest to but not later than the measurement date of the state & local bonds rate from Federal Reserve statistical release (H.15)); and the resulting Single Discount Rate is 7.50%. 4

SECTION B FINANCIAL STATEMENTS Financial Statements 5

Section A PENSION EXPENSE UNDER GASB STATEMENT NO. 68 FISCAL YEAR ENDED JUNE 30, 2015 1. Service Cost $ 168,811,990 2. Interest on the Total Pension Liability 682,217,546 3. Current-Period Benefit Changes 0 4. Employee Contributions (made negative for addition here) (50,750,458) 5. Projected Earnings on Plan Investments (made negative for addition here) (577,873,211) 6. Pension Plan Administrative Expense 6,949,282 7. Other Changes in Plan Fiduciary Net Position (6,745,403) 8. Recognition of Outflow (Inflow) of Resources due to Liabilities 53,589,439 9. Recognition of Outflow (Inflow) of Resources due to Assets (57,722,047) 10. Total Pension Expense $ 218,477,138 5

Section A STATEMENT OF OUTFLOWS AND INFLOWS ARISING FROM CURRENT REPORTING PERIOD FISCAL YEAR ENDED JUNE 30, 2015 A. Outflows (Inflows) of Resources due to Liabilities 1. Difference between expected and actual experience of the Total Pension Liability (gains) or losses $ (137,672,890) 2. Assumption Changes (gains) or losses $ 192,273,597 3. Recognition period for Liabilities: Average of the expected remaining service lives of all employees {in years} 4.5972 4. Outflow (Inflow) of Resources to be recognized in the current pension expense for the difference between expected and actual experience of the Total Pension Liability $ (29,947,118) 5. Outflow (Inflow) of Resources to be recognized in the current pension expense for Assumption Changes $ 41,824,066 6. Outflow (Inflow) of Resources to be recognized in the current pension expense due to Liabilities: 4. + 5. $ 11,876,948 7. Deferred Outflow (Inflow) of Resources to be recognized in future pension expenses for the difference between expected and actual experience of the Total Pension Liability: 1. - 4. $ (107,725,772) 8. Deferred Outflow (Inflow) of Resources to be recognized in future pension expenses for Assumption Changes: 2. - 5. $ 150,449,531 9. Deferred Outflow (Inflow) of Resources to be recognized in future pension expenses due to Liabilities: 7. + 8. $ 42,723,759 B. Outflows (Inflows) of Resources due to Assets 1. Net difference between projected and actual earnings on pension plan investments (gains) or losses $ 408,943,513 2. Recognition period for Assets {in years} 5.0000 3. Outflow (Inflow) of Resources to be recognized in the current pension expense due to Assets $ 81,788,703 4. Deferred Outflow (Inflow) of Resources to be recognized in future pension expenses due to Assets: 1. - 3. $ 327,154,810 6

Section B STATEMENT OF OUTFLOWS AND INFLOWS ARISING FROM CURRENT AND PRIOR REPORTING PERIODS FISCAL YEAR ENDED JUNE 30, 2015 A. Outflows and Inflows of Resources due to Liabilities and Assets to be Recognized in Current Pension Expense Outflows Inflows Net Outflows of Resources of Resources of Resources 1. Due to Liabilities $ 88,547,885 $ 34,958,446 $ 53,589,439 2. Due to Assets 81,788,703 139,510,750 (57,722,047) 3. Total $ 170,336,588 $ 174,469,196 $ (4,132,608) B. Outflows and Inflows of Resources by Source to be Recognized in Current Pension Expense Outflows Inflows Net Outflows of Resources of Resources of Resources 1. Differences between expected and actual experience $ - $ 34,958,446 $ (34,958,446) 2. Assumption Changes 88,547,885-88,547,885 3. Net Difference between projected and actual earnings on pension plan investments 81,788,703 139,510,750 (57,722,048) 4. Total $ 170,336,588 $ 174,469,196 $ (4,132,608) C. Deferred Outflows and Deferred Inflows of Resources by Source to be Recognized in Future Pension Expenses Net Deferred Deferred Outflows Deferred Inflows Outflows of Resources of Resources of Resources 1. Differences between expected and actual experience $ - $ 120,741,193 $ (120,741,193) 2. Assumption Changes 271,800,634-271,800,634 3. Net Difference between projected and actual earnings on pension plan investments 327,154,810 418,532,251 (91,377,441) 4. Total $ 598,955,444 $ 539,273,444 $ 59,682,000 D. Deferred Outflows and Deferred Inflows of Resources by Year to be Recognized in Future Pension Expenses Year Ending June 30 Net Deferred Outflows of Resources 2016 $ (4,132,608) 2017 (4,132,608) 2018 (20,934,399) 2019 88,881,615 2020 0 Thereafter 0 Total $ 59,682,000 7

Section B STATEMENT OF FIDUCIARY NET POSITION AS OF JUNE 30, 2015 To be provided by System Assets Cash and Deposits $ - Receivables Accounts Receivable - Sale of Investments $ - Accrued Interest and Other Dividends - Contributions - Accounts Receivable - Other - Total Receivables $ - Investments Fixed Income $ - Domestic Equities - International Equities - Real Estate - Other - Total Investments $ - Liabilities Total Assets $ - Payables Accounts Payable - Purchase of Investments $ - Accrued Expenses - Accounts Payable - Other - Total Liabilities $ - Net Position Restricted for Pensions $ 7,550,242,341 8

Section B STATEMENT OF CHANGES IN FIDUCIARY NET POSITION FOR YEAR ENDED JUNE 30, 2015 Additions Contributions Employer $ 263,332,831 Employee 50,750,458 Other 7,100,197 Total Contributions $ 321,183,486 Investment Income Net Appreciation in Fair Value of Investments $ 198,096,795 Interest and Dividends - Less Investment Expense (29,167,097) Net Investment Income $ 168,929,698 Other - Total Additions $ 490,113,184 Deductions Benefit Payments, Including Refunds of Employee Contributions $ 464,111,187 Pension Plan Administrative Expense 6,949,282 Other 354,794 Total Deductions $ 471,415,263 Net Increase in Net Position $ 18,697,921 Net Position Restricted for Pensions Beginning of Year $ 7,531,544,420 End of Year $ 7,550,242,341 9

SECTION C REQUIRED SUPPLEMENTARY INFORMATION Required Supplementary Information 10

Section C SCHEDULES OF REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF CHANGES IN NET PENSION LIABILITY AND RELATED RATIOS CURRENT PERIOD FISCAL YEAR ENDED JUNE 30, 2015 A. Total pension liability 1. Service Cost $ 168,811,990 2. Interest on the Total Pension Liability 682,217,546 3. Changes of benefit terms 0 4. Difference between expected and actual experience of the Total Pension Liability (137,672,890) 5. Changes of assumptions 192,273,597 6. Benefit payments, including refunds of employee contributions (464,111,187) 7. Net change in total pension liability $ 441,519,056 8. Total pension liability beginning 8,950,456,656 9. Total pension liability ending $ 9,391,975,712 B. Plan fiduciary net position 1. Contributions employer $ 263,332,831 2. Contributions employee 50,750,458 3. Net investment income 168,929,698 4. Benefit payments, including refunds of employee contributions (464,111,187) 5. Pension Plan Administrative Expense (6,949,282) 6. Other 6,745,403 7. Net change in plan fiduciary net position $ 18,697,921 8. Plan fiduciary net position beginning 7,531,544,420 9. Plan fiduciary net position ending $ 7,550,242,341 C. Net pension liability $ 1,841,733,371 D. Plan fiduciary net position as a percentage of the total pension liability 80.39% E. Covered-employee payroll $ 1,757,056,813 F. Net pension liability as a percentage of covered-employee payroll 104.82% 10

Section C SCHEDULES OF REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF CHANGES IN NET PENSION LIABILITY AND RELATED RATIOS Ultimately 10 Fiscal Years will be Displayed Fiscal year ending June 30, 2015 2014 Total Pension Liability Service Cost $ 168,811,990 $ 160,924,334 Interest on the Total Pension Liability 682,217,546 658,535,986 Benefit Changes - - Difference between Expected and Actual Experience (137,672,890) (23,038,076) Assumption Changes 192,273,597 214,798,742 Benefit Payments (451,912,791) (414,548,645) Refunds (12,198,396) (9,455,347) Net Change in Total Pension Liability 441,519,056 587,216,994 Total Pension Liability - Beginning 8,950,456,656 8,363,239,662 Total Pension Liability - Ending (a) 9,391,975,712 8,950,456,656 Plan Fiduciary Net Position Employer Contributions $ 263,332,831 $ 264,050,160 Employee Contributions 50,750,458 47,215,843 Pension Plan Net Investment Income 168,929,698 1,207,897,156 Benefit Payments (451,912,791) (414,548,645) Refunds (12,198,396) (9,455,347) Pension Plan Administrative Expense (6,949,282) (6,854,975) Other 6,745,403 8,302,355 Net Change in Plan Fiduciary Net Position 18,697,921 1,096,606,547 Plan Fiduciary Net Position - Beginning 7,531,544,420 6,434,937,873 Plan Fiduciary Net Position - Ending (b) 7,550,242,341 7,531,544,420 Net Pension Liability - Ending (a) - (b) 1,841,733,371 1,418,912,236 Plan Fiduciary Net Position as a Percentage of Total Pension Liability 80.39 % 84.15 % Covered Employee Payroll $ 1,757,056,813 $ 1,748,350,136 Net Pension Liability as a Percentage of Covered Employee Payroll 104.82 % 81.16 % Notes to Schedule: N/A N/A 11

Section C SCHEDULES OF REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF THE NET PENSION LIABILITY Ultimately 10 Fiscal Years will be Displayed Total Plan Net Position Net Pension Liability FY Ending Pension Plan Net Net Pension as a % of Total Covered as a % of June 30, Liability Position Liability Pension Liability Payroll Covered Payroll 2014 $8,950,456,656 $7,531,544,420 $ 1,418,912,236 84.15% $1,748,350,136 81.16% 2015 9,391,975,712 7,550,242,341 1,841,733,371 80.39% 1,757,056,813 104.82% 12

Section C SCHEDULE OF CONTRIBUTIONS ($ IN MILLIONS) Actuarially Contribution Actual Contribution FY Ending Determined Actual Deficiency Covered as a % of June 30, Contribution Contribution* (Excess) Payroll Covered Payroll 2006 $ 160.0 $ 160.0 $ - $ 1,270 12.60% 2007 165.0 165.0-1,306 12.63% 2008 175.0 175.0-1,384 12.65% 2009 160.8 160.8-1,437 11.19% 2010 171.5 171.5-1,527 11.24% 2011 197.6 197.6-1,626 12.15% 2012 231.4 231.4-1,689 13.70% 2013 251.4 251.4-1,696 14.82% 2014 264.1 264.1-1,748 15.11% 2015 263.3 263.3-1,757 14.98% * Actual contributions are based on covered payroll at the time of the contribution. This payroll is not reported to the actuary. The covered payroll shown on this page is the valuation payroll. Based upon the limitations of this schedule, the final column cannot be compared to the contribution rates actually charged to APERS participating employers. 13

Section C NOTES TO SCHEDULE OF CONTRIBUTIONS Valuation Date: June 30, 2015 Methods and Assumptions Used to Determine Contribution Rates: Actuarial Cost Method Entry Age Normal Amortization Method Level Percentage of Payroll, Closed (Level Dollar, Closed for District Judges New Plan and Paid Off Old Plan and District Judges Still Paying Old Plan) Remaining Amortization Period Asset Valuation Method Inflation Salary Increases Investment Rate of Return 7.50% Retirement Age 25 years (13 years for District Judges New Plan/Paid Off Old Plan and 20 years for District Judges Still Paying Old Plan) 4-Year smoothed market; 25% corridor (Market Value for Still Paying Old Plan) 3.25% wage inflation, 2.50% price inflation 3.25% to 9.85% including inflation (3.25% to 6.96% including inflation for District Judges) Experience-based table of rates that are specific to the type of eligibility condition. Mortality Other Information: Notes Based on RP-2000 Combined Healthy mortality table, projected to 2020 using Projection Scale BB, set-forward 2 years for males and 1 year for females. There were no benefit changes during the year. 14

Section C SCHEDULE OF INVESTMENT RETURNS MULTIYEAR To be provided by System FY Ending June 30, Annual Return 1 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 1 Annual money-weighted rate of return, net of investment expenses. 15

SECTION D NOTES TO FINANCIAL STATEMENTS Notes to Financial Statements 16

Section D Long-Term Expected Return on Plan Assets The long-term expected rate of return on pension plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the current asset allocation percentage and by adding expected price inflation. Best estimates of arithmetic real rates of return for the 10-year period from 2015 to 2024 were based upon capital market assumptions provided by plan s investment consultant(s). For each major asset class that is included in the pension plan s current asset allocation as of June 30, 2015, these best estimates are summarized in the following table: Long-Term Current Expected Real Asset Class Allocation Rate of Return Broad Domestic Equity 42% 6.82% International Equity 25% 6.88% Real Assets 12% 3.07% Absolute Return 5% 3.35% Domestic Fixed 16% 0.83% Total 100% Total Real Rate of Return 5.25% Plus: Price Inflation - Actuary's Assumption 2.50% Less: Investment Expenses (Passive) 0.10% Net Expected Return 7.65% 16

Section D Single Discount Rate A single discount rate of 7.50% was used to measure the total pension liability. This single discount rate was based on the expected rate of return on pension plan investments of 7.50%. The projection of cash flows used to determine this single discount rate assumed that plan member contributions will be made at the current contribution rate and that employer contributions will be made at rates equal to the difference between actuarially determined contribution rates and the member rate. Based on these assumptions, the pension plan s fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. Regarding the sensitivity of the net pension liability to changes in the single discount rate, the following presents the plan s net pension liability, calculated using a single discount rate of 7.50%, as well as what the plan s net pension liability would be if it were calculated using a single discount rate that is 1-percentage-point lower or 1-percentage-point higher: SENSITIVITY OF NET PENSION LIABILITY TO THE SINGLE DISCOUNT RATE ASSUMPTION Current Single 1% Decrease Rate Assumption 1% Increase 6.50% 7.50% 8.50% $3,033,810,017 $1,841,733,371 $850,344,790 17

Section D Disclosure Regarding the Deferred Retirement Option Program To Be Provided by the System 18

Section D SUMMARY OF POPULATION STATISTICS Inactive Plan Members or Beneficiaries Currently Receiving Benefits 33,247 Inactive Plan Members Entitled to But Not Yet Receiving Benefits 13,762 Active Plan Members 45,765 Total Plan Members 92,774 19

SECTION E SUMMARY OF BENEFITS Summary of Benefits 20

Section E SUMMARY OF PROVISIONS EVALUATED (EXCLUDES SPECIAL PROVISIONS FOR GENERAL ASSEMBLY) (LAST CHANGED AS OF 7/1/2009) The Old Contributory Plan is available to persons who became members of APERS before January l, 1978. The Non-Contributory Plan applies to all persons first hired after January l, 1978 and before July 1, 2005 in APERS-covered employment. The New Contributory Plan applies to all persons hired after July 1, 2005 in APERS-covered employment or Non-Contributory members who elected to participate in the New Contributory Plan. New Contributory Plan Non-Contributory Plan Voluntary Retirement With a full benefit, after either (a) age 65 with 5 years of service, or (b) 28 years of actual service, regardless of age. For sheriff 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). With a reduced benefit, after age 55 with 5 years of service or any age with 25 years of service. The reduction is equal to ½ of 1% for each month retirement proceeds normal retirement age or 1% for each month below 28 years of actual service, whichever is less. With a full benefit, after either (a) age 65 with 5 years of service, or (b) 28 years of actual service, regardless of age. For sheriff 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). With a reduced benefit, after age 55 with 5 years of service or any age with 25 years of service. The reduction is equal to ½ of 1% for each month retirement proceeds normal retirement age or 1% for each month below 28 years of actual service, whichever is less. Final Average Compensation (FAC) Average of highest 36 calendar months of covered compensation. Average of highest 36 calendar months of covered compensation. Full Age & Service Retirement Benefit 2.00% of FAC times years of service (2.03% for service prior to July 1, 2007), plus.5% of FAC times years of service over 28 years for service after July 1, 2009. The minimum monthly benefit is $150 minus any age and beneficiary option reductions. 1.72% of FAC times years and months of credited service (1.75% for service prior to July 1, 2007), plus.5% of FAC times years of service over 28 years for service after July 1, 2009. If retirement is prior to age 62, an additional.33% of FAC times years of service will be paid until age 62. The portion of the APERS benefit based on service before 1978 cannot be less than the amount provided by contributory provisions in effect at the time of retirement. The minimum monthly benefit is $150 minus any age and beneficiary option reductions. 20

Section E SUMMARY OF PROVISIONS EVALUATED New Contributory Plan Non-Contributory Plan Benefit Increases After Retirement Annually, there will be a cost-of-living adjustment equal to 3% of the current benefit. Annually, there will be a cost-of-living adjustment equal to 3% of the current benefit. Member Contribution Rates 5% of covered compensation (pre-tax). Member contributions are refundable if APERS-covered employment terminates before a monthly benefit is payable. Members will earn interest on the contributions at a rate of 4% annually. No employee contributions for service after January 1, 1978. If there is service before January 1, 1978, contributions for that period are refundable later in the same manner as under the Contributory Plan. Vested Retirement Benefits 5 years service, and leaving APERS-covered employment before full retirement age. Deferred full retirement benefit, based on service and pay at termination, begins at age 65. A death benefit is payable to surviving spouse of member who dies before benefit commencement. In place of deferred full benefit, at age 55 or older a qualifying member can elect an immediate reduced benefit. 5 years service and leaving APERS-covered employment before full retirement age. Deferred full retirement benefit, based on service and pay at termination, begins at age 65. A death benefit is payable to surviving spouse of member who dies before benefit commencement. In place of deferred full benefit, at age 55 or older a qualifying member can elect an immediate reduced benefit. Total and Permanent Disability Disabled after 5 years of service, including credit for 18 of the 24 months preceding disability. Amount is computed as an age & service benefit, based on service and pay at disability. Disabled after 5 years of service, including credit for 18 of the 24 months preceding disability. Amount is computed as an age & service benefit, based on service and compensation at disability. 21

Section E SUMMARY OF PROVISIONS EVALUATED New Contributory Plan Non-Contributory Plan Death After Retirement If death occurs before total monthly benefit payments equal member s accumulated contributions, the difference is refunded. A retiring member can also elect an optional form of benefit, which provides beneficiary protection paid for by reducing the retired member s benefit amount. Should the member elect a straight life benefit and decease within 12 months of the date of retirement, a benefit may be payable to the surviving spouse under certain conditions. Member contributions before 1978 are protected in the same manner as under the Contributory Plan. A retiring member can also elect an optional form of benefit, which provides beneficiary protection paid for by reducing the retired member s benefit amount. Should the member elect a straight life benefit and decease within 12 months of the date of retirement, a benefit may be payable to the surviving spouse under certain conditions. Death While in APERS-Covered Employment Member s accumulated contributions are refundable If the member had 5 years service, monthly benefits are payable instead. Surviving spouse receives a benefit computed as if member had retired and elected the Joint & 75% Survivor Option. Payment begins immediately. Each dependent child receives benefit of 10% of compensation (maximum of 25% for all children). Dependent parents benefits are payable if neither spouse nor children s benefits are payable. Member s accumulated contributions before 1978 are refundable. If the member had 5 years service, monthly benefits are payable instead. Surviving spouse receives a benefit computed as if member had retired and elected the Joint & 75% Survivor Option. Payment begins immediately. Each dependent child receives benefit of 10% of compensation (maximum of 25% for all children). Dependent parents benefits are payable if neither spouse nor children s benefits are payable. 22

Section E SUMMARY OF PROVISIONS EVALUATED CREDITED SERVICE Membership Group Public Safety Members (including State Capitol Police and Wildlife Sub-Division members) hired before July 1, 1997 Governor (hired before July 1, 1999) Elected State Constitutional Officers (hired before July 1, 1999) General Assembly Other Elected Public Officials (municipal and county officials) All Other Members Service Credits 1-1/2 times regular rate with 5 years actual service required to meet benefit eligibility rules. 3 times regular rate with 5 years actual service required to meet death-in-service eligibility and 4 years actual service required for other benefit eligibility. 2-1/2 times regular rate with 5 years actual service required to meet benefit eligibility. Regular crediting rate with 5 years of actual service required to meet death-in-service eligibility and 10 years of actual service required for other benefit eligibility. 2 times regular rate with 5 years actual service required to meet benefit eligibility. Regular rate. ARKANSAS PUBLIC EMPLOYEES DEFERRED RETIREMENT OPTION PLAN Members with 28 years of actual service in APERS or in combination with a reciprocal system are eligible to participate. Members, for a maximum of 7 years, may continue employment and have 75% of their accrued benefit (at date of participation with 30 or more years of service) paid into the Deferred Retirement Option Plan in lieu of any further benefit accruals. The payments into the Deferred Retirement Option Plan accumulate with interest at a rate established by the Board. The interest is paid on the mean balance and is paid to the member at termination of active membership in either a lump sum or as an annuity. Employer contributions continue for members participating in the DROP. 23

Section E SUMMARY OF PROVISIONS EVALUATED GENERAL ASSEMBLY DIVISION ADDITIONAL BENEFIT PROVISIONS VOLUNTARY RETIREMENT ELIGIBILITY Age 65 with 10 or more years of credited service, 28 years of actual service regardless of age, or age 55 with 12 or more years of actual service, 10 of which must be as a member of the General Assembly. In addition, a member of the General Assembly who was a member of the General Assembly on July 1, 1979, or holding any other Arkansas elective office on July 1, 1979, is eligible to retire with 17.5 years of actual service regardless of age. VESTING Termination of employment prior to normal retirement age after completing 10 or more years of credited service. RETIREMENT BENEFIT $35.00 per month times years of General Assembly service. The amount is $40.00 per month per year of service for any member who served as Speaker of the House of Representatives or President Pro Tempore of the Senate. DISABILITY Eligibility: 10 years of credited service. Amount: Accrued retirement benefit. DEATH-IN-SERVICE Eligibility: 5 years of service. Amount - Less than 10 years in General Assembly: Same as for regular members. Amount - 10 or more years in General Assembly: 100% of the benefit the member would have been entitled to had he or she been at retirement age payable to an eligible surviving spouse. DEATH-AFTER-RETIREMENT 100% of the benefit the member was receiving payable to an eligible surviving spouse. PARTICIPATION A member of the General Assembly may, at any time, elect either (i) to be covered by regular benefit provisions, or (ii) to discontinue an APERS membership. 24

Section E DISTRICT JUDGES SUMMARY OF PROVISIONS EVALUATED VOLUNTARY RETIREMENT With a full benefit, after either (a) age 50 with 20 years of eligibility service, (b) age 60 with 16 years of eligibility service, or (c) age 65 with 8 years of eligibility service. FINAL AVERAGE COMPENSATION (FAC) Average of the final three calendar years of employment. BENEFIT SERVICE Service performed on or after January 1, 2005. ELIGIBILITY SERVICE FULL AGE & SERVICE RETIREMENT BENEFIT Benefit service plus service in Old Local District Judges Plan. 2.50% of FAC times actual service. BENEFIT INCREASES AFTER RETIREMENT MEMBER CONTRIBUTION RATES VESTED RETIREMENT BENEFITS TOTAL AND PERMANENT DISABILITY DEATH AFTER RETIREMENT Annually, there will be a cost-of-living adjustment equal to 3% of the current benefit. Active members contribute 5% of their salaries. If a member leaves service before becoming eligible to retire, accumulated contributions may be refunded. 8 years of eligibility service. Deferred full retirement benefit, based on benefit service and pay at termination, begins when member would have been eligible for voluntary retirement. An active member with 3 or more consecutive years of eligibility service who becomes totally and permanently disabled may be retired and receive a disability annuity computed in the same manner as an age and service annuity. If the member was eligible for normal retirement at the time of death, an eligible beneficiary will begin receiving a 50% joint and survivor pension computed in the same manner as a service retirement pension as if the member had retired the last day of his life. 25

SECTION F ACTUARIAL COST METHOD AND ACTUARIAL ASSUMPTIONS Actuarial Cost Methods and Assumptions 26

Section F SUMMARY OF ASSUMPTIONS USED FOR APERS ACTUARIAL VALUATIONS ASSUMPTIONS ADOPTED BY BOARD OF TRUSTEES AFTER CONSULTING WITH ACTUARY In accordance with Section 24-4-105 of the Arkansas Code, the Board of Trustees adopts the actuarial assumptions used for actuarial valuation purposes. The actuarial assumptions used in the valuation are shown in this section. Assumptions were established based upon an Experience Study covering the period July 1, 2007 through June 30, 2012 (please see report dated February 13, 2013). Economic assumptions have been subsequently updated based on the Experience Study and the results of the Economic Assumption Review performed for the Arkansas Judicial Retirement System (please see our report dated August 6, 2015). The actuarial assumptions represent estimates of future experience. ECONOMIC ASSUMPTIONS The investment return rate used in making the valuation was 7.50% per year, compounded annually (net after investment and administrative expenses). This rate of return is not the assumed real rate of return. The real rate of return is the portion of investment return which is more than the wage inflation rate. Considering the assumed wage inflation rate of 3.25%, the 7.50% investment return rate translates to an assumed net real rate of return of 4.25%. This assumption was first used for the June 30, 2015 valuation and for the District Judges division for the June 30, 2015 valuation. Pay increase assumptions for individual active members are shown on pages 33 and 35. Part of the assumption for each age is for a merit and/or seniority increase, and the other 3.25% recognizes wage inflation. The wage inflation assumption consists of 2.50% for price inflation and 0.75% for real wage growth. These assumptions were first used for the June 30, 2015 valuation and for the District Judges division for the June 30, 2015 valuation. Total active member payroll is assumed to increase 3.25% a year, which is the portion of the individual pay increase assumptions attributable to wage inflation. This assumption was first used for the June 30, 2015 valuation and for the District Judges division for the June 30, 2015 valuation. The number of active members is assumed to continue at the present number. NON-ECONOMIC ASSUMPTIONS The mortality table used to measure retired life mortality was the RP-2000 Combined Healthy mortality table, projected to 2020 using Projection Scale BB, set-forward 2 years for males and 1 year for females. Related values are shown on page 28. Based upon the experience observed during the most recent experience study, it appears that at the time of the study the current table provides for an approximate 15% margin for future mortality improvement. This assumption was first used for the June 30, 2013 valuation. 26

Section F The probabilities of retirement for members eligible to retire are shown on pages 29 through 32. These probabilities were first used for the June 30, 2013 valuation and for the June 30, 2007 valuation for the District Judges division. The probabilities of withdrawal from service, death-in-service and disability are shown for sample ages on pages 33 through 35. These probabilities were first used for the June 30, 2013 valuation and for the District Judges division for the June 30, 2013 valuation. The individual entry-age normal actuarial cost method of the valuation was used in determining liabilities and normal cost. For calculating actuarially determined contributions, for members who are assumed to enter the DROP, normal costs are assumed to be collected until the ultimate date of retirement. For GASB Statement No. 67 purposes for members who are assumed to enter the DROP, the date of entry into the DROP was considered to be the plan member s retirement date. Differences in the past between assumed experience and actual experience (actuarial gains and losses) become part of actuarial accrued liabilities. Unfunded actuarial accrued liabilities are amortized to produce contribution amounts (principal and interest) which are level percent-of-payroll contributions. Recognizing the special circumstances of the General Assembly division, modifications of the above assumptions were made where appropriate. Present assets (cash & investments) were valued on a market related basis in which differences between actual and assumed returns are phased-in over a four-year period. The funding value of assets may not deviate from the market value of assets by more than 25%. District Judges Still Paying Old Plan present assets (cash & investments) were valued on a market value basis. The data about persons now covered and about present assets were furnished by the System s administrative staff. Although examined for general reasonableness, the data was not audited by the Actuary. The actuarial valuation computations were made by or under the supervision of a Member of the American Academy of Actuaries (MAAA). 27

Section F SINGLE LIFE RETIREMENT VALUES BASED ON RP-2000 COMBINED, PROJECTED TO 2020 7.50% INTEREST JUNE 30, 2015 Sample Attained Ages Present Value of Present Value of $1.00 Monthly for Life $1.00 Monthly for Life Increasing 3% Annually Men Women Men Women Future Life Expectancy (Years) Men Women 40 $ 152.73 $ 155.50 $ 221.02 $ 228.64 40.56 44.21 45 148.14 151.73 209.34 218.29 35.81 39.39 50 142.02 146.73 195.44 205.97 31.13 34.64 55 134.13 140.11 179.30 191.41 26.58 29.98 60 124.36 131.56 161.13 174.51 22.23 25.44 65 112.66 121.10 141.22 155.67 18.14 21.14 70 98.84 108.87 119.72 135.45 14.35 17.16 75 83.43 95.07 97.62 114.39 10.95 13.56 80 67.17 79.89 76.00 92.98 8.02 10.35 85 51.06 64.05 56.01 72.24 5.60 7.59 The mortality table was set forward 10 years for disabilities. Based on RP-2000 Combined Healthy mortality table, projected to 2020 using Projection Scale BB, set-forward 2 years for males and 1 year for females. 28

Section F STATE AND LOCAL GOVERNMENT DIVISION AGE-BASED RETIREMENT JUNE 30, 2015 A member was assumed eligible for unreduced retirement after attaining age 65 with 5 years of service or 28 years regardless of age. A member was assumed eligible for reduced retirement after attaining age 55 with 10 or more years of service. These rates represent the point at which members ultimately terminate employment (after participating in the DROP, for those that do). 29

Section F STATE AND LOCAL GOVERNMENT DIVISION SERVICE BASED RETIREMENT JUNE 30, 2015 Service Percent of Eligible Active Members Retiring Within Next Year 28 15 % 29 13 30 11 31 11 32 12 33 12 34 12 35 20 36 25 37 25 38 30 39 30 40 & Over 100 30

Section F GENERAL ASSEMBLY DIVISION PROBABILITIES OF RETIREMENT FOR MEMBERS ELIGIBLE TO RETIRE JUNE 30, 2015 Member may retire at age 50 with 20 or more years of service, age 60 with 16 or more years of service, or age 65 with 8 or more years of service. 31

Section F DISTRICT JUDGES DIVISION AGE-BASED RETIREMENT JUNE 30, 2015 Retirement Ages Percent of Eligible Active Members Retiring Within Next Year 50 10 % 51 10 52 10 53 10 54 10 55 12 56 12 57 14 58 14 59 14 60 18 61 18 62-73 30 74 & Over 100 Members may retire at age 50 with 20 or more years of service, age 60 with 16 or more years of service, or age 65 with 8 or more years of service. 32

Section F STATE AND LOCAL GOVERNMENT DIVISION SEPARATIONS FROM ACTIVE EMPLOYMENT BEFORE SERVICE RETIREMENT JUNE 30, 2015 Sample Years of Ages Service Percent of Active Members Separating within the Next Year Withdrawal Death Men Women Men Women Disability Men Women Pay Increase Assumptions For An Individual Employee Merit & Base Increase Seniority (Economy) Next Year 0 40.0 % 40.0 % 1 25.0 25.0 2 20.0 20.0 3 15.0 15.0 4 12.0 12.0 20 5+ 10.0 10.0 0.02 % 0.01 % 0.01 % 0.01 % 6.60 % 3.25 % 9.85 % 25 10.0 10.0 0.02 0.01 0.05 0.05 5.10 3.25 8.35 30 8.8 8.8 0.03 0.01 0.08 0.08 3.20 3.25 6.45 35 6.2 6.2 0.04 0.02 0.10 0.10 2.30 3.25 5.55 40 4.4 4.4 0.06 0.03 0.15 0.15 1.90 3.25 5.15 45 3.4 3.4 0.08 0.05 0.20 0.20 1.50 3.25 4.75 50 2.7 2.7 0.13 0.08 0.40 0.40 1.10 3.25 4.35 55 1.9 1.9 0.22 0.12 0.70 0.70 0.80 3.25 4.05 60 1.2 1.2 0.37 0.21 1.00 1.00 0.70 3.25 3.95 Pay increase rates are age based only, and not service based. 33

Section F GENERAL ASSEMBLY DIVISION SEPARATIONS FROM ACTIVE EMPLOYMENT BEFORE SERVICE RETIREMENT JUNE 30, 2015 Sample Years of Ages Service Percent of Active Members Separating within the Next Year Withdrawal Death Disability Men Women Men Women Men Women 0 30.0 % 30.0 % 1 25.0 25.0 2 20.0 20.0 3 15.0 15.0 4 12.0 12.0 20 5+ 9.0 9.0 0.02 % 0.01 % 0.06 % 0.06 % 25 8.3 8.3 0.02 0.01 0.06 0.06 30 5.3 5.3 0.03 0.01 0.06 0.06 35 3.0 3.0 0.04 0.02 0.06 0.06 40 2.6 2.6 0.06 0.04 0.16 0.16 45 2.4 2.4 0.08 0.06 0.22 0.22 50 1.1 1.1 0.13 0.09 0.39 0.39 55 0.8 0.8 0.22 0.14 0.71 0.71 60 0.8 0.8 0.37 0.23 1.13 1.13 34

Section F DISTRICT JUDGES SEPARATIONS FROM ACTIVE EMPLOYMENT BEFORE SERVICE RETIREMENT JUNE 30, 2015 Sample Ages Percent of Active Members Separating within the Next Year Withdrawal Disability Men Women Men Women Pay Increase Assumptions For An Individual Employee Merit & Base Increase Seniority (Economy) Next 20 2.0 % 2.0 % 0.08 % 0.08 % 2.70 % 3.25 % 5.95 % 25 2.0 2.0 0.08 0.08 2.60 3.25 5.85 30 2.0 2.0 0.08 0.08 2.20 3.25 5.45 35 2.0 2.0 0.08 0.08 1.90 3.25 5.15 40 2.0 2.0 0.20 0.20 1.40 3.25 4.65 45 2.0 2.0 0.27 0.27 1.20 3.25 4.45 50 2.0 2.0 0.49 0.49 0.70 3.25 3.95 55 2.0 2.0 0.89 0.89 0.70 3.25 3.95 60 2.0 2.0 1.41 1.41 0.00 3.25 3.25 35

Section F SUMMARY OF ASSUMPTIONS USED JUNE 30, 2015 MISCELLANEOUS AND TECHNICAL ASSUMPTIONS Marriage Assumption. 80% of males and 80% of females are assumed to be married for purposes of death-in-service benefits. District Judges division - 100% of males and 100% of females are assumed to be married for purposes of death-in-service benefits. 80% of males and 80% of females are assumed to be married for purposes of death-after-retirement benefits for active member valuation purposes. Pay Increase Timing. Beginning of (Fiscal) year. This is equivalent to assuming that reported pays represent amounts paid to members during the year ended on the valuation date. Decrement Timing. Decrements of all types are assumed to occur mid-year. Other Liability Adjustments. Active member non-refund normal costs and actuarial accrued liabilities were increased by 1.5% to reflect non-reported reciprocal service. Eligibility Testing. Eligibility for benefits is determined based upon the age nearest birthday and service nearest whole year on the date the decrement is assumed to occur. Benefit Service. Exact fractional service is used to determine the amount of benefit payable. Decrement Relativity. Decrement rates are used directly from the experience study, without adjustment for multiple decrement table effects. Normal Form of Benefit. The assumed normal form of benefit is the straight life form. District Judges Division Old Plan Deferred Members. For members that are eligible for a deferred benefit in the Old Plan and are currently active in the New Plan, it is assumed that the deferred benefit will commence at the first age at which the member is eligible to receive the benefit. Incidence of Contributions. Contributions are assumed to be received continuously throughout the year based upon the computed percent of payroll shown in this report, and the actual payroll payable at the time contributions are made. New entrant normal cost contributions are applied to the funding of new entrant benefits. DROP Duration. We assume on average the total DROP duration is 4 years for those members currently participating in the DROP. 36