COPERSCOPERSCCity ity oof f PPhoenix hoenix EEmployees’ mployees’ RRetirement etirement SSystemystem

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Agenda

COPERS’ Financial Condition

Plan Statistics

Funded Status

Employer Contributions

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Agenda

Post-Retirement Increases

PEP

13th Check

Status

Future Outlook

Update on Pension Reform Task Force

Economic Overview

Questions

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Plan Statistics as of June 30, 2011

Membership: Employees: 8,569 Inactive: 680 Retirees: 5,191 Total: 14,440

Average annual pension: $28,887 Average annual compensation for active members:

$59,904 Average age of active members: 46.1 Average years of service of active members: 12.8

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Funded Ratio

69.3%66.7%

75.3%79.1%

83.9%81.3%84.2%84.2%88.5%

91.6%

102.5%101.7%101.7%100.1%

95.9%

84.7%

73.3%

87.8%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

1970* 1975* 1980* 1985 1990 1995 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Aggregate 2010 Funding Level for Public Funds: 76.0% **

** Source: NASRA Public Funds Survey Valuation Date (June 30/December 30*)

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History of ContributionsHistory of Contributions

$29,186

$53,094

$58,151

$110,094

$44,275

$26,802

$22,329

$92,145

$86,591

$67,153

$27,820

$39,564

$64,198

$28,295

$106,483

9.97%

11.20%11.66%

6.86%9.14%7.67%

6.13%

7.24%

9.17%12.12% 11.78%

14.35%

16.04%

18.18%

20.15%

$-

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13

Fiscal Year

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

City Contributions (in thousands)

Percent of Payroll

Employee Contribution 5% per Charter

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Post-Retirement Increases

PEP

13th Check

Status

Future Outlook

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Pension Increases

1313thth Check Check

One time payment

Eligible if retired by June 30th of payment year

Paid with December pension payment

Lesser of ½ of prior year’s CPI increase or 3%; minimum of 1%; if excess returns reserve balance sufficient

Based on excess investment returns reserve

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Pension Increases

PEPPEP Permanent increase

Eligible if retired 36 months by January 1st

Paid with April pension payment retroactive to January

Lesser of prior year’s CPI (not less than zero) or percentage supported by excess returns reserve

Based on excess investment returns reserve

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11.40%

13.11%13.70%

5.00%

8.50%

2.60%

11.70%

11.40%

12.31%

8.64%

8.30%

12.25%

4.80%

4.90%

12.59%

16.30%

13.10%

2.25%

2.92%

4.10%

1.80%

$-

$10,000,000

$20,000,000

$30,000,000

$40,000,000

$50,000,000

$60,000,000

$70,000,000

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%

Equalization Reserve Balance Average Rate of return (5 cal year)

Pension Equalization ProgramPension Equalization Program

Actuarial Return Target = 8%

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2012 PEP Calculation

(1) Five Year Investment Earnings 1.80%

(2) Excess Earnings? No

(3) Deposit to PEP Reserve? No Increase supported by Reserve No

(4) Phoenix-Mesa CPI for 20122.8%

(5) 2012 PEP ? No

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Pension Equalization Program (PEP)

3.9%

2.1% 2.1%

1.8%

2.9%

2.0%

3.4%

1.7%

0% 0% 0%0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12

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13th Check

13th Check is lesser of ½ CPI or 3% with minimum of 1% if PEP Reserve balance is sufficient

½ CPI = 2.8% / 2 = 1.4%

PEP Reserve = Minimal

2012 13th Check = Unlikely

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13th Check

1.00% 1.00% 1.00%

0%0%

1.00%1.00%1.00%1.00%1.05%

1.00%

0.00%

0.40%

0.80%

1.20%

1.60%

2.00%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

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Future Outlook for Post-Retirement Increases

PEP Reserve

Investment/Economic Conditions

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Update on Pension Reform Task Force

Task Force appointed January 2011 Worked with management, consultants

and other stakeholders to propose recommended changes to COPERS

Sunset December 31, 2011

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Pension Reform Task Force

Sixteen members included public members and members representing employees, retirees and the COPERS’ Board

13 meetings held between February and December 2011

Public comments and input accepted at meetings and electronically

www.phoenix.gov/pensionreform

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Pension Reform Task Force

Legal and actuarial consultants: Evaluate the financial impact of possible

changes to Plan provisions Proposed alternative strategies Assess impacts to the City and employees Provide legal advice to Task Force and City

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Pension Reform Task Force

Goals Limit growth in the City’s liability

Risk sharing

Attract new employees and retain current high-performing employees

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Pension Reform Task Force

Comprehensive review of COPERS and other relevant information, including: Prior studies and audits of COPERS The City Charter investment restrictions A history of changes to the City Charter

regarding COPERS Examples of sick leave and vacation leave

impact on pension benefits

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Pension Reform Task Force

Arizona constitutional provisions pertaining to public pension systems

Provisions of the Arizona State Retirement System and the Public Safety Personnel Retirement System

Recent changes to public pension systems across the country

Surveyed other city and state plans Gathered private sector information

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Pension Reform Task Force

Alternative scenarios were modeled: Employee contribution rate Benefit multiplier Pensionable earnings Retirement eligibility

Also discussed and considered hybrid and defined contribution plans

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Pension Reform Task Force

Possible application of changes Impact future hires only Impact future hires and all existing active

employees Impact future hires and subset of existing

actives – a “grandfather” group

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Pension Reform Task Force – Final Recommendations – New Hires Modify retirement eligibility

Eliminate Rule of 80 and other current age/time worked retirement provisions

Establish Normal Retirement Age of 63 with a minimum of 10 years of service

Establish an Early Retirement Age of at least 55 with 10 years of service Early retirement benefit amount would be

actuarially reduced from age 63

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Pension Reform Task Force – Final Recommendations – New Hires Change the pension multiplier to a graduated multiplier

based on years of service. (Cumulative multipliers applying to all prior years of service.)

Up to 14.99 years of service: 1.85% 15 to 19.99 years of service: 1.90% 20 to 24.99 years of service: 1.95% 25 to 29.99 years of service: 2.00% 30 or more years of service: 2.10%

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Pension Reform Task Force – Final Recommendations – New Hires Vacation and Sick leave payments at retirement cannot be used

in pension Final Average Compensation

Final Average Compensation for pension calculations will exclude travel, communications, and technical allowances

Time of service calculations shall reflect actual service time with 20 days of service required before a month of service is credited and 240 days of service required before a year of service is credited

Minimum Pension: Terminate any existing minimum pension requirements

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Pension Reform Task Force

Institute a floating contribution rate for all new and existing employees No grandfather group for existing employees Actuarially determined rate split evenly between employees

and the City as determined officially each year The City/employee rate will vary as the determined rate

varies, but will be split evenly New rate implemented immediately for new employees and

would be phased-in for existing employees beginning with the effective date

Existing employee group rate will initially rise no more than 2% of salary per year until the 50:50 split is achieved

Once split rate is achieved, the rate for the existing employee group will equal the rate for the new hire group

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Projection of Savings in City Contribution

• Projection of savings in City contribution amounts under Final Recommendation

Estimated City Contribution

Savings Amount(Fiscal Year)

Note: Dollar amounts are based on 2010 actuarial valuation

in $1,000's Final Recommendation

Fiscal Year: Savings Cumulative

2012 $0 $0

2013 -$15,900 -$15,900

2014 -$30,400 -$46,300

2015 -$44,000 -$90,300

2016 -$50,000 -$140,300

2021 -$54,500 -$403,200

2026 -$60,900 -$693,700

2031 -$69,600 -$1,023,500

in $1,000's Final Recommendation

Fiscal Year: Savings Cumulative

2012 $0 $0

2013 -$15,900 -$15,900

2014 -$30,400 -$46,300

2015 -$44,000 -$90,300

2016 -$50,000 -$140,300

2021 -$54,500 -$403,200

2026 -$60,900 -$693,700

2031 -$69,600 -$1,023,500

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Pension Reform Task Force

Next steps: Further consideration by City Council Possible Charter changes on future election

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Economic & Market Overview – Charlie Waibel, R.V. Kuhns & Associates, Inc. 2011 Economic Environment

Steadying U.S. economy, albeit at a modest rate, following a 18-month long recession that ended June 2009

Fluctuating economic headwinds internationally

Federal Reserve Maintained historically low rates

And subsequently, in January, stated that the economic conditions merited “exceptionally low levels for the federal funds rate at least through late 2014”

Reiterated its commitment to continued stimulus

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Economic & Market Overview – Charlie Waibel, R.V. Kuhns & Associates, Inc. Generally Improving Economic Indicators

Positive: Unemployment Rate: 9.4% 8.5%

Capacity Utilization: 76.8 78.1 Coincident Economic Index: 101.9 103.4 (preliminary)

Consumer Confidence Index: 63.4 64.8

Neutral: Inflation Expectations: 2.3% 2.0%

Negative: GDP Growth: 2.8% 1.5% Leading Economic Index: 112.3 94.3 (preliminary)

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Economic & Market Overview – Charlie Waibel, R.V. Kuhns & Associates, Inc.

Returns as of December 31, 2011

1 Year3 Years

Cumulative4 Years

Cumulative

5 Years Annualized

Average

Large Company Stocks –

S&P 500

2.11% 48.59% -6.39% -0.25%

Small Company Stocks –

Russell 2000

-4.18% 54.59% 2.36% 0.15%

International Stocks –

MSCI EAFE

-11.73% 26.52% -27.96% -4.26%

Corporate & Gov’t Bonds – BC Aggregate

7.84% 21.71% 28.09% 6.50%

Real Estate –

NCREIF Property

14.27% 7.46% 0.52% 3.09%

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