COPERS

1. City of Phoenix Retirees' Association COPERS City of Phoenix Employees’ Retirement System March 2012

2. Agenda • COPERS’ Financial Condition • Plan Statistics • Funded Status • Employer Contributions

3. Agenda • Post-Retirement Increases • PEP • 13th Check • Status • Future Outlook • Update on Pension Reform Task Force • Economic Overview • Questions

4. 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

5. Funded Ratio Aggregate 2010 Funding Level for Public Funds: 76.0% ** ** Source: NASRA Public Funds Survey Valuation Date (June 30/December 30*)

6. History of Contributions Employee Contribution 5% per Charter

7. Post-Retirement Increases • PEP • 13th Check • Status • Future Outlook

8. 13th 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 Pension Increases

9. Pension Increases PEP • 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

10. Pension Equalization Program Actuarial Return Target = 8%

11. 2012 PEP Calculation • 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 2012 2.8% • (5) 2012 PEP ? No

12. Pension Equalization Program (PEP)

13. 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

14. 13th Check

15. Future Outlook for Post-Retirement Increases • PEP Reserve • Investment/Economic Conditions

16. 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

17. 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

18. 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

19. Pension Reform Task Force • Goals • Limit growth in the City’s liability • Risk sharing • Attract new employees and retain current high-performing employees

20. 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

21. 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

22. 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

23. 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

24. 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

25. 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%

26. 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

27. 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

28. Projection of Savings in City Contribution • Projection of savings in City contribution amounts under Final Recommendation

29. Pension Reform Task Force • Next steps: • Further consideration by City Council • Possible Charter changes on future election

30. 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 30

31. 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) 31

32. Economic & Market Overview – Charlie Waibel, R.V. Kuhns & Associates, Inc. 32

33. Questions?