League of Arizona cities and towns Annual conference August 21, 2019

1. Update and Discussion with the PSPRS Board League of Arizona cities and towns Annual conference August 21, 2019 Serving Those who serve others

2. Board representatives • Will Buividas, Board Chair • willb@psprs.com • 602-316-6036 (cell) • Scott McCarty, Board Trustee • smccarty@psprs.com • 480-392-1711 (cell)

3. “Nine New Board Members” Board of Trustees William T Buividas Chairman Mike Scheidt Vice Chairman Donald A. Smith, Jr. Trustee Jim Ameduri Trustee Scott McCarty Trustee Brian Moore Trustee Chris Hemmen Trustee Dean M. Scheinert Trustee Harry Papp Trustee

4. SYSTEM overview • Statewide Defined Benefit Pension Plan for All Public Safety Employees • State Agencies, Cities/Towns, Counties, Fire Districts, Tribal Communities • ~35K Members • 19K Actives • 14K Retirees • 2K Inactive / Vested • Three Benefits Tiers Based on Hire Date

5. WHERE DOES THE MONEY COME FROM?

6. REFORMS TO THE SYSTEM 1. 2016 Reform (SB 1428) • Created Tier 3 (Effective July 1, 2017) • Increased Retiree Eligibility Requirements • 50 / 50 Employer / Employee Cost Sharing • Reduced Employer Costs • Increased Employee Costs • Improved Governance Structure • Prop 124 and 125 (Tier 1 and 2) • Reduced Employer Costs • Eliminated Harmful Pension Benefit Increase (PBI) • Created COLA

7. Tier 3 Cost Savings Example-Phoenix PD (FY 19-20) FY 19-20 Savings = $3.0+ M. (113 Tier 3 Actives)

8. MORE NEEDS TO BE DONE • Critical Issue Facing Employers and Taxpayers • June 30, 2018 Unfunded Liability = $8.8 Billion • 46% Funded • Results Vary by Individual Plan • It’s Debt • It’s Not IF the Unfunded Liability (Legacy Costs) Will be Paid Off, It Is WHEN AND BY WHOM

9. LIABILITIES GREW FASTER THAN ASSESTS (tiers 1 & 2) $8.8B Unfunded Liability (46% Funded)

10. FUNDED STATUS OF individual PLANS HAS DECREASED (tiers & 2) 71% 94% 29% 6%

11. Disbursement of $8.8B unfunded liabilities (tiers 1 & 2) 59 Plans 94 Plans 69 Plans

12. Tier 3 Results: $200K Unfunded liability (89% Funded)

13. RECENT CHANGES MADE BY THE BOARD • Hired New Actuary Firm • Hired New Legal Counsel to the Board • Approved New Asset Allocation • Completed Outside IT Assessments • Terminated Administrator (HR Related)

14. Key board goals and initiatives • Get the Actuary Assumptions Right to Stabilize Contribution Amounts • Increase Stakeholder Involvement • Report Dollar Investment Returns (in addition to Percent Returns) • Shift Emphasis to Contribution Amount, Not Percent of Payroll • Create Actuary Modeler for Employers • Plan Specific “What If” Analysis • Create Investment Options for Employer Internal Pension Reserves

15. Actuary Assumptions • First Look with New Actuaries at May 28th Board Meeting • Next Look August 28th Board Meeting • Issues Under Consideration • Interest rate assumption • New public safety mortality tables • Type of amortization • Payroll growth assumption

16. Focus on Stakeholder Involvement • Increased Visibility of Board and Staff at Employer and Employee Events • Increase Role of Advisory Committee • An Inclusive Process Will Be Used to Discuss and Make Changes to Actuary Assumptions • A Stakeholder Group Will Be Created to Evaluate Tier 3 Consolidation • One Pooled Plan, 17 Separate Plans

17. Employer recommended practices • Adopt a Pension Funding Policy • Now Required Effective July 1, 2019 per ARS 38-863.1 • “Know Your Plan” • What is the Annual Payment for Your Unfunded Liability? • Annually Review Your Actuary and GASB Reports

18. Employer recommended practices • Prepay Your Annual Budgeted Contribution on July 1st to Improve Interest Earnings • Inclusive of vacancy savings, Tier 3 Savings, and DROP contributions

19. History of prepaid contributions on July 1st *Reduction from prior years due to use of Hall-Parker credits.

20. Employer recommended practices • One-Time Option to Reset Amortization Period to 30 Years • Proceed with Caution… • Reduces Payments in Short-Term, Higher Payments and More Expensive in the Long-Run

21. AMORTIZATION PERIODS

22. Employer recommended practices • Treat Your 2% Fire Insurance Tax Payment as an Additional Contribution • Do Not Reduce From Your PSPRS Payment • Review Your Local Board Practices

23. Who is doing what? • City of Prescott • Dedicated 0.75% Sales Tax • Voter Approved in 2017 • Sunsets When Unfunded Liability is $1.5M or after 10 Years (Whichever is Sooner) • $11M One-Time Payment from Savings to PSPRS • Police and Fire Combined Unfunded Liability Reduced by $17.4M in 2018 (to $69M)

24. Who is doing what? • City of Mesa • Internally Targeting a Faster Amortization Period than Required • Re-Amortized with PSPRS to 30 Years • City Council Created Internal 25-Year Target • Creates Budget Flexibility • Created a Pension Stabilization Fund • $6M Balance Today • $2M Projected Additions Annually • Pay at Least the ARC • Makes Up Difference Between Actual vs. Assumed Payroll Growth

25. Who is doing what? • Town of Queen Creek • Adopted Pension Funding Policy in June 2015 When Fire Plan was 65% Funded • Fire Plan Fully Funded Since • Subsequent Policy Enhancements • Added MCSO Internal Pension Reserve • Fully Funded at $20.9M • Added ASRS Internal Pension Reserve • Partially Funded at $8.4M (of $19.9M Target) • Next Up: Developing Town Specific Actuary Assumptions Unique to Queen Creek

26. QUESTIONS, • COMMENTS, AND • DISCUSSION