COPERS

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COPERS
City of Phoenix Retirees' Association

• City of Phoenix Employees Retirement System

March 2012
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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
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 Contributions
Employee Contribution 5 per Charter
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Post-Retirement Increases

• PEP
• 13th Check
• Status
• Future Outlook

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Pension Increases

• 13th Check
• One time payment
• Eligible if retired by June 30th of payment year
• Paid with December pension payment
• Lesser of ½ of prior years 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

• PEP
• Permanent increase
• Eligible if retired 36 months by January 1st
• Paid with April pension payment retroactive to
  January
• Lesser of prior years CPI (not less than zero)
  or percentage supported by excess returns reserve
• Based on excess investment returns reserve

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Pension Equalization Program
Actuarial Return Target 8
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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

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Pension Equalization Program (PEP)
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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
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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 Citys 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
  5050 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

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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 Returns as of December 31, 2011 Returns as of December 31, 2011 Returns as of December 31, 2011
1 Year 3 Years Cumulative 4 Years Cumulative 5 Years Annualized Average
Large Company Stocks SP 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 Govt 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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Questions?