COPERS
City of Phoenix Employees’ Retirement System
Agenda

COPERS’ Financial Condition

Plan Statistics

Funded Status

Employer Contributions
2
Agenda

Post-Retirement Increases

PEP

13th Check

Status

Future Outlook

Update on Pension Reform Task Force

Economic Overview

Questions
3
Plan Statistics as of June 30, 2011

Membership:








Employees:
Inactive:
Retirees:
Total:
8,569
680
5,191
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
4
Funded Ratio
120.0%
Aggregate 2010 Funding Level for Public Funds: 76.0% **
95.9%
100.1% 101.7%
101.7% 102.5%
100.0%
91.6%
87.8%
80.0%
88.5%
84.7%
84.2% 84.2% 81.3% 83.9%
79.1%
75.3%
73.3%
69.3%
66.7%
60.0%
40.0%
20.0%
0.0%
1970* 1975* 1980* 1985
1990
1995
** Source: NASRA Public Funds Survey
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Valuation Date (June 30/December 30*)
5
History of Contributions
$120,000
25.00%
Employee Contribution 5% per Charter
$106,483
$110,094
20.15%
City Contributions (in thousands)
$100,000
Percent of Payroll
$92,145
18.18%
20.00%
$86,591
16.04%
$80,000
14.35%
15.00%
$67,153
$64,198
$58,151
$60,000
$53,094
9.97%
11.66%
9.17%
$44,275
$40,000
9.14%
$29,186
12.12%
11.78%
11.20%
10.00%
$39,564
7.67%
7.24%
6.13%
$26,802
6.86%
$28,295 $27,820
$22,329
5.00%
$20,000
$-
0.00%
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
6
Post-Retirement Increases

PEP

13th Check

Status

Future Outlook
7
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 year’s CPI increase or 3%;
minimum of 1%; if excess returns reserve
balance sufficient

Based on excess investment returns reserve
8
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
9
Pension Equalization Program
$70,000,000
18.00%
16.30%
Actuarial Return Target = 8%
16.00%
$60,000,000
13.70%
13.11%
12.59%
$50,000,000
11.40%
14.00%
13.10%
12.25%
12.31%
11.70%
12.00%
11.40%
$40,000,000
$30,000,000
10.00%
8.50%
8.30%
8.00%
8.64%
4.90%
5.00%
6.00%
4.10%
$20,000,000
2.60%
4.00%
4.80%
2.25%
1.80%
$10,000,000
2.92%
$-
2.00%
0.00%
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Equalization Reserve Balance
Average Rate of return (5 cal year)
10
2012 PEP Calculation
(1) Five Year Investment Earnings
1.80%
(2) Excess Earnings?
No
(3) Deposit to PEP Reserve?
Increase supported by Reserve
No
No
(4) Phoenix-Mesa CPI for 2012
2.8%
(5) 2012 PEP ?
No
11
Pension Equalization Program (PEP)
4.5%
3.9%
4.0%
3.4%
3.5%
2.9%
3.0%
2.5%
2.1%
2.1%
2.0%
1.8%
2.0%
1.7%
1.5%
1.0%
0.5%
0%
0%
'10
'11
0%
0.0%
'02
'03
'04
'05
'06
'07
'08
'09
'12
12
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
13
13th Check
2.00%
1.60%
1.20%
1.00%
1.00%
1.00%
1.05%
1.00%
1.00%
1.00%
1.00%
1.00%
0.80%
0.40%
0%
0%
2010
2011
0.00%
2001
2002
2003
2004
2005
2006
2007
2008
2009
14
Future Outlook for Post-Retirement
Increases

PEP Reserve

Investment/Economic Conditions
15
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
16
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
17
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
18
Pension Reform Task Force

Goals

Limit growth in the City’s liability

Risk sharing

Attract new employees and retain current
high-performing employees
19
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
20
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
21
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
22
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
23
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
24
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:
15 to 19.99 years of service:
20 to 24.99 years of service:
25 to 29.99 years of service:
30 or more years of service:
1.85%
1.90%
1.95%
2.00%
2.10%
25
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
26
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
27
Projection of Savings in City Contribution
• Projection of savings in City contribution amounts under Final Recommendation
in $1,000's
Fiscal Year:
Estimated City
Contribution
Savings Amount
(Fiscal Year)
Final Recommendation
Savings
Cumulative
2012
2013
$0
-$15,900
$0
-$15,900
2014
2015
-$30,400
-$44,000
-$46,300
-$90,300
2016
-$50,000
-$140,300
2021
-$54,500
-$403,200
2026
-$60,900
-$693,700
2031
-$69,600
-$1,023,500
Note: Dollar amounts are based on 2010 actuarial valuation
28
Pension Reform Task Force

Next steps:


Further consideration by City Council
Possible Charter changes on future election
29
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
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
Economic & Market Overview –
Charlie Waibel, R.V. Kuhns & Associates, Inc.
Returns as of December 31, 2011
Large Company Stocks –
1 Year
3 Years
Cumulative
4 Years
Cumulative
5 Years
Annualized
Average
2.11%
48.59%
-6.39%
-0.25%
-4.18%
54.59%
2.36%
0.15%
-11.73%
26.52%
-27.96%
-4.26%
7.84%
21.71%
28.09%
6.50%
14.27%
7.46%
0.52%
3.09%
S&P 500
Small Company Stocks –
Russell 2000
International Stocks –
MSCI EAFE
Corporate & Gov’t Bonds –
BC Aggregate
Real Estate –
NCREIF Property
32
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