City of Phoenix Employees’ Retirement System Retirees' Association COPERS City of Phoenix Employees’ Retirement System March 2009

Agenda Economic Overview COPERS’ Financial Condition Funded Status Employer Contributions

Agenda Post-Retirement Increases Questions PEP 13th Check Calculation Process Status Future Outlook Questions

Economic Overview – Ryan Harvey, RV Kuhns & Assoc. 2008 Market Volatility U.S. Government Banking Plan Federal Reserve cut rates December 31, 2008 Unemployment Rate = 7.2% 4.9% at beginning of 2008 U.S. economy officially entered into a recession during late 2007

Economic Overview – Ryan Harvey, RV Kuhns & Assoc. Returns as of December 31, 2008 One Year 5 Years Annualized Large Company Stocks – S&P 500 -37.00% -2.19% Small Company Stocks – Russell 2000 -33.79% -0.93% International Stocks – MSCI EAFE -43.06% 2.10% Corporate & Govt Bonds – BC aggregate 5.24% 4.65% Real Estate – NCREIF Property -6.46% 11.67%

COPERS’ Financial Condition Funded Status Employer Contributions

Funded Ratio

History of Contributions Employee Contribution 5% per charter

Post-Retirement Increases PEP 13th Check Calculation Process Status Future Outlook

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

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 increase or percentage supported by excess returns reserve Based on excess investment returns reserve

PEP Pension Increases – Calculation Process (1) Determine Investment Earnings Average over last five calendar years 2004 10.44% 2005 6.74% 2006 12.10% 2007 7.85% 2008 -25.88% Average = 2.25%

Average Rate of return (5 cal year)

PEP Pension Increases – Calculation Process (2) Are there “Excess Earnings”? Earnings over 8% Rate is in Charter Equals the target rate used by actuary 2004-2008 Average = 2.25%

Average Rate of return (5 cal year) Actuarial Return Target = 8%

PEP Pension Increases – Calculation Process (3) If yes, an amount is added to the “PEP Reserve” A portion also goes to the retirement fund to help fund the general obligations of the fund 2009 – No addition but balance exists due to previous activity Determine increase supported by reserve balance = 1.7%

PEP

PEP Pension Increases – Calculation Process (4) Phoenix-Mesa CPI for prior year 2004 1.8% 2005 2.9% 2006 3.0% 2007 3.4% 2008 3.5% (5) PEP is lesser of CPI or amount supported by reserve balance 1.7%

2009 PEP Calculation Five Year Investment Earnings 2.25% (2) Excess Earnings? No (3) Deposit to PEP Reserve? No but PEP Reserve balance of approx. $15 million will support increase of 1.7% (4) Phoenix-Mesa CPI for 2008 3.5% (5) 2009 PEP 1.7%

Pension Equalization Program (PEP) 10yr Cumulative: 26.6% 10yr Average: 2.7%

13th Check – Pension Increases – Calculation Process (1) Phoenix-Mesa CPI for prior year 2004 1.8% 2005 2.9% 2006 3.0% 2007 3.4% 2008 3.5%

13th Check – Pension Increases – Calculation Process (2) 13th Check is lesser of ½ CPI or 3% with minimum of 1% if PEP Reserve balance is sufficient ½ CPI = 3.5% / 2 = 1.75% PEP Reserve = Unknown Determined after payment of 2009 PEP + end of year adjustments 2009 13th Check = Unknown

13th Check *Minimum rate per amended City Charter

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

Questions?

City of Phoenix Employees’ Retirement System Retirees' Association COPERS City of Phoenix Employees’ Retirement System March 2009