City of Phoenix Employees’ Retirement System Retirees' Association COPERS City of Phoenix Employees’ Retirement System March 2011

Agenda Economic Overview COPERS’ Financial Condition Funded Status Employer Contributions

Agenda Post-Retirement Increases Update on Pension Reform Task Force PEP 13th Check Calculation Process Status Future Outlook Update on Pension Reform Task Force Questions

Economic & Market Overview – Ryan Harvey, R.V. Kuhns & Associates, Inc. 2010 Equity market rebound continued Additional U.S. Government stimulus Federal Reserve maintained historically low rates U.S. economy officially entered into the current economic recovery, following a 18-month long recession that ended June 2009 4

Economic & Market Overview – Ryan Harvey, R.V. Kuhns & Associates, Inc. Generally Improving Economic Indicators Positive: Unemployment Rate: 9.7%  9.4% GDP Growth: 0.2%  3.3% (9/30/2010) Leading Economic Index: 106.2  112.4 Coincident Economic Index: 100.0  101.9 Neutral: Inflation Expectations: 2.4%  2.3% Negative: Consumer Confidence Index: 53.6  52.5 5

Economic & Market Overview – Ryan Harvey, R.V. Kuhns & Associates, Inc. Returns as of December 31, 2010 1 Year 2 Years Cumulative 3 Years Cumulative 5 Years Annualized Large Company Stocks – S&P 500 15.06% 45.51% -8.32% 2.29% Small Company Stocks – Russell 2000 26.86% 61.33% 6.82% 4.47% International Stocks – MSCI EAFE 8.21% 43.33% -18.38% 2.94% Corporate & Gov’t Bonds – BC Aggregate 6.54% 12.86% 18.77% 5.80% Real Estate – NCREIF Property 13.11% -5.96% -12.04% 3.51% 6

COPERS’ Financial Condition Funded Status Employer Contributions

Funded Ratio Aggregate 2009 Funding Level for Public Funds: 79.8% ** ** Source: NASRA Public Funds Survey Valuation Date (June 30/December 30*)

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 (not less than zero) 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 2006 12.10% 2007 7.85% 2008 -25.88% 2009 13.77% 2010 12.65% Average = 4.10%

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 2006-2010 Average = 4.10%

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 2011 – No addition, minimal balance exists Determine increase supported by reserve balance = 0.05%

PEP

PEP Pension Increases – Calculation Process (4) Phoenix-Mesa CPI for prior year 2006 3.0% 2007 3.4% 2008 3.5% 2009 2010 -1.4% 0.6% (5) PEP is lesser of CPI (not less than zero) or amount supported by reserve balance

2011 PEP Calculation Five Year Investment Earnings 4.10% (2) Excess Earnings? No (3) Deposit to PEP Reserve? No Increase supported by Reserve 0.05% (4) Phoenix-Mesa CPI for 2010 0.6% (5) 2011 PEP ? No

Pension Equalization Program (PEP) 10 year Cumulative: 19.90% 10 year Average: 1.99%

13th Check – Pension Increases – Calculation Process (1) Phoenix-Mesa CPI for prior year 2006 3.0% 2007 3.4% 2008 3.5% 2009 -1.4% 2010 0.6%

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 = 0.6% / 2 = 0.3% PEP Reserve = Minimal 2011 13th Check = Unlikely

13th Check

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

Update on Pension Reform Task Force - Rick Naimark, Deputy City Manager Membership Charge and timeline Next steps: Pension Consulting Services Legal Services

Questions?