COPERS C ity o f P hoenix E mployees’ R etirement S ystem

2 Agenda Economic Overview COPERS’ Financial Condition  Funded Status  Employer Contributions

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

4 Economic Overview – Ryan Harvey, RV Kuhns & Assoc  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

5 Economic Overview – Ryan Harvey, RV Kuhns & Assoc. Returns as of December 31, 2008 One Year 5 Years Annualized Large Company Stocks – S&P %-2.19% Small Company Stocks – Russell %-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%

6 COPERS’ Financial Condition Funded Status Employer Contributions

7 Funded Ratio

8 History of Contributions Employee Contribution 5% per charter

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

10 Pension Increases 13 th Check One time payment Eligible if retired by June 30 th 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

11 Pension Increases PEP Permanent increase Eligible if retired 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

12 PEP Pension Increases – Calculation Process (1) Determine Investment Earnings Average over last five calendar years % % % % % Average =2.25%

13 Average Rate of return (5 cal year)

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

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

16 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%

17 PEP

18 PEP Pension Increases – Calculation Process (4) Get Phoenix-Mesa CPI for prior year % % % % % (5) PEP is lesser of CPI or amount supported by reserve balance  1.7%

PEP Calculation (1)Five Year Investment Earnings2.25% (2) Excess Earnings?No (3) Deposit to PEP Reserve? No but PEP Reserve Balance approximately $15 million which will support increase of1.7% (4) Phoenix-Mesa CPI for % (5) 2009 PEP1.7%

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

21 13th Check – Pension Increases – Calculation Process (1) Get Phoenix-Mesa CPI for prior year % % % % %

22 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  th Check = Unknown

23 13th Check *Minimum rate per amended City Charter

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

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COPERS C ity o f P hoenix E mployees’ R etirement S ystem