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 Update on Pension Reform Task Force Questions

4 4 Economic & Market Overview – Ryan Harvey, R.V. Kuhns & Associates, Inc  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

5 5 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   Coincident Economic Index:100.0  Neutral:  Inflation Expectations:2.4%  2.3% Negative:  Consumer Confidence Index:53.6  52.5

6 6 Economic & Market Overview – Ryan Harvey, R.V. Kuhns & Associates, Inc. Returns as of December 31, Year 2 Years Cumulative 3 Years Cumulative 5 Years Annualized Large Company Stocks – S&P %45.51%-8.32%2.29% Small Company Stocks – Russell %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%

7 COPERS’ Financial Condition Funded Status Employer Contributions

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

9 History of Contributions Employee Contribution 5% per charter

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

11 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

12 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

13 PEP Pension Increases – Calculation Process (1) Determine Investment Earnings Average over last five calendar years % % % % % Average =4.10%

14 Average Rate of return (5 cal year)

15 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 = 4.10%

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

17 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%

18 PEP

19 PEP Pension Increases – Calculation Process (4) Phoenix-Mesa CPI for prior year % % % % 0.6% (5) PEP is lesser of CPI (not less than zero) or amount supported by reserve balance

PEP Calculation (1) Five Year Investment Earnings4.10% (2) Excess Earnings?No (3) Deposit to PEP Reserve? No Increase supported by Reserve0.05% (4) Phoenix-Mesa CPI for % (5) 2011 PEP ?No

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

22 13th Check – Pension Increases – Calculation Process (1) Phoenix-Mesa CPI for prior year % % % % %

23 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  th Check = Unlikely

24 13th Check

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

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

27