1. Arizona State Retirement System Presentation to the Government Finance Officers Association of Arizona January 7, 2011

2. Arizona State Retirement System State of the ASRS Fund Current Legislative Action ASRS Cost Savings Initiatives Termination Incentive Programs

3. Arizona State Retirement System State of the Retirement Fund

4. Statistics (June 30, 2010 ) Approximate Plan Membership: – Active 220,000 – Inactive 210,000 – Retired & Survivors101,000 – System 1,640 4 Arizona State Retirement System

5. Fiscal Year 2011-12 Contribution Rate 9.87% Pension 0.63% Health Insurance 0.25% Long Term Disability 10.75% Total effective 07/01/2011

6. Arizona State Retirement System $26.6 billion fund balance as of 01/03/2011 Combined total net assets held in trust for pension benefits was $23.4 billion at 06/30/10 – 11.4% increase from $21.0 billion at 06/30/2009 Rate of return on investments for FY 2010 was 14.9% – (18.1)% for FY 2009

7. Arizona State Retirement System ASRS paid $2.21 billion in pension, disability, health insurance and survivor benefits during fiscal year 2010. – $2.07 billion during fiscal year 2009 06/30/10 Funded Status 76.7% – 06/30/09 funded status 79.3%

8. Arizona State Retirement System Legislative Update

9. Arizona State Retirement System Alternate contribution rate for return to work retirees Administrative initiatives

10. Arizona State Retirement System Cost Savings Initiatives

11. Issues Past & Present Contribution Rates increasing – Membership Decreases – Return to Work Contributions – Service Purchase Inequities: Remedies 2004 – Refund Accruals: Remedies 2004 – Early Retirement Incentives: Remedies 2004 – Miscellaneous: Remedies 2004+ – Modified Deferred Retirement Option:Remedies 2006 – Increasing Longevity: Remedies 2006, 2010 – Salary Spiking: Remedies 2009, 2010 – Refund Amounts: Remedies 2010 11

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13. Arizona State Retirement System Termination Incentive Plans

14. Arizona State Retirement System A.R.S. § 38-749 “If a termination incentive program that is offered by an employer results in an actuarial unfunded liability to ASRS, the employer shall pay to ASRS the amount of the unfunded liability.”

15. Termination/Retirement Incentives Unfunded liability is still created if incentive does not include ASRS compensation Unfunded liability is still created if all participants are at normal retirement age Unfunded liability cannot be calculated until all participants retire

16. Arizona State Retirement System Retirement unfunded liability is calculated as the difference between: – Present value of all future retirement benefits for active member with age, service and annual compensation equal to actual data at retirement – Present value of retirement benefit for retired member recognizing final benefit calculation and optional form election Health supplement unfunded liability is calculated as the difference between: – Present value of future health supplements for active member with age, service and annual compensation equal to actual data at retirement – The sum of: Present value of actual health supplement payable for two years Present value of assumed health supplements after two years

17. Arizona State Retirement System Example Female Age 64 34.84 years of credited service Pre-1984 membership date Annual salary $72,791 Incentive $25,818 Elected life annuity monthly benefit = $4,745.22 (ignoring partial lump sum) Elected single health supplement of $150 per month

18. Arizona State Retirement System Example Continued Pension Cost – Retirement present value as active = $531,274 – Present value as retired member with elected benefit = $575,879 – Pension cost = $44,605 Health Supplement Cost – Health supplement present value as active member = $8,352 – Health supplement present value as retired member: Health supplement present value as retired member with election for two years = $2,786 Health supplement present value as retired member with assumed supplements after two years = $8,607 – Retired member total = $11,393 – Health supplement cost = $3,041 Total Cost = $47,646

19. Arizona State Retirement System Questions?