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

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

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

4. 4 Economic Overview – Ryan Harvey, RV Kuhns & Assoc. 2009  Equity market rebound  Additional U.S. Government stimulus  Federal Reserve maintained historically low rates December 31, 2009 Unemployment Rate = 10%  7.6% at beginning of 2009 U.S. economy officially entered into a recession during late 2007

5. 5 Economic Overview – Ryan Harvey, RV Kuhns & Assoc. Returns as of December 31, 2009 1 Year 2 Years Cumulative 5 Years Annualized Large Company Stocks – S&P 50026.46%-20.32%0.42% Small Company Stocks – Russell 2000 27.18%-15.79%0.51% International Stocks – MSCI EAFE32.46%-24.57%4.02% Corporate & Govt Bonds – BC Aggregate 5.93%11.48%4.97% Real Estate – NCREIF Property-16.86%-22.23%4.75%

6. 6 COPERS’ Financial Condition Funded Status Employer Contributions

7. 7 Funded Ratio

8. 8 History of Contributions Employee Contribution 5% per charter

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

10. 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. 11 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

12. 12 PEP Pension Increases – Calculation Process (1) Determine Investment Earnings Average over last five calendar years 2005 6.74% 200612.10% 2007 7.85% 2008-25.88% 200913.77% Average =2.92%

13. 13 Average Rate of return (5 cal year)

14. 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  2005-2009 Average = 2.92%

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

16. 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  2010 – No addition, minimal balance exists  Determine increase supported by reserve balance = 0.05%

17. 17 PEP

18. 18 PEP Pension Increases – Calculation Process (4) Phoenix-Mesa CPI for prior year 20052.9% 20063.0% 20073.4% 20083.5% 2009-1.4% (5) PEP is lesser of CPI (not less than zero) or amount supported by reserve balance

19. 19 2010 PEP Calculation (1) Five Year Investment Earnings2.92% (2) Excess Earnings?No (3) Deposit to PEP Reserve? No Increase supported by Reserve0.05% (4) Phoenix-Mesa CPI for 2009-1.4% (5) 2010 PEP ?No (preliminary pending certification by City Auditor and Plan’s Actuary)

20. 20 Pension Equalization Program (PEP) 10 year Cumulative: 23.7% 10 year Average: 2.4% 0.0%

21. 21 13th Check – Pension Increases – Calculation Process (1) Phoenix-Mesa CPI for prior year 20052.9% 20063.0% 20073.4% 20083.5% 2009-1.4%

22. 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 = -1.4% / 2 = -0.7%  PEP Reserve = Minimal  2010 13 th Check = Unlikely

23. 23 13th Check

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

25. 25

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