1. GASB 45 Forum A Local Government’s Perspective February 7, 2007Janet Smith Washington D.C.City of Phoenix, Arizona Personnel Director

2. Overview The liability was significant With effective dates approaching, time for planning was short Best interest of the city and the employees to reduce this liability –Bond ratings –Cash flows –Plan design –Citizen interest GASB 45 The Challenge

3. Overview Blended rates between active employees and retirees Provided retirees a subsidy to offset medical expenses Liabilities

4. Overview Collaboration Required: –Employee unions & associations –Personnel, Budget and Research, and Finance departments Actuarial Analysis: –Pension and Health Care actuary –Initial estimate based on preliminary data Explore All Options: –Cost-sharing multiple employer plans –Community – rated plans –Political solutions –What are others doing? Working Together for a Positive Solution The Process

5. Do I Really Have to Make Changes? Regardless of GASB: –Changing demographics made it necessary to change –Recognizing this liability and funding it is the right thing to do Bottom Line 2007 2008 2009 2010 2011 2012 2013 2014

6. Considerations Impact to stakeholders: –Current retirees –Employees nearing retirement –New employees Maintain retiree medical benefits Opportunity to codify benefits Manage costs Craft a mutually agreeable solution Designing the Solution Health care coverage will still be offered to employees and retirees

7. A Look at the Changes Win/Win Solutions Eliminated GASB liability by unblending actives and retirees (implicit subsidy) Long term reduction in GASB liability by setting an end date to the Retiree Subsidy Program Lower future health care costs by targeted health benefits programs CITY Current retirees and those within 15 years receive: Additional funds to reduce impact of unblending Rate stabilization fund to address potential retiree rate fluctuations All other actives receive Post Employment Health accounts for future health care costs Targeted health benefits programs and options by population EMPLOYEES

8. Next Steps Communication of changes: –Employee, management, and retiree briefings –Employee publications –Mailings to retirees Effective date of changes: August 1, 2007 Implementation