1. © 2011 Northern Trust Corporation ServiceExpertiseIntegrity Dennis Anosike Ph: 312.444.5031 Email: doa1@ntrs.com The Changing Face of Public Pension Plans May 23, 2011

2. IntegrityExpertiseService 2 Pension Deficit Disorder Current media headlines highlight the scope of public pension issues or proposed changes “Defined Benefit Pensions at a Tipping Point” “A perfect pension storm” “The future of defined pension benefit schemes” “Study – Local Pension Cash Running Low” “... Pension Plan Fully Funded”... Average Teacher Pension “More pension abuses, not enough reform ideas” “The Trillion Dollar Gap”

3. IntegrityExpertiseService 3 How Did We Get Here? $17 B $44 B $85 B $8 B $0.5 B Cumulative liabilities of $170 Billion, with pension related liabilities accounting for more than 80% of total liabilities Source: 2001 Pension Bonds Preliminary Official Statement, Governor’s Office of Management and Budget

4. IntegrityExpertiseService 4 Broad-based Fiscal Challenge Other states face the same or similar fiscal challenges 4.5x 4.0x 3.5x 3.0x 2.5x 2.0x 1.5x 1.0x 0.5x 0.0x Leverage: Debt plus Underfunded Pension Liability as percent of State Revenues (2009), excluding POB Structural Deficit: Projected FY2012 Budget Gap as percent of FY2011 Expenditures IL CA OR TX MN SC NJ IA WA NY PA MD OH CO OK CT Source: J.P Morgan “Eye on the Market,” January 24, 2011

5. IntegrityExpertiseService 5 WA OR CA NV ID MT WY UT AZ NM TX CO ND SD NE KS OK AR LA MO IA MN WI IL IN MS FL AL GA TN KY OH VA NC SC ME VT NY PA MA CT RI NH DC DE NJ AK HI MD DB to DC Both Increased contribution Reduced benefits MI The Future Is Here Proposed solutions reflect broad fiscal, political or social realities in specific state and local jurisdictions WV

6. IntegrityExpertiseService 6 In The Beginning ……Beginning in January, 2009 contributions must be made to the Plan at a rate necessary to get the Plan to 90% funded by the year 2058 Projected Funded Ratio (2007)

7. IntegrityExpertiseService 7 Managing Stakeholders Reaction Civic groups’ support for the legislation ignored the financial realities of transit funding and the broader impact of service reduction on the community. Limited capital market reaction despite projected impact of revenue diversion from the agency. Better understanding of potential unintended consequence of the legislation led to joint strategy with employee bargaining groups. Key groups welcomed the legislation, but capital market reaction was lukewarm

8. IntegrityExpertiseService 8 The Art of Compromise Increased state funding with higher employer/employee contribution. Used POB to prefund a Retiree Healthcare Trust; with on-going employees and retirees cost sharing. Added independent trustee to improved plan governance. Education and collaboration resulted in a comprehensive solution that increased funding, adjusted benefits, improved plan governance and preserved jobs

9. IntegrityExpertiseService 9 Are We There Yet? Additional funding increased Plan funded ratio and created a perpetual healthcare trust fund Projected Funded Ratio

10. IntegrityExpertiseService 10 Final Thoughts Involve key stakeholders Seek balanced solutions Greater use of funding options flexibility Highlight plan governance. Collaboration and compromise will help create optimal solutions for sustaining a critical employee benefit

11. © 2009 Northern Trust Corporation ServiceExpertiseIntegrity Dennis Anosike Ph: 312.444.5031 Email: doa1@ntrs.com Thank You Questions?