1. Buzzer Beater- Public Safety Pension Reform AZ IPMA HR Conference March 30, 2016 PSPRS Taskforce New Legislative Changes

2. Purpose of Presentation 1.Overview of the Task Force 2.Discuss Key Observations 3.Discuss the Yardstick 4.Discuss the Legislative 5.Feedback and Questions

3. Task Force  Formed June 2014  League / ACMA / GFOAz  Review All Aspects of PSPRS  Review PSPRS and Identify Areas for Improvement and Reform

4. PSPRS Overview  256 Employer (Individual) Plans  32,000 Actives / Retirees  Same Benefits for All Plans  Financial Condition Varies by Plan  $6.2B Total Underfunded  ER Rate Varies By Plan  EE Rates are Fixed at 11.65%

5. Key Observations  Unfunded Liability is DEBT  Reform WILL NOT Reduce Your Current Unfunded Liability (Debt)  Courts Have Protected Employee/Retiree Benefits  Manage Your Pension Plan  “Know Your Numbers”  Implement Employer Recommended Practices

6. PSPRS Overview Know Your Numbers GILBERT EXAMPLE

7. Gilbert Police ER Contribution Amount$4.1M ER Contribution per Employee$18.7K ER Contribution Rate22.2% ER Contribution as a % of GF Revenues3.0% Unfunded Liability (Debt) at 6/30/14$28.8M Percent Funded at 6/30/1465.5%

8. Gilbert Fire ER Contribution Amount$2.2M ER Contribution per Employee$12.5K ER Contribution Rate14.8% ER Contribution as a % of GF Revenues1.6% Unfunded Liability (Debt) at 6/30/14$7.0M Percent Funded at 6/30/1486.3%

9. Gilbert Overview ER Contribution Amount$6.3M ER Contribution per Employee$16.0K ER Contribution Rate18.9% ER Contribution as a % of GF Revenues4.6% Unfunded Liability (Debt) at 6/30/14$35.9M Percent Funded at 6/30/1473.4% Statewide Liability is $6.2B Funded Average is 49.2%

10. Gilbert Police By the Numbers State AvgGilbertGilbert $ Normal Cost12.4%12.0%$2,200,000 Amortization of Unfunded Liabilities* 28.7%10.2%$1,900,000 Total Contribution41.1%22.2%$4,100,000 Represents 46% of Annual Amount 22 Year Amortization at 7.85% Will Require at Least $32.5 Million in Interest Payments

11. Gilbert Fire By the Numbers State AvgGilbertGilbert $ Normal Cost12.4%11.3%$1,700,000 Amortization of Unfunded Liabilities* 28.7%3.5%$500,000 Total Contribution41.1%14.8%$2,200,000 Represents 24% of Annual Amount 22 Year Amortization at 7.85% Will Require at Least $8.0 Million in Interest Payments

12. Gilbert By the Numbers Gilbert %Gilbert $ Normal Cost11.7%$3,900,000 Amortization of Unfunded Liabilities* 7.2%$2,400,000 Total Contribution18.9%$6,300,000 Represents 38% of Annual Amount 22 Year Amortization at 7.85% Will Require at Least $40.5 Million in Interest Payments

13. Top 10 Statewide Benchmarks City/TownUnfunded $Funded %$ / Capita Tucson$763,000,00039%$1,440 Phoenix$2,004,500,00049%$1,330 Tempe$220,000,00045%$1,300 Mesa$399,400,00053%$880 Glendale$176,200,00053%$760 Scottsdale$106,200,00065%$470 Chandler$106,500,00062%$430 Peoria$57,000,00063%$350 Gilbert$35,900,00073%$150 Surprise$16,000,00076%$130

14. ER Best Practices Budget DROP Contributions Prepay Your Budgeted Contribution Do Not Defer the Fields Case Review Local Board Practices Prepare a Comprehensive Study Payoff Unfunded Liability Create a Pension Funding Policy

15. Yardstick: It’s Purpose Identifies Goals, Characteristics, and Elements of a Viable and Sustainable Public Pension Safety System for the State of Arizona Tool to Evaluate the Current System and Reform Proposals Aids in Public Policy Discussion

16. Yardstick: It’s Components 1.Defined Benefit Plan 2.Free From Legal Challenge 3.New Statewide System 4.Plan Elements of the New Statewide System 5.Governance Structure

17. Defined Benefit Plan Pension Benefit is Predetermined by a Formula Based on Employee Compensation, Age, and Tenure of Service

18. Free from Legal Challenge All Current Employees and All Current Retirees Remain in the Existing System

19. New Statewide Approach For All Employees Hired After July 1, 2016

20. Plan Elements of New System Pooled Assets and Liabilities: Spreads Risk Across the Broadest Base

21. Plan Elements of New System Fully Funded: Assets at Least Equal Liabilities (at least 100%) over an Economic Cycle

22. Plan Elements of New System Equal Cost Sharing: Equal Employer and Employee Contributions Rates

23. Plan Elements of New System Funding New Benefits or Benefit Increases: Established if and Only if System is Determined to be Fully Funded Before and After the Change

24. Plan Elements of New System Pension Increases: To Maintain Purchasing Power

25. Plan Elements of New System In-Lieu of Social Security Program: Mandatory Participation in an Employer-Matched Defined Contribution Plan for those Members not in Social Security

26. Governance Structure System Design Funding Policy Investment Policy

27. TAKE-A-WAYS  Reform WILL NOT Reduce Your Unfunded Liability  Actively Manage Your PSPRS Plan  Current System is Unsustainable  Reform in Needed  Yardstick is a Tool - Not a Proposal

28. Current Reform In-Progress  Proposition 124 – May 17, 2016 Looking Backward TIER 1, 2a, and 2b EE Hired Before 1/2012 EE Hired Before 1/2012 < 20 yrs EE Hired 01/01/12 – 6/30/17  SB1428 Going Forward – TIER 3 (07/01/17)

29. Current Reform In-Progress  Proposition 124 – Tiers 1 & 2 REPEALS Current Permanent Benefit Increase - PBI 50% System Earnings in Excess of 9% Reserved Provided Across the Board Flat Amount INSTALLS New COLA Structure Phoenix/Mesa CPI for Previous Year Not to Exceed 2% Funding Responsibility 100% ER

30. Current Reform In-Progress  Proposition 124 - Tier 3 Establishes COLA Structure Earlier of 7 Yr Retirement Anniv or 60 Years Old Funded Ratio Based > 90% 2.0% COLA 80-89%1.5% COLA 70-79%1.0% COLA < 70%0.0% COLA Funding Responsibility 50/50 EE/ER

31. Current Reform In-Progress  SB 1428 - Tier 3 Election of Benefits Defined Benefit Plan Defined Contribution Plan DC Disability Program PSPRS Board – Advisory Committee

32. Current Reform In-Progress  SB 1428 - Tier 3 Election of Benefits Comp - 5 Consecutive Highest of last 15 Years Normal Retirement – 15 yrs AND 55 yrs Old Three Retirement Options – 90 Days of Hire DB Option DC Option DB/DC Option – EEs w/o SSI Option Irrevocable Election - Transferable

33. Current Reform In-Progress  SB 1428 - Tier 3 Defined Benefit Plan 50 / 50 Cost Share Max Comp Considered $110,000 Indexed Beginning in 2021 – TBD Variable Multiplier 15-17 1.50% 17-19 1.75% 19-22 2.00% 22-25 2.25% 25+ 2.50%

34. Current Reform In-Progress  SB 1428 - Tier 3 Defined Contribution Plan 3% DC Option - DB Participant w/o SSI 9% DC Option for All Others Matched EE and ER 10 Year Vesting – 10% Per Year

35. Current Reform In-Progress  SB 1428 - Tier 3 Defined Contribution Plan - Continued ADDITIONAL Option for TIER 2B EEs w/o SSI Can Elect DC Supplement Option in 2017 EEs Contribute 3% Annually ERs Contribution Will Initially Vary Then Set at 3% Annually

36. Current Reform In-Progress  SB 1428 - Tier 3 Defined Contribution Plan - Continued ERs Contribution will Initially Vary by EE Hire 2012 4% ER through 2024 – 3% Thereafter - 7 yrs 2013 4% ER through 2023 – 3% Thereafter - 6 yrs 2014 4% ER through 2022 – 3% Thereafter - 5 yrs 2015 4% ER through 2021 – 3% Thereafter - 4 yrs 2016 4% ER through 2020 – 3% Thereafter - 3 yrs 2017 4% ER through 2018 – 3% Thereafter - 1 yr

37. Current Reform In-Progress  SB 1428 - Tier 3  DC Disability Program Only those Exclusively in the DC Program Administered by the Board Matched EE and ER Contributions Same Determinations as those in DB Plan

38. Current Reform In-Progress  SB 1428 - Tier 3  PSPRS Board 2 Law Enforcement (G & SP) M 1LBM 2 Firefighters (G & S) M 1LBM 3 Cities/Towns (G, SP & S) Non-M 1 County (G) Non-M 1 Appointed By G (Adv Brd to Brd) Non-M Removal Only For Cause Qualifications for Non-Members

39. Current Reform In-Progress  SB 1428 - Tier 3  PSPRS Board A PORTFOLIO MANAGER ACTING IN A FIDUCIARY CAPACITY A SECURITIES ANALYST A SENIOR EXECUTIVE OR PRINCIPAL OF A TRUST INSTITUTION, INVESTMENT ORGANIZATION OR ENDOWMENT FUND ACTING EITHER IN A MANAGEMENT OR AN INVESTMENT-RELATED CAPACITY

40. Current Reform In-Progress  SB 1428 - Tier 3  PSPRS Board A CHARTERED FINANCIAL ANALYST IN GOOD STANDING AS DETERMINED BY THE CHARTERED FINANCIAL ANALYST INSTITUTE. A CURRENT OR FORMER PROFESSOR OR INSTRUCTOR AT THE COLLEGE OR UNIVERSITY LEVEL IN THE FIELD OF ECONOMICS, FINANCE, ACTUARIAL SCIENCE, ACCOUNTING OR PENSION-RELATED SUBJECTS.

41. Current Reform In-Progress  SB 1428 - Tier 3  PSPRS Board AN ECONOMIST ANY OTHER SENIOR EXECUTIVE ENGAGED IN THE FIELD OF PUBLIC OR PRIVATE FINANCES OR WITH EXPERIENCE WITH PUBLIC PENSION SYSTEMS A SENIOR EXECUTIVE IN INSURANCE, BANKING, UNDERWRITING, AUDITING, HUMAN RESOURCES OR RISK MANAGEMENT

42. Current Reform In-Progress  SB 1428 - Tier 3  PSPRS Advisory Committee Liaison Between Board, Members, and Employers Appointed from Names Provided

43. Current Reform In-Progress  SB 1428 - Tier 3  Miscellaneous Study of Pooling Assets/Liabilities Due 1/15/17 Due to Gov/Legislature 2/15/17

44. Thanks! Any questions? For more information contact: Marc Skocypec Assistant Town Manager, Gilbert, AZ (480) 503- 6862 Marc.Skocypec@gilbertaz.gov