1. ARIZONA CITY MANAGEMENT ASSOCIATION WINTER CONFERENCE PRESENTATION FEBRUARY 5, 2014 JAMES C. BACON, JR. TOWN MANAGER

2.  What to do after you realize  They are structured very differently from other public pensions available throughout the State  Your own circumstances may have as much or more to do with your costs as what the PSPRS Board and legislature does  Systemic change will be very difficult 2 PUBLIC SAFETY PENSIONS IN ARIZONA

3.  Administers Police/Fire Pension Plans for:  Cities/Towns  State Agencies  Counties  Tribes  Fire Districts PUBLIC SAFETY PERSONNEL RETIREMENT SYSTEM (PSPRS) 3

4.  Normal  Duty-Related Disability  Not Duty-Related Disability MAIN TYPES OF RETIREMENT 4

5. Hired Prior to 1/1/12 Hired After 1/1/12 Eligibility20 Years Service or Age 62 with 15 Years Service 25 Years Service and Age 52.5 PensionBased on Highest 3 Years of Compensation 25 Years Service: 62.5% of Average Monthly Compensation > 25 Years Service: Increased by 2.5% / year Maximum Pension80% of Average Monthly Compensation NORMAL RETIREMENT 5

6.  Defined Benefit Plan  Pension determined by formula not by the amount of money in the account (i.e. 401 Plan)  255 Member Entities  Unique Contribution Rates For Each PUBLIC SAFETY PERSONNEL RETIREMENT SYSTEM (PSPRS) (CONTINUED) 6

7.  System Board of Trustees  Seven Members  Statutory Responsibility for Investing Monies and Paying Out Benefits PUBLIC SAFETY PERSONNEL RETIREMENT SYSTEM (PSPRS) (CONTINUED) 7

8. PSPRS Board Goal and Time Frame Goal: Entire Plan 80% (or better) Funded Time Frame: 75% (or higher) Probability of Achieving the Goal within 20 years 8 PUBLIC SAFETY PERSONNEL RETIREMENT SYSTEM (PSPRS) (CONTINUED)

9.  Local Board  Five Members  Three Employer Appointed  Two Elected System Members  Determines Eligibility and Payment of Benefits (e.g. Disability Determinations) PUBLIC SAFETY PERSONNEL RETIREMENT SYSTEM (PSPRS) (CONCLUDED) 9

10. C + I = B + E Contributions Interest Benefits Expenses PENSION FORMULA 10

11. Employee FY 10-11 and Prior7.65% FY 11-128.65% FY 12-139.55% FY 13-1410.35% FY 14-1511.05% FY 15-16 and after*11.65%* EMPLOYEE CONTRIBUTION RATES 11 *33.3%/66.7% employee/employer split. 7.65% Minimum; 11.65% Maximum. 52% Increase from FY 10-11

12. PV’S CONTRIBUTION RATE HISTORY 12

13. Rank 1Attorney General Investigations105.19% 2South Tucson Police Department72.01% 3Game and Fish Department66.78% 4Bisbee Fire Department66.15% 5Youngtown Police Department65.58% 6Bisbee Police Department64.70% 7Paradise Valley Police Department62.44% 8Prescott Fire Department59.66% 9Maricopa County Attorney Investigations58.42% 10Coconino County Sheriff’s Department58.24% PLAN AVERAGE32.54% HIGHEST MEMBER CONTRIBUTION RATES (EFFECTIVE 07/01/14) 13

14. Discuss PV’s PSPRS Pension Plan 14

15. 1.More Retirees than Active Members  Constant Number of Active Employees  Increasing Number of Retirees 2.Lateral Hires (Age and Service Years) 3.Disability Pensions 4.Plan’s Investment Performance WHAT AFFECTS AN EMPLOYER ACCOUNT’S FINANCIAL CONDITION? 15

16. #AgeServiceAnnual Pay Actives23*43.610.6$80,350 Retiree33$45,555 DROP4$62,562 Inactive Vested1 Total61* PARADISE VALLEY’S CENSUS AT 6/30/13 16 * 20 were in PSPRS prior to 1/1/12.

17. PARADISE VALLEY’S CENSUS HISTORY ACTIVES VS. RETIREES 17

18. PARADISE VALLEY VS. PSPRS ACTIVES VS. RETIREES 18

19. 7/1/14 Pension-Normal Cost Requirement19.59% Net Employee Rate-7.65% Employer-Normal Cost Requirement=11.94% Amortization of Unfunded Liabilities+48.52% Total Pension Requirement=60.46% Total Health Requirement+1.98% PV’s Rate=62.44% PSPRS Average32.54% 7/1/14 TOWN CONTRIBUTION RATE 19

20. PV’S CONTRIBUTION RATE HISTORY PV VS. PSPRS AVERAGE 20

21. PV’S $ CONTRIBUTION HISTORY (IN MILLIONS) 21

22. PV’S $ CONTRIBUTION AS A PERCENT OF OPERATING REVENUES 22

23. PSPRS EMPLOYER FUNDED PERCENTAGE- ALL EMPLOYERS AT 6/30/13 23 PV

24. PV’S UNFUNDED LIABILITY HISTORY (IN MILLIONS) 24

25. 6/30/13 Total Accrued Liability$24.4M Present Assets (Funding Value)$8.4M Unfunded Liability$16.0M PV’s Funding Ratio34% PSPRS Average57% PV’S UNFUNDED LIABILITY AT 6/30/13 25

26. PSPRS EMPLOYER CONTRIBUTION RATES- ALL EMPLOYERS AT 6/30/13 26 PV

27. Discuss PV’s Actuary Projections 27

28. How big of an issue is it? 1.Where are pension contribution rates headed and why?  Pension = 60.44% in FY 14-15  Healthcare = 1.98% (Excluded from Report) 2.Should the Town of Paradise Valley consider buying down our unfunded liability? OBJECTIVES OF REPORT 28

29. 1.Baseline  PSPRS Assumptions (Not Town Specific) 2.Alternate 1 (Status Quo)  Baseline Modified with Town Specific Assumptions 3.Alternate 2 (Buy Down)  Alternate 1 plus $1M Annual Buy Down 3 SCENARIOS PREPARED 29

30.  “Decade of Lost Returns”  Asset Losses  7-Year Investment Earnings Smoothing  Decreased Investment Earnings Assumptions  Limited Wage/Staffing Increases  Changed Cost Methodology WHY RATES GREW SO FAST IN THE PAST 30

31.  Small Group = Potential Volatility  Lateral Hires  Tenure  Flat Wages  Staffing Levels  Number of Retirees TOWN FACTORS THAT AFFECT OUR RATES 31

32. Contribution Rates 10-Year Contributions Unfunded Liability at 6/30/23 Funded Ratio at 6/30/23 2023 Asset Level Status Quo64% - 68%$16.5M$17M55%$20.1M Buy Down*64% - 68% / 40%**$23.4M$6M85%$32.2M COMPARISON OF ALTERNATIVES 32 * Buy Down = Status Quo + $1M annually. ** Assuming $1M payments stop in 10 th year, 11 th year rate = 40%.

33. STATUS QUO CONTRIBUTION RATE AND FUNDED STATUS 33

34. STATUS QUO TOWN CONTRIBUTION AMOUNT AND FUNDED STATUS 34

35. STATUS QUO UNFUNDED LIABILITY AND FUNDED STATUS 35

36. BUY DOWN CONTRIBUTION RATE AND FUNDED STATUS 36

37. BUY DOWN TOWN CONTRIBUTION AMOUNT AND FUNDED STATUS 37

38. BUY DOWN UNFUNDED LIABILITY AND FUNDED STATUS 38

39.  For PV: 1.Rates Estimated to Peak and Maintain at 70% 2.Town Factors Contribute to Higher Rates 3.Buy Down is an Option  For You: 1.If your employer rates are high or growing rapidly, hire an actuary to evaluate your fund 2.Become actively involved with this issue MAIN POINTS 39

40.  Develop a Pension Funding Policy  Possible Objectives  Funded Plan Status  Unfunded Liability  Town Contribution Rate  Affordability  Cost as a Percent of Revenues  Explore tools used in other states  Become involved with League supported legislation HOW TO BECOME ACTIVELY INVOLVED 40

41. Questions and Comments 41