COPERS

COPERSCOPERSCCity ity oof f PPhoenix hoenix EEmployees’ mployees’ RRetirement etirement SSystemystem

2

AgendaAgenda

Economic Overview

COPERS’ Financial Condition

Funded Status

Employer Contributions

3

AgendaAgenda

Post-Retirement Increases

PEP

13th Check

Calculation Process

Status

Future Outlook

Update on Pension Reform Task Force

Questions

44

Economic & Market Overview – Economic & Market Overview – Ryan Harvey, R.V. Kuhns & Associates, Inc.Ryan Harvey, R.V. Kuhns & Associates, Inc. 2010

Equity market rebound continued

Additional U.S. Government stimulus

Federal Reserve maintained historically low rates

U.S. economy officially entered into the current economic recovery, following a 18-month long recession that ended June 2009

55

Economic & Market Overview – Economic & Market Overview – Ryan Harvey, R.V. Kuhns & Associates, Inc.Ryan Harvey, R.V. Kuhns & Associates, Inc. Generally Improving Economic Indicators

Positive: Unemployment Rate: 9.7% 9.4%

GDP Growth: 0.2% 3.3% (9/30/2010)

Leading Economic Index: 106.2 112.4

Coincident Economic Index: 100.0 101.9

Neutral: Inflation Expectations: 2.4% 2.3%

Negative: Consumer Confidence Index: 53.6 52.5

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Economic & Market Overview – Economic & Market Overview – Ryan Harvey, R.V. Kuhns & Associates, Inc.Ryan Harvey, R.V. Kuhns & Associates, Inc.

Returns as of December 31, 2010

1 Year2 Years

Cumulative3 Years

Cumulative5 Years

Annualized

Large Company Stocks –

S&P 500

15.06% 45.51% -8.32% 2.29%

Small Company Stocks –

Russell 2000

26.86% 61.33% 6.82% 4.47%

International Stocks –

MSCI EAFE

8.21% 43.33% -18.38% 2.94%

Corporate & Gov’t Bonds – BC Aggregate

6.54% 12.86% 18.77% 5.80%

Real Estate –

NCREIF Property

13.11% -5.96% -12.04% 3.51%

7

COPERS’ Financial ConditionCOPERS’ Financial Condition

Funded Status

Employer Contributions

8

Funded Ratio

69.3%

75.3%79.1%

83.9%81.3%84.2%84.2%88.5%

91.6%

102.5%101.7%101.7%100.1%

95.9%

84.7%

73.3%

87.8%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

1970* 1975* 1980* 1985 1990 1995 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Aggregate 2009 Funding Level for Public Funds: 79.8% **

** Source: NASRA Public Funds Survey Valuation Date (June 30/December 30*)

9

History of ContributionsHistory of Contributions

$29,186

$44,275

$53,094

$58,151

$106,483

$28,295

$64,198

$39,564

$27,820

$67,153

$86,591

$92,145

$22,329

$26,802

18.18%

16.04%

14.35%

11.78%12.12%

9.17%

7.24%6.13%

7.67%9.14%

6.86%

11.66%11.20%

9.97%

$-

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12Fiscal Year

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%

20.00%

City Contributions (in thousands)

Percent of Payroll

Employee Contribution 5% per charter

10

Post-Retirement IncreasesPost-Retirement Increases

PEP

13th Check

Calculation Process

Status

Future Outlook

11

Pension IncreasesPension Increases

1313thth Check Check One time payment

Eligible if retired by June 30th 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

12

Pension IncreasesPension Increases

PEPPEP 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

13

PEP Pension Increases – Calculation PEP Pension Increases – Calculation ProcessProcess(1) Determine Investment Earnings

Average over last five calendar years

2006 12.10%

2007 7.85%

2008 -25.88%

2009 13.77%

2010 12.65%

Average = 4.10%

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

13.11%

16.30%

11.70%

8.30%

2.60%

8.50%

12.25%

12.59%

11.40%

12.31%

8.64%

2.60%

4.90%

4.80%5.00%

2.25%

2.92%

4.10%

13.70%

13.10%

11.40%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%

20.00%

15

PEP Pension Increases – Calculation PEP Pension Increases – Calculation ProcessProcess

(2) Are there “Excess Earnings”? Earnings over 8% Rate is in Charter Equals the target rate used by actuary 2006-2010 Average = 4.10%

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

Actuarial Return Target = 8%

13.11%

16.30%

11.70%

2.60%

12.25%

8.50%8.30%

12.59%

11.40%

12.31%

8.64%

2.60%

4.90%

4.80%5.00%

2.25%

2.92%

4.10%

13.70%

13.10%

11.40%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%

20.00%

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(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

2011 – No addition, minimal balance exists Determine increase supported by reserve

balance = 0.05%

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PEPPEP

11.40%

12.31%

8.64%

13.11%

11.40%

13.70%

11.70%

2.60%

5.00%

8.50%

4.10%

2.92%

2.25%

13.10%

16.30%

12.59%

4.90%

4.80%

12.25%

8.30%

$-

$10,000,000

$20,000,000

$30,000,000

$40,000,000

$50,000,000

$60,000,000

$70,000,000

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%

Equalization Reserve Balance Average Rate of return (5 cal year)

Actuarial Return Target = 8%

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(4) Phoenix-Mesa CPI for prior year

2006 3.0%

2007 3.4%

2008 3.5%

2009

2010

-1.4%

0.6%

(5) PEP is lesser of CPI (not less than zero) or amount supported by reserve balance

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2011 PEP Calculation2011 PEP Calculation

(1) Five Year Investment Earnings 4.10%

(2) Excess Earnings? No

(3) Deposit to PEP Reserve? No Increase supported by Reserve 0.05%

(4) Phoenix-Mesa CPI for 2010 0.6%

(5) 2011 PEP ? No

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Pension Equalization Program (PEP)

3.9%

2.1% 2.1%

1.8%

2.9%

2.0%

3.4%

1.7%

0.0% 0.0%0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11

10 year Cumulative: 19.90%10 year Average: 1.99%

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13th Check – Pension Increases – 13th Check – Pension Increases – Calculation ProcessCalculation Process

(1) Phoenix-Mesa CPI for prior year

2006 3.0%

2007 3.4%

2008 3.5%

2009 -1.4%

2010 0.6%

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13th Check – Pension Increases – 13th Check – Pension Increases – Calculation ProcessCalculation Process

(2) 13th Check is lesser of ½ CPI or 3% with minimum of 1% if PEP Reserve balance is sufficient

½ CPI = 0.6% / 2 = 0.3%

PEP Reserve = Minimal

2011 13th Check = Unlikely

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13th Check13th Check

1.00% 1.00% 1.00%

0.0%

1.00%1.00%1.00%1.00%1.05%

1.00%

0.00%

0.40%

0.80%

1.20%

1.60%

2.00%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

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Future Outlook for Post-Retirement Future Outlook for Post-Retirement IncreasesIncreases

PEP Reserve

Investment/Economic Conditions

26

Update on Pension Reform Task Force - Rick Naimark, Deputy City Manager

Membership Charge and timeline Next steps:

Pension Consulting Services Legal Services

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Documents

COPERS