City of Phoenix Employees’ Retirement

System

February 22, 2011

2

Topics

Plan History and Participants Governance and Structure Plan Provisions Contributions and Funded Ratio Investment Allocation and Performance

3

Plan History

Defined Benefit Plan

Established via City Charter

Initiated in 1947; revised in 1953

Periodic changes approved by voters

Qualified under the Internal Revenue Code

Includes classified civil service employees and full-time appointed employees, except public safety employees and elected officials

4

Current Plan Participantsas of June 30, 2010

Retirees5,029

Members9,603

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Plan History - Participants

6,144

7,364

8,758

9,95010,324

1,0811,602

2,1532,603

3,171

3,968 4,133 4,2894,497

4,7635,029

9,60310,06510,408

7,716

5,776

9,659

-

2,000

4,000

6,000

8,000

10,000

12,000

1980 1985 1990 1995 2000 2005 2006 2007 2008 2009 2010

Retirees Members

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Plan History

Excludes Police Officers & Firefighters

Included in Public Safety Personnel Retirement System (PSPRS) authorized by Legislature

COPERS’ staff supports the public safety employees, PSPRS Phoenix Fire and Police Pension Boards

Excludes elected officials

Included in Elected Officials Retirement Plan (EORP) authorized by Legislature

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Police & Fire Pension Participants(as of June 30, 2010)

868

1,753

12

244128 198

1,472

3,017

0

500

1,000

1,500

2,000

2,500

3,000

3,500

Retirees & Beneficiaries Inactive Vested DROP Employees

Fire Police

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COPERS’ Governance Retirement Board

Per City Charter is responsible for Plan: Administration Management Operation

Nine Board members Three employee members elected by membership Four ex-officio: Finance Director, City Treasurer,

Human Resources Director and City Manager (or designee)

Citizen member Retiree member

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Board Committee Structure

Retirement Board

Investment Committee

Charter Amendments/Policies & Procedures Committee

Legal Review Committee

Disability Assessment Committee

Ad Hoc Committees (as necessary)

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Board Support Staff

Retirement Administrator and 13 staff members Administrative Operations Investments Member Services

Consultants / Advisors Investment Consultant Investment Managers Custodian Bank Legal Counsel Actuary Internal and External Auditors

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COPERS Plan Provisions –Retirement Eligibility

Active Employee

Age 60 with 10 or more years of service

Age 62 with 5* or more years of service

Rule of 80: age plus credited service equal 80

Deferred Vested 5* or more years of

credited service upon reaching age 62 – must leave contributions in fund

*Vesting period = Five years

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Benefit Formula Components

Final Average Salary (FAS)

Credited Service

Benefit Ratio

Up to 32.5 years @ 2%

32.5 to 35.5 years @ 1%

Over 35.5 years @ 0.5%

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Final Average Salary (FAS)

Average of highest 36 consecutive months of retirement applicable earnings within the last 10 years

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Credited Service Actual time worked in a retirement applicable

position

Service transferred from ASRS / PSPRS

Service time purchased:

Other public retirement system service

Military service (up to 5 years)

Eligible prior City of Phoenix employment

Sick leave conversion (if eligible)

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Benefit Formula Straight Life Pension amount is calculated as:

(FAS) X (Credited Service) X (Benefit Ratio)

Example:

Monthly FAS is $3,500

Credited Service of 25 years

$3,500 X 25 X 2% = $1,750 monthly pension

There are six payment options, some include survivor provisions

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Possible Pension IncreasesPension Equalization Program (PEP)

Approved by voters in 1991

Permanent increase (but not a COLA)

Eligible if retired 36 months by January 1st

Lesser of prior year’s CPI (not less than zero) or percentage supported by excess returns reserve

Based on excess investment returns (5-year average over 8%)

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Possible Pension Increases13th Check

Approved by voters in 1983 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 (5-year average over 8%)

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PEP

11.40%12.31%

8.64%

13.11%

11.40%

13.70%

11.70%

2.60%

5.00%

8.50%8.30%

12.25%

4.80%

4.90%

12.59%

16.30%

13.10%

2.25%

2.92%

$-

$10,000,000

$20,000,000

$30,000,000

$40,000,000

$50,000,000

$60,000,000

$70,000,000

1992 19931994 1995 1996 1997 19981999 2000 2001 2002 20032004 2005 2006 2007 20082009 20100.00%

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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Pension Equalization Program(payable in April)

3.8%3.9%

2.1% 2.1%

1.8%

2.9%

2.0%

3.4%

1.7%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

'01 '02 '03 '04 '05 '06 '07 '08 '09 '10

10 year Average: 2.4%

0.0%

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13th Check(payable in December)

0.0%

1.00%1.00%1.00%1.00%1.00%1.05%

1.00%1.00%1.00%

0.00%

0.30%

0.60%

0.90%

1.20%

1.50%

'01 '02 '03 '04 '05 '06 '07 '08 '09 '10

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Membership Statisticsas of June 30, 2010

Average annual pension:$28,042

Average annual compensation for active members:

$61,845 Average age of active members:

45.7 Average years of service of active members:

12.4

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Contributions

Employee 5% of gross salary Pre-tax deduction Since 1/1/1985

Employer Actuarially determined each year 14.35% fiscal year 2009 - 2010 16.04% fiscal year 2010 - 2011 18.18% fiscal year 2011 - 2012

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History of Employer ContributionsPercent of Payroll

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%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%

20.00%

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 11/12Fi sc a l Ye a r

Employee Contribution 5% per Charter

*Included 1.77% increase due to outcome of actuarial audit

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Contribution Trends

Very level as a percentage of payroll over 30+ years prior to 2002

Prior to 2002, favorable investment experience offset effect of negative experience in other areas

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Contribution Trends

Significant increases since 2002 reflect the negative investment experience

Increases in 2008 also reflects method adjustments pursuant to actuarial audit recommendations

Funding value of assets smoothes differences between actual and assumed experience (8%)

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Funded Ratio

69.30%

75.30%79.10%

83.90%81.30%84.20%84.20%88.50%

91.60%

102.50%101.70%101.70%100.10%

95.90%

84.70%

73.30%

87.80%

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: National Association of State Retirement Administrators, Public Funds Survey

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Target Asset Allocation

Int'l Equity21%

US Equity25%

Long/Short Equity10%Real Return

10%

Real Estate15%

Fixed Income19%

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Investment Performanceas of June 30, 2010

3.6%3.2%-3.5%14.2%

RVK All Pension Plans $1B – 5B median

1.8%1.0%-6.3%8.6%Target Benchmark

2.4%1.1%-5.9%10.3%COPERS

10 years5 years 3 years1 year

Annualized for periods greater than one year.

Thank you!