ARIZONA CITY MANAGEMENT ASSOCIATIONWINTER CONFERENCE PRESENTATION

FEBRUARY 5, 2014

JAMES C. BACON, JR.

TOWN MANAGER

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

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PUBLIC SAFETY PENSIONS IN ARIZONA

Administers Police/Fire Pension Plans for: Cities/Towns State Agencies Counties Tribes Fire Districts

PUBLIC SAFETY PERSONNEL RETIREMENT SYSTEM (PSPRS)

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NormalDuty-Related DisabilityNot Duty-Related Disability

MAIN TYPES OF RETIREMENT

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Hired Prior to1/1/12

Hired After1/1/12

Eligibility 20 Years Service or Age 62 with 15 Years Service

25 Years Service and Age 52.5

Pension Based on Highest 3 Years of Compensation

25 Years Service: 62.5% of Average Monthly Compensation> 25 Years Service: Increased by 2.5% / year

Maximum Pension 80% of Average Monthly Compensation

80% of Average Monthly Compensation

NORMAL RETIREMENT

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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)

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System Board of Trustees Seven Members Statutory Responsibility for

Investing Monies and Paying Out Benefits

PUBLIC SAFETY PERSONNEL RETIREMENT SYSTEM (PSPRS) (CONTINUED)

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PSPRS Board Goal and Time Frame

Goal: Entire Plan 80% (or better) FundedTime Frame: 75% (or higher) Probability of Achieving the Goal within 20 years 8

PUBLIC SAFETY PERSONNEL RETIREMENT SYSTEM (PSPRS) (CONTINUED)

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)

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C + I = B + E

Contributions Interest Benefits Expenses

PENSION FORMULA

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Employee

FY 10-11 and Prior 7.65%

FY 11-12 8.65%

FY 12-13 9.55%

FY 13-14 10.35%

FY 14-15 11.05%

FY 15-16 and after* 11.65%*

EMPLOYEE CONTRIBUTION RATES

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*33.3%/66.7% employee/employer split. 7.65% Minimum; 11.65% Maximum.

52% Increase from FY 10-11

PV’S CONTRIBUTION RATE HISTORY

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Rank

1 Attorney General Investigations 105.19%

2 South Tucson Police Department 72.01%

3 Game and Fish Department 66.78%

4 Bisbee Fire Department 66.15%

5 Youngtown Police Department 65.58%

6 Bisbee Police Department 64.70%

7 Paradise Valley Police Department 62.44%

8 Prescott Fire Department 59.66%

9 Maricopa County Attorney Investigations 58.42%

10 Coconino County Sheriff’s Department 58.24%

PLAN AVERAGE 32.54%

HIGHEST MEMBER CONTRIBUTION RATES(EFFECTIVE 07/01/14)

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Discuss PV’s PSPRS Pension Plan

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1. More Retirees than Active Members Constant Number of Active Employees Increasing Number of Retirees

2. Lateral Hires (Age and Service Years)3. Disability Pensions4. Plan’s Investment Performance

WHAT AFFECTS AN EMPLOYERACCOUNT’S FINANCIAL CONDITION?

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# Age Service Annual Pay

Actives 23* 43.6 10.6 $80,350

Retiree 33 $45,555

DROP 4 $62,562

Inactive Vested

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Total 61*

PARADISE VALLEY’S CENSUS AT 6/30/13

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* 20 were in PSPRS prior to 1/1/12.

PARADISE VALLEY’S CENSUS HISTORYACTIVES VS. RETIREES

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PARADISE VALLEY VS. PSPRSACTIVES VS. RETIREES

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7/1/14

Pension-Normal Cost Requirement

19.59%

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 Average 32.54%

7/1/14 TOWN CONTRIBUTION RATE

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PV’S CONTRIBUTION RATE HISTORYPV VS. PSPRS AVERAGE

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PV’S $ CONTRIBUTION HISTORY(IN MILLIONS)

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PV’S $ CONTRIBUTION AS A PERCENT OF OPERATING REVENUES

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

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PV

PV’S UNFUNDED LIABILITY HISTORY(IN MILLIONS)

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6/30/13

Total Accrued Liability $24.4M

Present Assets (Funding Value)

$8.4M

Unfunded Liability $16.0M

PV’s Funding Ratio 34%

PSPRS Average 57%

PV’S UNFUNDED LIABILITY AT 6/30/13

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

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PV

Discuss PV’s Actuary Projections

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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

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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

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“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

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Small Group = Potential Volatility Lateral Hires Tenure Flat Wages Staffing Levels Number of Retirees

TOWN FACTORS THAT AFFECT OUR RATES

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Contribution Rates

10-YearContributi

ons

Unfunded

Liability at

6/30/23

Funded Ratio

at 6/30/23

2023 Asset Level

Status Quo

64% - 68% $16.5M $17M 55% $20.1M

Buy Down*

64% - 68% / 40%**

$23.4M $6M 85% $32.2M

COMPARISON OF ALTERNATIVES

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* Buy Down = Status Quo + $1M annually.** Assuming $1M payments stop in 10th year, 11th year rate = 40%.

STATUS QUOCONTRIBUTION RATE AND FUNDED STATUS

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STATUS QUOTOWN CONTRIBUTION AMOUNT AND FUNDED

STATUS

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STATUS QUOUNFUNDED LIABILITY AND FUNDED STATUS

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BUY DOWNCONTRIBUTION RATE AND FUNDED STATUS

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BUY DOWNTOWN CONTRIBUTION AMOUNT AND FUNDED

STATUS

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BUY DOWNUNFUNDED LIABILITY AND FUNDED STATUS

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MAIN POINTS

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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

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Questionsand

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