You are on page 1of 80

PUBLIC SAFETY PERSONNEL RETIREMENT SYSTEM

SPECIAL BOARD OF TRUSTEES MEETING


June 5, 2014
AGENDA

ASpecialMeetingoftheBoardofTrusteesofthePublicSafetyPersonnelRetirementSystem(the
PSPRSorSystem)willbeheldinthemainpublicconferenceroomoftheadministrativeofficesof
PSPRS,3010EastCamelbackRoad,Suite200,Phoenix,Arizona85016,commencingat11:30a.m.on
Thursday,June5,2014.Themeetingwillcontinueuntil5:00p.m.oruntilthematterssetforthinthis
agendaareotherwiseaddressed.MembersoftheBoardofTrusteeswillattendeitherinpersonorby
telephonicconferencecall.TheBoardofTrusteesmayvotetoholdanexecutivesession,whichwillnotbe
opentothepublic,todiscusscertainmatters.TheBoardofTrusteesreservestherighttoconsider
agendaitemsoutoftheirlistedorder.
ThismeetingisavailabletothepublicthroughGotoMeetingovertheInternetorinperson.Pleasesee
www.psprs.comforthecomputerlinktothemeeting.Allpersonswishingtoattendareinvited.


1. CalltoOrder;RollCall;Openingremarks
Mr. Brian P. Tobin, Chairman

2. CalltothePublic.
Thisisthetimeforthepublictocomment.MembersoftheBoardofTrusteesmaynotdiscuss
itemsthatarenotspecificallyidentifiedontheagenda,excepttoaddresscriticismfromthe
public.Therefore,pursuanttoA.R.S.38-431.01(H),theBoardofTrusteesreactiontoany
publiccommentislimitedtoaddressingcriticismorrecommendingthattheBoardofTrusteesor
Staffrespondorstudysuchcommentorschedulethesubjectmatterforfurtherconsiderationata
laterdateafterappropriatenotice.

3.

DiscussionandpossibleActionregardingtheBoard'ssupportfor(i)legislationproposedby
theProfessionalFireFightersofArizonatoimprovethefiscalhealthofthePSPRSandmake
otherchangestotheSystem,and(ii)legislativeproposalsbycorrectionsofficersandelected
officialstoimprovethefiscalhealthoftheCORPand/ortheEORPandmakeotherchangesto
thoseplans.
Mr. Jim Hacking
Administrator

4.

DiscussionofandpossibleAction onaproposaltomitigateintheshortterm,theimpactofthe
Fields'casedecisiononplanemployercontributionrates.
Mr. Jim Hacking

5. Adjournment.

A copy of the agenda background material that is provided to the Board of Trustees (with the
exception of materials relating to possible executive sessions and/or materials exempt by law from
public inspection) is available for public inspection at the PSPRS offices located at 3010 East
Camelback Road, Suite, 200, Phoenix, Arizona. The agenda is subject to revision up to 24 hours
prior to the meeting.
BoardofTrusteesMeeting
June5,2014
1of1









April 25, 2014



Mr. J ames M. Hacking
Administrator
Arizona Public Safety Personnel Retirement System
3010 East Camelback Road, Suite 200
Phoenix, Arizona 85016-4416

Re: Arizona Public Safety Personnel Retirement System COLA Scenario Study

Dear J im:

Enclosed are the results of a supplemental actuarial valuation to measure the financial effect of
various scenarios for the Arizona Public Safety Personnel Retirement System (PSPRS).

The valuation was based upon data furnished by PSPRS. This data is summarized on page 2.
Actuarial methods and assumptions, except as noted, were the same as those used in the last regular
annual actuarial valuation as of J une 30, 2013.

Please call if you have any questions regarding the calculations enclosed.

Sincerely,



Mark Buis, FSA, EA, MAAA

MB:sc
Enclosures

cc: J ared Smout, PSPRS
J ames D. Anderson, GRS
Francois Pieterse, GRS

4/25/2014 -1-



ARIZONA PUBLIC SAFETY PERSONNEL RETIREMENT SYSTEM
COLA SCENARIO STUDY REVISED COLA START DATE
AS OF JUNE 30, 2013

REQUESTED BY: Mr. J ames Hacking, Administrator

DATE: April 25, 2014

SUBMITTED BY: Mark Buis, FSA, EA, MAAA and Francois Pieterse, ASA, MAAA
Gabriel, Roeder, Smith & Company


This report contains an actuarial valuation of proposed changes to the Arizona Public Safety
Personnel Retirement System (PSPRS). The purpose of the report is to analyze the financial impact
the proposed changes would have on the Plan. This report should not be relied on for any other
purpose. The report has been prepared at the request of the Fund Administrator. Mark Buis and
Francois Pieterse are Members of the American Academy of Actuaries (MAAA) and meet the
Qualification Standards of the American Academy of Actuaries to render the actuarial opinion
contained herein. The signing actuaries are independent of the plan sponsor.

The date of the valuation was June 30, 2013. This means that the results of the supplemental
valuations are based upon the J une 30, 2013 data and assumptions, unless otherwise stated.
Supplemental valuations do not predict the result of future actuarial valuations. Rather,
supplemental valuations give an indication of the probable long-term cost of theplan changes only
without comment on the complete end result of the future valuations.

This valuation was based upon information furnished by the Fund Administrator for use in the J une
30, 2013 valuation of the Plan. We checked for internal consistency, but did not otherwise audit the
data. We are not responsible for the accuracy or completeness of the information provided by
PSPRS. All actuarial assumptions, methods, and Plan provisions valued in this report, are as
described in the J une 30, 2013 valuation report except as explicitly described in this document.

Future actuarial measurements may differ significantly from the current measurements presented in
this report due to such factors as the following: plan experience differing from that anticipated by
the demographic assumptions; changes in economic or demographic assumptions; increases or
decreases expected as part of the natural operation of the methodology used for these
measurements; and changes in plan provisions or applicable law. Due to the limited scope of the
actuarys assignment, the actuary did not perform an analysis of the potential range of such future
measurements.



4/25/2014 -2-


ARIZONA PUBLIC SAFETY PERSONNEL RETIREMENT SYSTEM
COLA SCENARIO STUDY REVISED COLA START DATE
AS OF JUNE 30, 2013

Actuarial assumptions and methods were consistent with those used in the regular actuarial
valuation of the Retirement Plan on the valuation date, unless otherwise noted. Actuarial
assumptions are adopted by the Retirement Board of Trustees. In particular:

The assumed rate of interest was 7.85%.
The valuation method was the aggregate entry age actuarial cost method.
An amortization period of 23 years were used in the calculation of contribution rates
and funded rates in 2013. The amortization period was reset to a closed 30 year
period in 2014 for all scenarios.

A brief summary of the data, as of J une 30, 2013, is presented below:

Years of
No. Age Service 2013 2012
Actives 18,436 39.5 11.1 $74,344 $72,767
Retirees & Beneficiaries 10,159 63.1 49,571 49,480
DROP 1,482 53.6 63,236 62,308
Inactive Vested 1,442 37.6
31,519
Summary of Covered Population Data
June 30, 2013
Annual Pay or
Retirement Allowance
Averages




4/25/2014 -3-


ARIZONA PUBLIC SAFETY PERSONNEL RETIREMENT SYSTEM
COLA SCENARIO STUDY STUDY 1 (ORIGINAL WITH 30 YEAR
AMORTIZATION)
AS OF JUNE 30, 2013

BASE SCENARIO (THESE PROVISIONS APPLY TO ALL SCENARIOS UNLESS OTHERWISE STATED):
SB 1609 for PSPRS would remain intact.
COLAs would be paid based on the following schedule:
20 to 25 years of service at retirement: COLA delayed 10 years after commencement of
benefits.
25 or more years of service at retirement: COLA delayed 5 years after commencement of
benefits.
Tier 2 members can retire at 25 years of service (minimum age removed).
Employee Self funded Inflation Protection Program (IPP) provided for all active generations.
Allow an employee to select retirement date in the past for IPP.
Employee contributions of 11.65% (which includes 4% maintenance of effort contribution).
Pensionable income limited to $180,000 indexed with CPI.
Scenario A:
Eliminate the current excess earnings model for the COLA.
Reduce employee contribution rate to 7.65% (eliminating the 4% maintenance of effort
contribution).
Create a new account funded by 4.0% employee contributions (plus actual investment income)
which would fund an annual COLA payable after 3 full years of contributions.
A COLA would be paid each year based on funds available.
Scenario B:
Same as Scenario A except add $100 million in seed money to the COLA fund.
Scenario C:
Same as Base scenario but eliminate the 10.5% investment return threshold for the COLA (and
follow the graded COLA schedule based on funded status of the System).
Scenario D:
Replace current COLA model with the following COLA:
Members retired prior to 2000 receive a full COLA based on CPI (no cap).
All other members receive a COLA based on 75% of CPI with a 3% cap.


4/25/2014 -4-


ARIZONA PUBLIC SAFETY PERSONNEL RETIREMENT SYSTEM
COLA SCENARIO STUDY STUDY 1 (ORIGINAL WITH 30 YEAR
AMORTIZATION)
AS OF JUNE 30, 2013

Scenario E:
Replace current COLA model with a COLA based on CPI with a 3% cap.


4/25/2014 -5-


ARIZONA PUBLIC SAFETY PERSONNEL RETIREMENT SYSTEM
COLA SCENARIO STUDY STUDY 1 (ORIGINAL WITH 30 YEAR
AMORTIZATION)
AS OF JUNE 30, 2013

Executive Summary
The table below compares the employer contribution rate and average COLA for each scenario.
The projections were performed stochastically and therefore produce a range of outcomes with
probabilities instead of one single deterministic result. Therefore, results should not be relied upon
as a prediction of either the exact contribution rate or COLA that can be paid in the future, but
rather as a basis for comparison between the scenarios.
Scenario
Contribution Rate
(Median) Average COLA Comments
A Increases to 32.3% over
the next 15 years
1% to 2% COLA varies with payroll
B Increases to 32.3% over
the next 15 years
1.25% to 2.25% COLA varies with payroll
C Varies from 45.0% to
36.4% over the next 25
years
3.00% average - varies from
0% to 4.00% over the next
30 years
COLA varies with funded
status, higher initial
contribution rate
D Varies from 40.6% to
32.6% over the next 25
years
2.90% pre-2000
2.00% post-2000
COLA varies with CPI, higher
initial contribution rate
E Varies from 41.8% to
33.7% over the next 25
years
2.40% COLA varies with CPI, higher
initial contribution rate



4/25/2014 -6-


ARIZONA PUBLIC SAFETY PERSONNEL RETIREMENT SYSTEM
COLA SCENARIO STUDY STUDY 1 (ORIGINAL WITH 30 YEAR
AMORTIZATION)
AS OF JUNE 30, 2013

Scenario A and B
The graph below shows the median contribution rate and funded status for both Scenarios A and B
compared to SB1609 and Reversal of SB1609. Under both Scenarios A and B, the current COLA
program and 4% maintenance of effort employee contribution is eliminated and replaced with a
COLA that is funded with a 4% employee contribution. The contribution rates are similar to but
slightly higher than the Base Scenario. Scenario A and B will provide a COLA that is not
dependant on excess investment income.


Contribution Rates 2013 2018 2023 2028 2033 2038 2043 2048 2053
Scenario A/B 31.4% 31.4% 31.7% 32.3% 32.1% 31.5% 19.7% 8.0% 8.0%
SB 1609 31.0% 30.7% 30.9% 31.3% 31.5% 30.5% 17.4% 8.0% 8.0%
Reversal of SB 1609 31.7% 31.8% 33.8% 36.6% 39.7% 44.9% 33.2% 8.0% 8.0%
Median Funded Rate 2013 2018 2023 2028 2033 2038 2043 2048 2053
Scenario A/B 58.0% 57.0% 64.1% 70.4% 78.0% 86.9% 96.8% 102.6% 103.9%
SB 1609 58.7% 59.1% 65.3% 70.9% 77.5% 86.4% 97.7% 102.8% 105.0%
Reversal of SB 1609 56.4% 53.3% 55.3% 57.9% 62.4% 72.0% 88.6% 98.8% 101.4%
0%
20%
40%
60%
80%
100%
120%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
2013 2018 2023 2028 2033 2038 2043 2048 2053
F
u
n
d
e
d

S
t
a
t
u
s
C
o
n
t
r
i
b
u
t
i
o
n

R
a
t
e
Year
PSPRS Projection Results
Open Group
Median funded status - Scenario A/B
Median funded status - SB 1609
Median funded status - reversal of SB 1609
Median contribution rate - Scenario A/B
Median contribution rate - SB 1609
Median contribution rate - reversal of SB 1609



4/25/2014 -7-


ARIZONA PUBLIC SAFETY PERSONNEL RETIREMENT SYSTEM
COLA SCENARIO STUDY STUDY 1 (ORIGINAL WITH 30 YEAR
AMORTIZATION)
AS OF JUNE 30, 2013

Scenario A and B (continued)
Under Scenario A, the new COLA program is funded with a 4% employee contribution. Under
Scenario B, the new COLA is funded with a 4% employee contribution and is seeded with an
additional $100 million. The table below shows the average annual COLA that could be produced
under both Scenarios A and B with a 50% confidence level. Please note that these estimates are
based on a 4.5% payroll growth assumption. To the extent that payroll grows less than 4.5%,
the amount of COLA that can be provided will be less. For example, if payroll only grows at a
rate of 3% annually, the average COLA of 2.0% in Scenario A would be reduced to an
average COLA of about 1.4%.

Average
Annual
COLA
Scenario A Level - 2.00% avg
Scenario B Level - 2.25% avg



4/25/2014 -8-


ARIZONA PUBLIC SAFETY PERSONNEL RETIREMENT SYSTEM
COLA SCENARIO STUDY STUDY 1 (ORIGINAL WITH 30 YEAR
AMORTIZATION)
AS OF JUNE 30, 2013

Scenario C
The graph below shows the median contribution rate and funded status for Scenario C compared to
SB1609 and Reversal of SB1609. Under Scenario C, the 10.5% investment return threshold is
eliminated and the COLA (graded from 0% to 4% based on the funded status) is paid out regardless
of investment income. This produces an average annual COLA of approximately 3.0% over the
next 30 years. Under this scenario, the contribution rates increase immediately to approximately
45.0% due to the fixed nature of the COLA (i.e. it is no longer linked to investment return).

Contribution Rates 2013 2018 2023 2028 2033 2038 2043 2048 2053
Scenario C 45.0% 43.3% 42.8% 42.1% 40.2% 36.4% 8.0% 8.0% 8.0%
SB 1609 31.0% 30.7% 30.9% 31.3% 31.5% 30.5% 17.4% 8.0% 8.0%
Reversal of SB 1609 31.7% 31.8% 33.8% 36.6% 39.7% 44.9% 33.2% 8.0% 8.0%
Median Funded Rate 2013 2018 2023 2028 2033 2038 2043 2048 2053
Scenario C 48.0% 52.5% 63.4% 72.9% 82.5% 92.5% 101.4% 105.2% 108.1%
SB 1609 58.7% 59.1% 65.3% 70.9% 77.5% 86.4% 97.7% 102.8% 105.0%
Reversal of SB 1609 56.4% 53.3% 55.3% 57.9% 62.4% 72.0% 88.6% 98.8% 101.4%
0%
20%
40%
60%
80%
100%
120%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
2013 2018 2023 2028 2033 2038 2043 2048 2053
F
u
n
d
e
d

S
t
a
t
u
s
C
o
n
t
r
i
b
u
t
i
o
n

R
a
t
e
Year
PSPRS Projection Results
Open Group
Median funded status - Scenario C
Median funded status - SB 1609
Median funded status - reversal of SB 1609
Median contribution rate - Scenario C
Median contribution rate - SB 1609
Median contribution rate - reversal of SB 1609



4/25/2014 -9-


ARIZONA PUBLIC SAFETY PERSONNEL RETIREMENT SYSTEM
COLA SCENARIO STUDY STUDY 1 (ORIGINAL WITH 30 YEAR
AMORTIZATION)
AS OF JUNE 30, 2013

Scenario D
The graph below shows the median contribution rate and funded status for Scenario D compared to
SB1609 and Reversal of SB1609. Under Scenario D, the current COLA program is replaced by a
true COLA based on CPI with members who retired prior to 2000 receiving the full CPI and all
other members receiving 75% of CPI with a 3% cap. Based on CPI patterns of the last 30 years,
this would provide a 2.9% average compound COLA for members who retired prior to 2000 and a
2.0% annual COLA for all others. Under this scenario, the contribution rates increase immediately
to approximately 40.6% of pay due to the fixed nature of the COLA.

Contribution Rates 2013 2018 2023 2028 2033 2038 2043 2048 2053
Scenario D 40.6% 39.2% 38.7% 38.0% 36.0% 32.6% 8.0% 8.0% 8.0%
SB 1609 31.0% 30.7% 30.9% 31.3% 31.5% 30.5% 17.4% 8.0% 8.0%
Reversal of SB 1609 31.7% 31.8% 33.8% 36.6% 39.7% 44.9% 33.2% 8.0% 8.0%
Median Funded Rate 2013 2018 2023 2028 2033 2038 2043 2048 2053
Scenario D 50.7% 54.5% 64.9% 73.9% 83.6% 93.3% 101.9% 105.6% 108.8%
SB 1609 58.7% 59.1% 65.3% 70.9% 77.5% 86.4% 97.7% 102.8% 105.0%
Reversal of SB 1609 56.4% 53.3% 55.3% 57.9% 62.4% 72.0% 88.6% 98.8% 101.4%
0%
20%
40%
60%
80%
100%
120%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
2013 2018 2023 2028 2033 2038 2043 2048 2053
F
u
n
d
e
d

S
t
a
t
u
s
C
o
n
t
r
i
b
u
t
i
o
n

R
a
t
e
Year
PSPRS Projection Results
Open Group
Median funded status - Scenario D
Median funded status - SB 1609
Median funded status - reversal of SB 1609
Median contribution rate - Scenario D
Median contribution rate - SB 1609
Median contribution rate - reversal of SB 1609



4/25/2014 -10-


ARIZONA PUBLIC SAFETY PERSONNEL RETIREMENT SYSTEM
COLA SCENARIO STUDY STUDY 1 (ORIGINAL WITH 30 YEAR
AMORTIZATION)
AS OF JUNE 30, 2013

Scenario E
The graph below shows the median contribution rate and funded status for Scenario E compared to
SB1609 and Reversal of SB1609. Under Scenario E, the current COLA program is replaced by a
true COLA based on full CPI with a 3% cap for all members. Based on CPI patterns of the last 30
years, this would provide a 2.4% average compound COLA for all members. Under this scenario,
the contribution rates are similar to, but slightly higher than Scenario D.

Contribution Rates 2013 2018 2023 2028 2033 2038 2043 2048 2053
Scenario E 41.8% 40.4% 39.9% 39.2% 37.2% 33.7% 8.0% 8.0% 8.0%
SB 1609 31.0% 30.7% 30.9% 31.3% 31.5% 30.5% 17.4% 8.0% 8.0%
Reversal of SB 1609 31.7% 31.8% 33.8% 36.6% 39.7% 44.9% 33.2% 8.0% 8.0%
Median Funded Rate 2013 2018 2023 2028 2033 2038 2043 2048 2053
Scenario E 50.1% 54.0% 64.7% 73.9% 83.4% 93.3% 101.8% 105.5% 108.5%
SB 1609 58.7% 59.1% 65.3% 70.9% 77.5% 86.4% 97.7% 102.8% 105.0%
Reversal of SB 1609 56.4% 53.3% 55.3% 57.9% 62.4% 72.0% 88.6% 98.8% 101.4%
0%
20%
40%
60%
80%
100%
120%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
2013 2018 2023 2028 2033 2038 2043 2048 2053
F
u
n
d
e
d

S
t
a
t
u
s
C
o
n
t
r
i
b
u
t
i
o
n

R
a
t
e
Year
PSPRS Projection Results
Open Group
Median funded status - Scenario E
Median funded status - SB 1609
Median funded status - reversal of SB 1609
Median contribution rate - Scenario E
Median contribution rate - SB 1609
Median contribution rate - reversal of SB 1609










May 6, 2014



Mr. James M. Hacking
Administrator
Arizona Public Safety Personnel Retirement System
3010 East Camelback Road, Suite 200
Phoenix, Arizona 85016-4416

Re: Arizona Corrections Officer Retirement Plan COLA Scenario Study

Dear Jim:

Enclosed are the results of a supplemental actuarial valuation to measure the financial effect of a
proposed scenario for the Arizona Corrections Officer Retirement Plan (CORP).

The valuation was based upon data furnished by PSPRS. This data is summarized on page 2.
Actuarial methods and assumptions, except as noted, were the same as those used in the last regular
annual actuarial valuation as of June 30, 2013.

Please call if you have any questions regarding the calculations enclosed.

Sincerely,



Mark Buis, FSA, EA, MAAA

MB:sc
Enclosures

cc: Jared Smout, PSPRS
James D. Anderson, GRS
Francois Pieterse, GRS

5/6/2014 -1-



ARIZONA CORRECTIONS OFFICER RETIREMENT PLAN
COLA SCENARIO STUDY
AS OF JUNE 30, 2013

REQUESTED BY: Mr. James Hacking, Administrator

DATE: May 6, 2014

SUBMITTED BY: Mark Buis, FSA, EA, MAAA and Francois Pieterse, ASA, MAAA
Gabriel, Roeder, Smith & Company


This report contains an actuarial valuation of proposed changes to the Arizona Corrections Officer
Retirement Plan (CORP). The purpose of the report is to analyze the financial impact the proposed
changes would have on the Plan. This report should not be relied on for any other purpose. The
report has been prepared at the request of the Fund Administrator. Mark Buis and Francois Pieterse
are Members of the American Academy of Actuaries (MAAA) and meet the Qualification
Standards of the American Academy of Actuaries to render the actuarial opinion contained herein.
The signing actuaries are independent of the plan sponsor.

The date of the valuation was June 30, 2013. This means that the results of the supplemental
valuations are based upon the June 30, 2013 data and assumptions, unless otherwise stated.
Supplemental valuations do not predict the result of future actuarial valuations. Rather,
supplemental valuations give an indication of the probable long-term cost of the plan changes only
without comment on the complete end result of the future valuations.

This valuation was based upon information furnished by the Fund Administrator for use in the June
30, 2013 valuation of the Plan. We checked for internal consistency, but did not otherwise audit the
data. We are not responsible for the accuracy or completeness of the information provided by the
Fund Administrator. All actuarial assumptions, methods, and Plan provisions valued in this report,
are as described in the June 30, 2013 valuation report except as explicitly described in this
document.

Future actuarial measurements may differ significantly from the current measurements presented in
this report due to such factors as the following: plan experience differing from that anticipated by
the demographic assumptions; changes in economic or demographic assumptions; increases or
decreases expected as part of the natural operation of the methodology used for these
measurements; and changes in plan provisions or applicable law. Due to the limited scope of the
actuarys assignment, the actuary did not perform an analysis of the potential range of such future
measurements.



5/6/2014 -2-


ARIZONA CORRECTIONS OFFICER RETIREMENT PLAN
COLA SCENARIO STUDY
AS OF JUNE 30, 2013

Actuarial assumptions and methods were consistent with those used in the regular actuarial
valuation of the Retirement Plan on the valuation date, unless otherwise noted. Actuarial
assumptions are adopted by the Retirement Board of Trustees. In particular:

The assumed rate of interest was 7.85%.
The valuation method was the aggregate entry age actuarial cost method.

A brief summary of the data, as of June 30, 2013, is presented below:

Years of
No. Age Service 2013 2012
Actives 14,580 39.7 8.0 $41,431 $41,773
Retirees & Beneficiaries 3,810 63.3 25,319 25,293
Inactive Vested 1,463 39.6
19,853
Summary of Covered Population Data
June 30, 2013
Annual Pay or
Retirement Allowance
Averages




5/6/2014 -3-



ARIZONA CORRECTIONS OFFICER RETIREMENT PLAN
COLA SCENARIO STUDY
AS OF JUNE 30, 2013

Proposed Scenario:
Eliminate the current excess earnings model for the COLA.
Create a new account funded by 2.0% employee contributions and 1.0% employer contribution
(plus actual investment income) which would fund an annual COLA payable after 3 full years of
contributions.
A COLA would be paid each year based on funds available.
COLAs would be paid based on the following schedule:
20 to 25 years of service at retirement: COLA delayed 10 years
25 or more years of service at retirement: COLA delayed 5 years.
Tier 2 members can retire at 25 years of service (minimum age removed).
Pensionable Compensation includes overtime pay.
Retroactive DROP provision is replaced by a prospective DROP provision.
Disability benefits are changed to mirror PSPRS.
All employees will contribute 7.96% to the Retirement Plan in addition to contribution stated
above for COLA.
Provide death benefits to CORP that are identical to PSPRS.


5/6/2014 -4-


ARIZONA CORRECTIONS OFFICER RETIREMENT PLAN
COLA SCENARIO STUDY
AS OF JUNE 30, 2013


The graph below shows the median contribution rate and funded status for the proposed scenario
compared to SB1609 and Reversal of SB 1609. Under the proposed scenario, the current COLA
program is eliminated and replaced with a COLA that is funded with a 2% employee contribution
and 1% employer contribution. The employer contribution rates shown below include the
additional 1% contribution to the COLA fund.

Contribution Rates 2013 2018 2023 2028 2033 2038 2043
Proposed 15.6% 17.1% 17.2% 18.2% 20.3% 7.0% 7.0%
SB 1609 13.2% 14.7% 15.1% 16.1% 19.5% 6.7% 6.0%
Reversal of SB 1609 13.9% 15.6% 16.6% 18.4% 22.5% 8.1% 6.0%
Median Funded Rate 2013 2018 2023 2028 2033 2038 2043
Proposed 66.7% 67.3% 75.2% 81.7% 89.9% 99.9% 104.4%
SB 1609 69.7% 68.8% 75.1% 80.9% 88.7% 98.7% 102.7%
Reversal of SB 1609 67.8% 66.4% 72.1% 78.1% 86.9% 97.9% 101.4%
0%
20%
40%
60%
80%
100%
120%
0%
5%
10%
15%
20%
25%
2013 2018 2023 2028 2033 2038 2043
F
u
n
d
e
d

S
t
a
t
u
s
C
o
n
t
r
i
b
u
t
i
o
n

R
a
t
e
Year
CORP Projection Results
Open Group
Median funded status - Proposed
Median funded status - SB 1609
Median funded status - reversal of SB 1609
Median contribution rate - Proposed
Median contribution rate - SB 1609
Median contribution rate - reversal of SB 1609




5/6/2014 -5-


ARIZONA CORRECTIONS OFFICER RETIREMENT PLAN
COLA SCENARIO STUDY
AS OF JUNE 30, 2013

Comments

Comment 1 Results under the old law scenario show a gradual increase in contribution rates and
liabilities due to recognition of COLAs granted each year. However, if SB1609 is completely
reversed, liabilities and contribution rates might increase immediately. New GASB standards
require that Systems with gain-sharing mechanisms explicitly recognize all future COLAs in the
liabilities that are reported for accounting purposes. While the methodology required by the new
GASB standards does not necessarily apply to the funding calculations that determine the
contribution rate, this method may be appropriate for funding calculations in the future. For
illustrative purposes, we have shown the impact of valuing a 2% annual COLA for all current and
future retirees on the June 30, 2013 actuarial valuation for CORP:

Reversal of
Lawsuits
2% Assumed
Current COLA
Contribution Rate 13.23% 21.40%
Funded Status 69.7% 55.9%


Comment 2 All scenarios are based on stochastic simulations of 1000 trials with a mean return
of 7.85% and standard deviation of 9.4%. To the extent that either the mean or standard deviation
of the portfolio is different, results will vary. Results should not be relied upon as a prediction of
either the exact contribution rate or COLA that can be paid in the future, but rather as a basis for
comparison between the scenarios.

Comment 3 Based on data supplied by the Fund Administator, overtime hours were assumed to
be 5% of base pay on average. To the extent that overtime hours exceed this estimate, contribution
rates under the proposed scenario will be higher.

Comment 4 Under the proposed scenario, the estimated COLA is based on a payroll growth
assumption of 4.5%. If payroll grows at a slower rate, the COLA that can be provided will be much
lower. Additionally, employee contributions are being used to fund current retiree benefits. This
may result in intergenerational inequiites, especially if the the System is closed to new hires at some
point in the future. We recommend that any new COLA structure be reviewed by legal and
fiduciary counsel.


5/6/2014 -6-


ARIZONA CORRECTIONS OFFICER RETIREMENT PLAN
COLA SCENARIO STUDY
AS OF JUNE 30, 2013

Comments (concluded)

Comment 5 If you have reason to believe that the information provided in this report is
inaccurate, or is in any way incomplete, or if you need further information in order to make an
informed decision on the subject matter of this report, please contact the authors of the report prior
to making such decision. This report is intended to describe the financial effect of the proposed
plan changes. No statement in this report is intended to be interpreted as a recommendation in favor
of the changes, or in opposition to them. Except as otherwise noted, potential effects on other
benefit plans were not considered.

Comment 6 A full review of the proposal for compliance with Federal, State, or Local laws or
regulations was out of the scope of this study and not performed.









May 19, 2014



Mr. James M. Hacking, Administrator
Arizona Public Safety Personnel Retirement System
3010 East Camelback Road, Suite 200
Phoenix, Arizona 85016-4416

Re: Arizona Elected Officials Retirement Plan Updated Defined Contribution Study

Dear Jim:

Enclosed are the results of a supplemental actuarial valuation to measure the financial effect of
changes in the provisions for the Arizona Elected Officials Retirement Plan (EORP).

The valuation was based upon data furnished by PSPRS. This data is summarized on page 2.
Actuarial methods and assumptions, except as noted, were the same as those used in the last regular
annual actuarial valuation as of June 30, 2013.

Please call if you have any questions regarding the calculations enclosed.

Sincerely,



Mark Buis, FSA, EA, MAAA

MB:dj
Enclosures

cc: Jared Smout, PSPRS
James D. Anderson, GRS
Francois Pieterse, GRS

5/19/2014 -1-

ARIZONA ELECTED OFFICIALS RETIREMENT PLAN
DEFINED CONTRIBUTION PLAN STUDY
AS OF JUNE 30, 2013

REQUESTED BY: Mr. James M. Hacking, Administrator

DATE: May 19, 2014

SUBMITTED BY: Mark Buis, FSA, EA, MAAA; James D. Anderson, FSA, EA, MAAA and
Francois Pieterse, ASA, MAAA
Gabriel, Roeder, Smith & Company


This report contains an actuarial valuation of proposed changes to the Arizona Elected Officials
Retirement Plan (EORP). The purpose of the report is to analyze the financial impact the proposed
changes would have on the Plan. This report should not be relied on for any other purpose. The
report has been prepared at the request of the Fund Administrator. Mark Buis, James Anderson and
Francois Pieterse are Members of the American Academy of Actuaries (MAAA) and meet the
Qualification Standards of the American Academy of Actuaries to render the actuarial opinion
contained herein. The signing actuaries are independent of the plan sponsor.

The date of the valuation was June 30, 2013. This means that the results of the supplemental
valuations are based upon the June 30, 2013 data and assumptions, unless otherwise stated.
Supplemental valuations do not predict the result of future actuarial valuations. Rather,
supplemental valuations give an indication of the probable long-term cost of the plan changes only
without comment on the complete end result of the future valuations.

This valuation was based upon information furnished by the Fund Administrator, for use in the June
30, 2013 valuation of the Plan. We checked for internal consistency, but did not otherwise audit the
data. We are not responsible for the accuracy or completeness of the information provided by
PSPRS. All actuarial assumptions, methods, and Plan provisions valued in this report, are as
described in the June 30, 2013 valuation report except as explicitly described in this document.

Future actuarial measurements may differ significantly from the current measurements presented in
this report due to such factors as the following: plan experience differing from that anticipated by
the demographic assumptions; changes in economic or demographic assumptions; increases or
decreases expected as part of the natural operation of the methodology used for these
measurements; and changes in plan provisions or applicable law. Due to the limited scope of the
actuarys assignment, the actuary did not perform an analysis of the potential range of such future
measurements.



5/19/2014 -2-

ARIZONA ELECTED OFFICIALS RETIREMENT PLAN
DEFINED CONTRIBUTION PLAN STUDY
AS OF JUNE 30, 2013

Actuarial assumptions and methods were consistent with those used in the regular actuarial
valuation of the Retirement Plan on the valuation date, unless otherwise noted. Actuarial
assumptions are adopted by the Retirement Board of Trustees. In particular:

The assumed rate of interest was 7.85%.
The valuation method was the aggregate entry age actuarial cost method.

A brief summary of the data, as of June 30, 2013, is presented below:

Summary of Covered Population Data
June 30, 2013


Years of
No. Age Service 2013 2012
Actives 839 54.9 8.0 $80,459 $80,395
Retirees & Beneficiaries 1,057 72.1 44,658 44,264
Inactive Vested 160 54.9
2,056
Averages
Annual Pay or
Retirement Allowance

5/19/2014 -3-

ARIZONA ELECTED OFFICIALS RETIREMENT PLAN
DEFINED CONTRIBUTION PLAN STUDY
AS OF JUNE 30, 2013

SUMMARY OF SCENARIOS

SCENARIO A: Base scenario as of June 30, 2013 prior to Supreme Court ruling (Fields case)

SCENARIO B: Scenario following Supreme Court ruling (Fields case) where original post-
retirement benefit increases (PBI) are restored to members retired as of July 1, 2011, effective June
30, 2013.

SCENARIO C: Same as Scenario B except also assume Hall lawsuit has reversed Senate Bill 1609
and original PBI is restored for active members and employee contribution rate reverts to 7% of
pay, effective June 30, 2013.

SCENARIO D1: Same as Scenario A except that excess earnings model is eliminated and replaced
by a separate COLA account funded with 4% employee contributions for current DB plan members.
Employee contributions to fund defined benefit plan are changed from 13% to 9%.

SCENARIO D2: Same as Scenario D1 except that COLAs are retroactively paid to retirees for July
1, 2011, July 1, 2012 and July 1, 2013 in accordance with the decision on the Fields case.

SCENARIO E1: Same as Scenario D1 except eliminate Defined Contribution plan and open the
Defined Benefit plan back up to new hires with the new COLA fund.

SCENARIO E2: Same as Scenario D2 except eliminate Defined Contribution plan and open the
Defined Benefit plan back up to new hires with the new COLA fund.



5/19/2014 -4-


ARIZONA ELECTED OFFICIALS RETIREMENT PLAN
DEFINED CONTRIBUTION PLAN STUDY
AS OF JUNE 30, 2013

Executive Summary
The following table summarizes the estimated flat rate necessary to pay off the unfunded liability
within 30 years for Scenarios A - D. Due to the sensitivity of the proposed funding mechanism
to the actuarial assumptions, we recommend these rates be reviewed annually.

Scenario Contribution COLA
A Flat rate of 23.5% of DB plus DC payroll Averages 0.5% to 1.0%
B Flat rate of 32.0% of DB plus DC payroll Averages 3.0% to 3.5% for current retirees only
C Flat rate of 40.0% of DB plus DC payroll Averages 3.0% to 3.5% for current and future retirees
D1 Flat rate of 23.0% of DB plus DC payroll Averages 0.5% to 1.0%, but may not be available for future retirees
D2 Flat rate of 26.0% of DB plus DC payroll Averages 0.5% to 1.0%, but may not be available for future retirees
E1 and E2 Rate varies based on actuarial valuation Averages 0.5% to 1.0%


Comment 1 - The proposed structure in Scenarios A through D will result in most of the unfunded
liability being paid off in the last few years of the 30-year program. Similar programs have been
used in Illinois and other places and have resulted in very low funded ratios and the potential to run
out of system assets prior to all benefits being paid to plan participants.

Comment 2 - The current present value of retiree benefits exceeds the market value of assets which
results in additional drain on the fund. This is because the restored PBI mechanism applies the
excess return over 9% to the present value of retiree benefits (instead of the actual assets). For
example, as of June 30, 2013 the Market Value of Assets in the EORP trust was approximately
$312 million while the present value of retiree benefits is approximately $431 million. Suppose the
fund were to earn a 30% rate of return. Then the excess over 9% is 21%. The 21% is then applied
to the present value of retiree benefits resulting in a $90.5 million transfer to the excess reserve
account. This $90.5 million represents 29% of the assets being diverted to the excess fund (leaving
only 1% of the 30% actual return to fund benefits). Additionally, due to the funding mechanism of
paying a larger share of the unfunded liability towards the end of the 30-year period, this situation
could persist for the next 10 to 15 years. Since the Plan is now closed to new hires, and retiree
liabilities are greater than plan assets, we recommend this policy be reviewed and perhaps
modified to limit the transfer of reserves in excess of those actually earned on plan assets.















5/19/2014 -5-


ARIZONA ELECTED OFFICIALS RETIREMENT PLAN
DEFINED CONTRIBUTION PLAN STUDY
AS OF JUNE 30, 2013

Executive Summary (continued)
Comment 3 - The funding of the closed DB plan is based on a 7.85% rate of return. When a plan
closes, steadily increasing cash flow requirements will make earning the assumed rate of return
more difficult. For example, if the fund is only able to earn 6.85% per year, the flat rate
contribution in Scenario A would need to be immediately increased by approximately 3.0% of
payroll.

Comment 4 - The funding of the Closed DB plan also depends on payroll increases (at a rate of
4.0% per year) for new hires in the DC plan. To the extent that pay increases are less than 4.0% or
that the active population decreases, the Closed DB plan runs additional risks of running out of
money. For example, if pays only increased at a rate of 3.0% per year, the flat rate contribution in
Scenario A would need to be immediately increased by approximately 2.0% of payroll.

Comment 5 - The funding of the Closed DB plan also depends on the ultimate number of new hires
in the DC plan. The results are based on a static population, so that retiring members are replaced
by new hires in the DC plan. If the population declines due to enrollment with ASRS or other
reductions in workforce, the costs will be higher. For example, if the combined active population in
EORP (DB plus DC plan) ultimately declines by 10%, the flat rate contribution in Scenario A
would need to be immediately increased by approximately 2.5% of payroll.

Comment 6 - The excess earnings formula is very sensitive to volatile swings in the market. Our
analysis is based on volatility measure of 9.4% standard deviation as provided by the Plans
investment manager. When markets have higher volatility, there is a higher probability of having
higher excess returns in some years and lower returns in other years. For example, if the standard
deviation of the portfolio was 10.4% instead of 9.4%, the flat rate contribution in Scenario A would
need to be immediately increased by approximately 3.0% of payroll.

Comment 7 - The proposed funding structure will result in contributions that will be less than the
GASB Statement No. 25 Annual Required Contribution in the early years of the projection. This
will likely result in a Net Pension Obligation (NPO) on the Systems financial statements. However,
GASB Statements No. 25 and No. 27 are being replaced by GASB 67 and 68. An analysis of the
effect of this proposal on GASB Statement No. 68 reporting was not within the scope of this study.

Comment 8 - If you have reason to believe that the information provided in this report is
inaccurate, or is in any way incomplete, or if you need further information in order to make an
informed decision on the subject matter of this report, please contact the authors of the report prior
to making such decision. This report is intended to describe the financial effect of the proposed
plan changes. No statement in this report is intended to be interpreted as a recommendation in favor
of the changes, or in opposition to them. This report is intended to describe the financial effect of


5/19/2014 -6-

ARIZONA ELECTED OFFICIALS RETIREMENT PLAN
DEFINED CONTRIBUTION PLAN STUDY
AS OF JUNE 30, 2013

Executive Summary (concluded)

the proposed plan changes on the Retirement Plan. Except as otherwise noted, potential effects on
other benefit plans were not considered. A full review of the proposal for compliance with Federal,
State, or Local laws or regulations was out of the scope of this study and not performed. We
recommend that the structure be reviewed by legal and fiduciary counsel.


5/19/2014 -7-

ARIZONA ELECTED OFFICIALS RETIREMENT PLAN
DEFINED CONTRIBUTION PLAN STUDY
AS OF JUNE 30, 2013

Actuarial Analysis

Scenario A
Under Scenario A, SB 1609 remains intact. The graph below shows a flat rate of 23.5% would be
needed to pay off the unfunded liability within 30 years with a 75% probability.

0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
140.0%
160.0%
180.0%
200.0%
$-
$10.0
$20.0
$30.0
$40.0
$50.0
$60.0
$70.0
$80.0
$90.0
2013 2018 2023 2028 2033 2038 2043
F
u
n
d
e
d

S
t
a
t
u
s
C
o
n
t
r
i
b
u
t
i
o
n

D
o
l
l
a
r
s

(
m
i
l
l
i
o
n
s
)
Year
EORP Stochastic Projection Results
DC Plan with 23.5% flat rate plus $15 million in additional revenue
Funded Status - Median Funded Status - 75% Confidence Contribution Amount - Proposed


Scenario B
Under Scenario B, the PBI is restored for current retirees only. The graph below shows a flat rate of
32.0% would be needed to pay off the unfunded liability within 30 years with a 75% probability.

0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
140.0%
160.0%
180.0%
200.0%
$-
$10.0
$20.0
$30.0
$40.0
$50.0
$60.0
$70.0
$80.0
$90.0
2013 2018 2023 2028 2033 2038 2043
F
u
n
d
e
d

S
t
a
t
u
s
C
o
n
t
r
i
b
u
t
i
o
n

D
o
l
l
a
r
s

(
m
i
l
l
i
o
n
s
)
Year
EORP Stochastic Projection Results
DC Plan with 32.0% flat rate plus $15 million in additional revenue
Funded Status - Median Funded Status - 75% Confidence Contribution Amount - Proposed



5/19/2014 -8-

ARIZONA ELECTED OFFICIALS RETIREMENT PLAN
DEFINED CONTRIBUTION PLAN STUDY
AS OF JUNE 30, 2013

Actuarial Analysis (continued)

Scenario C
Under Scenario C, in addition to the restoration of the PBI for current retirees, the additional employee
contributions are refunded and the additional 6% employee contribution for current active members is
eliminated. As a result, the flat rate would need to be increased to make up for these differences. The
graph below shows a flat rate of 40% would be needed to pay off the unfunded liability within 30 years
with a 75% probability.
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
140.0%
160.0%
180.0%
200.0%
$-
$10.0
$20.0
$30.0
$40.0
$50.0
$60.0
$70.0
$80.0
$90.0
2013 2018 2023 2028 2033 2038 2043
F
u
n
d
e
d

S
t
a
t
u
s
C
o
n
t
r
i
b
u
t
i
o
n

D
o
l
l
a
r
s

(
m
i
l
l
i
o
n
s
)
Year
EORP Stochastic Projection Results
DC Plan with 40.0% flat rate plus $15 million in additional revenue
Funded Status - Median Funded Status - 75% Confidence Contribution Amount - Proposed

Scenario D1
Scenario D1 is the same as Scenario A except that COLAs are now funded outside the system by
an account created by 4% DB member contributions. DB members would contribute 9% of pay to
the DB plan. The graph below shows a flat rate of 23.0% would be needed to pay off the unfunded
liability within 30 years with a 75% probability. Please note that since the new COLA is being
funded by current active member pay and that the DB plan is closed to new hires, there may
not be funds available to pay for COLAs of future retirees.
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
140.0%
160.0%
180.0%
200.0%
$-
$10.0
$20.0
$30.0
$40.0
$50.0
$60.0
$70.0
$80.0
$90.0
2013 2018 2023 2028 2033 2038 2043
F
u
n
d
e
d

S
t
a
t
u
s
C
o
n
t
r
i
b
u
t
i
o
n

D
o
l
l
a
r
s

(
m
i
l
l
i
o
n
s
)
Year
EORP Stochastic Projection Results
DC Plan with 23.0% flat rate plus $15 million in additional revenue
Funded Status - Median Funded Status - 75% Confidence Contribution Amount - Proposed



5/19/2014 -9-

ARIZONA ELECTED OFFICIALS RETIREMENT PLAN
DEFINED CONTRIBUTION PLAN STUDY
AS OF JUNE 30, 2013

Actuarial Analysis (continued)

Scenario D2
Scenario D2 is the same as Scenario D1 except that that COLAs have been restored retroactively as
of July 1, 2011, July 1, 2012 and July 1, 2013. Future COLAs would be paid out of the new COLA
fund. The graph below shows a flat rate of 26.0% would be needed to pay off the unfunded liability
within 30 years with a 75% probability. Please note that since the new COLA is being funded by
current active member pay and that the DB plan is closed to new hires, there may not be
funds available to pay for COLAs of future retirees.
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
140.0%
160.0%
180.0%
200.0%
$-
$10.0
$20.0
$30.0
$40.0
$50.0
$60.0
$70.0
$80.0
$90.0
2013 2018 2023 2028 2033 2038 2043
F
u
n
d
e
d

S
t
a
t
u
s
C
o
n
t
r
i
b
u
t
i
o
n

D
o
l
l
a
r
s

(
m
i
l
l
i
o
n
s
)
Year
EORP Stochastic Projection Results
DC Plan with 26.0% flat rate plus $15 million in additional revenue
Funded Status - Median Funded Status - 75% Confidence Contribution Amount - Proposed

Scenario E1
Scenario E1 is the same as Scenario D1 except that the Defined Contribution Plan is eliminated and
the Retirement Plan is re-opened to all new members.
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
140.0%
160.0%
180.0%
200.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
2013 2018 2023 2028 2033 2038 2043
F
u
n
d
e
d

S
t
a
t
u
s
C
o
n
t
r
i
b
u
t
i
o
n

R
a
t
e
Year
EORP Projection Results
Final
Funded Status - Median Funded Status - 75% Confidence Contribution Rate - Median Contribution Rate - 75% Confidence



5/19/2014 -10-

ARIZONA ELECTED OFFICIALS RETIREMENT PLAN
DEFINED CONTRIBUTION PLAN STUDY
AS OF JUNE 30, 2013

Actuarial Analysis (concluded)

Scenario E2
Scenario E2 is the same as Scenario D2 except that the Defined Contribution Plan is eliminated and
the Retirement Plan is re-opened to all new members.
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
140.0%
160.0%
180.0%
200.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
2013 2018 2023 2028 2033 2038 2043
F
u
n
d
e
d

S
t
a
t
u
s
C
o
n
t
r
i
b
u
t
i
o
n

R
a
t
e
Year
EORP Projection Results
Final
Funded Status - Median Funded Status - 75% Confidence Contribution Rate - Median Contribution Rate - 75% Confidence



FIXING THE PSPRS PENSION FUND
Whats the problem with our pension system?
As of June 2013,
PSPRS was only
57% funded.
0%
28%
55%
83%
110%
05 06 07 08 9 10 11 12 13
PSPRS CORP EORP
As the funding levels goes down, employer contribution rates go up.
For 2014, the aggregate
employer contribution rate was
32.5%.
0%
10%
20%
30%
40%
2003- 04 2004- 05 2005- 06 2006- 07 2007- 08 2008- 09 2009- 10 2010- 11 2011- 12 2012- 13 2013- 14 2014- 15
PSPRS CORP
In 2011, the Arizona Legislature tackled so-called pension reform.
We told them that their solution
SB1609 was not Constitutional.
They ignored us.
We were right.
PHOTO BY: Willem van Bergen
SB1609 illegally
diminished benefits of
pension recipients.
SB1609 illegally changed
the retiree COLA formula.
Retired J udge Ken Fields PHOTO BY: J ack Kurtz/The Arizona Republic
In Fields in March 2014, the Arizona
Supreme Court ruled that
Forced new hires
(after 1/12) to work
25 years for a pension
Eliminated or changed
DROP for new hires and
those with less than 20
years.
SB1609 also
PHOTO BY: Willem van Bergen
$375 million.
$40 million in back
payments to retirees
$335 million to re-
establish the Excess
Earnings Account
Making these payments will
push employer contribution
rates to more than 55%.
This ruling will cost the fund (and AZ taxpayers)
0%
15%
30%
45%
60%
2003-
04
2004-
05
2005-
06
2006-
07
2007-
08
2008-
09
2009-
10
2010-
11
2011-
12
2012-
13
2013-
14
2014-
15
XX
PSPRS Employer Contribution Rate
The biggest change?
Fixing the Excess Earnings Account
problem, which today funds COLAs.
With small modifications, we can protect our
retirement system and ensure COLAs for retirees,
actives and the unborn.
The other half goes
into the Excess
Earnings Account.
By draining the main fund during
profitable years, we slow its recovery
and lower the funded level.
Actuaries say the Excess Earnings
Account is 80% of PSPRS problem.
Why? Because for 28 consecutive
years retirees have received a 4%
annual COLA. That simply isnt
sustainable.
Today, if PSPRS earns over the 9%
assumed earnings rate, half that money
stays in the Fund.
PSPRS Earnings EEA Contribution
BREAK EVEN
Even worse, this leaves
the our pension system
with a huge problem:
How can we legally restore
funding levels without crippling
our employers? We need a plan
that secures our retirement,
helps cities and taxpayers and
ensures COLAs for retirees.
Fortunately, we have a solution.
Why offer one, you ask?
1. Its our retirement at stake.
If the system fails, we lose
most of all.
2. Higher employer contribution
rates mean salary cuts,
inability to hire replacements
for retirees and, in extreme
cases, may even lead to lay-
offs.
Fortunately, we have a solution.
Our answer relies on accepting most
of the provisions of SB1609, which
we have been living with since
2011.
New employees hired after
1/2012 will have to work 25
years.
Pension = 62.5%
Eliminates requirement that you
be age 52.2 to collect a pension.
Employers will have a minimum
10% contribution rate.
DROP will become the
Employee Self-Funded
Inflation Protection Program.
Tier 1 (members with 20 or more years on the job as of 1/2015)
No contributions
Interest rate = assumed rate of return for PSPRS
Tier 2 (everyone else)
Contributions during the program period
Interest rate = minimum 2% or 7-year average of PSPRS investment
returns (whichever is greater)
Return of member contributions
Return of member contributions
reverse employee self funded
inflation protection program.
Costs of the Three Types of
ESFIPP
Non contributory costs=0.6%
Contributory with return of contribution costs 0.4%
Reverse earns fund 0.8%
Our solution?
Our contribution rate
will remain at 11.65%.
7.65% to main PSPRS fund.
4% to new employee-funded COLA fund.
How will the new
COLA fund work?
We will contribute to the fund for 3 years before paying any COLAS.
After that, all COLA eligible workers get an annual increase of up to 2%.
Increase could be less. Cannot use more than 25% of fund annually.
This is an improvement over SB1609, which practically eliminated
COLAs.
COLA qualification will be retired for 7 years or age 60.
What is the impact
of our solution?
The average employer
contribution rate would fall
from over 55% to mid-30%.
PSPRS 80% funded in 13 years.
PSPRS 100% funded in 18
years. Average employer
contribution rate falls to the
new 10% statutory minimum.
0%
25%
50%
75%
100%
125%
2013 2028 2033
PSPRS % Funded
0%
15%
30%
45%
60%
2013 2018 2023 2028 2033 2038 2043 2048
Our Solution Reversal of SB 1609
Special session to pass a bill and a referendum
containing the changes we need and put on the
November 2014 ballot.
The bill will be structured to protect
the constitutional language that says
pensions cannot be diminished nor
impaired.
Step 1:
The referendums basic
language?
The benefits of the beneficiaries shall
neither be diminished nor impaired
except for the provisions on Bill xxxx,
as passed by the Legislature in 2014.
Step 1:
Get the referendum passed
by Arizonas voters.
This would be a statewide campaign.
We would fund it and run it.
We anticipate a full political operation,
with TV advertising, direct mail and a
statewide grassroots effort.
Step 2:
This proactive effort represents the best
chance for public safety to protect our
employers, our taxparyers, our pensions,
our pension fund, our retirees, our actives
and our future members.
QUESTIONS



Date: June 3, 2014
To: James Hacking and Jared Smout, Arizona Public Safety Personnel Retirement
System (PSPRS)
From: Mark Buis, FSA, EA, MAAA and Francois Pieterse, ASA, MAAA

Re: Summary of proposed changes for PSPRS

SB 1609 SCENARIO:
This scenario is based on results prior to the reversal of Senate Bill 1609.

REVERSAL OF SB1609 SCENARIO:
This scenario is based on results after the reversal of Senate Bill 1609.

PROPOSED SCENARIO:
COLA delayed until 7 years after commencement of benefits or age 60.
Tier 2 members can retire at 25 years of service (no minimum age required).
Employee Self funded Inflation Protection Program (IPP) provided for all active generations.
Members can participate in a Non-contributory, Contributory or Reverse IPP (dependent on
the date of hire).
Pensionable income limited to $180,000 indexed with CPI.
Eliminate the current excess earnings model for the COLA.
Reduce employee contribution rate to 7.65% (eliminating the 4% maintenance of effort
contribution).
Create a new account funded by 4.0% employee contributions (plus actual investment income)
which would fund an annual COLA payable after 3 full years of contributions.
A COLA would be paid each year based on funds available.

Proposed Scenario
The graph on the next page shows the median contribution rate and funded status for the proposed
Scenario compared to SB1609 and Reversal of SB1609. Under the proposed scenario, the
current COLA program and 4% maintenance of effort employee contribution is eliminated and
replaced with a COLA program that is funded with a 4% employee contribution. The Proposed
Scenario contribution rates are similar to but slightly higher than the SB 1609 Scenario. Lastly, the
COLA under the proposed scenario is not dependent on excess investment income.


Mr. James Hacking
Proposed Scenario
June 3, 2014
Page 2





The scenarios were based upon data furnished by PSPRS. All actuarial assumptions, methods, and
plan provisions valued in this report, are as described in the June 30, 2013 valuation report
except as explicitly described in this document.







Contribution Rates 2013 2018 2023 2028 2033 2038 2043 2048 2053
Proposed Scenario 31.4% 35.6% 35.8% 36.5% 36.6% 9.7% 8.0% 8.0% 8.0%
SB 1609 31.0% 35.0% 35.9% 37.3% 36.7% 8.0% 8.0% 8.0% 8.0%
Reversal of SB 1609 31.7% 36.7% 40.1% 45.4% 55.3% 15.1% 8.0% 8.0% 8.0%
Median Funded Rate 2013 2018 2023 2028 2033 2038 2043 2048 2053
Proposed Scenario 58.0% 58.6% 68.6% 78.5% 89.7% 100.6% 104.5% 105.4% 107.2%
SB 1609 58.7% 60.6% 69.7% 79.1% 90.3% 101.0% 104.1% 105.5% 107.7%
Reversal of SB 1609 56.4% 54.9% 60.3% 67.6% 79.8% 96.4% 100.3% 102.6% 105.5%
0%
20%
40%
60%
80%
100%
120%
0%
10%
20%
30%
40%
50%
60%
2013 2018 2023 2028 2033 2038 2043 2048 2053
F
u
n
d
e
d

S
t
a
t
u
s
C
o
n
t
r
i
b
u
t
i
o
n

R
a
t
e
Year
PSPRS Projection Results
Open Group
Median funded status - Proposed Scenario
Median funded status - SB 1609
Median funded status - reversal of SB 1609
Median contribution rate - Proposed Scenario
Median contribution rate - SB 1609
Median contribution rate - reversal of SB 1609
Mr. James Hacking
Proposed Scenario
June 3, 2014
Page 3



Comments

Comment 1 Future actuarial measurements may differ significantly from the current
measurements presented in this report due to such factors as the following: plan experience
differing from that anticipated by the demographic assumptions; changes in economic or
demographic assumptions; increases or decreases expected as part of the natural operation of the
methodology used for these measurements; and changes in plan provisions or applicable law. Due
to the limited scope of the actuarys assignment, the actuary did not perform an analysis of the
potential range of such future measurements.

Comment 2 All scenarios are based on stochastic simulations of 1000 trials with a mean return
of 7.85% and standard deviation of 9.4%. To the extent that either the mean or standard deviation
of the portfolio is different, results will vary. Results should not be relied upon as a prediction of
either the exact contribution rate or COLA that can be paid in the future, but rather as a basis for
comparison between the scenarios.

Comment 3 Under the proposed scenario, the estimated COLA is based on a payroll growth
assumption of 4.5%. If payroll grows at a slower rate, the COLA that can be provided will be
much lower. Additionally, employee contributions are being used to fund current retiree benefits.
This may result in intergenerational inequities, especially if the System is closed to new hires at
some point in the future. We recommend that any new COLA structure be reviewed by legal and
fiduciary counsel.

Comment 4 If you have reason to believe that the information provided in this report is
inaccurate, or is in any way incomplete, or if you need further information in order to make an
informed decision on the subject matter of this report, please contact the authors of the report prior
to making such decision.

Comment 5 This report is intended to describe the financial effect of the proposed plan
changes. No statement in this report is intended to be interpreted as a recommendation in favor of
the changes, or in opposition to them. Except as otherwise noted, potential effects on other benefit
plans were not considered.

Comment 6 A full review of the proposal for compliance with Federal, State, or Local laws or
regulations was out of the scope of this study and not performed.


Circular 230 Notice: Pursuant to regulations issued by the IRS, to the extent this communication (or any attachment)
concerns tax matters, it is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-
related penalties under the Internal Revenue Code or (ii) marketing or recommending to another party any tax-related
matter addressed within. Each taxpayer should seek advice based on the individual's circumstances from an
independent tax advisor. This communication shall not be construed to provide tax advice, legal advice or investment
advice.

Copyright 2014 GRS All rights reserved.
Arizona PSPRS, CORP and
EORP
Funding Policy Review

May 2014

Background
Senate Bill 1609 Lawsuit Reversals
New Accounting Standards for
Governmental Plans (GASB)
Benefit Changes Closure of EORP
Funding Policy


2
Comparison of COLA provisions
PSPRS Provisions Pre SB1609 Post SB1609
Investment Return Threshold 9% 10.5%
COLA Maximum 4% of Average PSPRS
Benefit Prior Year
Varies from 2% to 4%
Based on Funded Ratio
Funded Status Threshold None 60%
Reserve Accumulation Yes No
COLA Delay 2 Years or age 55 Tier 1: 2 Years or Age 55
Tier 2: Age 55
3
Provisions are similar for CORP and EORP.
SB1609 Reversal
Fields case restores original PBI formula
for members who were retired as of June
1, 2011
Hall case would restore original PBI
formula for current active members and
reverse changes in the employee
contribution rate
4
COLA Examples PSPRS & CORP
PSPRS CORP
1. Market Value at End of Year (millions) 5,529.1 1,409.6
2. Rate of Return on Assets 10.64% 10.64%
3. Excess Return (2 minus 9%) 1.64% 1.64%
4. 1/2 of Average Net Assets 2,599.0 674.1
5. Transfer to COLA fund (3 x 4) 42.6 11.1
6. Transfer as % of MV (5 / 1) 0.77% 0.79%
7. Net return to fund DB plan (2 minus 6) 9.87% 9.85%
5
Calculation of Asset Transfer as of June 30, 2013
COLA Example - EORP
Actual
1. Market Value at End of Year (millions) 310.9 310.9 310.9 310.9
2. Rate of Return on Assets 10.64% 15.00% 20.00% 30.00%
3. Excess Return (2 minus 9%) 1.64% 6.00% 11.00% 21.00%
4. Present Value of Retiree Benefits 460.2 460.2 460.2 460.2
5. Transfer to COLA fund (3 x 4) 7.5 27.6 50.6 96.6
6. Transfer as % of MV (5 / 1) 2.41% 8.88% 16.28% 31.07%
7. Net return to fund DB plan (2 minus 6) 8.23% 6.12% 3.72% -1.07%
Hypothetical
6
Present Value of Retiree Benefits
Originally much smaller than Market Value of Assets
Now much larger than Market Value of Assets
Closure of DB plan with flat rate funding will prolong this situation
PSPRS and CORP changed basis of excess earnings transfer from Present
Value of Retiree Benefits to of Average Assets in 1991
Calculation of Asset Transfer as of June 30, 2013
GASB Changes
ARC under GASB 25 established the
current funding policy
New GASB standards divorce funding
from accounting (no more ARC)
GASB 67 is effective for the FYE 6/30/2014
All plans will need formal funding policy
GASB requires gain sharing provisions be
explicitly measured in liabilities
7
Question 54 of GASB 68
Implementation Guide
QA defined benefit pension plans enabling statute provides for a
cost-of-living adjustment (COLA) if the investment earnings rate for
the plans fiscal year exceeds the actuarially assumed rate. Should
this COLA be treated as an automatic COLA?
AYes. Paragraph 24 of Statement 68 requires that the effects of any
COLAs that are embedded in the benefit terms and for which there
is no discretion as to timing or amount be included in the projection
of future benefit payments. In this example, although a certain
economic condition is required to be met for the COLA to be
effective, if that condition is met, there is no discretion regarding
whether the COLA will be granted.
8
Value of automatic COLA should be measured explicitly in the calculation of the liabilities
How much is the COLA Worth?
Pre SB 1609 Post SB 1609
PSPRS
2.00% 0.50%
CORP
2.25% 0.75%
EORP
3.00% 0.50%
9
Results estimated based on stochastic simulation of 1,000
trials for each of the next 20 years. Results will vary based
on the volatility of the portfolio.
Estimated Annual Compound COLA Applied to Benefit
Impact on Employer Contributions
10
Note that contribution requirements for FY2016 are expected to increase due to
continued phase-in of assets losses from prior years.
Fields Fields and Hall
Valuation Lawsuit Lawsuits
Results Reversed Reversed
Assumed COLA for future retirees 0.00% 0.00% 2.00%
Assumed COLA for current retirees 0.00% 2.00% 2.00%
Actuarial Accrued Liability (millions)
- Future Retirees $ 5,402 $ 5,402 $ 6,274
- Current Retirees 5,142 6,309 6,364
- Total $10,544 $11,711 $12,638
Assets (millions) $ 6,185 $ 6,185 $ 6,185
Unfunded Liability $ 4,359 $ 5,526 $ 6,453
Funded Status 58.7% 52.8% 48.9%
Contribution Rate
- Employer Normal Cost 12.55% 12.55% 14.96%
- 23 year amort UAL payment 18.48% 23.62% 27.53%
- Total 31.03% 36.17% 42.49%
Hypothetical Results as of June 30, 2013 - PSPRS
Impact on Employer Contributions
11
Note that contribution requirements for FY2016 are expected to increase due to
continued phase-in of assets losses from prior years.
Fields Fields and Hall
Valuation Lawsuit Lawsuits
Results Reversed Reversed
Assumed COLA for future retirees 0.00% 0.00% 2.25%
Assumed COLA for current retirees 0.00% 2.25% 2.25%
Actuarial Accrued Liability (millions)
- Future Retirees $1,256 $1,256 $1,571
- Current Retirees 981 1,224 1,267
- Total $2,237 $2,480 $2,838
Assets (millions) $1,560 $1,560 $1,560
Unfunded Liability $ 677 $ 920 $1,278
Funded Status 69.7% 62.9% 55.0%
Contribution Rate
- Employer Normal Cost 6.78% 6.78% 9.41%
- 23 year amort UAL payment 6.45% 8.89% 12.47%
- Total 13.23% 15.67% 21.88%
Hypothetical Results as of June 30, 2013 - CORP
Impact on Employer Contributions
12
Please note that actual contribution is currently set by statute.
Fields Fields and Hall
Valuation Lawsuit Lawsuits
Results Reversed Reversed
Assumed COLA for future retirees 0.00% 0.00% 3.00%
Assumed COLA for current retirees 0.00% 3.00% 3.00%
Actuarial Accrued Liability (millions)
- Future Retirees $197 $197 $258
- Current Retirees 424 581 581
- Total $621 $778 $839
Assets (millions) $351 $351 $351
Unfunded Liability $270 $427 $488
Funded Status 56.5% 45.1% 41.8%
Contribution Rate
- Employer Normal Cost 16.90% 16.90% 22.21%
- 23 year amort UAL payment 38.39% 61.42% 69.57%
- Total 55.29% 78.32% 91.78%
Hypothetical Results as of June 30, 2013 - EORP
Funding Methodology Components
Amortization
Method
Actuarial Cost Method
Asset Valuation
Method
Funding Target
Gains and Losses



Risk Sharing
Implementation
Overfunding
Benefit Changes
Assumption Changes
13
Amortization Policy
Level $ vs. Level % of pay
Level $ front loads funding
Level % can produce negative amortization
Closed vs. Open period
Open period never actually pays off UAL
Open period will result in lower discount rate for
GASB calculations
Clopen closed period (decreasing) for
awhile and then open (constant), refinance
each year

14
Funding Policy Alternatives
Reset Amortization Period 30 Years for All
Unfunded Liability
Layered Amortization Period Reset
Amortization Period to 30 Years for Each
Years New Unfunded Liability
Phase-in Contribution Rate Increase (3 to
5 Years)
Combination of Above
15
Examples - PSPRS
16
Fields Fields and Hall
Lawsuit Lawsuits
Reversed Reversed
Current Policy (23 year amortization) 5.14% 11.46%
Change Amortization to 30 years for all UAAL 1.44% 7.15%
Change Amortization to 30 years for new liability 4.02% 7.22%
Phase in Contribution Increase over 3 years
- Year 1 1.71% 3.82%
- Year 2 3.43% 7.64%
- Year 3 and later 5.14% 11.46%
Increase in Contribution due to Recognition of COLA in liabilities - PSPRS
Examples - CORP
17
Increase in Contribution due to Recognition of COLA in liabilities - CORP
Fields Fields and Hall
Lawsuit Lawsuits
Reversed Reversed
Current Policy (23 year amortization) 2.44% 8.65%
Change Amortization to 30 years for all UAAL 1.05% 6.70%
Change Amortization to 30 years for new liability 1.90% 4.70%
Phase in Contribution Increase over 3 years
- Year 1 0.81% 2.88%
- Year 2 1.63% 5.77%
- Year 3 and later 2.44% 8.65%
Examples - EORP
18
Please note that actual Employer Contribution rate for EORP is currently set
by statute.
Fields Fields and Hall
Lawsuit Lawsuits
Reversed Reversed
Current Policy (23 year amortization) 23.03% 36.49%
Change Amortization to 30 years for all UAAL 18.08% 30.88%
Change Amortization to 30 years for new liability 19.76% 27.43%
Phase in Contribution Increase over 3 years
- Year 1 7.68% 12.16%
- Year 2 15.35% 24.33%
- Year 3 and later 23.03% 36.49%
Increase in Contribution due to Recognition of COLA in liabilities - EORP
Amortization Example
19
-
1,000
2,000
3,000
4,000
5,000
6,000
0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30
U
A
L

(
i
n

$
m
i
l
l
i
o
n
s
)
Years
23 Year vs 30 Year Amortization of UAL
UAL (using 23 amortization)
UAL (using 30 amortization)
Comparison of Methods
20
Approach Employer Contribution Funded Status Employer
Consistency
30 year
amortization
Provides longer term
contribution relief
Unfunded liability is
not reduced for next
13 years
Some employers
may see
contribution
decrease
30 year
amortization
on new liability
Provides modest
contribution relief
New unfunded
liability is not reduced
for first 13 years
Consistent
treatment among
employers
Phase-in
contribution
increase over 3
years
Provides shorter term
contribution relief
UAAL is paid down on
original schedule

Consistent
treatment among
employers

Recommendations
Adopt formal policy prior to July 1, 2014
valuation
Consider 3 year phase-in approach if only
Fields lawsuit is reversed
Consider 5 year phase-in approach if both
Fields and Hall lawsuits are reversed

21
Disclosures
Circular 230 Notice: Pursuant to regulations issued by the IRS, to the extent this
presentation concerns tax matters, it is not intended or written to be used, and cannot
be used, for the purpose of (i) avoiding tax-related penalties under the Internal
Revenue Code or (ii) marketing or recommending to another party any tax-related
matter addressed within. Each taxpayer should seek advice based on the individuals
circumstances from an independent tax advisor.
This presentation shall not be construed to provide tax advice, legal advice or
investment advice.
The actuaries submitting this presentation are Members of the American Academy of
Actuaries and meet the Qualification Standards of the American Academy of
Actuaries to render the actuarial opinion contained herein.
The purposes of the actuarial valuation are to measure the financial position of
PSPRS, CORP, and EORP, to assist the Board in establishing employer and employee
contribution rates necessary to fund the pension defined benefits provided by the
Systems, and to provide actuarial reporting and disclosure information for the
Systems financial report.
22
Disclosures
The actuarial valuation was based upon information furnished by the Executive
Director and staff, concerning Retirement System benefits, financial transactions, plan
provisions and active members, terminated members, retirees and beneficiaries. We
checked for internal and year-to-year consistency, but did not otherwise audit the
data. We are not responsible for the accuracy or completeness of the information
provided.
This is one of multiple documents comprising the actuarial report. Additional
information regarding actuarial assumptions and methods, and important additional
disclosures are provided in our full report.
If you need additional information to make an informed decision about the contents
of this presentation, or if anything appears to be missing or incomplete please contact
us before using this presentation.
23
Disclosures
Future actuarial measurements may differ significantly from the current
measurements presented in this presentation due to such factors as the following:
plan experience differing from that anticipated by the economic or demographic
assumptions; changes in economic or demographic assumptions; increases or
decreases expected as part of the natural operation of the methodology used for these
measurements (such as the end of an amortization period or additional cost or
contribution requirements based on the plans funded status); and changes in plan
provisions or applicable law.
24