Item Coversheet
CITY OF PEORIA, ARIZONA
COUNCIL COMMUNICATION 		Agenda Item: 10C. 


Date Prepared:  5/17/2023 Council Meeting Date: 6/6/2023
TO:Mike Faust, City Manager 
THROUGH:
Kevin Burke, Deputy City Manager 
FROM:  Sean Kindell, Acting Finance Director 
SUBJECT:
Pension Funding Policy, Accept Actuarial Report for Public Safety Personnel Retirement System 
Purpose:

Discussion and possible action to adopt RES. 2023-78 adopting a Pension Funding Policy for the City's Public Safety Personnel Retirement System and accepting the City's share of actuarial assets and liabilities under the Public Safety Personnel Retirement System actuarial valuation report.

Summary:

Arizona House Bill 2097 was passed in April 2018, requiring every governing body to adopt annually a pension funding policy for PSPRS beginning on or before July 1 each year.

  

The pension funding policy must include funding objectives that address the following:

 

1. How the City will maintain adequate assets to fund benefits payable under the system;

2. How to maintain stability of the City's contributions to the system;

3. How and when the City's funding requirements of the system will be met; and,

4. Defining the City's funded ratio target under the system and the timeline for reaching the targeted funded ratio.

 

House Bill 2097 also requires the City to formally accept the assets and liabilities from the most recent actuarial valuation report and post the pension funding policy on the City's public website.

 

Council is asked to adopt the attached resolution which: (1) formally adopts a pension funding policy for PSPRS (attached to the Resolution as Exhibit A); and, (2) formally accepts the city's share of assets and liabilities from the June 2022 actuarial report (Exhibits B & C) in compliance with the requirements of House Bill 2097.

 

The pension funding policy will commit the City to a funded status target of 100% by 2036, making the full Annual Required Contributions (ARC) each year from operating revenues. The City is likely to achieve that status well in advance and save tens of millions of dollars due to additional contributions such as $30 million payment authorized in October of 2021 and another $5 million payment in June of 2022. Council is asked to consider an additional contribution before FY23 is concluded in a separate agenda item. City staff believes that these commitments meet the requirements of HB 2097.

Previous Actions/Background:

Public Safety Personnel Retirement System (PSPRS) is a statewide retirement program for Arizona police and fire personnel. It is an agent multiple-employer defined benefit plan where assets are pooled for investment purposes but separate accounts are maintained for each individual employer.

 

The funded status of the consolidated PSPRS system declined significantly from 124% in 2000 to 48% in 2020 due primarily to unfunded benefit increases, significant investment losses, outdated actuarial assumptions and a failed reform effort in 2011.

 

Recognizing these issues, PSPRS made significant changes to its governing body, investment program and plan design. The new PSPRS board has been gradually revising actuarial assumptions to better reflect actual experiences (eg. updating mortality tables, lowering investment return assumptions and payroll growth assumptions). These efforts are made to ensure a healthier pension system for the future.

 

To address the unfunded liability already incurred for the Tier 1 and Tier 2 members, the PSPRS board, through HB2097, is requiring employers to set a funded goal and commit to paying off the unfunded liability over a specific time period. The attached policy provides for the city's commitment to being fully funded by 2036 and also to meet its Annual Required Contribution (ARC) with operating revenues each year.

 

As of the 6/30/22 actuarial valuation, the funded status of the City's PSPRS plans (for Tier 1/Tier 2) are as follows:

 

City of Peoria Police 76.4% up from 58.5% one year prior.

City of Peoria Fire 77.1% up from 71.5% one year prior.


Options:


Staff Recommendation:

Staff recommends adopting the attached resolution to update the pension funding policy for PSPRS and also formally accept the city's share of assets and  liabilities from the June 30, 2022 actuarial report.

Fiscal Analysis:

The pension funding policy commits the City to contributing the full Annual Required Contribution (ARC) for PSPRS and to make additional contributions in order to meet a 100% target funded ratio by 2036.

 

Based on the June 30, 2022 actuarial valuation, the City's unfunded actuarial liability for the police and fire pensions total $99,686,674. The combined funded ratio for the police and fire pension is 76.5%.

ATTACHMENTS:
Description
Resolution 2023-78
Exhibit A - PSPRS Pension Funding Policy
Exhibit B - Peoria Fire Actuarial 6-30-2022
Exhibit C - Peoria Fire Actuarial 6-30-2022
Contact Name and Number:  
Kevin Burke, 623.773.7395