Discussion and possible action to adopt RES. 2025-57 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.

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 2024 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, $5 million payment in June of 2022, $6 million payment in June of 2023, and $3 million payment in June of 2024. Management is not requesting an additional lump sum payment for FY2025, however, because of maintaining the contribution rate at the FY2024 percentage, the City will have paid over $9 million above the ARC directly toward the unfunded liability in FY2025. City staff believes that these commitments meet the requirements of HB 2097.

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 6/30/24 actuarial valuation, the funded status of the City's PSPRS plans (for Tier 1/Tier 2) are as follows:

City of Peoria Police 83.4% up from 80.0% one year prior.

City of Peoria Fire 84.7% up from 82.4% one year prior.

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, 2024 actuarial report.

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, 2024 actuarial valuation, the City's unfunded actuarial liability for the police and fire pensions total $57,472,731. The combined funded ratio for the police and fire pension is 84.0%.