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Title:
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Authorization to Adopt Proposed Update to City of Phoenix Employee Retirement System Pension Funding Policy (Ordinance S-52097) - Citywide
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Title
Authorization to Adopt Proposed Update to City of Phoenix Employee Retirement System Pension Funding Policy (Ordinance S-52097) - Citywide
Description
Request to adopt a Pension Funding Policy applicable to City of Phoenix Employee Retirement System (COPERS). A Pension Funding Policy to clearly communicate the City's funding objectives is a requirement adopted by the State Legislature in 2018 as Arizona Revised Statutes Section 38-863.01 (Attachment A) to be implemented on an annual basis by June 30. While the State law only applies to Public Safety Personnel Retirement System, for the seventh year in a row City staff recommends also adopting a Pension Funding Policy for COPERS as a transparent sound financial practice.
Report
Summary
The State law requires the City to:
Annually adopt a Pension Funding Policy.
Formally accept the Employer's share of the assets and liabilities under each pension system.
Post the Policy on the City's website.
For review and discussion purposes, a proposed Pension Funding Policy for COPERS can be found in Attachment B. A final City Pension Funding Policy must be adopted and posted on the City's website by July 1 each year.
Over the last several years the Phoenix City Council and voters have taken responsible actions to ensure the pension system is financially stable while maintaining services to the public. Fluctuations in unfunded pension liabilities (Attachment C) and annual costs (Attachment D) have placed significant budgetary constraints on the City’s ability to provide employee wage and non-pension benefit increases, public services and infrastructure maintenance. While currently manageable, this pressure will continue into the foreseeable future. Further, credit rating agencies and lenders place strong consideration on the funding plan and funding level of the City’s pension system when determining their view of the overall financial health of the City.
The Phoenix City Council has requested staff provide various pension funding options, which has resulted in the following action:
Advanced $70 million in Wastewater enterprise funds to pay down the COPERS liability in Fiscal Year 2017-18. Advanced $170 million in Aviation enterprise funds to pay down the COPERS liability in Fiscal Year 2020-21.
This action is in addition to the COPERS pension reform that the City Council and voters have implemented since 2013.
Results to Date
Implementation of the City Council's direction has resulted in improvements to the funded position and stabilization of COPERS, including the current funded ratio for COPERS to 72.62 percent for fiscal year ending 2024, up from 72.02 percent in fiscal year ending 2023 (Attachment E).
City Council Considerations
In accordance with State law, the City Council must formally accept the assets and liabilities of the City's pension funds for the City of Phoenix (Attachment F) and must approve Pension Funding Policy (Attachment B) by July 1, 2025.
While the pension system is not currently fully funded, the strategy to pay the Actuarially Determined Contribution and pay down the liability over a set period (13 years remaining for COPERS) allows flexibility in improving services to the public while spreading the liability over a period of time.
Under current actuarial calculations and amortization periods, COPERS will be 100 percent funded by June 30, 2039 (Attachment G). This means pension costs will significantly decrease in fiscal year 2038-39 as only normal current year costs remain. Under the leadership of the City Council, the City continues to take steps to ensure current funding expectations are achieved on this schedule.
Department
Responsible Department
This item is submitted by City Manager Jeffrey Barton and the Finance Department.