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Home My WebLink AboutPackets - Budget and Finance Committee (43) AGENDA ORO VALLEY BUDGET AND FINANCE COMMISSION REGULAR SESSION APRIL 18, 2023 COUNCIL CHAMBERS 11000 N. LA CAÑADA DRIVE REGULAR SESSION AT OR AFTER 4:00 PM CALL TO ORDER ROLL CALL PLEDGE OF ALLEGIANCE CALL TO AUDIENCE - at this time, any member of the public is allowed to address the Commission on any issue not listed on today’s agenda. Pursuant to the Arizona open meeting law, individual Commission members may ask Town staff to review the matter, ask that the matter be placed on a future agenda, or respond to criticism made by speakers. However, the Commission may not discuss or take legal action on matters raised during "Call to Audience." In order to speak during "Call to Audience", please specify what you wish to discuss when completing the blue speaker card. STAFF LIAISON REPORT REGULAR SESSION AGENDA 1.REVIEW AND APPROVAL OF THE MARCH 21, 2023 REGULAR SESSION MEETING MINUTES 2.DISCUSSION AND POSSIBLE RECOMMENDATION OF DRAFT PUBLIC SAFETY PERSONNEL RETIREMENT SYSTEM (PSPRS) PENSION FUNDING POLICY FOR FISCAL YEAR ENDING JUNE 30, 2024 3.DISCUSSION OF TOWN MANAGER'S RECOMMENDED BUDGET FOR FY 23/24 COUNCIL LIAISON COMMENTS FUTURE AGENDA ITEMS ADJOURNMENT POSTED: 4/14/2023 at 5 PM by ms When possible, a packet of agenda materials as listed above is available for public inspection at least 24 hours prior to the Commission meeting in the Town Clerk's Office between the hours of 8:00 a.m. – 5:00 p.m. The Town of Oro Valley complies with the Americans with Disabilities Act (ADA). If any person with a disability needs any type of accommodation, please notify the Town Clerk’s Office at least five days prior to the Commission meeting at 229-4700. INSTRUCTIONS TO SPEAKERS Members of the public have the right to speak during any posted public hearing. However, those items not listed as a public hearing are for consideration and action by the Commission during the course of their business meeting. Members of the public may be allowed to speak on these topics at the discretion of the Chair. If you wish to address the Commission on any item(s) on this agenda, please complete a blue speaker card located on the Agenda table at the back of the room and give it to the Recording Secretary. Please indicate on the speaker card which item number and topic you wish to speak on, or if you wish to speak during “Call to Audience,” please specify what you wish to discuss when completing the blue speaker card. Please step forward to the podium when the Chair announces the item(s) on the agenda which you are interested in addressing. 1. For the record, please state your name and whether or not you are a Town resident. 2. Speak only on the issue currently being discussed by the Commission. Please organize your speech, you will only be allowed to address the Commission once regarding the topic being discussed. 3. Please limit your comments to 3 minutes. 4. During “Call to Audience”, you may address the Commission on any issue you wish. 5. Any member of the public speaking must speak in a courteous and respectful manner to those present. Thank you for your cooperation. “Notice of Possible Quorum of the Oro Valley Town Council, Boards, Commissions and Committees: In accordance with Chapter 3, Title 38, Arizona Revised Statutes and Section 2-4-4 of the Oro Valley Town Code, a majority of the Town Council, Board of Adjustment, Historic Preservation Commission, Parks and Recreation Advisory Board, Stormwater Utility Commission, and Water Utility Commission may attend the above referenced meeting as a member of the audience only.” AGENDA ORO VALLEY BUDGET AND FINANCE COMMISSION REGULAR SESSION APRIL 18, 2023 COUNCIL CHAMBERS 11000 N. LA CAÑADA DRIVE REGULAR SESSION AT OR AFTER 4:00 PM CALL TO ORDER ROLL CALL PLEDGE OF ALLEGIANCE CALL TO AUDIENCE - at this time, any member of the public is allowed to address the Commission on any issue not listed on today’s agenda. Pursuant to the Arizona open meeting law, individual Commission members may ask Town staff to review the matter, ask that the matter be placed on a future agenda, or respond to criticism made by speakers. However, the Commission may not discuss or take legal action on matters raised during "Call to Audience." In order to speak during "Call to Audience", please specify what you wish to discuss when completing the blue speaker card. STAFF LIAISON REPORT REGULAR SESSION AGENDA 1.REVIEW AND APPROVAL OF THE MARCH 21, 2023 REGULAR SESSION MEETING MINUTES 2.DISCUSSION AND POSSIBLE RECOMMENDATION OF DRAFT PUBLIC SAFETY PERSONNEL RETIREMENT SYSTEM (PSPRS) PENSION FUNDING POLICY FOR FISCAL YEAR ENDING JUNE 30, 2024 3.DISCUSSION OF TOWN MANAGER'S RECOMMENDED BUDGET FOR FY 23/24 COUNCIL LIAISON COMMENTS FUTURE AGENDA ITEMS ADJOURNMENT POSTED: 4/14/2023 at 5 PM by ms When possible, a packet of agenda materials as listed above is available for public inspection at least 24 hours prior to the Commission meeting in the Town Clerk's Office between the hours of 8:00 a.m. – 5:00 p.m. The Town of Oro Valley complies with the Americans with Disabilities Act (ADA). If any person with a disability needs any type of accommodation, please notify the Town Clerk’s Office at least five days prior to the Commission meeting at 229-4700. INSTRUCTIONS TO SPEAKERS Members of the public have the right to speak during any posted public hearing. However, those items not listed as a public hearing are for consideration and action by the Commission during the course of their business meeting. Members of the public may be allowed to speak on these topics at the discretion of the Chair. If you wish to address the Commission on any item(s) on this agenda, please complete a blue speaker card located on the Agenda table at the back of the room and give it to the Recording Secretary. Please indicate on the speaker card which item number and topic you wish to speak on, or if you wish to speak during “Call to Audience,” please specify what you wish to discuss when completing the blue speaker card. Please step forward to the podium when the Chair announces the item(s) on the agenda which you are interested in addressing. 1. For the record, please state your name and whether or not you are a Town resident. 2. Speak only on the issue currently being discussed by the Commission. Please organize your speech, you will only be allowed to address the Commission once regarding the topic being discussed. 3. Please limit your comments to 3 minutes. 4. During “Call to Audience”, you may address the Commission on any issue you wish. 5. Any member of the public speaking must speak in a courteous and respectful manner to those present. Thank you for your cooperation. “Notice of Possible Quorum of the Oro Valley Town Council, Boards, Commissions and Committees: In accordance with Chapter 3, Title 38, Arizona Revised Statutes and Section 2-4-4 of the Oro Valley Town Code, a majority of the Town Council, Board of Adjustment, Historic Preservation Commission, Parks and Recreation Advisory Board, Stormwater Utility Commission, and Water Utility Commission may attend the above referenced meeting as a member of the audience only.” Budget and Finance Commission 1. Meeting Date:04/18/2023 Submitted By:Melissa Flores, Legal SUBJECT: REVIEW AND APPROVAL OF THE MARCH 21, 2023 REGULAR SESSION MEETING MINUTES RECOMMENDATION: Staff recommends approval. EXECUTIVE SUMMARY: N/A BACKGROUND OR DETAILED INFORMATION: N/A FISCAL IMPACT: N/A SUGGESTED MOTION: I MOVE to approve the March 21, 2023 regular session meeting minutes. Attachments Draft Minutes 032123 D R A F T MINUTES BUDGET AND FINANCE COMMISSION REGULAR SESSION MARCH 21, 2023 COUNCIL CHAMBERS 11000 N. LA CAÑADA DRIVE REGULAR SESSION AT OR AFTER 4:00 PM CALL TO ORDER - Chair Mason called the meeting to order at 4:00 P.M. ROLL CALL Present: Jennifer Carr, Commissioner John Fortunato, Commissioner Heather Laird, Vice Chair Michael Mason, Chair Absent:Gerald LeMay, Commissioner Staff Present:David Gephart, Chief Financial Officer Wendy Gomez, Deputy Finance Director Chris Hutchison, Senior Budget Analyst PLEDGE OF ALLEGIANCE - Chair Mason led the group in the Pledge of Allegiance. CALL TO AUDIENCE - No comments were received. STAFF LIAISON REPORT Chief Financial Officer David Gephart reported on the following: - Budget season is underway. - On April 18, 2023, the Town Manager recommended budget will be presented and will be distributed to Council the Budget and Finance commission on April 14, 2023. - Town Manager search is ongoing and a projected finalist should be announced in early May 2023. - The Town is updating its two (2) year strategic plan, with a study session on April 5, 2023. - The Vistoso Trails Nature Preserve consultant has drafted a master plan which is scheduled to be reviewed by Council for approval in May. REGULAR SESSION AGENDA 1.REVIEW AND APPROVAL OF THE FEBRUARY 21, 2023 REGULAR SESSION MEETING MINUTES Motion by Commissioner Jennifer Carr, seconded by Vice Chair Heather Laird to approve the February 21, 2023 regular session meeting minutes as written. 04/12/2023 Minutes, Budget and Finance Commission Meeting 1 Vote: 4 - 0 Carried 2.PRESENTATION AND POSSIBLE DISCUSSION OF THE TOWN'S FY 22/23 FINANCIAL UPDATE THROUGH JANUARY 2023 Deputy Finance Director, Wendy Gomez, presented on Agenda Item #2. Discussion ensued amongst staff and commissioners. 3.DISCUSSION AND POSSIBLE RECOMMENDATION OF DRAFT PUBLIC SAFETY PERSONNEL RETIREMENT SYSTEM (PSPRS) PENSION FUNDING POLICY FOR FISCAL YEAR ENDING JUNE 30, 2024. Chief Financial Officer, David Gephart, presented on Agenda Item #3. Discussion ensued amongst staff and commissioners. COUNCIL LIAISON COMMENTS No comments were received. FUTURE AGENDA ITEMS - Revisit Agenda Item #3 at the next meeting to discuss and approve edits to pension policies. ADJOURNMENT Motion by Commissioner Jennifer Carr, seconded by Vice Chair Heather Laird to adjourn the meeting at 4:52 P.M. Vote: 4 - 0 Carried I hereby certify that the foregoing minutes are a true and correct copy of the minutes of the regular session of the Town of Oro Valley Budget and Finance Commission of Oro Valley, Arizona held on the 21st day of March, 2023. I further certify that the meeting was duly called and held and that a quorum was present. Dated this 12th day of April, 2023. ___________________________ Melissa Flores Legal Secretary 04/12/2023 Minutes, Budget and Finance Commission Meeting 2 Budget and Finance Commission 2. Meeting Date:04/18/2023 Submitted By:David Gephart, Finance SUBJECT: DISCUSSION AND POSSIBLE RECOMMENDATION OF DRAFT PUBLIC SAFETY PERSONNEL RETIREMENT SYSTEM (PSPRS) PENSION FUNDING POLICY FOR FISCAL YEAR ENDING JUNE 30, 2024 RECOMMENDATION: Staff recommends approval of the draft PSPRS pension funding policy for next fiscal year. EXECUTIVE SUMMARY: Each local government must annually update its PSPRS pension funding policy according to the Arizona Revised Statutes. Highlights of the proposed PSPRS pension funding policy are the following: 1) The Annual Required Contribution (ARC) will be paid from operating revenues 2) Whenever the ARC is reduced as it is proposed for next fiscal year, the Town will endeavor to continue making additional contributions to the plan comprised of the normal cost rate plus $2.5 million until the plan is 110% funded 3) The 20-year amortization of any unfunded actuarial accrued liability will continue to be utilized 4) Payments in addition to the ARC will be made as funding is available The Town has set a target to be fully funded on its PSPRS Unfunded Accrued Actuarial Liability by June 30, 2036. BACKGROUND OR DETAILED INFORMATION: The PSPRS pension funding policy is required by HB 2097, which amends Arizona Revised Statutes Title 38, Chapter 5, Article 4, and was approved by the Governor on April 3, 2018. The policy must be updated and approved annually by the governing body of a local government participating in the plan. The intent of the revision in state law is to highlight to governing bodies and the public, the approach local governments are taking in addressing unfunded, accrued, actuarial liabilities of their public safety retirement plan(s). There is no such requirement for the Arizona State Retirement System (ASRS) covering general local government employees, as that plan is financially healthier and functions differently than the PSPRS plan in terms of the sharing of unfunded assets/liabilities. The draft policy pertaining to next fiscal year is attached and is roughly the same Town Council-approved document for the current year with necessary updates to which the policy pertains, as well as updates to the actuarial assets, liabilities and unfunded accrued liabilities. FISCAL IMPACT: N/A SUGGESTED MOTION: I MOVE to recommend Town Council approval of the updated PSPRS pension funding policy for the fiscal year ending June 30, 2024, as presented. or I MOVE to recommend Town Council approval of the updated PSPRS pension funding policy for the fiscal year ending June 30, 2024, with the following changes: ___ Attachments Draft PSPRS Pension Funding Policy Current Pension Funding Policy CORP Actuarial Valuation PSPRS Actuarial Valuation 1 Town of Oro Valley Public Safety Personnel Retirement System (PSPRS & CORP) Pension Funding Policy – FY23/24 The intent of this policy is to clearly communicate the Town Council’s pension funding objectives, its commitment to employees and the sound financial management of the Town of Oro Valley and maintain compliance with statutory requirements of A.R.S. 38-863.01. The Council shall annually assess the status of the Town’s PSPRS trust fund and take formal action to update this policy in concert with the final annual budget approval. This policy shall also apply to the Town’s participation in the Correction Officer Retirement Plan (CORP). Several terms are used throughout this policy and are defined as follows: Unfunded Actuarial Accrued Liability (UAAL) – Is the difference between trust assets and the estimated future cost of pensions earned by employees. This UAAL results from actual results (interest earnings, member mortality, disability rates, etc.) being different from the assumptions used in previous actuarial valuations. Annual Required Contribution (ARC) – Is the annual amount required to pay into the pension funds, as determined through annual actuarial valuations. It is comprised of two primary components: normal pension cost – which is the estimated cost of pension benefits earned by employees in the current year; and, amortization of UAAL – which is the cost needed to cover the unfunded portion of pensions earned by employees in previous years. The UAAL is collected over a period of time referred to as the amortization period. The ARC is a percentage of the current payroll. Funded Ratio – Is a ratio of fund assets to actuarial accrued liability. The higher the ratio, the better funded the pension is, with 100% being fully funded based on current actuarial valuations. Intergenerational equity – Is a concept used to describe the policy expectation that no generation is burdened by substantially more or less pension costs than past or future generations. The Town’s sworn police employees who are regularly assigned hazardous duty participate in the Public Safety Personnel Retirement System (PSPRS). Selected individuals who serve as dispatchers in the Oro Valley Police Department participate in the CORP plan, which is also administered by the Public Safety Personnel Retirement System. Public Safety Personnel Retirement System (PSPRS) PSPRS is administered as an agent multiple-employer pension plan. An agent multiple-employer plan has two main functions: 1) to comingle assets of all plans under its administration, thus achieving economy of scale for more cost efficient investments, and invest those assets for the benefit of all members under its administration and 2) serve as the statewide uniform administrator for the distribution of benefits. 2 Under an agent multiple-employer plan, each agency participating in the plan has an individual trust fund reflecting that agencies’ assets and liabilities. Under this plan all contributions are deposited to and distributions are made from that fund’s assets, each fund has its own funded ratio and contribution rate, and each fund has a unique annual actuarial valuation. The Town of Oro Valley has one trust fund for police employees. The Town also contributes to the Correction Officer Retirement Plan (CORP), administered by the Public Safety Personnel Retirement System, on behalf of selected individuals who serve as dispatchers in the Oro Valley Police Department. CORP maintains one trust fund for dispatchers. Oro Valley Town Council formally accepts the assets, liabilities, and current funding ratio of the Town’s PSPRS and CORP trust funds from the June 30, 2022 actuarial valuations specified below. Trust Fund Assets Accrued Liability Unfunded Actuarial Accrued Asset/(Liability) Funded Ratio Oro Valley Police (PSPRS) $77,967,201 $76,438,334 $1,528,867 102.0% Oro Valley Dispatchers (CORP) $ 1,710,819 $ 3,721,151 ($2,010,332) 46.0% PSPRS and CORP Funding Goal Pensions that are less than fully funded place the cost of service provided in earlier periods (amortization of UAAL) on current taxpayers. Fully funded pension plans are the best way to achieve taxpayer and member intergenerational equity. The Council’s PSPRS and CORP funding ratio goal is 100% (fully funded) through June 30, 2036 and beyond. Council establishes this goal for the following reasons: • The PSPRS and CORP trust funds represent only the Town of Oro Valley’s liability • The fluctuating cost of an UAAL causes strain on the Town’s budget, affecting the Town’s ability to provide services • A fully funded pension is the best way to achieve taxpayer and member intergenerational equity Council has determined that in order to achieve the 100% funding ratio goal, the following actions will be taken: • Maintain ARC payment from operating revenues – Council is committed to maintaining the full ARC payment (normal cost and UAAL amortization) from operating funds. The estimated combined ARC for FY23/24 is estimated at $3.7 million for PSPRS and at $75,000 for CORP and shall be paid from operating funds. • At such time the ARC is projected to be reduced, the Town should endeavor to continue paying the ARC as defined as the normal cost rate plus an additional contribution of $2.5 million, to maintain the funding ratio goal of 100%. This is due to historically poor investment performance in the Plan and should assist in mitigating that risk should it continue. • Retain 20-year amortization of unfunded liability 3 • Review Local board practices annually • Periodically engage consultants to review actual results and recommend possible adjustments or corrections as necessary Payments to PSPRS will be as follows: • In FY23, the Town will make approximately $2.01M in additional payments to CORP to fund its unfunded actuarial liability. • In FY24 and subsequent years, the Town will continue maintaining a 100% funding ratio by making contributions of $2.5 million per year, above and beyond the normal cost rate payment. If the funding ratio grows to over 110%, the Town Manager through the budget process, may recommend applying funding to other Town priorities. If the funding ratio falls below 100%, future additional payments will be made to restore the funding ratio back to 100%. It is hereby the Town Council’s intent to achieve its goal of 100% funding by June 30, 2036, in accordance with the amortization timeline set forth by the PSPRS and CORP June 30, 2022 Actuarial Valuation The attached appendix shows the historical performance of the unfunded actuarial accrued liability. 4 Appendix A Unfunded Accrued Actuarial Accrued Funded Year Trust Fund Assets Liability Asset/(Liability)Ratio 2014 Oro Valley Police 23,567,852 36,122,643 (12,554,791) 65% 2014 Oro Valley Dispatchers 1,216,956 2,269,744 (1,052,788) 54% 2015 Oro Valley Police 26,200,389 40,452,911 (14,252,522) 65% 2015 Oro Valley Dispatchers 1,205,067 2,362,604 (1,157,537) 51% 2016 Oro Valley Police 29,296,195 48,414,270 (19,118,075) 61% 2016 Oro Valley Dispatchers 1,163,258 2,524,360 (1,361,102) 46% 2017 Oro Valley Police 31,882,797 53,037,566 (21,154,769) 60% 2017 Oro Valley Dispatchers 1,260,798 3,077,649 (1,816,851) 41% 2018 Oro Valley Police 34,172,618 57,022,056 (22,849,438) 60% 2018 Oro Valley Dispatchers 1,337,558 2,945,307 (1,607,749) 45% 2019 Oro Valley Police 37,842,906 62,278,853 (24,435,947) 61% 2019 Oro Valley Dispatchers 1,424,947 3,240,399 (1,815,452) 44% 2020 Oro Valley Police 41,498,361 67,240,526 (25,742,165) 62% 2020 Oro Valley Dispatchers 1,504,732 3,374,933 (1,870,201) 45% 2021 Oro Valley Police 46,773,089 70,792,554 (24,019,465) 66% 2021 Oro Valley Dispatchers 1,649,829 3,551,295 (1,901,466) 46% 2022 Oro Valley Police 77,967,201 76,438,334 1,528,867 102% 2022 Oro Valley Dispatchers 1,710,819 3,721,151 (2,010,332) 46% Source: Town Comprehensive Annual Financial Report for June 30, 2022 – Note 15. 1 Town of Oro Valley Public Safety Personnel Retirement System (PSPRS & CORP) Pension Funding Policy – FY22/23 The intent of this policy is to clearly communicate the Town Council’s pension funding objectives, its commitment to employees and the sound financial management of the Town of Oro Valley, and maintain compliance with statutory requirements of A.R.S. 38-863.01. The Council shall annually assess the status of the Town’s PSPRS trust fund and take formal action to update this policy in concert with the final annual budget approval. This policy shall also apply to the Town’s participation in the Correction Officer Retirement Plan (CORP). Several terms are used throughout this policy and are defined as follows: Unfunded Actuarial Accrued Liability (UAAL) – Is the difference between trust assets and the estimated future cost of pensions earned by employees. This UAAL results from actual results (interest earnings, member mortality, disability rates, etc.) being different from the assumptions used in previous actuarial valuations. Annual Required Contribution (ARC) – Is the annual amount required to pay into the pension funds, as determined through annual actuarial valuations. It is comprised of two primary components: normal pension cost – which is the estimated cost of pension benefits earned by employees in the current year; and, amortization of UAAL – which is the cost needed to cover the unfunded portion of pensions earned by employees in previous years. The UAAL is collected over a period of time referred to as the amortization period. The ARC is a percentage of the current payroll. Funded Ratio – Is a ratio of fund assets to actuarial accrued liability. The higher the ratio, the better funded the pension is, with 100% being fully funded based on current actuarial valuations. Intergenerational equity – Is a concept used to describe the policy expectation that no generation is burdened by substantially more or less pension costs than past or future generations. The Town’s sworn police employees who are regularly assigned hazardous duty participate in the Public Safety Personnel Retirement System (PSPRS). Selected individuals who serve as dispatchers in the Oro Valley Police Department participate in the CORP plan, which is also administered by the Public Safety Personnel Retirement System. Public Safety Personnel Retirement System (PSPRS) PSPRS is administered as an agent multiple-employer pension plan. An agent multiple-employer plan has two main functions: 1) to comingle assets of all plans under its administration, thus achieving economy of scale for more cost efficient investments, and invest those assets for the benefit of all members under its administration and 2) serve as the statewide uniform administrator for the distribution of benefits. 2 Under an agent multiple-employer plan, each agency participating in the plan has an individual trust fund reflecting that agencies’ assets and liabilities. Under this plan all contributions are deposited to and distributions are made from that fund’s assets, each fund has its own funded ratio and contribution rate, and each fund has a unique annual actuarial valuation. The Town of Oro Valley has one trust fund for police employees. The Town also contributes to the Correction Officer Retirement Plan (CORP), administered by the Public Safety Personnel Retirement System, on behalf of selected individuals who serve as dispatchers in the Oro Valley Police Department. CORP maintains one trust fund for dispatchers. Oro Valley Town Council formally accepts the assets, liabilities, and current funding ratio of the Town’s PSPRS and CORP trust funds from the June 30, 2021 actuarial valuations specified below. Trust Fund Assets Accrued Liability Unfunded Actuarial Accrued Liability Funded Ratio Oro Valley Police (PSPRS) $46,773,089 $70,792,554 $24,019,465 66.1% Oro Valley Dispatchers (CORP) $ 1,649,829 $ 3,551,295 $ 1,901,466 46.5% Note: The Town of Oro Valley funded the PSPRS Pension Plan with $27.6M in July 2021, after the June 30, 2021 actuarial report was prepared. At this time, it is expected the plan is 100% funded. PSPRS and CORP Funding Goal Pensions that are less than fully funded place the cost of service provided in earlier periods (amortization of UAAL) on current taxpayers. Fully funded pension plans are the best way to achieve taxpayer and member intergenerational equity. The Council’s PSPRS and CORP funding ratio goal is 100% (fully funded) through June 30, 2036 and beyond. Council establishes this goal for the following reasons: • The PSPRS and CORP trust funds represent only the Town of Oro Valley’s liability • The fluctuating cost of an UAAL causes strain on the Town’s budget, affecting the Town’s ability to provide services • A fully funded pension is the best way to achieve taxpayer and member intergenerational equity Council has determined that in order to achieve the 100% funding ratio goal, the following actions will be taken: • Maintain ARC payment from operating revenues – Council is committed to maintaining the full ARC payment (normal cost and UAAL amortization) from operating funds. The estimated combined ARC for FY21/22 is estimated at $2.9 million for PSPRS and at $183,000 for CORP and shall be paid from operating funds. 3 • At such time the ARC is projected to be reduced, the Town should endeavor to continue paying the ARC at the higher rate (currently 43.47% for Police), to maintain the funding ratio goal of 100%. This is due to historically poor investment performance in the Plan and should assist in mitigating that risk should it continue. • Retain 20-year amortization of unfunded liability • Review Local board practices annually • Periodically engage consultants to review actual results and recommend possible adjustments or corrections as necessary Payments to PSPRS will be as follows: • In FY22, the Town will make approximately $2.9M in payments based upon a 43.57% contribution rate. • In FY23, the Town will make approximately $2.9M in payments based upon a 43.47% contribution rate. • In FY24 and subsequent years, the Town will continue maintaining a 100% funding ratio. If the funding ratio grows to over 110%, the Town Manager through the budget process, may recommend applying funding to other Town priorities. If the funding ratio falls below 100%, future additional payments will be made to restore the funding ratio back to 100%. It is hereby the Town Council’s intent to achieve its goal of 100% funding by June 30, 2036, in accordance with the amortization timeline set forth by the PSPRS and CORP June 30, 2021 Actuarial Valuation The attached appendix shows the historical performance of the unfunded actuarial accrued liability. 4 Appendix A Unfunded Accrued Actuarial Accrued Funded Year Trust Fund Assets Liability Liability Ratio 2014 Oro Valley Police 23,567,852 36,122,643 (12,554,791) 65% 2014 Oro Valley Dispatchers 1,216,956 2,269,744 (1,052,788) 54% 2015 Oro Valley Police 26,200,389 40,452,911 (14,252,522) 65% 2015 Oro Valley Dispatchers 1,205,067 2,362,604 (1,157,537) 51% 2016 Oro Valley Police 29,296,195 48,414,270 (19,118,075) 61% 2016 Oro Valley Dispatchers 1,163,258 2,524,360 (1,361,102) 46% 2017 Oro Valley Police 31,882,797 53,037,566 (21,154,769) 60% 2017 Oro Valley Dispatchers 1,260,798 3,077,649 (1,816,851) 41% 2018 Oro Valley Police 34,172,618 57,022,056 (22,849,438) 60% 2018 Oro Valley Dispatchers 1,337,558 2,945,307 (1,607,749) 45% 2019 Oro Valley Police 37,842,906 62,278,853 (24,435,947) 61% 2019 Oro Valley Dispatchers 1,424,947 3,240,399 (1,815,452) 44% 2020 Oro Valley Police 41,498,361 67,240,526 (25,742,165) 62% 2020 Oro Valley Dispatchers 1,504,732 3,374,933 (1,870,201) 45% 2021 Oro Valley Police 46,773,089 70,792,554 (24,019,465) 66% 2021 Oro Valley Dispatchers 1,649,829 3,551,295 (1,901,466) 46% Source: Town Comprehensive Annual Financial Report for June 30, 2021 – Note 15. ARIZONA CORRECTIONS OFFICER RETIREMENT PLAN TOWN OF ORO VALLEY - DISPATCHERS (556) ACTUARIAL VALUATION AS OF JUNE 30, 2022 CONTRIBUTIONS APPLICABLE TO THE PLAN/FISCAL YEAR ENDING JUNE 30, 2024 VIA E-MAIL 13420 Parker Commons Boulevard, Suite 104 Fort Myers, FL 33912 ꞏ (239) 433-5500 ꞏ Fax (239) 481-0634 ꞏ www.foster-foster.com December 2022 Board of Trustees Arizona Corrections Officer Retirement Plan Phoenix, AZ Re: Actuarial Valuation Report as of June 30, 2022 for Town of Oro Valley - Dispatchers (556) Dear Members of the Board: We are pleased to present to the Board this report of the annual actuarial valuation of the Arizona Corrections Officer Retirement Plan (CORP). The valuation was performed to determine whether the assets and contributions are sufficient to provide the prescribed benefits and to develop the appropriate funding requirements for the applicable plan year. This report was prepared at the request of the Board and is intended for use by CORP and those designated or approved by the Board. It documents the valuation of the consolidated plan and provides summary information for CORP participating employers. This report may be provided to parties other than CORP only in its entirety and only with the permission of the Board. Foster & Foster is not responsible for the unauthorized use of this report. The valuation has been conducted in accordance with generally accepted actuarial principles and practices, including the applicable Actuarial Standards of Practice as issued by the Actuarial Standards Board, and reflects laws and regulations issued to date pursuant to the provisions of Title 38, Chapter 5, Article 6 of the Arizona Revised Statutes, as well as applicable federal laws and regulations. In our opinion, the assumptions used in this valuation, as adopted by the Board of Trustees, represent reasonable expectations of anticipated plan experience. Future actuarial measurements may differ significantly from the current measurements presented in this report for a variety of reasons including changes in applicable laws, changes in plan provisions, changes in assumptions, or plan experience differing from expectations. Due to the limited scope of the valuation, we did not perform an analysis of the potential range of such future measurements. The computed contribution rates shown in the “Contribution Results” section should be considered minimum contribution rates that comply with the Board’s funding policy and Arizona Statutes. Users of this report should be aware that contributions made at that rate do not guarantee benefit security. Given the importance of benefit security to any retirement system, we suggest that contributions to the Plan in excess of those presented in this report be considered. The funding percentages and unfunded accrued liability as measured based on the actuarial value of assets will differ from similar measures based on the market value of assets. These measures, as provided, are appropriate for determining the adequacy of future contributions, but may not be appropriate for the purpose of settling a portion or all of the Plan’s liabilities. Board of Trustees Arizona Corrections Officer Retirement Plan | Page 2 13420 Parker Commons Boulevard, Suite 104 Fort Myers, FL 33912 ꞏ (239) 433-5500 ꞏ Fax (239) 481-0634 ꞏ www.foster-foster.com In conducting the valuation, we have relied on personnel, plan design, and asset information supplied by CORP through June 30, 2022 and the actuarial assumptions and methods described in the Actuarial Assumptions section of this report. While we cannot verify the accuracy of all this information, the supplied information was reviewed for consistency and reasonableness. As a result of this review, we have no reason to doubt the substantial accuracy of the information and believe that it has produced appropriate results. This information, along with any adjustments or modifications, is summarized in various sections of this report. This valuation assumes the continuing ability of the participating employers to make the contributions necessary to fund this plan. A determination regarding whether or not the participating employers are actually able to do so is outside our scope of expertise. Consequently, we did not perform such an analysis. In performing the analysis, we used third-party software to model (calculate) the underlying liabilities and costs. These results are reviewed in the aggregate and for individual sample lives. The output from the software is either used directly or input into internally developed models to generate the costs. All internally developed models are reviewed as part of the process. As a result of this review, we believe that the models have produced reasonable results. We do not believe there are any material inconsistencies among assumptions or unreasonable output produced due to the aggregation of assumptions. The undersigned are familiar with the immediate and long-term aspects of pension valuations and meet the Qualification Standards of the American Academy of Actuaries necessary to render the actuarial opinions contained herein. All sections of this report are considered an integral part of the actuarial opinions. To our knowledge, no associate of Foster & Foster, Inc. working on valuations of the program has any direct financial interest or indirect material interest in the Arizona Corrections Officer Retirement Plan, nor does anyone at Foster & Foster, Inc. act as a member of the Board of Trustees of the Arizona Corrections Officer Retirement Plan. Thus, there is no relationship existing that might affect our capacity to prepare and certify this actuarial report. If there are any questions, concerns, or comments about any of the items contained in this report, please contact us at 239-433-5500. Respectfully Submitted, Foster & Foster, Inc. By: ______________________________ Bradley R. Heinrichs, FSA, EA, MAAA By: ______________________________ Paul M. Baugher, FSA, EA, MAAA Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2022 – Town of Oro Valley - Dispatchers (556) TABLE OF CONTENTS I. Summary of Report ..........................................................................................................................................1 II. Contribution Results ........................................................................................................................................4 III. Liability Support ............................................................................................................................................8 IV. Asset Support ............................................................................................................................................... 11 V. Member Statistics .......................................................................................................................................... 14 VI. Actuarial Assumptions and Methods ........................................................................................................... 17 VII. Discussion of Risk ...................................................................................................................................... 22 VIII. Summary of Current Plan.......................................................................................................................... 25 IX. Actuarial Funding Policy ............................................................................................................................. 30 X. Glossary ........................................................................................................................................................ 34 Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2022 – Town of Oro Valley - Dispatchers (556) 1 I. SUMMARY OF REPORT The regular annual actuarial valuation of the Arizona Corrections Officer Retirement Plan for the Town of Oro Valley - Dispatchers, performed as of June 30, 2022, has been completed and the results are presented in this Report. The purpose of this valuation is to:  Compute the liabilities associated with benefits likely to be paid on behalf of current retired and active members. This information is contained in the section entitled “Liability Support.”  Compare accumulated assets with the liabilities to assess the funded condition. This information is contained in the section entitled “Liability Support.”  Compute the employers’ recommended contribution rates for the Fiscal Year beginning July 1, 2023. This information is contained in the section entitled “Contribution Results.” 1. Key Valuation Results The funded status as of June 30, 2022 and the employer contribution amounts applicable to the plan/fiscal year ending June 30, 2024 are as follows: Tier 1 & Tier 2 Members Pension Health Total Employer Contribution Rate 128.44% 0.00% 128.44% Funded Status 46.0% 285.2% 47.8% 2. Comparison of Key Results to Prior Year The chart below compares the results from this valuation with the results of the prior year’s valuation (as of June 30, 2021): Contribution Rate Tier 1 & Tier 2 Members Valuation Date Pension Health Total June 30, 2021 118.45% 0.00% 118.45% June 30, 2022 128.44% 0.00% 128.44% Funded Status Tier 1 & Tier 2 Members Valuation Date Pension Health Total June 30, 2021 46.5% 330.3% 48.3% June 30, 2022 46.0% 285.2% 47.8% Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2022 – Town of Oro Valley - Dispatchers (556) 2 3. Reasons for Change Changes in the results from the prior year’s valuation can be illustrated in the following tables along with high-level explanations for the entire Plan below: Contribution Rate Tier 1 & Tier 2 Pension Health Contribution Rate Last Valuation 118.45% 0.00% Asset Experience 0.76% 0.04% Payroll Base (1.61%) 0.00% Liability Experience 4.55% (0.05%) Additional Contributions 0.00% 0.00% Assumption/Method Change 5.20% 0.01% Other 1.09% 0.00% Contribution Rate This Valuation 128.44% 0.00% Funded Status Tier 1 & Tier 2 Pension Health Funded Status Last Valuation 46.5% 330.3% Asset Experience (0.3%) (1.6%) Liability Experience (0.9%) (45.3%) Additional Contributions 0.0% 0.0% Assumption/Method Change (0.7%) (2.4%) Other 1.4% 4.2% Funded Status This Valuation 46.0% 285.2% Assets Experience – Asset gains and losses (relative to the assumed earnings rate) are smoothed over seven years for Tiers 1 and 2. The return on the market value of assets for the year ending June 30, 2022 was (3.7%). On a smoothed, actuarial value of assets basis, however, the average return was 7.0%. This return fell just short of the 2021 assumed earnings rate of 7.3%. Payroll Base – Under the current amortization policy for Tiers 1 and 2, the contribution rate is developed as a level percentage of payroll. Payroll for this purpose includes members of this plan and defined contribution plan’s members that would have been in this plan. To the extent that actual payroll is lower/greater than last year’s projected payroll, the contribution rate will increase/decrease as a result. Liability Experience – Experience overall was slightly unfavorable, driven by higher than expected salary increases for actives and higher than expected COLA increases for inactives. Additional Contribution – Monies contributed in excess of the required contribution rate in order to pay down the unfunded liability. Assumption / Method Change – The Board adopted the assumption recommendations provided in the 2022 experience study report, dated April 21, 2022, which updated the salary, inflation, and demographic assumptions. The Board also reduced the interest rate from 7.30% to 7.20% and continued the decrease in the payroll growth assumption from 2.50% to 2.00%. Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2022 – Town of Oro Valley - Dispatchers (556) 3 Other – This is the combination of all other factors that could impact liabilities year-over-year, with the primary sources being changes in member data. 4. Looking Ahead The volatility in annual returns, which have produced both gains and losses in recent years, was dampened by the asset smoothing reflected in the actuarial value of assets. The significant loss realized this year will, in the absence of other gains, put upward pressure on the contribution rate next year. If the June 30, 2022 pension valuation results were based on the market value of assets instead of the actuarial value of assets, the pension funded percentage for Tiers 1 and 2 would be 44.7% (instead of 46.0%) and the pension employer contribution requirement would be 131.58% of payroll (instead of 128.44%). 5. Conclusion The funded status for Tiers 1 and 2 will continue to improve if assumptions are met and contributions at least equal to the rates determined for each employer are made to the fund. The recent adoption of a layered amortization approach along with a plan to systematically lower the payroll growth assumption was an excellent step to improve funding and ensure the Plan is on a viable path. Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2022 – Town of Oro Valley - Dispatchers (556) 4 II. CONTRIBUTION RESULTS Contribution Requirements Development of Employer Contributions - Tiers 1 & 2 Members Valuation Date June 30, 2022 June 30, 2021 Applicable to Fiscal Year Ending 2024 2023 Rate Dollar Rate Dollar Pension Normal Cost Total Normal Cost 10.21% $16,408 10.79% $16,669 Employee Cost (7.96%) (12,792) (7.96%) (12,303) Employer (Net) Normal Cost 2.25% 3,616 2.83% 4,366 Amortization of Unfunded Liability 126.19% 202,799 115.62% 178,696 Total Employer Cost (Pension) 128.44% 206,415 118.45% 183,062 Health Normal Cost 0.23% $364 0.24% $371 Amortization of Unfunded Liability (0.23%) (364) (0.24%) (371) Total Employer Cost (Health) 0.00% 0 0.00% 0 Total Employer Cost (Pension + Health) 128.44% 206,415 118.45% 183,062 Total Minimum Contribution Requirement (if applicable) 6.00% 6.00% Alternate Contribution Rate (ACR) * 126.19% 115.62% Underlying Payroll (as of valuation date) 160,709 154,555 * The Alternate Contribution Rate is the sum of the positive amortization rates for Tiers 1 & 2 Pension and Health (subject to a 6% minimum) and is charged when retirees return to active status. The results above are shown both prior to and after the application of the statutory minimum contribution requirement of 6% of payroll. Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2022 – Town of Oro Valley - Dispatchers (556) 5 Development of Employer Contributions – Tier 3 Members Valuation Date June 30, 2022 June 30, 2021 Applicable to Fiscal Year Ending 2024 2023 Defined Contribution (DC) Retirement Plan Rate Dollar Rate Dollar Tier 3 DC Only Employee Cost 7.00% $ 0 7.00% $ 0 Employee Health Subsidy Program Cost 0.17% 0 0.17% 0 Employee Disability Program Cost 0.45% 0 0.44% 0 Total Employee Cost 7.62% 0 7.61% 0 Employer Cost 5.00% 0 5.00% 0 Employer Health Subsidy Program Cost 0.17% 0 0.17% 0 Employer Disability Program Cost 0.45% 0 0.44% 0 Total Employer Cost (before Legacy) 5.62% 0 5.61% 0 ER Legacy Cost of Tiers 1 & 2 Amort of Unfunded Liabilities * 126.19% 0 115.62% 0 Total Employer Cost 131.81% 0 121.23% 0 Underlying Payroll (as of valuation date) 0 0 * Pursuant to ARS § 38-891(A), the amortization of positive unfunded liabilities for Tiers 1 & 2 shall be applied to all Tier 3 payroll on a level percent basis. However, while it is statutorily required to present the rates in this manner, these are the minimums where alternate methods for paying down that unfunded liability is at the discretion of each employer. Further, to understand the effects of reform in relation to Tier 3, compare the total rate of Tier 3 before application of those legacy costs. Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2022 – Town of Oro Valley - Dispatchers (556) 6 Contribution Rate Summary Tier 1 Tier 2 Tier 3 Membership Date On or After 7/1/1986 1/1/2012 7/1/2018 Available Retirement Plan DB Plan DB Plan DB Plan 1 DC Plan Employee Contribution Rate CORP DB Rate 7.96% 7.96% 9.81% CORP DC Rate 2 7.00% CODCRP Health Subsidy Program Rate 0.17% CODCRP Disability Program Rate 0.45% Total EE Contribution Rate 7.96% 7.96% 9.81% 7.62% Employer Contribution Rate CORP DB Normal Cost 2.25% 2.25% 4.90% CORP DB Tier 1 & 2 Legacy Cost 3 126.19% 126.19% 0.00% 126.19% CORP DC Rate 5.00% CODCRP Health Subsidy Program Rate 0.17% CODCRP Disability Program Rate 0.45% Total ER Contribution Rate 128.44% 128.44% 4.90% 131.81% 1 Applicable to AOC Probation and Surveillance only. 2 Although the default contribution rate is 7%, Tier 3 members in the DC plan may choose an employee contribution rate anywhere between 5% and 40%. 3 Per statute (ARS § 38-891(A), any positive unfunded liability for Tiers 1 and 2 is to be applied to all Tier 3 (DB and DC) payrolls. Exhibit summarizes employee and employer contributions based on Statute and the results of June 30, 2022 actuarial valuation. Pension and health components are combined, where applicable. Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2022 – Town of Oro Valley - Dispatchers (556) 7 Impact of Additional Contributions Additional Contribution (000s) $0 $10 $20 $30 $40 $50 $60 $70 $80 $90 $100 Impact On Funded Status June 30, 2022 46.0% 46.2% 46.5% 46.8% 47.1% 47.3% 47.6% 47.9% 48.1% 48.4% 48.7% FYE 2024 Contribution Rate 131.41% 130.57% 129.74% 128.90% 128.07% 127.24% 126.40% 125.57% 124.73% 123.90% 123.07% Table shows the hypothetical change in the funded status and contribution rate from the June 30, 2022 actuarial valuation results for Tiers 1 & 2 if an additional contribution of the amount shown had been made to the Fund on June 30, 2022. This illustration can help estimate the impact of contributing additional monies to the fund in the future. Historical Summary of Employer Rates Pension Health Valuation Date June 30 Fiscal Year Ending June 30 Normal Cost Unfunded Amortization Total Normal Cost Unfunded Amortization Total TIERS 1 & 2 2018 2020 6.42% 53.52% 59.94% 0.11% (0.11%) 0.00% 2019 2021 3.03% 72.50% 75.53% 0.34% (0.34%) 0.00% 2020 2022 2.55% 76.68% 79.23% 0.33% (0.33%) 0.00% 2021 2023 2.83% 115.62% 118.45% 0.24% (0.24%) 0.00% 2022 2024 2.25% 126.19% 128.44% 0.23% (0.23%) 0.00% Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2022 – Town of Oro Valley - Dispatchers (556) 8 III. LIABILITY SUPPORT Liabilities and Funded Ratios by Benefit - Tiers 1 & 2 Pension and health liabilities were not impacted under the lateral transfer methodology. June 30, 2022 June 30, 2021 Pension Actuarial Present Value of Benefits (PVB) Retirees and Beneficiaries $ 2,564,326 $ 2,505,267 Vested Members 66,659 63,948 Active Members 1,189,106 1,088,314 Total Actuarial Present Value of Benefits 3,820,091 3,657,529 Actuarial Accrued Liability (AAL) All Inactive Members 2,630,985 2,569,215 Active Members 1,090,166 982,080 Total Actuarial Accrued Liability 3,721,151 3,551,295 Actuarial Value of Assets (AVA) 1,710,819 1,649,829 Unfunded Actuarial Accrued Liability 2,010,332 1,901,466 Funded Ratio (AVA / PVB) 44.8% 45.1% Funded Ratio (AVA / AAL) 46.0% 46.5% Health Actuarial Present Value of Benefits (PVB) Retirees and Beneficiaries $ 11,893 $ 7,365 Active Members 18,507 17,835 Total Present Value of Benefits 30,400 25,200 Actuarial Accrued Liability (AAL) All Inactive Members 11,893 7,365 Active Members 16,594 15,836 Total Actuarial Accrued Liability 28,487 23,201 Actuarial Value of Assets (AVA) 81,248 76,639 Unfunded Actuarial Accrued Liability (52,761) (53,438) Funded Ratio (AVA / PVB) 267.3% 304.1% Funded Ratio (AVA / AAL) 285.2% 330.3% Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2022 – Town of Oro Valley - Dispatchers (556) 9 Derivation of Experience (Gain)/Loss Tiers 1 & 2 Pension Health (1) Unfunded Actuarial Accrued Liability as of June 30, 2021 1,901,466 (53,438) (2) Normal Cost Developed in Last Valuation 4,366 371 (3) Actual Contributions 123,193 0 (4) Expected Interest On (1), (2), and (3) 134,708 (3,874) (5) Expected Unfunded Actuarial Accrued Liability as of June 30, 2022 (1)+(2)-(3)+(4) 1,917,347 (56,941) (6) Changes to UAAL Due to Assumptions, Methods and Benefits 52,916 241 (7) Change to UAAL Due to Actuarial (Gain)/Loss 40,069 3,939 (8) Unfunded Actuarial Accrued Liability as of June 30, 2022 2,010,332 (52,761) Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2022 – Town of Oro Valley - Dispatchers (556) 10 Amortization of Unfunded Liabilities - Tiers 1 & 2 Date Established Outstanding Balance Years Remaining Amortization Rate Pension 06/30/2019 1,737,869 14 108.30% 06/30/2021 115,084 14 7.73% 06/30/2022 157,379 15 10.16% Total 2,010,332 126.19% Health 06/30/2019 0 10 0.00% 06/30/2021 0 10 0.00% 06/30/2022 (49,912) 10 (4.16%) Total (49,912) (4.16%) Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2022 – Town of Oro Valley - Dispatchers (556) 11 IV. ASSET SUPPORT Statement of Changes in Fiduciary Net Position for Year Ended June 30, 2022 Market Value Basis Tiers 1 & 2 Pension Health Additions Contributions Member Contributions $ 40,034,012 $ 0 Employer Contributions 806,004,555 0 Health Insurance Contributions 0 538,941 Total Contributions 846,038,567 538,941 Investment Income Net Increase in Fair Value (172,953,636) (8,096,213) Interest and Dividends 32,720,422 1,531,691 Other Income 19,389,614 1,055,032 Less Investment Expenses (5,907,087) (221,268) Net Investment Income (126,750,687) (5,730,758) Transfers In 37,657 0 Total Additions 719,325,537 (5,191,817) Deductions Distributions to Members Benefit Payments 197,762,666 0 Health Insurance Subsidy 0 4,455,924 Refund of Contributions 21,402,121 0 Total Distributions 219,164,787 4,455,924 Administrative Expenses 2,269,333 102,940 Transfers Out 424,158 0 Other 0 0 Total Deductions 221,858,278 4,558,864 Net Increase / (Decrease) 497,467,259 (9,750,681) Net Position Held in Trust Prior Valuation 3,215,933,036 155,576,224 Beginning of the Year Adjustment (1) 0 End of the Year 3,713,400,295 145,825,543 Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2022 – Town of Oro Valley - Dispatchers (556) 12 Development of Pension Actuarial Value of Assets - Tiers 1 & 2 A. Investment Income A1. Actual Investment Income $ (129,020,020) A2. Expected Amount for Immediate Recognition 257,227,149 A3. Amount Subject to Amortization (386,247,169) Year Ended June 30 B. Amortization Schedule 2022 2023 2024 2025 2026 2027 2028 2022 Experience (A3 / 7) (55,178,167) (55,178,167) (55,178,167) (55,178,167) (55,178,167) (55,178,167) (55,178,167) 2021 Experience 57,594,125 57,594,125 57,594,125 57,594,125 57,594,125 57,594,122 2020 Experience (13,457,282) (13,457,282) (13,457,282) (13,457,282) (13,457,281) 2019 Experience (5,782,115) (5,782,115) (5,782,115) (5,782,112) 2018 Experience (1,511,828) (1,511,828) (1,511,825) 2017 Experience 8,429,734 8,429,733 2016 Experience (16,290,497) Total Amortization (26,196,030) (9,905,534) (18,335,264) (16,823,436) (11,041,323) 2,415,955 (55,178,167) C. Actuarial Value of Assets Total Employer C1. Actuarial Value of Assets, June 30, 2021 2,964,749,664 C2. Non-investment Net Cash Flow 626,487,279 C3. Preliminary Actuarial Value of Assets, June 30, 2022 (A2 + B + C1 + C2) 3,822,268,062 C4. Market Value of Assets, June 30, 2022 3,713,400,295 1,662,090 C5. Final Actuarial Value of Assets, June 30, 2022 (C3 Within 20% Corridor of C4) 3,822,268,062 1,710,819 D. Rates of Return D1. Market Value Rate of Return (3.7%) D2. Actuarial Value Rate of Return 7.0% Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2022 – Town of Oro Valley - Dispatchers (556) 13 Development of Health Actuarial Value of Assets - Tiers 1 & 2 A. Investment Income A1. Actual Investment Income $ (5,833,698) A2. Expected Amount for Immediate Recognition 11,216,613 A3. Amount Subject to Amortization (17,050,311) Year Ended June 30 B. Amortization Schedule 2022 2023 2024 2025 2026 2027 2028 2022 Experience (A3 / 7) (2,435,759) (2,435,759) (2,435,759) (2,435,759) (2,435,759) (2,435,759) (2,435,757) 2021 Experience 3,479,700 3,479,700 3,479,700 3,479,700 3,479,700 3,479,703 2020 Experience (806,920) (806,920) (806,920) (806,920) (806,919) 2019 Experience (382,214) (382,214) (382,214) (382,213) 2018 Experience (81,544) (81,544) (81,541) 2017 Experience 574,691 574,693 2016 Experience (1,140,442) Total Amortization (792,488) 347,956 (226,734) (145,192) 237,022 1,043,944 (2,435,757) C. Actuarial Value of Assets Total Employer C1. Actuarial Value of Assets, June 30, 2021 140,497,165 C2. Non-investment Net Cash Flow (3,916,983) C3. Preliminary Actuarial Value of Assets, June 30, 2022 (A2 + B + C1 + C2) 147,004,307 C4. Market Value of Assets, June 30, 2022 145,825,543 80,597 C5. Final Actuarial Value of Assets, June 30, 2022 (C3 Within 20% Corridor of C4) 147,004,307 81,248 D. Rates of Return D1. Market Value Rate of Return (3.8%) D2. Actuarial Value Rate of Return 7.5% Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2022 – Town of Oro Valley - Dispatchers (556) 14 V. MEMBER STATISTICS Valuation Data Summary – Tiers 1 & 2 June 30, 2022 June 30, 2021 Actives Number 2 2 Average Current Age 51.9 50.9 Average Age at Employment 32.3 32.3 Average Past Service 19.6 18.6 Average Annual Salary $69,946 $66,016 Actives (transferred) Number 0 0 Average Current Age N/A N/A Average Age at Employment N/A N/A Average Past Service N/A N/A Average Annual Salary N/A N/A Retirees Number 4 4 Average Current Age 66.4 65.4 Average Annual Benefit $39,477 $38,703 Beneficiaries Number 1 1 Average Current Age 68.0 67.0 Average Annual Benefit $37,044 $36,318 Disability Retirees Number 1 1 Average Current Age 51.0 50.0 Average Annual Benefit $4,791 $4,697 Inactive / Vested Number 3 4 Average Current Age 41.9 46.1 Average Accumulated Contributions $21,431 $16,262 Total Number 11 12 Former Members (transferred) 0 0 Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2022 – Town of Oro Valley - Dispatchers (556) 15 Counts and Pay Summary by Service - Tiers 1 & 2 Past Service Age 0-4 5-9 10-14 15-19 20-24 25-29 30+ Total Count Total Pay Average Pay < 25 0 0 0 0 0 0 0 0 0 0 25 - 29 0 0 0 0 0 0 0 0 0 0 30 - 34 0 0 0 0 0 0 0 0 0 0 35 - 39 0 0 0 0 0 0 0 0 0 0 40 - 44 0 0 0 0 0 0 0 0 0 0 45 - 49 0 0 0 0 0 0 0 0 0 0 50 - 54 0 0 1 0 1 0 0 2 139,892 69,946 55 - 59 0 0 0 0 0 0 0 0 0 0 60 - 64 0 0 0 0 0 0 0 0 0 0 65+ 0 0 0 0 0 0 0 0 0 0 Total 0 0 1 0 1 0 0 2 139,892 69,946 Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2022 – Town of Oro Valley - Dispatchers (556) 16 In-Payment Counts and Benefit Summary - Tiers 1 & 2 Age Count Average Annual Benefit < 40 0 $ 0 40 - 44 0 0 45 - 49 0 0 50 - 54 2 25,256 55 - 59 0 0 60 - 64 0 0 65 - 69 2 44,396 70 - 74 1 25,696 75 - 79 1 34,741 80 - 84 0 0 85 - 89 0 0 90 - 94 0 0 95 - 99 0 0 100+ 0 0 Total 6 33,291 “In-Payment” refers to retired, beneficiary, and disabled members. Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2022 – Town of Oro Valley - Dispatchers (556) 17 VI. ACTUARIAL ASSUMPTIONS AND METHODS Interest Rate 7.20% per year. This is the assumed earnings rate on System assets, compounded annually, net of investment and administrative expenses. Salary Increases See table at the end of this section. This is an annual increase for individual member’s salary. These rates are based on a 2022 experience study using actual plan experience. Inflation 2.50%. Tier 3 Compensation Limit $72,947 for calendar 2022. Assumed increases of 2.00% per year thereafter. Cost-of-Living Adjustment 1.85%. Reverse DROP Interest 2.00%. Mortality Rates These rates are used to project future decrements from the population due to death. Active Lives: PubS-2010 Employee mortality, adjusted by a factor of 1.28 for male members and 1.11 for female members, with generational improve- ments using 85% of the most recent projection scale (currently Scale MP-2021). 100% of active deaths are assumed to be in the line of duty. Inactive Lives: PubS-2010 Healthy Retiree mortality, adjusted by a factor of 1.33 for male retirees and 1.13 for female retirees, with generational improve- ments using 85% of the most recent projection scale (currently Scale MP-2021). Beneficiaries: PubS-2010 Survivor mortality, adjusted by a factor of 0.99 for male beneficiaries and adjusted by a factor of 1.09 for female beneficiar- ies, with generational improvements with 85% of most recent projec- tion scale (currently Scale MP-2021). Disabled Lives: PubS-2010 Disabled mortality, adjusted by a factor of 1.02 for male disabled members and 0.98 for female disabled members, with generational improvements using 85% of the most recent projection Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2022 – Town of Oro Valley - Dispatchers (556) 18 scale (currently Scale MP-2021). The mortality assumptions sufficiently accommodate anticipated future mortality improvements. Retirement These rates are used to project future decrements from the active population due to retirement. The rates below are based on a 2022 experience study using actual plan experience. Tier 1 – reaching 20 (25 for dispatchers) years of service after age 62: Age-related rates based on age at retirement: 35% per year from age 62 - 74 and 100% assumed at age 75. Tier 1 – reaching 20 (25 for dispatchers) years of service before age 62: Service-related rates based on service at retirement. See complete table of rates at the end of this section Tiers 2 & 3: Age-related rates based on age at retirement: Termination Rate These rates are used to project future decrements from the active population due to termination. Complete table of rates based on service at termination are provided at the end of this section. The rates apply to members prior to retirement eligibility and are based on a 2022 experience study using actual plan experience. Disability Rate These rates are used to project future decrements from the active population due to disability. Complete table of rates based on age at disability are provided at the end of this section. These rates are based on a 2022 experience study using actual plan experience. 80% of disablements are assumed to be duty-related. Marital Status For active members, 75% of males and 50% of females are assumed to be married. Actual marital status is used, where applicable, for inactive members. Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2022 – Town of Oro Valley - Dispatchers (556) 19 Spouse’s Age Male spouses are assumed to be 3 years older than female members and female spouses are assumed to be 2 years younger than males members. Health Care Utilization For active members, 60% of retirees are expected to utilize retiree health care. Actual utilization is used for inactive members. Funding Method Entry Age Normal Cost Method. Lateral Transfers When active members transfer between employers, the new employer’s liability starts from their new date of hire with no past service liability (i.e., all liability is accrued through normal cost). Per PSPRS administrative decision, once the new employer’s liability is fully funded, the liability will reflect all past service liability. Actuarial Asset Method Method described below. Note that during periods when investment performance exceeds (falls short) of the assumed rate, the actuarial value of assets will tend to be less (greater) than the market value of assets. Tiers 1 & 2: Each year the assumed investment income is recognized in full while the difference between actual and assumed investment income are smoothed over a 7-year period subject to a 20% corridor around the market value. Tier 3: Each year the assumed investment income is recognized in full while the difference between actual and assumed investment income are smoothed over a 5-year period subject to a 20% corridor around the market value. Funding Policy Amortization Method Tiers 1 & 2: Any positive UAAL (assets less than liabilities) is amortized using a layered approach beginning with the June 30, 2020 valuation, with new amounts determined according to a Level Dollar method over a closed period of 15 years (phased into from current period of at most 30 years). Initial layer from June 30, 2019 valuation continues to be amortized according to a Level Percentage of Payroll method. Any negative UAAL (assets greater than liabilities) is amortized according to a Level Dollar method over an open period of 20 years. Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2022 – Town of Oro Valley - Dispatchers (556) 20 Tier 3: Any positive UAAL (assets less than liabilities) is amortized according to a Level Dollar method over a closed period of 10 years. No amortization is made of any negative UAAL (assets greater than liabilities). Payroll Growth 2.00% per year. This is annual increase for total employer payroll. Changes to Actuarial Assumptions and Methods Since the Prior Valuation Based on the results of the 2022 experience study, the following assumption changes were made:  Updated mortality, retirement, termination, and disability rate tables.  Updated assumed salary increase and cost-of-living adjustment rates. In addition, the interest rate was decreased from 7.30% to 7.20% and the payroll growth assumption was lowered from 2.50% to 2.00%. There were no method changes since the prior valuation. Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2022 – Town of Oro Valley - Dispatchers (556) 21 Retirement Rates Tier 1 20 (25) years before Age 62 Termination Rates Disability Rates Salary Scale Service Rate Service Tier 1 and Tier 2 Tier 3 Age Rate Rate 20 32% 0 23.0% 15.0% 20 0.020% 6.25% 21 32% 1 20.0% 13.5% 21 0.020% 6.00% 22 20% 2 16.5% 12.0% 22 0.020% 5.50% 23 17% 3 15.5% 11.0% 23 0.020% 5.25% 24 17% 4 14.0% 9.0% 24 0.020% 5.25% 25 17% 5 10.5% 8.0% 25 0.020% 5.25% 26 24% 6 10.0% 7.0% 26 0.020% 5.25% 27 17% 7 9.0% 6.0% 27 0.020% 5.00% 28 17% 8 8.0% 6.0% 28 0.020% 5.00% 29 17% 9 8.0% 6.0% 29 0.020% 5.00% 30 25% 10 8.0% 6.0% 30 0.020% 4.75% 31 25% 11 6.5% 2.5% 31 0.020% 4.75% 32 25% 12 5.0% 2.5% 32 0.020% 4.50% 33 25% 13 4.0% 2.5% 33 0.020% 4.50% 34 30% 14 3.0% 2.5% 34 0.020% 4.25% 35 30% 15 3.0% 2.5% 35 0.035% 4.25% 36 30% 16 2.0% 2.0% 36 0.035% 4.00% 37+ 100% 17 2.0% 1.5% 37 0.035% 4.00% 18 2.0% 1.0% 38 0.035% 3.75% 19 2.0% 0.5% 39 0.035% 3.75% 20+ 2.0% 0.5% 40 0.045% 3.75% 41 0.045% 3.75% 42 0.045% 3.75% 43 0.045% 3.50% 44 0.045% 3.50% 45 0.055% 3.50% 46 0.055% 3.50% 47 0.055% 3.50% 48 0.055% 3.50% 49 0.055% 3.50% 50 0.080% 3.50% 51 0.080% 3.50% 52 0.080% 3.25% 53 0.080% 3.25% 54 0.080% 3.25% 55 0.100% 3.25% 56 0.100% 3.25% 57 0.100% 3.25% 58 0.100% 3.00% 59 0.100% 3.00% 60 0.200% 3.00% 61+ 0.000% 3.00% Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2022 – Town of Oro Valley - Dispatchers (556) 22 VII. DISCUSSION OF RISK ASOP No. 51, Assessment and Disclosure of Risk Associated with Measuring Pension Obligations and Determining Pension Plan Contributions, states that the actuary should identify risks that, in the actuary’s professional judgment, may reasonably be anticipated to significantly affect the plan’s future financial condition. Throughout this report, actuarial results are determined under various assumption scenarios. These results are based on the premise that all future plan experience will align with the plan’s actuarial assumptions; however, there is no guarantee that actual plan experience will align with the plan’s assumptions. Whenever possible, the recommended assumptions in this report reflect conservatism to allow for some margin of unfavorable future plan experience. However, it is still possible that actual plan experience will differ from anticipated experience in an unfavorable manner that will negatively impact the plan’s funded position. Below are examples of ways in which plan experience can deviate from assumptions and the potential impact of that deviation. Typically, this results in an actuarial gain or loss representing the current-year financial impact on the plan’s unfunded liability of the experience differing from assumptions; this gain or loss is amortized over a period of time determined by the plan’s amortization method. When assumptions are selected that adequately reflect plan experience, gains and losses typically offset one another in the long term, resulting in a relatively low impact on the plan’s contribution requirements associated with plan experience. When assumptions are too optimistic, losses can accumulate over time and the plan’s amortization payment could potentially grow to an unmanageable level.  Investment Return: When the rate of return on the Actuarial Value of Assets falls short of the assumption, this produces a loss representing assumed investment earnings that were not realized. Further, it is unlikely that the plan will experience a scenario that matches the assumed return in each year as capital markets can be volatile from year to year. Therefore, contribution amounts can vary in the future.  Salary Increases: When a plan participant experiences a salary increase that was greater than assumed, this produces a loss representing the cost of an increase in anticipated plan benefits for the participant as compared to the previous year. The total gain or loss associated with salary increases for the plan is the sum of salary gains and losses for all active participants.  Payroll Growth: The plan’s payroll growth assumption, if one is used, causes a predictable annual increase in the plan’s amortization payment in order to produce an amortization payment that remains constant as a percentage of payroll if all assumptions are realized. If payroll does not increase according to the plan’s payroll growth assumption, the plan’s amortization payment can increase significantly as a percentage of payroll even if all assumptions other than the payroll growth assumption are realized.  Demographic Assumptions: Actuarial results take into account various potential events that could happen to a plan participant, such as retirement, termination, disability, and death. Each of these potential events is assigned a liability based on the likelihood of the event and the financial consequence of the event for the plan. Accordingly, actuarial liabilities reflect a blend of financial consequences associated with various possible outcomes (such as retirement at one of various possible ages). Once the outcome is known (e.g. the participant retires) the liability is adjusted to reflect the known outcome. This adjustment Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2022 – Town of Oro Valley - Dispatchers (556) 23 produces a gain or loss depending on whether the outcome was more or less favorable than other outcomes that could have occurred.  Contribution risk: This risk results from the potential that actual employer contributions may deviate from actuarially determined contributions, which are determined in accordance with the Board’s funding policy. The funding policy is intended to result in contribution requirements that if paid when due, will result in a reasonable expectation that assets will accumulate to be sufficient to pay plan benefits when due. Contribution deficits, particularly large deficits and those that occur repeatedly, increase future contribution requirements and put the plan at risk for not being able to pay plan benefits when due. Impact of Plan Maturity on Risk For newer pension plans, most of the participants and associated liabilities are related to active members who have not yet reached retirement age. As pension plans continue in operation and active members reach retirement ages, liabilities begin to shift from being primarily related to active members to being shared amongst active and retired members. Plan maturity is a measure of the extent to which this shift has occurred. It is important to understand that plan maturity can have an impact on risk tolerance and the overall risk characteristics of the plan. For example, plans with a large amount of retired liability do not have as long of a time horizon to recover from losses (such as losses on investments due to lower than expected investment returns) as plans where the majority of the liability is attributable to active members. For this reason, less tolerance for investment risk may be warranted for highly mature plans with a substantial inactive liability. Similarly, mature plans paying substantial retirement benefits resulting in a small positive or net negative cash flow can be more sensitive to near term investment volatility, particularly if the size of the fund is shrinking, which can result in less assets being available for investment in the market. To assist with determining the maturity of the plan, we have provided some relevant metrics in the table following titled “Plan Maturity Measures and Other Risk Metrics.” For a better understanding of the overall Plan and the impact of these risks, please refer to the consolidated CORP valuation report. Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2022 – Town of Oro Valley - Dispatchers (556) 24 Plan Maturity Measures and Other Risk Metrics – Tiers 1 & 2 06/30/2019 06/30/2020 06/30/2021 06/30/2022 Support Ratio Total Actives 3 3 2 2 Total Inactives 9 9 10 9 Actives / Inactives 33.3% 33.3% 20.0% 22.2% Asset Volatility Ratio Market Value of Assets (MVA) 1,378,623 1,414,433 1,789,608 1,662,090 Total Annual Payroll 202,246 204,074 132,031 139,892 MVA / Total Annual Payroll 681.7% 693.1% 1,355.4% 1,188.1% Accrued Liability (AL) Ratio Inactive Accrued Liability 1,792,133 1,777,255 2,569,215 2,630,985 Total Accrued Liability 3,240,399 3,374,933 3,551,295 3,721,151 Inactive AL / Total AL 55.3% 52.7% 72.3% 70.7% Funded Ratio Actuarial Value of Assets (AVA) 1,424,947 1,504,732 1,649,829 1,710,819 Total Accrued Liability 3,240,399 3,374,933 3,551,295 3,721,151 AVA / Total Accrued Liability 44.0% 44.6% 46.5% 46.0% Net Cash Flow Ratio Net Cash Flow * (288) (892) (10,257) (60,256) Market Value of Assets (MVA) 1,378,623 1,414,433 1,789,608 1,662,090 Net Cash Flow / MVA 0.0% (0.1%) (0.6%) (3.6%) * Determined as total contributions minus benefit payments. Administrative expenses are typically included but are considered part of the net interest rate assumption for this plan. Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2022 – Town of Oro Valley - Dispatchers (556) 25 VIII. SUMMARY OF CURRENT PLAN The following is a summary of the benefit provisions provided in Title 38, Chapter 5, Article 6 of the Arizona Revised Statutes. Membership Full-time employees of a participating employer in a designated position, whose customary employment is at least 40 hours each week. Includes employees hired after July 1, 2018 only if they are a judiciary probation or surveillance officer who makes the irrevocable election to participate in the plan. Benefit Tiers Benefits differ for members based on their hire date: Tier Hire Date 1 Hired before January 1, 2012 2 Hired on or after January 1, 2012 but before July 1, 2018 3 Hired on or after July 1, 2018 Salary Salary is the amount including base salary, shift and military differential pay, and holiday pay, paid to an employee on a regular payroll basis. For Tier 3 members, salary is limited by statutory cap ($70,000 with adjustments by the Board). Average Monthly Benefit Tier 1: Salary One-thirty-sixth of the highest total salary during a period of thirty-six consecutive months of service within the last one hundred twenty months of service. Tier 2 & 3: One-sixtieth of the highest total salary during a period of sixty consecutive months of service within the last one hundred twenty months of service. Credited Service Total periods of service, both from service other State plans and those compensated periods of service for which the member made contributions to the fund. Normal Retirement Date Tier 1: First day of the month following attainment of 1) age 62 with 10 years of Credited Service, 2) 20 (25, if dispatcher) years of Credited Service, or 3) age and Credited Service points equal to 80. Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2022 – Town of Oro Valley - Dispatchers (556) 26 Tier 2: First day of month following the attainment of 1) age 52.5 with 25 years of Credited Service, or 2) age 62 with 10 years of Credited Service. Tier 3: First day of month following the attainment of age 55 with 10 years of Credited Service. Benefit Tier 1: 2.50% times Credited Service (up to 20 years) times Average Monthly Salary. If Credited Service exceeds 20 years, an additional 2.00% accrual is provided for up to five years. If Credited Service exceeds 25 years, the additional accrual for service in excess of 20 years is increased to 2.50%. Maximum benefit equals 80% of Average Monthly Salary. Tier 2: 2.50% times Credited Service times Average Monthly Salary (maximum benefit equals 80% of Average Monthly Salary). Tier 3: Benefit multiplier (below) times Average Monthly Benefit Salary times Credited Service (maximum benefit of 80% of Average Monthly Benefit Salary): Credited Service Benefit Multiplier 10 years, but less than 15 1.25% 15 years, but less than 20 1.50% 20 years, but less than 22 1.75% 22 years, but less than 25 2.00% 25+ years 2.25% Form of Benefit For married retirees, an annuity payable for the life of the member with 80% continuing to the eligible spouse upon death. For unmarried retirees, the normal form is a single life annuity. Early Retirement Only applicable to Tier 3 members: Date Attainment of age 52.5 and 10 years of Credited Service. Benefit Actuarial equivalent of Normal Retirement benefit. Disability Benefit – Duty-Related Eligibility Total and permanent disability incurred in performance of duty. Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2022 – Town of Oro Valley - Dispatchers (556) 27 Benefit Amount The greater of 1) 50% of Average Monthly Salary, and 2) the Normal Retirement pension that the member is entitled to receive. Disability Benefit – Ordinary Eligibility Total and permanent disability not incurred in performance of duty. Benefit Amount Dispatchers Normal Retirement pension that the member is entitled to receive prorated on Credited Service (maximum 25 years) over 25. All Others Normal Retirement pension that the member is entitled to receive prorated on Credited Service (maximum 20 years) over 20. Pre-Retirement Death Benefit Payable to Eligible Survivor Payable to eligible spouse for life; payable to eligible children until adopted, age 18, or age 23 if full-time student. Service Incurred 100% of Average Monthly Salary Non-Service Incurred 40% of Average Monthly Salary. No survivors Two times member’s accumulated contributions. Vesting (Termination) Deferred Annuity Tier 1: For those with 10 or more years of Credited Service, an annuity based on two times member’s accumulated contributions, deferred to age 62. Member is not entitled to survivor benefits, benefit increases, or group health insurance subsidy. Return of Contributions Tier 1: Lump sum payment of accumulated contributions, plus additional amount based on years of credited service. Service Additional % of Contributions Less than 5 years 0% 5 years 25% 6 years 40% 7 years 55% 8 years 70% 9 years 85% 10+ years 100% Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2022 – Town of Oro Valley - Dispatchers (556) 28 Tiers 2 & 3: Lump sum payment of accumulated contributions, with interest at rate determined by the Board. Cost-of-Living Adjustment Payable to retired member or survivor of retired member Tiers 1 & 2 Compound cost-of-living adjustment on base benefit. First payment is made on July 1, 2018, with annual adjustments effective every July 1 thereafter. Cost-of-living adjustment will be based on the average annual percentage change in the Metropolitan Phoenix-Mesa Consumer Price Index published by the United states Department of Labor, Bureau of Statistics. Maximum increase of 2%. Tier 3 Compound cost-of-living adjustment on base benefit beginning earlier of fist calendar year after the 7th anniversary of retirement or when the retired member reaches 60 years of age. A cost-of-living adjustment shall be paid on July 1 each year that the funded ratio for members hired on or after July 1, 2018 is 70% or more. The cost-of-living adjustment will be based on the average annual percentage change in the Metropolitan Phoenix-Mesa Consumer Price Index published by the United States Department of Labor, Bureau of Statistics. The cost-of-living adjustment will not exceed:  2%, if funded ratio for members who are hired on or after July 1, 2018 is 90% or more;  1.5%, if funded ratio for members who are hired on or after July 1, 2018 is 80-90%;  1%, if funded ratio for members who are hired on or after July 1, 2018 is 70-80%. Reverse Deferred Retirement Option Plan (Reverse DROP): Eligibility Tier 1 and eligible for normal pension with at least 24 years of Credited Service (25 years for dispatchers). Must not have been awarded disability pension. Reverse DROP Date First day of month immediately following completion of required Credited Service or date not more than 60 consecutive months before the date the member elects to participate in the Reverse DROP, whichever is later. Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2022 – Town of Oro Valley - Dispatchers (556) 29 Benefit Amount Calculated based on Credited Service and Average Monthly Salary as of the Reverse DROP Date. Reverse DROP Lump Sum Accumulated benefit amounts (with interest) from Reverse DROP date to the date the member elected to participate in Reverse DROP. Interest is equal to the yield on five-year Treasury note as of the first day of the month, as published by the Federal Reserve Board. Post-Retirement Health Insurance Subsidy Eligibility Retired member or survivor who elect health coverage provided by the state or participating employer. Maximum Subsidy Amounts Member Only With Dependents (monthly) Medicare Eligible $100 $170 One w/ Medicare N/A $215 Not Medicare Eligible $150 $260 Employee Contributions Tiers 1 and 2: Non-dispatchers: 8.41% of salary, or 50/50 split of total employer and employee costs, whichever is lower, until the plan is 100% funded. Minimum contribution of 7.65% of salary. Dispatchers: 0.45% less than non-dispatcher rate until plan is 100% funded; equal thereafter. Tier 3: 66.7% of the Normal Cost plus 50% of a level-dollar amortiza- tion of unfunded actuarial accrued liability over a closed pe- riod not to exceed 10 years. Employer Contributions Tiers 1 & 2: Normal Cost, plus amortization of unfunded actuarial accrued liability over a closed period not to exceed 20 years. Contribu- tion will never be less than 6% of payroll. Tier 3: 33.3% of the Normal Cost plus 50% of a level-dollar amortiza- tion of unfunded actuarial accrued liability over a closed pe- riod not to exceed 10 years. Changes to Benefit Provisions Since the Prior Valuation None. Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2022 – Town of Oro Valley - Dispatchers (556) 30 IX. ACTUARIAL FUNDING POLICY A pension plan funding policy describes how pension funding will improve for underfunded plans or maintain funded benefits for funded plans over time for those benefits defined in ARS. Those benefits defined in ARS are to be equitably managed and administered by PSPRS. This Actuarial Funding Policy identifies the funding objectives and elements of the actuarial funding policy set by the Board for the Arizona Public Safety Personnel Retirement System (PSPRS). The Board adopted this Funding Policy to help ensure the systematic funding of future benefit payments for members of the Retirement System as established by the legislature. To achieve the systematic funding of future benefits, metrics are identified to measure the progress, or the lack of progress, over time to identify trends. These trends inform the continuation of the current policies or identify areas of needed research for consideration. This funding policy is reviewed annually and adopted by the Board in accordance with ARS 38-863.02. This policy was reviewed and adopted by the Board in September 2022. PSPRS Statement of Purpose The Purpose of the Public Safety Personnel Retirement System is to provide uniform, consistent, and equitable statewide retirement programs for those who have been entrusted to our care. Funding Objectives 1. Maintain adequate assets so that current plan assets, plus future contributions and investment earnings, are sufficient to fund all benefits expected to be paid to members and their beneficiaries. a. Corollary 1a: Current and future contributions should be calculated based upon assumptions that reflect the Board’s best estimate of future experience and methods that appropriately allocate costs to address generational equity. b. Corollary 1b: While the shorter-term objective is to fully fund the actuarial liability (AAL) that estimates benefits earned as of the valuation date, contributions should target the long-term present value of benefits (PVB) to fund all benefits and help offset risks. c. As closed plans mature, the target funding should be 110% of AAL or 100% of PVB, whichever is greater. 2. Maintain public policy goals of accountability and transparency through stakeholder communication and education. Each policy element is clear in intent and effect, and each should be considered in a balanced approach to determine how and when the funding requirements of the plan will be met. a. Corollary 2a: Board shall provide stakeholders with separate reports and tools to help explain current results as well as to help model future funding requirements. 3. Promote intergenerational equity. Defined benefit pensions are designed with a long-term perspective and designed to minimize contribution volatility that cannot avoid some level of generational cost shift. However, the goal is that each generation of members and employers (taxpayers) should, to the extent Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2022 – Town of Oro Valley - Dispatchers (556) 31 possible, incur the cost of benefits for the employees who provide services to them, rather than shifting those costs to other generations of members and employers (taxpayers). a. Corollary 3a: A systematic reduction of the Unfunded Actuarial Accrued Liability (UAAL) over a reasonable time period is paramount to achieving this objective. Consideration can be given to reduce volatility, to the extent possible, of employer and employee contribution rates as long as the integrity of the objectives listed above is not compromised. Elements of Actuarial Funding Policy 1. Actuarial Cost Method a. The Entry Age Normal level percent of pay actuarial cost method of valuation shall be used in determining the Actuarial Accrued Liability (AAL) and Normal Cost. Differences in the past between assumed experience and actual experience (“actuarial gains and losses”) shall become part of the AAL. The Normal Cost shall be determined on an individual basis for each active member. 2. Asset Smoothing Method a. The investment gains or losses of each valuation period, resulting from the difference between the actual investment return and assumed investment return, shall be recognized annually in level amounts over seven years (Tiers 1 and 2) or five years (Tier 3) in calculating the Actuarial Value of Assets. b. The Actuarial Value of Assets so determine shall be subject to a 20% corridor relative to the Market Value of Assets. 3. Amortization Method (Unfunded Amounts) a. The Actuarial Value of Assets are subtracted from the computed AAL. Any unfunded amount is amortized as a level percent of payroll over a closed period. b. The unfunded liabilities, for EORP and Tiers 1 & 2 for both PSPRS and CORP, determined in the June 30, 2019 actuarial valuation will become the initial layer for each employer beginning with the June 30, 2020 actuarial valuation and amortized using the current closed year period for that employer and continue to decrease each year. i. The payroll growth rate assumption used to amortize the Public Safety Plan (PSPRS) June 30, 2019 Unfunded Liability will be decreased by 0.5% beginning with the 6/30/2021 actuarial valuation and again each year with the intention of ultimately achieving 0.0%. Once the payroll growth assumption reaches 2.0%, however, the Board will reevaluate the payroll growth assumption and decide whether to continue to let it track down to 0.0%. ii. The payroll growth rate used to amortize the Correction Officers Retirement Plan (CORP) June 30, 2019 Unfunded Liability will be 3.0% beginning with the 6/30/2020 actuarial valuation, and future years will be reduced by 0.5% until 0.0% is reached. iii. The payroll growth rate used to amortize the Elected Officials Retirement Plan (EORP) June 30, 2019 Unfunded Liability will be 2.5% beginning with the 6/30/2020 actuarial valuation, and future years will be reduced by 0.5% until 0.0% is reached. c. Gains and losses, for EORP and Tiers 1 & 2 for both PSPRS and CORP, for each employer beginning with the June 30, 2020 actuarial valuation will be amortized as a new layer over the same amortization period as the regular unfunded liability to a minimum of 15 years. Once the amortization period for each employer decreases to 15 years, each subsequent year’s gains and losses will be amortized as a new 15-year closed layer. Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2022 – Town of Oro Valley - Dispatchers (556) 32 i. The payroll growth rate used to amortize unfunded liability for all Plans under this paragraph will be 0.0% (i.e. level-dollar amortization). d. Tier 3 amortization methods are established in ARS 38-843.G and ARS 38-891.K. 4. Amortization Method (Overfunded Amounts) a. The Actuarial Value of Assets are subtracted from the target funding level(greater of 110% of AAL or 100% of PVB). Any overfunded amount is amortized as a level dollar amount over an open 10-year period. Metrics to Monitor Funding Objectives 1. Appropriateness of Assumptions – Gain/Loss Experience (Corollary 1a) a. Metric: Do the cumulative gain/loss layers over the prior five years exceed 8% of plan assets? b. Measurement: History of annual gain/loss (split by asset and liability experience) and five-year cumulative results will be tracked. c. Action Plan: This metric assumes that a full experience study is performed at least every five years so objective of measurement is to monitor interim experience. If the metric answer is yes, a review of the sources or causes of gains and losses should be analyzed and presented to the Advisory Committee to provide a recommendation to the Board of Trustees. The analysis and presentation are intended to provide a basis for consideration if assumption changes are warranted between full experience studies. 2. Funding Targets (Corollary 1b) a. Metric: Has the funded status, on both an AAL and PVB basis when compared to the market value of assets, increased over a five-year period? b. Measurement: History of funded status measures will be tracked. c. Action Plan: If the answer is no and not readily explainable (e.g., significant assumption change), a review of the reason(s) for the decrease should be researched and presented to the Advisory Committee to provide a recommendation to the Board of Trustees. The analysis and presentation are intended to provide a basis for consideration if changes to assumptions and/or methods are warranted between full experience studies. 3. Communication with Stakeholders (Corollary 2a) a. Metric: Have reports and budgeting tools been provided to stakeholders in a timely fashion? b. Measurement: Yes/No answer based on input from PSPRS administrator. (An annual standard survey of stakeholders – 3 to 5 questions.) c. Action Plan: If the answer is no, and periodically regardless (e.g., every three years), PSPRS staff will revisit this metric to report to the Advisory Committee to provide a recommendation to the Board of Trustees if current reports / tools are sufficient and if the delivery timing is appropriate. 4. Timely Recognition of Costs (Corollary 3a) a. Metric: Has the percentage of unfunded liability subject to negative amortization decreased over a five- year lookback period? b. Measurement: History of unfunded liability subject to negative amortization as a percentage of total unfunded liability will be tracked. Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2022 – Town of Oro Valley - Dispatchers (556) 33  Action Plan: If the answer is no, and not readily explainable (e.g., adopted assumption changes being phased in are anticipated to address negative amortization), a review of the reason(s) for negative amortization should be researched and presented to the Advisory Committee to provide a recommendation to the Board of Trustees. The analysis and presentation are intended to provide a basis for consideration if changes to assumptions and/or methods are warranted between full experience studies. Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2022 – Town of Oro Valley - Dispatchers (556) 34 X. GLOSSARY Actuarial Accrued Liability – Computed differently under different funding methods, the actuarial accrued liability generally represents the portion of the actuarial present value of benefits attributable to service credit earned (or accrued) as of the valuation date. Actuarial Present Value of Benefits – Amount which, together with future interest, is expected to be sufficient to pay all benefits to be paid in the future, regardless of when earned, as determined by the application of a particular set of actuarial assumptions; equivalent to the actuarial accrued liability plus the present value of future normal costs attributable to the members. Actuarial Assumptions – Assumptions as to the occurrence of future events affecting pension costs. These assumptions include rates of investment earnings, changes in salary, rates of mortality, withdrawal, disablement, and retirement as well as statistics related to marriage and family composition. Actuarial Cost Method – A method of determining the portion of the cost of a pension plan to be allocated to each year; sometimes referred to as the "actuarial funding method." Each cost method allocates a certain portion of the actuarial present value of benefits between the actuarial accrued liability and future normal costs. Actuarial Equivalence – Series of payments with equal actuarial present values on a given date when valued using the same set of actuarial assumptions. Actuarial Present Value - The amount of funds required as of a specified date to provide a payment or series of payments in the future. It is determined by discounting future payments at predetermined rates of interest, and by probabilities of payments between the specified date and the expected date of payment. Actuarial Value of Assets – The value of cash, investments, and other property belonging to the pension plan as used by the actuary for the purpose of the actuarial valuation. This may correspond to market value of assets, or some modification using an asset valuation method to reduce the volatility of asset values. Asset Gain (Loss) – That portion of the actuarial gain attributable to investment performance above (below) the expected rate of return in the actuarial assumptions. Amortization – Paying off an interest-discounted amount with periodic payments of interest and (generally) principal, as opposed to paying off with a lump sum payment. Amortization Payment – That portion of the pension plan contribution designated to pay interest and reduce the outstanding principal balance of unfunded actuarial accrued liability. If the amortization payment is less than the accrued interest on the unfunded actuarial accrued liability the outstanding principal balance will increase. Assumed Earnings Rate – The interest rate used in developing present values to reflect the time value of money. Decrements – Events which result in the termination of membership in the system such as retirement, disability, withdrawal, or death. Arizona Corrections Officer Retirement Plan Actuarial Valuation Report as of June 30, 2022 – Town of Oro Valley - Dispatchers (556) 35 Entry Age Normal (EAN) Funding Method – A standard actuarial funding method whereby each member’s normal costs (service costs) are generally level as a percentage of pay from entry age until retirement. The annual cost of benefits is comprised of the normal cost plus an amortization payment to reduce the UAL. Experience Gain (Loss) – The difference between actual unfunded actuarial accrued liabilities and anticipated unfunded actuarial accrued liabilities during the period between two valuation dates. It is a measurement of the difference between actual and expected experience, and may be related to investment earnings above (or below) those expected or changes in the liability due to fewer (or greater) than expected numbers of retirements, deaths, disabilities, or withdrawals, or variances in pay increases relative to assumed pay increases. The effect of such gains (or losses) is to decrease (or increase) future costs. Funded Ratio – A measure of the ratio of the actuarial value of assets to liabilities of the system. Typically, the assets used in the measure are the actuarial value of assets as determined by the asset valuation method. The funded ratio depends not only on the financial strength of the plan but also on the asset valuation method used to determine the assets and on the funding method used to determine the liabilities. Market Value of Assets (MVA) – The value of assets as they would trade on an open market. Normal Cost – Computed differently under different funding methods, generally that portion of the actuarial present value of benefits allocated to the current plan year. Unfunded Actuarial Accrued Liability (UAAL) – The excess of the actuarial accrued liability over the valuation assets; sometimes referred to as "unfunded past service liability". UAL increases each time an actuarial loss occurs and when new benefits are added without being fully funded initially and decreases when actuarial gains occur. ARIZONA PUBLIC SAFETY PERSONNEL RETIREMENT SYSTEM ORO VALLEY POLICE DEPT. (122) ACTUARIAL VALUATION AS OF JUNE 30, 2022 CONTRIBUTIONS APPLICABLE TO THE PLAN/FISCAL YEAR ENDING JUNE 30, 2024 VIA E-MAIL 13420 Parker Commons Boulevard, Suite 104 Fort Myers, FL 33912 ꞏ (239) 433-5500 ꞏ Fax (239) 481-0634 ꞏ www.foster-foster.com December 2022 Board of Trustees Arizona Public Safety Personnel Retirement System Phoenix, AZ Re: Actuarial Valuation Report as of June 30, 2022 for Oro Valley Police Dept. (122) Dear Members of the Board: We are pleased to present to the Board this report of the annual actuarial valuation of the Arizona Public Safety Personnel Retirement System (PSPRS). The valuation was performed to determine whether the assets and contributions are sufficient to provide the prescribed benefits and to develop the appropriate funding requirements for the applicable plan year. This report was prepared at the request of the Board and is intended for use by PSPRS and those designated or approved by the Board. It documents the valuation of the consolidated plan and provides summary information for PSPRS participating employers. This report may be provided to parties other than PSPRS only in its entirety and only with the permission of the Board. Foster & Foster is not responsible for the unauthorized use of this report. The valuation has been conducted in accordance with generally accepted actuarial principles and practices, including the applicable Actuarial Standards of Practice as issued by the Actuarial Standards Board, and reflects laws and regulations issued to date pursuant to the provisions of Title 38, Chapter 5, Article 4 of the Arizona Revised Statutes, as well as applicable federal laws and regulations. In our opinion, the assumptions used in this valuation, as adopted by the Board of Trustees, represent reasonable expectations of anticipated plan experience. Future actuarial measurements may differ significantly from the current measurements presented in this report for a variety of reasons including changes in applicable laws, changes in plan provisions, changes in assumptions, or plan experience differing from expectations. Due to the limited scope of the valuation, we did not perform an analysis of the potential range of such future measurements. The computed contribution rates shown in the “Contribution Results” section should be considered minimum contribution rates that comply with the Board’s funding policy and Arizona Statutes. Users of this report should be aware that contributions made at that rate do not guarantee benefit security. Given the importance of benefit security to any retirement system, we suggest that contributions to the System in excess of those presented in this report be considered. The funding percentages and unfunded accrued liability as measured based on the actuarial value of assets will differ from similar measures based on the market value of assets. These measures, as provided, are appropriate for determining the adequacy of future contributions, but may not be appropriate for the purpose of settling a portion or all of the Plan’s liabilities. Board of Trustees Arizona Public Safety Personnel Retirement System | Page 2 13420 Parker Commons Boulevard, Suite 104 Fort Myers, FL 33912 ꞏ (239) 433-5500 ꞏ Fax (239) 481-0634 ꞏ www.foster-foster.com In conducting the valuation, we have relied on personnel, plan design, and asset information supplied by PSPRS through June 30, 2022 and the actuarial assumptions and methods described in the Actuarial Assumptions section of this report. While we cannot verify the accuracy of all this information, the supplied information was reviewed for consistency and reasonableness. As a result of this review, we have no reason to doubt the substantial accuracy of the information and believe that it has produced appropriate results. This information, along with any adjustments or modifications, is summarized in various sections of this report. This valuation assumes the continuing ability of the participating employers to make the contributions necessary to fund this plan. A determination regarding whether or not the participating employers are actually able to do so is outside our scope of expertise. Consequently, we did not perform such an analysis. In performing the analysis, we used third-party software to model (calculate) the underlying liabilities and costs. These results are reviewed in the aggregate and for individual sample lives. The output from the software is either used directly or input into internally developed models to generate the costs. All internally developed models are reviewed as part of the process. As a result of this review, we believe that the models have produced reasonable results. We do not believe there are any material inconsistencies among assumptions or unreasonable output produced due to the aggregation of assumptions. The undersigned are familiar with the immediate and long-term aspects of pension valuations and meet the Qualification Standards of the American Academy of Actuaries necessary to render the actuarial opinions contained herein. All sections of this report are considered an integral part of the actuarial opinions. To our knowledge, no associate of Foster & Foster, Inc. working on valuations of the program has any direct financial interest or indirect material interest in the Arizona Public Safety Personnel Retirement System, nor does anyone at Foster & Foster, Inc. act as a member of the Board of Trustees of the Arizona Public Safety Personnel Retirement System. Thus, there is no relationship existing that might affect our capacity to prepare and certify this actuarial report. If there are any questions, concerns, or comments about any of the items contained in this report, please contact us at 239-433-5500. Respectfully Submitted, Foster & Foster, Inc. By: ________________________________ Bradley R. Heinrichs, FSA, EA, MAAA By: ________________________________ Paul M. Baugher, FSA, EA, MAAA Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2022 – Oro Valley Police Dept. (122) TABLE OF CONTENTS I. Summary of Report ..........................................................................................................................................1 II. Contribution Results ........................................................................................................................................4 III. Liability Support ............................................................................................................................................9 IV. Asset Support ............................................................................................................................................... 13 V. Member Statistics .......................................................................................................................................... 18 VI. Actuarial Assumptions and Methods ........................................................................................................... 21 VII. Discussion of Risk ...................................................................................................................................... 28 VIII. Summary of Current Plan.......................................................................................................................... 32 IX. Actuarial Funding Policy ............................................................................................................................. 38 X. Glossary ........................................................................................................................................................ 42 Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2022 – Oro Valley Police Dept. (122) 1 I. SUMMARY OF REPORT The regular annual actuarial valuation of the Arizona Public Safety Personnel Retirement System for the Oro Valley Police Dept., performed as of June 30, 2022, has been completed and the results are presented in this Report. The purpose of this valuation is to:  Compute the liabilities associated with benefits likely to be paid on behalf of current retired and active members. This information is contained in the section entitled “Liability Support.”  Compare accumulated assets with the liabilities to assess the funded condition. This information is contained in the section entitled “Liability Support.”  Compute the employers’ recommended contribution rates for the Fiscal Year beginning July 1, 2023. This information is contained in the section entitled “Contribution Results.” 1. Key Valuation Results The funded status as of June 30, 2022 and the employer contribution amounts applicable to the plan/fiscal year ending June 30, 2024 are as follows: Tier 1 & Tier 2 Members Tier 3 Members * Pension Health Total Pension Health Total Employer Contribution Rate 11.00% 0.00% 11.00% 8.69% 0.12% 8.81% Funded Status 102.0% 152.2% 102.7% 110.5% 212.1% 112.1% 2. Comparison of Key Results to Prior Year The chart below compares the results from this valuation with the results of the prior year’s valuation (as of June 30, 2021): Contribution Rate Tier 1 & Tier 2 Members Tier 3 Members * Valuation Date Pension Health Total Pension Health Total June 30, 2021 43.47% 0.00% 43.47% 9.00% 0.12% 9.12% June 30, 2022 11.00% 0.00% 11.00% 8.69% 0.12% 8.81% Funded Status Tier 1 & Tier 2 Members Tier 3 Members Valuation Date Pension Health Total Pension Health Total June 30, 2021 66.1% 148.5% 67.3% 107.3% 210.0% 108.9% June 30, 2022 102.0% 152.2% 102.7% 110.5% 212.1% 112.1% * The Tier 3 rates shown are the calculated rates as of the valuation date and do not reflect any Legacy costs that the employer must also contribute. Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2022 – Oro Valley Police Dept. (122) 2 3. Reasons for Change Changes in the results from the prior year’s valuation can be illustrated in the following tables along with high-level explanations for the entire System below: Contribution Rate Tier 1 & Tier 2 Tier 3 Members Pension Health Pension Health Contribution Rate Last Valuation 43.47% 0.00% 9.00% 0.12% Asset Experience 0.19% 0.00% (0.03%) 0.00% Payroll Base 0.76% (0.01%) (0.11%) (0.03%) Liability Experience 0.56% 0.00% (0.57%) (0.01%) Additional Contribution (36.18%) 0.00% 0.00% 0.00% Assumption/Method Change (0.02%) 0.07% (0.13%) 0.00% Other 2.22% (0.06%) 0.53% 0.04% Contribution Rate This Valuation 11.00% 0.00% 8.69% 0.12% Funded Status Tier 1 & Tier 2 Tier 3 Members Pension Health Pension Health Funded Status Last Valuation 66.1% 148.5% 107.3% 210.0% Asset Experience (0.2%) (0.2%) 0.6% 2.3% Liability Experience (0.6%) 11.8% 9.9% 16.4% Additional Contribution 36.1% 0.0% 0.0% 0.0% Assumption/Method Change (1.0%) (6.7%) 2.3% (6.7%) Other 1.6% (1.2%) (9.6%) (9.9%) Funded Status This Valuation 102.0% 152.2% 110.5% 212.1% Assets Experience – Asset gains and losses (relative to the assumed earnings rate) are smoothed over seven years for Tiers 1 and 2 and over five years for Tier 3. The return on the market value of assets for the year ending June 30, 2022 was (4.2%) for Tiers 1 and 2 and (4.6%) for Tier 3. On a smoothed, actuarial value of assets basis, however, the average return was 7.1% for Tiers 1 and 2 and 7.7% for Tier 3. These returns nearly met the 2021 assumed earnings rate for Tiers 1 and 2 of 7.3% and exceeded the 2021 assumed earnings rate for Tier 3 of 7.0%. Payroll Base – Under the current amortization policy for Tiers 1 and 2, the contribution rate is developed as a level percentage of payroll. Payroll for this purpose includes members of this plan and defined contribution plan’s members that would have been in this plan. To the extent that actual payroll is lower/greater than last year’s projected payroll, the contribution rate will increase/decrease as a result. Liability Experience – Experience overall was unfavorable, driven by salary increases that were higher than expected. Additional Contribution – Monies contributed in excess of the required contribution rate in order to pay down the unfunded liability. Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2022 – Oro Valley Police Dept. (122) 3 Assumption / Method Change – The Board adopted the assumption recommendations provided in the 2022 experience study report, dated April 21, 2022, which updated the salary, inflation, and demographic assumptions. The Board also reduced the interest rate for Tier 1 and 2 members from 7.30% to 7.20% and continued the decrease in the payroll growth assumption from 3.00% to 2.50%. Other – This is the combination of all other factors that could impact liabilities year-over-year, with the primary sources being changes in benefits for continuing inactives. Note that Tier 3 experience will stabilize as the group matures. 4. Looking Ahead The volatility in annual returns, which have produced both gains and losses in recent years, was dampened by the asset smoothing reflected in the actuarial value of assets. The significant loss realized this year will, in the absence of other gains, put upward pressure on the contribution rate next year. If the June 30, 2022 pension valuation results were based on the market value of assets instead of the actuarial value of assets, the pension funded percentage for Tiers 1 and 2 would be 99.3% (instead of 102.0%) and the pension employer contribution requirement would be 11.83% of payroll (instead of 11.00%). 5. Conclusion The funded status for Tiers 1 and 2 will continue to improve if assumptions are met and contributions at least equal to the rates determined for each employer are made to the fund. The recent adoption of a layered amortization approach along with a plan to systematically lower the payroll growth assumption was an excellent step to improve funding and ensure the Plan is on a viable path. The funded status for Tier 3 will stabilize as the population continues to grow, as contributions appear sufficient to keep the liabilities fully funded. Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2022 – Oro Valley Police Dept. (122) 4 II. CONTRIBUTION RESULTS Contribution Requirements Development of Employer Contributions - Tiers 1 & 2 Members Valuation Date June 30, 2022 June 30, 2021 Applicable to Fiscal Year Ending 2024 2023 Rate Dollar Rate Dollar Pension Normal Cost Total Normal Cost 18.65% $ 1,181,744 20.74% $ 1,373,511 Employee Cost (7.65%) (484,737) (7.65%) (506,623) Employer (Net) Normal Cost 11.00% 697,007 13.09% 866,888 Amortization of Unfunded Liability 0.00% 0 30.38% 2,011,922 Total Employer Cost (Pension) 11.00% 697,007 43.47% 2,878,810 Health Normal Cost 0.41% 25,979 0.45% 29,801 Amortization of Unfunded Liability (0.41%) (25,979) (0.45%) (29,801) Total Employer Cost (Health) 0.00% 0 0.00% 0 Total Employer Cost (Pension + Health) 11.00% 697,007 43.47% 2,878,810 Total Minimum Contribution Requirement (if applicable) 8.00% 8.00% Alternate Contribution Rate (ACR) * 8.00% 30.38% Underlying Payroll (as of valuation date) 6,181,881 6,429,633 * The Alternate Contribution Rate is the sum of the positive amortization rates for Tiers 1 & 2 Pension and Health (subject to an 8% minimum) and is charged when retirees return to active status. The results above are shown both prior to and after the application of the statutory minimum contribution requirement of 8% of payroll (5% of payroll if the actual employer contribution is less than 5% for the 2006/2007 Fiscal Year) and are based on the current amortization schedule approved by the Board of Trustees for your individual plan (see "Actuarial Assumptions and Methods"). Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2022 – Oro Valley Police Dept. (122) 5 Development of Employer Contributions – Tier 3 Members Valuation Date June 30, 2022 June 30, 2021 Applicable to Fiscal Year Ending 2024 2023 Defined Benefit (DB) Retirement Plan Rate Dollar Rate Dollar Pension Total Normal Cost 17.37% $ 197,489 17.99% $ 141,199 Amortization of Unfunded Liability 0.00% 0 0.00% 0 Total Pension Cost 17.37% 197,489 17.99% 141,199 Employee (EE) Pension Cost 8.69% 98,745 9.00% 70,600 Employer (ER) Pension Cost 8.69% 98,745 9.00% 70,600 Health Total Normal Cost 0.24% 2,729 0.24% 1,884 Amortization of Unfunded Liability 0.00% 0 0.00% 0 Total Health Cost 0.24% 2,729 0.24% 1,884 Employee (EE) Health Cost 0.12% 1,365 0.12% 942 Employer (ER) Health Cost 0.12% 1,365 0.12% 942 Total Total Calculated Tier 3 Required EE/ER Individual Cost 8.81% 100,110 9.12% 71,542 Board Approved Tier 3 Required EE/ER Individual Cost 1 9.56% 108,693 9.94% 78,017 ER Legacy Cost of Tiers 1 & 2 Amort of Unfunded Liabilities 2 0.00% 0 30.38% 238,445 Total Calculated Tier 3 Required ER Defined Benefit Cost 8.81% 100,110 39.50% 309,987 Total Board Approved Tier 3 Required ER Defined Benefit Cost 9.56% 108,693 40.32% 316,462 Underlying Payroll (as of valuation date) 1,109,226 762,016 1 The “Board Approved” cost was reset with the June 30, 2022 valuation to be the lesser of 1) the calculated rate plus 0.75%, or 2) the prior Board approved rate. Going forward, the funding policy will reflect the approach in setting the costs and will be reviewed annually. 2 Pursuant to ARS § 38-843(B), the amortization of positive unfunded liabilities for Tiers 1 & 2 shall be applied to all Tier 3 payroll on a level percent basis. However, while it is statutorily required to present the rates in this manner, these are the minimums where alternate methods for paying down that unfunded liability is at the discretion of each employer. Further, to understand the effects of reform in relation to Tier 3, compare the total rate of Tier 3 before application of those legacy costs. Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2022 – Oro Valley Police Dept. (122) 6 Development of Employer Contributions – Tier 3 Members Valuation Date June 30, 2022 June 30, 2021 Applicable to Fiscal Year Ending 2024 2023 Defined Contribution (DC) Retirement Plan Rate Dollar Rate Dollar Tier 2 & 3 DB / Non-Social Security Employee Cost 3.00% 3.00% Employer Cost 1 3.00% 3.00% Tier 3 DC Only Employee Cost 9.00% $ 0 9.00% $ 5,468 Employee Health Subsidy Program Cost 0.17% 0 0.19% 115 Employee Disability Program Cost 1.43% 0 1.66% 1,009 Total Employee Cost 10.60% 0 10.85% 6,592 Employer Cost 9.00% 0 9.00% 5,468 Employer Health Subsidy Program Cost 0.17% 0 0.19% 115 Employer Disability Program Cost 1.43% 0 1.66% 1,009 Total Employer Cost (before Legacy) 10.60% 0 10.85% 6,592 ER Legacy Cost of Tiers 1 & 2 Amort of Unfunded Liabilities 2 0.00% 0 30.38% 18,458 Total Employer Cost 10.60% 0 41.23% 25,050 Underlying Payroll (as of valuation date) 0 58,986 1 Employer rate is 4% for Tier 2 members for a period of time depending on the individual's membership date. 2 Pursuant to ARS § 38-843(B), the amortization of positive unfunded liabilities for Tiers 1 & 2 shall be applied to all Tier 3 payroll on a level percent basis. However, while it is statutorily required to present the rates in this manner, these are the minimums where alternate methods for paying down that unfunded liability is at the discretion of each employer. Further, to understand the effects of reform in relation to Tier 3, compare the total rate of Tier 3 before application of those legacy costs. Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2022 – Oro Valley Police Dept. (122) 7 Contribution Rate Summary Tier 1 Tier 2 Tier 3 Membership Date On or After 7/1/1968 7/20/2011 1/1/2012 7/1/2017 Participates in Social Security N/A N/A Yes No Yes No N/A Available Retirement Plan ¹ DB Only DB Only DB Only Hybrid DB Only Hybrid DC Only Employee Contribution Rate PSPRS DB Rate 7.65% 7.65% 7.65% 7.65% 9.56% 9.56% PSPRS DC Rate 3.00% 3.00% 9.00% Employer Health Subsidy Program Cost 0.17% PSPDCRP Disability Program Rate 1.43% Total EE Contribution Rate 7.65% 7.65% 7.65% 10.65% 9.56% 12.56% 10.60% Employer Contribution Rate PSPRS DB Normal Cost 11.41% 11.41% 11.41% 11.41% 9.56% 9.56% PSPRS DB Tier 1 & 2 Legacy Cost ² (0.41%) (0.41%) (0.41%) (0.41%) 0.00% 0.00% 0.00% PSPRS DC Rate ³ 4.00% 3.00% 9.00% Employer Health Subsidy Program Cost 0.17% PSPDCRP Disability Program Rate 1.43% Total ER Contribution Rate 11.00% 11.00% 11.00% 15.00% 9.56% 12.56% 10.60% ¹ Employers that pay into Social Security on behalf of their members do not participate in the Hybrid Plan. ² Per statute (ARS § 38-843(B)), any positive unfunded liability for Tiers 1 and 2 is to be applied to all Tier 3 (DB and DC) payrolls. ³ The 4.00% employer match for Tier 2 Hybrid members is for a short period of time depending on the membership date of the employee at which point the rate will change to 3.00% (ARS § 38-868(C)). Exhibit summarizes employee and employer contributions based on Statute and the results of June 30, 2022 actuarial valuation. Pension and health components are combined, where applicable. Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2022 – Oro Valley Police Dept. (122) 8 Impact of Additional Contributions Additional Contribution (000s) $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 $8,000 $9,000 $10,000 Impact On Funded Status - June 30, 2022 102.0% 103.3% 104.6% 105.9% 107.2% 108.5% 109.8% 111.2% 112.5% 113.8% 115.1% FYE 2024 Contribution Rate 11.00% 9.61% 8.22% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% Table shows the hypothetical change in the funded status and contribution rate from the June 30, 2022 actuarial valuation results for Tiers 1 & 2 if an additional contribution of the amount shown had been made to the Fund on June 30, 2022. This illustration can help estimate the impact of contributing additional monies to the fund in the future. Historical Summary of Employer Rates Pension Health Valuation Date June 30 Fiscal Year Ending June 30 Normal Cost Unfunded Amortization Total Normal Cost Unfunded Amortization Total TIERS 1 & 2 2018 2020 14.15% 24.11% 38.26% 0.33% 0.00% 0.33% 2019 2021 13.95% 27.67% 41.62% 0.49% (0.46%) 0.03% 2020 2022 13.19% 30.38% 43.57% 0.45% (0.45%) 0.00% 2021 2023 13.09% 30.38% 43.47% 0.45% (0.45%) 0.00% 2022 2024 11.00% 0.00% 11.00% 0.41% (0.41%) 0.00% TIER 3 1 2018 2020 9.68% 0.00% 9.68% 0.26% 0.00% 0.26% 2019 2021 9.68% 0.00% 9.68% 0.26% 0.00% 0.26% 2020 2022 9.68% 0.00% 9.68% 0.26% 0.00% 0.26% 2021 2023 9.68% 0.00% 9.68% 0.26% 0.00% 0.26% 2022 2 2024 8.69% 0.00% 8.69% 0.12% 0.00% 0.12% 2022 2024 9.30% 0.00% 9.30% 0.26% 0.00% 0.26% 1 Rates shown are Board approved EE/ER rates, unless otherwise noted. Does not reflect Legacy costs that the employer must also contribute. 2 Rates shown are calculated EE/ER rates Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2022 – Oro Valley Police Dept. (122) 9 III. LIABILITY SUPPORT Liabilities and Funded Ratios by Benefit - Tiers 1 & 2 Pension liabilities were increased by $583,535 and health liabilities were increased by $10,384 under the lateral transfer methodology. June 30, 2022 June 30, 2021 Pension Actuarial Present Value of Benefits (PVB) Retirees and Beneficiaries $ 35,501,815 $ 29,485,097 DROP Members 10,938,945 11,116,699 Vested Members 439,814 694,040 Active Members 37,981,637 39,960,572 Total Actuarial Present Value of Benefits 84,862,211 81,256,408 Actuarial Accrued Liability (AAL) All Inactive Members 46,880,574 41,295,836 Active Members 29,557,760 29,496,718 Total Actuarial Accrued Liability 76,438,334 70,792,554 Actuarial Value of Assets (AVA) 77,967,201 46,773,089 Unfunded Actuarial Accrued Liability (1,528,867) 24,019,465 PVB Funded Ratio (AVA / PVB) 91.9% 57.6% AAL Funded Ratio (AVA / AAL) 102.0% 66.1% Health Actuarial Present Value of Benefits (PVB) Retirees and Beneficiaries $ 299,420 $ 301,694 DROP Members 145,431 151,013 Active Members 787,227 786,860 Total Present Value of Benefits 1,232,078 1,239,567 Actuarial Accrued Liability (AAL) All Inactive Members 444,851 452,707 Active Members 617,877 581,099 Total Actuarial Accrued Liability 1,062,728 1,033,806 Actuarial Value of Assets (AVA) 1,617,538 1,534,689 Unfunded Actuarial Accrued Liability (554,810) (500,883) PVB Funded Ratio (AVA / PVB) 131.3% 123.8% AAL Funded Ratio (AVA / AAL) 152.2% 148.5% Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2022 – Oro Valley Police Dept. (122) 10 Liabilities and Funded Ratios by Benefit - Tier 3 June 30, 2022 June 30, 2021 Pension Actuarial Present Value of Benefits (PVB) Retirees and Beneficiaries $ 944,111 $ 440,356 Vested Members 3,654,003 1,850,254 Active Members 403,144,180 288,612,448 Total Actuarial Present Value of Benefits 407,742,294 290,903,058 Actuarial Accrued Liability (AAL) All Inactive Members 4,598,114 2,290,610 Active Members 64,341,090 40,442,927 Total Actuarial Accrued Liability 68,939,204 42,733,537 Actuarial Value of Assets (AVA) 76,171,857 45,863,401 Unfunded Actuarial Accrued Liability (7,232,653) (3,129,864) PVB Funded Ratio (AVA / PVB) 18.7% 15.8% AAL Funded Ratio (AVA / AAL) 110.5% 107.3% Health Actuarial Present Value of Benefits (PVB) Retirees and Beneficiaries 0 0 Active Members 5,807,514 3,998,992 Total Present Value of Benefits 5,807,514 3,998,992 Actuarial Accrued Liability (AAL) All Inactive Members 0 0 Active Members 1,075,733 680,877 Total Actuarial Accrued Liability 1,075,733 680,877 Actuarial Value of Assets (AVA) 2,281,928 1,429,806 Unfunded Actuarial Accrued Liability (1,206,195) (748,929) PVB Funded Ratio (AVA / PVB) 39.3% 35.8% AAL Funded Ratio (AVA / AAL) 212.1% 210.0% The liabilities shown on this page are the liabilities for all Tier 3 members grouped together in the Risk Sharing group. These liabilities are NOT the liabilities solely for Oro Valley Police Dept. Tier 3 members. Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2022 – Oro Valley Police Dept. (122) 11 Derivation of Experience (Gain)/Loss Tiers 1 & 2 Tier 3 Pension Health Pension Health (1) Unfunded Actuarial Accrued Liability as of June 30, 2021 24,019,465 (500,883) (3,129,864) (748,929) (2) Normal Cost Developed in Last Valuation 866,888 29,801 10,742,365 143,232 (3) Actual Contributions 30,446,078 0 13,287,994 708,578 (4) Expected Interest On (1), (2), and (3) 724,995 (34,389) 79,243 (69,623) (5) Expected Unfunded Actuarial Accrued Liability as of June 30, 2022 (1)+(2)-(3)+(4) (4,834,730) (505,471) (5,596,250) (1,383,898) (6) Changes to UAAL Due to Assumptions, Methods and Benefits 719,445 45,035 (1,466,606) 33,112 (7) Change to UAAL Due to Actuarial (Gain)/Loss 2,586,418 (94,374) (169,797) 144,591 (8) Unfunded Actuarial Accrued Liability as of June 30, 2022 (1,528,867) (554,810) (7,232,653) (1,206,195) Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2022 – Oro Valley Police Dept. (122) 12 Amortization of Unfunded Liabilities - Tiers 1 & 2 Date Established Outstanding Balance 1 Years Remaining Amortization Rate Pension 06/30/2019 0 14 0.00% 06/30/2021 1,018,144 14 1.51% 06/30/2022 (2,547,011) 15 (3.62%) Total (1,528,867) (2.11%) Health 06/30/2019 0 10 0.00% 06/30/2021 0 10 0.00% 06/30/2022 (385,460) 10 (0.71%) Total (385,460) (0.71%) Amortization of Unfunded Liabilities - Tier 3 Date Established Outstanding Balance Years Remaining Amortization Rate 2 Pension 06/30/2018 133,264 6 0.02% 06/30/2019 (1,174,488) 7 (0.12%) 06/30/2020 783,926 8 0.07% 06/30/2021 (2,629,391) 9 (0.23%) 06/30/2022 (4,345,964) 10 (0.35%) Total (7,232,653) 0.00% Health 06/30/2018 (2,826) 6 0.00% 06/30/2019 (107,381) 7 (0.01%) 06/30/2020 (199,078) 8 (0.02%) 06/30/2021 (379,902) 9 (0.03%) 06/30/2022 (517,008) 10 (0.04%) Total (1,206,195) 0.00% 1 By Statute, any unfunded liability is adjusted to remove any “maintenance of effort” balance included in the assets. The current balance is $933,561. 2 By Statute, negative total amortization rates are not subtracted in Tier 3 rate calculations. Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2022 – Oro Valley Police Dept. (122) 13 IV. ASSET SUPPORT Statement of Changes in Fiduciary Net Position for Year Ended June 30, 2022 Market Value Basis Tiers 1 & 2 Tier 3 Pension Health Pension Health Additions Contributions Member Contributions $ 131,683,526 $ 0 $ 29,063,146 $ 0 Employer Contributions 3,012,703,558 0 29,064,040 0 Health Insurance Contributions 0 3,802,966 0 1,407,709 Total Contributions 3,144,387,084 3,802,966 58,127,186 1,407,709 Investment Income Net Increase in Fair Value (701,182,251) (21,695,499) (8,741,820) (280,480) Interest and Dividends 126,401,305 3,911,022 1,575,879 50,562 Other Income 87,059,416 2,683,297 1,085,391 34,690 Less Investment Expenses (22,862,270) (565,977) (285,030) (7,317) Net Investment Income (510,583,800) (15,667,157) (6,365,580) (202,545) Non-investment Income 986,277 0 12,296 0 Transfers In 1,279,046 0 30,523 0 Total Additions 2,636,068,607 (11,864,191) 51,804,425 1,205,164 Deductions Distributions to Members Benefit Payments 1,014,242,856 0 151,291 0 Health Insurance Subsidy 0 17,298,612 0 0 Refund of Contributions 13,520,140 0 1,255,336 0 Total Distributions 1,027,762,996 17,298,612 1,406,627 0 Administrative Expenses 9,180,607 278,897 114,460 3,606 Transfers Out 780,862 0 0 0 Other 0 0 0 0 Total Deductions 1,037,724,465 17,577,509 1,521,087 3,606 Net Increase / (Decrease) 1,598,344,142 (29,441,700) 50,283,338 1,201,558 Net Position Held in Trust Prior Valuation 11,444,452,554 403,467,753 112,339,143 3,633,858 Beginning of the Year Adjustment 0 0 0 0 End of the Year 13,042,796,696 374,026,053 162,622,481 4,835,416 Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2022 – Oro Valley Police Dept. (122) 14 Development of Pension Actuarial Value of Assets - Tiers 1 & 2 A. Investment Income A1. Actual Investment Income $ (519,764,407) A2. Expected Amount for Immediate Recognition 911,394,336 A3. Amount Subject to Amortization (1,431,158,743) Year Ended June 30 B. Amortization Schedule 2022 2023 2024 2025 2026 2027 2028 2022 Experience (A3 / 7) (204,451,249) (204,451,249) (204,451,249) (204,451,249) (204,451,249) (204,451,249) (204,451,249) 2021 Experience 238,978,744 238,978,744 238,978,744 238,978,744 238,978,744 238,978,745 2020 Experience (68,882,158) (68,882,158) (68,882,158) (68,882,158) (68,882,160) 2019 Experience (22,859,275) (22,859,275) (22,859,275) (22,859,275) 2018 Experience (6,266,349) (6,266,349) (6,266,351) 2017 Experience 33,380,149 33,380,148 2016 Experience (64,250,889) Total Amortization (94,351,027) (30,100,139) (63,480,289) (57,213,938) (34,354,665) 34,527,496 (204,451,249) C. Actuarial Value of Assets Total Employer C1. Actuarial Value of Assets, June 30, 2021 10,462,717,622 C2. Non-investment Net Cash Flow 2,118,108,549 C3. Preliminary Actuarial Value of Assets, June 30, 2022 (A2 + B + C1 + C2) 13,397,869,480 C4. Market Value of Assets, June 30, 2022 13,042,796,696 75,900,900 C5. Final Actuarial Value of Assets, June 30, 2022 (C3 Within 20% Corridor of C4) 13,397,869,480 77,967,201 D. Rates of Return D1. Market Value Rate of Return (4.2%) D2. Actuarial Value Rate of Return 7.1% Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2022 – Oro Valley Police Dept. (122) 15 Development of Health Actuarial Value of Assets - Tiers 1 & 2 A. Investment Income A1. Actual Investment Income $ (15,946,054) A2. Expected Amount for Immediate Recognition 28,969,231 A3. Amount Subject to Amortization (44,915,285) Year Ended June 30 B. Amortization Schedule 2022 2023 2024 2025 2026 2027 2028 2022 Experience (A3 / 7) (6,416,469) (6,416,469) (6,416,469) (6,416,469) (6,416,469) (6,416,469) (6,416,471) 2021 Experience 9,257,478 9,257,478 9,257,478 9,257,478 9,257,478 9,257,481 2020 Experience (2,898,713) (2,898,713) (2,898,713) (2,898,713) (2,898,716) 2019 Experience (1,075,569) (1,075,569) (1,075,569) (1,075,572) 2018 Experience (304,653) (304,653) (304,656) 2017 Experience 1,532,136 1,532,136 2016 Experience (3,220,881) Total Amortization (3,126,671) 94,210 (1,437,929) (1,133,276) (57,707) 2,841,012 (6,416,471) C. Actuarial Value of Assets Total Employer C1. Actuarial Value of Assets, June 30, 2021 367,789,300 C2. Non-investment Net Cash Flow (13,495,646) C3. Preliminary Actuarial Value of Assets, June 30, 2022 (A2 + B + C1 + C2) 380,136,214 C4. Market Value of Assets, June 30, 2022 374,026,053 1,591,538 C5. Final Actuarial Value of Assets, June 30, 2022 (C3 Within 20% Corridor of C4) 380,136,214 1,617,538 D. Rates of Return D1. Market Value Rate of Return (4.0%) D2. Actuarial Value Rate of Return 7.2% Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2022 – Oro Valley Police Dept. (122) 16 Development of Pension Actuarial Value of Assets - Tiers 3 A. Investment Income A1. Actual Investment Income $ (6,480,040) A2. Expected Amount for Immediate Recognition 9,816,857 A3. Amount Subject to Amortization (16,296,897) Year Ended June 30 B. Amortization Schedule 2022 2023 2024 2025 2026 2022 Experience (A3 / 5) (3,259,379) (3,259,379) (3,259,379) (3,259,379) (3,259,381) 2021 Experience 3,551,936 3,551,936 3,551,936 3,551,938 2020 Experience (351,296) (351,296) (351,294) 2019 Experience 44,435 44,437 2018 Experience (208) Total Amortization (14,512) (14,302) (58,737) 292,559 (3,259,381) C. Actuarial Value of Assets Total Employer C1. Actuarial Value of Assets, June 30, 2021 99,096,619 C2. Non-investment Net Cash Flow 56,763,378 C3. Preliminary Actuarial Value of Assets, June 30, 2022 (A2 + B + C1 + C2) 165,662,342 C4. Market Value of Assets, June 30, 2022 162,622,481 74,774,123 C5. Final Actuarial Value of Assets, June 30, 2022 (C3 Within 20% Corridor of C4) 165,662,342 76,171,857 D. Rates of Return D1. Market Value Rate of Return (4.6%) D2. Actuarial Value Rate of Return 7.7% Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2022 – Oro Valley Police Dept. (122) 17 Development of Health Actuarial Value of Assets - Tiers 3 A. Investment Income A1. Actual Investment Income $ (206,151) A2. Expected Amount for Immediate Recognition 302,807 A3. Amount Subject to Amortization (508,958) Year Ended June 30 B. Amortization Schedule 2022 2023 2024 2025 2026 2022 Experience (A3 / 5) (101,792) (101,792) (101,792) (101,792) (101,790) 2021 Experience 128,963 128,963 128,963 128,961 2020 Experience (10,555) (10,555) (10,557) 2019 Experience 1,507 1,508 2018 Experience (165) Total Amortization 17,958 18,124 16,614 27,169 (101,790) C. Actuarial Value of Assets Total Employer C1. Actuarial Value of Assets, June 30, 2021 3,146,825 C2. Non-investment Net Cash Flow 1,407,709 C3. Preliminary Actuarial Value of Assets, June 30, 2022 (A2 + B + C1 + C2) 4,875,299 C4. Market Value of Assets, June 30, 2022 4,835,416 2,263,260 C5. Final Actuarial Value of Assets, June 30, 2022 (C3 Within 20% Corridor of C4) 4,875,299 2,281,928 D. Rates of Return D1. Market Value Rate of Return (4.8%) D2. Actuarial Value Rate of Return 8.3% Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2022 – Oro Valley Police Dept. (122) 18 V. MEMBER STATISTICS Valuation Data Summary June 30, 2022 June 30, 2021 Tiers 1 & 2 Tier 3 Tiers 1 & 2 Tier 3 Actives Number 63 15 68 12 Average Current Age 42.0 28.2 41.3 28.0 Average Age at Employment 26.6 26.3 26.5 26.4 Average Past Service 15.4 1.9 14.8 1.6 Average Annual Salary $87,487 $59,679 $84,526 $55,480 Actives (transferred) Number 8 3 7 1 Average Current Age 34.0 26.5 33.8 27.1 Average Age at Employment 24.3 23.8 24.4 24.2 Average Past Service 9.7 2.6 9.3 2.9 Average Annual Salary $66,358 $51,623 $61,007 $53,901 Retirees Number 33 0 28 0 Average Current Age 58.9 N/A 58.8 N/A Average Annual Benefit $52,659 N/A $50,805 N/A Drop Retirees Number 8 N/A 9 N/A Average Current Age 54.5 N/A 55.5 N/A Average Annual Benefit $73,738 N/A $70,927 N/A Beneficiaries Number 7 0 7 0 Average Current Age 68.5 N/A 67.5 N/A Average Annual Benefit $34,763 N/A $34,082 N/A Disability Retirees Number 12 0 11 0 Average Current Age 54.5 N/A 54.4 N/A Average Annual Benefit $40,627 N/A $39,355 N/A Inactive / Vested Number 7 3 9 1 Average Current Age 45.7 25.7 46.1 22.2 Average Accumulated Contributions $23,722 $4,919 $38,421 $2,196 Total Number 138 21 139 14 Former Members (transferred) 4 0 3 0 Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2022 – Oro Valley Police Dept. (122) 19 Active Counts and Pay Summary - Tiers 1 & 2 Past Service Age 0-4 5-9 10-14 15-19 20-24 25-29 30+ Total Count Total Pay Average Pay <20 0 0 0 0 0 0 0 0 0 0 20 - 24 0 0 0 0 0 0 0 0 0 0 25 - 29 0 4 0 0 0 0 0 4 287,160 71,790 30 - 34 0 12 4 0 0 0 0 16 1,274,185 79,637 35 - 39 0 5 3 7 0 0 0 15 1,199,844 79,990 40 - 44 0 2 1 9 2 0 0 14 1,235,820 88,273 45 - 49 0 0 0 8 1 1 0 10 875,462 87,546 50 - 54 0 0 1 2 2 2 0 7 739,819 105,688 55 - 59 0 0 1 1 2 0 1 5 430,243 86,049 60 - 64 0 0 0 0 0 0 0 0 0 0 65+ 0 0 0 0 0 0 0 0 0 0 Total 0 23 10 27 7 3 1 71 6,042,533 85,106 Active Counts and Pay Summary - Tier 3 Past Service Age 0-4 5-9 10-14 15-19 20-24 25-29 30+ Total Count Total Pay Average Pay <20 0 0 0 0 0 0 0 0 0 0 20 - 24 3 0 0 0 0 0 0 3 160,748 53,583 25 - 29 10 0 0 0 0 0 0 10 577,751 57,775 30 - 34 5 0 0 0 0 0 0 5 311,556 62,311 35 - 39 0 0 0 0 0 0 0 0 0 0 40 - 44 0 0 0 0 0 0 0 0 0 0 45 - 49 0 0 0 0 0 0 0 0 0 0 50 - 54 0 0 0 0 0 0 0 0 0 0 55 - 59 0 0 0 0 0 0 0 0 0 0 60 - 64 0 0 0 0 0 0 0 0 0 0 65+ 0 0 0 0 0 0 0 0 0 0 Total 18 0 0 0 0 0 0 18 1,050,055 58,336 Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2022 – Oro Valley Police Dept. (122) 20 In-Payment Counts and Benefit Summary – All Tiers Age Count Average Annual Benefit < 40 0 0 40 - 44 1 45,951 45 - 49 7 48,503 50 - 54 13 42,901 55 - 59 11 46,454 60 - 64 4 66,313 65 - 69 9 51,003 70 - 74 3 30,080 75 - 79 3 47,034 80 - 84 1 58,807 85 - 89 0 0 90 - 94 0 0 95 - 99 0 0 100+ 0 0 Total 52 47,473 “In-Payment” refers to retired, beneficiary, and disabled members. Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2022 – Oro Valley Police Dept. (122) 21 VI. ACTUARIAL ASSUMPTIONS AND METHODS Interest Rate This is the assumed earnings rate on System assets, compounded annually, net of investment and administrative expenses. Tiers 1 & 2: 7.20% per year. Tier 3: 7.00% per year. Salary Increases See table at the end of this section. This is an annual increase for individual member’s salary. These rates are based on a 2022 experience study using actual plan experience. Inflation 2.50%. Tier 3 Compensation Limit $115,868 for calendar 2022. Assumed increases of 2.00% per year thereafter. Cost-of-Living Adjustment 1.85%. Mortality Rates These rates are used to project future decrements from the population due to death. Active Lives: PubS-2010 Employee mortality, adjusted by a factor of 1.03 for male members and 1.08 for female members, with generational improve- ments using 85% of the most recent projection scale (currently Scale MP-2021). 100% of active deaths are assumed to be in the line of duty. Inactive Lives: PubS-2010 Healthy Retiree mortality, adjusted by a factor of 1.03 for male retirees and 1.11 for female retirees, with generational improve- ments using 85% of the most recent projection scale (currently Scale MP-2021). Beneficiaries: PubS-2010 Survivor mortality, adjusted by a factor of 0.98 for male beneficiaries and adjusted by a factor of 1.06 for female beneficiar- ies, with generational improvements using 85% of the most recent projection scale (currently Scale MP-2021). Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2022 – Oro Valley Police Dept. (122) 22 Disabled Lives: PubS-2010 Disabled mortality, adjusted by a factor of 1.08 for male disabled members and 1.01 for female disabled members, with generational improvements using 85% of the most recent projection scale (currently Scale MP-2021). The mortality assumptions sufficiently accommodate anticipated future mortality improvements. Retirement / DROP Rates These rates are used to project future decrements from the active population due to retirement. The rates below are based on a 2022 experience study using actual plan experience. Tier 1 – reaching age 62 before attaining 20 years of service: Age-related rates based on age at retirement: Police - 40% assumed at age 62 and 63, 35% assumed at age 64, 25% assumed at ages 65 and 66, 50% assumed at ages 67 – 69, and 100% assumed at age 70. Fire - 25% assumed at age 62 and 63, 35% assumed at age 64, 25% assumed at ages 65 and 66, 50% assumed at ages 67 – 69, and 100% assumed at age 70. Tier 1 – reaching age 62 after attaining 20 years of service: Service-related rates based on service at retirement. See complete tables at the end of this section. 60% are assumed to enter the DROP program while the remaining 40% are assumed to retire and commence benefits immediately. DROP periods are assumed to be 5 years in length. Tiers 2 & 3: Age-related rates based on age at retirement. 50% assumed at age 53, 30% assumed at ages 54 – 59, 60% assumed at ages 60 – 63, and 100% assumed at age 64. Termination Rate These rates are used to project future decrements from the active population due to termination. Complete table of rates based on service at termination are provided at the end of this section. The rates apply to members prior to retirement eligibility and are based on a 2022 experience study using actual plan experience. Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2022 – Oro Valley Police Dept. (122) 23 Disability Rate These rates are used to project future decrements from the active population due to disability. Complete table of rates based on age at disability are provided at the end of this section. These rates are based on a 2022 experience study using actual plan experience. 90% of disablements are assumed to be duty-related. Marital Status For active members, 85% of males and 60% of females are assumed to be married. Actual marital status is used, where applicable, for inactive members. Spouse’s Age Male spouses are assumed to be five years older than female members and female spouses are assumed to be 2 years younger than males members. Health Care Utilization For active members, 70% of retirees are expected to utilize retiree health care. Actual utilization is used for inactive members. Funding Method Entry Age Normal Cost Method. Lateral Transfers When active members transfer between employers, the new employer’s liability starts from their new date of hire with no past service liability (i.e., all liability is accrued through normal cost). Per PSPRS administrative decision, once the new employer’s liability is fully funded, the liability will reflect all past service liability. Actuarial Asset Method Method described below. Note that during periods when investment performance exceeds (falls short) of the assumed rate, the actuarial value of assets will tend to be less (greater) than the market value of assets. Tiers 1 & 2: Each year the assumed investment income is recognized in full while the difference between actual and assumed investment income are smoothed over a 7-year period subject to a 20% corridor around the market value. Tier 3: Each year the assumed investment income is recognized in full while the difference between actual and assumed investment income are smoothed over a 5-year period subject to a 20% corridor around the market value. Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2022 – Oro Valley Police Dept. (122) 24 Funding Policy Amortization Method Tiers 1 & 2: Any positive UAAL (assets less than liabilities) is amortized using a layered approach beginning with the June 30, 2020 valuation, with new amounts determined according to a Level Dollar method over a closed period of 15 years (phased into from current period of at most 30 years). Initial layer from June 30, 2019 valuation continues to be amortized according to a Level Percentage of Payroll method. Any negative UAAL (assets greater than liabilities) is amortized according to a Level Dollar method over an open period of 20 years. Tier 3: Any positive UAAL (assets less than liabilities) is amortized according to a Level Dollar method over a closed period of 10 years. No amortization is made of any negative UAAL (assets greater than liabilities). Payroll Growth 2.50% per year. This is annual increase for total employer payroll. Changes to Actuarial Assumptions and Methods Since the Prior Valuation Based on the results of the 2022 experience study, the following assumption changes were made:  Updated mortality, retirement, termination, and disability rate tables.  Updated assumed salary increase and cost-of-living adjustment rates. In addition, the interest rate for Tier 1 and 2 members was decreased from 7.30% to 7.20% and the payroll growth assumption was lowered from 3.00% to 2.50%. The expected DROP period length was increased from 4 years to 5 years to reflect DROP benefit changes. There were no method changes since the prior valuation. Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2022 – Oro Valley Police Dept. (122) 25 Salary Increase Rates Age Maricopa Police Pima Police Other Police Maricopa Fire Pima Fire Other Fire 20 15.00% 12.00% 14.00% 15.00% 12.00% 13.00% 21 14.00% 6.00% 12.00% 14.00% 11.00% 12.00% 22 13.00% 6.00% 10.00% 13.00% 10.00% 11.00% 23 12.00% 6.00% 9.00% 12.00% 9.50% 10.00% 24 11.00% 6.00% 8.00% 11.00% 9.00% 9.00% 25 10.00% 6.00% 7.00% 10.00% 8.50% 8.00% 26 9.00% 5.50% 6.50% 9.50% 7.50% 7.50% 27 8.00% 5.50% 6.25% 9.00% 6.50% 7.50% 28 7.50% 5.50% 6.00% 8.50% 5.75% 7.00% 29 7.00% 5.50% 5.80% 8.00% 5.75% 6.50% 30 6.50% 5.25% 5.60% 8.00% 5.50% 6.50% 31 6.00% 5.25% 5.40% 7.50% 5.50% 6.00% 32 5.50% 5.00% 5.20% 7.00% 5.00% 5.50% 33 5.10% 5.00% 5.00% 6.50% 5.00% 5.50% 34 4.90% 5.00% 4.90% 6.50% 5.00% 5.50% 35 4.70% 4.50% 4.80% 6.00% 5.00% 5.50% 36 4.50% 4.50% 4.70% 5.50% 5.00% 5.50% 37 4.30% 4.50% 4.60% 5.25% 4.50% 5.00% 38 4.10% 4.00% 4.50% 5.00% 4.50% 5.00% 39 4.00% 4.00% 4.40% 4.75% 4.50% 5.00% 40 3.90% 4.00% 4.30% 4.75% 4.50% 5.00% 41 3.80% 3.80% 4.20% 4.50% 4.50% 4.50% 42 3.70% 3.60% 4.10% 4.50% 4.00% 4.50% 43 3.60% 3.40% 4.00% 4.50% 4.00% 4.50% 44 3.50% 3.20% 3.90% 4.50% 4.00% 4.00% 45 3.50% 3.00% 3.80% 4.25% 4.00% 4.00% 46 3.50% 3.00% 3.70% 4.25% 3.75% 4.00% 47 3.50% 3.00% 3.60% 4.25% 3.75% 3.75% 48 3.50% 3.00% 3.50% 4.00% 3.75% 3.75% 49 3.50% 3.00% 3.50% 4.00% 3.50% 3.75% 50 3.25% 3.00% 3.50% 3.75% 3.50% 3.75% 51 3.25% 3.00% 3.50% 3.75% 3.50% 3.75% 52 3.25% 2.75% 3.50% 3.75% 3.50% 3.75% 53+ 3.25% 2.75% 3.50% 3.75% 3.25% 3.75% Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2022 – Oro Valley Police Dept. (122) 26 Tier 1 Retirement Rates– reaching age 62 after attaining 20 years of service Termination Rates Service Maricopa Police Pima Police Other Police Maricopa Fire Pima Fire OtherFire 0 13.0% 14.0% 13.5% 4.5% 10.0% 10.5% 1 8.0% 9.0% 11.5% 3.5% 6.0% 8.5% 2 6.0% 7.5% 10.5% 2.5% 4.5% 8.0% 3 4.5% 7.0% 9.5% 2.0% 4.0% 8.0% 4 3.6% 6.5% 9.0% 1.5% 4.0% 7.0% 5 3.3% 5.0% 8.0% 1.5% 4.0% 5.0% 6 3.3% 5.0% 7.0% 1.5% 4.0% 5.0% 7 3.3% 4.0% 6.5% 1.5% 3.0% 4.0% 8 2.4% 4.0% 6.5% 1.5% 3.0% 4.0% 9 2.4% 4.0% 6.0% 1.5% 3.0% 3.5% 10 2.4% 4.0% 5.0% 1.0% 2.0% 3.0% 11 1.8% 3.0% 4.0% 1.0% 2.0% 2.5% 12 1.8% 3.0% 4.0% 1.0% 1.5% 2.0% 13 1.3% 2.0% 3.5% 1.0% 1.0% 1.5% 14 1.3% 2.0% 3.0% 0.5% 1.0% 1.4% 15 0.8% 1.5% 2.5% 0.5% 1.0% 1.4% 16 0.8% 1.5% 2.0% 0.5% 0.5% 1.4% 17 0.8% 1.0% 2.0% 0.5% 0.5% 1.4% 18 0.8% 1.0% 1.8% 0.5% 0.5% 1.4% 19 0.8% 1.0% 1.8% 0.5% 0.5% 0.5% 20+ 0.5% 1.0% 1.8% 0.4% 0.5% 0.5% Service Maricopa Police Pima Police Other Police Maricopa Fire Pima Fire Other Fire 20 28% 28% 35% 14% 20% 20% 21 25% 25% 35% 17% 20% 25% 22 15% 16% 22% 7% 13% 15% 23 12% 12% 12% 7% 7% 10% 24 8% 9% 12% 7% 7% 10% 25 30% 22% 25% 17% 22% 30% 26 42% 42% 40% 30% 26% 30% 27 32% 30% 28% 23% 30% 30% 28 32% 30% 28% 30% 30% 30% 29 32% 20% 28% 30% 30% 30% 30 35% 25% 35% 30% 30% 35% 31 35% 33% 30% 40% 30% 35% 32 60% 50% 70% 55% 30% 35% 33 60% 50% 70% 55% 60% 60% 34+ 100% 100% 100% 100% 100% 100% Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2022 – Oro Valley Police Dept. (122) 27 Disability Rates Age Maricopa Police Pima Police Other Police Maricopa Fire Pima Fire Other Fire 20 0.050% 0.050% 0.120% 0.020% 0.020% 0.020% 21 0.050% 0.050% 0.120% 0.020% 0.020% 0.020% 22 0.050% 0.050% 0.120% 0.020% 0.020% 0.020% 23 0.050% 0.050% 0.120% 0.020% 0.020% 0.020% 24 0.050% 0.050% 0.120% 0.020% 0.020% 0.020% 25 0.050% 0.050% 0.120% 0.020% 0.020% 0.020% 26 0.100% 0.100% 0.160% 0.035% 0.020% 0.020% 27 0.100% 0.100% 0.160% 0.035% 0.020% 0.020% 28 0.100% 0.100% 0.160% 0.035% 0.020% 0.020% 29 0.100% 0.100% 0.160% 0.035% 0.020% 0.020% 30 0.100% 0.100% 0.160% 0.035% 0.020% 0.020% 31 0.230% 0.180% 0.240% 0.090% 0.100% 0.060% 32 0.230% 0.180% 0.240% 0.090% 0.100% 0.060% 33 0.230% 0.180% 0.240% 0.090% 0.100% 0.060% 34 0.230% 0.180% 0.240% 0.090% 0.100% 0.060% 35 0.230% 0.180% 0.240% 0.090% 0.100% 0.060% 36 0.450% 0.350% 0.320% 0.150% 0.150% 0.140% 37 0.450% 0.350% 0.320% 0.150% 0.150% 0.140% 38 0.450% 0.350% 0.320% 0.150% 0.150% 0.140% 39 0.450% 0.350% 0.320% 0.150% 0.150% 0.140% 40 0.450% 0.350% 0.320% 0.150% 0.150% 0.140% 41 0.520% 0.650% 0.550% 0.170% 0.300% 0.250% 42 0.520% 0.650% 0.550% 0.170% 0.300% 0.250% 43 0.520% 0.650% 0.550% 0.170% 0.300% 0.250% 44 0.520% 0.650% 0.550% 0.170% 0.300% 0.250% 45 0.520% 0.650% 0.550% 0.170% 0.300% 0.250% 46 0.650% 0.750% 0.750% 0.300% 0.420% 0.420% 47 0.650% 0.750% 0.750% 0.300% 0.420% 0.420% 48 0.650% 0.750% 0.750% 0.300% 0.420% 0.420% 49 0.650% 0.750% 0.750% 0.300% 0.420% 0.420% 50 0.650% 0.750% 0.750% 0.300% 0.420% 0.420% 51 0.800% 0.800% 0.800% 0.700% 0.750% 0.750% 52 0.800% 0.800% 0.800% 0.700% 0.750% 0.750% 53 0.800% 0.800% 0.800% 0.700% 0.750% 0.750% 54 0.800% 0.800% 0.800% 0.700% 0.750% 0.750% 55 0.800% 0.800% 0.800% 0.700% 0.750% 0.750% 56+ 1.000% 0.850% 0.900% 1.100% 0.800% 1.000% Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2022 – Oro Valley Police Dept. (122) 28 VII. DISCUSSION OF RISK ASOP No. 51, Assessment and Disclosure of Risk Associated with Measuring Pension Obligations and Determining Pension Plan Contributions, states that the actuary should identify risks that, in the actuary’s professional judgment, may reasonably be anticipated to significantly affect the plan’s future financial condition. Throughout this report, actuarial results are determined under various assumption scenarios. These results are based on the premise that all future plan experience will align with the plan’s actuarial assumptions; however, there is no guarantee that actual plan experience will align with the plan’s assumptions. Whenever possible, the recommended assumptions in this report reflect conservatism to allow for some margin of unfavorable future plan experience. However, it is still possible that actual plan experience will differ from anticipated experience in an unfavorable manner that will negatively impact the plan’s funded position. Below are examples of ways in which plan experience can deviate from assumptions and the potential impact of that deviation. Typically, this results in an actuarial gain or loss representing the current-year financial impact on the plan’s unfunded liability of the experience differing from assumptions; this gain or loss is amortized over a period of time determined by the plan’s amortization method. When assumptions are selected that adequately reflect plan experience, gains and losses typically offset one another in the long term, resulting in a relatively low impact on the plan’s contribution requirements associated with plan experience. When assumptions are too optimistic, losses can accumulate over time and the plan’s amortization payment could potentially grow to an unmanageable level.  Investment Return: When the rate of return on the Actuarial Value of Assets falls short of the assumption, this produces a loss representing assumed investment earnings that were not realized. Further, it is unlikely that the plan will experience a scenario that matches the assumed return in each year as capital markets can be volatile from year to year. Therefore, contribution amounts can vary in the future.  Salary Increases: When a plan participant experiences a salary increase that was greater than assumed, this produces a loss representing the cost of an increase in anticipated plan benefits for the participant as compared to the previous year. The total gain or loss associated with salary increases for the plan is the sum of salary gains and losses for all active participants.  Payroll Growth: The plan’s payroll growth assumption, if one is used, causes a predictable annual increase in the plan’s amortization payment in order to produce an amortization payment that remains constant as a percentage of payroll if all assumptions are realized. If payroll does not increase according to the plan’s payroll growth assumption, the plan’s amortization payment can increase significantly as a percentage of payroll even if all assumptions other than the payroll growth assumption are realized.  Demographic Assumptions: Actuarial results take into account various potential events that could happen to a plan participant, such as retirement, termination, disability, and death. Each of these potential events is assigned a liability based on the likelihood of the event and the financial consequence of the event for the plan. Accordingly, actuarial liabilities reflect a blend of financial consequences associated with various possible outcomes (such as retirement at one of various possible ages). Once the outcome is known (e.g. the participant retires) the liability is adjusted to reflect the known outcome. This adjustment Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2022 – Oro Valley Police Dept. (122) 29 produces a gain or loss depending on whether the outcome was more or less favorable than other outcomes that could have occurred.  Contribution risk: This risk results from the potential that actual employer contributions may deviate from actuarially determined contributions, which are determined in accordance with the Board’s funding policy. The funding policy is intended to result in contribution requirements that if paid when due, will result in a reasonable expectation that assets will accumulate to be sufficient to pay plan benefits when due. Contribution deficits, particularly large deficits and those that occur repeatedly, increase future contribution requirements and put the plan at risk for not being able to pay plan benefits when due. Impact of Plan Maturity on Risk For newer pension plans, most of the participants and associated liabilities are related to active members who have not yet reached retirement age. As pension plans continue in operation and active members reach retirement ages, liabilities begin to shift from being primarily related to active members to being shared amongst active and retired members. Plan maturity is a measure of the extent to which this shift has occurred. It is important to understand that plan maturity can have an impact on risk tolerance and the overall risk characteristics of the plan. For example, plans with a large amount of retired liability do not have as long of a time horizon to recover from losses (such as losses on investments due to lower than expected investment returns) as plans where the majority of the liability is attributable to active members. For this reason, less tolerance for investment risk may be warranted for highly mature plans with a substantial inactive liability. Similarly, mature plans paying substantial retirement benefits resulting in a small positive or net negative cash flow can be more sensitive to near term investment volatility, particularly if the size of the fund is shrinking, which can result in less assets being available for investment in the market. To assist with determining the maturity of the plan, we have provided some relevant metrics in the table following titled “Plan Maturity Measures and Other Risk Metrics.” For a better understanding of the overall Plan and the impact of these risks, please refer to the consolidated PSPRS valuation report. Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2022 – Oro Valley Police Dept. (122) 30 Plan Maturity Measures and Other Risk Metrics - Tiers 1 & 2 1 Determined as total contributions minus benefit payments. Administrative expenses are typically included but are considered part of the net interest rate assumption for this plan. 06/30/2019 06/30/2020 06/30/2021 06/30/2022 Support Ratio Total Actives 84 78 75 71 Total Inactives 56 61 64 67 Actives / Inactives 150.0% 127.9% 117.2% 106.0% Asset Volatility Ratio Market Value of Assets (MVA) 36,587,342 38,542,634 51,161,889 75,900,900 Total Annual Payroll 6,569,363 6,262,347 6,174,801 6,042,533 MVA / Total Annual Payroll 556.9% 615.5% 828.6% 1,256.1% Accrued Liability (AL) Ratio Inactive Accrued Liability 34,483,737 37,987,923 41,295,836 46,880,574 Total Accrued Liability 62,278,853 67,240,526 70,792,554 76,438,334 Inactive AL / Total AL 55.4% 56.5% 58.3% 61.3% Funded Ratio Actuarial Value of Assets (AVA) 37,842,906 41,498,361 46,773,089 77,967,201 Total Accrued Liability 62,278,853 67,240,526 70,792,554 76,438,334 AVA / Total Accrued Liability 60.8% 61.7% 66.1% 102.0% Net Cash Flow Ratio Net Cash Flow 1 1,315,467 1,532,336 1,738,938 27,917,489 Market Value of Assets (MVA) 36,587,342 38,542,634 51,161,889 75,900,900 Net Cash Flow / MVA 3.6% 4.0% 3.4% 36.8% Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2022 – Oro Valley Police Dept. (122) 31 Plan Maturity Measures and Other Risk Metrics - Tier 3 1 1 Tier 3 results are shown for the Risk Sharing group, where applicable. 2 Determined as total contributions minus benefit payments. Administrative expenses are typically included but are considered part of the net interest rate assumption for this plan. 06/30/2019 06/30/2020 06/30/2021 06/30/2022 Support Ratio Total Actives 944 1,408 1,853 2,417 Total Inactives 57 130 221 327 Actives / Inactives 1,656.1% 1,083.1% 838.5% 739.1% Asset Volatility Ratio Market Value of Assets (MVA) 9,392,896 22,964,925 51,992,240 74,774,123 Total Annual Payroll 50,420,565 84,448,996 115,883,115 165,151,543 MVA / Total Annual Payroll 18.6% 27.2% 44.9% 45.3% Accrued Liability (AL) Ratio Inactive Accrued Liability 203,244 1,173,104 2,290,610 4,598,114 Total Accrued Liability 7,956,725 23,239,599 42,733,537 68,939,204 Inactive AL / Total AL 2.6% 5.0% 5.4% 6.7% Funded Ratio Actuarial Value of Assets (AVA) 9,305,220 23,570,444 45,863,401 76,171,857 Total Accrued Liability 7,956,725 23,239,599 42,733,537 68,939,204 AVA / Total Accrued Liability 116.9% 101.4% 107.3% 110.5% Net Cash Flow Ratio Net Cash Flow 2 7,281,178 13,192,598 18,607,209 25,802,686 Market Value of Assets (MVA) 9,392,896 22,964,925 51,992,240 74,774,123 Net Cash Flow / MVA 77.5% 57.4% 35.8% 34.5% Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2022 – Oro Valley Police Dept. (122) 32 VIII. SUMMARY OF CURRENT PLAN The following is a summary of the benefit provisions provided in Title 38, Chapter 5, Article 4 of the Arizona Revised Statutes. Membership Full-time employees of an eligible group, prior to attaining age 65, who are engaged to work for more than six months in a calendar year. Tier 3 Defined Contribution members are able to elect participation in post-retirement health insurance subsidy. Benefit Tiers Benefits differ for members based on their hire date: Tier Hire Date 1 Hired before January 1, 2012 2 Hired on or after January 1, 2012 but before July 1, 2017 3 Hired on or after July 1, 2017 Compensation Compensation is the amount including base salary, overtime pay, shift and military differential pay, compensatory time used in lieu of overtime pay, and holiday pay, paid to an employee on a regular payroll basis and longevity pay paid at least every six months for which contributions are made to the System. For Tier 3 members, compensation is limited by statutory cap ($110,000 with adjustments by the Board). Average Monthly Benefit Tier 1: Compensation The highest compensation paid to member during three consecutive years out of the last 20 years of Credited Service, divided by months. Tier 2: The highest compensation paid to member during five consecutive years out of the last 20 years of Credited Service, divided by months. Tier 3: The highest compensation paid to member during five consecutive years out of the last 15 years of Credited Service, divided by months. Credited Service Total periods of service, both before and after the member’s date of participation, for which the member made contributions to the fund. Normal Retirement Date Tier 1: First day of month following attainment of 1) 20 years of service or Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2022 – Oro Valley Police Dept. (122) 33 2) 62nd birthday and completion of 15 years of service. Tier 2: First day of month following the attainment of age 52.5 and com- pletion of 15 years of service. Tier 3: First day of month following the attainment of age 55 and comple- tion of 15 years of service. Benefit Tier 1: 50% of Average Monthly Benefit Compensation, adjusted based on Credited Service as follows (maximum benefit of 80% of Average Monthly Benefit Compensation): Credited Service Benefit Adjustment 15 years, but less than 20 Reduced 4% per year less than 20 20 years, but less than 25 Plus 2% per year between 20 and 25 25+ years Plus 2.5% per year above 20 Tier 2: Benefit multiplier (below) times Average Monthly Benefit Compensation times Credited Service (maximum benefit of 80% of Average Monthly Benefit Compensation): Credited Service Benefit Multiplier 15 years, but less than 17 1.50% 17 years, but less than 19 1.75% 19 years, but less than 22 2.00% 22 years, but less than 25 2.25% 25+ years 2.50% Tier 3: Benefit multiplier (below) times Average Monthly Benefit Compensation times Credited Service (maximum benefit of 80% of Average Monthly Benefit Compensation): Credited Service Benefit Multiplier 15 years, but less than 17 1.50% 17 years, but less than 19 1.75% 19 years, but less than 22 2.00% 22 years, but less than 25 2.25% 25+ years 2.50% Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2022 – Oro Valley Police Dept. (122) 34 Form of Benefit For married retirees, an annuity payable for the life of the member with 80% continuing to the eligible spouse upon death. For unmarried retirees, the normal form is a single life annuity. Early Retirement Only applicable to Tier 3 members: Date Attainment of age 52.5 and 15 years of Credited Service. Benefit Actuarial equivalent of Normal Retirement benefit. Disability Benefit – Accidental (duty-related) Eligibility Total and permanent disability incurred in performance of duty. Benefit Amount A maximum of: a.) 50% of Average Monthly Benefit Compensation, and; b.) The monthly Normal Retirement pension that the member is entitled to receive if he or she retired immediately. Disability Benefit – Ordinary (not duty-related) Eligibility Total and permanent disability not incurred in performance of duty. Benefit Amount Normal Retirement pension that the member is entitled to receive, prorated based on Credited Service earned over the required Credited Service for Normal Retirement (maximum ratio of 1). Disability Benefit – Other Temporary Benefit equals 1/12 of 50% of compensation during year preceding date of disability. Payments terminate after 12 months. Catastrophic Benefit equals 90% of Average Monthly Benefit Compensation. After 60 months member receives greater of 62.5% Average Monthly Benefit Compensation and accrued normal pension. Pre-Retirement Death Benefit Service Incurred 100% of Average Monthly Benefit Compensation, reduced by child’s pension. Non-Service Incurred 80% of benefit based on calculation for accidental disability retirement. Child’s Pension 10% of pension for each child (maximum 20% paid) based on calculation for accidental disability retirement. Payable to dependent child under age 18 (23, if full-time student). Guardian’s Pension Same as spouse’s pension. Payable (along with child’s pension) when no spouse is being paid and there is at least one child under 18 (23, if full-time student). Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2022 – Oro Valley Police Dept. (122) 35 Vesting (Termination) Vesting Service Requirement Tier 1: 10 years of Credited Service. Tiers 2 & 3: 15 years of Credited Service. Non-Vested Benefit Tier 1: Lump sum payment of accumulated contributions, plus additional amount based on years of Credited Service. Service Additional % of Contributions Less than 5 years 0% 5 years 25% 6 years 40% 7 years 55% 8 years 70% 9 years 85% 10+ years 100% Tiers 2 & 3: Lump sum payment of accumulated contributions, with interest at rate determined by the Board. Vested Benefit Tier 1: Deferred retirement annuity based on two times member’s accumulated contributions, deferred to age 62. Member is not entitled to survivor benefits, benefit increases, or group health insurance subsidy. Tiers 2 & 3: Calculated same as normal retirement pension. Payable if contributions left in fund until reach age requirement. Member is entitled to survivor benefits, benefit increases, and group health insurance subsidy. Cost-of-Living Adjustment Payable to retired member or survivor of retired member Tiers 1 & 2: Compound cost-of-living adjustment on base benefit. First payment is made on July 1, 2018, with annual adjustments effective every July 1 thereafter. Cost-of-living adjustment will be based on the average annual percentage change in the Metropolitan Phoenix-Mesa Consumer Price Index published by the United States Department of Labor, Bureau of Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2022 – Oro Valley Police Dept. (122) 36 Statistics. Maximum increase of 2%. Tier 3: Compound cost-of-living adjustment on base benefit beginning earlier of first calendar year after the 7th anniversary of retirement or when the retired member reaches 60 years of age. A cost-of-living adjustment shall be paid on July 1 each year that the funded ratio for members hired on or after July 1, 2017 is 70% or more. The cost-of-living adjustment will be based on the average annual percentage change in the Metropolitan Phoenix-Mesa Consumer Price Index published by the United States Department of Labor, Bureau of Statistics. The cost-of-living adjustment will not exceed:  2%, if funded ratio for members who are hired on or after July 1, 2017 is 90% or more;  1.5%, if funded ratio for members who are hired on or after July 1, 2017 is 80-90%;  1%, if funded ratio for members who are hired on or after July 1, 2017 is 70-80%. Deferred Retirement Option Plan (DROP): Eligibility Tier 1 and 20 years of Credited Service. DROP Period Maximum 84 months. Member Contributions Cease upon DROP entry. Benefit Amount Calculated based on Credited Service and average monthly compensation as of the beginning of the DROP period, credited to DROP participation account for DROP period. Interest on DROP Beginning Year Interest Rate Participation Account July 1, 2016 7.40% July 1, 2018 7.30% July 1, 2022 7.20% Payment of DROP Payable as lump sum distribution to Public Safety Personnel Participation Account Defined Contribution Retirement Plan at earlier of 1) end of DROP period, 2) at termination, or 3) five years. Payment Monthly Benefit System commences payment of benefit amount at the earlier of 1) the end of the DROP period and 2) at termination. Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2022 – Oro Valley Police Dept. (122) 37 Post-Retirement Health Insurance Subsidy Eligibility Retired member or survivor who elect health coverage provided by the state or participating employer. Maximum Subsidy Amounts Member Only With Dependents (monthly) Medicare Eligible $100 $170 One w/ Medicare N/A $215 Not Medicare Eligible $150 $260 Employee Contributions Members hired before July 20, 2011: 7.65% Members hired on/after July 20, 2011, but before July 1, 2017: 11.65%. Amounts in excess of 7.65% are not used to reduce the employer contribution (“maintenance of effort”). Tier 3: 50% of total contribution, which is Normal Cost plus a level- dollar amortization of unfunded actuarial accrued liability over a closed period not to exceed 10 years. Employer Contributions Tiers 1 & 2: Normal Cost plus amortization of unfunded actuarial accrued liability over a closed period not to exceed 20 years (subject to one-time election to extend to closed period not to exceed 30 years). Contribution will never be less than 8% of payroll. Tier 3: 50% of total contribution, which is Normal Cost plus a level- dollar amortization of unfunded actuarial accrued liability over a closed period not to exceed 10 years. Changes to Benefit Provisions Since the Prior Valuation The DROP benefit was extended to 84 months. Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2022 – Oro Valley Police Dept. (122) 38 IX. ACTUARIAL FUNDING POLICY A pension plan funding policy describes how pension funding will improve for underfunded plans or maintain funded benefits for funded plans over time for those benefits defined in ARS. Those benefits defined in ARS are to be equitably managed and administered by PSPRS. This Actuarial Funding Policy identifies the funding objectives and elements of the actuarial funding policy set by the Board for the Arizona Public Safety Personnel Retirement System (PSPRS). The Board adopted this Funding Policy to help ensure the systematic funding of future benefit payments for members of the Retirement System as established by the legislature. To achieve the systematic funding of future benefits, metrics are identified to measure the progress, or the lack of progress, over time to identify trends. These trends inform the continuation of the current policies or identify areas of needed research for consideration. This funding policy is reviewed annually and adopted by the Board in accordance with ARS 38-863.02. This policy was reviewed and adopted by the Board in September 2022. PSPRS Statement of Purpose The Purpose of the Public Safety Personnel Retirement System is to provide uniform, consistent, and equitable statewide retirement programs for those who have been entrusted to our care. Funding Objectives 1. Maintain adequate assets so that current plan assets, plus future contributions and investment earnings, are sufficient to fund all benefits expected to be paid to members and their beneficiaries. a. Corollary 1a: Current and future contributions should be calculated based upon assumptions that reflect the Board’s best estimate of future experience and methods that appropriately allocate costs to address generational equity. b. Corollary 1b: While the shorter-term objective is to fully fund the actuarial liability (AAL) that estimates benefits earned as of the valuation date, contributions should target the long-term present value of benefits (PVB) to fund all benefits and help offset risks. c. As closed plans mature, the target funding should be 110% of AAL or 100% of PVB, whichever is greater. 2. Maintain public policy goals of accountability and transparency through stakeholder communication and education. Each policy element is clear in intent and effect, and each should be considered in a balanced approach to determine how and when the funding requirements of the plan will be met. a. Corollary 2a: Board shall provide stakeholders with separate reports and tools to help explain current results as well as to help model future funding requirements. 3. Promote intergenerational equity. Defined benefit pensions are designed with a long-term perspective and designed to minimize contribution volatility that cannot avoid some level of generational cost shift. However, the goal is that each generation of members and employers (taxpayers) should, to the extent Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2022 – Oro Valley Police Dept. (122) 39 possible, incur the cost of benefits for the employees who provide services to them, rather than shifting those costs to other generations of members and employers (taxpayers). a. Corollary 3a: A systematic reduction of the Unfunded Actuarial Accrued Liability (UAAL) over a reasonable time period is paramount to achieving this objective. Consideration can be given to reduce volatility, to the extent possible, of employer and employee contribution rates as long as the integrity of the objectives listed above is not compromised. Elements of Actuarial Funding Policy 1. Actuarial Cost Method a. The Entry Age Normal level percent of pay actuarial cost method of valuation shall be used in determining the Actuarial Accrued Liability (AAL) and Normal Cost. Differences in the past between assumed experience and actual experience (“actuarial gains and losses”) shall become part of the AAL. The Normal Cost shall be determined on an individual basis for each active member. 2. Asset Smoothing Method a. The investment gains or losses of each valuation period, resulting from the difference between the actual investment return and assumed investment return, shall be recognized annually in level amounts over seven years (Tiers 1 and 2) or five years (Tier 3) in calculating the Actuarial Value of Assets. b. The Actuarial Value of Assets so determine shall be subject to a 20% corridor relative to the Market Value of Assets. 3. Amortization Method (Unfunded Amounts) a. The Actuarial Value of Assets are subtracted from the computed AAL. Any unfunded amount is amortized as a level percent of payroll over a closed period. b. The unfunded liabilities, for EORP and Tiers 1 & 2 for both PSPRS and CORP, determined in the June 30, 2019 actuarial valuation will become the initial layer for each employer beginning with the June 30, 2020 actuarial valuation and amortized using the current closed year period for that employer and continue to decrease each year. i. The payroll growth rate assumption used to amortize the Public Safety Plan (PSPRS) June 30, 2019 Unfunded Liability will be decreased by 0.5% beginning with the 6/30/2021 actuarial valuation and again each year with the intention of ultimately achieving 0.0%. Once the payroll growth assumption reaches 2.0%, however, the Board will reevaluate the payroll growth assumption and decide whether to continue to let it track down to 0.0%. ii. The payroll growth rate used to amortize the Correction Officers Retirement Plan (CORP) June 30, 2019 Unfunded Liability will be 3.0% beginning with the 6/30/2020 actuarial valuation, and future years will be reduced by 0.5% until 0.0% is reached. iii. The payroll growth rate used to amortize the Elected Officials Retirement Plan (EORP) June 30, 2019 Unfunded Liability will be 2.5% beginning with the 6/30/2020 actuarial valuation, and future years will be reduced by 0.5% until 0.0% is reached. c. Gains and losses, for EORP and Tiers 1 & 2 for both PSPRS and CORP, for each employer beginning with the June 30, 2020 actuarial valuation will be amortized as a new layer over the same amortization period as the regular unfunded liability to a minimum of 15 years. Once the amortization period for each employer decreases to 15 years, each subsequent year’s gains and losses will be amortized as a new 15-year closed layer. Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2022 – Oro Valley Police Dept. (122) 40 i. The payroll growth rate used to amortize unfunded liability for all Plans under this paragraph will be 0.0% (i.e. level-dollar amortization). d. Tier 3 amortization methods are established in ARS 38-843.G and ARS 38-891.K. 4. Amortization Method (Overfunded Amounts) a. The Actuarial Value of Assets are subtracted from the target funding level(greater of 110% of AAL or 100% of PVB). Any overfunded amount is amortized as a level dollar amount over an open 10-year period. Metrics to Monitor Funding Objectives 1. Appropriateness of Assumptions – Gain/Loss Experience (Corollary 1a) a. Metric: Do the cumulative gain/loss layers over the prior five years exceed 8% of plan assets? b. Measurement: History of annual gain/loss (split by asset and liability experience) and five-year cumulative results will be tracked. c. Action Plan: This metric assumes that a full experience study is performed at least every five years so objective of measurement is to monitor interim experience. If the metric answer is yes, a review of the sources or causes of gains and losses should be analyzed and presented to the Advisory Committee to provide a recommendation to the Board of Trustees. The analysis and presentation are intended to provide a basis for consideration if assumption changes are warranted between full experience studies. 2. Funding Targets (Corollary 1b) a. Metric: Has the funded status, on both an AAL and PVB basis when compared to the market value of assets, increased over a five-year period? b. Measurement: History of funded status measures will be tracked. c. Action Plan: If the answer is no and not readily explainable (e.g., significant assumption change), a review of the reason(s) for the decrease should be researched and presented to the Advisory Committee to provide a recommendation to the Board of Trustees. The analysis and presentation are intended to provide a basis for consideration if changes to assumptions and/or methods are warranted between full experience studies. 3. Communication with Stakeholders (Corollary 2a) a. Metric: Have reports and budgeting tools been provided to stakeholders in a timely fashion? b. Measurement: Yes/No answer based on input from PSPRS administrator. (An annual standard survey of stakeholders – 3 to 5 questions.) c. Action Plan: If the answer is no, and periodically regardless (e.g., every three years), PSPRS staff will revisit this metric to report to the Advisory Committee to provide a recommendation to the Board of Trustees if current reports / tools are sufficient and if the delivery timing is appropriate. 4. Timely Recognition of Costs (Corollary 3a) a. Metric: Has the percentage of unfunded liability subject to negative amortization decreased over a five- year lookback period? b. Measurement: History of unfunded liability subject to negative amortization as a percentage of total unfunded liability will be tracked. c. Action Plan: If the answer is no, and not readily explainable (e.g., adopted assumption changes being phased in are anticipated to address negative amortization), a review of the reason(s) for negative Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2022 – Oro Valley Police Dept. (122) 41 amortization should be researched and presented to the Advisory Committee to provide a recommendation to the Board of Trustees. The analysis and presentation are intended to provide a basis for consideration if changes to assumptions and/or methods are warranted between full experience studies. Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2022 – Oro Valley Police Dept. (122) 42 X. GLOSSARY Actuarial Accrued Liability – Computed differently under different funding methods, the actuarial accrued liability generally represents the portion of the actuarial present value of benefits attributable to service credit earned (or accrued) as of the valuation date. Actuarial Present Value of Benefits – Amount which, together with future interest, is expected to be sufficient to pay all benefits to be paid in the future, regardless of when earned, as determined by the application of a particular set of actuarial assumptions; equivalent to the actuarial accrued liability plus the present value of future normal costs attributable to the members. Actuarial Assumptions – Assumptions as to the occurrence of future events affecting pension costs. These assumptions include rates of investment earnings, changes in salary, rates of mortality, withdrawal, disablement, and retirement as well as statistics related to marriage and family composition. Actuarial Cost Method – A method of determining the portion of the cost of a pension plan to be allocated to each year; sometimes referred to as the "actuarial funding method." Each cost method allocates a certain portion of the actuarial present value of benefits between the actuarial accrued liability and future normal costs. Actuarial Equivalence – Series of payments with equal actuarial present values on a given date when valued using the same set of actuarial assumptions. Actuarial Present Value - The amount of funds required as of a specified date to provide a payment or series of payments in the future. It is determined by discounting future payments at predetermined rates of interest, and by probabilities of payments between the specified date and the expected date of payment. Actuarial Value of Assets – The value of cash, investments, and other property belonging to the pension plan as used by the actuary for the purpose of the actuarial valuation. This may correspond to market value of assets, or some modification using an asset valuation method to reduce the volatility of asset values. Asset Gain (Loss) – That portion of the actuarial gain attributable to investment performance above (below) the expected rate of return in the actuarial assumptions. Amortization – Paying off an interest-discounted amount with periodic payments of interest and (generally) principal, as opposed to paying off with a lump sum payment. Amortization Payment – That portion of the pension plan contribution designated to pay interest and reduce the outstanding principal balance of unfunded actuarial accrued liability. If the amortization payment is less than the accrued interest on the unfunded actuarial accrued liability the outstanding principal balance will increase. Assumed Earnings Rate – The interest rate used in developing present values to reflect the time value of money. Decrements – Events which result in the termination of membership in the system such as retirement, disability, withdrawal, or death. Arizona Public Safety Personnel Retirement System Actuarial Valuation Report as of June 30, 2022 – Oro Valley Police Dept. (122) 43 Entry Age Normal (EAN) Funding Method – A standard actuarial funding method whereby each member’s normal costs (service costs) are generally level as a percentage of pay from entry age until retirement. The annual cost of benefits is comprised of the normal cost plus an amortization payment to reduce the UAL. Experience Gain (Loss) – The difference between actual unfunded actuarial accrued liabilities and anticipated unfunded actuarial accrued liabilities during the period between two valuation dates. It is a measurement of the difference between actual and expected experience, and may be related to investment earnings above (or below) those expected or changes in the liability due to fewer (or greater) than expected numbers of retirements, deaths, disabilities, or withdrawals, or variances in pay increases relative to assumed pay increases. The effect of such gains (or losses) is to decrease (or increase) future costs. Funded Ratio – A measure of the ratio of the actuarial value of assets to liabilities of the system. Typically, the assets used in the measure are the actuarial value of assets as determined by the asset valuation method. The funded ratio depends not only on the financial strength of the plan but also on the asset valuation method used to determine the assets and on the funding method used to determine the liabilities. Market Value of Assets (MVA) – The value of assets as they would trade on an open market. Normal Cost – Computed differently under different funding methods, generally that portion of the actuarial present value of benefits allocated to the current plan year. Unfunded Actuarial Accrued Liability (UAAL) – The excess of the actuarial accrued liability over the valuation assets; sometimes referred to as "unfunded past service liability". UAL increases each time an actuarial loss occurs and when new benefits are added without being fully funded initially and decreases when actuarial gains occur. Budget and Finance Commission 3. Meeting Date:04/18/2023 Submitted By:David Gephart, Finance SUBJECT: DISCUSSION OF TOWN MANAGER'S RECOMMENDED BUDGET FOR FY 23/24 RECOMMENDATION: N/A EXECUTIVE SUMMARY: Staff will discuss the FY 23/24 Town Manager's Recommended Budget and answer any additional budget questions. BACKGROUND OR DETAILED INFORMATION: The Town Manager's Recommended Budget for FY 23/24 has been distributed to both the Town Council and Budget and Finance Commission. Staff will present highlights from the budget document and address questions from the Commission. FISCAL IMPACT: $147.9M SUGGESTED MOTION: N/A