HomeMy WebLinkAboutPackets - Council Packets (1103)5/22/2019
PSPRS/Oro Valley
May 2019 1
• PSPRS manages three public pensions
• Public safety, elected officials, corrections officers
• 60,000 active members and retirees
• 250+ employers across all three plans
• $10.3 billion of assets under management
• Distributed $1 billion in benefits last year
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PSPRS/Oro Valley
May 2019 1
• PSPRS manages three public pensions
• Public safety, elected officials, corrections officers
• 60,000 active members and retirees
• 250+ employers across all three plans
• $10.3 billion of assets under management
• Distributed $1 billion in benefits last year
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hoard of Truc"- 0% 0%
Title
Chairman
Name
William T. Buividas
Term Expires
January 2021
Vice Chairman
Mike Scheidt
January 2021
Trustee
Harry A. Papp
January 2021
Trustee
Dean M. Schelnert
January 2021
Trustee
Donald A. Smith, Jr.
January 2021
Trustee
Jim Amedurl
January 2024
Trustee
Scott McCarty
January 2024
Currently, there are two vacant seats on the board; the governor is working to
make those appointees.
Actu ari-`
• Normal Cost: The annual cost assigned to the current plan year, also
known as "current service cost." It's the cost of one additional year of
service for a member.
• Unfunded Actuarial Accrued Liability (UAAL): The difference
between the present value of pension liabilities and the assets on
hand to cover those liabilities.
• Actuarial Value of Assets (AVA):The plan assets recognized for
valuation purposes. Investment returns are "smoothed" over a 7 -year
period, so the AVA is often higher or lower than the market value of
assets shown in financial statements.
• Amortization Period: The period of time over which the UAAL
payment is allocated.
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2
basic Retirement Funding Equation
C + I = B + E
Where:
C = Contribution Income
I = Investment Income
B = Benefits Paid
E= Expenses
Employer Contributions as of 6/30/18
• Normal Cost
• 21.80% for Oro Valley Police (variable rate depending on liabilities)
• 7.65% offset by Tier 1 employee contribution
• Amortization of Unfunded Liability
• 24.11%
• 18 years remaining
• Member Cost
• 7.65% Tier 1, 11.65% Tier 2
• Tier 3 50/50 split
e
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Averages
Pension
(C)
"Total
The funded status as of lune 30, 2018 and the computed employer
contribution for the fiscal year
beginning July 1, 2019 are shown below:
38.59%Funded
61,0%IH
Tier 1 & ler 2 Members:
Averages
Pension
Health
"Total
Employer Contribution Rate
Status
38,26%U.33%
59.9
115.9°0
38.59%Funded
61,0%IH
Contributions C
Employer Pension Contribution Rates - All Employers at June 30, 2018*
year ending June 30, 2020.
S
- Tier 1 & 2 employer employer pension contribution rates applicable for the fiscal
• Assumed Earnings Rate (AER): The projected average annual
investment return over long periods of time. Accounts for excessive
and reduced annual investment returns. Set by trustees.
• Investment strategy: The plan for investing that takes into account
acceptable risk, existing liabilities, time horizons and other factors.
Different plans have different strategies!
• Risk tolerance: The degree of investment return variability that an
investor is able and willing to withstand. Increased returns require
taking on additional risk of investment losses.
• Risk-adjusted return: The investment return per unit of risk taken.
The "bang for the buck" measurement that separates skill from luck.
investment %trategv
PSPRS aoal: Maximize returns while takina as little risk as aossible
• Only 30 percent of is invested publicly traded equities - HALF the standard 60-
70 percent allocation
• Diversify investments across asset classes
• Avoid domino effect of losses throughout portfolio
• The objective (and skill) is to maximize returns with an acceptable risk level
• Protect at -risk employers from further contribution rate increases
• Minimizing risk means sacrificing very high investment returns
10
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5
PSPRS Allocation
• U.S. Equity (domestic stock) • Non -U.S. Equity
Fixed Income • Credit Opportunities
■ GTAA ■ Real Assets
• Risk Parity ■ Short Term Investments
• Private Equity
• Absolute Return
• Real Estate
lnve.,st ent Pertormance (I,
Assumed Earnings Rate
• 7.3% as of 6/30/19
Actual Returns (gross of fees) as of 1/31/19:
• 1 -year: 1.29%
• 3 -year: 8.31%
• 5 -year: 6.7%
• 10 -year: 9.15%
Exceeding or near benchmarks
• 1 -year: -0.37%
• 3 -year: 8.47%
• 5 -year: 6.04%
• 10 -year: 9.06%
M
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191
Benefit costs are based on:
• Plan provisions in state law
• Plan experience studies using several assumptions, including:
• Withdrawal and retirement rates
• Mortality — how long retirees live
• Employer payroll growth
• Disability retirement rates,,rr��'""'
• Demographics !till
M
+ on.funded Actuarial Accrued Liability (UAAL;;
UAAL at start of year
+ Normal cost
+ Interest on unfunded liability
- Actual contributions received
+/- Changes from plan provisions, methods, assumptions
+/- Experience Loss/Gain
= UAAL at end of year ��•.,,.,_,,,
14
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7
Fxnerience Gain/Loss Factors
Experience gains & losses come from several sources:
• Investment returns
• Mortality
• Salary increases
• Hiring/Retirement/DROP rates
• Separation from active membership
• Disability rates
• COLAs
• 2014-15
• Fields lawsuit, increased costs related to future benefit increases
• 2016
• Decreased assumed earnings rate to 7.5% from 7.85% ($1.9 million)
• Prop 124 - Replaced PBI with COLA
• 2017
• Decreased assumed earnings rate to 7.4% from 7.5%
• Updated mortality tables and other actuarial assumptions
• 2018
• Hall -Parker refunds ($1.1 million)
15
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i
Current Single Discount
1% Decrease Rate Assumption 1% Increase
6.40% 7.40% 8.40%
Total Pension Liability $ 65,687,057 $ 57,022,056 $ 50,044,515
Plan Fiduciary Net Position 33,429,558 33,429,558 33,429,558
Net Pension Liability/(Asset) $ 32,257,499 $ 23,592,498 $ 16,614,957
Every time the assumed earnings rate is reduced 10 by (for instance, from 7.4% to 7.3%), the total
pension liability increases by $860,000.
17
5/22/2019
01
Section A
— intro
*.,)urnrnary of
ER
Pension Rates
Unfunded
Valuation Date
t fiscal Year
Actuarial
June 30
Ending lune 30 Normal Cost Accrued Liability
Total
2011
2013
12,19%
6,53%
18.72%
2012
2014
12.70
7.63
20.33
2013
2015
12.41
8.19
20.60
2014* (before phase-in)
2016
11.97
12.73
24.70
2014* (after phase-in)
2016
11.97
9.16
21.13
2015 (before phase-in)
2017
11.80
13.52
25.32
2015 (after phase-in)
2017
11.80
11.53
2333
2016
2018
15.61
18.86
34.47
2017
2019
14.29
22.42
36.71
2018
2020
14.15
24.11
38.26
* Beginning with the June 30, 2014 valuation, the rates are
for pension only.
1s
01
Impact of Extra Contributions
Extra Contribution in
June 30, 2017
Pension
A. Accrued Liability
1. For retirees and beneficiaries
5 21,020,711
2. For DROP members
1,373,961
3. For inactive/vested members
278,308
$(000)
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
$9,000
$10,000
Irrtpa[t on:
21,154,769
D. Stabilization Reserve
E. Net Unfunded Accrued Liability: (C) + (D)
5 21,154,769
F. Funding Ratio: (B) / (A.5)
60.1%
- lune 30, 2018
59.9%
61.7%
63.5%
65.3%
67.1%
689%
70.7%
72.5%
74.3%
76,1%
77.9%
Funded Status
- fYE 2020
2
38.26%
37.12%
35.98%
34.84%
33.70%
32.56%
31.42%
30.28%
29.14%
28.00%
16.86%
ConFYE
an Rate
Based on the June 30, 2018 actuarial valuation, the table above shows the hypothetical change in the funded status and contribution rate due to
each additional $1,000,000 in market value.
Section B - Funding Results
Present Value of Future Benefits and Accrued Liability — Tier 1 & 2
June 30, 2018
5 21,952,632
5,873,785
293,792
39,990,194
(11,088,347)
28,901,847
57,022,056
34,172,618
22,849,438
S 22,849,438
59.9%
0
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10
June 30, 2017
Pension
A. Accrued Liability
1. For retirees and beneficiaries
5 21,020,711
2. For DROP members
1,373,961
3. For inactive/vested members
278,308
4. For present active members
a. Value of expected future benefit payments
41,534,269
b. Value of future normal costs
(11,169,683)
c. Active member accrued liability: (a) - (b)
30,364,586
5. Total accrued liability
53,037,566
B. Present Assets (Funding Value)
31,882,797
C. Unfunded Accrued Liability: (A.5) - (B)
21,154,769
D. Stabilization Reserve
E. Net Unfunded Accrued Liability: (C) + (D)
5 21,154,769
F. Funding Ratio: (B) / (A.5)
60.1%
June 30, 2018
5 21,952,632
5,873,785
293,792
39,990,194
(11,088,347)
28,901,847
57,022,056
34,172,618
22,849,438
S 22,849,438
59.9%
0
5/22/2019
10
5/22/2019
Pension Funded Percents - All Employers at June 30, 2018*
so
45
40 37 37
36
35
30 29
25
* 25
20
20
is 13
10 9
6
4 4
5 3 2 2
1 0
i
Soo
0.1 M- 0.
Funded %
2 employer pension funded percents of lune 30, 2018.
22
11
Section
B Funding Resulle.
Pension Contribution Projection
Fiscal Year
Ending
Contribution Contribution
June 30
Rate Amount (Estimate)
2020
38.23 % $ 2,779,955
2021
37.98 2,930,334
2022
38.00 3,034,493
2023
38.31 3,166,322
2024
38.46 3,289,975
2025
38.21 3,382,989
2026
38.21 3,501,394
2027
38.18 3,621,098
2028
38.17 3,746,854
2029
38.18 3,879,010
2030
38.23 4,020,033
UM
111:W".7-Alu
# 21
•
Pension Funded Percents - All Employers at June 30, 2018*
so
45
40 37 37
36
35
30 29
25
* 25
20
20
is 13
10 9
6
4 4
5 3 2 2
1 0
i
Soo
0.1 M- 0.
Funded %
2 employer pension funded percents of lune 30, 2018.
22
11
• 2014
• 2018
CQrtinn n — rensus Data
Pension Beina Paid
Number
Averages
Averase Pensions
Retired Members Service Pensions
Annual Pay or
$ 945,836
$49,781
Disability Pensions
No.
Age
Service
Retirement Allowance
Actims
96
39.8
11.9
567,147
Effie x & Benelicuries
24
Children with Guardians
1
40,339
DROP
1
6
200,346
87,756
lrncfiw Vested
9
$1,584,704
$42,830
130
Average
Average Age
Age
Pension Beina Paid
Number
Avera es
Averase Pensions
Retired Members Service Pensions
Annual Pay or
$ 945,836
$49,781
Disability Pensions
No.
Age
Service
Retirement Allowance
Actives
90
39.8
22.5
$76,726
Retirees & Beneficiaries
37
Children with Guardians
1
42,830
DROP
6
6
200,346
62,689
Inactive/Vested
9
$1,584,704
$42,830
242
Average
Average Age
Age
Pension Beina Paid
Number
Annual Pensions
Averase Pensions
Retired Members Service Pensions
19
$ 945,836
$49,781
Disability Pensions
12
438,522
36,544
Totals
31
1,384,358
44,657
Survivors of Members Spouses
5
196,558
39,312
Children with Guardians
1
3,788
3,788
Total
6
200,346
33,391
Total Pension being Paid
37
$1,584,704
$42,830
Average
Average
Average Age
Age
Service
at Retirement
Normal Retired Members
58.7
22.6
52.6
Disability Retired Members
51.0
12.9
42.8
Spouse Beneficiaries
67.1
13.0
:50.7
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0
13
Section
Census
Data
Pension Being Paid
No.
Age Service
Retirement Allowance
Historical
Schedule
49.1 17.1
$57,724
Valuation
5
% Intr. in
inactive/Vested
3
Date
Annual
Annual Average Present Value of Pensions
June 30
No.
Pensions
Pensions Pension
Total Average
2009
20
$ 704,147
0.0 % $ 35,2117 $
7,705,457 $ 385,273
2010
20
723,691
2.8 36,185
7,843,255 392,163
2011
23
850,429
17.5 36,975
9,439,237 410,402
2012
24
971,065
14.2 40,461
11,124,306 463,513
2013
24
971,794
0.1 40,491
11,12S,281 463,553
2014
25
1,055,903
8.7 42,236
14,234,040 569,362
2015
28
1,183,479
12.1 42,267
15,902,132 567,933
2016
31
1,285,577
8.6 41,470
17,504,675 564,667
2017
38
1,588,587
23.6 41,805
22,394,672 589,333
2018
43
1,960,840
23.4 45,601
27,826,417 647,126
LO
:4;117_-ili�Lcill.w4:rii.*iC&*]91.1:1.*&IAL4:40
0
25
26
0
13
Averages
Annul Pay or
No.
Age Service
Retirement Allowance
Actives
4
49.1 17.1
$57,724
Retirees & Beneficiaries
5
27,345
inactive/Vested
3
12
26
0
13
The funded status as of lune 30, 2018 and the computed employer contribution for the fiscal year
beginning July 1, 2019 are shown below:
Tier 1 &Tier 2 Members.
Averages
Pension
Health
Total
Employer Contribution Rate
Funded Status
59.94%
45.4%
0.000/0
137.1%
59,94%
47.0%
Valuation Date
Contribution for Fiscal Year ending
June 30, 2017 June 30, 2018
2019 2020
Tiers 1& 2 Members
Pension
Rate
Dollar
Rate
dollar
Nonoral Cost
Service Pension Normal Cost
10.93% $
27,215
10.40% $
24,013
Disability Pension Normal Cost
0.34% $
847
0.32% $
739
Survivors of Active Members Normal Cost
0.66% $
1,543
0.62% $
1,432
Refund of Member Accumulated Contributions
3.03% $
7,544
3.04% $
7,019
Total Normal Cost
14.46% $
37,249
14.38% $
33„203
Total Employee Cost
(7.96%) $
119,8201
(7.96%) $
(18,379)
Employer Normal Cost
Employer Amortization of Unfunded Liabilities
Total Employer Cost ( Pension)
7.00% $ 17,424
54.36% $ 13S,352
6L36% $ 152,781
5.42% $ 14,823
53.52% $ 123,575
59.44% $ 138,398
III
5/22/2019
14
Phil Coleman, Employer Relationship Manager PColeman@psprs.com
Dave DeJonge, Deputy Administrator DDejonge@psprs.com
Trustee Qualification
Highest standards for trustees
• Non-PSPRS members: "... independent, qualified professionals who are responsible for... fiduciary duties... preserve and
protect the fund and shall have at least ten years' substantial experience as any one or a combination of the following:
• A portfolio manager acting in a fiduciary capacity
■ A securities analyst
■ senior executive/principal of a trust institution, investment organization or endowment fund acting either in a
management or an investment -related capacity
• A chartered financial analyst in good standing as determined by the chartered financial analyst institute
• professor or instructor at the college or university level in the field of economics, finance, actuarial science,
accounting or pension -related subjects
• Economist
■ Senior executive engaged in the field of public or private finances or with experience with public pension systems
■ senior executive in insurance, banking, underwriting, auditing, human resources or risk management
29
30
5/22/2019
15
Trustee Qualificatiory
Who manages PSPRS?
■ 9 -member Board of Trustees
• Split between 4 PSPRS "members," 4 public agency reps, 1 appointee
• 5 appointed by governor, 2 by Senate President, 2 by House Speaker — all nominated by direct stakeholders
• 2 law enforcement, 2 firefighters (each having at least one elected local board member)
■ 3 members representing cities and towns... "shall represent taxpayers or employers and may not be
members..."
■ 1 member representing counties... "shall represent taxpayers or employers and may not be members..."
■ 1 member appointed by governor, nominated by trustees
31
Meet the Tr r , *- A. :0-
■ Chairman Will Buividas — Phoenix Police officer, rep for the local PSPRS board, member of the city
Deferred Compensation Board, chairman of the Phoenix Healthcare Benefits Trust Board, also
chairman PSPRS Defined Contribution Committee. Masters degree in finance. Appointed by Sen.
Biggs.
■ Jim Ameduri — CEO and Managing Partner of Alize Ventures and a global investment expert with
three decades of business and investing experience. Director of ESalt Media Technologies;
Chairman of the Board for Capax World, Director of the Arizona State University Foundation
Investment Committee; Director of the Arizona Community Foundation, where he serves on the
Investment and Special Assets Committees. Appointed by House Speaker Rusty Bowers.
■ Scott McCarty - City of Queen Creek finance director and League of Arizona Cities and Towns
Pension Task Force chairman. More than 30 years of government budgeting and financial
management. Appointed by Senate President Steve Yarbrough.
■ Harry A. Papp — Managing partner of L. Roy Papp & Associates with almost 40 years experience as
a portfolio manager and securities analyst. Chartered Financial Analyst and former acquisition
manager of G.D. Searle & Co. Also board member for State Board of Investment. Appointed by
Governor Doug Ducey.
32
5/22/2019
16
Meet the
Vice Chairman Mike Scheidt —Tempe firefighter who has served on the Tempe local board,
the city's Deferred Compensation Board and the Arizona Firefighters Health Care Trust board.
Appointed by House Speaker David Gowan.
Dean Scheinert — Thirty -plus years of experience with investment management and capital
markets, including terms as senior vice president for J.P. Morgan Chase Private Bank and U.S.
Bank. Chartered Financial Analyst and currently Chief Advancement & External Affairs Officer
with Western Spirit: Scottsdale's Museum of the West. Appointed by Gov. Ducey.
Don Smith - Former (15 year tenure) chief executive officer of Copperpoint Insurance and
former deputy secretary of Pennsylvania Department of Labor and Industry. Appointed by
Gov. Ducey.
Section C — Fund Asset
Development of Tier 1 & 2 Pension Funding Value of Assets (7 -Year Smoothing)
Year Ended lune30:
21118
2019
2020
2021
2022
2023 2724
A Funding Value Beginning of Year
S 7,062,649,981
B_ Market Value End of Year
7,284,7116,674
C. Market Vakw Beginning of Year
6,841,326,541
m Nan lovestmett Net Cash Flaw
(34,OS2, 612)
E. irnestrnest trwAx ne
El. Tota L- B -C -D
477,511,745
E2. Annout for immediate Recognition: (7.40%)
521,376,190
E3. Amoxt la, Phased -in Recognition: E3 -E2
(43,864,445)
F_ Phased -in Recogrttionof Investment Income
F1. Qrrenrt Year. E317
(ry266,349)
F2. First Prior Year
33,380.149 S
(6,266,349)
F3. Second Prior Year
464,250,729)
33,380,149 S
(6,266,3491
F4. Thlrd Prior Year
(36.894,248)
(64,250,7291
33,380,149 S
(6,266,349)
F5. Fourth Prior Year
33„458,496
(36,894,248)
(64,250,729)
33,380,149 S
(6.266,3491
F6. Fifth Prior Year
9,542,555
33,458,496
(36,894,248)
(64,250,729)
33,380,149 S
(6,266,349)
1`7. Simi, Prior Y."
_... ._...(72,234,303)
9,542,556
33.458.496
(36,894,251)
(64,250.726)
33.380,148 S (6,266,351}
F8_ Total Recognized investment Gain
(103,264,429)
(31,030.125)
(40.572,681)
(74,031,180)
(37,136.926)
27,113.799 (6,266,351)
G. kxx*g Value End of Year
GL PrellmkwV Funding Value End of Year: (MD.E2411-7)
7,446,720,138
GZ Upper Corridor(120% x el
8.741„744,009
63. tower Corrido,. tW Lx 6)
5,827.829,339
014. fid d Year. (012 stiject to rtax d G2 arW min of 013)
7,446,710,138
N. Difference Between Market Value 8 fun," Vak.: (8-014)
(161.923,464)
(130,893,339)
(90,320,658)
(16,289,478)
20,847,418
(6,266,351) O
F_ Market Rate of Return
7.0%
k Recognized Rate of Return
5.9%
IC Ratioof Fudkg Value to Market Value
302.2%
L Market ValueofAssetsfor0M ion
33.429,558
M_ Funding Vakw of Assets for Division
34,172,618
34
5/22/2019
17
5/22/2019
Section D — Census Dat,,
Tier 1&2:
Tier 3:
Years of Service
Avera es
ralges
Total
Annual Pay or
0-4
5-9
10-14
No.
Age
Service
Retirement Allowance
Actives
90
39.8
12.5
$76,726
Retirees & Beneficiaries
37
1.0
$S3,S87
42,830
DROP
6
1
0
62,689
Inactive/Vested
9
1
0
Inactive/Vested
142
10
i
Tier 3:
Section D — Lensus Data
Active Members Tier 1 & 2
Members in Active Service as of lune 30, 2018
by Years of Service
Years of Service
AV
ralges
Total
Average
0-4
5-9
10-14
15-19
20-24
Annual Pay or
30&Up
No.
Age
Service
Retirement Allowance
Actives
1
23.5
1.0
$S3,S87
Retirees & Beneficiaries
0
1
0
DROP
0
9
1
0
Inactive/Vested
0
10
i
60,958
30-34
7
8
Section D — Lensus Data
Active Members Tier 1 & 2
Members in Active Service as of lune 30, 2018
by Years of Service
Years of Service
Total
Total
Average
0-4
5-9
10-14
15-19
20-24
25-29
30&Up
Age
Count
Pay
Pa
Under 25
1
1
$ 57,470
$ 57,470
25-29
9
1
10
609,578
60,958
30-34
7
8
2
17
1,143,750
67,279
35-39
3
2
10
2
17
1,324,173
77,893
40-44
8
7
3
18
1,442,340
80,130
45-49
2
4
5
it
929,041
84,458
50-54
1
1
5
2
3
12
1,071,600
89,300
SS -59
1
1
1
3
257,554
85,851
60-64
1
1
69,816
69,816
65 and over
0
0
Total
1 201
121
241
191
101
4
1 11
90
1 $ 6,905,322
1 $ 76,726
Census Data
Active Members Tier 3
Members in Active Service as of lune 30, 2018
by Years of Service
Census Date
Retirees and Beneficiaries Tier 1 & 2
All Retirants and Beneficiaries June 30, 2018
by Attained Ages
Years of Service
femaits
Total
Total
Average
0-4
S-9
10-14
1S-19
20-24
2S-29
30&Up
Age
Count
Pay
Pa
Under 25
1
0
5 O
O
S O
O
5 O
1
$ 53,587
$ 53,587
25-29
O
O
0
30-34
0
0
0
o
0
0
30-34
0
0
O
0
0
0
40-44.
1
0
0
35-39
2
64,67S
45-49
7
279,643
1
34,336
8.
0
0
40-44
164,341
2
66,087
6
230,228
SS -S9
5
248,700
0
0
45-49
283,893
60-64
4
262,275
4
161,604
8
423,879
0
0
50-54
2
44,009
3
83,366
70-74
1
45,240
1
0
0
55-59
75-79
1
49,245
1
54,328
2
103,573
8084
0
0
60-64
0
0
0
85-89
O
0
0
0
0
0
65 and over
O
0
0
O
0
O
95-99
0
0
0
Total
1
0
100 and Over
O
0
0
0
1
$ 53,587
$ 53,587
Census Date
Retirees and Beneficiaries Tier 1 & 2
All Retirants and Beneficiaries June 30, 2018
by Attained Ages
5/22/2019
19
Maps
femaits
Total
Annual
Annual
Annual
Attained
AMPOS
No.
benefits
No.
benefits
No.
"noflts
Under 25
0
5 O
O
S O
O
5 O
25-29
O
O
O
O
O
0
30-34
0
0
0
o
O
0
35-39
0
0
O
0
0
0
40-44.
1
28,526
1
36,149
2
64,67S
45-49
7
279,643
1
34,336
8.
313,979
SO -S4
4
164,341
2
66,087
6
230,228
SS -S9
5
248,700
1
35,193
6
283,893
60-64
4
262,275
4
161,604
8
423,879
65-69
1
39,357
2
44,009
3
83,366
70-74
1
45,240
1
35,871
2
81,111
75-79
1
49,245
1
54,328
2
103,573
8084
O
O
0
0
0
0
85-89
O
0
0
0
O
O
90-94
O
0
0
O
0
O
95-99
0
0
0
0
O
0
100 and Over
O
0
0
0
0
O
Totals
24
S 1 117 127
13
467.577
1 37
1584 704
5/22/2019
19
Development of Tier 3 Pension Funding Value of Assets (S -Year Smoothing)
Year Ended lune 30:
2018
2019
2020
2021 2022
A. Funding Value "Inriing of Year
$ O
B. Market Valle End of Year
3,198.018
C Market Value Begiming of Year
O
D. Non Investment Net Cash Flow
3,091,661
E. Investment Income
EI. Total "-0
106,357
E2.Amount for Immediate Recognition: (7.00%)
108,209
E3. Amount for Phased -in Recognition: E112
F. Phaseddn Recognition of 1rwL-Ament Income
Fl. Current Year: E3 J 7
(370)
F2. First Prior Year
O $
(370)
F3. Second Prior Year
0
0 $
(370)
F4. Third Prior Year
0
O
0 $
(370)
FS. Fourth Prior Year
O
O
O
O S (371)
F6. Total Recognized irvestmem Gain
(370)
(370)
(370)
(370) (371)
G. ttrlldrlg Vallelnndor Year
61- Preliminary Furling Value End of Year.(A+D+E2+F1:F5)
3,199,499
GL Upper Corridor: (120%x B)
3,837,622
G3. [ower Corridor: (80%x B)
2,556,414
G4. End of Year: (GI subject to max of G2 and min of G3)
3,199.499
H. Difference Between Market Value & Funding Value: (8-G4)
(1.481)
(hili)
(741)
(371) O
1. Market Rate of Return
6.9%
I. Recognized Rate of Return
7.0%
K Ratloof Funding value to Market Value
100.0%
L Market Value of Assets for Division
1,634,595
M. Funding Vakm of Assets for Division
1,635,349
Ppncz,inn flond "studies"
The "studies," alternative assets and the "fees"
Common narratives and conclusion
Plans with alt assets do not outperform traditional portfolios
- Plans with alt assets are wasting money on fees
What the studies miss or neglect
"Outperformance" is not necessarily the goal
Avoiding risk of investment loss is the goal
n In most cases, "fees" are actually an investor fronting operating costs for a fund
manager
Returned to the investor — with interest!
"Carried interest" — fund manager compensation rewards performance; usually 20 percent
of return above 8 percent
5/22/2019
20
• Why does PSPRS invest in asset classes that generate fees when there are cheaper
options?
■ Because it's worth it —pay for performance
■ Diversity reduces risk and protects employers
■ Highest performing assets
■ Ex. Private equity generated 16 -plus% return over last 5 years
■ More than double the Assumed Earnings Rate of 7.4%
■ "Fees" paid by PSPRS are often reimbursed —with interest
■ CAFR reports have no way to report future reimbursements
■ We're haggling over price
■ Arizona Auditor General 2015: PSPRS saved $40 million in fees by negotiating with fund managers
Correcting the Record
Separating fact from fiction
■ FICTION: PSPRS Investment and administrative expenses are exorbitant
■ FACT: Each year, PSPRS pays 0.5 — 0.6 percent in investment fees — and many
"fees" are returned in later years with interest
■ FACT: Performance "fees" or carried interest are fund managers' share of
created value — not investor capital
■ FACT: Research of U.S. public pension plans reveals .09 percent
administrative/staff expenses are average
■ FACT: Research of U.S. public pension PSPRS staff to membership ratio is
average
41
42
5/22/2019
21
PSPRS industry recognition
■ November 2018: Portfolio managers Shan Chen and Bill Thatcher named among "Top 30
Public Pension Institutional Investors" by Trusted Insight magazine
■ 2017 and 2016: CIO Ryan Parham among "Top 30 CIOs" by Trusted Insight magazine
■ May 2017: PSPRS named "Allocator of the Year" by Institutional Investor magazine
June 2016: Nominated "Small Pension Plan of the Year" by Institutional Investor magazine
■ April 2016: CIO Ryan Parham nominated "CIO of the Year" by Institutional Investor
magazine
• 2016: In-house investment attorney Jennifer Eichholz nominated for Arizona Corporate
Counsel Award by Arizona Business Magazine
43
5/22/2019
04PA