Pension Funding Policy

City of Glendale
Public Safety Personnel Retirement System
Pension Funding Policy

The intent of this policy is to clearly communicate the Council's pension funding objectives
and its commitment to our employees and the sound financial management of the City and
to comply with A.R.S. 38-863.01.

Several terms are used throughout this policy:

Unfunded Actuarial Accrued Liability (UAAL) — the difference between current trust
assets and the estimated future cost of pensions earned by employees. UAAL results
from actual results (interest earnings, member mortality, disability rates, etc.) being
different from the assumptions used by the actuaries in their actuarial valuations.

Annual Required Contribution (ARC) — 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 pay off the unfunded portion of pensions earned by employees in
previous years. The UAAL is paid down over a period of time referred to as the
amortization period. The ARC is a percentage of the current payroll.

Funded Ratio — the ratio of fund assets to actuarial accrued liability. The higher the ratio
the better funded the pension is with 100% being fully funded.

Intergenerational equity — A funding approach concept that ensures that no generation
is burdened by substantially more or less pension costs than past or future generations.

The City's police and fire employees who are regularly assigned hazardous duty participate
in the Public Safety Personnel Retirement System (PSPRS).

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.

Under an agent multiple-employer plan each agency participating in the plan has an
individual trust fund reflecting that agency’s assets and liabilities. Under this plan all
contributions are deposited to and distributions are made from that agency’s fund, each
fund has its own funded ratio and contribution rate, and each fund has a unique annual
actuarial valuation. The City of Glendale has two trust funds, one for police employees and
one for fire employees.

Council formally accepts the assets, liabilities, and current funding ratio of the City’s PSPRS
trust funds from the June 30, 2021 actuarial valuation, which are detailed below.

Unfunded
Actuarial
Trust Fund Assets Accrued Liability Accrued Liability Funded Ratio
Glendale Police $383,246,123 $401,533, 739 $18,287,616 95.4%
Glendale Fire 232,941,272 247,958,804 15,017,532 93.9%
City of Glendale Totals $616,187,395 $649,492,543 $33,305,148 94.9%

PSPRS Funding Goal

Pensions that are less than fully funded place the cost of service provided in earlier periods
(amortization of UAAL) on the current taxpayers. Fully funded pension plans are the best
way to achieve taxpayer and member intergenerational equity. Most funds for all cities and
counties in PSPRS are significantly underfunded and falling well short of the goal of

intergenerational equity.

The Council’s PSPRS funding ratio goal will be 100% (fully funded) by June 30, 2037.

Council established this goal for the following reasons:
e The PSPRS trust funds represent only the City of Glendale’s liability so the City is
not assuming any other jurisdictions’ liabilities.
e A fully funded pension is the best way to achieve taxpayer and member
intergenerational equity.

Council has taken the following actions to achieve this goal:

e 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 FY22 is $12,011,995 which can

be paid from operating funds without diminishing City services.

e The Council will establish a Pension Stabilization Reserve Fund. The fund will be
restricted and used solely for addressing future pension and unfunded liability needs

of the City.

e Additional payments above the ARC
o The Council will evaluate the budget annually for additional opportunities to
make one-time contributions to fund the unfunded liability when such

payment makes economic and fiscal sense.

The Council plans on fully paying off the unfunded liability using an initial 20-year
amortization period (which started in 2017), and will achieve its goal of 100% funding in the
156 years remaining (by June 30, 2037) in accordance with the amortization timeline set
forth in the PSPRS June 30, 20219 Actuarial Valuation.