2009 Elected Officials Summary

              ELECTED OFFICIALS’
RETIREMENT PLAN
SUMMARY ANNUAL FINANCIAL REPORT
A PENSION TRUST FUND OF THE STATE OF ARIZONA
FOR THE FISCAL YEAR ENDED JUNE 30, 2009
2 EORP SUMMARY ANNUAL FINANCIAL REPORT
FUND MANAGER
FUND MANAGER HIGHLIGHTS (BOARD AS OF JUNE 30, 2009)
• Carter Olson, Esq., a board member since 2003, was first elected to the position of Chairman at the September 20, 2005, meeting of the
Fund Manager and reelected to the position in September, 2006. Carter is the former Pinal County Attorney and is currently a Superior
Court Judge in Pinal County.
• Mike Galloway, who was appointed as a member of the Fund Manager in July of 2007, founded Galloway Asset Management, LLC to
serve the financial needs of Police Officers and Firefighters. Prior to becoming a financial planner, he served in the United States Marine
Corp and is a retired lieutenant from the Mesa AZ Police Department.
• Tim Dunne, a financial advisor with UBS Financial Services in Tucson, was appointed as a member of the Fund Manager in December of
2007. He earned a BS degree in Psychology and taught the emotionally disturbed for over two years in New York. He established a
private counseling agency and later changed to the financial services industry upon achieving a securities license.
• Lori Roediger, a graduate of the University of Arizona with a BS in Business Administration was appointed as a member of the Fund
Manager in February of 2008. She moved to San Francisco to pursue a career in finance. She became the Senior Investment Officer for
the Federal Home Loan Bank and was later hired by JP Morgan where she was the first salesperson to be made a partner in the history
of the firm.
• Brian Tobin, who was appointed as a member of the Fund Manager in November of 2008, was hired as a Phoenix Firefighter in 1983.
He was elected to the United Phoenix Fire Fighters Association as a trustee in 1987. He has been elected to the Phoenix Fire Fighters
Pension Board three times. He became Fire Captain in 1994, Battalion Chief in 2004, and Deputy Chief in 2007.
FISCAL YEAR HIGHLIGHTS
• The Elected Officials’ Retirement Plan (EORP) had a total rate of return of (17.75)% this year. Our equity portfolio had a return of
(21.82)%, which outperformed the equity benchmark by 540 basis points. Our fixed income portfolio had a return of (1.82)%, which
underperformed the fixed income benchmark by 702 basis points.
• As of the close of the fiscal year 2009, the Future Benefit Increase Reserve was $3.6 million. Absent a major infusion of new assets, the
Reserve balance would only be sufficient to finance a partial post-retirement adjustment as of July 1, 2010, if any.
• Retirement benefits paid totaled $34.2 million for the current year, compared to $31.6 for the previous year. This represents a 8.1%
increase from the prior year.
• The System retained CORTEX Applied Research to conduct a complete review of the PSPRS Governance Policies; the Fund Manager ap-proved
the CORTEX recommended modifications. The System’s normal practice is to have its Governance Policies reviewed in their en-tirety
every three years.
• The System’s staff, with the assistance of a consultant acting in the role of facilitator, undertook and completed before fiscal year-end a
project designed to document all of the policies and procedures in use within the organization. There were well over 300 policies and
procedures documented; these will now be subject to systematic audit by the System’s new internal auditor and compliance officer in
order to identify any deficiencies or weaknesses in our controls environment.
• The System conducted an RFP process to secure a new Investment Consultant and Retained Actuary to serve as advisors to the Fund
Manager. New England Pension Consultants (NEPC) was retained for the Investment Consultant role; Gabriel, Roeder, Smith & Co.
(GRS) was retained as the new actuary.
Tim Dunne
Member
Lori Roediger
Member
Brian Tobin
Member
Carter Olson
Chairman
Mike Galloway
Vice Chairman
EORP SUMMARY ANNUAL FINANCIAL REPORT 3
MESSAGE FROM THE ADMINISTRATOR
Jim Hacking
Administrator
Dear Members,
I am pleased to present the EORP Summary Annual Financial Report for the fiscal year ended June 30, 2009. This report provides financial
information about the Plan’s financial status, investment performance, and highlights significant changes that occurred during the year.
The information in this report is derived from the Comprehensive Annual Financial Report (CAFR). To view the full CAFR, please refer to the
last page of this report.
ACTUARIAL AND FUNDING INFORMATION
Funding a retirement system on a sound actuarial reserve basis involves the accumulation of substantial reserves to guarantee the payment of promised benefits.
These reserves are invested and the rate of investment earnings, over time, is a major factor in determining the employer contribution requirement to meet the
calculated level cost of the Plan.
The EORP is funded through a statutory participant contribution rate of 7.0% of gross payroll, an employer contribution that is expressed as a level percent of gross
payroll and is reset annually, depending on the results of the Plan’s actuarial valuation, judicial filing fees and the realized and unrealized returns on the invested
assets of the Plan.
The current unsubsidized contribution rate that is paid by participating cities and towns on behalf of their EORP participants is 26.25%. That unsubsidized rate is
projected to increase to 29.79% as of July 1, 2010.
The judicial filing fees that the EORP annually receives subsidize the contribution rate that the state and the counties pay with respect to their EORP participants. The
current subsidized rate is 14.25% of payroll. That rate is expected to increase to 17.42% next July 1st.
While there is no single all-encompassing test to measure a retirement system's funding progress and current status, the most commonly used measure is the ratio
of the actuarial value of assets to actuarial accrued liability, often referred to as the "percent funded." The percent funded for the EORP had been declining for six
consecutive fiscal years through FY’07. At that point in time, the Plan’s funding ratio was 74.6%. At June 30, 2008, the ratio improved slightly to 76.6%. Now as of
June 30, 2009, the EORP funding ratio is down to 71.3%. If the EORP funding ratio were calculated using FY’09 year-end market value of assets, rather than the
actuarial value of assets, its funding ratio would only be 50.0%. This means that the effects of the FY’09 -17.75% return will remain with us for the next several
years and will adversely affect the Plan’s financial status going forward. Hopefully, the System will experience better-than-expected rates of return in future years
that will more than offset the negative FY’09 return.
POST RETIREMENT BENEFIT INCREASES
State law provides for an annual benefit increase for EORP retirees (or their survivors) two years after retirement, regardless of age, or when the retiree (or survivor)
attains age 55 and has been retired for a year. These increases are limited to a maximum of four percent. A benefit increase schedule can be found in the Statistical
Section of this CAFR. These post retirement increases are funded from a portion of the investment returns in excess of 9% that are accumulated in the EORP’s Re-serve
for Future Benefit Increases. These Reserve assets are invested along with all other assets of the Plan. The Reserve balance, after subtracting the $11.3 million
needed to fund the present value of the July 1, 2009 post retirement increase, was only $3.64 million. Absent a large infusion of new assets into the EORP Reserve,
the Reserve’s balance would only be sufficient to finance a partial post-retirement adjustment as of July 1, 2010.
ENACTED LEGISLATION
During FY’09 the State Legislature approved, and the Governor signed, an administrative bill that amends the statutes that govern EORP in order to bring the Plan’s
provisions into compliance with the requirements of the Internal Revenue Code and Regulations and with other relevant federal laws such as the Uniformed Ser-vices
Employment and Reemployment Rights Act (USERRA) and the Heroes Earnings Assistance and Relief Tax Act (the “HEART Act”).
SUMMARY
I would like to take this opportunity to express my gratitude to the members of the Fund Manager, the staff, the Plan’s advisors, and all others who have worked so
diligently to assure the continued successful operation of the Plan. I look forward to the challenge of moving the Plan forward with a program of constructive and
comprehensive change that will maintain high quality customer service and restore the EORP to a path of improving financial status.
Respectfully submitted,
James M. Hacking
Administrator
4 EORP SUMMARY ANNUAL FINANCIAL REPORT
FINANCIAL STATEMENTS
ASSET CATEGORY
YEAR ENDED
JUNE 30, 2009
YEAR ENDED
JUNE 30, 2008
AMOUNT
OF CHANGE
PERCENT
CHANGE
Cash and Equivalents $ 4,535,563 $ 5,973,514 $ (1,437,951) (24.07%)
Total Receivables 1,807,867 8,727,518 (6,919,651) (79.29%)
Total Investments 252,903,599 320,660,224 (67,756,625) (21.13%)
Securities Lending Collateral 39,597,501 61,810,213 (22,212,712) (35.94%)
Net Capital Assets 263,114 277,681 (14,567) (5.25%)
Total Plan Assets 299,107,645 397,449,150 (98,341,505) (24.74%)
Accrued Accounts Payable 630,433 481,965 148,468 30.80%
Investment Purchases Payable 546,607 3,091,720 (2,545,113) (82.32%)
Securities Lending Collateral 39,597,501 61,810,213 (22,212,712) (35.94%)
Total Plan Liabilities 40,774,540 65,383,898 (24,609,358) (37.64%)
Net Assets $ 258,333,105 $ 332,065,253 $ (73,732,148) (22.20%)
SUMMARY COMPARATIVE STATEMENTS OF PLAN NET ASSETS
Net Assets are the resources avail-able
to pay pension benefits in the
future. Net assets decreased
$73,732,148 in fiscal year 2009 due
to negative market conditions.
ASSET CATEGORY
YEAR ENDED
JUNE 30, 2009
YEAR ENDED
JUNE 30, 2008
AMOUNT
OF CHANGE
PERCENT
CHANGE
Total Contributions $ 22,343,167 $ 16,832,401 $ 5,510,766 32.74%
Net Investment Income (61,526,963) (23,150,918) (38,376,045) (165.76%)
Miscellaneous Income 283,226 573,261 (290,035) (50.59%)
Total Additions (38,900,569) (5,745,256) (33,155,313) (577.09%)
Benefits 34,178,410 31,607,055 2,571,355 8.14%
Refunds to Terminated Members 131,663 67,792 63,871 94.22%
Administrative Expenses 521,507 355,290 166,217 46.78%
Total Deductions 34,831,579 32,030,137 2,801,442 8.75%
Net Increase (Decrease) (73,732,148) (37,775,392) (35,956,756) (95.19%)
Beginning of Year Net Assets 332,065,253 369,840,645 (37,775,392) (10.21%)
End of Year Net Assets $ 258,333,105 $ 332,065,253 $ (73,732,148) (22.20%)
SUMMARY COMPARATIVE STATEMENTS OF CHANGES IN PLAN NET ASSETS
Changes in Net Assets summarize
the income and expense compo-nents
of the plan. Net Investment
Income decreased165.76% in
fiscal year 2009 due to negative
market conditions.
EXPENSES BY TYPE REVENUES BY SOURCE (in millions)
0.38%
2.63%
95.49%
1.50%
Pensions
Insurance
Refunds
Admin
-$75
-$50
-$25
$0
$25
$50
$75
2007 2008 2009
Investments
Employers
Members
EORP SUMMARY ANNUAL FINANCIAL REPORT 5
INVESTMENT PERFORMANCE
INVESTMENT RETURNS ASSET ALLOCATION
NOTES FROM THE CHIEF INVESTMENT OFFICER
Ryan Parham
Chief Investment Officer
2008-2009 THE “MELTDOWN” OF THE GLOBAL FINANCIAL SYSTEM
After the previous “dot com” valuation bubble, the EORP board, staff and consultants began the process of expanding the EORP core invest-ment
strategy. That process, which includes moving away from our historical overreliance upon U.S. equities, helped EORP to more reliably
weather the tremendous volatility of the 2008-2009 fiscal year. EORP achieved returns which were better than many public funds of similar
size, better than most endowments during the year and which exceeded our benchmark by several hundred basis points. Asset allocation
changes toward greater diversity helped reduce the volatility we otherwise would have experienced during this global economic shock and recession.
ALTERNATIVE INVESTMENTS
As of year end EORP had deployed capital into almost 50 Alternative investments including exposures in:
US Private Equity US Venture Capital
US Real Estate International Real Estate
European Private Equity Real Assets (Including Timber)
Dislocated Debt Core Capital Assets
US Infrastructure European Infrastructure
EXPANDING CAPABILITIES
In addition to expanding and enhancing our due diligence capabilities the System has continued to utilize and expand the services of three specialist external con-sulting
groups: ORG Real Property, Albourne America LLC, and StepStone Group LL. These are in addition to NEPC, the Fund Manager’s generalist consultant.
GOALS AND OBJECTIVES
In the coming year the Investment Staff expects to:
• Review our Asset Allocation, utilizing current capital market assumptions reflecting continuing changes in the global economic landscape;
• Continue deployment in Alternatives, including capitalizing on opportunities in the secondary markets;
• Add “alpha” (excess return) seeking strategies to current index-like exposures in public securities, that are attractive on a risk adjusted basis;
• Continue to deploy portions of the remaining, in-house managed, portfolios to external managers so as to capture attractive investment strategies which are
difficult or impossible to replicate internally.
1 YEAR 3 YEAR 5 YEAR
Total Fund (17.75)% (3.83)% 1.01%
Rank* 58 76 88
(21.13)% 5.05% (1.18)%
Rank* 83 96 100
Median Public Fund (16.6)% (2.3)% 2.4%
PEER COMPARISON
ASRS*** (18.1)% (3.8)% 1.2%
COPERS**** (20.43)% (4.20)% 0.85%
Benchmark**
* Rank and Median Fund returns are obtained from a universe of public funds
provided by Mellon Analytical Services (Rank 1 = Best, Rank 100 = Worst)
** Benchmark 07/01/08-03/31/09: 46% Wilshire 500, 21% MSCI World Ex-US,
20% Lehman Gov/Credit, 6% NCREIF NPI, 6% Wilshire 5000+300bps, and 1% 91-
Day Treasury Bill. Benchmark 04/01/09-06/30/09: 30% Russell 3000, 20% MSCI
World Ex-US, 20% BC Capital Aggregate, 8% NCREIF NPI, 8% Russell
3000+100bps, 8% ML US High Yield BB-B Rated Constrained, 5% CPI+200bps,
and 1% 91-Day Treasury Bill.
*** Arizona State Retirement System
**** City Of Phoenix Employees Retirement System
50%
16%
25%
5%
2%
3%
0%
0%
36%
19%
20%
9%
3%
1%
8%
4%
0% 10% 20% 30% 40% 50% 60%
US Equity
Non US Equity
Fixed Income
Real Estate
Private Equity
Cash Equivalents
Credit Opportunities
Real Assets
Current Allocation
Previous Allocation
6 EORP SUMMARY ANNUAL FINANCIAL REPORT
ACTUARIAL SUMMARY
CATEGORY 2009 2008 2007 2006 2005
UAAL Start of Year 106,327,161 114,582,583 39,702,483 16,153,749 (14,454,659)
Normal Cost 16,496,846 11,317,429 13,546,764 12,834,061 15,525,435
Funding Method Contributions (21,965,744) (17,744,324) (16,955,955) (15,291,146) (12,284,333)
Interest Accrual 8,805,381 9,466,397 3,229,820 1,268,642 (1,122,984)
Expected UAAL Before Changes 109,663,644 117,622,085 39,648,224 14,965,306 (12,336,541)
Change From Amendments None None None None None
Change From Assumption Revision 7,605,457 None 27,734,802 12,582,745 10,205,338
Expected UAAL After Changes 117,269,101 117,622,085 67,383,026 27,548,051 (2,131,203)
Actual UAAL 145,240,148 106,327,161 114,582,583 39,702,483 16,153,749
Gain (Loss) (27,971,047) 11,294,924 (47,199,557) (12,154,432) (18,284,952)
Percent of Actuarial Accrued Liability (8.04%) 2.50% (12.10%) (3.40%) (5.60%)
SUMMARY OF EXPERIENCE GAIN (LOSS)
According to this schedule
the Unfunded Actuarial
Liability increased by
$27,971,047 during fiscal
year 2009.
HISTORICAL TRENDS (+000)
As the funding ratio of the
plan has declined, the
aggregate employer contri-bution
rate has escalated.
The employer rate is set in
accordance with the results
of the annual actuarial
valuation. The employee
rate is fixed by statute.
FUNDING PROGRESS
(IN THOUSANDS)
FISCAL YR
ENDED
VALUATION
ASSETS
UNFUNDED
LIABILITIES
ACCRUED
LIABILITIES
FUNDED
RATIO
2000 329,777 (76,299) 253,478 130.1%
2001 355,768 (104,781) 250,987 141.7%
2002 351,349 (71,402) 279,947 125.5%
2003 353,463 (55,572) 297,891 118.7%
2004 343,376 (14,455) 328,921 104.4%
2005 344,604 28,737 373,341 92.3%
2006 351,701 39,702 391,403 89.9%
2007 336,717 114,582 451,299 74.6%
2008 348,013 106,327 454,341 76.6%
2009 360,950 145,240 506,190 71.3%
EMPLOYER
RATE (AVG)
10.22%
8.94%
6.97%
7.55%
13.49%
14.54%
20.54%
18.55%
20.21%
28.00%
EMPLOYEE
RATE
7.00%
7.00%
7.00%
7.00%
7.00%
7.00%
7.00%
7.00%
7.00%
7.00%
71.3%
74.6% 76.6%
89.9%
92.3%
141.7% 125.5% 118.7% 104.4%
130.1%
$0
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Valuation Assets Accrued Liabilities
EORP SUMMARY ANNUAL FINANCIAL REPORT 7
STATISTICAL DATA
Tracey Peterson
Assistant Administrator
Chief Operations Officer
ACTIVE MEMBER DATA
RETIRED MEMBER AND SURVIVOR DATA
FISCAL YEAR
ENDED NORMAL DISABILITY SURVIVORS TOTALS
2000 444 15 130 589
2001 495 16 136 647
2002 500 18 141 659
2003 546 19 144 709
2004 565 20 145 730
2005 600 18 151 769
2006 615 19 163 797
2007 651 20 155 826
2008 688 16 168 872
2009 708 15 182 905
ANNUAL
PENSIONS
AVERAGE
PENSION
RATIO OF
ACTIVE TO
RETIRED
15,096,774 25,631 1.2 to 1
17,729,482 27,403 1.1 to 1
19,606,416 29,752 1.1 to 1
22,308,359 31,465 1.1 to 1
23,854,186 32,677 1.1 to 1
26,112,301 33,956 1.0 to 1
28,044,340 35,187 1.0 to 1
30,380,250 36,780 1.0 to 1
32,850,340 37,672 0.9 to 1
36,262,571 40,069 0.9 to 1
Active membership increased 4.0%
during fiscal year 2009.
SUMMARY OF BENEFIT INCREASES
FISCAL YEAR
ENDED
EXCESS
YIELD PER
STATUTE
EXCESS
EARNINGS
RESERVE
UTILIZED
EXCESS
EARNINGS
AVAILABLE
BENEFIT
INCREASE
4% CAP
2000 4.20% 5,216,866 (4,133,898) 46,908,586 4.00%
2001 - - (4,518,604) 34,436,162 4.00%
2002 - - (5,801,777) 23,400,088 4.00%
2003 - - (6,375,994) 18,591,900 4.00%
2004 6.02% 12,292,877 (5,958,472) 27,718,251 4.00%
2005 0.56% 1,271,696 (8,027,464) 23,611,516 4.00%
2006 - - (8,946,622) 16,523,120 4.00%
2007 8.01% 20,886,734 (9,392,556) 30,827,881 4.00%
2008 - - (10,302,702) 18,184,418 4.00%
2009 - - (11,319,196) 3,637,670 *
Benefit increases are dependent
upon an available balance in the
Plan’s excess earnings reserve.
Excess earnings are accrued when
the investment return is greater
than 9.0%.
* Absent a large infusion of new
assets into the Reserve, the bal-ance
would only be sufficient to
finance a partial benefit increase
for July 1, 2010, if any.
FISCAL YEAR
ENDED
ACTIVE
MEMEBERS
PAYROLL
+000
AGE
(YEARS)
SERVICE
(YEARS)
AVG.
PAY
INCREASE IN
AVG. PAY
2000 720 $45,382 53.0 8.0 $63,031 3.7%
2001 737 $48,669 52.4 7.2 $66,037 4.8%
2002 738 $48,729 52.9 7.0 $66,028 0.0%
2003 751 $49,351 53.0 7.6 $65,714 (0.5%)
2004 767 $50,624 53.5 8.0 $66,003 0.4%
2005 781 $53,450 53.8 7.8 $68,436 3.7%
2006 800 $54,696 54.3 8.3 $68,370 (0.1%)
2007 813 $61,308 54.4 8.3 $75,409 10.3%
2008 824 $62,184 54.6 8.4 $75,474 0.1%
2009 857 $67,777 54.6 8.1 $79,086 4.8%
PUBLIC SAFETY PERSONNEL
RETIREMENT SYSTEM
3010 EAST CAMELBACK ROAD, SUITE 200
PHOENIX, AZ 85016-4416
This booklet provides a summary of the data contained in the EORP Comprehensive Annual Financial Report
(CAFR) for the fiscal year ended June 30, 2009. The booklet does not contain all the information and sched-ules
necessary to be in conformance with Generally Accepted Accounting Principles (GAAP). However, the
CAFR is produced in conformity with GAAP and can be obtained by visiting our website at www.psprs.com.
VISION MISSION VALUES
• Invest, secure and manage
responsibly the retirement
funds of its members in accor-dance
with all legal, invest-ment
and financial require-ments
and in a manner con-sistent
with the quality to
which its members have be-come
accustomed.
• To be a low cost, highly personalized quality
service provider of funds management and
benefit services.
• To manage long-term investments with the goal
of consistently outperforming over time the
composite weighted market return benchmark
net of all investment related costs so as to assure
the financial integrity of the funds and the secu-rity
of the benefits these funds provide.
• Do what is best for our members and
financial health and integrity of the Sys-tem.
• Be proactive.
• Committed to high quality, uniform,
sustainable service.
• Innovative and cost effective in Plan ad-ministration
and services.
• Use best practices in HR management.