Presentation to Budget & Fiscal Affairs Committee of City Council

1. Presentation toBudget & Fiscal Affairs Committeeof City Council Craig Mason Chief Pension Executive February 2, 2010

2. City of Houston Pension Systems The City sponsors three (3) plans to provide retirement (and other) benefits to employees. Administration of the plans is outsourced to three (3) separate independent trust organizations: - Houston Firefighters Relief and Retirement Fund – HFRRF - Houston Municipal Employees Pension System – HMEPS - Houston Police Officers’ Pension System – HPOPS The independent trust organizations are established and governed by three (3) separate state statutes to (1) manage the plans’ investments and (2) pay the benefits when due.

3. City of Houston Pension Systems Although pension benefits are an element of the City’s total compensation program, they: 1) Are described in the applicable state statute governing their administration 2) Can only be changed with approval of the State Legislature (or Meet and Confer at HMEPS and HPOPS)

4. City of Houston Pension Systems Summary of the board composition and staff of the trust/administrative organizations --- HFRRF HMEPS HPOPS Board of Composition (Trustees): Elected Active Members 5 4 3 Elected Retiree Members 1 2 2 Appointed by: All Other Trustees 2 Elected Trustees 1 Mayor 1 1 1 City Finance Director 1 1 City Council 2 City Controller 1 Total 10 11 7 Board Chairman Todd Sherry Larry Clark Mose Doss Staff: Total (approx) 26 31 16 Executive Director Christopher David John Gonzalez Long Lawson

5. City of Houston Pension Systems Summary of the participants and assets in each plan--- HFRRF HMEPS HPOPS Active Members 3,949 13,333 5,245 Retirees/Beneficiaries 2,550 8,340 2,878 Deferred Vested 8 5,742 22 Total Members 6,507 27,415 8,145 Assets: 12/31/09 $2.720B $1.924B $2.997B 6/30/09 $2.369B $1.730B $2.671B 6/30/08 $3.029B $2.262B $3.328B

6. City of Houston Pension Systems Summary of City and employee contributions for FY2010 (All $ amounts in 000s) HFRRFHMEPSHPOPSCOMBINED City Contribution $ 72,900 $ 83,500 $ 73,000 $ 229,400 Estimated Payroll $247,951 $566,172 $389,232 $1,203,355 City as % of Payroll 29.4% 14.7%* 18.8% 19.1% Employee Contribution Rates (% of Pay) 9.% 5.0%/0% 9.0%/10.25% N/A * The City and employees also contribute 6.2% of pay for Social Security retirement benefits for HMEPS members.

7. City of Houston Pension Systems

8. City of Houston Pension Systems Meet & Confer Agreements with HMEPS and HPOPS mitigated the increases in future contributions for those systems by --- * Reducing future benefit accruals * Changing the funding policy for City contributions - Short term for HMEPS (through FY2011) - Long term for HPOPS Result was to significantly reduce contributions to current levels:

9. City of Houston Pension Systems In 2007, the HFRRF board elected to discontinue a funding policy designed to mitigate the undesirable increase in future City contribution levels. A funding policy was adopted with a “front loaded” contribution pattern for FY2009 through FY2011, which: - increases City contributions over the three (3) year period by approximately $41 million more than a continued mitigation funding policy - requires City contributions in excess of actuarially determined amounts - does not materially affect the projected future contribution levels. Benefits for firefighters have not been changed.

10. City of Houston Pension Systems Based on the actuarial valuations as of 7/1/09, in the absence of any recovery in the financial markets and absent any changes in benefits or funding policies: - City contributions are projected to increase to over 40% of payroll to HFRRF and over 30% of payroll to HMEPS by 2015. - The predetermined schedule of increasing City contributions to HPOPS, coupled with the benefit structure for newer police officers, will remain borderline sufficient. These projections do not take into consideration the significant recovery in the value of the plans’ investments since the projections were made.

11. City of Houston Pension Systems Recommended actions to address the potential increases in contribution levels - Monitor the existing HPOPS funding policy of scheduled increases in contributions for continued sufficiency Collaborate with HMEPS to develop an alternative funding policy beginning with FY2012 with sustainable contributions which will better reflect the reduction in future benefit levels and the current market recovery Collaborate with HFRRF to develop mutually satisfactory benefit/funding policy changes necessary for achieving a sustainable benefit plan for submission to the State Legislature in 2011