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ARIZONA STATE SENATE
Fifty-Fifth Legislature, First Regular Session
AMENDED
PSPRS; investment reporting
Purpose
Modifies reporting requirements for the Public Safety Personnel Retirement System (PSPRS) Board of Trustees. Outlines information to be included in the PSPRS Comprehensive Annual Financial Report (CAFR) and the Popular Annual Financial Report (PAFR).
Background
The PSPRS Board of Trustees (PSPRS Board), within six months following the close of the fiscal year, must transmit a copy of the CAFR to the Governor and the Legislature. The CAFR must contain information on the operation of the PSPRS, the Corrections Officer Retirement Plan (CORP) and the Elected Officials Retirement Plan (EORP), including: 1) a balance sheet and statement of income and expenditures; 2) an actuarial valuation of assets and liabilities; 3) any other statistical and financial data necessary for the proper understanding of the financial condition of PSPRS, CORP and EORP; and 4) an estimate of the aggregate fees paid for private equity investments, including management fees and performance fees.
The PSPRS Advisory Committee must serve as a liaison between the PSPRS Board and PSPRS members and employers. The PSPRS Advisory Committee consists of 10 members who must be appointed by the Chairperson of the PSPRS from names submitted by associations representing law enforcement, firefighters, state government, counties, cities and towns and tribal governments (A.R.S. § 38-848).
Current statute requires each governing body of a PSPRS employer to annually adopt a pension funding policy that includes: 1) how to maintain stability of contributions to PSPRS; 2) how and when the funding requirement of PSPRS will be met; and 3) the funded ratio target and the timeline for reaching the targeted funded ratio. The governing body must post the pension funding policy on their website (A.R.S. § 38-863.01).
There is no anticipated fiscal impact to the state General Fund associated with this legislation.
Provisions
Comprehensive Annual Financial Report
1. Requires the PSPRS Board to include an estimate of alternative investments and carried interest in the CAFR.
Pension Funding Policies
2. Requires the governing body of a PSPRS employer to transmit the annual pension funding policy to the PSPRS Board.
3. Requires the PSPRS Board to annually review and adopt a pension funding policy for each PSPRS-administered defined benefit retirement plan (DB plan) and system that analyzes and reviews the methods to ensure systematic funding of all retirement benefit payments for the members of each DB plan and system and that outlines the strategy to achieve financial solvency of each plan and system.
4. Requires the PSPRS Board to annually consolidate the annual pension funding policies of all PSPRS employers and post the document on the PSPRS website.
Popular Annual Financial Report
5. Requires the PAFR to include the following information for each retirement system and plan administered by the PSPRS Board:
a) the funding status;
b) aggregate contribution rates; and
c) demographic updates.
6. Requires the PAFR to include the following information for the aggregate of the systems and plans administered by the PSPRS Board:
a) investment returns;
b) an analysis of PSPRS’s aggregate experience over the previous year;
c) major policy and governance changes; and
d) future trends and objectives.
7. Requires the PSPRS Board to submit the PAFR to the Governor, the President of the Senate and the Speaker of the House of Representative (Speaker of the House) by June 30 of each year.
Local Board Administration
8. Prohibits a PSPRS or CORP local board’s legal counsel, conditional on the enactment of H.B. 2381, from representing a PSPRS member before any local board or any judicial appeal of a local board decision.
Miscellaneous
9. Requires the PSPRS Board to issue a request for proposals (RFP) every 5 years for an external auditor and states that the PSPRS Board is not required to change the auditor after issuing the RFP.
10. Requires the PSPRS Board to develop a policy regarding routine stress testing at the employer level and system level and requires the stress test to use industry standards.
11. Requires the President of the Senate and the Speaker of the House to each appoint one member who is either a legislator or legislative staff to the PSPRS Advisory Committee.
12. Defines stress test as an assessment of the risk exposure of the retirement system or plan, including scenario analysis, simulation analysis and sensitivity analysis.
13. Makes technical and conforming changes.
14. Conditions the enactment of the provisions of this legislation relating to a PSPRS local board on the enactment of H.B. 2381.
15. Becomes effective on the general effective date or later, subject to the provisions of the conditional enactment.
Amendments Adopted by Committee of the Whole
1. Requires the PSPRS Board to issue an RFP every 5 years for an external auditor and states that the PSPRS Board is not required to change the auditor after issuing the RFP.
2. Requires the PSPRS Board to develop a policy regarding routine stress testing at the employer level and system level and requires the stress test to use industry standards.
3. Requires the governing body of a PSPRS employer to transmit the annual pension funding policy to the PSPRS Board.
4. Requires the PSPRS Board to annually review and adopt a pension funding policy for each PSPRS-administered DB plan and system that analyzes and reviews the methods to ensure systematic funding of all retirement benefit payments for the members of each DB plan and system and that outlines the strategy to achieve financial solvency of each plan and system.
5. Requires the PSPRS Board to annually consolidate the annual pension funding policies of all PSPRS employers and post the document on the PSPRS website.
6. Requires the PAFR to include the following information for each retirement system and plan administered by the PSPRS Board:
a) the funding status;
b) aggregate contribution rates; and
c) demographic updates.
7. Requires the PAFR to include the following information for the aggregate of the systems and plans administered by the PSPRS Board:
a) investment returns;
b) an analysis of PSPRS’s aggregate experience over the previous year;
c) major policy and governance changes; and
d) future trends and objectives.
8. Requires the PSPRS Board to submit a PAFR to the Governor, the President of the Senate and the Speaker of the House by June 30 of each year.
9. Requires the President of the Senate and the Speaker of the House to each appoint one member who is either a legislator or legislative staff to the PSPRS Advisory Committee.
10. Prohibits a PSPRS or CORP local board’s legal counsel from representing a PSPRS member before any local board or any judicial appeal of a local board decision.
11. Defines stress test.
12. Makes conforming changes.
13. Conditions the enactment of the provisions of this legislation relating to a PSPRS local board on the enactment of H.B. 2381.
Senate Action
FIN 2/10/21 DP 8-0-2
Prepared by Senate Research
February 23, 2021
MG/gs