PFM Retirement Finance Services Comprehensively addressing pension and other post-employment benefit (OPEB) affordability, sustainability, and competitiveness challenges. The growing costs of pensions and retiree health benefits combined with budgetary constraints present a unique set of challenges to governments. Public employers must manage expenses for current and retired employees benefits in ways that minimize impacts to other services they provide for taxpayers while retaining competitive benefits to attract talented employees. The PFM Group, which includes financial advisory firm Public Financial Management, Inc. (PFM) and investment advisory firm PFM Asset Management LLC (PFMAM), provides independent advice to clients who seek to face these challenges head on. Combining workforce consulting and financial expertise, our Retirement Finance Group provides public employers with a comprehensive set of services to meet their retiree benefit challenges. Our philosophy is that pension and retiree health benefits must be sustainable, affordable for the employer and its employees, and provide public employees with a secure and dignified retirement. The PFM Group Financial & Investment Advisors Before joining PFM, many of our experienced professionals faced these same issues during government service. Therefore, PFM has a clear understanding of public-sector workforce issues in both unionized and non-union environments. From benefit design services to funding analysis to asset management, PFM has deep expertise delivering tailored and comprehensive retiree benefit recommendations to public employers of all types and sizes. The PFM Group Comprehensive Approach to Retirement Financial Services Workforce Services Financial Analysis PFM Asset Management Retiree Benefit Plan Financial Analysis As an independent advisor that is ranked #1 leader in municipal finance, 1 PFM advises on debt and funding issues for all manner of public sector funding challenges - including retirement plan related funding. Our proprietary, Excel-based retirement funding model takes actuarial data from pension and other post-employment benefit (OPEB) plans and creates a dynamic report that helps public officials make alternative funding decisions. Importantly, the model 1 Ranked by Thomson Reuters for calendar year 2014, based on principal amount and number of transactions. 2014 The PFM Group www.pfm.com PFM Retirement Finance Services
1.4 1.2 1 0.8 0.6 0.4 0.2 0 Sample Output from PFM s Proprietary Retirement Funding Model: Annual Contributions to the Benefits Fund and the Impact on the General Fund High Investment Return Expected Investment Return Low Investment Return Sample output from PFM s proprietary retirement funding model. considers funding alternatives from three perspectives: the plan trust, the employer s cash flow and balance sheet, and the participant s wallet. This multi-faceted financial view helps decision-makers to fully evaluate and quantify the costs and benefits of various funding strategies. When appropriate, PFM will also advise on pension and OPEB obligation bonds, as well as asset sales to help reduce unfunded liabilities and other funding strategies. For a further discussion of pension and OPEB obligation bonds, please see Benefits Bonds and Their Place in Today s Market. 2 Eastern Municipal Water District, CA: Using our proprietary retirement funding model, PFM collaborated with the Assistant General Manager to help evaluate the current OPEB funding strategy, identify fiscally prudent alternative funding strategies, and construct an informative presentation for the Board. PFM worked with the plan actuaries to validate the numerical inputs to the retirement funding model, and constructed several scenarios that sought to achieve the District s stated funding goals. Finally, PFM made recommendations about how best to educate the Board about its current funding strategy and viable alternatives. Saginaw County, MI: The County wished to take advantage of a Michigan law that allowed for the issuance of debt to fund existing unfunded liabilities for closed defined benefit plans. PFM worked with the County to model several contribution scenarios designed to maximize the use of County funds. Ultimately, PFM supported the debt issuance process by negotiating underwriting terms, being involved in the rating agency process, and developing the offering document. 2 This report was published by the PFM Group in August 2013, and is available upon request. Workforce Services PFM helps public employers ensure that their pension and OPEB benefits are sustainable, affordable for the employer and its employees, and provide employees with a secure and dignified retirement. We understand that ensuring the security of these benefits is not simply a math problem; employees rely on these benefits once they are retired, and these benefits are a key component to attracting and retaining a qualified workforce. Using its vast quantitative expertise, PFM can integrate these recommendations into budget models (which it can also help to develop) to assist governments with long-term financial planning. City of Lexington, KY: PFM mediated a successful comprehensive consensus agreement between the City of Lexington and its police and fire unions to address an underfunded pension plan. The agreement, adopted into law by the Kentucky Legislature, resulted in maintaining a defined benefit plan, changing cost of living adjustments (COLAs), and requiring increased contributions by both employees and the City. City of Baltimore, MD: PFM led the development of a comprehensive and innovative Ten-Year Financial Plan for the City, addressing long-range alternatives for improving financial sustainability. In tandem with enhancing infrastructure investment, tax policy, and service stability, the Plan included a range of options to reduce unfunded pension and OPEB liabilities while retaining competitive benefits. Within six months of adopting the Plan, City Council adjusted the Baltimore Civilian pension system with changes that included instituting employee contributions to better ensure sustainable plan funding. City of Austin, TX: PFM reviewed the City s general employee, police, and fire pension plans, and provided the City with analyses of financial and benefit considerations as well as plan restructuring and funding alternatives. The City adopted certain recommendations made by PFM, such as extended years of service and other measures. State of Tennessee: PFM worked with the State Treasurer, pension staff and the pension plan actuary to review the costs of the current plan benefits and evaluate the likely sustainability of the plan as it was constructed. PFM helped the State design a new hybrid plan for future 2014 The PFM Group www.pfm.com PFM Retirement Finance Services 2
State employees that included a smaller defined benefit and a defined contribution element with an innovative risk management feature that maintains strong income replacement levels with reduced risk exposure for the State. Subsequent to the plan design efforts, PFM assisted in the process to have the new plan successfully approved by the state legislature. City of Roanoke, VA: PFM worked collaboratively with a multidisciplinary City Task Force to review pension and OPEB benefits with a goal of further enhancing the sustainability and affordability of the already financially healthy plans while maintaining retiree benefit sufficiency. PFM consulted on goal-setting for issues like hiring competitiveness, compensation and benefits rewards, and financial health. The process included benefit alternatives assessment, financial analysis, focus and feedback group interaction, and City Council presentations. Additionally, the City featured its strong financial management approach to pensions as a prominent part of its rating-agency communications. Retiree Benefit Plan Asset Management PFMAM provides asset management services to hundreds of governmental clients and has over $93 billion in assets under management as of September 30, 2014, including approximately $3.4 billion in pension and OPEB funds. Rating Agency Focus Rating agencies have increased their focus on underfunded pension and OPEB obligations, citing insufficiently addressed liabilities as reasons for credit downgrades. Moody s Investors Service (Moody s) has even developed an alternative methodology to calculate pension liabilities, which the rating agency believes will result in greater transparency and consistency to evaluating pension liabilities. The Moody s methodology is expected to significantly increase the calculated unfunded pension liabilities as compared to the amounts currently reported by issuers. In light of these developments, it is even more important to review your current retirement benefit plan with a professional team. In these relationships, we provide a comprehensive suite of services, including the development of the investment policy, asset allocation recommendations through asset-liability modeling, and the execution of the investment strategy. We act as a fiduciary, acting in our clients best interest. As a complement to our investment advisory services, PFMAM will also help develop the governance structure for retiree benefit plans. The structure typically includes development of trust documents, a charter, and bylaws along with any other documents required to execute and effectively oversee the plan. Golden Gate Bridge, Highway and Transportation District, CA: Since 2007, PFMAM has advised the District on the implementation and management of its OPEB trust. During the tenure of the relationship, PFMAM has assisted in all manner of governance concerns, including the trust, charter, and bylaw development. Further, PFMAM helped update the District s investment policy and asset allocation through the use of an asset-liability modeling process. PFMAM has managed the multi-asset class portfolio for the OPEB trust since inception. The Port Authority of New York & New Jersey, NJ: Since 2008, PFMAM has managed the Port Authority s OPEB trust using a multi-asset class, manager-of-managers approach to investing. PFMAM assisted in developing the OPEB trust, investment policy and overall investment program governance. PFMAM then worked with the Port Authority to develop a diversified asset allocation for the portfolio, and given their extremely long time horizon and risk tolerance, used primarily low-cost indexing strategies where appropriate in order to promote a cost-effective investment program. Additionally, PFMAM continues to advise the Port Authority on new investment opportunities and developments in the OPEB landscape. 2014 The PFM Group www.pfm.com PFM Retirement Finance Services 3
The Team Jim Link, CEBS (linkj@pfm.com, 215.557.1222) is a Managing Director of the PFM Group. He has more than 26 years of experience in the retirement plan, asset management, and trust and custody markets. Mr. Link leads the retirement benefits and deferred compensation consulting businesses at PFM. His clientele in these businesses include pension plans, employer sponsored OPEB Trusts, and deferred compensation plans. Additionally, he is active in working with leaders of public pension and OPEB plans to create sustainable, affordable and sufficient benefit plans. Mr. Link is actively involved in various industry groups. He is currently an advisor to the GFOA Committee on Retirement and Benefits Administration (CORBA). He is also active with the National Association of Government Defined Contribution Administrators. He has served on the publication committee and is the elected Treasurer of the Industry Committee. Mr. Link is a graduate of Texas A&M University in College Station, Texas where he earned his Bachelor of Science Degree in Economics with a minor in Management. Mr. Link has also earned the Certified Employee Benefit Specialist (CEBS) designation awarded by the International Foundation of Employee Benefit Plans and the Wharton School of the University of Pennsylvania. Michael Nadol (nadolm@pfm. com, 215.557.1433) leads PFM s Management and Budget practice nationwide, focusing on public sector budgeting and financial sustainability, with specialized experience in government workforce strategies. Prior to joining PFM, Mr. Nadol served the City of Philadelphia in positions including Deputy Mayor, Director of Labor Negotiations, and Director of Finance. bargaining. He has testified as an expert witness in public sector interest arbitration in nine states. Mr. Nadol earned a Masters in Governmental Administration from the University of Pennsylvania, and a Bachelor of Arts degree, Summa Cum Laude, from Yale University. Mr. Nadol also serves on the adjunct faculty of the University of Pennsylvania, Fels Institute of Government. He has led national training programs for the GFOA on the finance director s role in negotiating retiree benefits, and has presented on pension and workforce issues at industry forums sponsored by the National Association of Securities Professionals, the Bond Buyer, and numerous state and regional groups. Daniel Kozloff (kozloffd@pfm. com, 215.557.1412) is a Managing Director in PFM s Philadelphia office and Manager of the Quantitative Strategies Group, which comprises a dedicated group of professionals who provide primary technical, new product, transactional, and modeling expertise for PFM s clients. The Quantitative Strategies Group is also responsible for the preservation and development of the proprietary analytical tools used throughout PFM s various business practices, which includes PFM s retirement funding model. Additionally, as Manager of the Quantitative Strategies Group, he oversees PFM s firm-wide training program, which includes comprehensive sessions for new hires, current employees, lateral hires, and clients. Mr. Kozloff also leads and manages PFM s Research Group, which provides a centralized source of data, information and research for PFM s national Financial Advisory practice. Mr. Kozloff has a Bachelor of Arts degree in Political Science from the University of Pennsylvania. Mr. Nadol has led successful retiree benefit redesign engagements at the state and municipal levels, and has also worked extensively with major public employers in collective 2014 The PFM Group www.pfm.com PFM Retirement Finance Services 4
Adam Benson (bensona@pfm.com, 415.393.7254) is a member of PFM s Management and Budget Consulting practice, specializing in workforce and compensation analysis. At PFM, Mr. Benson has provided research and analytical support for public employee bargaining and interest arbitration on behalf of large and complex public employers nationally, and has led a 50-state study of public sector pension plan design and emerging practices. Prior to joining PFM, Mr. Benson worked as an Underwriting Specialist at a national health service company providing medical and other group insurance products. Earlier in his career, Mr. Benson also served as a Legislative Assistant to a member of the Philadelphia City Council and as a Legislative Assistant to a member of the New York State Senate and Chairman of the Senate Insurance Committee. Mr. Benson holds a Masters in Governmental Administration and Professional Certificate in Public Finance from the University of Pennsylvania, and earned his B.A. from The George Washington University. The PFM Group Financial & Investment Advisors Two Logan Square, Suite 1600 18th & Arch Streets Philadelphia, PA 19103 215.567.6100 www.pfm.com The views expressed herein constitute the perspective and judgment of PFM Asset Management LLC at the time of distribution and are subject to change. Opinions and data presented are not necessarily indicative of future events, and no representation is made as to accuracy or completeness. Information is based on data obtained from recognized sources, reports or communications, or other resources, believed to be reliable. To ensure compliance with U.S. Treasury Regulations governing tax practice, we inform you that any U.S. federal tax advice contained in this communication, including any attachments, is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding any penalties under U.S. federal tax law, or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein. Public Financial Management, Inc. is a registered municipal advisor with the SEC and the MSRB under the Dodd-Frank Act of 2010. PFM Asset Management LLC cannot provide legal advice and appropriate professionals should be consulted if such issues are involved. PFM Asset Management LLC is registered with the SEC under the Investment Advisers Act of 1940. A copy of our Form ADV, Parts 2A & B is available upon request. 4197 2014 The PFM Group www.pfm.com PFM Retirement Finance Services 5