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HomeMy WebLinkAbout2014 - 27245 LBWL Lansing Board of Water and Light Pension Plan For Employee Plan for Employees' Pension of the Board of Water and Light - City of Lansing, Michigan - Defined Benefit Plan Financial Report with Required Supplemental Information June 30, 2014 Plan for Employees' Pension of the Board of Water and Light - City of Lansing, Michigan - Defined Benefit Plan Contents Report Letter 1-2 Management's Discussion and Analysis 3-5 Basic Financial Statements Statement of Plan Net Position 6 Statement of Changes in Plan Net Position 7 Notes to Financial Statements 8-19 Required Supplemental Information 20 Schedule of Changes in the BWL's Net Pension Asset and Related Ratios 21 Schedule of Employer Contributions 22 Note to Required Supplemental Information 23 Schedule of Investment Returns 24 Independent Auditor's Report To the Honorable Mayor, Members of the City Council, and Commissioners of the Board of Water and Light Plan for Employees' Pension of the Board of Water and Light- City of Lansing, Michigan - Defined Benefit Plan City of Lansing, Michigan Report on the Financial Statements We have audited the accompanying financial statements of the Plan for Employees' Pension of the Board of Water and Light - City of Lansing, Michigan - Defined Benefit Plan (the "Plan") as of and for the years ended June 30, 2014 and 2013 and the related notes to the financial statements, which collectively comprise the Plan's basic financial statements as listed in the table of contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control.Accordingly,we express no such opinion.An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. I To the Honorable Mayor, Members of the City Council, and Commissioners of the Board of Water and Light Plan for Employees' Pension of the Board of Water and Light- City of Lansing, Michigan - Defined Benefit Plan City of Lansing, Michigan Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the plan net position of the Plan for Employees' Pension of the Board of Water and Light - City of Lansing, Michigan - Defined Benefit Plan as of June 30, 2014 and 2013, and the changes in its plan net position for the years then ended, in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter As discussed in Note I to the financial statements, in 2014, the Plan adopted GASB Statement Number 67, Financial Reporting for Pension Plans. As a result, these financial statements contain significant new disclosures. Our opinion is not modified with respect to this matter. Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management's discussion and analysis, schedule of changes in the BWL's net pension asset and related ratios, schedule of employer contributions, and schedule of investment returns on pages 21 - 24 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, which considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Ave& I Allta f P G L C September 2, 2014 2 Plan for Employees' Pension of the Board of Water and Light - City of Lansing, Michigan - Defined Benefit Plan Management's Discussion and Analysis Using this Annual Report This annual report consists of two parts: (1) management's discussion and analysis (this section) and (2) the basic financial statements. The financial statements also include notes that explain some of the information in the financial statements and provide more detailed data. Condensed Financial Information The table below compares key financial information in a condensed format between the current year and the prior two years: 2014 2013 2012 Assets held in trust: Money market collective trust fund $ 3,192,936 $ 3,209,522 $ 2,739,466 U.S. government obligations 7,354,686 8,301,126 7,954,894 Corporate bonds and notes 1 1,844,906 12,168,664 12,793,539 Mutual funds 1,260,129 1,171,547 1,127,599 Common stock 56,770,168 50,459,178 48,573,963 Alternative investments - - 245,024 Interest and dividend receivable 120,156 1 13,980 132,512 Total assets held in trust $ 80,542,981 $ 75,424,017 $ 73,566,997 Liabilities - Accrued liabilities $ 13,000 $ - $ - Net position restricted for pension 80,529,981 75,424,017 73,566,997 Total liabilities and net position $ 80,542,981 $ 75,424,017 $ 73,566,997 Changes in net position: Net investment income (loss) $ 14,243,164 $ 10,169,847 $ (543,523) Benefits payments (8,541,275) (7,777,260) (8,259,828) Administrative fees (595,925) (535,567) (570,810) Net change in net position $ 5,105,964 $ 1,857,020 $ (9,374,161) During fiscal year 2014, net investment gain was $14.2 million. We believe this performance is consistent with the experience of similarly situated employee benefit funds. Employer contributions were $0 in fiscal year 2014 according to the Board of Water and Light - City of Lansing, Michigan's (the "BWL") annual required contribution (ARC) as determined by the BWL's actuary. 3 Plan for Employees' Pension of the Board of Water and Light - City of Lansing, Michigan - Defined Benefit Plan Management's Discussion and Analysis (Continued) Benefits payments in fiscal year increased by $0.76 million to $8.5 million. This was due to an increase in funds distributed in the form of lump-sum payouts upon retirement in fiscal year 2014 as compared to fiscal year 2013. The BWL reimburses itself for the cost of retiree healthcare benefits pursuant to Internal Revenue Code Section 420. Reimbursement from the defined benefit pension plan assets is allowed to the extent that excess funds are available for transfer. In fiscal years 2014, 2013, and 2012, there were no excess funds available for transfer. Investment Obiectives and Asset Allocation The Plan's assets shall be invested in accordance with sound investment practices that emphasize long-term investment fundamentals. In establishing the investment objectives of the Plan, the BWL has taken into account the time horizon available for investment, the nature of the Plan's cash flows and liabilities, and other factors that affect the Plan's risk tolerance. In consideration of the Plan's investment goals, demographics, time horizon available for investment, and the overall risk tolerance of the BWL, a long-term investment objective of income and growth has been adopted for the Plan's assets. The primary objectives of the Plan's assets are to fund all disbursements as they are due to meet the actuarial rate of return of 7.5 percent, and to earn returns in excess of a passive set of market indexes representative of the Plan's asset allocation. Consistent with the advice of the investment advisor, the BWL has selected the following target asset allocation strategy: Domestic Large Capitalization Stocks 45.0% Domestic Small Capitalization Stocks 10.0% International Stocks 14.2% U.S. Core Fixed Income 30.8% Investment Results The fiscal year ended June 30, 2014 saw a net investment gain of$13.6 million. We believe that this gain is in line with the level of gains experienced by other employee benefit funds during this period. Future Events The Plan is currently overfunded, with a funded ratio (actuarial asset value divided by actuarial accrued liability) of 116 percent. This funding level results in an annual pension cost of$0 for fiscal year 2014. The board does not expect to make contributions to the trust in fiscal year 2015. The Plan expects to make annual withdrawals of approximately $8,000,000 to cover participant benefits. 4 Plan for Employees' Pension of the Board of Water and Light - City of Lansing, Michigan - Defined Benefit Plan Management's Discussion and Analysis (Continued) Contacting the Plan's Management This financial report is intended to provide a general overview of the Plan's finances and to show accountability for the money it receives. If you have questions about this report or need additional information, we welcome you to contact the office of Susan Devon, Chief Administrative and Technology Officer, at P.O. Box 13007, Lansing, Michigan 4890I-3007. 5 Plan for Employees' Pension of the Board of Water and Light - City of Lansing, Michigan - Defined Benefit Plan Statement of Plan Net Position June 30 2014 2013 Assets Investments at fair value: Cash and money market trust fund $ 3,192,936 $ 3,209,522 U.S. government obligations 7,354,686 8,301,126 Corporate bonds and notes 1 1,844,906 12,168,664 Mutual funds 1,260,129 1,171,547 Common stocks 56,770,168 50,459,178 Total investments at fair value 80,422,825 75,310,037 Receivable - Investment interest receivable 120,156 1 13,980 Total assets 80,542,981 75,424,017 Liabilities -Accrued liabilities 13,000 - Net Position Restricted for Pensions $ 80,529,981 $ 75,424,017 See Notes to Financial Statements. 6 Plan for Employees' Pension of the Board of Water and Light - City of Lansing, Michigan - Defined Benefit Plan Statement of Changes in Plan Net Position Year Ended June 30 2014 2013 Additions Investment income: Net appreciation in fair value of investments $ 12,570,312 $ 8,364,770 Interest and dividend income 1,672,852 1,805,077 Total investment income 14,243,164 10,169,847 Deductions Retiree benefits paid 8,541,275 7,777,260 Administrative expenses 595,925 535,567 Total deductions 9,137,200 8,312,827 Net Increase in Fiduciary Net Position 5,105,964 1,857,020 Fiduciary Net Position Beginning of year 75,424,017 73,566,997 End of year $ 80,529,981 $ 75,424,017 See Notes to Financial Statements. 7 Plan for Employees' Pension of the Board of Water and Light - City of Lansing, Michigan - Defined Benefit Plan Notes to Financial Statements June 30, 2014 and 2013 Note 1 - Summary of Significant Accounting Policies Reporting Entity The Board of Water and Light - City of Lansing, Michigan (BWL) sponsors the Plan for Employees' Pension of the Board of Water and Light - City of Lansing, Michigan - Defined Benefit Plan (the "Plan"), which is a noncontributory single-employer defined benefit, public employee retirement system established and administered by the BWL under Section 5-203 of the City Charter. An employee becomes a participant of the when hired. A participant's interest shall be fully vested when the participant has been credited with seven years of vesting service. The Plan was established in 1939 and has been amended several times, with the latest amendment taking effect on July 1, 2010. Participants should refer to the plan agreement for a more complete description of the Plan's provisions. Accountinjg and Reporting Principles The Plan follows accounting principles generally accepted in the United States of America (GAAP) as applicable to governmental units. Accounting and financial reporting pronouncements are promulgated by the Governmental Accounting Standards Board. Basis of Accounting Fiduciary funds use the economic resources measurement focus and the full accrual basis of accounting. Revenue is recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Plan member contributions are recognized in the period in which the contributions are due. Employer contributions to the plan are recognized when due pursuant to legal requirements. Benefits and refunds are recognized when due and payable in accordance with the terms of the plan. Report Presentation This report includes the fund-based statements of the Plan. Investment Valuation and Income Recognition - investments are reported at fair value. Securities traded on a national or international exchange are valued at the last reported sales prices. Investments that do not have an established market are reported at estimated fair value. Purchases and sales of securities are recorded on a trade-date basis. Appreciation or depreciation of investments is calculated based on the beginning of year fair value of investments. 8 Plan for Employees' Pension of the Board of Water and Light - City of Lansing, Michigan - Defined Benefit Plan Notes to Financial Statements June 30, 2014 and 2013 Note 1 - Summary of Significant Accounting Policies (Continued Expenses - Substantially all costs and expenses incurred in connection with the operation and administration of the are paid by the BWL, the plan sponsor. The does pay all expenses incurred in connection with the custodial safekeeping account and investment advisor fees, which have been netted with interest and dividend income. Beginning in fiscal year 2008, the Plan began to pay the fees associated with the actuarial evaluation. Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. Regulatory Status - The Plan is not subject to the reporting requirements of the Employee Retirement Income Security Act of 1974 (ERISA) as it has been established for the benefit of a governmental unit. Change in Accounting - During the current year, the Plan adopted GASB Statement No. 67, Financial Reporting for Pension Plans. This statement required changes to the actuarial valuations resulting in a different measurement of the liability of the employer to plan members for benefits provided through the pension plan. As a result, the disclosures within the notes below have changed considerably along with the related schedules in the required supplementary information. Note 2 - Plan Description Plan Administration - The BWL Pension Board administers the Plan - a noncontributory single-employer defined benefit pension plan for employees of the BWL. The benefit terms were established by the BWL and may be amended by future BWL actions. Management of the Plan is vested in the BWL, which consists of eight members appointed by the mayor of the City of Lansing, Michigan. 9 Plan for Employees' Pension of the Board of Water and Light - City of Lansing, Michigan - Defined Benefit Plan Notes to Financial Statements June 30, 2014 and 2013 Note 2 - Plan Description (Continued Plan Membership - At February 28, 2014 and 2013 (the most recent actuarial valuation for funding purposes), plan membership consisted of the following: 2014 2013 Inactive plan members or beneficiaries currently receiving benefits 413 423 Inactive plan members entitled to but not yet receiving benefits 9 10 Active plan members 17 24 Total 439 457 The Plan, by resolution of the board of commissioners, was closed to employees hired subsequent to December 31, 1996, and a defined contribution plan was established for employees hired after December 31, 1996. Effective December 1, 1997, all active participants in this plan were required to make an irrevocable choice to either remain in this plan (defined benefit) or move to the newly established defined contribution plan. Those participants who elected to move to the defined contribution plan received lump- sum distributions from this plan that were rolled into their accounts in the newly established defined contribution plan. Of the 760 employees who were required to make this election, 602 elected to convert their retirement benefits to the newly established defined contribution plan. As a result of this action, effective December 1, 1997, the board of commissioners transferred $75,1 16,470 to the newly established defined contribution plan, reflecting the plan participants' accumulated benefits as of said date. Benefits Provided - The Plan provides retirement, early retirement, disability, termination, and death benefits. The Plan provides for an annual benefit upon normal retirement age equal to the product of the total number of years of credited service multiplied by a percentage equal to 1.80 percent of the highest annual pay during the last 10 years of service, paid in equal monthly installments. 10 Plan for Employees' Pension of the Board of Water and Light - City of Lansing, Michigan - Defined Benefit Plan Notes to Financial Statements June 30, 2014 and 2013 Note 2 - Plan Description (Continued) Payments will either be nonincreasing or increase only as follows: (a) By an annual percentage increase that does not exceed the annual percentage increase in a cost-of- living index that is based on prices of all items and issued by the Bureau of Labor Statistics; (b) To the extent of the reduction in the amount of the employee's payments to provide for a survivor benefit upon death, but only if the beneficiary whose life was being used to determine the distribution period described in subsection 8 dies or is no longer the employee's beneficiary pursuant to a qualified domestic relations order within the meaning of Internal Revenue Code Section 414(p); (c) To provide cash refunds of employee contributions upon the employee's death; or (d) To pay increased benefits that result from a plan amendment. Contributions - Article 9, Section 24 of the State of Michigan constitution requires that financial benefits arising on account of employee service rendered in each year be funded during that year. Accordingly, the BWL Pension Board retains an independent actuary to determine the annual contribution. The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by plan members during the year, with an additional amount to finance any unfunded accrued liability. There was no contribution required for the years ended June 30, 2013 and 2014. Plan documents do not require participant contributions. Note 3 - Cash, Investments, and Fair Disclosure The pension trust fund is also authorized by Michigan Public Act 314 of 1965, as amended, to invest in certain reverse repurchase agreements, stocks, diversified investment companies, annuity investment contracts, real estate leased to public entities, mortgages, real estate, debt or equity of certain small businesses, certain state and local government obligations, and certain other specified investment vehicles. The Plan's deposits and investment policies are in accordance with PA 196 of 1997; the Plan has authorized the investments according to Michigan PA 314 of 1965, as amended. Risks at June 30, 2014 Custodial Credit Risk of Bank Deposits - Custodial credit risk is the risk that in the event of a bank failure, the Plan's deposits may not be returned to it. The Plan requires that financial institutions must meet minimum criteria to offer adequate safety to the Plan. The Plan evaluates each financial institution with which it deposits funds and only those institutions meeting minimum established criteria are used as depositories. II Plan for Employees' Pension of the Board of Water and Light - City of Lansing, Michigan - Defined Benefit Plan Notes to Financial Statements June 30, 2014 and 2013 Note 3 - Cash, Investments, and Fair Disclosure (Continued) Custodial Credit Risk of Investments - Custodial credit risk is the risk that, in the event of the failure of the counterparty, the Plan will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. The Plan does not have a policy for custodial credit risk. At year end, all investments of the Plan were held in the name of the Board of Water and Light and are therefore not subject to custodial credit risk. Interest Rate Risk - Interest rate risk is the risk that the value of investments will decrease as a result of a rise in interest rates. The Plan's investment policy does not restrict investment maturities, other than commercial paper, which can only be purchased with a 270-day maturity. At year end, the average maturities of investments are as follows: Weighted Investment Fair Value Average Maturity U.S. government or agency bond $ 7,354,686 12.79 years Corporate bonds 11,844,906 14.26 years Money market trust fund 3,104,927 Less than I year Credit Risk - State law limits investments in commercial paper to the top two ratings issued by nationally recognized statistical rating organizations. The Plan has no investment policy that would further limit its investment choices. As of year end, the credit quality ratings of debt securities (other than the U.S. government) are as follows: 12 Plan for Employees' Pension of the Board of Water and Light - City of Lansing, Michigan - Defined Benefit Plan Notes to Financial Statements June 30, 2014 and 2013 Note 3 - Cash, Investments, and Fair Disclosure (Continued) Rating Investment Fair Value Rating Organization U.S. government or agency bond $ 7,354,686 Not Rated Not Rated Corporate bonds 1,097,382 AAA S&P Corporate bonds 4,590,886 AA+ S&P Corporate bonds 217,542 AA S&P Corporate bonds 193,884 AA- S&P Corporate bonds 612,123 A+ S&P Corporate bonds 952,508 A S&P Corporate bonds 1,483,155 A- S&P Corporate bonds 780,999 BBB+ S&P Corporate bonds 640,981 BBB S&P Corporate bonds 544,851 BBB- S&P Corporate bonds 98,555 BB S&P Corporate bonds 78,154 BB+ S&P Corporate bonds 32,325 B+ S&P Corporate bonds 26,250 B S&P Corporate bonds 495,31 1 CCC S&P Money market trust fund 3,104,927 Not Rated Not Rated Concentration of Credit Risk - The board of commissioners places no limit on the amount the Plan may invest in any one issuer. As of year end, the Plan does not hold more than 5 percent of its investments in any one issuer. Risks at June 30, 2013 Custodial Credit Risk of Bank Deposits - Custodial credit risk is the risk that in the event of a bank failure, the Plan's deposits may not be returned to it. The Plan requires that financial institutions must meet minimum criteria to offer adequate safety to the Plan. The Plan evaluates each financial institution with which it deposits funds and only those institutions meeting minimum established criteria are used as depositories. Custodial Credit Risk of Investments - Custodial credit risk is the risk that, in the event of the failure of the counterparty, the Plan will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. The Plan does not have a policy for custodial credit risk. At year end, all investments of the Plan were held in the name of the Board of Water and Light and are therefore not subject to custodial credit risk. 13 Plan for Employees' Pension of the Board of Water and Light - City of Lansing, Michigan - Defined Benefit Plan Notes to Financial Statements June 30, 2014 and 2013 Note 3 - Cash, Investments, and Fair Disclosure (Continued) Interest Rate Risk - Interest rate risk is the risk that the value of investments will decrease as a result of a rise in interest rates. The Plan's investment policy does not restrict investment maturities, other than commercial paper, which can only be purchased with a 270-day maturity. At year end, the average maturities of investments are as follows: Weighted Investment Fair Value Average Maturity U.S. government or agency bond $ 8,301,126 12.24 years Corporate bonds 12,168,664 14.68 years Money market trust fund 3,140,926 Less than I year Credit Risk - State law limits investments in commercial paper to the top two ratings issued by nationally recognized statistical rating organizations. The Plan has no investment policy that would further limit its investment choices. As of year end, the credit quality ratings of debt securities (other than the U.S. government) are as follows: Rating Investment Fair Value Rating Organization U.S. government or agency bond $ 8,301,126 Not Rated Not Rated Corporate bonds 1,666,525 AAA S&P Corporate bonds 4,286,565 AA+ S&P Corporate bonds 106,957 AA S&P Corporate bonds 251,090 AA- S&P Corporate bonds 855,381 A+ S&P Corporate bonds 891,603 A S&P Corporate bonds 1,359,381 A- S&P Corporate bonds 403,491 BBB+ S&P Corporate bonds 938,874 BBB S&P Corporate bonds 566,706 BBB- S&P Corporate bonds 128,938 BB S&P Corporate bonds 1 13,726 BB+ S&P Corporate bonds 31,800 BB- S&P Corporate bonds 58,013 B S&P Corporate bonds 24,975 B- S&P Corporate bonds 484,639 CCC S&P Money market trust fund 3,140,926 Not Rated Not Rated 14 Plan for Employees' Pension of the Board of Water and Light - City of Lansing, Michigan - Defined Benefit Plan Notes to Financial Statements June 30, 2014 and 2013 Note 3 - Cash, Investments, and Fair Disclosure (Continued) Concentration of Credit Risk - The board of commissioners places no limit on the amount the Plan may invest in any one issuer. As of year end, the Plan does not hold more than 5 percent of its investments in any one issuer. Note 4 - Net Appreciation or Depreciation of Investments The net appreciation (depreciation) of the Plan's investments is as follows: 2014 2013 Investments at fair value as determined by quoted market price: U.S. government obligations $ 90,724 $ (370,817) Corporate bonds and notes 195,217 119,447 Mutual funds 200,285 671,569 Common stocks and mutual funds 12,031,656 7,926,166 Alternative investments 52,430 18,405 Total $ 12,570,312 $ 8,364,770 Note S - 401(h) Account Effective July 1, 1999, the Plan was amended to include a medical-benefit component, in addition to the normal retirement benefits, to fund a portion of the postretirement obligations for certain retirees and their beneficiaries in accordance with Section 401(h) of the Internal Revenue Code (IRC). A separate account has been established and maintained in the Plan for the net assets related to the medical-benefit component 401(h) account. In accordance with IRC Section 401(h), the Plan's investments in the 401(h) account may not be used for, or diverted to, any purpose other than providing health benefits for retirees and their beneficiaries. Employer contributions or qualified transfers to the 401(h) account are determined annually and are at the discretion of the plan sponsor. At June 30, 2014 and 2013, there were no excess pension plan assets available for transfer. 15 Plan for Employees' Pension of the Board of Water and Light - City of Lansing, Michigan - Defined Benefit Plan Notes to Financial Statements June 30, 2014 and 2013 Note 6 - Tax Status The Plan obtained its determination letter dated November 4, 201 1, in which the Internal Revenue Service stated that the Plan, as then designed, was in compliance with the applicable requirements of the Internal Revenue Code. The Plan has since been amended. Management believes the continues to operate as a qualified plan. Note 7 - Plan Investments - Policy and Rate of Return Investment Policy - The Plan's policy in regard to the allocation of invested assets is established and may be amended by the BWL by a majority vote of its members. It is the policy of the board to pursue an investment strategy that manages risk through the prudent diversification of the portfolio across a broad selection of distinct asset classes. The Plan's investment policy discourages the use of cash equivalents, except for liquidity purposes, and aims to refrain from dramatically shifting asset class allocations over short time spans. The following was the BWL's adopted asset allocation policy as of June 30, 2014 and 2013: Target Asset Class Allocation Fixed Income 30.80% Domestic equity 55.00% International equity 14.20% Rate of Return - For the year ended June 30, 2014, the annual money-weighted rate of return on plan investments, net of plan investment expense, was 19.18 percent. The money-weighted rate of return expresses investment performance, net of investment expense, adjusted for the changing amounts actually invested. 16 Plan for Employees' Pension of the Board of Water and Light - City of Lansing, Michigan - Defined Benefit Plan Notes to Financial Statements June 30, 2014 and 2013 Note 8 - Net Pension Asset of the BWL The components of the net pension asset of the BWL at June 30, 2014 and 2013 were as follows (in thousands): 2013 2014 Total pension liability $ 69,341 $ 67,280 Plan fiduciary net position 80,530 75,424 Plan's net pension asset $ (11,189) $ (8,144) Plan fiduciary net position, as a percentage of the total pension liability 1 16.13% 1 12.10% Actuarial Assumptions - The June 30, 2014 total pension liability was determined by an actuarial valuation as of February 28, 2014, which used update procedures to roll forward the estimated liability to June 30, 2014. The total pension liability as of June 30, 2013 (beginning balance) was also determined as a part of this valuation. The valuation used the following actuarial assumptions, applied to all periods included in the measurement: Inflation 3.00% Salary increases 6.44%-10.26% Investment rate of return 7.50% The most recent experience review was completed in 2014. Since the Plan only covers 17 active participants, assumptions like termination, retirement, and disability have an immaterial impact on the results and have not been changed. The mortality table was updated to the RP-2014 mortality table projected generationally with scale MP-2014. Discount Rate - The discount rate used to measure the total pension liability was 7.5 percent. The projection of cash flows used to determine the discount rate assumed that BWL contributions will be made at rates equal to the actuarially determined contribution rates. 17 Plan for Employees' Pension of the Board of Water and Light - City of Lansing, Michigan - Defined Benefit Plan Notes to Financial Statements June 30, 2014 and 2013 Note 8 - Net Pension Asset of the BWL (Continued) Projected Cash Flows Section - Based on those assumptions, the pension plan's fiduciary net position was projected to be available to make all projected future benefit payments of current active and inactive employees. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. The long-term expected rate of return on pension plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. Best estimates of arithmetic real rates of return as of June 30, 2014 and 2013 for each major asset class included in the pension plan's target asset allocation, as disclosed in Note 7 are summarized in the following table. Long-term Expected Real Asset Class Rate of Return Fixed income 2.00% Domestic equity 6.40% International equity 6.80% Real estate 5.00% 18 Plan for Employees' Pension of the Board of Water and Light - City of Lansing, Michigan - Defined Benefit Plan Notes to Financial Statements June 30, 2014 and 2013 Note 8 - Net Pension Asset of the BWL (Continued) Sensitivity of the Net Pension Asset to Changes in the Discount Rate - The following presents the net pension asset of the BWL, calculated using the discount rate of 7.5 percent, as well as what the BWL's net pension asset would be if it were calculated using a discount rate that is I-percentage-point lower (6.5 percent) or I percentage point higher (8.5 percent) than the current rate: Current I% Decrease Discount Rate I% Increase (6.50 %) (7.50%) (8.50%) Net pension liability(asset) of the BWL (in thousands) $ (5,315) $ (11,189) $ (16,603) 19 Required Supplemental Information 20 Plan for Employees' Pension of the Board of Water and Light - City of Lansing, Michigan - Defined Benefit Plan Schedule of Changes in the BWL's Net Pension Asset and Related Ratios Last Ten Fiscal Years (in thousands) 2014 2013 2012* 2011* 2010* 2009* 2008* 2007* 2006* 2005* Total Pension Liability Service cost $ 349 $ 407 $ $ $ $ $ $ $ $ Interest 4,751 5,085 Changes in benefit terms - - Differences between expected and actual experience 964 (1,716) Changes in assumptions** 4,538 Benefit payments,including refunds (8,541) (7,777) Net Change in Total Pension Liability 2,061 (4,001) Total Pension Liability-Beginning of year 67,280 71,281 Total Pension Liability-End of year 69,341 67,280 Plan Fiduciary Net Position Contributions-Employer - - Contributions-Member - - Net investment income 14,243 10,170 Administrative expenses (596) (536) Benefit payments,including refunds (8,541) (7,777) Other - - Net change in Plan Fiduciary Net Position 5,106 1,857 Plan Fiduciary Net Position-Beginning of year 75,424 73,567 Plan Fiduciary Net Position-End of year 80,530 75,424 BWL Net Pension Asset-Ending $ (11,189) $ (8,144) $ - $ - $ - $ - $ - $ - $ - $ - Plan Fiduciary Net Position as a%of Total Pension Liability 1 16.14% 1 12.10% % % % % % % % % Covered Employee Payroll 1,225 1,684 BWL's Net Pension Asset as a%of Covered Employee Payroll (913%) (484%) % % % % % % % % *GASB Statement No.67 was implemented as of June 30,2014. Information from 2005-2012 is not available and this schedule will be presented on a prospective basis. **Related to change in the mortality assumption from the RP2000CH table projected to 2018 with Scale AA to the RP-2014 table projected generationally with Scale MP-2014 See Note to Required Supplemental Information. 21 Plan for Employees' Pension of the Board of Water and Light - City of Lansing, Michigan - Defined Benefit Plan Schedule of Employer Contributions Last Ten Fiscal Years (in thousands) 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 Actuarially determined contribution $ $ $ $ 86 $ 2,109 $ $ $ $ $ Contributions in relation to the actuarially determined contribution 86 2,109 Contribution Deficiency(Excess) $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - Covered Employee Payroll 1,225 1,684 2,101 2,398 2,660 3,089 3,162 3,391 3,942 4,142 Contributions as a Percentage of Covered Employee Payroll - % - % - % 3.59% 79.29% - % - % - % - % - % See Note to Required Supplemental Information. 22 Plan for Employees' Pension of the Board of Water and Light - City of Lansing, Michigan - Defined Benefit Plan Note to Required Supplemental Information Year Ended June 30, 2014 Actuarial valuation information relative to the determination of contributions: Valuation date February 28, 2014 Methods and assumptions used to determine contribution rates: Actuarial cost method Projected unit credit Amortization method Level dollar over a 15-year period Remaining amortization period 15 years Asset valuation method Market value of the assets Inflation 3.0 percent Salary increases 6.44 percent - 10.26 percent per year, depending on age Investment rate of return 7.5 percent per year compounded annually Mortality RP-2014 Mortality Table projected generationally with scale MP-2014 23 Plan for Employees' Pension of the Board of Water and Light - City of Lansing, Michigan - Defined Benefit Plan Schedule of Investment Returns Last Ten Fiscal Years 2014 2013* 2012* 2011* 2010* 2009* 2008* 2007* 2006* 2005* Annual money-weighted rate of return, net of investment expense 19.18% - % - % - % - % - % - % - % - % - % *GASB Statement No.67 was implemented as of June 30,2014. Information from 2005-2012 is not available and this schedule will be presented on a prospective basis. "Related to change in the mortality assumption from the RP2000CH table projected to 2018 with Scale AA to the RP-2014 table projected generationally with Scale MP-2014 24