HomeMy WebLinkAbout2018 - LBWL Lansing Board of Water and Light - Defined Benefit Plan and Trust for Employees' Pensions - Baker Tilly Lansing Board of Water and Light
Defined Benefit Plan and Trust for
Employees' Pensions
Financial Report
with Required Supplementary Information
As of and for the Years Ended June 30, 2018 and 2017
Lansing Board of Water and Light
Defined Benefit Plan and Trust for Employees' Pensions
Contents
Independent Auditors' Report 1 -2
Required Supplementary Information
Management's Discussion and Analysis 3-5
Financial Statements
Statement of Plan Fiduciary Net Position 6
Statement of Changes in Plan Fiduciary Net Position 7
Notes to Financial Statements 8-22
Required Supplementary Information
Schedule of Changes in the BWL's Net Pension Asset and Related Ratios 23
Schedule of Employer Contributions 24
Note to Required Supplementary Information 25
Schedule of Investment Returns 26
MP
BAKER TI LLY
INDEPENDENT AUDITORS' REPORT
To the Honorable Mayor, Members of the City Council,
and Commissioners of the Board of Water and Light
Lansing Board of Water and Light
Defined Benefit Plan and Trust for Employees' Pensions
City of Lansing, Michigan
Report on the Financial Statements
We have audited the accompanying financial statements of the Plan for Lansing Board of Water and Light
Defined Benefit Plan and Trust for Employees' Pensions ("Plan")as of and for the years ended June 30, 2018
and 2017, and the related notes to the 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.
Auditors'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 auditors'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 Plan'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 Plan'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.
a dePede, memee Page 1
BAKER TILLY
INTERNATIONAL
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the fiduciary
position of the Plan as of June 30, 2018 and 2017, and the respective changes in fiduciary position for the years
then ended in accordance with accounting principles generally accepted in the United States of America.
Other Matters
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the required
supplementary information as listed in the table of contents be presented to supplement the financial
statements. Such information, although not a part of the financial statements, is required by the Governmental
Accounting Standards Board who considers it to be an essential part of financial reporting for placing the
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 financial statements, and other knowledge we obtained during our audit of the 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.
dUk��I*X"OCVAIZAW) 4Z40
Madison, Wisconsin
September 11, 2018
Page 2
Lansing Board of Water and Light
Defined Benefit Plan and Trust for Employees' Pensions
Required Supplementary Information (Unaudited)
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 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:
2018 2017 2016
Assets held in trust:
Money market collective trust fund $ 1,890,701 $ 1,088,909 $ 746,554
U.S. government obligations 7,966,488 9,053,469 7,565,160
Fixed income securities 12,372,866 12,156,276 10,491,022
Mutual funds 26,341,508 22,381,599 7,908,757
Partnership - 1,117,790 1,101,086
Common stock 13,634,806 19,938,242 37,486,031
Trade Receivable due from Broker 11,853 46,051 -
Interest and dividend receivable 148,763 153,010 143,225
Total assets held in trust $ 62,366,985 $ 65,935,346 $ 65,441,835
Liabilities -Accrued liabilities $ - $ 11,533 $ -
Net position restricted for pension 62,366,985 65,923,813 65,441,835
Total liabilities and net position $ 62,366,985 $ 65,935,346 $ 65,441,835
Changes in net position:
Net investment income (loss) $ 3,112,090 $ 8,271,675 $ 46,762
Benefits payments (6,413,954) (7,472,625) (7,895,766)
Administrative fees (254,964) (317,072) (388,495)
Net change in net position $ (3,556,828) $ 481,978 $ (8,237,499)
3
Lansing Board of Water and Light
Defined Benefit Plan and Trust for Employees' Pensions
Management's Discussion and Analysis (Continued)
During fiscal year 2018, net investment gain was $3,112,090. We believe this performance is
consistent with the experience of similarly situated employee benefit funds.
Employer contributions were $0 in fiscal year 2018 according to the Board of Water and Light -
City of Lansing, Michigan's (the "BWL") actuarially determined contribution (ADC) as determined
by the BWL's actuary.
Benefit payments in fiscal year decreased by $1 .1 million to $6.4 million. This was due to a
decrease in funds distributed in the form of lump-sum payouts upon retirement in fiscal year
2018 as compared to fiscal year 2017.
Investment Objectives 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 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:
U.S. Equities 35%
Non-U.S. Equities 20%
Global Fixed Income 40%
Commercial Real Estate 5%
4
Lansing Board of Water and Light
Defined Benefit Plan and Trust for Employees' Pensions
Management's Discussion and Analysis (Continued)
Future Events
The Plan is currently overfunded, with a funded ratio (fiduciary net position divided by total pension
liability) of 112 percent. This funding level results in an annual pension expense of $0 for fiscal year
2018. The BWL does not expect to make contributions to the trust in fiscal year 2019.
The Plan expects to make annual withdrawals of approximately $6,000,000 to cover participant
benefits.
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, you may write the Board of Water and Light, Chief Financial Officer, P.O.
Box 13007, Lansing, Michigan 48901 -3007.
5
Lansing Board of Water and Light
Defined Benefit Plan and Trust for Employees' Pensions
Statement of Plan Fiduciary Net Position
As of June 30
2018 2017
Assets
Investments at fair value:
Cash and money market trust fund $ 1,890,701 $ 1,088,909
U.S. government obligations 7,966,488 9,053,469
Fixed income securities 12,372,866 12,156,276
Mutual funds 26,341,508 22,381,599
Partnership - 1,117,790
Common stocks 13,634,806 19,938,242
Total investments at fair value 62,206,369 65,736,285
Trade receivable - due from broker 11,853 46,051
Receivable - investment interest receivable 148,763 153,010
Total assets 62,366,985 65,935,346
Liabilities
Trade payable - due to broker - 11,533
Net Position Restricted for Pensions $ 62,366,985 $ 65,923,813
See Notes to Financial Statements. 6
Lansing Board of Water and Light
Defined Benefit Plan and Trust for Employees' Pensions
Statement of Changes in Plan Fiduciary Net Position
For the Year Ended June 30
2018 2017
Additions
Investment income:
Net appreciation in fair
value of investments $ 1,521,207 $ 6,553,152
Interest and dividend income 1,590,883 1,718,523
Total investment income 3,112,090 8,271,675
Deductions
Retiree benefits paid 6,413,954 7,472,625
Administrative expenses 254,964 317,072
Total deductions 6,668,918 7,789,697
Net Increase (Decrease) in Net Position (3,556,828) 481,978
Net Position Restricted for Pensions
Beginning of year 65,923,813 65,441,835
End of year $ 62,366,985 $ 65,923,813
See Notes to Financial Statements. 7
Lansing Board of Water and Light
Defined Benefit Plan and Trust for Employees' Pensions
Notes to Financial Statements
As of and for the Years Ended June 30, 2018 and 2017
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 ("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. 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.
Accounting 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.
8
Lansing Board of Water and Light
Defined Benefit Plan and Trust for Employees' Pensions
Notes to Financial Statements
As of and for the Years Ended June 30, 2018 and 2017
Note 1 - Summary of Significant Accounting Policies (Continued)
Report Presentation (Continued)
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.
Expenses - Substantially all costs and expenses incurred in connection with the
operation and administration of the Plan are paid by the BWL, the plan sponsor. The
Plan does pay all expenses incurred in connection with the custodial safekeeping
account and investment advisor fees. 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 GAAP
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.
Effect of New Accounting Standards on Current Period Financial Statements - GASB has
approved GASB Statement No. 84, Fiduciary Activities. When it becomes effective,
application of this standard may restate portions of these financial statements.
Note 2 - Plan Description
Plan Administration - The BWL 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
Lansing Board of Water and Light
Defined Benefit Plan and Trust for Employees' Pensions
Notes to Financial Statements
As of and for the Years Ended June 30, 2018 and 2017
Note 2 - Plan Description (Continued)
Plan Membership - At February 28, 2018 and February 28, 2017 (the most recent
actuarial valuation for funding purposes), plan membership consisted of the following:
2018 2017
Inactive plan members or beneficiaries
currently receiving benefits 352 368
Inactive plan members entitled to but not
yet receiving benefits 4 6
Active plan members 8 8
Total 364 382
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 $75,116,470 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
Lansing Board of Water and Light
Defined Benefit Plan and Trust for Employees' Pensions
Notes to Financial Statements
As of and for the Years Ended June 30, 2018 and 2017
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, 2018 and 2017. Plan
documents do not require participant contributions.
Plan Termination - Although the BWL Pension Board has not expressed any intent to
terminate the Plan, the BWL Pension Board has the right to do so at any time. If the Plan
is terminated, each employee who has a pension benefit under the Plan will be fully
vested in that benefit. Those benefits shall be calculated on Plan termination as though
each person had elected to receive his or her accrued benefit as a lump sum amount,
although no employee would be required to accept his or her Plan termination
distribution in the form of a lump sum. The lump sum amount to be paid to each
individual in any of the forms permitted by the Plan would be calculated in accordance
with the Plan document. On termination of the Plan, each employee would have
recourse toward satisfaction of his or her nonforfeitable benefit from the Plan assets
and from the general assets of the BWL and its successor.
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.
11
Lansing Board of Water and Light
Defined Benefit Plan and Trust for Employees' Pensions
Notes to Financial Statements
As of and for the Years Ended June 30, 2018 and 2017
Note 3 - Cash, Investments, and Fair Disclosure
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.
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. The
Plan does not have any deposits exposed to custodial credit risk.
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. The average maturities of investments are as
follows as of June 30, 2018:
Weighted
Investment Fair Value Average Maturity
U.S. government obligations $ 7,966,488 12.19 Years
Fixed income securities 12,372,866 12.46 Years
Money market trust fund 1,890,701 Less than 1 year
Portfolio weighted average maturity - 12.35 years
12
Lansing Board of Water and Light
Defined Benefit Plan and Trust for Employees' Pensions
Notes to Financial Statements
As of and for the Years Ended June 30, 2018 and 2017
Note 3 - Cash, Investments, and Fair Disclosure (Continued)
The average maturities of investments are as follows as of June 30, 201 7:
Weighted
Investment Fair Value Average Maturity
U.S. government obligations $ 9,053,469 12.53 Years
Fixed income securities 12,1 56,276 12.83 Years
Money market trust fund 1,088,909 Less than 1 year
Portfolio weighted average maturity - 12.70 years
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. The credit quality
ratings of debt securities are as follows as of June 30, 2018:
Rating
Investment Fair Value Rating Organization
U.S. government obligations - implicitly guaranteed $ 2,767,597 AA+ S&P
U.S. government obligations - implicitly guaranteed 58,089 AA- S&P
Fixed income securities 893,567 AAA S&P
Fixed income securities 5,410,018 AA+ S&P
Fixed income securities 657,692 AA S&P
Fixed income securities 147,017 AA- S&P
Fixed income securities 302,057 A+ S&P
Fixed income securities 1,139,433 A S&P
Fixed income securities 829,820 A- S&P
Fixed income securities 1,616,048 BBB+ S&P
Fixed income securities 901,500 BBB S&P
Fixed income securities 377,545 BBB- S&P
Fixed income securities 8,030 BB+ S&P
Fixed income securities 90,140 B- S&P
Money market trust funds 1,890,701 Not rated Not rated
13
Lansing Board of Water and Light
Defined Benefit Plan and Trust for Employees' Pensions
Notes to Financial Statements
As of and for the Years Ended June 30, 2018 and 2017
Note 3 - Cash, Investments, and Fair Disclosure (Continued)
The credit quality ratings of debt securities are as follows as of June 30, 201 7:
Rating
Investment Fair Value Rating Organization
U.S. government obligations - implicitly guaranteed $ 3,1 38,61 5 AA+ S&P
U.S. government obligations - implicitly guaranteed 57,557 AA- S&P
Fixed income securities 596,786 AAA S&P
Fixed income securities 4,853,253 AA+ S&P
Fixed income securities 473,265 AA S&P
Fixed income securities 438,373 AA- S&P
Fixed income securities 284,823 A+ S&P
Fixed income securities 1,222,741 A S&P
Fixed income securities 978,958 A- S&P
Fixed income securities 1,884,579 BBB+ S&P
Fixed income securities 916,393 BBB S&P
Fixed income securities 404,115 BBB- S&P
Fixed income securities 8,170 BB+ S&P
Fixed income securities 94,820 CCC S&P
Money market trust funds 1,088,909 Not rated Not rated
Note 4 - 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, 2018 and 2017, there were no excess pension plan assets
available for transfer.
14
Lansing Board of Water and Light
Defined Benefit Plan and Trust for Employees' Pensions
Notes to Financial Statements
As of and for the Years Ended June 30, 2018 and 2017
Note 5 - Tax Status
The Plan obtained, from the Internal Revenue Service, a determination letter dated
November 4, 201 1 . The letter affirmed that the Plan complied with the requirements of
Internal Revenue Code section 401(a). The plan continues to operate as a qualified plan.
Note 6 - 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, 2018 and 2017:
Asset Class 2018 Target Allocation 2017 Target Allocation
Global Fixed Income 40% 35%
U.S. Equities 35% 35%
Non-U.S. Equities 20% 10%
Commercial real estate 5% 10%
Alternative Investments 0% 10%
Rate of Return - For the year ended .June 30, 2018, the annual money-weighted rate of
return on plan investments, net of plan investment expense, was 4.59 percent. For the
year ended .June 30, 2017, the annual money-weighted rate of return on plan
investments, net of plan investment expense, was 12.10 percent. The money-weighted
rate of return expresses investment performance, net of investment expense, adjusted
for the changing amounts actually invested.
15
Lansing Board of Water and Light
Defined Benefit Plan and Trust for Employees' Pensions
Notes to Financial Statements
As of and for the Years Ended June 30, 2018 and 2017
Note 7 - Net Pension Asset of the BWL
The components of the net pension asset of the BWL at June 30, 2018 and 2017 were
as follows (in thousands):
2018 2017
Total pension liability $ 55,751 $ 56,895
Plan fiduciary net pension 62,367 65,924
Plan's net pension asset $ (6,616) $ (9,029)
Plan fiduciary net position, as a percentage of
the total pension liability 1 1 1.87% 1 1 5.87%
Actuarial Assumptions - The June 30, 2018 total pension liability was determined by an
actuarial valuation as of February 28, 2018, which used updated procedures to roll
forward the estimated liability to June 30, 2018. The June 30, 2017 total pension
liability was determined by an actuarial valuation as of February 28, 2017, which used
updated procedures to roll forward the estimated liability to June 30, 2017. The total
pension liability is determined by the Plan's independent actuary and is that amount
that results from applying actuarial assumptions to adjust the total pension liability to
reflect the time value of money (through discounts for interest) and the probability of
payment (by means of decrements such as for death, disability, withdrawal, or
retirement) between the valuation date and the expected date of payment. Benassist
Actuaries and Nyhart Actuary & Employee Benefits were the actuaries for the February
28, 2018 and February 28, 2017 valuations, respectively. The valuations used the
following actuarial assumptions, applied to all periods included in the measurement:
Inflation 3.00%
Salary increases 3.50%
The most recent experience review was completed in 2014. Since the Plan only covered
17 active participants in fiscal year 2014, assumptions like termination, retirement, and
disability have an immaterial impact on the results and have not been changed.
16
Lansing Board of Water and Light
Defined Benefit Plan and Trust for Employees' Pensions
Notes to Financial Statements
As of and for the Years Ended June 30, 2018 and 2017
Note 7 - Net Pension Asset of the BWL (Continued)
The mortality table was based on the RP-2014 Total Dataset Mortality Table, Male and
Female, adjusted to 2006 and projected generationally using the MP-201 7 projection
scale.
Discount Rate - The discount rate used to measure the total pension liability was 7.0
percent and 7.5 percent for June 30, 2018 and June 30, 2017, respectively. The
projection of cash flows used to determine the discount rate in both years assumed
that BWL contributions will be made at rates equal to the actuarially determined
contribution rates.
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, 2018 and 2017 for each major
asset class included in the pension plan's target asset allocation, as disclosed in Note 6,
are summarized in the following table:
2018 Long-term 2017 Long-term
Expected Real Rate Expected Real Rate
Asset Class of Return of Return
Fixed income 3.23% 2.54%
Domestic equity 7.89% 7.94%
International equity 8.73% 8.66%
Real estate 5.91% 5.88%
17
Lansing Board of Water and Light
Defined Benefit Plan and Trust for Employees' Pensions
Notes to Financial Statements
As of and for the Years Ended June 30, 2018 and 2017
Note 7 - 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 at June 30, 2018, calculated using the
discount rate of 7.0 percent, as well as what the BWL's net pension asset would be if it
were calculated using a discount rate that is 1-percentage-point lower (6.0 percent) or
1 percentage point higher (8.0 percent) than the current rate:
Current
1% Decrease Discount Rate 1% Increase
(6.00%) (7.00%) (8.00%)
Net pension liability(asset) of the
BWL (in thousands) $ (1,539) $ (6,616) $ (9,467)
The following presents the net pension asset of the BWL at June 30, 2017, 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 1 -percentage-point lower
(6.5 percent) or 1 percentage point higher (8.5 percent) than the current rate:
Current
1% Decrease Discount Rate 1% Increase
(6.50%) (7.50%) (8.50%)
Net pension liability(asset) of the
BWL (in thousands) $ (4,900) $ (9,029) $ (12,879)
18
Lansing Board of Water and Light
Defined Benefit Plan and Trust for Employees' Pensions
Notes to Financial Statements
As of and for the Years Ended June 30, 2018 and 2017
Note 8 - Fair Value Measurements
The framework for measuring fair value provides a fair value hierarchy that prioritizes
the inputs to valuation techniques used to measure fair value. The hierarchy gives the
highest priority to unadjusted quoted prices in active markets for identical assets or
liabilities (level 1) and the lowest priority to unobservable inputs (level 3). The three
levels of the fair value hierarchy under authoritative guidance are described as follows:
Level 1 - Inputs to the valuation methodology are unadjusted quoted market prices
for identical assets in active markets that the Plan has the ability to
access.
Level 2 - Inputs to the valuation methodology include:
> quoted prices for similar assets or liabilities in active markets;
> quoted prices for identical or similar assets or liabilities in inactive
markets;
> inputs other than quoted prices that are observable for the asset or
liability;
> inputs that are derived principally from or corroborated by observable
market data by correlation or other means; and
> if the asset or liability has a specified (contractual) term, the level 2
input must be observable for substantially the full term of the asset or
liability.
Level 3 - Inputs to the valuation methodology are unobservable and significant to
the fair value measurement.
The asset's or liability's fair value measurement level within the fair value hierarchy is
based on the lowest level of any input that is significant to the fair value measurement.
Valuation techniques maximize the use of relevant observables and minimize the use of
unobservable inputs.
19
Lansing Board of Water and Light
Defined Benefit Plan and Trust for Employees' Pensions
Notes to Financial Statements
As of and for the Years Ended June 30, 2018 and 2017
Note 8 - Fair Value Measurements (Continued)
The following is a description of the valuation methodologies used for assets measured
at fair value. There have been no changes in the methodologies used at June 30, 2018
and 201 7:
Money market fund.- Valued at the quoted net asset value ("NAV") of shares held by the
Plan at year end.
U.S. government obligations, common stock and fixed income securities: Valued at the
most recent closing price reported on the market on which individual securities are
traded.
Mutual funds: Valued at the daily closing price as reported by the fund. Mutual funds
held by the Plan are open-end mutual funds that are registered with the Securities and
Exchange Commission. These funds are required to publish their daily NAV and to
transact at that price. The mutual funds held by the Plan are deemed to be actively
traded.
Partnership: Valued using either NAV, valuations provided by management reflecting
the partnership's share of capital account balance, or the income and market approach.
The preceding methods may produce a fair value calculation that may not be indicative
of net realizable value or reflective of future fair values. Furthermore, while the Plan
believes its valuation methods are appropriate and consistent with other market
participants, the use of different methodologies or assumptions to determine the fair
value of certain financial instruments could result in a different fair value measurement
at the reporting date.
20
Lansing Board of Water and Light
Defined Benefit Plan and Trust for Employees' Pensions
Notes to Financial Statements
As of and for the Years Ended June 30, 2018 and 2017
Note 8 - Fair Value Measurements (Continued)
The following table sets forth by level, within the fair value hierarchy, the Plan's assets
at fair value as of June 30, 2018 and 201 7:
June 30, 2018
Investment Type Level 1 Level 2 Level 3 Total
Cash and money market trust fund $ - $ 1,890,701 $ - $ 1,890,701
U.S. government obligations - 7,966,488 - 7,966,488
Fixed income securities - 12,372,866 - 12,372,866
Mutual funds - 26,341,508 - 26,341,508
Common stocks 13,634,806 - - 13,634,806
Total $ 13,634,806 $ 48,571,563 $ - $ 62,206,369
June 30, 2017
Investment Type Level 1 Level 2 Level 3 Total
Cash and money market trust fund $ - $ 1,088,909 $ - $ 1,088,909
U.S. government obligations - 9,053,469 - 9,053,469
Fixed income securities - 12,156,276 - 12,156,276
Mutual funds - 22,381,599 - 22,381,599
Partnership - - 1,117,790 1,117,790
Common stocks 19,938,242 - - 19,938,242
Total $ 19,938,242 $ 44,680,253 $ 1,117,790 $ 65,736,285
21
Lansing Board of Water and Light
Defined Benefit Plan and Trust for Employees' Pensions
Notes to Financial Statements
As of and for the Years Ended June 30, 2018 and 2017
Note 9 — Risks and Uncertainties
The total pension liability is reported based on certain assumptions pertaining to
interest rates, inflation rates, and employee demographics, all of which are subject to
change. Due to uncertainties inherent in the estimations and assumptions process, it is
at least reasonably possible that changes in these estimates and assumptions in the
near term would be material to the financial statements.
In addition, the Plan invests in various investment securities. Investment securities are
exposed to various risks such as interest rate, market, and credit risks. Due to the level
of risk associated with certain investment securities, it is at least reasonably possible
that changes in the values of investment securities will occur in the near term and that
such changes could materially affect the amounts reported in the Statement of Plan
Fiduciary Net Position.
Note 10 — Subsequent Events
The Plan has evaluated subsequent events occurring through the date that the Plan's
financial statements were approved and available to be issued, for events requiring
recording or disclosure in the Plan's financial statements. There are no subsequent
events warranting disclosures.
22
Required Supplementary Information
Lansing Board of Water and Light
Defined Benefit Plan and Trust for Employees' Pensions
Required Supplemental Information(Unaudited)
Schedule of Changes in the BWL's
Net Pension Asset and Related Ratios
Last Ten Fiscal Years
(in thousands)
2018 2017 2016 2015 2014 2013 2012* 2011* 2010* 2009*
Total Pension Liability
Service cost $ 50 $ 113 $ 223 $ 274 $ 349 $ 407 $ $ $ $
Interest 4,031 4,317 4,625 4,919 4,751 5,085
Changes in benefit terms - - - - - -
Differences between expected and actual experience (230) (383) 299 (1,093) 964 (1,716)
Changes in assumptions 1,419 (857) (1,468) - 4,538 -
Benefit payments,including refunds (6,414) (7,473) (7,896) (8,046) (8,541) (7,777)
Net Change in Total Pension Liability (1,144) (4,283) (4,217) (3,946) 2,061 (4,001)
Total Pension Liability -Beginning of year 56,895 61,178 65,395 69,341 67,280 71,281
Total Pension Liability -End of year 55,751 56,895 61,178 65,395 69,341 67,280
Plan Net Position
Contributions-Employer - - - - - -
Contributions-Member - - - - - -
Net investment income 3,112 8,272 47 1,771 14,243 10,170
Administrative expenses (255) (317) (388) (576) (596) (536)
Benefit payments,including refunds (6,414) (7,473) (7,896) (8,045) (8,541) (7,777)
Other
Net change in Net Position Held in Trust (3,557) 482 (8,237) (6,850) 5,106 1,857
Net Position Restricted for Pensions-Beginning of year 65,924 65,442 73,679 80,529 75,424 73,567
Net Position Restricted for Pensions -End of year 62,367 65,924 65,442 73,679 80,530 75,424
BWL Net Pension Asset-Ending $ (6,616) $ (9,029) $ (4,264) $ (8,284) $ (11,189) $ (8,144) $ $ $ $
Plan Net Position as a%of Total Pension Liability 111.87% 115.87% 106.97% 112.67% 116.14% 112.10%
Covered Employee Payroll $ 603 $ 586 $ 772 $ 1,018 $ 1,225 $ 1,684 $ $ $ $
BWL's Net Pension Asset as a%of Covered Employee Payroll (1,097%) (1,541%) (552%) (814%) (913%) (484%)
*GASB Statement No.67 was implemented as of June 30,2014. Information from 2008-2012 is not available and this schedule will be presented on a prospective basis.
See Note to Required Supplemental Information 23
Lansing Board of Water and Light
Defined Benefit Plan and Trust for Employees' Pensions
Required Supplemental Information (Unaudited)
Schedule of Employer Contributions
Last Ten Fiscal Years
(in thousands)
2018 2017 2016 2015 2014 2013 2012 2011 2010 2009
Actuarially determined contribution $ $ $ $ $ $ $ $ 86 $ 2,109 $
Contributions in relation to the actuarially determined contribution 86 2,109
Contribution Deficiency(Excess) $ $ $ $ $ $ $ $ - $ - $
Covered Employee Payroll $ 603 $ 586 $ 772 $ 1,018 $ 1,225 $ 1,684 $ 2,101 $ 2,398 $ 2,660 $ 3,089
Contributions as a Percentage of Covered Employee Payroll - % - % - % - % - % - % - % 3.59% 79.29% - %
See Note to Required Supplemental Information 24
Lansing Board of Water and Light
Defined Benefit Plan and Trust for Employees' Pensions
Note to Required Supplementary Information (Unaudited)
Year Ended June 30, 2018
Actuarial valuation information relative to the determination of contributions:
Valuation date June 30, 2018, based on roll-forward of February 28, 2018 valuation
Methods and assumptions used to determine contribution rates:
Actuarial cost method Entry age method
Amortization method Level dollar over a 1 5-year period
Remaining amortization period 15 years
Asset valuation method Market value of the assets
Inflation 3.0 percent
Salary increases 3.5 percent per year
Investment rate of return 7.0 percent per year compounded annually
Mortality RP-2014 Mortality Table with MP-201 7 Improvement Scale
Changes to assumpsions: The mortality projection scale was updated to MP-201 7 Projection Scale. The assumed
form of payment for active participants was changed from life annuity to a 100%joint and survivor annuity. The
discount rate and the expected long term rate of return on assets was decreased from 7.50%to 7.00%.
25
Lansing Board of Water and Light
Defined Benefit Plan and Trust for Employees' Pensions
Required Supplemental Information (Unaudited)
Schedule of Investment Returns
Last Ten Fiscal Years
2018 2017 2016 2015 2014 2013* 2012* 2011* 2010* 2009*
Annual money-weighted rate of retun
net of investment expense 4.59% 12.10% (0.49%) 1.55% 19.18% - % - % - % - % - %
*GASB 67 was implemented as of June 30,2014. Information from 2008-2013 is not available and this schedule will be presented on a prospective basis
See Note to Required Supplemental Information 26