HomeMy WebLinkAboutCity of Lansing Emloyee Retirement System Actual Valuation for Funding and Contributions v2 I
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City of Lansing
Employees' Retirement system t
Actuarial Valuation
For Funding and Contributions
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as of December 31,2014
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[ September, 2015
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City of Lansing Employees' Retirement System December 31,2014
Actuarial Funding Valuation
Table of Contents
EXECUTIVESUMMARY....................................................................................................................... 3
11 PLAN ASSET INFORMATION................................................................................................................. 5
PlanAssets............................................................................................................................... 6
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Development of Actuarial Value of Assets.................................................................. ........ 7
1 PARTICIPANT SUMMARY....................................................................................................................8
Reconciliation of Plan Participants from Prior Year.................................................
Distribution of Active Participants and Average Compensation........................................... 10
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VALUATIONSUMMARY........................................................................................................... ..... 11
Development of Funding Ratio and City Contribution........................................................... 12
ACTUARIAL ASSUMPTIONS AND METHODS .......................................................................................... 13
SUMMARY OF PLAN BENEFITS........................................................................................................... 16
IGLOSSARY OF TERMS....................................................................................................................... 20
APPENDIX I:20 YEAR PROJECTION OF FUNDING AND CONTRIBUTIONS...................................................... 21
j APPENDIX 11: HISTORY OF EMPLOYER CONTRIBUTIONS AND FUNDING PROGRESS........................................ 22
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City of Lansing Employees'Retirement System December 31,2014
Actuarial Funding Valuation
September 10, 2015
City of Lansing Employees' Retirement System
124 W. Michigan Avenue
8th Floor
Lansing, MI 48933
Executive Summary
Members of the Board:
I The following report sets forth the Actuarial Valuation of the City of Lansing Employees' Retirement
System (the System) as of December 31, 2014. The report is based on participant data and asset
summary as of December 31, 2014 as submitted bythe Plan Administrator and Cityfinance department.
We relied on this information without auditing it.
INVESTMENT PERFORMANCE:
The total Market Value of Plan Assets for the plan year ending December 31, 2014 was $204,492,610.
Plan assets exclude from this a reserve for healthcare benefits. The total yield of the fund for the plan
year ending December 31, 2014 was 6.3%on the market value of assets and 9.0% on an actuarial basis.
The Plan uses a smoothing method to determine the City's contributions. Under this method, asset gains
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or losses are spread over a 5-year period. The gains and losses are determined every year by comparing
actual investment returns with expected asset performance.
Details of the development of the Actuarial Asset Value are shown on page 8.
FUNDING RECOMMENDATIONS:
The total recommended City contribution for fiscal year 2016 is $10,181,620, Last year the total
recommended contribution was$10,547,556. Changes in the Employee Contributions and the change in
Plan provisions for the new hires in Teamsters 580 CTP and Supervisors and District Court Teamsters 580
Bargaining Units, resulted in a slight decrease in the City Contribution.
FUNDING PROGRESS:
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The Actuarial Accrued Liability as of December 31, 2014 is $309,924,744 compared to the Actuarial
Value of Assets (excluding healthcare reserve) of$177,259,420, resulting in a plan funded ratio of 57.2%.
On a market value basis,this ratio is 58.7%.
The purposes of this report are to establish the City contribution for the next fiscal year, and to evaluate
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the funding progress of the System.
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City of Lansing Employees'Retirement System December 31,2014
Actuarial Funding Valuation
The accounting report for the System, under GASB 67 and 68, is provided under separate cover, and
serves a different purpose. All the figures presented in this report are to be used for funding and
contribution purposes.
This report has been prepared in accordance with generally accepted actuarial principles and practices.
In the opinion of the Retirement Board and its actuary, the actuarial assumptions used are reasonable
' related to Retirement System experience and expectations, and represent the best estimate of
Retirement System experience.
The undersigned below are members of the American Academy of Actuaries, and are qualified to render
the actuarial opinions presented in this report.
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Respectfully Submitted,
BOOMERSHINE CONSULTING GROUP,L.L.C.
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G gory M. Stump, F5 , EA,- AAA, FCA Sunita K. Bhatia,ASA, EA, MAAA
Chief Actuary Senior Consultant
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Cityof Lansing Employees' Retirement System December 31,2014
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Actuarial Funding Valuation
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Plan Asset Information
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City of Lansing Employees' Retirement System December 31,2014
Actuarial Funding Valuation
i Plan Assets
Market Value of Total Fund as of January 1, 2014 $201,818,037
Receipts:
Employer Contribution-Pension-Fund 11,308,565
Employer Contribution -Healthcare Reserve 410,000
M:ember�Contributions .1,264,93
Adjustments Investment Income
Interest
Dividends 693,404
Market Appreciation 10;931,298
Total Additions $25,618,198
Disbursements:
Member Refunds: 6,567
Distributions to Participants/Beneficiaries 22,120,989
Adm.InistraVive Expenses and•ather 112,363,
Investment Expenses 703,706
Totai Disbursements $22,943;62.5
Net Increase/.(Decrease) in Assets 2.674 ,73
Market Value of Total Fund as of December 31,2014 $204,492,610
Allocation of Net Plan Assets
Asset Class Market Value %of Total
Cash and Short Term Investments 22,685,831 11.1%
j Equity 98,379,,975 48,1%
Fixed Income 70,862,732 34.7%
Real Estate 14.,061,815 6..9%
Accounts payable (1,497,743) -0.7%
TOTAL ASSETS $.204,49.2� 10 100..0%
Estimated Rate of Return on Market.Value for 2014: 6,31%
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City of Lansing Employees' Retirement system December 31,2014
Actuarial Funding Valuation
Development of Actuarial Value of Assets
r I Market Value of Total Fund as of December 31, 2013 $201,918,037
Plus: Contributions 12,983,498
l Less: Benefit Payments,Refunds. 22,127 556
Less:Admin Expenses 112,363
Plus,Expected�Return`during2'014(@ IX%), 14,740,87
Ex eoted M a rket Value e
p >< $207,30.2,491
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Actual<itll'arket Value of Tatel-Fund.as-ofbecember-31,;2014 $204,492 6.10
Asset Gain/(Loss)for 20i4 Plan Year (2,809,882)
Actuarial Value:=
Market Value of Total Fund as of December 31, 2014 $204,492,610
Lest:80Ywof,2014 Gain/(toss): 80 , 'f2,809 882a (2,247,905)
Less: 60%of 2013 Gain/(Loss) 60%* 10,553,104 6,331,863
Less0 „af2012 Gain/(Loss) 40%* 7,932,079 3,172,832
Less: 20%of 2011 Gain Loss 20%* 10 802 449 2 160 490
Total Deferred.'aain/(Loss). 5,096,300,
' Actuarlal3Value"o Set Total Fund -December 31, 2014 $199,396,310
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Mai ket�llaub,;es [deferred)
as%of Market Value of Assets 97.5%
Healthcare Reserve as of December 31, 2014 $22,702,174
i 1 Adjusited Healthcare Reserve 22,136,890'
Actuarial Valu:.e of Assets,:Pensidn Plan -December 31,2014. $177,259,420
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Estimated Rate of,Return on the Actuarial Value of Assets: 9.01%
J1 Takes into account asset smoothing
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City of Lansing Employees'Retirement System December 31,2014
Actuarial Funding Valuation
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Participant Summary
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City of Lansing Employees' Retirement System December 31,2014
Actuarial Funding Valuation
Reconciliation of Plain participants from Prior Year
{ Active Vested
Parti:cl.a. t Tertntn t on etfred Dis-'b:ld Sneficary Total'
Participants as of December 31,2013 373 68 735 25 125 1,326
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r Retired (34) (3) 37 0 0 0
Terminatd Vstod (9) 0 q 0 0.
r i Terminated Non-Vested(Member (8) 0 0 0 0 (8)
Contributions refunded)
i p 0 0 0 p 0
iPsabledI �
Deceased (1) 0 (20) (1) (9) (31)
New.Benefleiary JD17(3. 0. 0 0 0 9 9
Rehired 0 0 0 0 0 0
.Terminated Non-Vested(Member 0 0 . 0 .0 0 0
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Contributions to be refunded)
Transfers In 0 0 0 0 0 0
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� fto Police and�tr.s flan 0 0 0 0 0 0
New Hires 43 0 0 0 0 43
Data-Ad justmen'.
is (3.)= 0 0 ,1 `0
Participants as of December 31,2014 361 74 752 25 124 1,336
Inactive Participants 12 31 2013 12 31 2014
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;f Number of Retired Participants 735 752
Average-Age 66.5 .66..9.
Average Annual Benefit $26,821 $27,033
Number of Disabled Participants 25 25
Average.Age 61.4 62.1
Average Annual Benefit $18,477 $18,432
Number of Beneficiaries/EDROs 125 124
Average.Age 715 73..0
Average Annual Benefit $12,367 $12,361
`.� Number of Deferred Vested Participants 68 74
Average Age 51.1. 51.0
Average Annual Benefit $11,716 $11,213
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City of Lansing Employees' Retirement System December 31, 2014
i Actuarial Funding Valuation
Distribution of Active Participants and Average Compensation
Nearest -----Years of Credited Service-----
Age <1 1 2 - 4 5 9 10 - 14 15 - 19 20 24 25+ Total
<20
l I 20-24 1 1
4,406 4,406
25-29 8 5 1 14
22,122 41,617 30,994 29,718
30-34 8 4 2 3 1 18
24,229 40,369 56,987 54,766 35,666 37,180
35-39 5 1 6 7 1 20
25,512 60,050 51,701 57,492 49,750 47,501
40-44 8 2 2 3 24 3 42
23,518 44,108 70,945 58,901 56,353 52,309 50,103
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45-49 5 5 1 11 37 16 6 1 82
24,753 71,373 46,180 60,798 59,762 60,349 62,396 70,589 58,748
50-54 2 1 2 11 35 26 11 1 89
23,214 86,352 42,406 65,092 60,166 57,187 57,818 82,998 58,935
55-59 4 9 24 14 7 3 61
{ 21,457 60,295 56,014 62,896 65,486 57,284 57,108
r 60-64 1 1 1 10 4 3 1 21
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17,377 103,197 74,304 50,343 70,802 65,313 70,105 59,408
>64 1 7 4 1 13
107,446 57,025 63,798 69,827 63,972
Total 42 18 9 45 145 68 28 6 361
f 22,960 53,391 57,894 61,342 57,617 59,972 61,948 65,924
i I Males Females Total
Total Compensation 12,434,981 7,287,376 19,769,460
Average Compensation 56,267 52,427 54,763
Arithmetic Averages:
Nearest Age 48.61 49.19 48.70
Completed Years of Service 11,01. 10.68 10.85
I Salary-Weighted Averages:
Nearest Age 49.85 50.15 49.84
Completed Years of service 12.24 11.31 11.87
Number of Participants 221 139 361
Percent male/female 61.22% 38.50% 100.00%
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City of Lansing Employees' Retirement System December 31,2014
Actuarial Funding Valuation
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Valuation Summary.
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City of Lansing Employees' Retirement System December 31,2014
Actuarial Funding Valuation
Development of Funding Ratio and City Contribution
12/31/2013 12/31/2014
�) otaI Entry Age Normal Cost $2;862,200 $ 2,842,174
2) Estimated Employee Contributions 1,058,421 1,072,734
3) . Net City Norma Cost(1) (2) $ 1„803,779„E, $1,769,440
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4) �Vzlu.atian Payroll -�$20��T4143-': 22,39111750.
5) City:N.o:rmal Cost Rate(%of pay): (3) (4} 8.6% 7.9%
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Actuarial Accrued Liability
Active Employees $ 55,328,454 $ 53,422,881
Member°Benefit Fund 15.621340- 16,5'34,167-
Terminated Vested 5,404,429 5,823,137
F,.., Retirees n Berieficiangs 236 904,S23y�a 234 1
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6) Total Actuarial Accrued Liability: (sum of above) $313,258,746 $ 309,924,744
7) Actuarial Value of Assets 172,687,582 177,259,421
8) U`nfunded Actuarial Acerue:d Liability:(6)—(7): 140.,571,164 132,665,3:23
I 9) Plan Funding Ratio: (7)_(6) 55.1% 57.2%
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10) Amortization of Unfunded Actuarial Accrued Liability $°8,426,634 $8,106,040
11) Amortization rtate(%of Pay)::. :10)+;(4J,; .40A% 36,2
12.) Total Contribution Rate., (5)+(1.1). = 49.0% 44.1%
13) Projected Fiscal Payroll $2.1.,521,,242 $23,055:,894
J 14) Total City Contribution:(:12)x(13) $ 10,54�,556 $10,E 81.,620
Estimated Cash Flow for Next Five Years
Fiscal Year City Contributions Member Contributions Benefit Payments
2017 $ 0;406 000; $ 1,100;000 $22,100,000 `
2018 10,500,000 1,200,000 22,400,000
2019 10,700,000 12"00,000 22,600,000
2020 11,000,000 1,300,000 23,000,000
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2021 11,300,000 1,30.0000 23,200,000
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City of Lansing Employees' Retirement System December 31,2014
Actuarial Funding Valuation
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Actuarial .Assumptions and Methods
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City of Lansing Employees' Retirement System December 31,2014
Actuarial Funding valuation
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I` Funding Method: Entry Age Normal Actuarial Cost Method. The contribution equals the
sum of the normal cost and the amount necessary to amortize the
unfunded actuarial liability as a level percent of payroll over a closed
period of thirty years, decreasing by 1 year to an ultimate period of 15
years (27 years remaining as of December 31,2014).
Asset Smoothing Method: Investment gains and losses are determined annually and each is spread
r I over a 5- year period. This is done on a total fund basis. The adjusted
value of the healthcare reserve is then excluded from the valuation
assets.
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Investment Return: 7.60%compounded annually, net of investment expenses
Cost of Living(inflation): The cost of living as measured by the Consumer Price Index (CPI) is
I i assumed to increase at the rate of 3.10% per year.
Salary Increases: Increases in salary are assumed to be 3.10% annually, plus an additional
' amount that varies based on the service of the member as shown below:
1 Years of Service UAW All Others
l 0-8 2.00% 1.50%
9-10 2.00% 0.25%
11+ 1.00% 0.25%
Mortality: RP2000 Combined Healthy Tables set back one year for females. For
Disabled members, the disabled versions of these tables are assumed.
f Each of these tables is projected to 2008 using Scale BB. Projected
improvements in mortality for non-disabled members have been
accounted for by projecting the table to 2023 using 50%of Scale BB.
Percent Married: 90% of participants are assumed to be married. Male spouses are
assumed to be three years older than their female spouse.
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Disability: Rates of disability vary based on the age of the member as shown below.
Half of all disabilities are assumed to be duty related.
Sample rates are shown below:
Age Rate
20 0.0004
` 1 30 0.0004
40 0.0013
50 0.0041
60 0.0090
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City of Lansing Employees' Retirement System December 31,2014
1 Actuarial Funding Valuation
Termination: Rates of termination vary based on the service of the member.
Sample Rates are shown below:
Years of Service UAW Others
0 10.0% 20.0%
1 7.0% 10.0%
2 5.0% 4.0%
j 3 5.0 4.0%
1 4 5.0% 4.0%
5 4.0% 3.0%
10 1.0% 1.0%
15 1.0% 1.0%
20+ 0.5% 0.5%
1 Retirement: Rates of retirement vary based on the age of the member as shown
below. Rate is applied only if the member is eligible to retire.
Age UAW Others
45-49 0.0% 10.0%
l 50-54 40.0% 10.0%
55-56 40.0% 15.0%
57 20.0% 15.0%
58 10.0% 25.0%
59 10.0% 10.0%
1 I 60 20.0% 15.0%
61 35.0% 15.0%
62-64 20.0% 15.0%
65-69 100.0% 50.0
70+ 100.0% 100.0%
The assumptions above are based on the most recent experience study, covering 2005 through 2011.
The next study is scheduled for 2016.
Changes in assumptions since the prior valuation
There have been no changes in assumptions since the prior valuation.
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City of Lansing Employees' Retirement System December 31,2014
Actuarial Funding Valuation
Non Duty Pre-Retirement Death
Eligibility The non-duty pre-retirement death benefit is payable upon the death of
a member after earning 8 years of credited service.
Benefit Amount Benefit is paid to the surviving spouse as a Joint and Survivor benefit and
is computed in the same manner as the Normal Retirement Benefit.
i Optional Benefit Forms
Prior to retirement, a member may elect to convert the retirement allowance into a benefit of equivalent
actuarial value in accordance with one of the optional forms described below.
I a. Cash Refund Annuity - If a member dies before receiving the total value of accumulated member
contributions, the remaining member contributions are payable to designated beneficiary(ies) at the
time of death.
b. 50%or 100%Joint and Survivor Annuity
c. Social Security Level Income ("Equating Pension") -Any member who retires prior to age 65 may elect to
' have his retirement allowance actuarially equated to provide an increase retirement allowance to age
65, and a reduced retirement allowance payable thereafter. 'The increased retirement allowance shall
approximate the sum of the member's reduced retirement allowance 'payable after age 65 and the
member's estimated Social Security Primary Insurance Amount.
Post-Retirement Benefit Adjustments
One-time post-retirement benefit increases were granted in 1984, 1987 and 1998,
J Effective January 1, 1999, and each January 1 thereafter, certain eligible retirees and beneficiaries receive
annual benefit increases,financed by the Members'Benefit Fund reserve while it maintains a positive balance.
Retirees/Beneficiaries must meet both of the following conditions:
1) Has been retired at least 6 months as of the January 1 increase date
1 2)Age 60 as of the January 1 increase date
For a retiree/beneficiary who elected a 50%or 100%Joint and Survivor Annuity,the maximum annual increase
is equal to $200 ($100 for the beneficiary if 50% option is elected) times a ratio of the original Joint and
Survivor benefit to the original straight life annuity benefit.
For all other retirees/beneficiaries,the maximum annual increase is$200.
Changes in Plan provisions since the prior valuation
This Valuation takes into effect the change in Employee Contributions and the Plan provisions for the
new hires in Teamsters 580 CTP and Supervisors and District Court Teamsters 580 Bargaining Units.
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CONSULTIM, GROUP,iAL
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City of Lansing Employees' Retirement System December 31,2014
Actuarial Funding Valuation
Glossary of Terms
Actuarial Accrued Liability The portion of benefits deemed to be accrued by participants based on
(AAL): past service. The AAL serves as the asset funding target, when annual
contributions are determined.
Actuarial Value of Assets (AVA): The smoothed value of assets, used to compute the Unfunded AAL.
The purpose of the AVA is to control volatility in annual cash
contributions.
Amortization of Unfunded The portion of the annual cash contribution that represents a portion
Liability: of the Unfunded AAL. The amortization can be positive or negative.
Actuarially Determined The contribution determined by the actuary for funding purposes.
Employer Contribution (ADEC):
Market Value of Assets (MVA): The total value of Plan assets available to pay benefits.
Normal Cost: That portion of the annual contribution that represents one year's
I accrual of benefits. In funding calculations, this is known as the
Service Cost.
Unfunded Actuarial Accrued The difference between the Actuarial Value of Assets and the Actuarial
Liability: Accrued Liability, used for funding purposes.
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City of Lansing Employees' Retirement System December 31, 2014
Actuarial Funding Valuation
Appendix L 20 Year Projection of Funding and.Contributions
The graphs below show a projection of expected funding progress and City contributions to the Fund.
The actual funding progress and contributions over this time period will differ from what is shown here,
jdue to the actual experience of the Plan. However, we can see that the Plan is on a path to eventually
reducing the unfunded Liability (top graph, red line) and improving the funding ratio by about 15% over
the next 20 years. During this time,the City contribution rate)s expected to remain near 40% of pay. All
recent benefit changes have been taken into account for these projections.
. ) Projection of Funding Progress
1601000,000
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Fonding Ratio —Unfunded AAL(AVA)
j 100,000,000 - —-W _ _- 6?3l 70%� 72%
�gya 59%59%6G%60%61%61%62%63%
G4%65, fifi%67%68%
60,000,DQ0 -sy% 7 290
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60,000,wo -
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40,000,00a - - -
20,000,000
2014 2017 2020 2023 2026 2029 2032
Projection of CitV Contributions
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20,000,000 -r..__...._.__._..T__..... ........._...__... ....... ------- - _ -------—------ 60%
lama Amortization , .�:..e Normal Cost city contrb %Pa
I 18,000,000 YI
1 `- saga
16,000,000
14,000,000
40%
12,000,000 ;.. ----------- ---------------'-- --
10,000,000 _ - -- --_ __._ _.. - -. _. _.._ ._... ..__. ._.., 30%
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8,000,000
i 20%
6,000,000 - -- --
4,000,000 - - -
10%
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2,000,000
2015 2018 2021 2024 2027 2030 2033
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City of Lansing Employees' Retirement System December 31,2014
Actuarial Funding Valuation
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Appendix 11: History of Employer Contributions and Funding Progress
Historical Employer Contributions
l Actuarially Determined Actual Employer
Fiscal Year Ending Employer Contribution Contribution
6/30/2007 5,230,668 5,230,668
6/30/2008 6,021,613 6,021,613
6/30/2009 6,047,520 6,476,000 (1)
6/30/2010 6,472,341 6,043,861 (1)
6/30/2011 7,297,083 7,297,083
6/30/2012 7,596,879 7,523,534 (2)
6/30/2013 8,586,536 8,586,536 (3)
6/30/2014 9,361,000 9,361,000
6/30/2015 10,548,000 10,548,000 (4)
6/30/2016 10,182,000 To be determined
(1)The City contributed in excess of its FY 2009 Contribution. The City's FY 2010 contribution was
reduced by the dollar amount of the FY 2009 overpayment.
(2)The FY 2012 City contribution was reduced by$73,345 in recognition of additional contributions
by United Auto Workers (UAW) employees, which were negotiated and contributed after the
establishment of the June 30, 2012 Contribution from the December 31, 2010 valuation.
(3) Fiscal year 2013 Contribution reflects changes made to actuarial assumptions based on an
Experience Study. Changes included a decrease in the assumed rate of return from 8.0%to 7.8%.
A closed amortization period was also adopted as of 12/31/2011, beginning at 30 years and
decreasing each year until 15 years is reached.
f (4) Fiscal year 2015 Contribution reflects changes made to assumed return and inflation from 7.8%
J and 3.3%to 7.6%and 3.1%, respectively.
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City of Lansing Employees' Retirement System December 31,2014
Actuarial Funding Valuation
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Historical Funding Progress
Actuarial Value Actuarial Accrued Percentage Unfunded Actuarial
Valuation Date of Assets(AVA) Liability(AAL) Funded Accrued Liability
12/31/2005 207,881,000 241,882,000 85.9% 34,001,000
12/31/2006 208,765,000 251,427,000 83.0% 42,662,000
12/31/2007 208,572,000 254,356,000 82.0°% 45,784,000
12/31/2008 200,600,000 258,331,000 77.7% 57,731,000
12/31/2009 193,324,000 262,298,000 73.7% 68,974,000
12/31/2010 187,440,590 269,461,935 69.6% 82,021,345
12/31/2011 177,100,863 287,306,707 61.6% 110,205,844 (5)
12/31/2012 167,569,807 293,974,433 57.0% 126,404,626
12/31/2013 172,687,582 313,258,746 55.1% 140,571,164 (6)
12/31/2014 177,259,421 309,924,744 57.2% 132,665,323
ri
(5) Reflects changes made to actuarial assumptions based on an Experience Study, including a reduction in
the assumed investment return 8.0%to 7.8%.
(6) Reflects changes made to assumed return and inflation from 7.8% and 3.3% to 7.6% and 3.1%,
respectively.
BOOMENIVIF
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