HomeMy WebLinkAboutCity of Lansing Employee retirement System report as of Dec 31 2018 4
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City of Lansing
Employees' Retirement System
Actuarial Valuation
For Funding and Contributions
as of December 31, 2018
December, 2019
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City of Lansing Employees' Retirement System December 31, 2018
Actuarial Funding Valuation
Table of Contents
EXECUTIVE SUMMARY....................................................................................................................... 3
SECTION 1: PLAN ASSET INFORMATION ................................................................................................5
1.1:Summary of Plan Assets................................................................................................... 6
1.2: Development of Actuarial Value of Assets....................................................................... 7
1.3: Reconciliation of Fund Reserves....................................................................................... 8
1.4: Historical Investment Returns.......................................................................................... 9
SECTION 2: PARTICIPANT SUMMARY.................................................................................................. 10
2.1: Reconciliation of Plan Participants................................................................................. 11
2.2: Demographic Summary.................................................................................................. 12
SECTION 3:VALUATION SUMMARY.................................................................................................... 13
3.1:Summary of Actuarial Liability and Funding Progress ................................................... 14
3.2: Development of Actuarially Determined Employer Contribution (ADEC)....................... 15
SECTION 4:ACTUARIAL ASSUMPTIONS AND METHODS.......................................................................... 16
SECTION 5:SUMMARY OF PLAN BENEFITS........................................................................................... 19
GLOSSARYOF TERMS....................................................................................................................... 23
APPENDIX I:20 YEAR PROJECTION OF FUNDING AND CONTRIBUTIONS...................................................... 24
APPENDIX II: HISTORY OF EMPLOYER CONTRIBUTIONS AND FUNDING PROGRESS........................................ 25
APPENDIX III: BENEFIT COSTS BY UNIT/FORMULA................................................................................. 27
APPENDIX IV:VALUATION SENSITIVITY............................................................................................... 28
APPENDIX V: RISK ASSESSMENT........................................................................................................ 29
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City of Lansing Employees' Retirement System December 31,2018
Actuarial Funding Valuation
Executive Summary
December 19, 2019
City of Lansing Employees' Retirement System
124 W. Michigan Avenue
8th Floor
Lansing, MI 48933
Members of the Board:
The following report sets forth the Actuarial Valuation of the City of Lansing Employees' Retirement
System (the System) as of December 31, 2018. The report is based on participant data and asset
summary as submitted by the Plan Administrator and City finance 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, 2018 was $192,189,675.
Plan assets exclude from this a reserve for healthcare benefits. The total yield of the fund for the plan
year ending December 31, 2018 was (3.6%)on the market value of assets and 3.0%on an actuarial basis,
taking into account asset smoothing.
The Plan uses a smoothing method to determine the City's contributions. Under this method, asset gains
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 in Section 1.
FUNDING RECOMMENDATIONS
The total City contribution for fiscal year 2020 is $10,698,401. The main reason for the increase in the
City's contributions is the investment loss on the return on the Market Value of Assets and a lower than
expected return on the Actuarial Value of Assets.
FUNDING PROGRESS
The Actuarial Accrued Liability as of December 31, 2018 is $ 303,408,333 compared to the Actuarial
Value of Assets (excluding healthcare reserve) of$172,090,691, resulting in a plan funded ratio of 56.7%.
On a market value basis,this ratio is 52.7%.
ASSUMPTION CHANGES
There have been no changes in assumptions since the prior valuation.
BOUNIERSHI\E
COASUU,1I\C CROUP,
City of Lansing Employees' Retirement System December 31,2018
Actuarial Funding Valuation
Actuarial Certification
The purposes of this report are to establish the City contribution for the next fiscal year, and to evaluate
the funding progress of the System.
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.
Respectfully Submitted,
BOOMERSHINE CONSULTING GROUP, L.L.C.
�CAL -
Gregory M. Stump, FSA, EA, MAAA, FCA Sunita K. Bhatia,ASA, EA, MAAA, FCA
Chief Actuary Senior Consultant/Actuary
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City of Lansing Employees' Retirement System December 31,2018
Actuarial Funding Valuation
Section 1: Plan Asset Information
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City of Lansing Employees' Retirement System December 31, 2018
Actuarial Funding Valuation
1.1: Summary of Plan Assets
Market Value of Total Fund as of January 1,2018 $210,587,074
Receipts:
Employer Contribution-Pension Fund 10,880,932
Employer Contribution - Healthcare Reserve 190,000
Member Contributions 1,263,753
Investment Income
Interest 3,277
Dividends 0
Market Appreciation (Depreciation) (6,820,724)
Total Additions $5,517,238
Disbursements:
Member Refunds 52,424
Distributions to Participants/Beneficiaries 23,234,040
Administrative Expenses and Other 46,457
Investment Expenses 581,716
Total Disbursements $23,914,637
Net Increase/(Decrease) in Assets ($18.397,399)
Market Value of Total Fund as of December 31,2018 $192,189,675
CONSULTING CROUP,ux.
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City of Lansing Employees' Retirement System December 31,2018
Actuarial Funding Valuation
1.2: Developinent of Actuarial Value of Assets
Market Value of Total Fund as of January 1,2018 $210,587,074
Plus: Contributions 12,334,685
Less: Benefit Payments, Refunds 23,286,463
Less:Admin Expenses 46,457
Plus: Expected Return during 2018 (@ 7.25%) 14,551,152
Expected Asset Value $214,139,991
Market Value of Total Fund as of December 31, 2018 $191,189,675
Investment Gain/(Loss)for 2018 Plan Year ($21,950,315)
Less: 80%of 2018 Gain/(Loss) 80% * (21,950,315) (17,560,252)
Less: 60%of 2017 Gain/(Loss) 60% * 10,726,974 6,436,184
Less:40%of 2016 Gain/(Loss) 40% * (3,364,585) (1,345,834)
Less: 20%of 2015 Gain/(Loss) 20% * (10,548,489) (2,109,698)
Total Deferred Gain/(Loss) (14,579,600)
Actuarial Value of Assets,Total Fund-December 31, 2018 $206,769,275
as%of Market Value of Assets 107.6%
Healthcare Reserve as of December 31, 2018 $32,232,164
Adjusted Healthcare Reserve' $34,678,585
Actuarial Value of Assets,Pension Plan-December 31, 2018 $172,090,690
Estimated Return on the Actuarial Value of Assets 3.04%
'Takes into account asset smoothing
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7
City of Lansing Employees' Retirement System December 31, 2018
Actuarial Funding Valuation
1.3: Reconciliation of Fund Reserves
EMPLOYEE
SAVINGS RETIREMENT MEMBER BENEFIT HEALTHCARE
FUND RESERVE RESERVE RESERVE TOTAL
1/1/2018 $12,613,827 $151,995,246 $15,559,973 $30,418,028 $210,587,074
Additions:
EE Contributions 1,263,753 1,263,753
ER Contributions 10,880,932 190,000 11,070,932
Interest: 3.00% 7.25% 4.48% 4.48%
Annual Credits 378,415 9.395,428 398,454 1,624,136 11,796,433
Deductions:
Refunds/Benefits (52,424) (22,403,130) (830,910) - (23,286,464)
Adjustment/Transfer (1,458,256) (17,783,797) - - (19,242,053)
12/31/2018 $12,745,315 $132,084,679 $15,127,517 $32,232,164 $192,189,675
Employees Savings Fund
Purpose Keep track of employee contribution balances,and interest credited to such.
Interest is credited annually at 3.0%.
Relevance to Plan Funding Does not directly impact plan funding
Retirement Reserve Fund
Purpose Provides funds to finance regular benefit payments to retirees. Interest is
credited annually at the assumed rate of return.
Relevance to Plan Funding Does not directly impact plan funding
Member Benefit Reserve(MBR)
Purpose Provides funds to finance supplemental benefit payments to retirees based
on prior early retirement programs(while reserve balance is positive).
Interest is credited annually at a rate determined by the City finance office.
Relevance to Plan Funding Actuarial liability for supplemental benefit deemed to be equal to the value of
the reserve
Healthcare Reserve
Purpose Funds invested with pension assets, but segregated to be used for retiree
healthcare benefits. Interest is credited annually at the same rate as the MBR.
Relevance to Plan Funding Excluded from pension assets to determine contributions towards pension
funds
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City of Lansing Employees' Retirement System December 31,2018
Actuarial Funding Valuation
1.4: Historical Investment Returns
Year Market Value Return Actuarial Value Return
2009 20.00% 2.30%
2010 12.90% 3.30%
2011 2.00% 1.20%
2012 12.21% 2.46%
2013 13.49% 10.41%
2014 6.31% 9.01%
2015 2.16% 6.53%
2016 5.91% 7.36%
2017 13.16% 8.49%
2018 (3.65%) 3.04%
5 Year Compound Return 4.63% 6.86%
10 Year Compound Return 8.24% 5.36%
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City of Lansing Employees' Retirement System December 31, 2018
Actuarial Funding Valuation
Section 2: Participant Summary
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City of Lansing Employees' Retirement System December 31,2018
Actuarial Funding Valuation
2.1: Reconciliation of Plan Participants
Active Due Vested Beneficiary
Participants Refund Terminations Retired Disabled /EDRO Total
Participants as of
December 31,2017 394 86 75 745 25 132 1,457
Retired (18) 0 (7) 25 0 0 0
Terminated Vested (4) 0 4 0 0 0 0
Terminated Non-Vested (Member
Contributions refunded) (14) (40) 0 0 0 0 (54)
Disabled (2) 0 0 0 2 0 0
Deceased (3) 0 (1) (19) 0 (5) (28)
New Beneficiary/EDRO 0 0 0 0 0 11 11
Rehired 3 (2) 2 0 0 0 3
Terminated Non-Vested
(Due refund) (13) 13 0 0 0 0 0
Corrected Status from Retired to
Beneficiary/EDRO 0 0 0 (12) 0 12 0
New Hires 62 0 0 0 0 0 62
Data Adjustments 0 3 0 0 0 0 3
Participants as of
December 31,2018 405 60 73 739 27 150 1,454
BOOBIERSHINE
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City of Lansing Employees' Retirement System December 31,2018
Actuarial Funding Valuation
2.2: Demographic Summary
Active Participants 12/31/2017 12/31/2018
Number of Active Participants 394 405
Average Age 49.0 48.5
Average Service 10.6 10.1
Average Salary $53,700 $54,903
Inactive Participants 12/31/2017 12/31/2018
Number of Retired Participants 745 739
Average Age 68.5 69.6
Current Average Annual Benefit $26,632 $26,859
Number of Disabled Participants 25 27
Average Age 63.4 64.2
Current Average Annual Benefit $19,568 $20,108
Number of Beneficiaries/EDRCs 132 150
Average Age 72.9 72.6
Current Average Annual Benefit $13,216 $11,013
Number of Deferred Vested Participants 75 73
Average Age 52.8 53.3
Current Average Annual Benefit $12,374 $11,089
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City of Lansing Employees' Retirement System December 31,2018
Actuarial Funding Valuation
Section 3: Valuation Summary
BOO4IERSHINE
CONSULTING GROUP,�cc
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City of Lansing Employees' Retirement System December 31, 2018
Actuarial Funding Valuation
3.1: Suinmary of Actuarial Liability and Funding Progress
12/31/2017 12/31/2018
Actuarial Accrued Liability
Active Employees $50,277,209 $56,513,585
Member Benefit Fund 15,559,973 15,127,517
Terminated Vested 9,087,644 6,525,346
Retirees and Beneficiaries 230,105,470 225,241,885
Total Actuarial Accrued Liability $305,030,296 $303,408,333
Actuarial Value of Assets $178,646,143 $172,090,691
Unfunded Actuarial Accrued Liability $126,384,153 $131,317,642
Plan Funding Ratio 58.6% 56.7%
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CO\SFIXINC CROUP,i_ir.
City of Lansing Employees' Retirement System December 31,2018
Actuarial Funding Valuation
3.2: Development of Actuarially Determined Employer Contribution (ADEC)
12/31/2017 12/31/2018
1) Total Entry Age Normal Cost' $2,683,595 $2,816,418
2) Estimated Employee Contributions 1,189,617 1,196,508
3) Net City Normal Cost: (1)—(2) $1,493,978 $1,619,910
4) Valuation Payroll $ 23,284,107 $23,720,424
5) City Normal Cost Rate (%of pay): (3)-(4) 6.4% 6.8%
6) Amortization of the Unfunded Liability $8,252,934 $8,789,239
7) Amortization Rate (%of Pay):
(6)-(4) 35.4% 37.1%
8) Total Contribution Rate: (5)+(7) 41.9% 43.7%
9) Projected Fiscal Payroll $23,604,264 $24,372,735
10) Total City Contribution: (8)x(9) $9,880,932 $10,698,401
Estimated Cash Flow for Next Five Years
Fiscal Year City Co1711--rntribution* Member Contributions Benefit Payments
_. ,_. ,
2021 $11,400,000 $1,200,000 $23,500,000
2022 $11,900,000 $1,300,000 $23,600,000
2023 $12,300,000 $1,300,000 $23,800,000
2024 $12,900,000 $1,400,000 $23,900,000
2025 $13,300,000 $1,400,000 $24,000,000
* These amounts are based on one set of assumptions. If actual experience is less favorable, then City
contributions will be higher.
1 A breakdown of the Normal Cost by bargaining unit is shown in Appendix III.
BOOMERSHINE
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City of Lansing Employees' Retirement System December 31, 2018
Actuarial Funding Valuation
Section 4: Actuarial Assumptions and Methods
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City of Lansing Employees' Retirement System December 31,2018
Actuarial Funding Valuation
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 (23 years remaining as of December 31, 2018).
Asset Smoothing Method: Investment gains and losses are determined annually and each is spread
over a 5- year period. This is done on a total fund basis, with an 80% -
120% corridor around market value. The adjusted value of the healthcare
reserve is then excluded from the valuation assets.
Investment Return: 7.25%compounded annually, net of investment expenses.
Cost of Living(inflation): The cost of living as measured by the Consumer Price Index (CPI) is
assumed to increase at the rate of 2.75% per year.
Salary Increases: Increases in salary are assumed to increase with inflation annually, plus
an additional amount that varies based on the service of the member as
shown below:
Years of Service UAW All Others
0-8 2.35% 1.85%
9-10 2.35% 0.60%
11+ 1.35% 0.60%
Mortality: RP2000 Combined Healthy Tables. For Disabled members, the disabled
versions of these tables are assumed. Each of these tables is projected to
2026 using Scale BB and a 50%factor is applied for pre-retirement deaths.
Percent Married: 90% of participants are assumed to be married. Male spouses are
assumed to be three years older than their female spouse.
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. Disability rates are
assumed to stop when retirement rates begin.
Sample rates are shown below:
Age Rate
20 0.0004
30 0.0004
40 0,0013
50 0.0041
60 0.0090
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CONSULTING GROUP,i..�.c.
City of Lansing Employees' Retirement System December 31, 2018
Actuarial Funding Valuation
Termination: Rates of termination vary based on the service of the member. Sample
Rates are shown below:
Non-UAW
Years of Service Males Females UAW
0 22.0% 33.0% 10.0%
1 18.7% 28.1% 7.0%
2 15.9% 23.8% 5.0%
3 13.5% 20.3% 5.0%
5 9.8% 14.6% 4.0%
10 4.3% 6.5% 1.0%
15 0.0% 0.0% 1.0%
20+ 0.0% 0.0% 0.5%
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 Age Others
50-54 50% 50-57 55%
55-64 30% 58 15%
65+ 100% 59 5%
60-64 15%
65 60%
65-69 25%
70+ 100%
Changes in assumptions since the prior valuation
The assumptions above are based on the most recent experience study, covering 2012 through 2015.
No changes in actuarial assumptions were made during Plan Year 2018. The next study will cover 2015
through 2020.
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CONSULTING GROUP,u.r.
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City of Lansing Employees' Retirement System December 31,2018
Actuarial Funding Valuation
Section 5: Sunimary of Pfau Benefits
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City of Lansing Employees' Retirement System December 31, 2018
Actuarial Funding Valuation
All benefits are subject to the language in the City Ordinance and relevant collective bargaining agreements.
Employee Group Covered: Teamsters, UAW, Exempt, District Court(except Judges), Executive Pay,
Newly hired elected officials do not become members of this Plan.
Normal Retirement Age
(All Members-New Plan): Age 50 with 25 years of service or at age 58 with 8 years of service.
Normal Retirement Age(Old Plan): UAW-Age 50 with 25 years of service or at age 58 with 8 years of
service.All Others-8 years of service and attainment of the earlier of age
58 or the age at which age plus service is at least 65.
Normal Form of Benefit: Single life annuity
Member Contributions: Old Plan New Plan
UAW 2.95% 3.00%effective 10/18/2013
Teamsters 214 3.75% 6.50%(5.00%for hires after
September 2012)
Teamsters 243 3.50% 6.50%(5.00%for hires after
(formerly Teamsters 580) 5/9/2014 for T243 CTP and
Supervisors)
District Court Teamsters 3.50% 5.50%(5.00%for hires after
4/1/2014 for DCT243)
4.50%(5.50%for hires after
District Court Exempt 4.50% 12/1/2003)
Exempt 3.75% 6.50%
Executive Pay Plan,Council
Staff,Mayoral Staff 3.75% 6.50%
Non-Bargaining 3.75% 6.50%(5.00%for hires after
1/1/2017)
Elected Officials 3.25% No Defined Benefit Plan
Compensation: Member's Salary,wages, and longevity bonus. In addition, Compensation
may include up to 80 hours of compensatory time for members not
eligible for overtime pay.
Final Average Compensation: The average of the highest annual compensation paid over 2 consecutive
years of credited service within the last 10 years of credited service
immediately preceding a member's termination of employment.
Normal Retirement Benefit Formula(New Plan):
UAW* 2.75% of Final Average Compensation times years of credited service;
1.70%of Final Average Compensation times years of credited service for
new hires after October 21,2013.
1.50%of Final Average Compensation times years of credited service for
new hires after January 9, 2017, and for Service after this date for the
post 10/18/2013 hires.
*UAW members hired on or after October 21,2013 but prior to the ratification of the 2016-2019 agreement(January 9, 2017)
have a 1.70%of pay multiplier for credited service prior to the ratification of the 2016-2019 agreement(January 9,2017)and a
1.50% multiplier for credited service following the ratification of the 2016-2019 agreement (January 9, 2017), except the
pension shall not exceed 110% of base wage. UAW members hired on or after ratification of the 2016- 2019 agreement
(January 9,2017)will have a benefit multiplier of 1.50%of pay,except the pension shall not exceed 110%of base wage.
BOOMER.S1111E
CO'�SULT(\G GROUP,
City of Lansing Employees' Retirement System December 31,2018
Actuarial Funding Valuation
Teamsters 214&Teamsters 243 1.80% of Final Average Compensation times years of credited service;
(formerly Teamsters 580) 1.25%of Final Average Compensation times years of credited service for
employees hired after 9/30/2012 in Teamsters 214 and hired after
05/19/2014 in T243(CTP and Sup).
All Others 1.60% of Final Average Compensation times years of credited service;
1.25%of Final Average Compensation times years of credited service for
new hires after 4/1/14 in DCT243, after 6/1/14 for District Court Exempt
and after 1/1/2017 for Non-Bargaining Personnel;
Normal Retirement Benefit Formula(Old Plan):
UAW and Elected 2.75% of Final Average Compensation times for the first 35 years of
Officials credited service, plus 1.5%of Final Average Compensation for the next 5
years of service, plus 1.0% of Final Average Compensation for service in
excess of 40 years, with a maximum of 100% of Final Average
Compensation.
District Court Teamsters 2.30%of Final Average Compensation times years of credited service.
All Others 2.80% of Final Average Compensation times for the first 35 years of
credited service, plus 1.5%of Final Average Compensation for the next 5
years of service, plus 1.0% of Final Average Compensation for service in
excess of 40 years, with a maximum of 100% of Final Average
Compensation.
Termination Prior to Retirement
Eligibility Vesting is after 8 years of credited service
Form of Benefit Benefit is payable as a Life Annuity beginning at age 58 for new Plan
Members and at the age at which age plus service equals 65 for Old Plan
Members(except UAW).
Duty Disability
Eligibility Members are eligible for Duty Disability Retirement benefits immediately
upon employment.
Benefit Amount Benefit is paid at the effective date of disability retirement as a Life
Annuity and is equal to the accrued Retirement Benefit, with additional
service granted to age 60. During the worker's compensation period,the
disability benefit may not exceed the difference between the member's
final compensation and the worker's compensation amount. Upon the
attainment of age 60, disabled retirees are transferred to service
retirement status.
Non-Duty Disability
Eligibility Members are eligible for Non-Duty Disability Retirement benefits after
completing 10 years of service.
Benefit Amount Benefit is paid at the effective date of disability retirement as a Life
Annuity and is equal to the accrued Retirement Benefit, with a minimum
benefit equal to 25%of final average compensation.
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21
City of Lansing Employees' Retirement System December 31,2018
Actuarial Funding Valuation
Death incurred in the Line of Duty
Eligibility Benefit is payable to the survivors of a member who died as a result of an
injury or disease arising out of and in the course of duty.
Benefit Amount Benefit is paid upon termination of the survivor's workers' compensation
period as a Life Annuity and is equal to the survivor's weekly workers'
compensation converted to an annual basis.
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.
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.
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.
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
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
None.
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CO\MULTI\G GROUP,i_i_c
City of Lansing Employees' Retirement System December 31,2018
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
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.
J �BOOhIERSHINE
(ONSULT11%CROUP,u..r,
City of Lansing Employees' Retirement System December 31,2018
Actuarial Funding Valuation
Appendix 1: 20 Year Projection of Funding and Contributions
The graphs below show a projection of expected funding progress and City contributions to the Fund.
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. During this time, the City contribution rate is expected to remain near
40%-50%of payroll, before eventually declining. The actual funding progress and contributions over this
time period will differ from what is shown here, due to the actual experience of the Plan.
Protection of Funding Progress
160,000,000 ---- ------- — — _...
ERS Funding Ratio
t�Funding Ratio —unfunded AAL(AVA
120,000,000 ---
so^%
100,000,000 73% —
68%
50';S G1%
63% 65%
80,000,000 57$6-S 54 55.°7a-SUr^ 58% -
54% 53% 53% 54%
G0,000,000
40,000,000 - - - - -- - - -
20,000,000I — — -- — — --
L
2019 2021 2023 2025 2027 2029 2031 2033 2035 2037
Projection of City Contributions
--- ------------------------
20,000,000 ----- --- — — 60%
®Amortization Normal Cost City Contrb(%Pay)
18,000,000
50%
16,000,000 —•� �—�—
I
14,000,000 ` -
401A
10,000,000 - 301%
8,000,000 — — -
20%
6,000,000
4,000, 10000 —
z,000,000 ( (p
0%
2020 2022 2024 2026 2028 2030 2032 2034 2036 2038
1 � OOMERSHINE
CONSULTING GROUP,l..l.r.
247
- City of Lansing Employees' Retirement System December 31,2018
Actuarial Funding Valuation
Appendix II: History of Employer Contributions and Funding Progress
Historical Employer Contributions
Actuarially
Determined Employer Actual Employer
Fiscal Year Ending Contribution Contribution
6/30/2011 7,297,083 7,297,083
6/30/2012 7,596,879 7,523,534 (1)
6/30/2013 8,586,536 8,586,536 (2)
6/30/2014 9,361,000 9,361,000
6/30/2015 10,548,000 10,548,000 (3)
6/30/2016 10,182,000 10,182,000
6/30/2017 10,247,000 10,247,000 (4)
6/30/2018 10,185,060 10,843,000
6/30/2019 10,880,932 10,880,932 (5)
6/30/2020 10,509,075 To Be Determined
(1) 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.
(2) 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.
(3) Fiscal year 2015 Contribution reflects changes made to assumed return and inflation
from 7.8%and 3.3%to 7.6%and 3.1%, respectively.
(4) Reflects changes made to actuarial assumptions based on an Experience Study
completed in 2016, including assumed return of 7.40%, with 2.925% underlying
inflation.
(5) Reflects decrease in assumed return to 7.25%.
Jam/ BOOMERSHIIE
CONSULTING CROUP,
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City of Lansing Employees' Retirement System December 31, 2018
Actuarial Funding Valuation
Historical Funding Progress
Actuarial Value Actuarial Accrued Percentage Unfunded Actuarial
Valuation Date of Assets(AVA) Liability(AAL) Funded Accrued Liability
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 (1)
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 (2)
12/31/2014 177,259,421 309,924,744 57.2% 132,665,323
12/31/2015 176,031,902 308,794,993 57.0% 132,763,091
12/31/2016 176,160,086 309,520,574 56.9% 133,360,488 (3)
12/31/2017 178,646,143 305,030,296 58.6% 126,384,153 (4)
12/31/2018 172,090,691 303,408,333 56.7% 131,317,642
(1) Reflects changes made to actuarial assumptions based on an Experience Study, including a reduction in
the assumed investment return 8.0%to 7.8%.
(2) Reflects changes made to assumed return and inflation from 7.8% and 3.3% to 7.6% and 3.1%,
respectively.
(3) Reflects changes made to actuarial assumptions based on an Experience Study completed in 2016,
including assumed return of 7.40%, with 2.925%underlying inflation.
(4) Reflects changes made to actuarial assumptions, assumed return of 7.25%, with 2.75% underlying
inflation.
BOUNIERSHi\E:
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City of Lansing Employees' Retirement System December 31,2018
Actuarial Funding Valuation
Appendix III: Benefit Costs by Unit/Formula
Benefit Total Normal Net Employer
Employee Group(s) #Employees Multiplier Cost %of Pay Normal Cost %of Pay
T214,T243,T243DC(1), 0 2.80% $0 0.0% $0 0.0%
Teamsters Exempt, NBU
DCT(old) 1 2.30% 12,035 24.0% 8,785 17.5%
T214,T243,T243DC(II),
121 1.80% 1,010,676 12.0% 477,041 5.7%
Council Staff
T214,T243,T243DC(III) 99 1.25% 402,127 8.4% 162,287 3.4%
UAW 1 90 2.75% 830,354 17.1% 689,642 14.2%
UAW II 20 1.7%/1.5% 89,707 10.0% 62,919 7.0%
NBU, Exec 47 1.60% 376,428 10.1% 155,252 4.2%
Non-Bargaining IV 1 1.25% 5,378 9.5% 1,704 3.0%
UAW III 26 1.50% 89,713 9.8% 62,280 6.8%
All ERS Employees 405 N/A $2,816,418 11.9% $1,619,910 6.8%
UAW I: hired before 10/21/2013
UAW II: hired on or after 10/21/2013
UAW III: hired on or after 1/9/2017
T214 I: hired before 12/8/2008
T214 11: hired after 12/8/2008 and beforel/1/2015
T214 III: hired on or after 1/1/2015
T243 I: all except District Court
T243 II: hired on or after 5/19/2014
T243DC I: District Court hired before 4/1/2014
T243DC II: District Court hired on or after 4/1/2014 and before 7/1/2016
T243DC III: District Court hired on or after 7/1/2016
Non-Bargaining IV: Hires after 1/1/2017
BOONIERSHI\l~
COYSCLTI\G GROUP,i�.c.
I 27 I
City of Lansing Employees' Retirement System December 31, 2018
Actuarial Funding Valuation
Appendix IV: Valuation Sensitivity
The figures shown on this page are based on the return assumption of 7.00%.
Actuarial Accrued Liability 12/31/2018
Total Actuarial Accrued Liability $310,020,349
Actuarial Value of Assets 172,090,691
Unfunded Actuarial Accrued Liability $137,929,659
Plan Funding Ratio 55.5%
City Contribution
1) Total Entry Age Normal Cost $2,942,473
2) Estimated Employee Contributions 1,196,508
3) Net City Normal Cost: (1)—(2) $1,745,985
4) Valuation Payroll $23,720,424
5) City Normal Cost Rate (%of pay): (3)-(4) 7.4%
6) Amortization of Unfunded Actuarial Accrued Liability 9,035,842
7) Amortization Rate (%of Pay): (6)-(4) 38.1%
8) Total Contribution Rate: (5)+(7) 45.5%
9) Projected Fiscal Payroll $24,372,735
10) Total City Contribution for FY2020: (8)x(9) $11,078,306
t�BOOMERSHINE
CONSITTENC CROP,
City of Lansing Employees' Retirement System December 31,2018
Actuarial Funding Valuation
Appendix V: Risk Assessment
There are a number of risks inherent in managing a pension plan/trust. Some of the most substantial
risks include (not an all-inclusive list):
• Investment Return Risk: Future investment returns may be unfavorable compared to what is
assumed for Plan funding purposes.
• Investment Volatility Risk: Investment returns will vary from year to year and over time, with a
possible single or multiple year significant drop in plan assets. This impacts contribution
amounts as well as compound returns.
• Longevity Risk: Plan members and beneficiaries may live longer than projected, and thus be
entitled to additional years of benefit payments versus what had been expected.
• Other Demographic Risks: Future demographic experience may be unfavorable compared to
expected rates of retirement, termination, and disability. Future salary increases may also be
higher than expected,thereby increasing the liability of pay-related benefits.
As an example, if retirees in the System live 2 years longer than expected based on current mortality
assumptions,then the actuarial liability would be about$10 million higher.
Plan Maturity
Another challenging risk faced by many pension plans is the maturing of the plan over time. This can be
seen in the number of inactive (retirees, beneficiaries, etc.) versus the number of active employees in
the plan population, as well as the liability of each group. As the plan matures, several risks emerge,
including:
• Higher ratio of assets to payroll,which leads to a greater degree of contribution rate volatility.
• Negative cash flow (benefit payments exceeding contributions), which exacerbates the impact
of an economic downturn.
• Greater degree of longevity risk(as illustrated above).
• Higher ratio of Actuarial Accrued Liability to Normal Cost, which causes more contribution
volatility when demographic experience is unfavorable.
The following graphs show some of these plan maturity measures in recent years,showing how the plan
is maturing over time.
BOO,%fEkSNI\E
CO\SULTISG GROUP,i..�..r.
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City of Lansing Employees' Retirement System December 31, 2018
Actuarial Funding Valuation
PROPORTION OF LI BILMY
100% g
90%
80%
70%
60"%
50%
40%
20% -j -.--
10%
N'
0%
2011 2012 2013 2014 2015 2016 2017 2018 2019
Active AAL Inactive AAL
The System's actuarial liability has been at least 80% inactive for the last decade, as illustrated above.
This is evidence of a very mature plan. As demonstrated by recent funding and as shown in the
projections herein,funding progress is limited with this level of population maturity.
PENSION FUND CASIA n IOM] ($mrn)
$2 5.0
$20.0
$15.0
$10.0 k,
S 5.0
S- -
2011 2012 2013 2014 2015 2016 2017 2018 2019
$(5.0)
5(10.0)
S("15.0)
e Disbursements Contributions Net Cash Flow
The fund has experienced significant negative cash flow (disbursements greater than contributions) for
since 2011, with a total nine-year negative net cash flow of about $100 million. This is another
indication of a very mature plan. However, continued City contributions at the actuarially determined
amounts will lead to funding improvement and a lower level of risk associated with negative cash flows.
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