HomeMy WebLinkAboutLansing Post-Retirement Benefit Plan final FS Post-Retirement Benefit Plan and Trust for
Eligible Employees of Lansing Board of
Water and Light
Financial Report
with Required Supplementary Information
As of and for the Years Ended June 30, 2018 and 2017
Post-Retirement Benefit Plan and Trust for Eligible
Employees of Lansing Board of Water and Light
Contents
Independent Auditors' Report 1 -2
Required Supplementary Information
Management's Discussion and Analysis 3-4
Financial Statements
Statement of Fiduciary Net Position 5
Statement of Changes in Fiduciary Net Position 6
Notes to Financial Statements 7-20
Required Supplementary Information
Schedule of Changes in Net OPEB Liability and Related Ratios 21
Schedule of Employer Contributions 22
Schedule of Investment Returns 23
Notes to Required Supplementary Information 24
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
Post-Retirement Benefit Plan and Trust for Eligible
Employees of Lansing Board of Water and Light
City of Lansing, Michigan
Report on the Financial Statements
We have audited the accompanying financial statements of the Post-Retirement Benefit Plan and Trust for
Eligible Employees of Lansing Board of Water and Light ("Plan"), a trust fund of Lansing Board of Water and
Light, 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
Post-Retirement Benefit Plan and Trust for Eligible
Employees of Lansing Board of Water and Light
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:
Cash and money market trust funds $ 1,985,712 $ 2,927,461 $ 13,498,404
Fixed income securities 34,748,141 33,706,611 28,725,054
U.S. government obligations 26,527,961 29,051,025 21,458,288
Equities 48,418,160 54,440,986 77,022,878
Mutual funds and other 72,109,667 53,089,093 15,208,788
Interest and dividend receivable 404,369 425,197 386,930
Trade Receivable - Due from Broker - 88,410 -
Total plan assets $ 184,194,010 $ 173,728,783 $ 156,300,342
Liabilities:
Trade Payable - Due to Broker $ 154,385 $ 93,727 $ -
Net Position Restricted for Pensions $ 184,039,625 $ 173,635,056 $ 156,300,342
Changes in net position:
Net investment income $ 11,038,903 $ 18,039,507 $ 948,996
Employer contributions 10,395,327 9,573,671 9,423,081
Retiree benefits paid (10,395,327) (9,573,671) (9,423,081)
Administrative fees (634,334) (704,793) (831,872)
Net change in net position $ 10,404,569 $ 17,334,714 $ 117,124
3
Post-Retirement Benefit Plan and Trust for Eligible
Employees of Lansing Board of Water and Light
Management's Discussion and Analysis (Continued)
Investment Objectives and Asset Allocation
The 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. Consistent with
this, the BWL has determined that the investment objective is income and growth. This
investment objective is a balanced approach that emphasizes a stable and substantial source of
current income and some capital appreciation over the long term.
Consistent with the advice of the investment advisor, the BWL has selected the following target
asset allocation strategy:
U.S. Equities 40%
Non-U.S. Equities 20%
Global Fixed Income 25%
Commercial Real Estate 1 5%
Investment Results
The fiscal year ended June 30, 2018 saw a net investment income, net of administrative
expenses, of $10.4 million. We believe this performance is in line with the overall level of
recovery experienced by the stock and bond markets.
Future Events
The BWL is funding its other postemployment benefits (OPEBs) and is intending to meet its
actuarially determined contributions (ADC).
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 to the Board of Water and Light, Chief Financial Officer,
P.O. Box 13007, Lansing, Michigan 48901-3007.
4
Post-Retirement Benefit Plan and Trust for
Eligible Employees of Lansing Board of Water and Light
Statement of Fiduciary Net Position
As of June 30
2018 2017
Assets
Investments -fair value:
Cash and money market trust funds $ 1,985,712 $ 2,927,461
Fixed income securities 34,748,141 33,706,611
U.S. government obligations 26,527,961 29,051,025
Equities 48,418,160 54,440,986
Mutual funds 72,109,667 53,089,093
Total investments at fair value 183,789,641 173,215,176
Investment interest and dividend receivable 404,369 425,197
Trade receivable-due from broker - 88,410
Total assets 184,194,010 173,728,783
Liabilities
Trade payable - due to broker 154,385 93,727
Net position restricted for retiree benefits $ 184,039,625 $ 173,635,056
See Notes to Financial Statements. 5
Post-Retirement Benefit Plan and Trust for
Eligible Employees of Lansing Board of Water and Light
Statement of Changes in Fiduciary Net Position
For the Year Ended June 30
2018 2017
Additions
Investment income:
Net appreciation in fair value of investments $ 6,742,518 $ 13,724,335
Interest and dividend income 4,296,385 4,315,172
Total investment income 11,038,903 18,039,507
Employer contributions 10,395,327 9,573,671
Total additions 21,434,230 27,613,178
Deductions
Retiree benefits paid 10,395,327 9,573,671
Administrative expenses 634,334 704,793
Total deductions 11,029,661 10,278,464
Net Increase in Net Position 10,404,569 17,334,714
Net Position Restricted for Retiree Benefits
Beginning of year 173,635,056 156,300,342
End of year $ 184,039,625 $ 173,635,056
See Notes to Financial Statements. 6
Post-Retirement Benefit Plan and Trust for Eligible
Employees of Lansing Board of Water and Light
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 Post-
Retirement Benefit Plan for Eligible Employees of Lansing Board of Water and Light
("Plan"), which is a single-employer defined benefit healthcare plan. The Plan was
established on October 20, 1999, effective as of July 1 , 1999, for the purpose of
accumulating assets to fund retiree healthcare insurance costs in future years.
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. 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 - Plan investments are reported at fair
value. Securities traded on a national or international exchange are valued at the last
reported sales price.
Purchases and sales of investments are recorded on a trade-date basis.
Appreciation or depreciation of investments is calculated based on the beginning of the
period's fair value of investments.
7
Post-Retirement Benefit Plan and Trust for Eligible
Employees of Lansing Board of Water and Light
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)
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 pays all transaction expenses incurred in connection with the investment accounts.
Use of Estimates - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements. Actual results could differ
from those estimates.
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 - Description of the Plan
The following description of the Plan, a trust fund of the BWL, provides only general
information. Participants should refer to the plan agreement for a more complete
description of the Plan's provisions.
General - The Plan was established on October 20, 1999, effective as of July 1 , 1999, to
constitute a voluntary employee beneficiary association (VFBA) under Section 501(c)(9)
of the Internal Revenue Code of 1986, as amended. The Plan was formed for the
purpose of accumulating assets sufficient to fund retiree healthcare insurance costs in
future years.
The Plan is a single-employer defined benefit healthcare plan. The Plan provides
medical, dental, and life insurance benefits in accordance with Section 5-203 of the
City Charter. The City Charter grants the authority to establish and amend the benefit
terms to BWL. Substantially all of the BWL's employees may become eligible for
healthcare benefits and life insurance benefits if they reach normal retirement age while
working for the BWL. There were 728 participants eligible to receive benefits at June 30,
2018 and 658 participants eligible at June 30, 2017.
8
Post-Retirement Benefit Plan and Trust for Eligible
Employees of Lansing Board of Water and Light
Notes to Financial Statements
As of and for the Years Ended June 30, 2018 and 2017
Note 2 - Description of the Plan (Continued)
Benefits - Benefits shall not be paid from this Plan to participants or their beneficiaries
during a plan year in which there has been a "qualified transfer" pursuant to Internal
Revenue Code Section 420(e)(1)(8) from the Lansing Board of Water and Light Defined
Benefit Plan for the Employees' Pensions, except that once the "qualified transfer" has
been exhausted for the purpose of paying qualified current retiree health liabilities,
benefit payments may be made under this Plan consistent with Internal Revenue Code
Section 420(e)(1)(B). After "qualified transfers" have been exhausted, benefits paid
under this Plan shall be those benefits described in the relevant sections of the
Postretirement Benefit Plan for Eligible Employees of the Lansing Board of Water and
Light.
Trustees - Each voting member of the BWL Board of Commissioners is a Trustee during
the term of office as a commissioner. The trustees have appointed Fifth Third Bank as
custodian of the Plan's assets.
Contributions - Section 5-203 of the City Charter grants the authority to establish and
amend the contribution requirement of the City and Plan members to BWL. The retiree
benefits are paid by BWL's general cash flow to the third party administrators who
process participant claims. These payments represent contributions to the Plan.
Employer contributions in the statement of changes in trust net position are equal to
the retiree benefits paid because the actuarially determined contribution (ADC) for the
year ended June 30, 2018 was less than the pay-as-you-go amount. During the years
ended June 30, 2018 and 2017, the cost to BWL of maintaining the Retiree Benefit Plan
was $10,395,327 and $9,573,671 of which, respectively, was incurred as retiree benefit
payments. The BWL may make additional contributions in such a manner and at such
times as appropriate. All contributions received, together with the income thereon, are
held, invested, reinvested, and administered by the trustees pursuant to the terms of
the Plan agreement. Additional contributions are only made to the Plan if the ADC is
more than the pay-as-you-go amount. No employee contributions are allowed under
this Plan. Contributions are recognized when due and when the amount to be
contributed is committed by the BWL. For the years ended June 30, 2018 and 2017, the
contribution rates of the employers were 18.7 percent and 17.6 percent of covered-
employee payroll, respectively.
9
Post-Retirement Benefit Plan and Trust for Eligible
Employees of Lansing Board of Water and Light
Notes to Financial Statements
As of and for the Years Ended June 30, 2018 and 2017
Note 2 — Description of the Plan (Continued)
Participation - Participation in this Plan is determined in accordance with the terms of
the Postretirement Benefit Plan for Eligible Employees of the Lansing Board of Water and
Light. At June 30, 2018, there were 703 active participants (not eligible to receive
benefits), 77 disabled participants, 506 retired participants, and 145 surviving spouses
participating in the Plan. At June 30, 2017, there were 713 active participants (not
eligible to receive benefits), 76 disabled participants, 453 retired participants, and 129
surviving spouses participating in the Plan.
Vesting - Benefits become payable in accordance with the terms of the Postretirement
Benefit Plan for Eligible Employees of Lansing Board of Water and Light. At no time will
benefits of the Postretirement Benefit Plan for Eligible Employees of Lansing Board of
Water and Light be vested. The BWL may reduce or eliminate any or all plan benefits at
any time, subject to the requirements of any collective bargaining agreement.
Termination - In the event of plan termination, all plan assets shall be used to purchase
additional eligible benefits in accordance with the terms of the plan agreement. In the
event of dissolution, merger, consolidation, or reorganization of the BWL, the Plan shall
terminate and liquidate in a manner consistent with the plan agreement unless the Plan
is continued by a successor to the BWL.
Note 3 - Cash, Investments, and Fair Disclosure
The Lansing Board of Water and Light Retiree Benefit Plan and Trust has adopted GASB
No. 40, Deposit and Investment Risk Disclosures. The modified disclosures required by
GASB No. 40 are reflected below.
The Plan is authorized through Public Act 149 of 1999 to invest in accordance with
Public Act 314. Public Act 314 of 1965, as amended, allows the Plan to invest in certain
reverse repurchase agreements, stocks, diversified investment companies, annuity
investment contracts, real estate leased to public entities, mortgages, real estate, debt
or equity of certain small businesses, certain state and local government obligations,
and certain other specified investment vehicles.
The Plan's deposits and investment policies are in accordance with PA 196 of 1997 and
have authorized the investments according to Michigan PA 314 of 1965, as amended.
10
Post-Retirement Benefit Plan and Trust for Eligible
Employees of Lansing Board of Water and Light
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 Plan's cash and investments are subject to several types of risk, which are
examined in more detail below:
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. At June 30, 2018, the average maturities of investments are as follows:
Weighted Average
Investment Fair Value Maturity
U.S. government obligations $ 26,527,961 13.71 years
Fixed income securities 34,748,141 12.76 years
Money market trust funds 1,985,712 Less than 1 year
Portfolio weighted average maturity - 1 3.1 7 years
11
Post-Retirement Benefit Plan and Trust for Eligible
Employees of Lansing Board of Water and Light
Notes to Financial Statements
As of and for the Years Ended June 30, 2018 and 2017
Note 3 - Cash, Investments, and Fair Disclosure (Continued)
At June 30, 2017 the average maturities of investments are as follows:
Weighted Average
Investment Fair Value Maturity
U.S. government obligations $ 29,051,025 13.98 years
Fixed income securities 33,706,611 13.32 years
Money market trust funds 2,927,457 Less than 1 year
Portfolio weighted average maturity - 13.63 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. As of June 30, 2018, the credit quality
ratings of debt securities are as follows:
Rating
Investment Fair Value Rating Organization
U.S. government obligations - implicitly guaranteed $ 10,714,313 AA+ S&P
U.S. government obligations - implicitly guaranteed 358,216 AA- S&P
Fixed income securities 3,340,664 AAA S&P
Fixed income securities 13,459,587 AA+ S&P
Fixed income securities 1,916,108 AA S&P
Fixed income securities 429,721 AA- S&P
Fixed income securities 768,211 A+ S&P
Fixed income securities 3,362,702 A S&P
Fixed income securities 2,850,465 A- S&P
Fixed income securities 4,246,060 BBB+ S&P
Fixed income securities 3,082,112 BBB S&P
Fixed income securities 1,285,971 BBB- S&P
Fixed income securities 6,540 B+ S&P
Money market trust funds 1,985,712 Not rated Not rated
12
Post-Retirement Benefit Plan and Trust for Eligible
Employees of Lansing Board of Water and Light
Notes to Financial Statements
As of and for the Years Ended June 30, 2018 and 2017
Note 3 - Cash, Investments, and Fair Disclosure (Continued)
As of June 30, 2017, the credit quality ratings of debt securities are as follows:
Rating
Investment Fair Value Rating Organization
U.S. government obligations - implicitly guaranteed $ 11,961,284 AA+ S&P
U.S. government obligations - implicitly guaranteed 354,934 AA- S&P
Fixed income securities 2,31 1,039 AAA S&P
Fixed income securities 11,990,156 AA+ S&P
Fixed income securities 1,056,764 AA S&P
Fixed income securities 1,1 71,286 AA- S&P
Fixed income securities 687,043 A+ S&P
Fixed income securities 3,895,779 A S&P
Fixed income securities 2,721,066 A- S&P
Fixed income securities 5,995,197 BBB+ S&P
Fixed income securities 2,578,080 BBB S&P
Fixed income securities 1,300,201 BBB- S&P
Money market trust funds 2,927,457 Not rated Not rated
Note 4 - Tax Status
The Plan is exempt under Internal Revenue Code Section 501(c)(9) and received an
exemption letter as of February 9, 2000. The Plan has since been amended.
Management believes the Plan continues to operate as a qualified plan.
13
Post-Retirement Benefit Plan and Trust for Eligible
Employees of Lansing Board of Water and Light
Notes to Financial Statements
As of and for the Years Ended June 30, 2018 and 2017
Note 5 — Plan Investments - Policy and Rate of Return
BWL's policy in regard to the allocation of invested assets is established and may be
amended by the BWL Board by a majority vote of its members. It is the policy of the BWL
Board to pursue an investment strategy that reduces risk through the prudent
diversification of the portfolio across a broad selection of distinct asset classes. The
following was the Board's adopted asset allocation policy as of June 30, 2018 and 2017:
Asset Class Target Allocation
U.S. Equities 40%
Non-U.S. Equities 20%
Global Fixed Income 25%
Commercial Real Estate 1 5%
Rate of Return - For the years ended June 30, 2018 and 2017, the annual money-
weighted rate of return on investments, net of investment expense, was 5.66% and
10.01%, respectively. The money-weighted rate of return expresses investment
performance, net of investment expense, adjusted for the changing amounts actually
invested.
Note 6 — Net OPEB Liability of BWL
Net OPEB Liability of BWL - In the prior year, the Plan implemented GASB Statement No.
74. The following disclosures relate to the new standard. The components of the net
OPEB liability for BWL at June 30, 2018 and 2017 were as follows:
June 30, 2018 June 30, 2017
Total OPEB Liability $ 203,487,066 $ 205,624,392
Plan fiduciary net position 0 84,039,625) (173,635,056)
BWL's net OPEB liability $ 19,447,441 $ 31 ,989,336
Plan fiduciary net position as a percentage of
the total OPEB Liability 90.44% 84.44%
14
Post-Retirement Benefit Plan and Trust for Eligible
Employees of Lansing Board of Water and Light
Notes to Financial Statements
As of and for the Years Ended June 30, 2018 and 2017
Note 6 - Net OPEB Liability of BWL (Continued)
Actuarial assumptions - The total OPEB liability was determined by an actuarial
valuation as of June 30, 2018, using the following actuarial assumptions, applied to all
periods included in the measurement, unless otherwise specified:
Inflation 3.0%
Payroll Growth 9.3% growth at age 25 and decreases to
6.4% for ages 60+. This percentage
includes general wage inflation and merit /
productivity increases.
Long-term expected Rate of Return 7.5%
Healthcare cost trend rates 9.0% for 2019 (2018 in prior year),
decreasing 0.5% per year to an ultimate
rate of 5.0% in 2027 (2026 in prior year)
and later years
For the June 30, 2018 valuation, mortality rates were based on the RPH-2014 Total
Dataset Mortality Table, Male and Female, adjusted to 2006 and projected
generationally using an MP-2017 Projection Scale. For the June 30, 2017 valuation,
mortality rates were based on the RPH-2016 Total Dataset Mortality Table fully
generational using Scale MP-2016 (RPH-2016 table is created based on RPH-2014
Total Dataset Mortality Table with 8 years of MP-2014 mortality improvement backed
out, projected to 2016 using MP-2016 improvement).
Best actuarial practices call for a periodic assumption review and BWL had completed an
experience study in 2017. At that time, Nyhart recommended BWL to complete another
experience study prior to the fiscal year ending June 30, 2022 valuation.
For the June 30, 2018 valuation, the long-term expected rate of return is 7.50%. The
rate was determined using a building-block method where expected future real rates of
return are developed for each major asset class. These expected future real rates of
return 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 for each
major asset class included in the target asset allocation as of June 30, 2018 are as
follows:
15
Post-Retirement Benefit Plan and Trust for Eligible
Employees of Lansing Board of Water and Light
Notes to Financial Statements
As of and for the Years Ended June 30, 2018 and 2017
Note 6 - Net OPEB Liability of BWL (Continued)
Asset Class Long-Term Expected Real Rate of Return
Core bonds 2.74%
Multi-sector 3.60%
Absolute return 3.82%
U.S. large cap equity 7.53%
U.S. small cap equity 8.79%
Non-U.S. equity 8.73%
Core real estate 5.91
For the June 30, 2017 valuation, the long-term expected rate of return was 7.50%. The
discount rate used when the OPEB plan investments are insufficient to pay for future
benefit payments was selected from the range of indices as shown in the table below,
where the range is given as the spread between the lowest and highest rate shown. The
final equivalent single discount rate used for the June 30, 2017 valuation was 7.50%
with the expectation that BWL will continue contributing the Actuarially Determined
Contribution and/or paying for the pay-go cost.
Asset Class Long-Term Expected Real Rate of Return
S&P Municipal Bond 20-year 2.71
High Grade Rate Index
Fidelity 20-year Go Municipal 2.92%
Bond Index
Actual Discount Rate Used 7.50%
Discount Rate - The discount rate used to measure the total OPEB liability was 7.5%.
The discount rate is based on the long-term expected rate of return on OPEB plan
investments that are expected to be used to finance future benefit payments to the
extent that (a) they are sufficient to pay for the projected benefit payments and (b) the
OPEB plan assets are invested using a strategy that will achieve that return. When the
OPEB plan investments are insufficient to cover future benefit payments, a yield for 20-
year tax-exempt general obligation municipal bonds with an average rating of AA /Aa
or higher (or equivalent quality on another rating scale) must be used.
16
Post-Retirement Benefit Plan and Trust for Eligible
Employees of Lansing Board of Water and Light
Notes to Financial Statements
As of and for the Years Ended June 30, 2018 and 2017
Note 6 - Net OPEB Liability of BWL (Continued)
Sensitivity of the net OPEB liability to changes in the discount rate - The following
presents the net OPEB liability of BWL, as well as what BWL's net OPEB liability 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 discount rate (7.5 percent)
as of June 30, 2018 and 201 7:
June 30, 2018
1% Decrease Current Discount Rate 1% Increase
Net OPEB Liability (asset) $43,845,533 $1 9,447,441 $(991 ,597)
June 30, 2017
1% Decrease Current Discount Rate 1% Increase
Net OPEB Liability $57,428,880 $31 ,989,336 $10,788,919
Sensitivity of the net OPEB liability to changes in the healthcare cost trend rates - The
following presents the net OPEB liability of BWL, as well as what BWL's net OPEB liability
would be if it were calculated using healthcare cost trend rates that are 1-percentage-
point lower (8.0 percent decreasing to 4.0 percent) or 1-percentage-point higher (10.0
percent decreasing to 6.0 percent) than the current healthcare cost trend rates as of
June 30, 2018 and 201 7:
June 30, 2018
1% Decrease Healthcare Cost Trend Rates 1% Increase
Net OPEB Liability (asset) $(2,824,476) $19,447,441 $46,517,1 81
June 30, 2017
1% Decrease Healthcare Cost Trend Rates 1% Increase
Net OPEB Liability $9,860,495 $31 ,989,336 $58,978,628
17
Post-Retirement Benefit Plan and Trust for Eligible
Employees of Lansing Board of Water and Light
Notes to Financial Statements
As of and for the Years Ended June 30, 2018 and 2017
Note 7 - 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.
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 2017:
Money market fund.- Valued at the quoted net asset value ("NAV") of shares held by the
Plan at year end.
18
Post-Retirement Benefit Plan and Trust for Eligible
Employees of Lansing Board of Water and Light
Notes to Financial Statements
As of and for the Years Ended June 30, 2018 and 2017
Note 7 - Fair Value Measurements (Continued)
Common Stock, Fixed income securities, and U.S. government obligations: 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.
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.
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 $ 3 $ 1,985,709 $ - $ 1,985,712
Fixed income securities - 34,748,141 - 34,748,141
U.S. government obligations - 26,527,961 - 26,527,961
Common Stock 48,418,160 - - 48,418,160
Mutual funds - 72,109,667 - 72,109,667
Total $ 48,418,163 $ 135,371,478 $ - $ 183,789,641
19
Post-Retirement Benefit Plan and Trust for Eligible
Employees of Lansing Board of Water and Light
Notes to Financial Statements
As of and for the Years Ended June 30, 2018 and 2017
Note 7 — Fair Value Measurements (Continued)
.June 30, 2017
Investment Type Level 1 Level 2 Level 3 Total
Cash and money market trust fund $ 4 $ 2,927,457 $ - $ 2,927,461
Fixed income securities - 33,706,611 - 33,706,611
U.S. government obligations - 29,051,025 - 29,051,025
Common Stock 54,440,986 - - 54,440,986
Mutual funds - 53,089,093 - 53,089,093
Total $ 54,440,990 $ 118,774,186 $ - $ 173,215,176
Note 8 — Risks and Uncertainties
Plan contributions are made and the accrued actuarial 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
Fiduciary Net Position.
Note 9 — 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.
20
Required Supplementary Information
Post-Retirement Benefit Plan and Trust for
Eligible Employees of Lansing Board of Water and Light
Required Supplemental Information (Unaudited)
Schedule of Changes in BWL's
Net OPEB Liability and Related Ratios
Last Ten Fiscal Years
(in thousands)
2018 2017 2016* 2015* 2014* 2013* 2012* 2011* 2010* 2009*
Total OPEB Liability
Service cost $ 4,827 $ 3,130 $ $ $ $ $ $ $ $
Interest 15,039 14,226
Changes in benefit terms - -
Differences between expected and actual experience (9,880) 5,281
Changes in assumptions (1,728) (2,027)
Benefit payments,including refunds (10,395) (9,574)
Net Change in Total OPEB Liability (2,137) 11,036
Total OPEB Liability-Beginning of year 205,624 194,588
Total OPEB Liability-End of year 203,487 205,624
Trust Net Position
Contributions-Employer 10,395 9,574
Contributions-Member - -
Net investment income 11,039 18,040
Administrative expenses (634) (705)
Benefit payments,including refunds (10,395) (9,574)
Other
Net change in Net Position Held in Trust 10,405 17,335
Trust fiduciary net position Beginning of year 173,635 156,300
r rust nuucrary net posrtio-r=nu of year
184,040 173,635 - - - - - - - -
BWL Net OPEB Liability-Ending $ 19,447 LL..989 L L L L L L L L
Trust Fiduciary Net Position as a%of Total OPEB Liability 90.44% 84.44% % % % % % % % %
Covered Employee Payroll $ 55,650 $ 54,383 $ $ $ $ $ $ $ $
BWL's Net OPEB Liability as a%of Covered Employee Payroll 34.95% 58.82% % % % % % % % %
*GASB Statement No.74 was implemented as of June 30,2017. Information from 2008-2016 is not available and this schedule will be presented on a prospective basis.
See Notes to Financial Statements. 21
Post-Retirement Benefit Plan and Trust for
Eligible Employees of Lansing Board of Water and Light
Required Supplemental Information (Unaudited)
Schedule of Employer Contributions
Last Ten Fiscal Years
(in thousands)
Employer Contributions Difference of Percentage of Actual
Fiscal Yeai Required to Actual Covered Employee Contributions to
Ended Required Actual Contributions Payroll Covered Payroll
6/30/2009* $ 18,132 $ 17,866 $ (266) $ -
6/30/2010* 21,291 21,318 27 -
6/30/2011 17,300 17,236 (64) 47,213 37%
6/30/2012 15,744 15,854 110 46,885 34%
6/30/2013 13,994 14,045 51 47,468 30%
6/30/2014 9,200 9,268 68 46,971 20%
6/30/2015 5,762 9,671 3,909 50,885 19%
6/30/2016 5,788 9,423 3,635 53,893 17%
6/30/2017 7,508 9,574 2,066 54,383 18%
6/30/2018 7,535 10,395 2,860 55,650 19%
*GASB Statement No.74 was implemented as of June 30,2017. Information from 2008-2010 is not available and this schedule will be presented on a prospective basis.
See Notes to Financial Statements. 22
Post-Retirement Benefit Plan and Trust fol
Eligible Employees of Lansing Board of Water and Ligl
Required Supplemental Information (Unaudited)
Schedule of Investment Returns
Last Ten Fiscal Years
201 E 201 i 201 E 2015' 2014' 2013' 2012' 2011' 2010' 2009'
Annual money-weighted rate of retu
net of investment expense 5.66% 10.01% 0.32% - % - % - % - % - % - % - %
*GASB Statement No.74 was implemented as of June 30,2017. Information from 2008-2015 is not available and this schedule will be presented on a prospective basis.
See Notes to Financial Statements. 23
Post-Retirement Benefit Plan and Trust for Eligible
Employees of Lansing Board of Water and Light
Note to Required Supplementary Information (Unaudited)
Years Ended June 30, 2018 and 2017
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 normal level %of salary method
Amortization method Level dollar over a 30-year closed period
Remaining amortization period 30 years
Inflation 3.0 percent
Salary increases 9.3 percent growth at age 25 and decreases to 6.4 percent for
ages 60+
Investment rate of return 7.5 percent per year compounded annually
Mortality RPH-2014 Total Dataset Mortality Table, Male and Female,
adjusted to 2006 and projected generationally using an MP-201 7
Projection Scale
Actuarial valuation information relative to the determination of contributions:
Valuation date June 30, 2017, based on roll-forward of February 28, 2017
valuation
Methods and assumptions used to determine contribution rates:
Actuarial cost method Entry age normal level %of salary method
Amortization method Level dollar over a 30-year closed period
Remaining amortization period 30 years
Inflation 3.0 percent
Salary increases 9.3 percent growth at age 25 and decreases to 6.4 percent for
ages 60+
Investment rate of return 7.5 percent per year compounded annually
Mortality RPH-2016 Total Dataset Mortality Table fully generational with
MP-2016 Improvement Scale
24