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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