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City of Lansing
Police and Fire Retirement System
Actuarial Valuation
For Funding and Contributions
as of December 31, 2018
December, 2019
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City of Lansing Police and Fire Retirement System December 31,2018
Actuarial Funding Valuation
Table of Contents
EXECUTIVESUMMARY......................................-........................,....._................................................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 Participonts....................................... ......................................... 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
GLOSSARY OF TERMS... ......................... .. ... ...... ..... ........... . ...._.......................................... 23
APPENDIX I;20 YEAR PROJECTION OF FUNDING AND CONTRIBUTIONS..-. .............................................. 24
APPENDIX II: HISTORY OF EMPLOYER CONTRIBUTION$AND FUNDING PROGRESS........................................ 25
APPENDIX III: BENEFIT COSTS BY UNIT/FORMULA................................................................................. 27
APPENDIX IV:VALUATION SENSITIVITY ........................................................... ...............................28
APPENDIX V: RISK ASSESSMENT................................... ......................................... 29
City of Lansing Police and Fire Retirement System December 31,2018
Actuarial Funding Valuation
Exect>IkiveSuttitt my
December 17, 2019
City of Lansing Police and Fire 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 Police and Fire Retirement
system (the System) as of December 31, 2018, The report N bused on participant data and asset
summary as submitted by the Plan Administrator and City finance dep;wmeet. We relied on this
information without auditing it.
INVESTMENT PERFORMANCE
The total Market Value of Plan Assets for the plan year ending December 31, 2078 is $314,443,307. 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 (4,1%) on the market value of assets and 3.2% 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 lasses 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 1.2.
FUNDING RECOMMENDATIONS
The total recommended City contribution for fiscal year 2020 1s $15,457,647. Last year the total
recommended contribution was $13,554,239. The increase in cost is due to demographic experience
losses and an actuarial loss on the investment return on the Market Value of Assets and the Actuarial
Value of Assets.
FUNDING PROGRESS
The Actuarial Accrued Liability as of December 31, 2018 Is $457,988,405 compared to the Actuarial
Value of Assets of$296,163,457 (excluding healthcare reserve), resulting in a plan funded ratio of 64.7%.
Using the market value of assets,this ratio is 60.3%.
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City of Lansing Police and Fire Retirement System December 31,2018
Actuarial Funding Valuation
ASSUMPTION AND BENEFIT CHANGES
Effective July 15, 2019,the maximum benefit is capped at 110%of Base wage for Police Supervisors.This
change in the Plan provision was reflected in this valuation, resulting In a small decrease in the actuarial
liability and cost.
There were no changes in the actuarial assumptions since the prior 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 GA5B 67 and 58, 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 is 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.
/`•i
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 Police and fire Retirement System December 31, 2018
Actuarial Funding Valuation
Section 1: Plan Asset Information
City of Lansing Police and Fire Retirement System December 31, 2018
Actuarial Funding Valuation
1.1: Suniniavy of Piaii Ass(-�t.s
Market Value of Total Fund as of January 1, 2018 $342,605,147
Receipts:
Employer Contribution 13,554,239
Employer Contribution - Healthcare Reserve 602,000
Member Contributions 3,244,840
Investment Income
Interest 546
Miscellaneous Revenue 3,989,629
Market Appreclation/(Depreciation) (16,604,270)
Total Additions $4,786,984
Disbursements:
Member Refunds 0
Distributions to Participants/Beneficiaries 32,117,254
Administrative Expenses and Other 53,318
Investment Expenses 776,480
other 1,772
Total Disbursements $32,948,824
Net Increase/(Decrease) in Assets ($28,161,840)
Market Value of Total Fund as of December 31, 2018 $314,443,307
City of Lansing Police and Fire Retirement System December 31,2018
Actuarial Funding Valuation
1.2; Develolamertt of Actuarial Value of Assets
Market Value of Total Fund as of January 1, 2018 $342,605,147
Plus: Contributions 17,401,079
Less: Benefit Payments, Refunds 32,117,254
Less:Administrative Expenses 53,318
Plus: Expected Return during 2018
(@) 7,25%, net of investment expenses) 23,808,662
Expected Market Value as of December 31, 2018 $351,644,316
Actual Market Value of Total Fund as of December 31, 2018 $314,443,307
Investment Gain/(Loss)for 2018 Plan Year ($37,201,009)
Actuarial Value= Market Value
Less:80%of 2018 Gain/(Loss) 80% * (37,201,009) (29,760,807)
Less: 60%of 2017 Gain/(Loss) 60% * 23,237,376 13,942,426
Less; 40%of 2016 Gain/(Loss) 40% i' (5,527,792) (2,211,117)
Less: 20%of 2015 Gain/(Loss) 2090 (24,424,402) AU4.,8$0)
Total Deferred Gain/(Loss) (22,914,378)
Actuarial Value of Assets,Total Fund-December 31, 2018 $337,357,685
as%of Market Value of Assets 107.3%
Healthcare Reserve as of December 31, 2018 538,395,217
Adjusted Healthcare Reserve $41,194,228
Actuarial Value of Assets,Pension Plan -December 31,2019 $296,163,457
Estimated Rate of Return on the Actuarial Value is 1.13%
Takes into account asset smoothing
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City of Lansing Police and Fire Retirement 5ystem December 31, 2018
Actuarial Funding Valuation
1.3: Reconciliation of Fund Reserves
EMPLOYEE RETIREMENT HEALTHCARE
SAVINGS FUND RESERVE RESERVE TOTAL
_. .�_. 1/1/2018 $24,821,939 5281,527,244 $36,255,964 $342,605,147
Additions:
EE Contributions 3,244,840 3,244,840
ER Contributions 13,554,239 602,000 14,156,239
Interest: 3.005/o 7.25% 4.24%
Annual Credits 744,658 18,082,224 1,537,253 20,364,135
Deductions:
Refunds/Benefits (32,117,254) (32,117,254)
Adjustment/Transfers (2,844.,704) (.30,965,096) (.33,809,800)
12/31/2018 $25,966,733 $250,082,357 $38,395,217 $314,443,307
Employees Sayings Fund
Purpose Keep track of employee contribution balances,and interest credited to such.
Interest is credited at 3%annually.
Relevance to Pion Funding Does not directly Impact plan funding
Retirement Reserve Fund
Purpose Provides funds to finance regular benefit payments to retirees. Interest Is
credited at the actuarial assumed rate of return.
Relevance to Plan Fundlr)g Does not directly impact plan funding
Healthcare Reserve
Purpose Funds Invested with pension assets, but segregated to be used for retiree
healthcare benefits, Interest Is credited annually at a rate determined by the
City finance office.
Relevance to Plan Funding Excluded from pension assets to determine contributions towards pension
funds
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City of Lansing Police and Fire Retirement System December 31,2018
Actuarial Funding Valuation
1.4, Historical Investment Returns
Year Market Value Return Actuarial Value Return
2009 16.70% 2.50%
2010 12.00% 3.20%
2011 2.58% 2.13%
2012 12.72% 2.39%
2013 17.20% 12,60%
2014 5.20% 9.60%
2015 -0.10% 7,20%
2016 6.109/6 6.29%
2017 15,50% 8.72%
2018 (4,18%) 3.23%
5 Year Compound Return 4.49% 6,99%
10 Year Compound Return 8.24% 5,73%
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City of Lansing Police and Fire Retirement System December 31, 2018
Actuarial Funding Valuation
Section Z, pallicipallt Summary
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City of Lansing Police and Fire Retirement System December 31,2018
Actuarial Funding Valuation
2.1 RecoiiciliaLion of Plan Participants
Non-vested Deferred
Active Terminations Vested Beneficiary/
Participants Due Refunds Terminations Retired Disabled EDRO Total
Participants as of
December 31, 2017 365 21 20 542 61 136 1,148
Retired (14) 0 (2) 16 0 0 0
Terminated Vested (1) 0 1 0 0 0 0
Member Contributions
refunded (1) 0 0 0 0 0 (1)
Disabled (1) 0 0 0 1 0 0
Deceased 0 0 0 (11) 0 (7) (18)
New Beneficiary/EDRO 0 ❑ 0 0 0 0 0
Rehired 0 0 0 0 0 0 0
Terminated Non-Vested
(Member Contributions
to be refunded) (6) 6 0 0 0 0 0
New Hires 30 0 0 0 0 0 30
Data Adjustments 0 2 1 (17) 6 24 16
Participants as of
December 31, 2018 372 29 20 529 68 153 1,171
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City of Lansing Police and Fire Retirement System December 31,2018
Actuarial Funding Valuation
2.2; Demographic Summary
Active Participants 12/31/2017 12131LI=
Number of Active Participants 365 372
Average Age 38.8 38.6
Average Service 11.6 11.8
Average Salary $73,024 $73,647
Inactive Participants 12/31/2017 12/31/2018
Fir? PaIice Total Fire Police Total
Number of(Retired Participants 235 307 542 230 299 529
Average Age 65.3 66.4 65.9 65.7 66.8 663
Current Average Annual Benefit $53,451 $46,130 $49,304 $55,080 $48,682 $51,464
Number of Disabled Participants 36 25 61 37 31 68
Average Age 54.3 55.6 54.8 55.3 5M 55.1
Current Average Annual Benefit $43,287 $39,589 $41,772 $44,358 $41,679 $43,137
Number of Beneficlaries/EDRDs 67 70 137 65 88 153
Average Age 75.0 72.9 73.9 76.8 71.9 74.0
Current Average Annual Benefit $17,954 $16,750 $17,339 $18,533 $17,175 $17,752
Number of Deferred Vested
Participants 5 15 20 5 15 20
Average Age 44.9 47.9 47.2 46.7 47.3 47.1
Current Average Annual Benefit $34,519 $15,330 $35,127 $34,519 $33,120 $33,470
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City of Lansing Police and Fire Retirement System December 31, 2018
Actuarial Funding Valuation
Section 3, Valuation Summary
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City of Lansing Police and Fire Retirement System December 31,2018
Actuarial Funding Valuation
3.1: S111111r1ary of Actuarial Liability and FmWing Progre-'5-;
12/31/2017 12/31/2018
Actuarial Accrued Liability
Active Employees $102,157,953 $106,186,357
Inactive 5,356,395 5,054,594
Retirees and Beneficiaries 314,376,904 346,747,454
Total Actuarial Accrued Liability $441,891,242 $457,988,405
Actuarial Value of Assets 302,362,351 296,163,457
Net Unfunded Actuarial Accrued Liability 139,528,892 161,824,949
Plan funding Ratio 69.4% 64.7%
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City of Lansing Police and Fire Retirement System December 11,2018
Actuarial Funding Valuation
3.2: Developnient of Actuarially Determined Employer Contribi loll (AD1,T)
12/31/2017 12/31/2018
1) Total Entry Age Normal Cost' $6,813,788 $7,043,916
2) Estimated Employee Contributions. 2,554,682 2,627,057
3) Net City Normal Cast: (1)--(2) $4,259,106 $4,416,859
4) Valuation Payroll $28,435,953 $29,638,531
5) City Normal Cost Rate(%of pay): (3)-'.(4) 15.0% 14.9%
6) Amortization of Unfunded Actuarlal Accrued Liability $9,111,290 $10,831,128
7) Amortization Rate (4o of Pay); (6)_ (4) 32.0% 36.5%
8) Total Contribution Rate: (5) + (7) 47.0% 51.4%
9). Projected Fiscal Payroll $28,826,947 $30,046,061
10) Total City Contribution: (8)x (9) $13,554,239 $15,457,647
Estimated Cash Flow for Next Five Years
Member Benefit
Fiscal Year City Contribution* Contributions Payments
2021.,: $ 16,600,000 $ 2,700,000 $ 31,800,000
2022 17,300,000 2,700,000 32,500,000
2023 17,800,000 2,800,000 33,400,000
2024 18,700,000 2,800,000 34,200,000
2025 19,100,000 2,900,000 35,300,000
* These amounts are based on a return of 7.25/ each year. If actual returns are lower, the City
contributions will be higher. Member contributions shown above do not include any purchases of
service.
A breakdown of normal cost by bargaining unit is shown in Appendix Ill.
City of Lansing Police and Fire Retirement System December 31, 2018
Actuarial Funding Valuation
Section 4, Actuarial Assumptions and Methods
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City of Lansing Polite and Fire 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, 2019).
Asset Smoothing Investment gains and losses are determined annually and each is spread over
Method: a 5-year period. This Is done on a total fund basis, with an SQ% - 1209/a
corridor around market value. The 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 The cost of living as measured by the Consumer Price Index (CPI) is assumed
(inflation): to increase at the rate of 2.75% per year.
Salary Increases: Increases in salary are assumed to be equal to inflation, plus 7,25% for those
with less than 5 years of service or 1.00%for all others
Mortality: RP2000 with Blue Collar adjustments for males and females. 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 to the
active population.
Percent Married: 40%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.
95%of disabilities are assumed to be duty related.
Sample rates are shown below:
Age Rate
20 0,1200%
3o 0.6000%
40 M3 75%
50 1.1250%
60 0-0000%
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City of Lansing Police and Fire 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:
Years of Service Fire Police
Age Rate
0 4.0% 20 15.0%
1 3.2% 25 7.5%
5 1.3% 30 3.7%
10 0.4% 35 1.9%
15 0.1% 40 0.9%
20 0.0% 45 0.3%
50* 0.0%
Retirement: Rates of retirement vary based on the service of the member as shown
below.
Years of Service Fire Police
10-24 5.0% 5.0%
25 90.0% 90,0%
26-29 60.0% 25.09/o
30* 100.0% 100.0%
Also 100%at mandatory retirement ages.
Changes in assumptions and methods
The assumptions above are based on the most recent experience study, covering 2012 through 2015,
No changes in assumptions were made since the last valuation. The next assumption review will cover
experience from 2015 to 2019.
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City of Lansing Police and Fire Retirement System December 31,2018
Actuarial Funding Valuation
Section 5s Summary of Ulan Benefits
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City of Lansing Police and Fire 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: Police[Officers(CCLP-S and CCLP-NS,formerly FOP),and Fire Fighters
(IAFF)
Normal Retirement! Age 55 or 25 years of service, except a firefighter whose membership
commenced on or after May 19,2014,and a police officer whose
membership commenced on or after August 1, 2014,full retirement is at
age 50 with 25 years of service
Mandatary Retirement: Age 64-Police Officers,age 70-Firefighters
Normal Form of Benefit: Monthly life annuity with 50%of the benefit payable to the spouse upon
the member's death.
Contribution mate
Group %of Pa
Member Contribution Rates: Fire 10.00%
Police,Supervisor 9.52%
Police, Non-Supervisor 9.00%
Hires after 5/19/2014 Fire 7.00%
Police,Supervisor and Non-
Hires after 8/1/2014 Supervisor 7.00%
Included Compensation: For a police officer member, Included Compensation is defined as annual
base salary, overtime pay (including holiday pay), longevity, gun
allowance, clothing allowances, sick leave reimbursement (buy-back),
shift premium and retroactive pay (prorated by effective date). For a
Police Supervisory Division Unit member, the definition also includes
compensatory time buy-back (up to a maximum of 160 hours), provided
that the compensatory time was earned in the same 24 months on which
final average compensation is based. For a firefighter member, Included
Compensation is defined as annual base salary,overtime pay, acting pay,
ambulance wage differential pay, longevity, holiday pay, field training
instructor pay and retroactive pay(prorated by effective date).
Final Average Compensation: Final Average Compensation means the monthly average of the
member's final compensation that is included in Included Compensation,
paid during the period of the member's 24 highest consecutive months of
credited service as a police officer, or firefighter. If the member has less
than 24 months of credited service, the member's final average
compensation shall be the monthly average of the Included
Compensation paid for his or her total period of credited service.
Normal Retirement Benefit Formula: 12%of Final Average Compensation times years of credited Service, not
to exceed 25 years. Pension benefit Is capped at 110%of Base wage for
firefighters, Police—Non-Supervisors and Police—Supervisors(1155.of
Base Pay for Police-Supervisors prior to July 15, 2019).
Benefit Multiplier is changed to 2.5% and Pension Benefit is capped at
110 of Base Wage for hires on or after May 20,2014 for firefighters and
August 1, 2014 for police officers.
I 20 1
City of Lansing Police and Fire Retirement System December 31,2018
Actuarial Funding Valuation
Termination Prior to Retirement
Eligibility Vesting is after 10 years of credited service
Benefit Amount Benefit is payable beginning at age 55 and computed In the same manner
as the Normal Retirement Benefit, but based on credited service and
Final Average Compensation at date of termination.
Duty Disability
Eligibility Members are eligible for Duty Disability Retirement benefits immediately
upon employment.
Benefit Amount(Before The Duty Disability Retirement Benefit payable to members is equal to
Retirement Eligibility) 2/3 of Final Average Compensation.
Benefit Amount(After Benefit is paid at the effective date of disability retirement as a Life
Retirement Eligibility) Annuity and is equal to the accrued Retirement Benefit. In computing the
benefit amount, credited service is increased to Include the period of
disability, and Final Average Compensation is calculated using current
rates of compensation for those with similar rank.
The Disability Benefit will be offset by any workers' compensation
payable on account of the disability.
Non-Duty Disability
Eligibility Mernbers are eligible for Non-Duty Disability Retirement benefits after
completing 10 years of service.
Benefit Amount Benefit is paid at the effective date or disability retirement as a Life
Annuity and is equal to the accrued Retirement benefit, with a maximum
benefit equal to 2/3 of the annual rate of compensation of either a full-
paid police patrol officer or a full paid firefighter as of the date of
retirement,whichever is higher.
Death incurred in the Line of Duty
Eligibility The Death in Line of Duty 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-Fire Accumulated Contributions will be paid to the designated survivor or
legal representative(if no designated survivor).
Benefit is payable to the surviving spouse, equal to the greater of SON of
the deceased member's Final Average Compensation, or 80% of the top
paid base salary for the rank the officer held at the time of his or her
death. Benefit is payable to the surviving children under age 21,If there is
no surviving spouse.
Benefit Amount-Police A benefit is payable to the wid❑w(er), equal to the greater of 80%of the
deceased member's Final Average Compensation, or 80Y`4 of the top paid
base salary for the rank the officer held at the time of his or her death.
Benefit is paid to surviving children if there is no surviving spouse.
Non-Duty Pre-Retirement Death
Eligibility The non-duty pre-retirement death benefit is payable upon the death of
a member after earning 10 years of credited service.
Benefit Amount 50%of the accrued retirement benefit,computed in the same manner as
the Retirement Benefit payable as a Life Annuity and no less than 20%of
the deceased member's final average compensation,
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City of Lansing Police and Fire Retirement System December 31, 2018
Actuarial Funding Valuation
QRtlonal Benefit Forms.
Prior to retirement, a member may elect a full benefit or a reduced benefit of either 93% or 86% of the original
amount,thereby providing the spouse a benefit of either 50%, 75%or 86%, respectively.
Refund of Accumulated Contributions
A member who terminates employment prior to being vested shall
be paid his/her accumulated contributions.
Ad Hoc Cost-of-Living Adjustments
One-time cost of living increases were granted in 1973, 1984 and 1987.
Post Retirement Benefit Adjustments
Effective January 1,1995 and each January 1 thereafter,the annual benefit amount will be increased by$525 for each
retiree who meets each of the following conditions:
1)25 or more years of credited service at the time of retirement
2)Age 60 as of the January 1 increase date
3)Has been retired at least 6 months as of the January 1 increase date
The$525 amount is reduced for retirees who elected the 75%or 86%optional forms of benefit($488,25 and$451.50,
respectively).
Spouses of deceased members are also eligible for benefit increases each January 1 if:
1)The deceased member had at least 25 years of credited service at the time of retirement
2)The deceased member would have attained at least age 60 as of the January 1 increase date
3)The deceased member had been deceased at least 6 months as of the January 1 increase date.
The spouse's annual benefit increase amount is adjusted based on the form of payment elected by the deceased
member,according to the following schedule:
spouse Benefit% Ann..w_al Benefit Increase
50% $262,50
75% $393-75
86°/a $451.50
The benefit increases accumulate from year to year, but cumulative benefit increases shall not exceed cumulative
Increases in the Consumer Price Index.
Changes in Plan provisions since the prior valuation
Effective July 15, 2019, the maximum retirement benefit is 110%of Base wage for Police Supervisors.
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City of Lansing Police and Fire 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-
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City of Lansing Police and Fire Retirement System December 31,2018
Actuarial Funding Valuation
Appemlix l: 20 Year Projection of Funding and Contributions
The graphs below show a projection of expected funding progress and City pension contributions to the
Fund_ We can see that the Plan is on a path to eventually decreasing the unfunded liability (top graph,
red line) and improving the funding ratio to 80% over 20 years_ During this time, the City contribution
rate is expected to remain above 50%of payroll, but will gradually decreasing as funding improves, The
contribution amounts are expected to increase versus the current level over the course of the next
decade, before decreasing- 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. This outlook will change.
Projection of Funding Progress
.I Funding Ratio - -Unfunded AAL[AVAi
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TESL 76` 17 .
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Gsac 61% 6316 m776 61%6 64% 6"
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6nA40,0f10 I I
I
40,004,0U0 !.
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2019 2021 2023 2025 2027 2029 2051 2Q33 2035 2037
Projection of City Contributions
7.S,OQ6,4n,i L--j Amortisation Normal Cmt City Contrb[°6 Pay] 7046
I
GD%
20,040,040
I 50%
L 5,400,400
40%
10,0011,00tl 30%;
20%
5,P40,444
7.020 2022 2024 2026 MA 2do 2032 2034 2036 2038
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City of Lansing Police and Fire Retirement system December 31,2019
Actuarial Funding valuation
Appendix If: History of E11113loyer Contributions and Funding Progress
Historical Employer Contributions
Actuarially Determined Actual Employer
Fiscal year Ending Employer Contribution Contribution
6/30/2011 - 9,240,689 8,240,688 — —'-
6/30/2012 9,242,173 9,057,080 (1)
6/30/2013 10,133,599 10,133,599 (2)
6/30/2014 11,248,857 11,248,857
6/30/2015 11,050,091 11,050,091 (3)
6/30/2016 10,884,312 10,884,312
6/80/2017 11,521,768 11,521,768
6/30/2018 12,562,547 12,686,000 (4)
6/30/2019 13,554,239 13,554,239 (5)
6/30/2020 15,457,647 To Be determined
(1) The FY 2012 City contribution was reduced by $185,093 in recognition of additional
contributions by International Association of Firefighters (IAFF) employees, which were negotiated
and contributed after the establishment of the June 30, 2012 ADEC from the December 31, 2010
valuation.
(2) Fiscal year 2013 ADEC 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 ADEC reflects changes made to assumed return and inflation from 7.890 and
3.3%to 7.6%and 3.1%, respectively. ADEC also reflects change in asset smoothing to immediately
recognize all investment gains and losses prior to 12/31/2012.
(4) Reflects changes made to actuarial assumptions as of 12/31/2016, including return assumption
of 7.35%, with underlying 2.85%inflation.
(5) Reflects changes made to the discount rate and the rate of inflation as of 12/31/2017.
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City of Lansing Police and Fire Retirement System December 31,2018
Actuarial Funding Valuation
Historical FundinX Progress
Actuarial Value Actuarial Accrued Percentage Unfunded Actuarial
Valuation Date of Assets(AVA) Liability(AAL) Funded Accrued Liability
12/31/2009 $280,342,000 $337,315,000 83.1% $56,973,000 --
12/31/2010 276,377,041 359,293,016 76.9% 82,915,975
12/31/2011 264,492,739 372,547,509 71.0% 108,054,771 (1)
12/31/2012 257,898,061 373,083,911 69.1% 115,185,850
12/31/2013 277,267,947 383,879,280 72.2% 106,611,333 (2)
12/31/2014 288,785,965 395,089,321 73.1% 106,303,356
12/31/2015 292,531,481 410,189,555 71.3% 117,658,075
12/31/2016 294,311,956 424,264,103 69.4% 129,952,147 (3)
12/31/2017 302,362,351 441,891,242 68,4% 139,528,892 (4)
12/31/2018 296,163,457 457,988,405 64.7% 161,824,949
(1) Reflects changes made to actuarial assumptions, based on Experience Study, including a reduction in the
assumed return 8.0%to 7.8%.
(2) Reflects changes made to assumed return and inflation from 7.8% and 3,390 to 7.6% and 3.1%,
respectively. AVA also reflects change in asset smoothing to immediately recognize all investment gains
and losses prior to 12/31/2012.
(3) Reflects changes made to actuarial assumptions as of 12/31/2016, including return assumption of 7,35%,
with underlying 2,85%Inflation.
(4) Reflects changes made to actuarial assumptions as of 12/31/2017, return assumption of 7.25%, with
underlying 2.75%inflation.
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City of Lansing polite and Fire Retirement System December 31,2018
Actuarial Funding Valuation
Appendix lli: Benefit Costs by Unit/FormLila
Benefit Total Net City
Employee Group(s) #Employees Multiplier Normal Cost of Pay Normal Cost %of Pay
Police 1 141 3.20% $3,293,613 27-7% $2,201,163 18.5%
Police II 59 2,50% 677,207 18.0% 414,327 11.0%
Pire 1 109 3,20% 2,234,107 22-8% 1,255,109 12.8%
Fire 11 63 2.50% 838,989 20.11/o 546,260 13.1%
All Police and Fire
372 N/A $7,043,916 23.8% $4,416,859 14.9
Employees %p 27
City of Lansing Polite and Fire 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 $469,616,646
Actuarial Value of Assets 296,163,457
Unfunded Actuarial Accrued Liability $173,453,189
Plan Funding Ratio 63%
City Contribution
1) Total Entry Age Normal Cost $7,416,206
2) Estimated Employee Contributions 2,627,057
3) Net City Normal Cost: (1)—(2) $4,789,149
4) Valuation Payroll $29,638,531
5) City Normal Cost Rate (%of pay): (3)-(4) 16.2%
6) Amortization of Unfunded Actuarial Accrued Liability 11,363,006
7) Amortization Rate (% of Pay): (6)-(4) 383%
8) Total Contribution Rate: (5)+ (7) 54.5%
9) Projected Piscal Payroll $30,046,061
10) Total City Contribution for FY2020:(8)x(9) $16,374,248
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City of Lansing Police and Fire Retirement System December 31,2018
Actuarial Funding Valuation
Appendix V: Risk Assessmenit
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 overtime, with a
possible single or multiple year significant drop in plan assets- This impacts contribution
amounts as well as compound returns.
a 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.
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:
* Nigher 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 illustrate some of these plan maturity measures in recent years, showing how the
plan is maturing over time-
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City of Lansing Police and Fire Retirement System December 31, 2018
Actuarial Funding Valuation
PROPORTION OF LIABILITY
�oosr,
80`!a
70%
W.41
5M
40%
30'�5
ay„
2011 2012 2013 2014 2015 'Oj;? i's17 2018 2019
vi AdNe AAL InactivL AAL
The System's actuarial liability has been steadily increasing in inactive proportion, with the current
liability being over 75% inactive. This is evidence of a very mature plan, which carries with it the risks
described above.
PENSION FUND CASH FLOW
;40.n
S30.0
$20.0
s�a.o
2011 2012 2013 2014 2015 2016 2017 2018 2019
■ Disbursements 7 Contributions(FY basis) Net Cash Flow
The fund has experienced negative cash flow (disbursements greater than contributions)for at least the
last decade. 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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