Loading...
HomeMy WebLinkAboutPolice and Fire retirement System report as of Dec 31 2018 S J , , f� a f ' r li' City of Lansing Police and Fire Retirement System Actuarial Valuation For Funding and Contributions as of December 31, 2018 December, 2019 I r (WNW i N(;U HIT, 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%. p filiu111 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 fn IitN��lk 1OHN. f ON l 1.11\6'Q111 IL,i 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 j,, llt}+��liltlllll I IM 1 Il i 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 I3p IER5Hl,1E f�� (rA NI1TI�'G r;RrMl'P, R 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% fh`i fBOI ;O"1'lIM. ktlP,i.i.. City of Lansing Police and Fire Retirement System December 31, 2018 Actuarial Funding Valuation Section Z, pallicipallt Summary [0\I1 [NI t.kfjl P. 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 f i90ONIER.SHISE CYINSITTINC GROf_'P,i..w. 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 „s, OWMERSIIIN£ City of Lansing Police and Fire Retirement System December 31, 2018 Actuarial Funding Valuation Section 3, Valuation Summary ".),41F.R5111A CONSULTIN(s CROUP, 13 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% jw, kiNlllkkwlliwk 111W 1111'r,QU1 l`, 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 ��,q�' �Ui41�lf kwfil�l 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% �� L kiial'�1�I,tilll�l. 1 17 __ - -- -- - — 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. •� i+r• I I l lei,�,,���l E ::: 18 —— City of Lansing Police and Fire Retirement System December 31,2018 Actuarial Funding Valuation Section 5s Summary of Ulan Benefits �+ MAI RSIIIIE CONSI ITING(AO UP,ur. �.� 19 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, tL_ 1!1u 11i l ill'I f 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. — j�k II�J�:lsllt�lilrl 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- lll.Hfll['f�ON1., 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 y Yll,tlllll,lltlll �� Ih0 1117tl,1)IU7 ------ - - - �y.�, tl19 tl.. Al':fi TESL 76` 17 . I�n,rlUl'I,C¢l4 � Gsac 61% 6316 m776 61%6 64% 6" I 013,11410,60n i 6nA40,0f10 I I I 40,004,0U0 !. 2�,0ih1,u00 ; i 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 f��,; - krKrllf kw[�I�f ONO 1.1 N;r,Kni]'.1.1; 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. [Q;15ULTIN(i Gttpl'P, 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. --------------- i rig*I I I I`r,i,liru I', _� 26 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 ILi Ii�•I I II� .i.Pl1l I'.. 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- -- f li���till�'i,f;hlitf•,�� 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. F� ., ISu1��1i Hiill�l. -- I 30 - -- -- - - i ii