The URL can be used to link to this page

Home My WebLink AboutCity of Lansing Police and Fire Retirement dec 31 2016 201BA'N -4 PM 5: 32 F A "ITY CLERK City of Lansing Police and Fire Retirement System Actuarial Valuation For Funding and Contributions as of December 31,2016 November, 2017 BOOMERSHINE CO.N'SULTING GROUP, [-IAI-,LUIV, City of Lansing Police and Fire Retirement System December 31,2016 Actuarial Funding Valuation Executive Summary November 22, 2017 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, 2016. The report is based on participant data and asset summary as submitted by the Plan Administrator and City finance department. We relied on this information without auditing it. INVESTMENT PERFORMANCE The total Market Value of Plan Assets for the plan year ending December 31, 2016 was $312,795,888, Plan assets exclude from this a reserve for healthcare benefits. The total yield of the fund for the plan year ending December 31, 2016 was 6.1% on the market value of assets and 6.3% on an actuarial basis, taking into account asset smoothing. The Plan uses a smoothing method to determine the City's contributions. Under this method, asset gains or losses are spread over a 5-year period. The gains and losses are determined every year by comparing actual investment returns with expected asset performance. Details of the development of the Actuarial Asset Value are shown in Section 1.2. FUNDING RECOMMENDATIONS The total recommended City contribution for fiscal year 2018 is $12,562,547. Last year the total recommended contribution was $11,521,768. The increase in cost is due to the adoption of updated assumptions based on the recent experience study. FUNDING PROGRESS The Actuarial Accrued Liability as of December 31, 2016 is $424,264,103 compared to the Actuarial Value of Assets of$294,311,956(excluding healthcare reserve), resulting in a plan funded ratio of 69.4%. Using the market value of assets,this ratio is 66.0%. J R00 IF.RSIIINT CQ\SCLTI\G GROUP, City of Lansing Police and Fire Retirement System December 31,2016 Actuarial Funding Valuation Secilon 1. Plan AsseL Inforn-na ,on j, BOOMERSHI.NE CONSULTING GROUP, City of Lansing Police and Fire Retirement System December 31,2016 Actuarial Funding Valuation 1.2: Development of Actuarial Value of Assets Market Value of Total Fund as of January 1, 2016 $310,270,615 Plus: Contributions 15,750,968 Less: Benefit Payments, Refunds 30,327,720 Less:Administrative Expenses 47,787 Plus: Expected Return during 2016 22,677,604 (@ 7.6%, net of investment expenses) Expected Market Value as of December 31,2016 $318,323,680 Actual Market Value of Total Fund as of December 31,2016 $312,795,888 Investment Gain/(Loss)for 2016 Plan Year (5,527,792) Actuarial Value=Market Value Less: 80%of 2016 Gain/(Loss) 80% * (5,527,792) (4,422,234) Less: 60%of 2015 Gain/(Loss) 60% * (24,424,402) (14,654,641) Less:40%of 2014 Gain/(Loss) 40% * (5,226,518) (2,090,607) Less: 20%of 2013 Gain/(Loss) 20% * 25,936,548 5,187,310 Total Deferred Gain/(Loss) (15,980,172) Actuarial Value of Assets,Total Fund-December 31, 2016 $328,776,060 as%of Market Value of Assets 105.1% Healthcare Reserve as of December 31, 2016 $32,788,606 Adjusted Healthcare Reserve' 34,464,104 Actuarial Value of Assets, Pension Plan-December 31,2016 $294,311,956 Estimated Rate of Return on the Actuarial Value is 6.29% 1 Takes into account asset smoothing lam+ BORNIERSHISE CONSULTING GROUP,i_LC City of Lansing Police and Fire Retirement System December 31,2016 Actuarial Funding Valuation Sects on 2: Pard pane I Suli7�unclry 600d1E CONSULTING TIVG GROUP,Luc, -� 9 - MIL 1P15L 1:YL.IL4L fU:f 11+._!'U_I I!!>5 City of Lansing Police and Fire Retirement System December 31,2016 Actuarial Funding Valuation 2.2: Distribution of Active Participants Nearest -----Completed Years of Service from Date of Hire----- Age <1 1 2 - 4 5 9 10 14 15 - 19 20 - 24 25+ Total 20-24 17 2 5 24 25-29 15 8 24 47 30-34 3 18 12 7 40 35-39 5 4 17 20 13 59 40-44 2 4 23 39 13 81 45-49 1 3 9 25 38 1 77 50-54 3 9 14 1 27 55-59 1 4 5 60-64 1 1 >64 Total 41 10 53 36 64 86 69 2 361 Males Females Total Total Compensation $21,680,912 3,718,799 $25,399,711 Average Compensation 71,319 65,242 70,359 Arithmetic Averages: Nearest Age 38.8 38.5 38.8 Completed Years of Service 11.8 11.4 11.8 Salary-Weighted Averages: Nearest Age 40.8 40.3 40.7 Completed Years of Service 13.7 13.7 13.7 Number of Participants 304 57 361 Percent male/female 84.2% 15.8% 100.0% ROOMFRSHI\F. CONSULTING GROUP,,-,-,. 11 _1 11. _ City of Lansing Police and Fire Retirement System December 31,2016 Actuarial Funding Valuation 3.1: Summary of Actuarial Liability and Funding Progress Actuarial Accrued Liability 12/31/2015 12/31/2016 Old New Assumptions Assumptions 7.60% 7.60% 7.3S% Active Employees $106,965,325 $99,027,797 $103,213,961 Terminated Vested 5,315,759 4,779,120 5,041,817 Retirees and Beneficiaries 297,908,471 303,136,483 316,008,325 Total Actuarial Accrued Liability $410,189,555 $406,943,400 $424,264,103 Actuarial Value of Assets 292,531,481 294,311,956 294,311,956 Net Unfunded Actuarial Accrued Liability 117,658,075 112,631,444 129,952,147 Plan Funding Ratio 71.3% 72.3% 69.4% Jnx BOOMERSHI\E CO\SUITI\G GROUP,iyc. City of Lansing Police and Fire Retirement System December 31,2016 Actuarial Funding Valuation Section 4: Actuarr5al Assumptions and Methods B00MERSHINE CONSULTING CROUP,u.c. City of Lansing Police and Fire Retirement System December 31,2016 Actuarial Funding Valuation Termination*: Rates of termination vary based on the service of the member. Sample Rates are shown below: Years of Service Fire(No Change) Police (Old) Police (New) Age Rate 0 4.0% 5.0% 20 15.0% 1 3.2% 4.3% 25 7.5% 5 1.3% 2.2% 30 3.7% 10 0.4% 1.0% 35 1.9% 15 0.1% 0.4% 40 0.9% 20 0.0% 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 Old Fire(New) Police(Old) Police(New) 10-24 5.0% 5.0% 5.0% 5.0% 25 80.0% 90.0% 80.0% 90.0% 26-29 60.0% 60.0% 25.0% 25.0% 30+ 100.0% 100.0% 100.0% 100.0% Also 100%at mandatory retirement ages. Changes in assumptions and methods Changes in assumptions since the prior valuation are indicated above with asterisks. The assumptions above are based on the most recent experience study, covering 2012 through 2015. 1 'BOOMERSHINE CONSULTING GROUP,u_c. 17 City of Lansing Police and Fire Retirement System December 31,2016 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,formerly FOP),and Fire Fighters Normal Retirement: Age 55 or 25 years of service For CCLP-NS hired on or after August 1,2014,full retirement is at age 50 with 25 years of service Mandatory Retirement: Age 60 for Police and age 70 for Firefighters Normal Form of Benefit: Monthly life annuity with 50%of the benefit payable to the spouse upon the member's death. Contribution Rate Group %of Pa Member Contribution Rates: Fire(IAFF) 10.00% Police,Supervisor(CCLP-S) 9.52% Police, Non Supervisor(CCLP-NS) 9.00% Hires after 5/19/2014 Fire(IAFF) 7.00% Hires after 08/01/2014 Police, Non Supervisor(CCLP-NS) 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: 3.2%of Final Average Compensation times years of credited service,not to exceed 25 years. Maximum benefit is 80%of Final Average Compensation. Pension benefit is capped at 110%of Base Wage for IAFF and CCLP-NS and 115%for CCLP-Supervisors. Benefit Multiplier is changed to 2.5% and Pension Benefit is capped at 100% of Base Wage for hires on or after May 19, 2014 for IAFF and August 1,2014 for CCLP-NS l�BOOIIF,RSNI\F. CO\SGI.TI\G GROUP,i_c.c. City of Lansing Police and Fire Retirement System December 31,2016 Actuarial Funding Valuation Optional Benefit Forms Prior to retirement,a member may elect a reduced benefit of either 93%or 86%of the original amount,thereby increasing the spouse benefit to either 75%or 86%, respectively. 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% Annual Benefit Increase 50% $262.50 75% $393.75 86% $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 There have been no changes in Plan provisions since the prior valuation. BOOIIERSIIINE CONSULTING GROUP, City of Lansing Police and Fire Retirement System December 31,2016 Actuarial Funding Valuation 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 around 45% of payroll over the next 10 years, before gradually decreasing thereafter. The amounts are expected to increase by about $4 million 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. Projection of Funding Progress 160,000,000 ----._.._-....- ------- - --- 140,000,000 - �Funding Ratio Unfunded lzo,oao,000 - 77%78%79%so% � 72%73%74%75%76% - 100,000,000 T9T6g 68%67%68%68% 09714072% i 80,000,000 60,000,000 - - - - - - - - -- 40,000,000 - - - - -- _ - - -- 20,000,000 - - - -- - ----- ---- - 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 Projection of City Contributions 20,000,000 - - -- 50% e---�Amortization -_-j Normal Cost City Contrbi%Pay) 18,000,000 45% 16,000,000 ---.___ _ __ -_ __ 14,000,000 35% 12,000,000 __ - _ _ ___ _ _ _ __ 30% 10,000,000 -. .._ _ ..._. _.- 25% 8,000,000 - _._ __ ..- - - - -- 20% 6,000,000 '- - �- 15% 4,000,000 -- - __ _._. _. __ __ __ ___ __ - _ -_. .. _. 10% 2,000,000 --) __ - __ --� .... _- __ - __ _. __ _. 5% l -- - - 0% 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 f BOOMERSHINE CONSULTING CROUP,us. 2� 5S'S.}lyll.��11iRLNl\il'L1:••J:.1.11'.!�_ City of Lansing Police and Fire Retirement System December 31,2016 Actuarial Funding Valuation Historical Funding Progress Actuarial Value Actuarial Accrued Percentage Unfunded Actuarial Valuation Date of Assets(AVA) Liability(AAL) Funded Accrued Liability 12/31/2007 $ 293,571,000 $315,635,000 93.0% $ 22,064,000 12/31/2008 287,394,000 326,673,000 88.0% 39,279,000 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 264,492,738 372,547,509 71.0% 108,054,771 (6) 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 (7) 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 (8) (6) Reflects changes made to actuarial assumptions, based on Experience Study, including a reduction in the assumed return 8.0%to 7.8%. (7) Reflects changes made to assumed return and inflation from 7.8% and 3.3% 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. (8) Reflects changes made to actuarial assumptions as of 12/31/2016, including return assumption of 7.35%, with underlying 2.85% inflation. BOO1IBSHI\E CONSULTING CROUP, 25 � City of Lansing Police and Fire Retirement System December 31,2016 Actuarial Funding Valuation Appendiix 3 V: Vahii a�Lion Sensitivity The figures shown on this page are based on the return assumption of 7.25%, recommended in the 2016 assumption review. Actuarial Accrued Liability 12/31/2016 Total Actuarial Accrued Liability $428,464,318 Actuarial Value of Assets 294,311,956 Unfunded Actuarial Accrued Liability 134,152,362 Plan Funding Ratio 68.7% City Contribution 12/31/2016 1) Total Entry Age Normal Cost $6,636,904 2) Estimated Employee Contributions 2,706,508 3) Net City Normal Cost: (1)—(2) $3,930,396 4) Valuation Payroll $27,673,222 5) City Normal Cost Rate (%of pay): (3)- (4) 14.2% 6) Amortization of Unfunded Actuarial Accrued Liability $8,560,382 7) Amortization Rate (%of Pay): (6)_(4) 30.9% 8) Total Contribution Rate: (5)+(7) 45.1% 9) Projected Fiscal Payroll $28,461,908 10) Total City Contribution for FY2018:(8)x(9) $12,834,274 Jae BOOMERSNINF, CONSULTING G R 0 L T, 27