Milwaukee Board of School Directors Early Retirement Supplement and Benefit Improvement Plan Actuarial Valuation As of July 1, 2017

Transcription

1 Appendix F to RFP 1001 Milwaukee Board of School Directors Early Retirement Supplement and Benefit Improvement Plan Actuarial Valuation As of July 1, 2017

2 Table of Contents Section Page Introduction A Actuarial Valuation Results 1-4 Comments on the Valuation 5-6 Summary of Actuarial Valuation Results 7 Derivation of Experience (Gain) Loss 8 Reconciliation of Unfunded Liability 9-10 Development of Market Value of Assets 11 Development of Actuarial Value of Assets B Benefit Provisions and Actuarial Valuation Data 1-4 Brief Summary of Plan Provisions 5 Summary of Changes in Participant Status 6 Active Members as of July 1, Schedule of Benefit Payments C Actuarial Valuation Procedures 1 Actuarial Cost Method 2-6 Valuation Assumptions D 1 Glossary of Terms Milwaukee Board of School Directors Early Retirement Supplement and Benefit Improvement Plan i

3 June 19, 2018 Ms. Carol Eady Sr. Director, Benefits, Pension & Compensation Milwaukee Public Schools Administration Building 5225 West Vliet Street Room 124 Milwaukee, Wisconsin Dear Ms. Eady: We are pleased to provide our formal annual, for the Milwaukee Board of School Directors Early Retirement Supplement and Benefit Improvement Plan. The actuarial valuation was performed at the request of Milwaukee Public Schools ( MPS ) and is intended for use by MPS and those designated by MPS. This report may be provided to parties other than MPS only in its entirety and only with the permission of MPS. This report provides, among other things, the recommended annual contribution of the Plan for the Plan Year commencing July 1, 2017, and ending on June 30, The actuarial assumptions and actuarial cost method used in this valuation are consistent with those used in the prior actuarial valuation and most recently changed with the actuarial valuation as of July 1, Beginning with the actuarial valuation as of July 1, 2015, the total recommended annual contribution includes an explicit component for administrative expenses equal to the amount of actual administrative expenses in the prior fiscal year. We believe that explicitly funding administrative expenses is more appropriate given that the Plan is closed. The Plan was closed to new members effective July 1, Please note that the actuarial valuation results do not include the impact of the early retirement window. Please refer to our letter dated March 22, 2017, for additional information on the potential cost impact of the early retirement window. We recommend that an experience analysis be performed, in order to update assumptions, after experience from the early retirement window becomes available. To the best of our knowledge the information contained in this report is accurate and fairly presents the actuarial position of the Milwaukee Board of School Directors Early Retirement Supplement and Benefit Improvement Plan as of the actuarial valuation date. All calculations have been made in conformity with generally accepted actuarial principles and practices and with the Actuarial Standards of Practice issued by the Actuarial Standards Board. Alex Rivera and Lance Weiss are Members of the American Academy of Actuaries and meet the Qualification Standards of the American Academy of Actuaries to render the actuarial opinion herein.

4 Ms. Carol Eady Milwaukee Public Schools June 19, 2018 Page 2 Future actuarial measurements may differ significantly from the current measurements presented in this report due to such factors as the following: plan experience differing from that anticipated by the economic or demographic assumptions; changes in economic or demographic assumptions; increases or decreases expected as part of the natural operation of the methodology used for these measurements (such as the end of an amortization period or additional cost or contribution requirements based on the plan s funded status); and changes in plan provisions or applicable law. This report should not be relied on for any purpose other than the purpose stated. The signing actuaries are independent of the plan sponsor. The actuarial valuation was based upon information furnished by Milwaukee Public Schools, concerning benefits provided by the Milwaukee Board of School Directors Early Retirement Supplement and Benefit Improvement Plan, financial transactions, plan provisions and active members, terminated members, retirees and beneficiaries. We checked for internal and year-to-year consistency, but did not audit the data. We are not responsible for the accuracy or completeness of the information provided by Milwaukee Public Schools. We will be pleased to review this report with you at your convenience. Respectfully submitted, Gabriel, Roeder, Smith & Company Alex Rivera, FSA, EA, MAAA, FCA Senior Consultant Lance J. Weiss, EA, MAAA, FCA Senior Consultant AW:rl

5 SECTION A ACTUARIAL VALUATION RESULTS

6 Comments on the Valuation Purpose and Data At your request we have performed the actuarial valuation of the Milwaukee Board of School Directors Early Retirement Supplement and Benefit Improvement Plan ( Plan ) as of July 1, The purposes of this actuarial valuation are as follows: To determine the funding status of the Plan as of the valuation date; and To determine the recommended contribution for the current fiscal year. Accounting information, as required under GASB Statement Number 67 (pension plan accounting) and GASB Statement Number 68 (employer accounting for pension plans), is shown in a separate report. GASB Statement Numbers 67 and 68 are first effective with fiscal year ending June 30, 2014, and June 30, 2015, respectively. We received data from the Milwaukee Board of School Directors ( MBSD or Plan Sponsor ). We performed certain checks for reasonableness and found the data to be complete and reliable for actuarial valuation purposes. However, we did not audit the data. A total of 126 active members were included in the actuarial valuation as of July 1, 2017; 95 certificated members and 31 classified members. Between the 2016 and 2017 actuarial valuations, the number of total active employees decreased by 11 members, or 8.0 percent. The average annual salary for certificated members increased by 3.4 percent, from $106,607 to $110,249, between the 2016 and 2017 actuarial valuations. The number of benefit recipients decreased from 758 to 745, or 1.7 percent, since the last actuarial valuation. The average monthly permanent benefit increased by 0.2 percent, from $ to $ Plan Provisions Section B outlines the principal benefit provisions of the Plan. There have been no changes in the plan provisions since the last actuarial valuation as of July 1, The Plan was closed to new members effective July 1, Please note that the actuarial valuation results do not include the impact of the Early Retirement Window ( ERW ) which was approved by the MPS Board on March 30, The ERW provides enhanced retiree healthcare benefits to eligible members who retire from July 1, 2017, through June 30, A member is eligible for ERW benefits if, during the ERW period, the member has attained at least age 55, earned at least 20 years of service, and accumulated at least 90 percent of the maximum allowable sick leave. The ERW is expected to accelerate retirement and consequently increase the value of Supplemental Pension Plan benefits. The ERW impact to the Supplemental Pension Plan will be reflected in subsequent actuarial valuations. Milwaukee Board of School Directors Early Retirement Supplement and Benefit Improvement Plan A-1

7 Actuarial Assumptions and Methods Comments on the Valuation The actuarial cost method and actuarial assumptions used in this actuarial valuation are consistent with those used in the actuarial valuation at July 1, Under the entry age normal cost method used for the present actuarial valuation, the total present value of each participant's benefits is spread as a level percentage of pay for each year from date of hire until assumed retirement date. The annual normal cost under this method represents the portion of the total cost assigned to the current year. The actuarial accrued liability represents the actuarial accumulation of normal costs for prior years, less the benefits paid to date. Subtracting the available assets from the actuarial accrued liability gives the unfunded actuarial accrued liability. Beginning with the actuarial valuation as of July 1, 2015, the total recommended annual contribution includes an explicit component for administrative expenses equal to the amount of actual administrative expenses in the prior fiscal year. We believe that explicitly funding administrative expenses is more appropriate given that the Plan is closed. All other assumptions and methods used in this actuarial valuation are consistent with those used in the last actuarial valuation as of July 1, The Plan is funded using a five-year open period, level dollar amortization method. The remaining amortization period will be reset to five years in each future actuarial valuation. Gain/Loss Analysis During the plan year ending June 30, 2017, the unfunded actuarial accrued liability ( UAAL ) decreased from $5,171,814 as of June 30, 2016, to $4,443,798 as of July 1, 2017, which is a decrease of $728,016. The key factors contributing to the change in UAAL are summarized below: Plan Asset Return Source Change in UAAL UAAL at July 1, 2016 $ 5,171,814 Normal Cost 288,583 Interest on UAAL and Normal Cost 409,529 Contributions with Interest (1,588,517) Investment and Administrative Expense (Gain) Loss (179,559) Salary and Demographic (Gain) Loss 341,948 UAAL at July 1, 2017 $ 4,443,798 On a market value basis, the Plan assets had an investment return of 11.9 percent. On an actuarial value of assets basis, plan assets had an investment return of approximately 7.9 percent, which compares to the assumed rate of return of 7.5 percent for fiscal year ending June 30, The actuarial value of assets is currently approximately 101 percent of the market value of assets. Based on the market value of assets, the unfunded liability is $5,132,312. Milwaukee Board of School Directors Early Retirement Supplement and Benefit Improvement Plan A-2

8 Comments on the Valuation Funded Ratio The funded ratio measures the portion of the actuarial accrued liability (calculated based on the actuarial assumptions disclosed in this report) that is currently funded. The funded ratio is 91.4 percent based on actuarial value of assets and 90.1 percent based on market value of assets. The funded ratio is not appropriate for assessing the sufficiency of plan assets for any other purpose. Under the current funding policy of amortizing the unfunded liability over an open five-year period, the funded ratio is projected to steadily increase and approach 100 percent funded. Employer Contributions The recommended contribution decreased from $1,477,690 for fiscal year 2017 to $1,274,784 for fiscal year 2018, which is a decrease of $202,906. The reduction in contributions is primarily due to the amortization policy used to finance the unfunded actuarial liability. The current policy amortizes the unfunded actuarial liability as of the actuarial valuation date using a five-year open period. For slightly underfunded plans, this policy generally causes a small decrease in contributions when compared to a policy that amortizes the unfunded actuarial liability using a five-year closed period. Under the five-year open period amortization policy, if actuarial experience emerges as expected, then the funded ratio is projected to increase slowly from 91.4% in 2017 to approximately 99.5% in During this period projected annual contributions equal approximately 23% of the decreasing unfunded actuarial liability plus normal costs including administrative expenses. Under a five-year closed amortization policy, if actuarial experience emerges as expected, then the funded ratio increases steadily from 91.4% in 2017 to 100% in During this five-year period, projected annual contributions equal a fixed dollar amortization such the unfunded actuarial liability is fully financed within five years plus the normal costs including administrative expenses. After 2022, annual contributions equal normal costs plus administrative expenses since the unfunded actuarial liability is fully financed. GASB 67/68 Effective with fiscal year ending June 30, 2014, GASB Statement Number 67 replaced GASB Statement Number 25 for pension plan financial reporting requirements. GASB Statement Number 68 replaced GASB Statement Number 27 for employer financial reporting effective with fiscal year ending June 30, The discount rate used for GASB Statement Numbers 67 and 68 reporting purposes is a blended or average discount rate based on 7.50 percent for the projected benefits for all current members that can be paid from current assets and projected investment return, and future employer contributions attributable to current members, and a municipal bond rate for the portion of the projected benefits after assets are depleted. Plan assets are projected to be available to pay all projected benefits; consequently, the discount rate used for GASB Statement Numbers 67 and 68 reporting purposes equals 7.50 percent. Due to the shorter amortization periods required under GASB Statement Numbers 67 and 68, the Milwaukee Board of School Directors Early Retirement Supplement and Benefit Improvement Plan A-3

9 Comments on the Valuation liabilities and pension expense are expected to be more volatile than under GASB Statement Numbers 25 and 27. A separate GASB Statement Numbers 67 and 68 report was issued with schedules to meet the requirements under the new standards. Milwaukee Board of School Directors Early Retirement Supplement and Benefit Improvement Plan A-4

10 Summary of Actuarial Valuation Plan Liabilities July 1, 2016 July 1, 2017 Results Results Actuarial Accrued Liability: Active Members $ 7,464,925 $ 7,818,186 Retirees and Beneficiaries 42,095,331 41,208,057 Deferred Vested 2,760,528 2,607,424 TOTAL $ 52,320,784 $ 51,633,667 Actuarial Value of Assets at Valuation Date $ 47,148,970 $ 47,189,869 Unfunded (Overfunded) Actuarial Accrued Liability $ 5,171,814 $ 4,443,798 Funded Position of Plan's Actuarial 90.1 % 91.4 % Accrued Liability 1 Recommended Annual Contribution Fiscal Year Fiscal Year Requirements Annual Normal Cost at Valuation Date 2 $ 288,583 $ 253,063 Amortization of Unfunded Actuarial Accrued Liability at Valuation Date Total Recommended Annual Contribution for the Current Plan Year $ 1,189,107 $ 1,021,721 $ 1,477,690 $ 1,274,784 Total Certificated Payroll 3 $ 11,193,762 $ 10,473,625 Recommended Annual Contribution (As a percentage of certificated pay) % % Total Payroll 3 $ 14,255,879 $ 13,574,881 Recommended Annual Contribution (As a percentage of total pay) % 9.391% 1 Equals the ratio of the actuarial value of assets to the total actuarial accrued liability. 2 Normal cost includes the actual administrative expenses incurred in the prior fiscal year of $62,511 for fiscal year 2017 and $65,920 for fiscal year Payroll beginning with the valuation of July 1, 2012, includes pay for benefit purposes and is estimated as the greater of the base salary and pay paid in the prior year. Milwaukee Board of School Directors Early Retirement Supplement and Benefit Improvement Plan A-5

11 Summary of Actuarial Valuation Present Value of Accrued Benefits July 1, 2016 July 1, 2017 Vested Active Members 1 $ 5,839,567 $ 5,976,268 Non-Vested Active Members Retirees and Beneficiaries 42,095,331 41,208,057 Deferred Vested 2,760,528 2,607,424 TOTAL $ 50,695,426 $ 49,791,749 Market Value of Assets for Valuation Purposes $ 44,860,636 $ 46,501,355 Current Members Active Certificated Active Classified Retirees and Beneficiaries Deferred Vested TOTAL Represents the present value of benefits based on service earned to date, excluding future salary increases. 2 Includes terminated members entitled to deferred monthly benefits and terminated members only entitled to a refund of contributions. Milwaukee Board of School Directors Early Retirement Supplement and Benefit Improvement Plan A-6

12 Derivation of Experience (Gain) Loss Year Ended July 1, 2017 Actual experience will never (except by coincidence) coincide exactly with assumed experience. It is expected that gains and losses will cancel each other over a period of years, but year-to-year fluctuations are not uncommon. Detail on the derivation of the experience (gain) loss is shown below, along with a year-by-year comparative schedule. 1. Unfunded Actuarial Accrued Liability at 07/01/2016 $ 5,171, Normal Cost Due at 07/01/ , Interest on (1) and (2) to 07/01/2017 (at 7.50% per annum) 409, Contributions applicable to the 2017 Plan Year, with interest to 06/30/2017 1,588, Expected Unfunded Actuarial Accrued Liability at 07/01/2017 $ 4,281,409 [(1) + (2) + (3) - (4)] 6. Actual Unfunded Actuarial Accrued Liability at 07/01/2017 $ 4,443, (Gain) Loss at 07/01/2017 [(6) - (5)] $ 162,389 Valuation Date July 1 Experience (Gain) Loss As % of Beginning Accrued Liability Estimated Rate of Return on Market Value of Assets 1 Estimated Rate of Return on Actuarial Value of Assets (0.37)% (5.13)% 9.10 % % (18.10)% 2.00 % % % 1.25 % % % 4.02 % % 0.70 % 3.14 % % % 5.08 % 2014 (2.89)% % % 2015 (2.99)% 1.50 % % % 0.74 % 6.10 % % % 7.89 % 1 Net of investment expenses for plan year 2016 and after. Net of investment and administrative expenses for plan years before Includes decrease in liabilities of $623,279 due to the change in the salary increase assumption for fiscal years 2011 through 2013 to reflect no bargained salary increases during that period. Milwaukee Board of School Directors Early Retirement Supplement and Benefit Improvement Plan A-7

13 Reconciliation of Unfunded Liability Actual Unfunded Actuarial Accrued Liability at 07/01/2016 $ 5,171,814 Expected Unfunded Actuarial Accrued Liability at 07/01/2017 $ 4,281,409 (Gains) Losses During the Year Attributable to: (Gain) Loss on Assets and Administrative Expense 1 $ (179,559) (Gain) Loss from Salary Increases (14,690) (Gain) Loss from Demographic and Other Experience 356,638 Composite Actuarial (Gain) Loss $ 162,389 Actual Unfunded Actuarial Accrued Liability at 07/01/2017 $ 4,443,798 1 Includes gains and losses on an actuarial value of assets basis. Milwaukee Board of School Directors Early Retirement Supplement and Benefit Improvement Plan A-8

14 Development of Market Value of Assets June 30, 2016 June 30, 2017 Net Assets Available for Benefits - Beginning of Year $49,493,539 $ 46,110,766 Additions Fiscal Year Ending Investment Income: Net Investment Income from the State of Wisconsin: Core Retirement Investment Trust Fund $ 365,044 $ 4,162,123 Variable Retirement Investment Trust Fund (91,466) 1,004,530 Net Investment Income from Other Investments 77,507 77,088 Total Investment Income 351,085 5,243,741 Less: Investment Expenses (5,759) (5,559) Net Investment Income 345,326 5,238,182 Employer Contributions 1,498,910 1,209,134 Total Additions $ 1,844,236 $ 6,447,316 Deductions Benefits Paid to Participants or Beneficiaries $ 5,145,099 $ 4,981,004 Distribution of Participant Contribution Accounts 19,399 27,335 Administrative Expenses 62,511 65,920 Total Deductions $ 5,227,009 $ 5,074,259 Net Increase in Net Assets Available for Benefits $ (3,382,773) $ 1,373,057 Net Assets Available for Benefits - End of Year 1 $ 46,110,766 $ 47,483,823 1 Year ending 2017 reflects additional prepaid contributions with interest that are applicable to fiscal year ending June 30, The market value of assets for valuation purposes, excluding prepaid contributions, is $44,860,636 and $46,501,355 for June 30, 2016, and June 30, 2017, respectively. Milwaukee Board of School Directors Early Retirement Supplement and Benefit Improvement Plan A-9

15 Development of Market Value of Assets July 1, 2016 July 1, 2017 Assets: Investment with the State of Wisconsin: Core Retirement Investment Trust Fund $ 37,431,518 $ 38,593,641 Variable Retirement Investment Trust Fund 5,175,257 5,179,787 Money Market Accounts 1,388,538 1,051,724 Mortgage Backed Securities Nongovernmental Obligations 2,533,101 2,089,076 Receivables: Accrued Interest Receivable 4,079 4,123 Due from Sale of Investments - 1,000,000 Total Assets $ 46,532,562 $ 47,918,416 Liabilities: Benefits Payable $ 416,033 $ 412,373 Accrued Administrative Expenses 5,763 22,220 Contributions Payables - - Total Liabilities $ 421,796 $ 434,593 Net Assets Available for Benefits $ 46,110,766 $ 47,483,823 Prepaid Contributions with Interest 1 1,250, ,468 Market Value of Assets for Valuation Purposes $ 44,860,636 $ 46,501,355 1 Amounts paid prior to the valuation date that will be included in contributions for fiscal year ending June 30, 2017, and June 30, 2018, respectively. Milwaukee Board of School Directors Early Retirement Supplement and Benefit Improvement Plan A-10

16 Development of Actuarial Value of Assets 1 Fiscal Year Ending Beginning of Year: (1) Market Value of Assets $ 48,121,417 $ 44,860,636 (2) Actuarial Value of Assets 47,893,296 47,148,971 End of Year: (3) Market Value of Assets 44,860,636 46,501,355 (4) Net of Contributions and Disbursements (a) Contributions 1 1,618,641 1,477,690 (b) Disbursements (5,227,009) (5,074,259) (5) Total Investment Income =(3)-(1)-(4a)-(4b) 347,587 5,237,288 (6) Projected Rate of Return % 7.50% (7) Projected Investment Income =((1)+(4a)+(4b)/2)*(6) 3,534,492 3,285,090 (8) Investment Income in Excess of Projected Income (3,186,905) 1,952,198 (9) Excess Investment Income Recognized This Year (5 year recognition) (9a) From This Year (637,381) 390,440 (9b) From One Year Ago (587,868) (637,381) $ 390,440 (9c) From Two Years Ago 837,604 (587,868) (637,381) $ 390,440 (9d) From Three Years Ago 349, ,604 (587,868) (637,381) $ 390,440 (9e) From Four Years Ago (632,384) 349, ,606 (587,866) (637,381) $ 390,437 (9f) Total Recognized Investment Gain/(Loss) (670,449) 352,377 2,797 (834,807) (246,941) 390,437 (10) Change in Actuarial Value of Assets =(4a)+(4b)+(7)+(9f) (744,325) 40,898 End of Year: (3) Market Value of Assets 44,860,636 46,501,355 (11) Final Actuarial Value of Assets [(2)+(10)] 47,148,971 47,189,869 (12) Difference Between Market & Actuarial Values (2,288,335) (688,514) (13) Actuarial Value Rate of Return % 7.89 % (14) Estimated Market Value Rate of Return % % (15) Ratio of Actuarial Value to Market Value 105 % 101 % The recommended board contribution calculated in the actuarial valuation as of July 1, 2015, and July 1, 2016, and contributed for fiscal year 2016 and 2017, respectively. 2 Net of investment expense. Milwaukee Board of School Directors Early Retirement Supplement and Benefit Improvement Plan A-11

17 SECTION B BENEFIT PROVISIONS AND ACTUARIAL VALUATION DATA

18 Brief Summary of Plan Provisions EFFECTIVE DATE: The Plan was established, effective January 1, 1978, and was most recently amended as of July 1, PLAN YEAR: A Plan Year is each 12-month period beginning July 1 and ending June 30. COVERED EMPLOYEE (Must satisfy at least one of the following): - An administrative, supervisory or professional staff employee of the Board who is represented by the Administrators and Supervisors Council, Inc. (ASC) or who would have been represented by the ASC except for the fact that the employee is in an ASC-exempt designated position. - An employee of the Board who is appointed pursuant to Wisconsin Statutes Section (3) (employees appointed by the superintendent). - Any other employee specifically designated by the Board as a Covered Employee. - Certain classified members who became Covered Employees on or before June 30, 2003, and who participate in the City of Milwaukee Retirement Plan (CMRP). These participants are only eligible for the Special Supplemental Benefit under Optional Early Retirement. PARTICIPATION: Any individual who became a Covered Employee on or before June 30, 2003, and who, prior to May 15, 1989, was a participant in the Wisconsin Retirement System or the Milwaukee Teachers Retirement Fund. After May 15, 1989, a Covered Employee becomes a participant on the date he/she becomes a participant in the Wisconsin Retirement System or City of Milwaukee Retirement System, but no earlier than the date he/she is employed by Milwaukee Public Schools. Any Covered Employee hired before June 30, 2003, who terminates employment or transfers to a position not covered under the Plan, and is later rehired as a Covered Employee will not be eligible to accrue additional benefits. The plan was closed to new members effective July 1, MEMBER CONTRIBUTIONS: Prior to July 1, 2003, member contributions were set at 20 percent of plan costs. Contribution rates were specified by the collective bargaining agreement. As of July 1, 2003, members no longer have to make contributions in order to be eligible for benefits. Certain participants continue in the Plan on a self-pay basis. BOARD CONTRIBUTIONS: Prior to July 1, 2003, the Board was responsible for approximately 80 percent of plan costs. Beginning July 1, 2003, all contributions must be paid by the Board. COMPENSATION: Total earnings received from the Board during a Plan Year under the terms of the Wisconsin Retirement System, in which a year of Benefit Service is earned. AVERAGE MONTHLY COMPENSATION (AMC): The monthly average of compensation paid during the three Plan Years of highest compensation preceding the June 30 prior to the participant s separation from service as a Covered Employee of the Board. Average compensation used in determining Wisconsin Retirement System benefits, which may include eligible non-mps compensation, is used in determining MPS Teachers Plan formula benefits based on an arbitration award issued in September of Milwaukee Board of School Directors Early Retirement Supplement and Benefit Improvement Plan B-1

19 Brief Summary of Plan Provisions BENEFIT SERVICE: For Plan Years prior to July 1, 1989, a year of service credited under the Wisconsin Retirement System is credited as a year of benefit service. For employees hired after June 30, 1989, each consecutive 12-month period in which the participant is a Covered Employee by the Milwaukee Public Schools is credited as a year of benefit service. Partial years are credited in amounts of 1/100. VESTING SERVICE: For Plan Years beginning prior to July 1, 1989, a year of service credited under the Wisconsin Retirement System is credited as a year of vesting service. For Plan Years beginning after June 30, 1989, each consecutive 12-month period in which the participant is an employee of Milwaukee Public Schools is credited as a year of vesting service. NORMAL RETIREMENT ELIGIBILITY: Attainment of age 65 with three years of Benefit Service and eight years of Vesting Service. NORMAL RETIREMENT BENEFIT: A monthly benefit of 2% of Average Monthly Compensation per year of Benefit Service, subject to a maximum of 70% of Average Monthly Compensation, reduced by the sum of the benefit the member is eligible for under the Wisconsin Retirement System (WRS) and for Covered Employees participating before May 15, 1989, the benefit to which they are entitled under the Teachers Plan. EARLY RETIREMENT ELIGIBILITY: Attainment of age 55 and prior to attainment of age 60 with three years of Benefit Service and eight years of Vesting Service. EARLY RETIREMENT BENEFIT: A monthly benefit of 2% of Average Monthly Compensation per year of Benefit Service reduced by an age reduction factor of 0.25% for each month between retirement and age 60, subject to a maximum of 70% of Average Monthly Compensation. This amount is then reduced by the benefit the member is eligible for under WRS and for Covered Employees participating before May 15, 1989, the benefit to which they are entitled under the Teachers Plan. Upon early retirement, a participant may elect to defer the commencement of payments to age 60 or receive immediately the benefit which is the actuarial equivalent of the deferred vested benefit. OPTIONAL EARLY RETIREMENT ELIGIBILITY: Attainment of age 60 and prior to attainment of age 65 with three years of Benefit Service and eight years of Vesting Service, and termination on or after age 60. OPTIONAL EARLY RETIREMENT BENEFIT: A monthly benefit of 2% of Average Monthly Compensation per year of Benefit Service, subject to a maximum of 70% of Average Monthly Compensation, reduced by the benefit the member is eligible for under the Wisconsin Retirement System and for Covered Employees participating before May 15, 1989, the benefit to which they are entitled under the Teachers Plan. In addition to this benefit, participants retiring under Optional Early Retirement will receive an additional Special Supplemental Benefit. The Special Supplemental Benefit is equal to 2% of Average Monthly Compensation times the number of years between age at retirement and 65. It is paid monthly until the participant reaches age 65. The total of benefits, including the WRS benefit (or in the case of the Classified participants, the CMRP benefit) and Special Supplemental Benefit, may not exceed 70% of Average Monthly Compensation. Milwaukee Board of School Directors Early Retirement Supplement and Benefit Improvement Plan B-2

20 Brief Summary of Plan Provisions DEFERRED VESTED PENSION ELIGIBILITY: Three years of Benefit Service and eight years of Vesting Service. Participant must not withdraw contributions. DEFERRED VESTED PENSION BENEFIT: A monthly benefit of 2% of Average Monthly Compensation per year of Benefit Service reduced by an age reduction factor of 0.25% for each month between retirement and age 60, subject to a maximum of 70% of Average Monthly Compensation, reduced by the benefit the member is eligible for under the Wisconsin Retirement System and for Covered Employees participating before May 15, 1989, the benefit to which they are entitled under the Teachers Plan. DISABILITY RETIREMENT ELIGIBILITY: Attainment of age 55 and prior to attainment of age 65 with three years of Benefit Service and eight years of Vesting Service, of which at least five are with Milwaukee Public Schools. DISABILITY RETIREMENT BENEFIT: A monthly benefit of 2% of Average Monthly Compensation per year of Benefit Service, subject to a maximum of 70% of Average Monthly Compensation, where Benefit Service is calculated as if the participant had continued to be a Covered Employee until age 65. This benefit is reduced by the benefit under WRS where the WRS benefit is also calculated using service projected to age 65 and for Covered Employees participating before May 15, 1989, the disability benefit to which they are entitled under the Teachers Plan. MAXIMUM BENEFIT: The sum of the WRS benefit, the retirement benefit payable from MPS and the special supplemental benefit may not exceed 70% of Average Monthly Compensation. If the sum exceeds this limit, the special supplemental benefit will be reduced. If the sum still exceeds this limit, the retirement benefit payable from MPS will be reduced until the member s total benefit is equal to 70% of Average Monthly Compensation. DEATH BENEFIT: A lump sum of accumulated employee contributions with interest is payable at death. ADDITIONAL REDUCTION FACTOR FOR EMPLOYEES BECOMING PARTICIPANTS AFTER MAY 15, 1989: For all employees that first become an active Participant after May 15, 1989, any monthly benefits for which they may be eligible shall be multiplied by the ratio of the years of Benefit Service at MPS to the years of Benefit Service under WRS. WISCONSIN RETIREMENT SYSTEM BENEFIT: On and after July 1, 2001, participants eligible for a benefit under the Wisconsin Retirement System receive 1.765% of Average Monthly Compensation times years of service prior to January 1, 2000, plus 1.6% of AMC times years of service after January 1, This benefit is reduced by 0.4% per month for each month the retirement age is under age 65. Between 57 and 65 the 0.4% reduction is reduced by % for each month of creditable service. Milwaukee Board of School Directors Early Retirement Supplement and Benefit Improvement Plan B-3

21 Brief Summary of Plan Provisions ALTERNATIVE BENEFIT FOR CERTAIN TEACHERS PLAN PARTICIPANTS: A Covered Employee who: - Was active on or after July 1, 2004, - Was covered under the MTEA teacher collective bargaining unit and under WRS on or after July 1, 1982, and - Is vested under the Teachers Plan, is eligible to receive the maximum of the benefit under Teachers Plan plus the amount of his/her separate employee contribution account under the ASC Plan, or the benefit under the Administrators Plan. BENEFITS PAYABLE UNDER THE TEACHERS PLAN 1 : Permanent Benefits: - Normal retirement (retirement on or after age 65): Eligible for WRS benefit only. No benefits payable from Milwaukee Public Schools. - Early retirement (retirement between the ages of 62 and 65): 1.3% 0.5% AMC YOS Number of months until age 65 - Reduced early retirement (retirement between 55 and 62): 18% 1.3% AMC YOS Special Supplemental Benefits: - Normal retirement: Eligible for WRS benefit only. No benefits payable from Milwaukee Public Schools. - Early retirement: 2.0% AMC Number of years from retirement until age 65; Payable until age Reduced early retirement: 2.16 AMC / Number of months from retirement until age 65; Payable until age Permanent benefits are payable monthly for the life of the participant with 60 months of payments guaranteed without reduction for this form of payment. Special supplemental benefits are payable monthly until age 65. CITY OF MILWAUKEE RETIREMENT PLAN BENEFIT: Participants eligible for a benefit under CMRP receive 2.00% of Average Monthly Compensation times years of service. This benefit is reduced if the participant retires before attaining age 60; however, participants covered under this plan are only eligible for the Special Supplemental Benefit which is not available until age 60. Therefore, the reduction factors are not relevant to this valuation. NORMAL FORM OF PAYMENT: Payable monthly for the life of the participant. Milwaukee Board of School Directors Early Retirement Supplement and Benefit Improvement Plan B-4

22 Summary of Changes in Participant Status Certificated Classified Deferred Refunds to Actives 1 Actives 2 Vested 2 Be Paid Retirees Beneficiaries Total Participants 7/1/ New Entrants and Rehires 1 1 Non-Vested Terminations 0 Terminations - Account not withdrawn 0 Vested Termination (2) 2 0 Retirement - Eligible for Benefits (9) (4) 13 0 Retirement - Ineligible for Benefits 0 Deaths (21) (2) (23) New Beneficiaries 4 4 Benefit ended (6) (1) (7) Benefit Terminations, Refunds (1) (1) Adjustments 0 Participants 7/1/ Excludes one member who is an active teacher but has consented to be paid retirement benefits from the Administrators Plan. This member s accrued liability is included in the Administrators Plan. 2 Two current active classified members are being valued as deferred vested members based on their prior service as a certificated active member. Milwaukee Board of School Directors Early Retirement Supplement and Benefit Improvement Plan B-5

23 Active Members as of July 1, 2017 By Attained Age and Years of Service Includes Certificated and Classified Participants Attained Age Under and Over Totals Valuation Payroll Under $ , , ,207, ,436, , , ,760, , ,022, , , , , , , , , and Over ,567 Total $ 13,574,881 While not used in the financial computations, the following group averages are computed and shown because of their general interest. Current Year Prior Year Age: 53.1 years 53.1 years Service: Total Annual Pay: 23.8 years $107, years $104,058 Certificated Annual Pay: $110,249 $106,607 There are 14 retirements expected for certificated employees and 5 retirements expected for classified employees in the year ending June 30, 2018, based on the current retirement rates and active population as of July 1, Milwaukee Board of School Directors Early Retirement Supplement and Benefit Improvement Plan B-6

24 Schedule of Benefit Payments Retirees and Beneficiaries Permanent Temporary Age Group Number 1 Monthly Pension Number Monthly Pension Under 55 1 $ $ , , , , , , , , , and Over 36 18, Unknown Total 742 $ 384, $ 31, While not used in the financial computations, the following group averages are computed and shown because of their general interest. Current Year Prior Year Age: Monthly Permanent Benefit: $ $ Monthly Temporary Benefit: $ $ Excludes classified retirees only receiving temporary benefits. Milwaukee Board of School Directors Early Retirement Supplement and Benefit Improvement Plan B-7

25 Schedule of Benefit Payments Deferred Vested Members Permanent Temporary Age Group Number Monthly Pension Number Monthly Pension Under 30 - $ - - $ , , , Total 65 $ 32, $ - While not used in the financial computations, the following group averages are computed and shown because of their general interest. Current Year Prior Year Age: Monthly Permanent Benefit: $ $ Monthly Temporary Benefit: N/A N/A Milwaukee Board of School Directors Early Retirement Supplement and Benefit Improvement Plan B-8

26 SECTION C VALUATION PROCEDURES

27 Actuarial Cost Method Normal cost and the allocation of benefit values between service rendered before and after the valuation date was determined using the Entry Age Normal actuarial cost method having the following characteristics: The annual normal costs for each individual active member, payable from the date of employment to the date of retirement, are sufficient to accumulate the value of the member s benefit at the time of retirement; and Each annual normal cost is a constant percentage of the member s year-by-year projected covered pay. Actuarial Value of Pension Plan Assets. To calculate the actuarial value of assets, the current market value of assets is reduced (increased) for the current year and each of three succeeding years, by a portion of the gain/(loss) in market value during the prior year. Such gain/(loss) is determined as the excess/(deficit) of the current market value of assets over the market value of assets as of the prior year, increased to reflect interest at the actuarial rate and adjusted to reflect contributions and benefit payments during the prior year. The portion of such gain/(loss) by which the current market value of assets is reduced (increased) shall be 80% in the current year; 60% in the first succeeding year; 40% in the second succeeding year and 20% in the third succeeding year. Financing of Unfunded Actuarial Accrued Liabilities. The unfunded actuarial accrued liability is amortized using a level-dollar five-year open period. Administrative Expenses. The contribution amount includes an explicit component for administrative expenses based on actual administrative expenses for the prior plan year. Milwaukee Board of School Directors Early Retirement Supplement and Benefit Improvement Plan C-1

28 Actuarial Valuation Assumptions The contribution and benefit values of the Plan are calculated by applying actuarial assumptions to the benefit provisions and census information furnished, using the actuarial cost method described on the previous page. The principal areas of financial risk which require assumptions about future experiences are: Long-term rates of investment return to be generated by the assets of the Plan; Patterns of pay increases to members; Rates of mortality among members, retirees and beneficiaries; Rates of withdrawal of active members; Rates of disability among members; and The age patterns of actual retirement. In an actuarial valuation, the monetary effect of each assumption is calculated for as long as a present covered person survives; a period of time which can be as long as a century. Actual experience of the Plan will not coincide exactly with assumed experience. Each valuation provides a complete recalculation of assumed future experience and takes into account all past differences between assumed and actual experience. The result is a continual series of adjustments (usually small) to the computed contribution rate. From time-to-time it becomes appropriate to modify one or more of the assumptions to reflect experience trends (but not random year-to-year fluctuations). GRS performed an experience study to analyze how the current assumption set compares to recent experience. GRS made assumption change recommendations based on experience for the period July 1, 2005, through July 1, 2011, which have been approved by the Board and were first reflected in the actuarial valuation as of July 1, Milwaukee Board of School Directors Early Retirement Supplement and Benefit Improvement Plan C-2

29 Actuarial Valuation Assumptions The assumed rate of investment return used was 7.50%, net of investment expenses, annually. The assumed price inflation used was 2.80%. The rate of annual salary increase for classified members is 5.0% with less than 20 years of service, and 4.0% with 20 or more years of service. The rate of annual salary increase for certificated members is shown below. Salaries are projected using the greater of pay paid in the prior year and the base pay rate which is based on the standard number of hours for a given position. Based on the current bargaining agreement, no wage inflation increases will be granted through June 30, 2013, and no salary increases will be granted in the fiscal years ending June 30, 2014, and June 30, However, non-base building increases were paid to Administrators during the 2014 and 2015 fiscal years. Consequently, for fiscal years 2011 through 2013, the salary increase assumption excluded the 2.8 percent per year wage inflation increase, and for fiscal year 2014, no wage or step increases were assumed. Salary increases in accordance with the assumptions below are assumed for fiscal year 2015 and future years. Annual Salary Increase (Includes 2.8% Wage Inflation Increase Plus Service-Based Increase) Service Rate Service Rate Service Rate 0 6.5% % % 1 6.5% % % 2 6.5% % % 3 6.5% % % 4 6.5% % % 5 6.5% % % 6 6.5% % % 7 6.5% % % 8 6.5% % % 9 6.5% % % Information pertaining to eligible non-mps compensation cannot be obtained for active members eligible for a benefit under the Teachers Plan formula and no assumption is made. The information is reflected in the benefit amount for retired members. The mortality table used to measure retirement mortality was based on the Wisconsin Projected Experience Table 2005 for women and 90 percent of the Wisconsin Projected Experience Table 2005 for men. Pre-retirement mortality rates are set to be 80 percent of post-retirement rates. This assumption is used to measure the probabilities of members dying before retirement and the probabilities of each benefit payment being made after retirement. Milwaukee Board of School Directors Early Retirement Supplement and Benefit Improvement Plan C-3

30 Actuarial Valuation Assumptions Future Life Expectancy (years) Sample Pre-retirement Sample Post-retirement Attained Mortality Assumption Attained Mortality Assumption Ages Men Women Ages Men Women Based on the most recent experience study performed for the period July 1, 2005, through July 1, 2011, we believe the current mortality table contains an appropriate margin for future mortality improvement. The mortality table used is consistent with the RP-2000 table projected 30 years using scale AA. Rates of separation from active membership are represented by the following table (rates do not apply to members eligible to retire and do not include separation on account of death or disability). This assumption measures the probabilities of members terminating employment. Employee Withdrawal Rate Age Rate Age Rate 30 or younger 8.0% % % % % % % % % % % % % % % % % % % % % % % % % 55 or older 0.0% The assumed age of deferred benefit commencement is age 60. Milwaukee Board of School Directors Early Retirement Supplement and Benefit Improvement Plan C-4

31 Sample rates of disability were as follows: Actuarial Valuation Assumptions Employee Disablement Rate Age Rate % % % % % % % % % % Rates are a 25%/75% blend of male/female disability rates for Public School Employees used in the Wisconsin Retirement System actuarial valuation from the experience study for the period ending December 31, Rates of retirement for members eligible to retire during the next year were as follows: Rate of Retirement Age Certificated Classified % 15.0% % 8.0% % 8.0% % 8.0% % 8.0% % 40.0% % 20.0% % 30.0% % 15.0% % 15.0% % 100.0% 100 percent of classified members with 35 or more years of service are assumed to retire. 50 percent of certificated members younger than age 65 with 35 or more years of service are assumed to retire. Optional Forms of Payment Future retirees are assumed to elect a benefit under the normal form of payment. Milwaukee Board of School Directors Early Retirement Supplement and Benefit Improvement Plan C-5

32 Actuarial Valuation Assumptions Decrement Timing Retirements and terminations are assumed to occur at the end of the year and all other decrements are assumed to occur mid-year. Pay Increase Timing Pay increases are assumed to occur at the end of the year. Decrement Relativity Decrement rates are used directly from the experience study, without adjustment for multiple decrement table effects. Decrement Operation Turnover decrements do not operate after the member reaches retirement eligibility. Eligibility Testing Eligibility for benefits is determined based upon the age nearest birthday and service on the date the decrement is assumed to occur. Data Adjustments For purposes of projecting the member permanent benefits, if the WRS service is less than MPS service, then WRS service is set to MPS service. Milwaukee Board of School Directors Early Retirement Supplement and Benefit Improvement Plan C-6

33 SECTION D GLOSSARY OF TERMS

34 Glossary of Terms Actuarial Accrued Liability (AAL). The difference between (i) the actuarial present value of future plan benefits and (ii) the actuarial present value of future normal cost. Sometimes referred to as accrued liability or past service liability. Actuarial Assumptions. Estimates of future plan experience such as investment return, expected lifetimes and the likelihood of receiving a pension from the Pension Plan. Demographic, or people assumptions, include rates of mortality, retirement and separation. Economic, or money assumptions, include expected investment return, inflation and salary increases. Actuarial Cost Method. A mathematical budgeting procedure for allocating the dollar amount of the actuarial present value of future plan benefits between the actuarial present value of future normal cost and the actuarial accrued liability. Sometimes referred to as the actuarial funding method. Actuarial Present Value of Future Plan Benefits. The amount of funds presently required to provide a payment or series of payments in the future. It is determined by discounting the future payments at a predetermined rate of interest, taking into account the probability of payment. Actuarial Value of Assets (AVA). Smoothed value of assets that recognizes the difference between the expected investment return using the valuation assumption of 7.5 percent and the actual investment return over a five-year period. Dampens volatility of asset value over time. Amortization. Paying off an interest-bearing liability by means of periodic payments of interest and principal, as opposed to paying it off with a lump sum payment. Annual Required Contribution. The sum of the normal cost and amortization of the unfunded actuarial accrued liability. Asset Return. The net investment return for the asset divided by the mean asset value. Example: if $1.00 is invested and yields $1.075 after a year, the asset return is 7.50 percent. Funded Ratio. The actuarial value of assets divided by the actuarial accrued liability. Measures the portion of the actuarial accrued liability that is currently funded. Market Value of Assets (MVA). The value of assets currently held in the trust available to pay for benefits of the Pension Plan. Each of the investments in the trust is valued at market price which is the price at which buyers and sellers trade similar items in the open market. Normal Cost (NC). The annual cost assigned, under the actuarial funding method, to current and subsequent plan years. Sometimes referred to as current service cost. Any payment toward the unfunded actuarial accrued liability is not part of the normal cost. Unfunded Actuarial Accrued Liability (UAAL). The difference between the actuarial accrued liability and valuation assets. Sometimes referred to as unfunded accrued liability. Milwaukee Board of School Directors Early Retirement Supplement and Benefit Improvement Plan D-1

35 Milwaukee Board of School Directors Supplemental Early Retirement Plan for Teachers Actuarial Valuation July 1, 2017

36 Table of Contents Section Page Introduction A Actuarial Valuation Results 1-3 Comments on the Valuation 4-5 Summary of Actuarial Valuation Results 6 Derivation of Experience (Gain) Loss 7 Reconciliation of Unfunded Liability 8-9 Development of Market Value of Assets 10 Development of Actuarial Value of Assets B Benefit Provisions and Valuation Data 1-4 Brief Summary of Plan Provisions 5 Summary of Changes in Participant Status 6 Active Members as of July 1, Schedule of Benefit Payments C Actuarial Valuation Procedures 1 Actuarial Cost Method 2 Actuarial Assumptions in the Valuation Process 3-7 Valuation Assumptions D 1 Glossary of Terms Milwaukee Board of School Directors Supplemental Early Retirement Plan for Teachers i

37 June 15, 2018 Ms. Carol Eady Sr. Director, Benefits, Pension & Compensation Milwaukee Public Schools Administration Building 5225 West Vliet Street Room 124 Milwaukee, Wisconsin Dear Ms. Eady: We are pleased to provide our formal annual, for the Milwaukee Board of School Directors Supplemental Early Retirement Plan for Teachers. The actuarial valuation was performed at the request of Milwaukee Public Schools ( MPS ) and is intended for use by MPS and those designated by MPS. This report may be provided to parties other than MPS only in its entirety and only with the permission of MPS. This report provides, among other things, the recommended annual contribution of the Plan for the Plan Year commencing July 1, 2017, and ending on June 30, The actuarial assumptions and actuarial cost method used in this valuation are consistent with those used in the prior actuarial valuation and most recently changed with the actuarial valuation as of July 1, Beginning with the valuation as of July 1, 2015, the total recommended annual contribution includes an explicit component for administrative expenses equal to the amount of actual administrative expenses in the prior fiscal year. We believe that explicitly funding administrative expenses is more appropriate given that the Plan is closed. The Plan is frozen and closed to new members effective July 1, This change was first reflected in the actuarial valuation as of July 1, Please note that the actuarial valuation results do not include the impact of the early retirement window. Please refer to our letter dated March 22, 2017, for additional information on the potential cost impact of the early retirement window. We recommend that an experience analysis be performed, in order to update assumptions, after experience from early retirement window becomes available.

38 Ms. Carol Eady Milwaukee Public Schools June 15, 2018 Page 2 To the best of our knowledge the information contained in this report is accurate and fairly presents the actuarial position of the Milwaukee Board of School Directors Supplemental Early Retirement Plan for Teachers as of the valuation date. All calculations have been made in conformity with generally accepted actuarial principles and practices and with the Actuarial Standards of Practice issued by the Actuarial Standards Board. Alex Rivera and Lance Weiss are Members of the American Academy of Actuaries and meet the Qualification Standards of the American Academy of Actuaries to render the actuarial opinion herein. Future actuarial measurements may differ significantly from the current measurements presented in this report due to such factors as the following: plan experience differing from that anticipated by the economic or demographic assumptions; changes in economic or demographic assumptions; increases or decreases expected as part of the natural operation of the methodology used for these measurements (such as the end of an amortization period or additional cost or contribution requirements based on the plan s funded status); and changes in plan provisions or applicable law. This report should not be relied on for any purpose other than the purpose stated. The signing actuaries are independent of the plan sponsor. The actuarial valuation was based upon information furnished by Milwaukee Public Schools, concerning benefits provided by the Milwaukee Board of School Directors Supplemental Early Retirement Plan for Teachers, financial transactions, plan provisions and active members, terminated members, retirees and beneficiaries. We checked for internal and year-to-year consistency, but did not audit the data. We are not responsible for the accuracy or completeness of the information provided by Milwaukee Public Schools. We will be pleased to review this report with you at your convenience. Respectfully submitted, Gabriel, Roeder, Smith & Company Alex Rivera, FSA, EA, MAAA, FCA Senior Consultant Lance J. Weiss, EA, MAAA, FCA Senior Consultant AW:rl

39 SECTION A ACTUARIAL VALUATION RESULTS

40 Comments on the Valuation Purpose and Data At your request we have performed an actuarial valuation of the Milwaukee Board of School Directors Supplemental Early Retirement Plan for Teachers as of July 1, The purposes of this actuarial valuation are as follows: To determine the funding status of the Plan as of the valuation date; and To determine the recommended contribution for the current fiscal year. Accounting information, as required under GASB Statement Number 67 (pension plan accounting) and GASB Statement Number 68 (employer accounting for pension plans), is shown in a separate report. GASB Statement Numbers 67 and 68 are first effective with fiscal year ending June 30, 2014, and June 30, 2015, respectively. We received the data from the Milwaukee Board of School Directors ( MBSD or Plan Sponsor ). We performed certain checks for reasonableness and found the data to be complete and reliable for valuation purposes. However, we did not audit the data. A total of 3,309 active members were included in the actuarial valuation as of July 1, Between the 2016 and 2017 actuarial valuations, the number of active employees decreased by 254 members, or 7.1 percent. The number of benefit recipients decreased from 4,704 to 4,677, or 0.6 percent, since the last actuarial valuation. The average monthly permanent benefit increased by 0.9 percent, from $ to $ Plan Provisions Section B outlines the principal benefit provisions of the Plan. There have been no changes in the plan provisions since the actuarial valuation as of July 1, The Plan was frozen and closed to new members effective July 1, This change was first reflected in the actuarial valuation as of July 1, Please note that the actuarial valuation results do not include the impact of the Early Retirement Window ( ERW ) which was approved by the MPS Board on March 30, The ERW provides enhanced retiree healthcare benefits to eligible members who retire from July 1, 2017, through June 30, A member is eligible for ERW benefits if, during the ERW period, the member has attained at least age 55, earned at least 20 years of service, and accumulated at least 90 percent of the maximum allowable sick leave. The ERW is expected to accelerate retirement and consequently increase the value of Supplemental Pension Plan benefits. The ERW impact to the Supplemental Pension Plan will be reflected in subsequent actuarial valuations. Milwaukee Board of School Directors Supplemental Early Retirement Plan for Teachers A-1

41 Actuarial Assumptions and Methods Comments on the Valuation Beginning with the valuation as of July 1, 2015, the total recommended annual contribution includes an explicit component for administrative expenses equal to the amount of actual administrative expenses in the prior fiscal year. We believe that explicitly funding administrative expenses is more appropriate given that the Plan is closed. All other assumptions and methods used in this actuarial valuation are consistent with those used in the actuarial valuation as of July 1, The Plan is funded using a closed period, level dollar amortization method. The additional deferred vested temporary liability of $5,164,172 as of July 1, 2006, is being amortized over a 15-year closed period. There are four years remaining in the amortization period and a remaining liability of $2,011,387 as of July 1, All other liabilities are amortized over a 25-year closed period commencing on July 1, 2007 (15 years remaining as of July 1, 2017). The remaining amortization period will decrease by one year in each future valuation. Gain/Loss Analysis During the plan year ending June 30, 2017, the unfunded actuarial accrued liability ( UAAL ) decreased from $91,446,192 as of July 1, 2016, to $84,281,673 as of July 1, 2017, which is a decrease of $7,164,519. The key factors contributing to the change in UAAL are summarized below: Source Change in UAAL UAAL at July 1, 2016 $ 91,446,192 Administrative Expenses 174,658 Interest on UAAL and Administrative Expenses 6,871,564 Contributions with Interest (10,525,910) Investment (Gain) Loss (524,814) Demographic (Gain) Loss and Other (3,160,017) UAAL at July 1, 2017 $ 84,281,673 Plan Asset Return On a market value basis, Plan assets had an investment rate of return of approximately percent. On an actuarial value basis, Plan assets had an investment return of approximately 7.85 percent, which compares to the assumed rate of return of 7.50 percent for fiscal year ending June 30, The actuarial value of assets is currently approximately 101 percent of the market value of assets. Based on the market value of assets, the unfunded liability is $86,041,782. Funded Ratio The funded ratio measures the portion of the actuarial accrued liability (calculated based on the actuarial Milwaukee Board of School Directors Supplemental Early Retirement Plan for Teachers A-2

42 Comments on the Valuation assumptions disclosed in this report) that is currently funded. The funded ratio is 62.9 percent based on actuarial value of assets and 62.1 percent based on market value of assets. The funded ratio is not appropriate for assessing the sufficiency of plan assets for any other purpose. Under the current funding policy, the funded ratio is projected to steadily increase (assuming no future gains and losses) and the Plan is projected to be 100 percent funded by the end of the amortization period (July 1, 2032). Employer Contributions The recommended contribution decreased by $406,152, from $9,791,544 for fiscal year 2017 to $9,385,392 for fiscal year The reduction in the contribution is primarily due to recognition of favorable demographic experience. Under the current funding policy and in the absence of any future gains or losses, projected contributions are expected to remain stable for four years until the deferred investment gains and losses are recognized and the additional deferred vested liability is fully amortized, and then decrease by $558,637 and remain level until the remaining unfunded liability is fully funded by July 1, GASB 67/68 Effective with fiscal year ending June 30, 2014, GASB Statement Number 67 is replacing GASB Statement Number 25 for pension plan financial reporting requirements. GASB Statement Number 68 is replacing GASB Statement Number 27 for employer financial reporting effective with fiscal year ending June 30, The discount rate used for GASB Statement Numbers 67 and 68 reporting purposes will be a blended or average discount rate based on 7.50 percent for the projected benefits for all current members that can be paid from current assets and projected investment return, and future employer contributions attributable to current members, and a municipal bond rate for the portion of the projected benefits after assets are depleted. Plan assets are projected to be available to pay all projected benefits; consequently, the discount rate used for GASB Statement Numbers 67 and 68 reporting purposes equals 7.50 percent. A separate GASB Statement Numbers 67 and 68 report was issued with schedules to meet the requirements under the new standards. Milwaukee Board of School Directors Supplemental Early Retirement Plan for Teachers A-3

43 Summary of Actuarial Valuation Results Plan Liabilities July 1, 2016 July 1, 2017 Results Results Actuarial Accrued Liability: Active Members $ 52,768,036 $ 51,818,347 Retirees and Beneficiaries 146,732, ,231,256 Deferred Vested 30,423,656 31,104,774 TOTAL $ 229,924,051 $ 227,154,377 Actuarial Value of Assets at Valuation Date $ 138,477,859 $ 142,872,704 Unfunded (Overfunded) Actuarial Accrued Liability $ 91,446,192 $ 84,281,673 Funded Position of Plan's Actuarial 60.2 % 62.9 % Accrued Liability 1 Recommended Annual Contribution Fiscal Year Fiscal Year Requirements Administrative Expenses 2 $ 174,658 $ 156,826 Amortization of Unfunded Actuarial Accrued Liability at Valuation Date 3 $ 9,616,886 $ 9,228,566 Total Recommended Annual Contribution for the Current Plan Year $ 9,791,544 $ 9,385,392 Total Payroll 4 $ 236,665,777 $ 221,227,773 Recommended Annual Contribution (As a percentage of pay) 4.137% 4.242% 1 Equals the ratio of the actuarial value of assets to the total actuarial accrued liability. 2 Equals the actual administrative expenses incurred in the prior fiscal year beginning with the actuarial valuation as of July 1, The additional deferred vested temporary liability of $5,164,172 as of July 1, 2006, is being amortized on a level dollar basis over a 15-year closed period. As of July 1, 2017, the remaining liability is $2,011,387 and the annual amortization payment is $558,637. All other liabilities are amortized on a level dollar basis over a 25-year closed period commencing on July 1, 2007 (15 years remaining as of July 1, 2017). 4 Total payroll is equal to the pay rate for the current year. Final average compensation is frozen as of July 1, 2013, for benefit purposes. Milwaukee Board of School Directors Supplemental Early Retirement Plan for Teachers A-4

44 Summary of Actuarial Valuation Results Present Value of Accrued Benefits July 1, 2016 July 1, 2017 Vested Active Members 1 $ 46,630,272 $ 48,504,684 Non-Vested Active Members 1 6,137,764 3,313,663 Retirees and Beneficiaries 146,732, ,231,256 Deferred Vested 30,423,656 31,104,774 TOTAL $ 229,924,051 $ 227,154,377 Market Value of Assets for Valuation Purposes $ 131,593,262 $ 141,112,595 Current Members Active 3,563 3,309 Retirees and Beneficiaries 4,704 4,677 Deferred Vested 2 3,392 3,334 TOTAL 11,659 11,320 1 Represents the present value of benefits based on service earned to date, excluding future salary increases. 2 Includes terminated members entitled to deferred monthly benefits. Milwaukee Board of School Directors Supplemental Early Retirement Plan for Teachers A-5

45 Derivation of Experience (Gain) Loss Actual experience will never (except by coincidence) coincide exactly with assumed experience. It is expected that gains and losses will cancel each other over a period of years, but year-to-year fluctuations are not uncommon. Detail on the derivation of the experience (gain) loss is shown below, along with a year-by-year comparative schedule. 1. Unfunded Actuarial Accrued Liability at 07/01/2016 $91,446, Administrative Expenses at 07/01/ , Interest on (1) and (2) to 07/01/2017 (at 7.50% per annum) 6,871, Contributions Applicable to the 2017 Plan Year, with Interest 10,525,910 to 06/30/ Expected Unfunded Actuarial Accrued Liability at 07/01/2017 $ 87,966,504 [(1) + (2) + (3) - (4)] 6. Actual Unfunded Actuarial Accrued Liability at 07/01/ ,281, (Gain) Loss at 07/01/2017 [(6) - (5)] $ (3,684,831) Valuation Date July 1 Experience (Gain) Loss As % of Beginning Accrued Liability Estimated Rate of Return on Market Value of Assets 1 Estimated Rate of Return on Actuarial Value of Assets (1.46)% (5.06)% 9.23 % % (19.13)% 2.04 % % % 1.51 % % % 4.63 % % 0.64 % 3.13 % % % 5.57 % 2014 (3.68)% % % 2015 (2.49)% 1.55 % % 2016 (0.57)% 0.69 % 6.13 % 2017 (1.60)% % 7.85 % 1 Net of investment expenses for 2016 and Net of investment and administrative expenses prior to Milwaukee Board of School Directors Supplemental Early Retirement Plan for Teachers A-6

46 Reconciliation of Unfunded Liability Actual Unfunded Actuarial Accrued Liability at 07/01/2016 $ 91,446,192 Expected Unfunded Actuarial Accrued Liability at 07/01/2017 $ 87,966,504 (Gains) Losses During the Year Attributable to: (Gain) Loss on Assets and Administrative Expenses 1 $ (524,814) (Gain) Loss from Demographic and Other Experience (3,160,017) Composite Actuarial (Gain) Loss $ (3,684,831) Actual Unfunded Actuarial Accrued Liability at 07/01/2017 $ 84,281,673 1 Includes gains and losses on an actuarial value of assets basis. Milwaukee Board of School Directors Supplemental Early Retirement Plan for Teachers A-7

47 Development of Market Value of Assets June 30, 2016 June 30, 2017 Net Assets Available for Benefits - Beginning of Year $ 147,458,599 $ 141,528,809 Additions Fiscal Year Ending Investment Income: Net investment Income from the State of Wisconsin: Core Retirement Investment Trust Fund $ 1,050,799 $ 13,158,755 Variable Retirement Investment Trust Fund (236,385) 2,842,611 Net Investment Income from Other Investments 163, ,470 Total Investment Income 977,818 16,166,836 Less: Investment Expenses (13,806) (13,349) Net Investment Income 964,012 16,153,487 Employer Contributions 9,888,196 9,456,955 Total Additions $ 10,852,208 $ 25,610,442 Deductions Benefits Paid to Participants or Beneficiaries $ 16,607,340 $ 16,244,782 Administrative Expenses 174, ,826 Total Deductions $ 16,781,998 $ 16,401,608 Net Increase in Net Assets Available for Benefits $ (5,929,790) $ 9,208,834 Net Assets Available for Benefits - End of Year 1 $ 141,528,809 $ 150,737,643 1 Reflects additional prepaid contributions with interest that are applicable to the fiscal year ending June 30, The market value of assets for valuation purposes, excluding prepaid contributions, is $131,593,262 and $141,112,595 for June 30, 2016, and June 30, 2017, respectively. Milwaukee Board of School Directors Supplemental Early Retirement Plan for Teachers A-8

48 Development of Market Value of Assets Fiscal Year Ending June 30, 2016 June 30, 2017 Assets: Government Obligations $ - $ - Investment in the State of Wisconsin: Core Retirement Investment Trust Fund 117,478, ,637,642 Variable Retirement Investment Trust Fund 15,055,497 14,898,108 Money Market Accounts 3,203,177 7,439,249 Mortgage Backed Securities - - Nongovernmental Obligations 7,178,047 3,144,178 Receivables: Accrued Interest Receivable 10,297 6,224 Contributions Receivable - - Due From Sale of Investments - - Total Assets $ 142,925,905 $ 153,125,401 Liabilities: Benefits Payable $ 1,368,570 $ 1,335,306 Accrued Administrative Expenses 28,526 52,452 Investments Purchased - 1,000,000 Total Liabilities $ 1,397,096 $ 2,387,758 Net Assets Available for Benefits $ 141,528,809 $ 150,737,643 Prepaid Contributions with Interest 1 $ 9,935,547 $9,625,048 Market Value of Assets for Valuation Purposes $ 131,593,262 $ 141,112,595 1 Amounts paid prior to the valuation date that will be included in contributions for fiscal year ending June 30, 2016, and June 30, 2017, respectively. Milwaukee Board of School Directors Supplemental Early Retirement Plan for Teachers A-9

49 Development of Actuarial Value of Assets Fiscal Year Ending Beginning of Year: (1) Market Value of Assets $ 137,519,069 $ 131,593,262 (2) Actuarial Value of Assets 136,875, ,477,859 End of Year: (3) Market Value of Assets 131,593, ,112,595 (4) Net of Contributions and Disbursements (a) Contributions 1 9,897,438 9,791,544 (b) Disbursements (16,781,998) (16,401,608) (5) Total Investment Income =(3)-(1)-(4a)-(4b) 958,753 16,129,397 (6) Projected Rate of Return % 7.50% (7) Projected Investment Income =((1)+(4a)+(4b)/2)*(6) 10,426,913 9,988,800 (8) Investment Income in Excess of Projected Income [(5)-(7)] (9,468,160) 6,140,597 (9) Excess Investment Income Recognized This Year (5 year recognition) (9a) From This Year (1,893,632) 1,228,119 (9b) From One Year Ago (1,679,864) (1,893,632) $ 1,228,119 (9c) From Two Years Ago 2,368,039 (1,679,864) (1,893,632) $ 1,228,119 (9d) From Three Years Ago 993,447 2,368,039 (1,679,864) (1,893,632) $ 1,228,119 (9e) From Four Years Ago (1,728,173) 993,447 2,368,039 (1,679,866) (1,893,632) $ 1,228,121 (9f) Total Recognized Investment Gain/(Loss) (1,940,183) 1,016,109 22,662 (2,345,379) (665,513) 1,228,121 (10) Change in Actuarial Value of Assets =(4a)+(4b)+(7)+(9f) 1,602,170 4,394,845 End of Year: (3) Market Value of Assets 131,593, ,112,595 (11) Final Actuarial Value of Assets [(2)+(10)] 138,477, ,872,704 (12) Difference Between Market & Actuarial Values (6,884,597) (1,760,109) (13) Actuarial Value Rate of Return % 7.85 % (14) Estimated Market Value Rate of Return % % (15) Ratio of Actuarial Value to Market Value 105 % 101 % 1 The recommended board contribution calculated in the actuarial valuation as of July 1, 2015, and July 1, 2016, and contributed for fiscal year 2016 and 2017, respectively. 2 Net of investment expenses in 2016 and Net of investment and administrative expenses prior to Milwaukee Board of School Directors Supplemental Early Retirement Plan for Teachers A-10

50 SECTION B BENEFIT PROVISIONS AND VALUATION DATA

51 Brief Summary of Plan Provisions EFFECTIVE DATE: The Plan was established effective July 1, 1982, and was most recently amended as of May 30, The Plan is frozen and closed to new members effective July 1, PLAN YEAR: A Plan Year is each 12-month period beginning July 1 and ending June 30. ELIGIBILITY TO PARTICIPATE: Any teacher who is an employee of the Milwaukee Board of School Directors ( Board ), on or before June 30, 2013, and who was covered by the collective bargaining agreement between the Board and the Milwaukee Teachers Education Association ( MTEA ), and is participating as an active employee in the Wisconsin Retirement System ( WRS ) or the City of Milwaukee Employees Retirement System ( CMRP ). MEMBER CONTRIBUTIONS: Members are not required to make contributions in order to be eligible for benefits. COMPENSATION: The gross amount paid to an Employee while a Participant by the Board and any other Wisconsin Retirement System employer during a Plan Year as salary or wages which constitute earnings under the Wisconsin Retirement System. For Plan Years commencing after January 1, 1991, and before 1994, Compensation during a Plan Year shall not exceed $200,000, as adjusted under Section 401(a)(17) of the Code. For Plan Years commencing after 1994, Compensation during a Plan Year shall not exceed $150,000, as adjusted under Section 401(a)(17) of the Code. (Notwithstanding the foregoing, with respect to any eligible participant, the $150,000 limit shall not apply to the extent it exceeds the amount of Compensation allowed to be taken into account under the Plan on July 1, For purposes of the preceding sentence, an eligible participant means an individual who first became a Participant before July 1, 1996.) For Plan Years commencing prior to 1997, compensation of a spouse and descendants (under age 19) of a Participant who is among the ten most highly paid highly compensated employees (as such term is defined in Code Section 414(q)) shall be aggregated with the Compensation of such participant in determining the compensation dollar limit previously described in this section. AVERAGE MONTHLY COMPENSATION (AMC): The monthly average of Compensation paid to a Participant during the three Plan Years (July 1 June 30) prior to July 1, 2013, of highest Compensation and during each of which such Participant is credited with a Year of Creditable Service. If a Participant has less than three Plan Years during which he is credited with Years of Creditable Service, then the Participant s Average Monthly Compensation shall be the monthly average of his Compensation during his entire period of employment prior to July 1, 2013, while being credited with Years of Creditable Service. Average compensation used in determining Wisconsin Retirement System benefits, which may include eligible non-mps compensation, is used in determining MPS benefits based on an arbitration award issued in September of SERVICE: Number of whole and partial years of employment which qualifies as service under both the WRS (or CMRP) and MPS rules and regulations while employed as an employee of the Board. For those who were active participants on June 30, 1998, pre-june 30, 1998, WRS service included whether or not such service qualifies as MPS service. YEARS OF CREDITABLE SERVICE (YOS): Number of whole or partial years of employment occurring prior to July 1, 2013 which qualify as credited service under WRS. Milwaukee Board of School Directors Supplemental Early Retirement Plan for Teachers B-1

52 Brief Summary of Plan Provisions YEARS OF VESTING SERVICE: Number of whole or partial years of employment which qualify as creditable service under WRS, except that after July 1, 1998, only years of creditable service while employed with the Board shall qualify as vesting service. Service as an educational assistant with the Board under the MBSD/MTEA contract qualifies as vesting service. Plan participants may continue to earn vesting service only for purposes of meeting the 15-year vesting requirement after June 30, NORMAL RETIREMENT ELIGIBILITY: Attainment of age 65. EARLY RETIREMENT ELIGIBILITY: Attainment of age 62, but before attainment of age 65, and termination on or after age 55. REDUCED EARLY RETIREMENT ELIGIBILITY: Attainment of age 55, but before attainment of age 62, and termination on or after age 55. PENSION BENEFITS PAYABLE: Permanent Benefits: - Normal retirement: Eligible for WRS benefit only. No benefits payable from Milwaukee Public Schools. - Early retirement: 1.3% 0.5% AMC YOS Number of months until age 65 - Reduced early retirement: 18% 1.3% AMC YOS Special Supplemental Benefits: - Normal retirement: Eligible for WRS benefit only. No benefits payable from Milwaukee Public Schools. - Early retirement: 2.0% AMC Number of years, including fractional years, from retirement date until age 65; Payable to age Reduced early retirement: 2.16 AMC / Number of months from retirement until age 65; Payable to age 65. ADDITIONAL VESTING REQUIREMENT: Participants who first become employees or are rehired on or after July 1, 1998, must have 15 years of vesting service and terminate at age 55 or after to be eligible for retirement benefits. DISABILITY PENSION ELIGIBILITY: Termination of employment due to disability under the terms of WRS. Participants who first become employees on or after July 1, 1998, must have 15 years of credited service to be eligible for disability benefits. Benefits shall not commence before attainment of age 55. DISABILITY PENSION: Disability benefits are calculated in accordance with the retirement benefits described above depending on when the participant elects to start receiving his/her WRS pension benefit. Milwaukee Board of School Directors Supplemental Early Retirement Plan for Teachers B-2

53 Brief Summary of Plan Provisions Participants who terminate employment with the Board on or after July 1, 1998, shall have his/her Years of Creditable Service computed to the date of termination or Board approved medical leave, whichever is applicable. DEFERRED VESTED RETIREMENT ELIGIBILITY: A participant who terminates employment with the Board before attainment of age 55 and elects commencement of their WRS pension benefit between the ages of 55 and 65 shall be eligible for a deferred vested pension benefit. Participants who become employees on or after July 1, 1998, are not eligible for a deferred vested pension benefit. DEFERRED VESTED RETIREMENT PENSION: Deferred vested benefits are in accordance with the reduced early and early retirement options described above depending on when the participant elects to start receiving his/her WRS pension benefit. Deferred vested retirement benefits include the Special Supplemental Benefit. MAXIMUM BENEFIT: The sum of the participant s monthly pension benefits shall not exceed 85% of average monthly compensation. The sum includes the MPS permanent retirement benefit, the Special Supplemental Benefit, the WRS benefit prior to March 9, 1984, and the estimated Social Security Benefit payable at age 62. Should the sum of these benefits exceed the 85% maximum, the Special Supplemental Benefit will be reduced first. ESTIMATED SOCIAL SECURITY BENEFIT: The monthly amount estimated as payable to a participant at age 62, or currently if older, under the Social Security Administration regulations in effect on date of termination assuming no Social Security wages after termination of employment. If a participant has elected not to be covered by Social Security, only 50% of Average Monthly Compensation is used to estimate the Social Security benefit, otherwise 100% of Average Monthly Compensation is used for those covered by Social Security. WISCONSIN RETIREMENT SYSTEM BENEFIT: Participants eligible for a benefit under the Wisconsin Retirement System receive 1.765% of AMC times years of service prior to January 1, 2000, plus 1.6% of AMC times years of service after January 1, This benefit is reduced by 0.4% per month for each month the retirement age is under age 65. Between 57 and 65, the 0.4% reduction is reduced by % for each month of creditable service. Between July 1, 1990, and June 30, 2001, the monthly WRS benefit was 1.6% of AMC times Years of Creditable Service reduced by an Applicable Percentage per month for each month the retirement age is under age 65, limited to 96 months. The Applicable Percentage is equal to 0.4% reduced by % per month of service. If the participant retires before age 57, the benefit is further reduced by 0.4% per month that retirement precedes age 57. Between March 9, 1984, and June 30, 1990, the monthly WRS benefit was 1.6% of AMC times Years of Creditable Service reduced by 0.4% per month for each month the retirement age is under age 65 if service is less than 30 years. If service is greater than 30 years, the benefit is reduced for each month the retirement age is under 62. Prior to March 9, 1984, the monthly WRS benefit was 1.3% of AMC times Years of Creditable Service reduced by 0.5% for each of the first 60 months that the participant commenced the benefit early and Milwaukee Board of School Directors Supplemental Early Retirement Plan for Teachers B-3

54 Brief Summary of Plan Provisions 0.4% for each additional month that retirement preceded age 60. NORMAL FORM OF PAYMENT: Permanent benefits are payable monthly for the life of the participant with 60 months of payments guaranteed without reduction for this form of payment. Special supplemental benefits are payable monthly until age 65. Milwaukee Board of School Directors Supplemental Early Retirement Plan for Teachers B-4

55 Summary of Changes in Participant Status Deferred Actives 1 Vested 2 Retirees Beneficiaries Total Participants at 07/01/2016 3,563 3,392 4, ,659 New Entrants and Rehires 0 Non-Vested Terminations (140) (140) Vested Terminations (40) 40 0 Retirement - Eligible for Benefits (55) (10) 65 0 Retirement - Lump Sum 0 Retirement - Ineligible for Benefits (18) (18) Deaths (1) (103) (4) (108) New Beneficiaries Benefit Terminations (3) (3) Adjustments 3 (88) (88) Participants at 07/01/2017 3,309 3,334 4, ,320 1 Includes one active member included in census data for whom benefits will be paid from the ASC plan and no liability is held for this member in the Teachers' Plan. 2 lncludes 10 disabled participants as of 7/1/16 and 10 disabled participants as of 7/1/17. 3 Includes data adjustment and current deferred vested members older than 65. Milwaukee Board of School Directors Supplemental Early Retirement Plan for Teachers B-5

56 Active Members as of July 1, 2017 By Attained Age and Years of Credited Service Attained Age Under and Over Totals Total Payroll 1 Under $ ,143, ,197, ,001, ,351, ,642, ,934, ,105, ,087, ,348, ,331, ,107, ,985, ,369, ,550, ,298, ,683, ,157, ,490, ,158, ,252, and Over ,031,465 Total , ,309 $ 221,227,773 While not used in the financial computations, the following group averages are computed and shown because of their general interest. Current Year Prior Year Age: 47.1 years 46.2 years Service 2 : Annual Pay 3 : $66, years 12.3 years $66,423 There are 225 retirements expected in the year ending June 30, 2018, based on the current retirement rates and active population as of July 1, Total payroll is equal to the pay rate for the current year. Final average compensation is frozen as of July 1, 2013, for benefit purposes. 2 Credited service frozen as of July 1, Average annual pay based on pay rate for the current year. Milwaukee Board of School Directors Supplemental Early Retirement Plan for Teachers B-6

57 Schedule of Benefit Payments Retirees and Beneficiaries Permanent Temporary Age Group Number 2 Monthly Pension Number Monthly Pension Under $ 3, $ , , , , , , , , , , , Unknown , Total 4,666 $ 1,215, $ 138, While not used in the financial computations, the following group averages are computed and shown because of their general interest. Current Year Prior Year Age: Monthly Permanent Benefit: $ $ Monthly Temporary Benefit: $ $ Includes beneficiaries receiving certain-only benefits. 2 Excludes eleven retirees only receiving temporary benefits. Milwaukee Board of School Directors Supplemental Early Retirement Plan for Teachers B-7

58 Schedule of Benefit Payments Deferred Vested and Disabled Members Permanent Temporary Age Group Number Monthly Pension Number 1 Monthly Pension 1,2 Under 30 - $ - - $ ,178 59, ,090 72, , , , , , , Total 3,334 $ 184, ,135 $ 245, While not used in the financial computations, the following group averages are computed and shown because of their general interest. Current Year Prior Year Age: Monthly Permanent Benefit: $55.42 $53.83 Monthly Temporary Benefit: $78.45 $ Temporary benefits were not estimated for deferred vested members prior to July 1, 2009, with estimated permanent benefits of less than $50 per year. 2 Benefit amounts were estimated assuming retirement at the later of age 56 and the current age, and average monthly compensation using actual salary history, if available. Milwaukee Board of School Directors Supplemental Early Retirement Plan for Teachers B-8

59 SECTION C ACTUARIAL VALUATION PROCEDURES

60 Actuarial Cost Method Actuarial Cost Method. The actuarial accrued liability is equal to the total present value as of July 1, 2017 of the July 1, 2013, frozen benefits. Because the Plan was frozen as of July 1, 2013, the actuarial accrued liability equals the total present value of benefits and the normal cost equals zero. Actuarial Value of Pension Plan Assets. To calculate the actuarial value of assets, the current market value of assets is reduced (increased) for the current year and each of three succeeding years, by a portion of the gain/(loss) in market value during the prior year. Such gain/(loss) is determined as the excess/(deficit) of the current market value of assets over the market value of assets as of the prior year, increased to reflect interest at the actuarial rate and adjusted to reflect contributions and benefit payments during the prior year. The portion of such gain/(loss) by which the current market value of assets is reduced (increased) shall be 80% in the current year; 60% in the first succeeding year; 40% in the second succeeding year and 20% in the third succeeding year. Financing of Unfunded Actuarial Accrued Liabilities. The unfunded actuarial accrued liability is amortized using a level-dollar 25-year amortization over a closed period starting July 1, The loss at July 1, 2006, due to the valuation of deferred vested temporary benefits, is amortized using a level-dollar 15-year amortization over a closed period starting July 1, Administrative Expenses. The contribution amount includes an explicit component for administrative expenses based on actual administrative expenses for the prior plan year. Milwaukee Board of School Directors Supplemental Early Retirement Plan for Teachers C-1

61 Actuarial Assumptions in the Valuation Process The contribution and benefit values of the Plan are calculated by applying actuarial assumptions to the benefit provisions and census information furnished, using the actuarial cost method described on the previous page. The principal areas of financial risk which require assumptions about future experiences are: Long-term rates of investment return to be generated by the assets of the Plan; Patterns of pay increases to members; Rates of mortality among members, retirees and beneficiaries; Rates of withdrawal of active members; Rates of disability among members; and The age patterns of actual retirement. In an actuarial valuation, the monetary effect of each assumption is calculated for as long as a present covered person survives; a period of time which can be as long as a century. Actual experience of the Plan will not coincide exactly with assumed experience. Each valuation provides a complete recalculation of assumed future experience and takes into account all past differences between assumed and actual experience. The result is a continual series of adjustments (usually small) to the computed contribution rate. From time-to-time it becomes appropriate to modify one or more of the assumptions, to reflect experience trends (but not random year-to-year fluctuations). GRS performed an experience study to analyze how the current assumption set compares to recent experience. GRS made assumption change recommendations based on experience for the period July 1, 2005, through July 1, 2011, that were approved by the Board and first reflected in the actuarial valuation as of July 1, Milwaukee Board of School Directors Supplemental Early Retirement Plan for Teachers C-2

62 Actuarial Valuation Assumptions The assumed age of deferred benefit commencement is age 56. Benefit Amounts for Deferred Vested Participants are not determined by MPS until benefit commencement and are not provided in the valuation data. Estimated benefits for deferred vested participants determined by GRS are calculated assuming a benefit commencement age of the later of age 56 and age at actuarial valuation. Average Monthly Compensation is calculated using the salary history available. If there is incomplete or no salary history available, an estimate is used based on the available salary history or a general estimate of average compensation based on the date of termination. Permanent Benefit Amounts Estimated permanent benefits for participants terminating prior to July 1, 2004, were provided by the prior actuary. Benefits were either based on partial data or data that was almost complete. GRS calculates estimated benefits for participants terminating after July 1, 2004, based on the assumed commencement age, calculated Average Monthly Compensation and years of service at termination. Permanent benefits are recalculated annually as needed based on updated commencement age and the prior benefit amount. Temporary Benefits Temporary benefits for deferred vested members were not included in the actuarial valuations performed by the prior actuary and were valued for the first time in the actuarial valuation as of July 1, GRS calculated estimated temporary benefits for all participants who were deferred vested as of July 1, 2009, and had annual estimated permanent benefits of at least $50. Calculating temporary benefits for deferred vested participants with estimated permanent benefits of less than $50 is not expected to have a significant impact on the actuarial accrued liabilities of the Plan. The estimated benefits were calculated based on assumed commencement age and estimated Average Monthly Compensation. Temporary benefits are recalculated annually as needed. Optional Forms of Payment Future retirees are assumed to elect a benefit under the normal form of payment. Decrement Timing Retirements and terminations are assumed to occur at the end of the year and all other decrements are assumed to occur mid-year. Decrement Relativity Decrement rates are used directly from the experience study, without adjustment for multiple decrement table effects. Decrement Operation Turnover decrements do not operate after the member reaches retirement eligibility. Eligibility Testing Eligibility for benefits is determined based upon the age nearest birthday and vesting service on the date the decrement is assumed to occur. Milwaukee Board of School Directors Supplemental Early Retirement Plan for Teachers C-3

63 Actuarial Valuation Assumptions Final Average Compensation Frozen as of July 1, 2013 For pension plan purposes, the Teachers Plan was closed and frozen effective July 1, Beginning with the actuarial valuation as of July 1, 2014, the final average compensation used in the valuation is based on the following data and calculated as follows: 1. The sum of compensation paid to a participant during the three fiscal years ending June 30, 2011, June 30, 2012, and June 30, 2013, provided in the data as of July 1, The sum of creditable service earned by a participant during the three fiscal years ending June 30, 2011, June 30, 2012, and June 30, 2013, provided in the data as of July 1, a. For each fiscal year, creditable service is determined by dividing the number of hours worked during the year by 1,320 hours, with a maximum of 1 year of service earned during the year. 3. The Final Average Compensation frozen as of July 1, 2013, is then calculated by dividing item 1 over item 2. The assumed rate of investment return used was 7.5%, net of investment expenses, annually. The rate of annual salary increase assumption is no longer needed for the actuarial valuation because the plan is frozen effective July 1, Therefore salary increases after this date will not be considered pensionable under the Teachers Plan. Rates of disability were as follows: Employee Disablement Rate Age Rate Age Rate Age Rate 38 or younger 0.01% % % % % % % % % % % % % % % % % % % % % % % % % Rates are a 25%/75% blend of male/female disability rates for Public School Employees used in the Wisconsin Retirement System actuarial valuation from the experience study for the period ending December 31, Milwaukee Board of School Directors Supplemental Early Retirement Plan for Teachers C-4

64 Actuarial Valuation Assumptions The mortality table used to measure retirement mortality was based on the Wisconsin Projected Experience Table 2005 for women and 90 percent of the Wisconsin Projected Experience Table 2005 for men. Pre-retirement mortality is set to be 80 percent of post-retirement mortality. This assumption is used to measure the probabilities of members dying before retirement and the probabilities of each benefit payment being made after retirement. Future Life Expectancy (years) Sample Pre-retirement Sample Post-retirement Attained Mortality Assumption Attained Mortality Assumption Ages Men Women Ages Men Women Based on the experience study performed for the period July 1, 2005, through July 1, 2011, we believe the proposed mortality table contains an appropriate margin for future mortality improvement. The mortality table used is consistent with the RP-2000 table projected 30 years using scale AA. Rates of separation from active membership are represented by the following table (rates do not apply to members eligible to retire and do not include separation on account of death or disability). This assumption measures the probabilities of members terminating employment. Milwaukee Board of School Directors Supplemental Early Retirement Plan for Teachers C-5

65 Actuarial Valuation Assumptions Employee Withdrawal Rate Age Rate Age Rate Age Rate 20 or younger 14.5% % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % 55 or older 0.0% Milwaukee Board of School Directors Supplemental Early Retirement Plan for Teachers C-6

66 Actuarial Valuation Assumptions Rates of retirement for members eligible to retire during the next year were as follows: Vesting Age and Service-Based Rates of Retirement Service % 0.0% 0.0% 0.0% 5.0% 5.0% 5.0% 5.0% 5.0% 100.0% % retirement is assumed once a participant completes 40 years of vesting service. Milwaukee Board of School Directors Supplemental Early Retirement Plan for Teachers C-7

67 SECTION D GLOSSARY OF TERMS

68 Glossary of Terms Actuarial Accrued Liability (AAL). The difference between (i) the actuarial present value of future plan benefits and (ii) the actuarial present value of future normal cost. Sometimes referred to as accrued liability or past service liability. Actuarial Assumptions. Estimates of future plan experience such as investment return, expected lifetimes and the likelihood of receiving a pension from the Pension Plan. Demographic, or people assumptions, include rates of mortality, retirement and separation. Economic, or money assumptions, include expected investment return, inflation and salary increases. Actuarial Cost Method. A mathematical budgeting procedure for allocating the dollar amount of the actuarial present value of future plan benefits between the actuarial present value of future normal cost and the actuarial accrued liability. Sometimes referred to as the actuarial funding method. Actuarial Present Value of Future Plan Benefits. The amount of funds presently required to provide a payment or series of payments in the future. It is determined by discounting the future payments at a predetermined rate of interest, taking into account the probability of payment. Actuarial Value of Assets (AVA). Smoothed value of assets that recognizes the difference between the expected investment return using the valuation assumption of 7.5 percent and the actual investment return over a five-year period. Dampens volatility of asset value over time. Amortization. Paying off an interest-bearing liability by means of periodic payments of interest and principal, as opposed to paying it off with a lump sum payment. Annual Required Contribution. The sum of the normal cost and amortization of the unfunded actuarial accrued liability. Asset Return. The net investment return for the asset divided by the mean asset value. Example: if $1.00 is invested and yields $1.075 after a year, the asset return is 7.50 percent. Funded Ratio. The actuarial value of assets divided by the actuarial accrued liability. Measures the portion of the actuarial accrued liability that is currently funded. Market Value of Assets (MVA). The value of assets currently held in the trust available to pay for benefits of the Pension Plan. Each of the investments in the trust is valued at market price which is the price at which buyers and sellers trade similar items in the open market. Normal Cost (NC). The annual cost assigned, under the actuarial funding method, to current and subsequent plan years. Sometimes referred to as current service cost. Any payment toward the unfunded actuarial accrued liability is not part of the normal cost. Unfunded Actuarial Accrued Liability (UAAL). The difference between the actuarial accrued liability and valuation assets. Sometimes referred to as unfunded accrued liability. Milwaukee Board of School Directors Supplemental Early Retirement Plan for Teachers D-1