Appendix G to RFP Plan

Transcription

1 Appendix G to RFP 1001 Milwaukee Board of School Directors Supplemental Early Retirement Plan for Teachers GASB Stateme ents No. 67 and 68 Plan Reporting and Accounting Schedules as of June 30, 2018

2 October 26, 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: This report provides accounting and financial information required by the Milwaukee Board of School Directors Supplemental Early Retirement Plan for Teachers ( Plan ) in connection with the Governmental Accounting Standards Board (GASB) Statements No. 67 and 68. Our actuarial calculations for this report were prepared for the purpose of complying with the requirements of GASB Statements No. 67 and 68. These calculations have been made on a basis that is consistent with our understanding of these accounting standards. GASB Statement No. 67 is the accounting standard that applies to the stand-alone financial reports issued by retirement systems. GASB Statement No. 68 establishes accounting and financial reporting for state and local government employers who provide their employees (including former employees) pension benefits through a trust. Our calculation of the liability associated with the benefits described in this report was performed for the purpose of satisfying the requirements of GASB Statements No. 67 and 68. The calculation of the Plan s liability for this report may not be applicable for funding purposes of the Plan. A calculation of the Plan s liability for purposes other than satisfying the requirements of GASB Statements No. 67 and 68 may produce significantly different results. This report may be provided to parties other than the Milwaukee Public Schools ( MPS ) only in its entirety and only with the permission off MPS. This report is based upon information, furnished to us by MPS, concerning retirementt and ancillary benefits, active members, deferred vested members, retireess and beneficiaries and financial data. If your understanding of this information is different, please let us know. This information was checked for internal consistency, but it was not audited.

3 Ms. Carol Eady Milwaukee Public Schools Page 2 Certain members who etire after June 30, 2017, are eligible to participate in the Early Retirementt Window. 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. To the best of our knowledge, the information contained withh this report is accurate and fairly represents the actuarial position of the Milwaukee Board of School Directors Supplemental Early Retirement Plan for Teachers for the purpose of complying with the requirementss of GASB Statements No. 67 and 68. All calculations have been made in conformity with generally accepted actuarial principles and practices as well as with the Actuarial Standards of Practice issued by the Actuarial Standards Board. Alex Rivera and Lance J. Weiss are Members of the American Academy of f Actuaries (MAAA) and meet the Qualification Standards of the American Academy of Actuaries to render the actuarial opinion contained herein. Alex Rivera and Lance J. Weiss are independent of the plan sponsor. Respectfully submitted, By: Alex Rivera, FSA, EA, MAAA, FCA Senior Consultant By: Lance J. Weiss, EA, MAAA, FCA Senior Consultant

4 Auditor s Note This information is presented in draft form for review by the Plan s auditor. Please let us know if there are any items that the auditor changess so that we may maintain consistency with the Plan s financial statements.

5 Contents Section A Section B Section C Section D Page Executive Summary Executive Summary... 1 Discussion... 2 Financial Statements Statement of Fiduciary Net Position... 1 Statement of Changes in Fiduciary Net Position... 2 Long-Term Expected Return on Plan Assets... 3 Required Supplementary Information Schedule of Changes in Net Pension Liability and Related Ratios Multiyear... 1 Schedule of Net Pension Liability Multiyear... 2 Schedule of Contributions Multiyear... 3 Notes to Schedule of Contributions... 4 Notes to Financial Statements Single Discount Rate... 1 Sensitivity of Net Pension Liability to the Single Discount Rate Assumption... 2 Section E GASB Statement No. 68 Pension Expense Section F Summary of Benefits Section G Actuarial Cost Method and Actuarial Assumptions Actuarial Cost Method... 1 Actuarial Assumptions in the Valuation Process... 2 Valuation Assumptions Section H Calculation of the Single Discount Rate Calculation of the Single Discount Rate... 1 Projection of Contributions... 2 Section I Glossary of Terms Milwaukee Board of School Directors Supplemental Early Retirement Plan for Teachers i

6 SECTION A EXECUTIVE SUMMARY 0

7 Executive Summary as of June 30, 2018 Actuarial Valuation Date June 30, 2017 Pension Plan's Fiscal Year Ending Date (Measurement Date and Reporting Date) June 30, 2018 Membership a Number of - Retirees and Beneficiaries 4,677 - Inactive, Nonretired Members 3,334 - Active Members 3,309 - Total 11,320 Covered Payroll b $ 221,227,773 Net Pension Liability Total Pension Liability c $ 227,576,941 Plan Fiduciary Net Position 155,507,394 Net Pension Liability $ 72,069,547 Plan Fiduciary Net Position as a Percentage of Total Pension Liability 68.33% Net Pension Liability as a Percentage of Covered Payroll 32.58% Development of the Single Discount Rate Single Discount Rate 7.50% Long-Term Expected Rate of Return 7.50% Long-Term Municipal Bond Rate 3.62% Year Plan is projected to be fully funded 2032 Year last benefit payment is expected to be made 2100 GASB Statement No. 68 Pension Expense $ 4,477,615 Deferred Outflows and Deferred Inflows of Resources to be recognized in Future Pension Expenses Deferred Outflows of Resources Deferred Inflows of Resources Difference between expected and actual experience $ - $ 3,467,519 Changes in assumptions - - Net difference between projected and actual earnings on pension plan investments 5,905,596 3,795,960 Total $ 5,905,596 $ 7,263,479 a Census data measured as of June 30, b 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. c Total pension liability projected from July 1, 2017 to June 30, 2018, based on the results of July 1, 2017 actuarial valuation. Milwaukee Board of School Directors Supplemental Early Retirement Plan for Teachers A-1

8 Discussion Accounting Standard For pension plans that are administered through trusts or equivalent arrangements, Governmental Accounting Standards Board (GASB) Statement No. 67 establishes standards of financial reporting for separately issued financial reports and specifies the required approach for measuring the pension liability. Similarly, GASB Statement No. 68 establishes standards for state and local government employers (as well as non-employer contributing entities) to account for and disclose the net pension liability, pension expense and other information associated with providing retirement benefits to their employees (and former employees) on their basic financial statements. The following discussion provides a summary of the information that is required to be disclosed under these accounting standards. A number of these disclosure items are provided in this report. However, certain additional required information, such as notes regarding accounting policies and investments, is not included in this report and the retirement system and/or plan sponsor will be responsible for preparing and disclosing that information to comply with these accounting standards. Financial Statements GASB Statement No. 68 requires state or local governments to recognize the net pension liability and the pension expense on their financial statements. The net pension liability is the difference between the total pension liability and the plan s fiduciary net position. In traditional actuarial terms, this is analogous to the accrued liability less the market value of assets. The pension expense recognized each fiscal year is equal to the change in the net pension liability from the beginning of the year to the end of the year, adjusted for deferred recognition of the liability and investment experience. Pension plans that prepare their own, stand-alone financial statements, are required to present two financial statements a statement of fiduciary net position and a statement of changes in fiduciary net position in accordance with GASB Statement No. 67. The statement of fiduciary net position presents the assets and liabilities of the pension plan at the end of the pension plan s reporting period. The statement of changes in fiduciary net position presents additions, such as contributions and investment income, and deductions, such as benefit payments and expenses and net increase or decrease in the fiduciary net position. Milwaukee Board of School Directors Supplemental Early Retirement Plan for Teachers A-2

9 Notes to Financial Statements GASB Statement No. 68 requires, in the notes of the employer s financial statements, a disclosure of the total pension expense, the pension plan s liabilities and assets and deferred outflows and inflows of resources related to pensions. Both GASB Statements, No. 67 and 68, require the notes of the financial statements for the employers and pension plans to include certain additional information. The list of additional disclosure items should include: A description of benefits provided by the plan; The type of employees and number of members covered by the pension plan; A description of the plan s funding policy, which includes member and employer contribution requirements; The pension plan s investment policies; The pension plan s fiduciary net position, net pension liability and the pension plan s fiduciary net position as a percentage of the total pension liability; The net pension liability using a discount rate that is 1% higher and 1% lower than used to calculate the total pension liability and net pension liability for financial reporting purposes; Significant assumptions and methods used to calculate the total pension liability; Inputs to the discount rates; and Certain information about mortality assumptions and the dates of experience studies. Retirement systems that issue stand-alone financial statements are required to disclose additional information in accordance with Statement No. 67. This information includes: The composition of the pension plan s board and the authority under which benefit terms may be amended; A description of how fair value is determined; Information regarding certain reserves and investments, which include concentrations of investments greater than or equal to 5%, receivables, and insurance contracts excluded from plan assets; and Annual money-weighted rate of return. Required Supplementary Information Statement No. 67 requires a 10-year fiscal history of: Sources of changes in the net pension liability; Information about the components of the net pension liability and related ratios, including the pension plan s fiduciary net position as a percentage of the total pension liability and the net pension liability as a percent of covered-employee payroll; Comparison of the actual employer contributions to the actuarially determined contributions based on the plan s funding policy; and The annual money-weighted rate of return on pension plan investments for each year. These tables may be built prospectively as the information becomes available. Milwaukee Board of School Directors Supplemental Early Retirement Plan for Teachers A-3

10 Measurement of the Net Pension Liability The net pension liability is to be measured as the total pension liability, less the amount of the pension plan s fiduciary net position. In traditional actuarial terms, this will be the accrued liability less the market value of assets. Timing of the Valuation An actuarial valuation to determine the total pension liability is required to be performed at least once every two years. If the actuarial valuation is not calculated as of the plan s fiscal year end, the total pension liability is required to be rolled forward from the actuarial valuation date to the pension plan s fiscal year end. The total pension liability shown in this report is based on an actuarial valuation performed as of July 1, 2017, and projected to the measurement date of June 30, Single Discount Rate Projected benefit payments are required to be discounted to their actuarial present values using a single discount rate that reflects (1) a long-term expected rate of return on pension plan investments (to the extent that the plan s fiduciary net position is projected to be available and sufficient to pay benefits) and (2) a tax-exempt municipal bond rate based on an index of 20-year mixed maturity general obligation bonds with an average Standard & Poor s Corp. s AA credit rating (which is published by Fidelity) as of the measurement date (to the extent that the contributions for use with the long-term expected rate of return are not met). For the purpose of this actuarial valuation, the expected rate of return on pension plan investments is 7.50%; the municipal bond rate is 3.62% (based on the most recent date available on or before the measurement date of the 20-year Municipal GO Index from Fidelity); and the resulting single discount rate is 7.50%. Effective Date and Transition GASB Statement No. 67 is effective for a pension plan s fiscal years beginning after June 15, 2013, and GASB Statement No. 68 is effective for a pension plan s fiscal years beginning after June 15, Milwaukee Board of School Directors Supplemental Early Retirement Plan for Teachers A-4

11 SECTION B FINANCIAL STATEMENTS 5

12 Statement of Fiduciary Net Position as of June 30, 2018 Assets Cash and Deposits $ 3,058,442 $ 7,439,249 Receivables Accounts Receivable - Sale of Investments $ - $ - Accrued Interest and Other Dividends 15,365 6,224 Contributions - - Accounts Receivable - Other - - Total Receivables $ 15,365 $ 6,224 Investments Fixed Income $ 7,615,567 $ 3,144,178 State of Wisconsin Core Retirement Trust Fund a 137,824, ,637,641 State of Wisconsin Variable Retirement Trust Fund b 9,709,535 14,898,109 Real Estate - - Other - - Total Investments $ 155,149,555 $ 145,679,928 Total Assets $ 158,223,362 $ 153,125,401 Liabilities Payables Benefits $ 1,343,727 $ 1,335,306 Contributions - 1,000,000 Accrued Administrative Expenses 57,795 52,452 Pending Trades 1,314,446 - Total Liabilities $ 2,715,968 $ 2,387,758 Net Position Restricted for Pensions $ 155,507,394 $ 150,737,643 a Broadly diversified into U.S. stocks, fixed income, international stocks, real estate and alternative investments. b Invested in U.S. and international stocks. Milwaukee Board of School Directors Supplemental Early Retirement Plan for Teachers B-1

13 Statement of Changes in Fiduciary Net Position for Year Ended June 30, 2018 Additions Contributions Employer $ 8,906,670 $ 9,456,955 Employee - - Other - - Total Contributions $ 8,906,670 $ 9,456,955 Net investment gain (loss) from State of Wisconsin Core Retirement Fund $ 10,186,813 $ 13,158,755 State of Wisconsin Variable Retirement Fund 1,811,426 2,842,611 Interest and Dividends 44, ,471 Investment Expense (14,250) (13,349) Net Investment Income $ 12,028,603 $ 16,153,488 Other $ - $ - Total Additions $ 20,935,273 $ 25,610,443 Deductions Benefit payments $ 16,013,508 $ 16,244,782 Refunds - - Pension Plan Administrative Expense 147, ,827 Other 1 4,186 - Total Deductions $ 16,165,522 $ 16,401,609 Net Increase in Net Position $ 4,769,751 $ 9,208,834 Net Position Restricted for Pensions 2, 3 Beginning of Year $ 150,737,643 $ 141,528,809 End of Year $ 155,507,394 $ 150,737,643 1 Transfer from Teacher s Plan to Director s Plan during plan year end June 30, The market value of assets include additional prepaid contributions with interest that are applicable to the following fiscal year. 3 For purposes of determining the contribution requirement, the market value of assets shown above are reduced by the estimated prepaid contribution credit of $9,595,699 for June 30, 2017, and an estimated credit of $9,116,977 for June 30, Milwaukee Board of School Directors Supplemental Early Retirement Plan for Teachers B-2

14 Long-Term Expected Return on Plan Assets The long-term expected rate of return on pension plan investments was determined using a buildingblock method in which best-estimate ranges of expected future real rates of return are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. Best estimates of geometric real rates of return by major asset class were provided by the plan s investment advisors, including the State of Wisconsin Investment Board ( SWIB ) and BMO Global Asset Management ( BMO ). The target asset allocation for the SWIB Core Fund and SWIB Variable Fund was provided by SWIB. The portfolio allocation by Fund Core, Variable or BMO Fixed Income was provided by MPS. The target asset allocation and real rate of return for each major asset class are summarized below. 12/31/ /31/2017 Asset Allocation Real Return SWIB Core Fund Global % 5.30 % Fixed Income % 1.40 % Inflation Sens. Assets % 1.00 % Real Estate 8.00 % 3.60 % Private Equity/Debt 8.00 % 6.50 % Multi-asset 4.00 % 3.60 % Cash (10.00)% 0.00 % Portfolio Target Allocation % SWIB Variable Fund Domestic Equity % 4.60 % International Equity % 4.90 % Portfolio Target Allocation % BMO Fund Intermediate Fixed Income % 1.45 % Portfolio Target Allocation 5.00 % NEPC Long-Term Inflation Assumption 2.75 % Milwaukee Board of School Directors Supplemental Early Retirement Plan for Teachers B-3

15 SECTION C REQUIRED SUPPLEMENTARY INFORMATION 4

16 Schedules of Required Supplementary Information Schedule of Changes in Net Pension Liability and Related Ratios Multiyear Fiscal year ending June Total Pension Liability Service Cost $ - $ - $ - $ - $ - Interest on the Total Pension Liability 16,436,072 16,635,125 16,846,685 17,001,811 17,203,578 Benefit Changes Difference between Expected and Actual Experience (3,160,017) (3,241,431) (2,247,617) (2,929,293) - Assumption Changes Benefit Payments (16,013,508) (16,244,782) (16,607,340) (17,037,741) (16,891,272) Refunds Net Change in Total Pension Liability (2,737,453) (2,851,089) (2,008,272) (2,965,223) 312,306 Total Pension Liability - Beginning 230,314, ,165, ,173, ,138, ,826,671 Total Pension Liability - Ending (a) $ 227,576,941 $ 230,314,394 $ 233,165,482 $ 235,173,754 $ 238,138,977 Plan Fiduciary Net Position Employer Contributions $ 8,906,670 $ 9,456,955 $ 9,888,196 $ 9,540,139 $ 10,954,526 Employee Contributions Pension Plan Net Investment Income 12,028,603 16,153, ,013 2,410,364 21,504,411 Benefit Payments (16,013,508) (16,244,782) (16,607,340) (17,037,741) (16,891,272) Refunds Pension Plan Administrative Expense (147,828) (156,827) (174,659) (145,725) (176,226) Other 1 (4,186) Net Change in Plan Fiduciary Net Position 4,769,751 9,208,834 (5,929,790) (5,232,963) 15,391,439 Plan Fiduciary Net Position - Beginning 150,737, ,528, ,458, ,691, ,300,123 Plan Fiduciary Net Position - Ending (b) $ 155,507,394 $ 150,737,643 $ 141,528,809 $ 147,458,599 $ 152,691,562 Net Pension Liability - Ending (a) - (b) 72,069,547 79,576,751 91,636,673 87,715,155 85,447,415 Plan Fiduciary Net Position as a Percentage of Total Pension Liability % % % % % Covered Employee Payroll $ 221,227,773 $ 236,665,777 $ 250,768,000 $ 262,424,327 $ 288,512,864 Net Pension Liability as a Percentage of Covered Employee Payroll % % % % % Notes to Schedule: 1 Transfer from Teacher s Plan to Director s Plan during plan year end June 30, Milwaukee Board of School Directors Supplemental Early Retirement Plan for Teachers for Teachers C-1

17 Schedules of Required Supplementary Information Schedule of the Net Pension Liability Multiyear Last 10 Fiscal Years (which may be built prospectively) Total Plan Net Position Net Pension Liability FY Ending Pension Plan Net Net Pension as a % of Total Covered as a % of June 30 Liability Position Liability Pension Liability Payroll Covered Payroll 2014 $ 238,138,977 $ 152,691,562 85,447, % $ 288,512, % ,173, ,458,599 87,715, % 262,424, % ,165, ,528,809 91,636, % 250,768, % ,314, ,737,643 79,576, % 236,665, % ,576, ,507,394 72,069, % 221,227, % Milwaukee Board of School Directors Supplemental Early Retirement Plan for Teachers C-2

18 Schedule of Contributions Multiyear Fiscal Year Ended Actuarially Employer Prior Year Contribution Credit Total Actual Contribution Determined Contribution Contribution Credit Available Employer Percentage Covered as a % of Contribution (Net of Interest) a Applied/(Available) for Next Year b Contribution c Contributed Payroll d Covered Payroll (a) (b) (c) (d) (e)=(b)+(c)+(d) (e)/(a) (f) (e)/(f) 6/30/2009 $ 15,235,493 $ 11,406,727 $ 15,276,218 $ (11,447,452) $ 15,235, % $ 350,580, % 6/30/ ,641,408 4,381,384 11,447,452 (187,428) 15,641, ,723, /30/ ,645,398 27,419, ,428 (11,961,721) 15,645, ,784, /30/ ,797,043 15,126,448 11,961,721 (11,291,126) 15,797, ,480, /30/ ,365,412 13,998,622 11,291,126 (10,924,336) 14,365, ,922, /30/ ,168,472 10,954,526 10,924,336 (10,698,820) 11,180, ,512, /30/ ,329,340 9,540,139 10,698,820 (9,939,530) 10,299, ,424, /30/2016 9,897,438 9,888,196 9,939,530 (9,930,288) 9,897, ,768, /30/2017 9,791,544 9,456,955 9,930,288 (9,595,699) 9,791, ,665, /30/2018 9,385,392 8,906,670 9,595,699 (9,116,977) e 9,385, ,227, a Employer contribution net of interest on and before fiscal year ended June 30, Employer contributions with interest credit after June 30, b The Board prepaid contributions for the fiscal years ended June 30. These contributions are excluded in assets used to develop contributions. c The District contributed $9,540,139, in the year ended June 30, d Covered payroll for June 30, 2018, projected based on July 1, 2017 valuation. e Estimated contribution credit for fiscal year ended June 30, Milwaukee Board of School Directors Supplemental Early Retirement Plan for Teachers for Teachers C-3

19 Notes to Schedule of Contributions The information requested in the required supplementary schedules was determined as part of the actuarial valuations at the dates indicated. Additional information as of the latest actuarial valuation follows: Measurement Date June 30, 2018, measurement date based on actuarial liabilities as of July 1, Actuarial Cost Method Entry Age Normal. Actuarial Value of Assets Market value used for GASB Statements No. 67 and 68 reporting, 5-year smoothed market used to determine contributions. Amortization Method The loss at July 1, 2006, due to the valuation of deferred vested temporary benefits is amortized over a 15-year closed period commencing July 1, 2006, on a level dollar basis. Unfunded liabilities not attributable to the loss due to valuation of deferred vested temporary benefits are amortized using a 25-year closed period, level-dollar amortization commencing July 1, Actuarial Assumptions: Investment Rate of Return Projected Salary Increases Cost of Living Increases 7.50% per year. The Plan is frozen at July 1, Pay increases received after that date are not pensionable under the Teachers Plan. 0.00% per year. Milwaukee Board of School Directors Supplemental Early Retirement Plan for Teachers C-4

20 SECTION D NOTES TO FINANCIAL STATEMENTS 5

21 Single Discount Rate The Plan is closed to future members, and the funding policy is projected to fully finance plan benefits in the future. Sponsor contributions will be adjusted in the future, as experience emerges, to ensure that retiree benefits are paid. A single discount rate of 7.50% was used to measure the total pension liability. This single discount rate was based on the expected rate of return on pension plan investments of 7.50%. The projection of cash flows used to determine this single discount rate assumed that the Plan sponsor would make the actuarially required contribution as defined by the funding policy. Based on these assumptions, the pension plan s fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. Milwaukee Board of School Directors Supplemental Early Retirement Plan for Teachers D-1

22 Regarding the sensitivity of the net pension liability to changes in the single discount rate, the following presents the plan s net pension liability, calculated using a single discount rate of 7.50%, as well as what the plan s net pension liability would be if it were calculated using a single discount rate that is 1- percentage-point lower or 1-percentage-point higher: Current Single Discount 1% Decrease Rate Assumption 1% Increase 6.50% 7.50% 8.50% $93,228,765 $72,069,547 $53,963,873 Milwaukee Board of School Directors Supplemental Early Retirement Plan for Teachers D-2

23 SECTION E GASB STATEMENT NO. 68 PENSION EXPENSE

24 Net Pension Liability for Fiscal Year ending June 30, 2018 A. Total pension liability 1. Service Cost $ - 2. Interest on the Total Pension Liability 16,436, Changes of benefit terms - 4. Difference between expected and actual experience of the Total Pension Liability (3,160,017) 5. Changes of assumptions - 6. Benefit payments, including refunds of employee contributions (16,013,508) 7. Net change in total pension liability $ (2,737,453) 8. Total pension liability beginning (July 1, 2017) 230,314, Total pension liability ending (June 30, 2018) $ 227,576,941 B. Plan fiduciary net position 1. Contributions employer $ 8,906, Contributions employee - 3. Net investment income 12,028, Benefit payments, including refunds of employee contributions (16,013,508) 5. Pension Plan Administrative Expense (147,828) 6. Other (4,186) 7. Net change in plan fiduciary net position $ 4,769, Plan fiduciary net position beginning (July 1, 2017) 150,737, Plan fiduciary net position ending (June 30, 2018) $ 155,507,394 C. Net pension liability as of June 30, 2018 $ 72,069,547 D. Plan fiduciary net position as a percentage of the total pension liability 68.33% E. Covered-employee payroll $ 221,227,773 F. Net pension liability as a percentage of covered employee payroll 32.58% Milwaukee Board of School Directors Supplemental Early Retirement Plan for Teachers E-1

25 Pension Expense (for Fiscal Year ending June 30, 2018) A. Expense 1. Service Cost $ - 2. Interest on the Total Pension Liability 16,436, Current-Period Benefit Changes - 4. Employee Contributions (made negative for addition here) - 5. Projected Earnings on Plan Investments (made negative for addition here) (11,367,116) 6. Pension Plan Administrative Expense 147, Other Changes in Plan Fiduciary Net Position 4, Recognition of Outflow/(Inflow) of Resources due to Liability Experience (3,386,196) 9. Recognition of Outflow/(Inflow) of Resources due to Assumption Changes Recognition of Outflow/(Inflow) of Resources due to Investment Experience 2,642, Total Pension Expense $ 4,477,615 B. Reconciliation of Net Pension Liability 1. Net Pension Liability beginning of year $ 79,576, Pension Expense 4,477, Employer Contributions (8,906,670) 4. Change in Liability Experience Outflows/(Inflows) Recognized in Current Liabilities 226, Change in Assumption Changes Experience Outflows/(Inflows) Recognized in Current Liabilities - 6. Change in Investment Experience Outflows/(Inflows) Recognized in Current Assets (3,304,328) 7. Net Pension Liability end of year $ 72,069,547 Milwaukee Board of School Directors Supplemental Early Retirement Plan for Teachers E-2

26 Statement of Outflows and Inflows Arising from Current and Prior Reporting Periods (Fiscal Year End June 30, 2018) A. Outflows and (Inflows) of Resources Recognized in Current and Future Pension Expenses as of Plan Year End June 30, 2018 Original Deferred (Inflows) Deferred Outflows Experience (Gain)/Loss Recognition Period/ Amount Recognized in Amount Recognized in to be Recognized in to be Recognized in Original Balance Date Established Amortization Factor Past Pension Expenses Current Pension Expense Future Pension Expenses Future Pension Expenses 1. Differences Between Expected $ (3,160,017) June 30, $ - $ (1,115,008) $ (2,045,009) $ - and Actual Non-Investment Experience (3,241,431) June 30, (1,043,839) (1,043,839) (1,153,753) - (2,247,617) June 30, (1,319,240) (659,620) (268,757) - (2,929,293) June 30, (2,361,564) (567,729) - - $ (11,578,358) $ (4,724,643) $ (3,386,196) $ (3,467,519) $ - 2. Assumption Changes $ - June 30, $ - $ - $ - $ - - June 30, June 30, June 30, $ $ - $ - $ - $ - 3. Difference Between Expected $ (661,487) June 30, $ - $ (132,297) $ (529,190) $ - and Actual Investment Earnings (5,444,616) June 30, (1,088,923) (1,088,923) (3,266,770) - 10,207,672 June 30, ,083,068 2,041,534-4,083,070 9,112,634 June 30, ,467,581 1,822,527-1,822,526 13,214, $ 8,461,726 $ 2,642,841 $ (3,795,960) $ 5,905, Total $ 1,635,845 $ 3,737,083 $ (743,355) $ (7,263,479) $ 5,905,596 B. Deferred Outflows and Deferred (Inflows) of Resources by Year to be Recognized in Future Pension Expenses Differences Between Expected and Actual Differences Between Year Ending Non-Investment Assumption Expected and Actual June 30 Experience Changes Investment Experience 2019 $ (2,427,604) $ - $ 2,642, (1,039,915) - 820, (1,221,221) (132,298) Thereafter Total $ (3,467,519) $ 0 $ 2,109,637 Year Ending Deferred Outflows Deferred (Inflows) Net Deferred Outflows/ June 30 of Resources of Resources (Inflows) of Resources 2019 $ 3,864,060 $ (3,648,824) $ 215, ,041,536 (2,261,135) (219,599) (1,221,221) (1,221,221) (132,298) (132,298) Thereafter Total $ 5,905,596 $ (7,263,478) $ (1,357,882) Milwaukee Board of School Directors Supplemental Early Retirement Plan for Teachers for Teachers E-3

27 SECTION F SUMMARY OF BENEFITS 4

28 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. Milwaukee Board of School Directors Supplemental Early Retirement Plan for Teachers F-1

29 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. 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 F-2

30 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 0.4% for each additional month that retirement preceded age 60. Milwaukee Board of School Directors Supplemental Early Retirement Plan for Teachers F-3

31 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 F-4

32 SECTION G ACTUARIAL COST METHOD AND ACTUARIAL ASSUMPTIONS 5

33 Actuarial Cost Method Actuarial Cost Method. The actuarial accrued liability is equal to the total present value of frozen benefits as of July 1, Because the Plan is frozen as of July 1, 2013, the actuarial accrued liability equals the total present value of benefits and the normal cost equals zero. 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, Actuarial Value of Pension Plan Assets used to Determine Contributions. 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. For GASB Statements No. 67 and 68 reporting purposes, the market value of assets was used. Milwaukee Board of School Directors Supplemental Early Retirement Plan for Teachers G-1

34 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 actuarial 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 G-2

35 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 actuarial 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 the 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. 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 that 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 service on the date the decrement is assumed to occur. Milwaukee Board of School Directors Supplemental Early Retirement Plan for Teachers G-3

36 Final Average Compensation Frozen as of July 1, 2013 For pension plan purposes, the Teachers Plan is closed and frozen effective July 1, The final average compensation used in the actuarial valuation as of July 1, 2014, 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 7.50%, net of 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. Milwaukee Board of School Directors Supplemental Early Retirement Plan for Teachers G-4

37 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 valuation from the experience study for the period ending December 31, 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 RP2000 table projected 30 years using scale AA. Milwaukee Board of School Directors Supplemental Early Retirement Plan for Teachers G-5

38 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 Age Rate 20 or younger 14.5% % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % 55 or older 0.0% Milwaukee Board of School Directors Supplemental Early Retirement Plan for Teachers G-6

39 Rates of retirement for members eligible to retire during the next year were as follows: 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 service. Milwaukee Board of School Directors Supplemental Early Retirement Plan for Teachers G-7

40 SECTION H CALCULATION OF THE SINGLE DISCOUNT RATE 8

41 Calculation of the Single Discount Rate GASB Statement No. 67 includes a specific requirement for the discount rate that is used for the purpose of the measurement of the Total Pension Liability. This rate considers the ability of the fund to meet benefit obligations in the future. To make this determination, employer contributions, employee contributions, benefit payments, expenses and investment returns are projected into the future. The Plan Net Position (assets) in future years can then be determined and compared to its obligation to make benefit payments in those years. As long as assets are projected to be on hand in a future year, the assumed actuarial valuation discount rate is used. In years where assets are not projected to be sufficient to meet benefit payments, the use of a risk-free rate is required, as described in the following paragraph. The single discount rate (SDR) is equivalent to applying these two rates to the benefits that are projected to be paid during the different time periods. The SDR reflects (1) the long-term expected rate of return on pension plan investments (during the period in which the fiduciary net position is projected to be sufficient to pay benefits) and (2) a tax-exempt municipal bond rate based on an index of 20-year mixed maturity general obligation bonds with an average Standard & Poor s Corp. s AA credit rating (which is published by Fidelity) as of the measurement date (to the extent that the contributions for use with the long-term expected rate of return are not met). For the purpose of this actuarial valuation, the expected rate of return on pension plan investments is 7.50%; the municipal bond rate is 3.62%; and the resulting single discount rate is 7.50%. The table in this section provides background for the development of the single discount rate. The projection demonstrates that the contribution policy for the closed Plan is projected to fully finance the actuarial liability by Milwaukee Board of School Directors Supplemental Early Retirement Plan for Teachers H-1

42 Single Discount Rate Development Projection of Contributions Actuarial Market Value Unfunded Funded Employer Benefit Investment July 1, Liabilities a of Assets b Liabilities Ratio Contribution a Payments a Expenses c Income d 2018 $ 225,629,000 $ 146,390,417 $ 79,238,583 65% $ 9,142,779 $ 18,333,986 $ 151,967 $ 10,971, ,542, ,019,009 75,523,084 66% 9,391,116 18,797, ,222 11,095, ,818, ,551,540 71,266,690 68% 9,431,241 19,302, ,597 11,193, ,366, ,713,307 66,652,812 69% 8,670,428 19,709, ,093 11,208, ,233, ,717,587 62,515,710 71% 8,637,334 20,042, ,716 11,193, ,445, ,336,756 58,108,921 72% 8,643,735 20,282, ,468 11,156, ,049, ,679,600 53,369,835 74% 8,650,443 20,373, ,353 11,104, ,154, ,881,483 48,273,236 76% 8,657,495 20,465, ,375 11,041, ,722, ,930,143 42,792,086 78% 8,664,966 20,426, ,537 10,971, ,848, ,951,036 36,897,146 80% 8,672,954 20,390, ,844 10,899, ,495, ,938,955 30,556,981 83% 8,681,655 20,189, ,300 10,831, ,800, ,062,689 23,737,473 86% 8,691,418 19,878, ,909 10,778, ,850, ,448,483 16,401,614 90% 8,703,131 19,525, ,674 10,746, ,669, ,160,359 8,508,718 94% 8,730,697 18,977, ,601 10,747, ,442, ,442, % 217,601 18,379, ,695 10,151,909 a The actuarial liabilities, employer contributions, and benefit payments, are based on results of July 1, 2017, actuarial valuation. b Market value of assets used to develop actuarial value of assets and contribution requirements. Market value of assets equal to $155,507,394 reduced by prepaid contribution of $9,116,977 at June 30, c Expenses in FY 2018 and after are assumed to increase by 2.80% per year. d Investment income assumes assets earn the actual rate of return for fiscal year 2018 of 7.94%. Estimated return after July 1, 2018, based on valuation assumption of 7.50%. Milwaukee Board of School Directors Supplemental Early Retirement Plan for Teachers for Teachers H-2

43 SECTION I GLOSSARY OF TERMS 3

44 Glossary of Terms Accrued Service Actuarial Accrued Liability (AAL) Actuarial Assumptions Actuarial Cost Method Actuarial Equivalent Actuarial Gain (Loss) Actuarial Present Value (APV) Actuarial Valuation Actuarial Valuation Date Service credited under the system which was rendered before the date of the actuarial valuation. The AAL is the difference between the actuarial present value of all benefits and the actuarial value of future normal costs. The definition comes from the fundamental equation of funding which states that the present value of all benefits is the sum of the Actuarial Accrued Liability and the present value of future normal costs. The AAL may also be referred to as "accrued liability" or "actuarial liability." These assumptions are estimates of future experience with respect to rates of mortality, disability, turnover, retirement, rate or rates of investment income and compensation increases. Actuarial assumptions are generally based on past experience, often modified for projected changes in conditions. Economic assumptions (compensation increases, payroll growth, inflation and investment return) consist of an underlying real rate of return plus an assumption for a long-term average rate of inflation. A mathematical budgeting procedure for allocating the dollar amount of the actuarial present value of the pension trust benefits between future normal cost and actuarial accrued liability. The actuarial cost method may also be referred to as the actuarial funding method. A single amount or series of amounts of equal actuarial value to another single amount or series of amounts, computed on the basis of appropriate actuarial assumptions. The difference in liabilities between actual experience and expected experience during the period between two actuarial valuations is the gain (loss) on the accrued liabilities. The amount of funds currently required to provide a payment or series of payments in the future. The present value is determined by discounting future payments at predetermined rates of interest and probabilities of payment. The actuarial valuation report determines, as of the actuarial valuation date, the service cost, total pension liability and related actuarial present value of projected benefit payments for pensions. The date as of which an actuarial valuation is performed. Milwaukee Board of School Directors Supplemental Early Retirement Plan for Teachers I-1

45 Actuarially Determined Contribution (ADC) or Annual Required Contribution (ARC) Amortization Method Amortization Payment Cost-of-Living Adjustments Cost-Sharing Multiple- Employer Defined Benefit Pension Plan (costsharing pension plan) Covered-Employee Payroll Deferred Inflows and Outflows Deferred Retirement Option Program (DROP) Discount Rate A calculated contribution into a defined benefit pension plan for the reporting period, most often determined based on the funding policy of the plan. Typically the Actuarially Determined Contribution has a normal cost payment and an amortization payment. The method used to determine the periodic amortization payment may be a level dollar amount, or a level percent of pay amount. The period will typically be expressed in years, and the method will either be open (meaning, reset each year) or closed (the number of years remaining will decline each year. The amortization payment is the periodic payment required to pay off an interest-discounted amount with payments of interest and principal. Postemployment benefit changes intended to adjust benefit payments for the effects of inflation. A multiple-employer defined benefit pension plan in which the pension obligations to the employees of more than one employer are pooled and pension plan assets can be used to pay the benefits of the employees of any employer that provides pensions through the pension plan. The payroll of covered employees, which is typically only the pensionable pay and does not include pay above any pay cap. The deferred inflows and outflows of pension resources are amounts used under GASB Statement No. 68 in developing the annual pension expense. Deferred inflows and outflows arise with differences between expected and actual experiences; changes of assumptions. The portion of these amounts not included in pension expense should be included in the deferred inflows or outflows of resources. A program that permits a plan member to elect a calculation of benefit payments based on service credits and salary, as applicable, as of the DROP entry date. The plan member continues to provide service to the employer and is paid for the service by the employer after the DROP entry date; however, the pensions that would have been paid to the plan member are credited to an individual member account within the defined benefit pension plan until the end of the DROP period. Other variations for DROP exist and will be more fully detailed in the plan provision section of the actuarial valuation report. For GASB purposes, the discount rate is the single rate of return that results in the present value of all projected benefit payments to be equal to the sum of the funded and unfunded projected benefit payments, specifically: The benefit payments to be made while the pension plans fiduciary net position is projected to be greater than the benefit payments that are projected to be made in the period and; Milwaukee Board of School Directors Supplemental Early Retirement Plan for Teachers I-2

46 The present value of the benefit payments not in (1) above, discounted using the municipal bond rate. Entry Age Actuarial Cost Method (EAN) Fiduciary Net Position GASB Long-Term Expected Rate of Return Money-Weighted Rate of Return Multiple-Employer Defined Benefit Pension Plan Municipal Bond Rate Net Pension Liability (NPL) Non-employer Contribution Entities Normal Cost Other Postemployment Benefits (OPEB) The EAN is a funding method for allocating the costs of the plan between the normal cost and the accrued liability. The actuarial present value of the projected benefits of each individual included in an actuarial valuation is allocated on a level basis (either level dollar or level percent of pay) over the earnings or service of the individual between entry age and assumed exit ages(s). The portion of the actuarial present value allocated to a valuation year is the normal cost. The portion of this actuarial present value not provided for at a valuation date by the actuarial present value of future normal costs is the actuarial accrued liability. The sum of the accrued liability plus the present value of all future normal costs is the present value of all benefits. The fiduciary net position is the value of the assets of the trust. The Governmental Accounting Standards Board is an organization that exists in order to promulgate accounting standards for governmental entities. The long-term rate of return is the expected return to be earned over the entire trust portfolio based on the asset allocation of the portfolio. The money-weighted rate of return is a method of calculating the returns that adjusts for the changing amounts actually invested. For purposes of GASB Statement No. 67, money-weighted rate of return is calculated as the internal rate of return on pension plan investments, net of pension plan investment expense. A multiple-employer plan is a defined benefit pension plan that is used to provide pensions to the employees of more than one employer. The Municipal Bond Rate is the discount rate to be used for those benefit payments that occur after the assets of the trust have been depleted. The NPL is the liability of employers and non-employer contribution entities to plan members for benefits provided through a defined benefit pension plan. Non-employer contribution entities are entities that make contributions to a pension plan that is used to provide pensions to the employees of other entities. For purposes of the GASB Accounting statement plan members are not considered non-employer contribution entities. The actuarial present value of the pension trust benefits allocated to the current year by the actuarial cost method. All postemployment benefits other than retirement income (such as death benefits, life insurance, disability and long-term care) that are Milwaukee Board of School Directors Supplemental Early Retirement Plan for Teachers I-3

47 provided separately from a pension plan, as well as postemployment healthcare benefits regardless of the manner in which they are provided. Other postemployment benefits do not include termination benefits. Real Rate of Return Service Cost Total Pension Expense Total Pension Liability (TPL) Unfunded Actuarial Accrued Liability (UAAL) Valuation Assets The real rate of return is the rate of return on an investment after adjustment to eliminate inflation. The service cost is the portion of the actuarial present value of projected benefit payments that is attributed to a valuation year. The total pension expense is the sum of the following items that are recognized at the end of the employer s fiscal year: 1. Service Cost 2. Interest on the Total Pension Liability 3. Current-Period Benefit Changes 4. Employee Contributions (made negative for addition here) 5. Projected Earnings on Plan Investments (made negative for addition here) 6. Pension Plan Administrative Expense 7. Other Changes in Plan Fiduciary Net Position 8. Recognition of Outflow (Inflow) of Resources due to Liabilities 9. Recognition of Outflow (Inflow) of Resources due to Assets The TPL is the portion of the actuarial present value of projected benefit payments that is attributed to past periods of member service. The UAAL is the difference between actuarial accrued liability and actuarial valuation assets. The actuarial valuation assets are the assets used in determining the unfunded liability of the plan. For purposes of the GASB Statement No. 67, the actuarial valuation asset is equal to the market value of assets. Milwaukee Board of School Directors Supplemental Early Retirement Plan for Teachers I-4

48 Milwaukee Board of School Directors Early Retirement Supplement and Benefit Improvement Plan GASB Stateme ents No. 67 and 68 Plan Reporting and Accounting Schedules as of June 30, 2018

49 October 26, 2018 Ms. Carol Eady Sr. Director, Benefits, Pension & Compensatio n Milwaukee Public Schools Administration Building 5225 West Vliet Street Room 124 Milwaukee, Wisconsinn Dear Ms. Eady: This report provides accounting and financial information required by the Milwaukee Board of School Directors Early Retirement Supplement and Benefit Improvement Plan ( Plan ) in connection with the Governmental Accounting Standards Board (GASB) Statements No. 67 and 68. Our actuarial calculations for this report were prepared for the purpose of complying with the requirements of GASB Statements No. 67 and 68. These calculations have been made on a basis that is consistent with our understanding of these accounting standards. GASB Statement No. 67 is the accounting standard that applies to the stand-alone financial reports issued by retirement systems. GASB Statement No. 68 establishes accounting and financial reporting for state and local government employers who provide their employees (including former employees) pension benefits through a trust. Our calculation of the liability associated with the benefitss described in this report was performed for the purpose of satisfying the requirements of GASB Statements No. 67 and 68. The calculation of the Plan s liability for this report may not be applicable for funding purposes of the Plan. A calculation of the Plan s liability for purposes other than satisfying the requirements of GASB Statements No. 67 and 68 may produce significantly different results. This report may be provided to parties other than the Milwaukee Public Schools ( MPS ) only in its entirety and only with the permission of MPS. This report is based upon information, furnished to us by MPS, concerning retirement and ancillary benefits, active members, deferred vested members, retirees and beneficiaries and financial data. If your understanding of this information is different, please let us know.. This information was checked for internal consistency, but it was not audited.

50 Ms. Carol Eady Milwaukee Public Schools Page 2 Certain members who retire after June 30, 2017, are eligible to participate in the Early Retirement Window. 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. To the best of our knowledge, the informationn contained with this report is accurate and fairly represents the actuarial position of the Milwaukee Board of School Directors Early Retirement Supplement and Benefit Improvement Plan for the purpose of complying with the requirements of GASB Statements No. 67 and 68. All calculations have been made in conformity with generally accepted actuarial principles and practices as well as with the Actuarial Standards of Practice issued by the Actuarial Standards Board. Alex Rivera and Lance J. Weiss are Members of the American Academy of Actuaries (MAAA) and meet the Qualification Standards of the American Academy of Actuaries to render the actuarial opinion contained herein. Alex Rivera and Lance J. Weiss are independent of the plann sponsor. Respectfully submitted, By: Alex Rivera FSA, EA, MAAA, FCA By: Lance J. Weiss EA, MAAA, FCA