COUNCIL MEMBER PRESENT ABSENT Rodriguez Parker Wendt Zelnio Turner Schoonmaker Waldron Acri Mayor Raes

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1 MOLINE CITY COUNCIL AGENDA Tuesday, April 25, :30 p.m. (Immediately following the Committee-of-the-Whole meeting) City Hall Council Chambers 2 nd Floor th Street Moline, IL Call to Order Pledge of Allegiance Invocation Alderman Turner Roll Call Consent Agenda All items under the consent agenda will be enacted by one motion. There will be no separate discussions of these items unless a Council Member so requests, in which case, the item will be moved from the Consent Agenda and considered as the first item after the Omnibus Vote. COUNCIL MEMBER PRESENT ABSENT Rodriguez Parker Wendt Zelnio Turner Schoonmaker Waldron Acri Mayor Raes Approval of Minutes & Appointments Made March Financial Report, Committee-of-the-Whole and Council meeting minutes of April 11, 2017, Special Council meeting minutes of April 12, 2017, and Special Council meeting minutes of April 13, Resolutions 1. Council Bill/Resolution A Resolution accepting the actuarial valuation reports submitted by Lauterbach & Amen for the contribution year ending December 31, 2016 for the City of Moline Police and Firefighters Pension Funds. (Kathy Carr, Finance Director) Explanation: The sworn Police and Fire personnel of the City of Moline are covered by two pension plans that are defined-benefit, single-employer pension plans. The purpose of the annual actuarial valuation reports is to provide the annual recommended amounts for the City s employer contributions. Todd Schroeder, an actuary with Lauterbach & Amen, will present the reports and answer questions. Additional documentation attached. Fiscal Impact: Public Notice/Recording: Increases the funding levels by $236,814 for Police Pension and $279,140 for Firefighters Pension. Finance staff will file with Illinois Department of Insurance, Public Pension Division. 2. Council Bill/Resolution A Resolution authorizing the Mayor and City Clerk to execute an agreement with GovHR USA, LLC ( GovHR ) for a comprehensive classification and compensation study in the amount of $53, Explanation: An effective classification and compensation program is one that is reviewed and updated systematically allowing an employer to define what the organization wants to accomplish in its compensation policies and programs. A classification and compensation study allows an employer to compare its practices to those of other similarly situated employers. This periodic comparison is necessary for an employer to remain competitive in the job market by continuing to attract and retain qualified employees and controlling labor costs. It is also needed to ensure classification and compensation practices remain in compliance with the various federal and state laws. Requests for proposals were solicited and eight responses were received. The City s Classification and Compensation Study Committee, comprised of the City s Human Resources Manager,

2 Human Resources Specialist, City Attorney, Planning and Development Director and Alderman Schoonmaker, reviewed the proposals and believes GovHR was the provider whose proposal was the most advantageous to the City and in the City s best interest. Additional documentation attached. Fiscal Impact: Public Notice/Recording: Omnibus Vote Non - Consent Agenda Funding available in the Liability Fund N/A First Reading Ordinances 3. Council Bill/General Ordinance OMNIBUS VOTE Council Member Aye Nay Turner Schoonmaker Waldron Acri Rodriguez Parker Wendt Zelnio Mayor Raes A Special Ordinance closing certain streets more particularly described herein to vehicular traffic and authorizing the use of public right-of-way in conjunction with the Quad Cities Distance Classic Half Marathon & 5K Races, sponsored by the Cornbelt Running Club, scheduled for Sunday, May 14, Explanation: This is an annual event. This year s event has been reviewed and approved by the Special Events Committee for Sunday, May 14, Public Notice/Recording: Fiscal Impact: N/A N/A 4. Council Bill/General Ordinance A Special Ordinance closing certain streets more particularly described herein to vehicular traffic; and authorizing the use of public right-of-way in conjunction with the First Step Riverfront 5K, sponsored by the Children s Therapy Center of the QC, scheduled for Saturday, May 27, Explanation: This is an annual event. This year s event has been reviewed and approved by the Special Events Committee for Saturday, May 27, Public Notice/Recording: Fiscal Impact: N/A N/A Miscellaneous Business (if necessary) Public Comment Members of the Public are permitted to speak after coming to the podium and stating their name. Executive Session (if necessary)

3 Council Bill/Resolution No Sponsor: A RESOLUTION ACCEPTING the actuarial valuation reports submitted by Lauterbach & Amen for the contribution year ending December 31, 2016 for the City of Moline Police and Firefighters Pension Funds. WHEREAS, the sworn Police and Fire personnel of the City of Moline are covered by two pension plans that are defined-benefit, single-employer pension plans; and WHEREAS, annual actuarial valuation reports are necessary to provide the annual recommended amounts for the City s employer contributions; and WHEREAS, Lauterbach & Amen, which has actuarial credentials and meets the Qualification Standards of the American Academy of Actuaries, was engaged to render this Actuarial Opinion. NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF MOLINE, ILLINOIS, as follows: That the actuarial reports submitted by Lauterbach & Amen for the contribution year ending December 31, 2016, for the City of Moline Police and Firefighters Pension Funds are hereby accepted by the City Council as an accurate actuarial valuation of the City of Moline s Police and Firefighters Pension Funds and that these reports be filed with the State of Illinois Department of Insurance Pension Division s Office. CITY OF MOLINE, ILLINOIS Passed: April 25, 2017 Mayor April 25, 2017 Date Approved: May 2, 2017 Attest: Deputy City Clerk Approved as to Form: City Attorney

4 Lauterbach & Amen, LLP 27W457 Warrenville Road Warrenville, IL Actuarial Valuation as of January 1, 2017 MOLINE FIREFIGHTERS PENSION FUND GASB 67/68 Reporting LAUTERBACH & AMEN, LLP

5 Actuarial GASB Disclosures Statements 67 and 68 GASB 67: MOLINE FIREFIGHTERS PENSION FUND Fiscal Year Ending: December 31, 2016 Actuarial Valuation Date: January 1, 2017 Measurement Date: December 31, 2016 GASB 68: CITY OF MOLINE, ILLINOIS Submitted by: Lauterbach & Amen, LLP Phone Contact: Todd A. Schroeder April 6, 2017 Fiscal Year Ending: December 31, 2016 Actuarial Valuation Date: January 1, 2017 Measurement Date: December 31, 2016 LAUTERBACH & AMEN, LLP

6 TABLE OF CONTENTS ACTUARIAL CERTIFICATION... 1 PENSION FUND NET POSITION... 2 Statement of Fiduciary Net Position... 3 Statement of Changes in Fiduciary Net Position... 4 ACTUARIAL PENSION LIABILITY INFORMATION... 5 Statement of Total Pension Liability... 6 Statement of Changes in Total Pension Liability... 7 Statement of Changes in Net Pension Liability... 8 Deferred Outflows and Inflows of Resources... 9 Deferred Outflows and Inflows of Resources - Details Pension Expense Development ACTUARIAL ASSUMPTION INFORMATION Statement of Significant Actuarial Assumptions Assumption Changes Notes on Actuarial Assumptions Postemployment Benefit Changes Expected Return on Pension Plan Investments Municipal Bond Rate Discount Rate Sensitivity of the Discount Rate PARTICIPANT DATA Participant Demographic Data Expected Future Working Lifetime FUNDING POLICY Components of the Actuarially Determined Contribution Formal Funding Policy Informal Funding Policy Funding Policy Other Considerations SCHEDULES OF REQUIRED SUPPLEMENTARY INFORMATION Schedule of Changes in the Net Pension Liability Schedule of Total Pension Liability and Related Ratio Schedule of Contributions Notes to Schedule of Contributions GASB METHODS AND PROCEDURES GASB Methods and Procedures SUPPLEMENTARY TABLES Moline Firefighters Pension Fund Table of Contents

7 TABLE OF CONTENTS GASB Projections Summary and Procedure GASB Projections Limitations Projection of Contributions Years 1 to Projection of Contributions Years 31 to Projection of Contributions Years 61 to Notes to Projection of Contributions Projection of the Pension Plan s Fiduciary Net Position Years 1 to Projection of the Pension Plan s Fiduciary Net Position Years 31 to Projection of the Pension Plan s Fiduciary Net Position Years 61 to Notes to Projection of Fiduciary Net Position Actuarial Present Values of Projected Benefit Payments Years 1 to Actuarial Present Values of Projected Benefit Payments Years 31 to Actuarial Present Values of Projected Benefit Payments Years 61 to Notes to the Actuarial Present Value of Projected Benefit Payments Moline Firefighters Pension Fund Table of Contents

8 ACTUARIAL CERTIFICATION This certification provides supplemental information as required by the Governmental Accounting Standards Board. The enclosed schedules were prepared by the undersigned to provide general information to assist in the preparation of the Annual Financial Report. The assumptions and methods used in the preparation of this disclosure meet the parameters set for the disclosures presented in the financial section as required by the Governmental Accounting Standards Board. Additional information is also provided solely to assist the auditors in preparation of the required footnote disclosures. The results in this report are based on information and data submitted by the Moline Firefighters Pension Fund. We did not prepare the actuarial valuations for the years prior to January 1, Those valuations were prepared by other actuaries whose reports have been furnished to us, and our disclosures are based upon those reports. An audit of the information was not performed, but high-level reviews were performed for general reasonableness as appropriate based on the purpose of the valuation. The accuracy of the results is dependent upon the accuracy and completeness of the underlying information. The results of the actuarial valuation and these supplemental disclosures rely on the information provided. The valuation results summarized involve actuarial calculations that require assumptions about future events. The Moline Firefighters Pension Fund selected certain assumptions, while others were the result of guidance and/or judgment. We believe that the assumptions used in the valuation are reasonable and appropriate for the purposes for which they have been used. To the best of our knowledge, all calculations are in accordance with the applicable funding requirements, and the procedures followed and presentation of results conform to generally accepted actuarial principles and practices. The undersigned consultant of Lauterbach & Amen, LLP with actuarial credentials meets the Qualification Standards of the American Academy of Actuaries to render this Actuarial Certification. There is no relationship between the Moline Firefighters Pension Fund and Lauterbach & Amen, LLP that impairs our objectivity. Respectfully Submitted, LAUTERBACH & AMEN, LLP Todd A. Schroeder, EA Moline Firefighters Pension Fund Page 1

9 PENSION FUND NET POSITION Statement of Net Position Statement of Changes in Net Position

10 STATEMENT OF FIDUCIARY NET POSITION Assets Cash and Cash Equivalents $ 1,797,734 $ 1,152,097 Total cash 1,797,734 1,152,097 Receivables: Investment Income - Accrued Interest 53,457 74,854 Other 709 1,471 Total Receivables 54,166 76,325 Investments: Fixed Income 10,842,745 9,151,060 Mutual Funds 15,933,099 16,063,036 Total Investments 26,775,844 25,214,096 Total Assets 28,627,745 26,442,519 Liabilities Payables: Expenses Due/Unpaid 23,820 11,258 Other 1,085,260 - Total Liabilities 1,109,080 11,258 Net Position Restricted for Pensions $ 27,518,665 $ 26,431,261 The Fiduciary Net Position of the Fund shown above is intended to be in accordance with GAAP and Government Accounting Standards Board rules. The Fair Market Value of Investments has been provided by the reporting entity, and the results are being audited by an independent auditor. The level of the assets has been reviewed for reasonableness, but we make no representation as to the accuracy of the measurement of the fair market value of the investments. The assets for 2016 are based on year end financials only and are preliminary & tentative subject to change as of the preparation of this report. Moline Firefighters Pension Fund Page 3

11 STATEMENT OF CHANGES IN FIDUCIARY NET POSITION 2016 Additions Contributions Employer $ 4,574,093 Member 398,734 Other Member Contributions 35,039 Total Contributions 5,007,865 Investment Income Net Appreciation in Fair Value of Investments 734,270 Interest and Dividends 812,563 Less Investment Expense (71,459) Net Investment Income 1,475,375 Total Additions 6,483,240 Deductions Benefit payments and Refunds of Member Contributions 5,257,128 Administrative Expense 123,650 Prior Period Audit Adjustment 15,058 Total Deductions 5,395,836 Net Increase in Net Position 1,087,404 Net Position Restricted for Pensions Beginning of Year 26,431,261 End of Year $ 27,518,665 The Changes in Fiduciary Net Position of the Fund shown above is intended to be in accordance with GAAP and Government Accounting Standards Board rules. The changes have been provided by the reporting entity, and the results are being audited by an independent auditor. The changes have been reviewed for reasonableness, but we make no representation as to the accuracy of the measurement of the fair market value of the investments. The assets for 2016 are based on year end financials only and are preliminary & tentative subject to change as of the preparation of this report. Moline Firefighters Pension Fund Page 4

12 ACTUARIAL PENSION LIABILITY INFORMATION Statement of Total Pension Liability Statement of Changes in Total Pension Liability Statement of Changes in Net Pension Liability Deferred Outflows and Inflows of Resources

13 STATEMENT OF TOTAL PENSION LIABILITY Active Employees $ 22,955,863 $ 27,353,377 Inactive Employees Terminated Employees - Vested 17,867 - Retired Employees 53,180,672 55,821,793 Disabled Employees 9,460,712 9,728,643 Other Beneficiaries 4,852,921 5,571,979 Total Inactive Employees 67,512,172 71,122,415 Total Pension Liability $ 90,468,035 $ 98,475,792 The Total Pension Liability (TPL) shown is dependent on several factors such as plan provisions and actuarial assumptions used in the report. In addition, the calculation of the TPL may be dependent on the Fiduciary Net Position shown on the prior page. Changes in the Fiduciary Net Position due to any factor including adjustment on final audit could change the TPL. The dependence of the TPL on the Net Position is due to the role of the Net Position (and projected Net Position) on the determination of the discount rate used for the TPL. The TPL has been determined for GASB 67/68 reporting purposes only. The resulting TPL is intended to be used in the financial statement reporting of the fund and/or the Employer. The resulting liability is not intended to be a representation of the fund liability for other purposes, including but not limited to determination of cash funding requirements and recommendations. The TPL is based on data as of the Data Date shown in this report. The TPL has been determined as of the Actuarial Valuation Date and based on the assumptions shown in this report, and adjusted to the Measurement Date as needed. Moline Firefighters Pension Fund Page 6

14 STATEMENT OF CHANGES IN TOTAL PENSION LIABILITY 2016 Changes in Total Pension Liability Service Cost $ 1,021,073 Interest 6,709,306 Changes of Benefit Terms - Differences Between Expected and Actual Experience (81,712) Changes in Assumptions (10,399,296) Benefit Payments and Refunds (5,257,128) Net Change in Total Pension Liability (8,007,757) Total Pension Liability - Beginning 98,475,792 Total Pension Liability - Ending (a) $ 90,468,035 Plan Fiduciary Net Position - Ending (b) $ 27,518,665 Employer's Net Pension Liability - Ending (a) - (b) $ 62,949,370 Plan Fiduciary Net Position as a Percentage of the Total Pension Liability 30% Covered-Employee Payroll $ 5,193,858 Employer's Net Pension Liability as a Percentage of Employee Payroll 1212% The plan Fiduciary Net Position was detailed in the prior section of this report. The employer s Net Pension Liability is the excess of the Total Pension Liability over the plan Fiduciary Net Position. Total Pension Liability may be dependent on the Net Position of the fund. Changes in the Net Position could change the determination of the Total Pension Liability. Any changes in Net Position including adjustments on final audit can have an impact on Net Pension Liability that extends beyond the dollarfor-dollar change in Net Position. Covered employee payroll is based on total covered payroll for the fund members during the fiscal year. Moline Firefighters Pension Fund Page 7

15 STATEMENT OF CHANGES IN NET PENSION LIABILITY The table below illustrates the change in the Net Pension Liability (NPL) from the prior Measurement Date to the current Measurement Date. Under Statement 68, the difference between the NPL from the prior measurement date to the current measurement date should be recognized as an expense, unless permitted to be recognized as a deferred outflow or inflow of resources. Increase (Decrease) Total Pension Plan Fiduciary Net Net Pension Liability Position Liability (a) (b) (a) - (b) Balances Beginning at 01/01/16 $ 98,475,792 $ 26,431,261 $ 72,044,531 Changes for the year: Service Cost 1,021,073-1,021,073 Interest 6,709,306-6,709,306 Actuarial Experience (81,712) - (81,712) Assumptions Changes (10,399,296) - (10,399,296) Plan Changes Contributions - Employer - 4,574,093 (4,574,093) Contributions - Employee - 398,734 (398,734) Contributions - Other - 35,039 (35,039) Net Investment Income - 1,475,375 (1,475,375) Benefit payments, including refunds (5,257,128) (5,257,128) - Administrative Expense - (123,650) 123,650 Prior Period Audit Adjustment - (15,058) 15,058 Net Changes (8,007,757) 1,087,404 (9,095,161) Balances Beginning at 12/31/16 $ 90,468,035 $ 27,518,665 $ 62,949,370 The changes in total pension liability above are described on the prior page. The plan fiduciary net position was detailed in the prior section of this report. The employer s Net Pension Liability is the excess of the Total Pension Liability over the plan fiduciary net position. Moline Firefighters Pension Fund Page 8

16 DEFERRED OUTFLOWS AND INFLOWS OF RESOURCES The table below shows the cumulative amounts to be shown as deferred outflows and inflows of resources. Changes in total pension liability related to the difference in actual and expected experience, or changes in assumptions regarding future events, are recognized in pension expense over the expected remaining service life of all employees (active and retired) in the pension fund. Differences in projected and actual earnings over the measurement period are recognized over a 5-year period. Amounts not yet recognized are summarized below: Deferred Outflows of Resources Deferred Inflows of Resources Differences Between Expected and Actual Experience $ - $ 470,912 Changes of Assumptions 8,232,280 8,403,269 Net Difference Between Projected and Actual Earnings on Pension Plan Investments 1,304,810 - Contributions Subsequent to the Measurement Date* - - Total $ 9,537,090 $ 8,874,181 * Contributions subsequent to the measurement date may be recognized as a reduction to the NPL. The amount is not known as of the date of this report. Subsequent to the measurement date, the following amounts will be recognized in pension expense in the upcoming years: Year ended December, 31: 2017 $ 1,088, ,088, , (1,939,361) 2021 (422,453) Thereafter - Moline Firefighters Pension Fund Page 9

17 DEFERRED OUTFLOWS AND INFLOWS OF RESOURCES - DETAILS The table below shows the annual detail amounts that have been summarized on the prior page. Under Statement 68, the level of detail shown on the prior page is sufficient for financial statement reporting. The detail shown below is primarily for tracking purposes. 12/31/ /31/2016 Date Initial Initial Remaining Expense Deferred Pension Expense Source Established Period Balance Period Recognized Balance Asset (Gain)/Loss 12/31/ $ 361, $ 72,353 $ 289,409 Change in Assumptions (Gain)/Loss 12/31/ (10,399,296) 5.21 (1,996,027) (8,403,269) Actuarial (Gain)/Loss 12/31/ (81,712) 5.21 (15,684) (66,028) Asset (Gain)/Loss 12/31/ ,692, ,468 1,015,401 Change in Assumptions (Gain)/Loss 12/31/ ,890, ,828,963 8,232,280 Actuarial (Gain)/Loss 12/31/ (683,158) 3.91 (139,137) (404,884) Total $ 4,780,139 $ 1,088,936 $ 662,909 Each detail item in the chart above was established as of the fiscal year end shown and the full amount deferred has been determined as of that time. Any events that occur is subsequent fiscal years do not have an impact on the prior fiscal year. The bases are established independently each year. Moline Firefighters Pension Fund Page 10

18 PENSION EXPENSE DEVELOPMENT The table below displays the pension expense development for the current year. The pension expense includes items that change the Net Pension Liability from one year to the next, netted out for amounts that are deferred under GASB pronouncement, plus any amounts that are being recognized that were deferred previously. See below for development of the pension expense: 2016 Pension Expense/(Income) Under GASB 68 Service Cost $ 1,021,073 Interest 6,709,306 Plan Changes - Contributions - Employee (398,734) Contributions - Other (35,039) Expected Investment Income (1,837,136) Administrative Expense 123,650 Other Changes 15,058 Initial Pension Expense/(Income) 5,598,177 Recognition of Outflow/(Inflow) of Resources due to Liabilities 678,115 Recognition of Outflow/(Inflow) of Resources due to Assets 410,821 Total Pension Expense/(Income) $ 6,687,113 Moline Firefighters Pension Fund Page 11

19 ACTUARIAL ASSUMPTION INFORMATION Statement of Significant Actuarial Assumptions Notes on Actuarial Assumptions Development of the Discount Rate Sensitivity of the Discount Rate

20 STATEMENT OF SIGNIFICANT ACTUARIAL ASSUMPTIONS Actuarial Assumptions (Economic) Discount Rate used for the Total Pension Liability 7.00% Long-Term Expected Rate of Return on Plan Assets 7.00% High Quality 20 Year Tax-Exempt G.O. Bond Rate 3.78% Projected Individual Salary Increases 3.25% % Projected Increase in Total Payroll 3.25% Consumer Price Index (Urban) 2.00% Inflation Rate Included 2.00% Actuarial Assumptions (Demographic) Mortality Table L&A 2016 Illinois Firefighters Mortality Rates; See Details on Page 15 Retirement Rates L&A 2016 Illinois Firefighters Retirement Rates Capped at age 65 Disability Rates Termination Rates Percent Married 80.0% L&A 2016 Illinois Firefighters Disability Rates L&A 2016 Illinois Firefighters Termination Rates All rates shown in the economic assumptions are assumed to be annual rates, compounded on an annual basis. For more information on the selection of the actuarial assumptions, please see the assumption document prepared for the Fund. ASSUMPTION CHANGES The assumptions were changed from the prior year. The assumed rate on High Quality 20 Year Tax-Exempt G.O. Bonds was changed from 3.57% to 3.78% for the current year. The underlying index used is The Bond Buyer 20-Bond GO Index as discussed in more detail later in this section. The choice of index is unchanged from the prior year. The rate has Moline Firefighters Pension Fund Page 13

21 been updated to the current fiscal year end based on changes in market conditions as reflected in the Index. The change was made to reflect our understanding of the requirements of GASB under Statement 67 and Statement 68. The discount rate used in the determination of the Total Pension Liability was changed from 5.96% to 7.00%. The discount rate is impacted by a couple of metrics. Any change in the underlying High Quality 20 Year Tax Exempt G.O. Bond Rate will impact the blended discount rate. In addition, changes made that impact the projection of the Net Position of the fund. For example, changes in the formal or informal funding policy can impact the discount rate. Actual changes in the net position from one year to the next can impact the projections as well. In the current valuation, we have updated the mortality assumption to include mortality improvements as stated in the most recently released MP-2016 table. In addition, the rates are being applied on a fullygenerational basis. See page 15 for more details on the specific mortality updates made. In the current valuation, we have also updated the individual pay scale assumption and the total payroll assumption, based on review of the current collective bargaining agreement. These changes were made to better reflect the future anticipated experience in the fund. Moline Firefighters Pension Fund Page 14

22 NOTES ON ACTUARIAL ASSUMPTIONS Individual Pay Increases Individual pay increases include provisions for annual cost of living increases, plus any additional increases in pensionable pay provided (step increases, longevity increases, promotions, educations, etc). Sample rates are as follows: Demographic Assumptions Service Rate Service Rate % % % % % % % % % % % % % % % Active Mortality follows the Sex Distinct Raw Rates as Developed in the RP-2014 Study, with Blue Collar Adjustment. These Rates are Improved Generationally using MP-2016 Improvement Rates. Retiree Mortality follows the L&A Assumption Study for Firefighters These Rates are Experience Weighted with the Raw Rates as Developed in the RP-2014 Study, with Blue Collar Adjustment and Improved Generationally using MP-2016 Improvement Rates. Disabled Mortality follows the Sex Distinct Raw Rates as Developed in the RP-2014 Study for Disabled Participants, with Blue Collar Adjustment. These Rates are Improved Generationally using MP-2016 Improvement Rates. Spouse Mortality follows the Sex Distinct Raw Rates as Developed in the RP-2014 Study. These Rates are Improved Generationally using MP-2016 Improvement Rates. Other demographic assumption rates are based on a review of assumptions in the L&A 2016 study for Illinois Firefighters. Moline Firefighters Pension Fund Page 15

23 POSTEMPLOYMENT BENEFIT CHANGES Eligibility for postemployment benefit increases is determined based on the Illinois Pension code. Tier 1 Firefighter retirees are provided with an annual 3.0% increase in retirement benefits by statute when eligible. Tier 2 Firefighter retirees are provided postemployment benefit increases based on one-half of the Consumer Price Index (Utilities) for the prior September. The CPI-U for September, 1985 was The CPI-U for September, 2015 was The average increase in the CPI-U for September, 1985 through September, 2015 was 2.66% (on a compounded basis). Moline Firefighters Pension Fund Page 16

24 EXPECTED RETURN ON PENSION PLAN INVESTMENTS The long-term expected rate of return on assets is intended to represent the best estimate of future real rates of return and is shown for each of the major asset classes in the investment policy. The expected rates of return shown below have been provided by the investment professionals that work with the Pension Fund. Long-term Real Rates of Return are shown as the Expected Rate of Return, net of the assumed inflation rate. There are multiple approaches seen to providing these rates. Typically, the information is either based on capital market projections, or historical rates seen for the asset classes. We do not provide an opinion on the reasonableness of the returns provided nor the reasonableness of the approach used in the determination of the rates provided. The information provided is shown below for convenience. The rates provided in the table below are based on an arithmetic average. The Investment Policy Statement will provide more detail regarding the Fund s policies on asset allocation targets and acceptable ranges. Long-Term Expected Long-Term Long-Term Expected Asset Class Rate of Return Inflation Expectations Real Rate of Return Government Fixed Income 4.07% 2.09% 1.98% Domestic 5.39% 2.09% 3.30% International 1.51% 2.09% -0.58% Cash 1.45% 2.09% -0.64% Long-term expected real returns under GASB are expected to reflect the period of time that begins when a plan member begins to provide service to the employer and ends at the point when all benefits to the plan member have been paid. The rates provided above are intended to estimate those figures. The expected inflation rate is 2.09% and is included in the total long-term rate of return on investments. The inflation rate is from the same source as the long-term real rates of return, and is not necessarily reflective of the inflation measures used for other purposes in the report. Geometric rates of return are equal to arithmetic rates of return when the annual returns exhibit no volatility over time. When arithmetic returns are volatile on a year-to-year basis, the actual realized geometric returns over time will be lower. The higher the volatility, the greater the difference. Moline Firefighters Pension Fund Page 17

25 MUNICIPAL BOND RATE The municipal bond rate assumption is based on The Bond Buyer 20-Bond GO Index. The rate shown earlier in the Actuarial Assumption section is the December 29, 2016 rate. The 20-Bond GO Index is based on an average of certain general obligation municipal bonds maturing in 20 years and having an average rating equivalent of Moody's Aa2 and Standard & Poor's AA. The 20-Bond Index consists of 20 general obligation bonds that mature in 20 years. The average rating of the 20 bonds is roughly equivalent to Moody's Investors Service's Aa2 rating and Standard & Poor's Corp.'s AA. The indexes represent theoretical yields rather than actual price or yield quotations. Municipal bond traders are asked to estimate what a current-coupon bond for each issuer in the indexes would yield if the bond was sold at par value. The indexes are simple averages of the average estimated yields of the bonds. DISCOUNT RATE The discount rate used in the determination of the Total Pension Liability is based on a combination of the expected long-term rate of return on plan investments and the municipal bond rate. Cash flow projections were used to determine the extent which the plan s future net position will be able to cover future benefit payments. To the extent future benefit payments are covered by the plan s projected net position, the expected rate of return on plan investments is used to determine the portion of the net pension liability associated with those payments. To the extent future benefit payments are not covered by the plan s projected net position, the municipal bond rate is used to determine the portion of the net pension liability associated with those payments. Projected benefit payments are determined during the actuarial process based on the assumptions. More details on the assumptions are in the prior section. The expected contributions are based on the funding policy of the plan. The funding policy is discussed in more detail in a later section. Moline Firefighters Pension Fund Page 18

26 SENSITIVITY OF THE DISCOUNT RATE The Net Pension Liability has been determined using the discount rate listed in the assumption section. Below is a table illustrating the sensitivity of the Net Pension Liability to the discount rate assumption. 1% Current 1% Decrease Discount Increase (6.00%) Rate (7.00%) (8.00%) Employer Net Pension Liability $74,317,376 $62,949,370 $53,541,423 The sensitivity of the Net Pension Liability to the discount rate is based primarily on two factors: 1. The duration of the plan s expected benefit payments. Younger plans with benefit payments further in the future will be more sensitive to changes in the discount rate. 2. The funded percentage of the plan (ratio of the net position to the total pension liability). The higher the funded percentage, the higher the sensitivity to the discount rate. Moline Firefighters Pension Fund Page 19

27 PARTICIPANT DATA Participant Demographic Data Expected Future Working Lifetime

28 PARTICIPANT DEMOGRAPHIC DATA The chart below summarizes the employee count and payroll as of the Actuarial Valuation Date: Inactive Plan Members or Beneficiaries Currently Receiving Benefits Inactive Plan Members Entitled to But Not Yet Receiving Benefits 1 0 Active Plan Members Total Payroll of Active Plan Members $ 4,328,928 $ 4,183,410 Participant count is shown as of the Actuarial Valuation Date. Pay is the active pensionable pay as of the Actuarial Valuation Date. EXPECTED FUTURE WORKING LIFETIME The chart below summarizes the expected future working lifetime of fund members: Average Future Working Career (In Years) Active Plan Members Inactive Plan Members Total The expected future working lifetime is measured as of the Actuarial Valuation Date and is based on the demographic assumptions used in the preparation of the Actuary s report. Moline Firefighters Pension Fund Page 21

29 FUNDING POLICY Formal Funding Policy Informal Funding Policy

30 COMPONENTS OF THE ACTUARIALLY DETERMINED CONTRIBUTION The Actuarially Determined Contribution (ADC) includes the determination of the Normal Cost contribution for active plan members, as well as provision for the payment of unfunded liability. The actuarial funding method used in the determination of the normal cost and the actuarial liability is the Entry Age Normal Cost method (level percent of pay). The method allocates normal cost contributions by employee over the working career of the employee as a level percent of their pay. Unfunded liability is the excess of the actuarial liability over the actuarial value of assets. The actuarially determined contribution includes a payment towards unfunded liability existing at the actuarial valuation date. The payment towards unfunded liability is set up as a level percent of payroll payment that is expected to increase during the payment period. The period of repayment as of the Actuarial Valuation Date is 20 years. The Actuarial Value of Assets smooths gains and losses on the market value of assets over a 5-year period. Under no circumstances will the Actuarially Determined Contribution be less than the amount determined as the Statutory Minimum Contribution under Illinois statutes. FORMAL FUNDING POLICY There is no Formal Funding Policy that exists between the Pension Board and the City at this time. INFORMAL FUNDING POLICY In determining the most appropriate informal funding policy, GASB provides the following guidance in the Statement: Application of professional judgment should consider the most recent five-year contribution history of the employers and nonemployer contributing entities as a key indicator of future contributions from those sources and should reflect all other known events and conditions. the amount of projected cash flows for contributions from employers and nonemployer contributing entities should be limited to an average of contributions from those sources over the most recent five-year period and may be modified based on consideration of subsequent events. For this purpose, the basis for the average (for example, percentage of covered payroll contributed or percentage of actuarially determined contributions made) should be a matter of professional judgment. Moline Firefighters Pension Fund Page 23

31 In our review of informal funding policy, the following factors are considered and described herein: 1. The five-year contribution history of the Employer (with a focus on the average contributions from those sources) 2. All other known events and conditions 3. Consideration of subsequent events Five-Year Contribution History of the Employer Employer contributions (under the informal policy) should be limited to the average over the most recent five years. In determining the basis for the average we reviewed three possibilities: (a) the average dollar contribution; (b) the average percent of pensionable pay; and (c) the average percent of the actuarial determined contribution. Please see the table below for a summary of these values: Fiscal Most Year Employer Applicable % of Covered % of End Contributions ADC ADC Payroll Payroll 12/31/2016 $4,574,093 $4,574, % $5,193, % 12/31/2015 $3,482,362 $3,488, % $5,287, % 12/31/2014 $3,489,864 $3,479, % $5,095, % 12/31/2013 $3,657,429 $3,279, % $5,112, % 12/31/2012 $3,024,688 $3,007, % $4,989, % When compared to the other policies reviewed, history suggests that a contribution as a percent of the actuarially determined contribution is the least volatile, and as a result, the most stable contribution method under an informal funding policy. Other Known Events and Conditions GASB has a provision for consideration of any other known events or conditions in the most recent fiveyear history in applying judgement for the informal funding policy. There are no events or conditions that have been considered in the development of the informal funding policy. Consideration of Subsequent Events GASB has a provision for modification based on consideration of subsequent events in development of the informal funding policy. This report gives consideration to the fact that the current contributions are greater than 100% of the actuarially determined contribution on an Informal Funding Policy basis. We have projected the impact on the unfunded liability and limited payments towards the unfunded liability to $0 when the fund is projected to be 100% funded. The limitation on the number of years of payment Moline Firefighters Pension Fund Page 24

32 of unfunded liability may cause the projected payments to unfunded liability to cease prior to the time stated in the underlying actuarially determined contribution determination. The limitation on the number of years of payments does not impact the determination of the discount rate. Informal Funding Policy Selected The informal funding policy that has been determined for future contributions is % of the actuarially determined contribution. This represents the full future contributions expected to be made. FUNDING POLICY OTHER CONSIDERATIONS Under GASB, the future contribution amount is not intended to include dollars contributed on behalf of future employees. Contributions are only intended to cover contributions towards the Normal Cost of existing employees as of the Actuarial Valuation Date as well as payment of unfunded liability on behalf of the current existing employees. Contributions under the funding policy have been adjusted as necessary to exclude dollars that would be anticipated to be contributed on behalf of future employees hired after the actuarial valuation date. The contribution level may not pay off the unfunded liability during the active working lifetimes of current employees. In that case contributions will persist beyond the working lifetimes of current employees. To the extent a portion of the above total contribution is anticipated to pay contributions for future employee normal cost, the amount has been netted out. The remaining amount is anticipated to be paid towards the unfunded liability existing for current employees. The actuarial determined contribution is determined annually based on the parameters previously discussed. The funding methods and procedures are assumed to continue into the future. The tax levy in the next December is assumed to be the actuarially determined contribution. Funding is assumed to go into the fund during the next full fiscal year. Moline Firefighters Pension Fund Page 25

33 SCHEDULES OF REQUIRED SUPPLEMENTARY INFORMATION Schedule of Changes in the Net Pension Liability Schedule of Total Pension Liability and Related Ratios Schedule of the Actuarially Determined Contribution

34 SCHEDULE OF CHANGES IN THE NET PENSION LIABILITY Total Pension Liability Service Cost $ 1,021,073 $ 1,223,912 $ 1,331,203 Interest 6,709,306 4,868,228 5,575,009 Changes of Benefit Terms Differences Between Expected and Actual Experience (81,712) (683,158) - Changes in Assumptions (10,399,296) 13,890,206 - Benefit Payments and Refunds (5,257,128) (5,010,139) (4,622,735) Net Change In Total Pension Liability (8,007,757) 14,289,049 2,283,477 Total Pension Liability - Beginning 98,475,792 84,186,743 81,903,266 Total Pension Liability - Ending (a) $ 90,468,035 $ 98,475,792 $ 84,186,743 Plan Fiduciary Net Position Contributions - Employer $ 4,574,093 $ 3,482,362 $ 3,489,864 Contributions - Member 398, , ,277 Contributions - Other 35, Net Investment Income 1,475, ,156 1,642,081 Benefit Payments and Refunds (5,257,128) (5,010,139) (4,724,492) Administrative Expense (123,650) (86,198) (45,147) Prior Period Audit Adjustment (15,058) - 87 Net Change in Plan Fiduciary Net Position 1,087,404 (997,362) 774,670 Plan Fiduciary Net Position - Beginning 26,431,261 27,428,623 26,653,953 Plan Fiduciary Net Position - Ending (b) $ 27,518,665 $ 26,431,261 $ 27,428,623 Employer Net Pension Liability - Ending (a) - (b) $ 62,949,370 $ 72,044,531 $ 56,758,120 The current year information was developed in the completion of this report. Moline Firefighters Pension Fund Page 27

35 SCHEDULE OF TOTAL PENSION LIABILITY AND RELATED RATIO Total Pension Liability - Ending (a) $ 90,468,035 $ 98,475,792 $ 84,186,743 Plan Fiduciary Net Position - Ending (b) $ 27,518,665 $ 26,431,261 27,428,623 Employer Net Pension Liability - Ending (a) - (b) $ 62,949,370 $ 72,044,531 56,758,120 Plan Fiduciary Net Position as a Percentage of the Total Pension Liability 30.42% 26.84% 32.58% Covered-Employee Payroll $ 5,193,858 $ 5,287,016 5,095,404 Employer Net Pension Liability as a Percentage of Covered-Employee Payroll % % % Covered employee payroll shown for the current year is the total covered payroll for the fiscal year for all fund members. Moline Firefighters Pension Fund Page 28

36 SCHEDULE OF CONTRIBUTIONS Actuarially Determined Contribution $4,574,174 $3,488,751 $3,479,730 Contributions in Relation to the Actuarially Determined Contribution 4,574,093 3,482,362 3,489,864 Contribution Deficiency (excess) $ 82 $ 6,389 $ (10,134) Covered-Employee Payroll $ 5,193,858 $ 5,287,016 $ 5,095,404 Contributions as a Percentage of Covered-Employee Payroll 88.1% 65.9% 68.5% NOTES TO SCHEDULE OF CONTRIBUTIONS The actuarially determined contribution shown for the current year is from the December 31, 2014 actuary s report completed by Lauterbach & Amen, LLP for the tax levy recommendation for the December 2015 tax levy. Moline Firefighters Pension Fund Page 29

37 GASB METHODS AND PROCEDURES GASB Methods and Procedures Methodology for Deferred Outflows and Inflows

38 GASB METHODS AND PROCEDURES Statement 67 Statement 68 Pension Fund Financials Employer Financials Fiscal Year End for Reporting December 31, 2016 December 31, 2016 Measurement Date December 31, 2016 December 31, 2016 Actuarial Valuation Date January 1, 2017 January 1, 2017 Actuarial Valuation - Data Date December 31, 2016 December 31, 2016 Asset Valuation Method Market Value Market Value Actuarial Cost Method Entry Age Normal (Level %) Entry Age Normal (Level %) Methodology Used in the Determination of Deferred Inflows and Outflows of Resources Amortization Method Straight Line Straight Line Amortization Period Actuarial Experience (TPL) 5.21 Years 5.21 Years Changes in Assumptions 5.21 Years 5.21 Years Asset Experience 5.00 Years 5.00 Years Moline Firefighters Pension Fund Page 31

39 SUPPLEMENTARY TABLES Projection of Contributions Projection of the Pension Fund s Fiduciary Net Position Actuarial Present Value of Projected Benefit Payments

40 GASB PROJECTIONS SUMMARY AND PROCEDURE GASB requires a solvency test to use in the determination of the discount rate each year. The Fiduciary Net Position of the fund is projected forward. To the extent the Net Position of the Fund is anticipated to be greater than $0, benefit payments during that time period are discounted based on the expected rate of return on plan assets. If the Fiduciary Net Position of the fund is anticipated to go to $0 prior to the payment of future benefit payments for employees who are in the fund as of the Actuarial Valuation Date, then remaining expected future benefit payments are discounted using a high quality Municipal Bond rate as described in the assumption section of the report. Below is a chart with a high level summary of the projections: The plan s projected net position is expected to cover future benefit payments in full for the current employees. Moline Firefighters Pension Fund Page 33

41 GASB PROJECTIONS LIMITATIONS Projections of any type require assumptions about future events. The projections required for GASB reporting are deterministic in nature. That means that values are projected forward under one set of assumptions which can be thought of as the average result. Actual results could vary, and projections of one deterministic assumption set do not necessarily provide a framework for making risk management or funding policy decisions. Projections that deal with risk management are outside the scope of this report. In addition, GASB requirements create results that are specific only to financial statement reporting, and should not be used or interpreted for other purposes. For example, GASB cash flow projections do not entail the total expected cash flows of the pension fund, but rather a subset of cash flows specific to members who are in the pension fund as of the Actuarial Valuation date. While the likely expectation may be that new employees are hired to replace the old, cash flows attributable to their benefits are not considered. Under GASB, when the Net Position goes to $0, that represents only the Net Position for the assets attributable to the current fund members. GASB also mandates certain assumptions that are made in the projection process. Most notably, future contributions under an informal funding policy. In proposing an informal funding policy, GASB suggests a focus be placed on the average contribution rate over the past 5 years. Assumed contributions noted in this section may be based on the five year average, unless a formal funding policy is in place. Contributions reflecting informal funding policy are applied under GASB, whether or not the future results dictate a need for more or less contributions. This would not be the case with other uses for projections. Any events that are taken into account (past or future) in the informal funding policy are discussed in the Funding Policy section of this report. The further you look forward with projections, the more sensitive the results are to assumptions. With projections that run out close to 80 years, a small change in an assumption will have a dramatic impact in the look of the projections on the following pages. If there is no change to the solvency of the fund as determined by GASB, big swings in the projection results may not necessarily lead to big swings in the determination of the Total Pension Liability. We recommend the projections are not used for any other purposes, other than providing backup information for purposes of the financial statement report. The following pages provide the detail behind the charts shown on the chart in this section. Moline Firefighters Pension Fund Page 34

42 PROJECTION OF CONTRIBUTIONS YEARS 1 TO 30 Projected Covered-Employee Payroll Projected Contributions Employer Contributions Total Contributions Related to Pay Current Future Employee Current for Current of Future Total Employees Employees Payroll Employees Employees Employees Contributions Year (a) (b) (c) = (a) + (b) (d) - Notes (e) - Notes (f) - Notes (d) + (e) + (f) 1 $ 4,328,930 $ - $ 4,328,930 $ 409,300 $ 5,009,914 $ - $ 5,419, ,322, ,328 4,469, ,673 5,325,673-5,734, ,256, ,573 4,614, ,434 5,475,957-5,878, ,184, ,815 4,764, ,602 5,623,117-6,018, ,116, ,594 4,919, ,180 5,774,153-6,163, ,050,402 1,029,214 5,079, ,966 5,931,242-6,314, ,963,122 1,281,581 5,244, ,713 6,094,238-6,468, ,889,632 1,525,524 5,415, ,765 6,258,096-6,625, ,791,953 1,799,196 5,591, ,529 6,431,820-6,790, ,661,542 2,111,319 5,772, ,199 6,606,660-6,952, ,541,750 2,418,729 5,960, ,872 6,779,967-7,114, ,393,199 2,760,996 6,154, ,827 6,961,293-7,282, ,260,621 3,093,585 6,354, ,292 7,143,119-7,451, ,102,896 3,457,822 6,560, ,379 7,331,639-7,625, ,970,254 3,803,687 6,773, ,838 7,521,841-7,802, ,822,454 4,171,640 6,994, ,863 7,722,800-7,989, ,662,897 4,558,505 7,221, ,777 7,928,396-8,180, ,483,766 4,972,332 7,456, ,840 8,139,651-8,374, ,342,861 5,355,560 7,698, ,518 8,355,511-8,577, ,205,904 5,742,716 7,948, ,568 8,587,835-8,796, ,030,499 6,176,451 8,206, ,984 2,157,829-2,349, ,875,311 6,598,365 8,473, , , , ,725,448 7,023,622 8,749, , , , ,583,431 7,449,984 9,033, , , , ,449,895 7,877,106 9,327, , , , ,306,746 8,323,382 9,630, , , , ,188,256 8,754,851 9,943, , , , ,068,516 9,197,742 10,266, , , , ,461 9,691,451 10,599,912 85, , , ,533 10,167,876 10,944,409 73,421 81, ,547 Column d Contributions from employees to the pension fund (employees as of the valuation date) Column e Employer contributions to the fund excluding contributions for employees hired after the actuarial valuation date Column f Contributions from future employees to the extent they are anticipated to be greater than required to pay their total normal cost Moline Firefighters Pension Fund Page 35

43 PROJECTION OF CONTRIBUTIONS YEARS 31 TO 60 Projected Covered-Employee Payroll Projected Contributions Employer Contributions Total Contributions Related to Pay Current Future Employee Current for Current of Future Total Employees Employees Payroll Employees Employees Employees Contributions Year (a) (b) (c) = (a) + (b) (d) - Notes (e) - Notes (f) - Notes (d) + (e) + (f) 31 $ 639,796 $ 10,660,306 $ 11,300,102 $ 60,493 $ 65,070 $ - $ 125, ,999 11,156,357 11,667,356 48,315 49,877-98, ,302 11,625,243 12,046,545 39,834 35,319-75, ,138 12,100,919 12,438,057 31,876 25,176-57, ,337 12,588,957 12,842,294 23,953 18,140-42, ,305 13,071,364 13,259,669 17,804 12,513-30, ,019 13,551,589 13,690,608 13,144 8,417-21, ,502 14,048,051 14,135,553 8,273 5,153-13, ,076 14,527,882 14,594,958 6,342 1,811-8, ,663 15,033,631 15,069,294 3,372 1,295-4, ,957 15,533,089 15,559,046 2, , ,856 16,045,859 16,064,715 1, , ,796 16,579,023 16,586, ,125,890 17,125, ,682,482 17,682, ,257,162 18,257, ,850,520 18,850, ,463,162 19,463, ,095,715 20,095, ,748,826 20,748, ,423,162 21,423, ,119,415 22,119, ,838,296 22,838, ,580,541 23,580, ,346,908 24,346, ,138,183 25,138, ,955,174 25,955, ,798,717 26,798, ,669,675 27,669, ,568,940 28,568, Column d Contributions from employees to the pension fund (employees as of the valuation date) Column e Employer contributions to the fund excluding contributions for employees hired after the actuarial valuation date Column f Contributions from future employees to the extent they are anticipated to be greater than required to pay their total normal cost Moline Firefighters Pension Fund Page 36

44 PROJECTION OF CONTRIBUTIONS YEARS 61 TO 80 Projected Covered-Employee Payroll Projected Contributions Employer Contributions Total Contributions Related to Pay Current Future Employee Current for Current of Future Total Employees Employees Payroll Employees Employees Employees Contributions Year (a) (b) (c) = (a) + (b) (d) - Notes (e) - Notes (f) - Notes (d) + (e) + (f) 61 $ - $ 29,497,430 $ 29,497,430 $ - $ - $ - $ ,456,097 30,456, ,445,920 31,445, ,467,912 32,467, ,523,119 33,523, ,612,621 34,612, ,737,531 35,737, ,899,001 36,899, ,098,218 38,098, ,336,410 39,336, ,614,844 40,614, ,934,826 41,934, ,297,708 43,297, ,704,883 44,704, ,157,792 46,157, ,657,920 47,657, ,206,803 49,206, ,806,024 50,806, ,457,220 52,457, ,162,079 54,162, NOTES TO PROJECTION OF CONTRIBUTIONS Total payroll is assumed to increase annually at the assumed payroll increase rate shown in the assumption section of this report. Payroll for current employees (employees active as of the actuarial valuation date) has been projected on an employee by employee basis, using expected pay increases and probability of remaining in active employment for future periods. Employer contributions are related to current employees in the fund as of the Actuarial Valuation Date. To the extent future contributions under the Employer funding policy are made to cover the Normal Cost of providing benefits for future employees, those contributions have been excluded out for purposes of these projections and this report. Contributions are based on the Funding Policy described in an earlier section of this report. The contributions do not factor in changes in funding policy based on an assumed Employer decision if the projections were to play out in this fashion. The only future events that have been considered were outlined in the funding policy section of the report. Contributions from future employees have not been included. It is assumed that contributions made by future employees will not exceed the Normal Cost of their participation in the Fund. In addition, contributions by the employer on behalf of service for future employees have not been included per the GASB parameters. Moline Firefighters Pension Fund Page 37

45 PROJECTION OF THE PENSION PLAN S FIDUCIARY NET POSITION YEARS 1 TO 30 Projected Projected Beginning Projected Projected Projected Projected Ending Fiduciary Net Total Benefit Administrative Investment Fiduciary Net Year Position Contributions Payments Expenses Earnings Position (a) (b) (c) (d) (e) (a)+(b)-(c)-(d)+(e) 1 $ 27,518,665 $ 5,419,214 $ 5,394,543 $ 65,017 $ 1,841,439 $ 29,319, ,319,758 5,734,345 5,555,956 66,643 1,967,985 31,399, ,399,490 5,878,391 5,731,572 68,309 2,110,185 33,588, ,588,185 6,018,719 5,904,838 70,016 2,260,020 35,892, ,892,070 6,163,333 6,072,665 71,767 2,418,191 38,329, ,329,162 6,314,207 6,249,224 73,561 2,585,502 40,906, ,906,086 6,468,952 6,422,497 75,400 2,762,791 43,639, ,639,932 6,625,861 6,594,713 77,285 2,951,142 46,544, ,544,937 6,790,349 6,777,468 79,217 3,151,252 49,629, ,629,853 6,952,859 6,941,281 81,198 3,364,579 52,924, ,924,812 7,114,839 7,131,818 83,228 3,591,661 56,416, ,416,266 7,282,120 7,286,532 85,308 3,833,854 60,160, ,160,400 7,451,410 7,450,215 87,441 4,093,458 64,167, ,167,612 7,625,018 7,583,690 89,627 4,372,617 68,491, ,491,930 7,802,679 7,722,069 91,868 4,673,880 73,154, ,154,551 7,989,663 7,866,905 94,164 4,998,779 78,181, ,181,924 8,180,173 8,014,472 96,519 5,349,181 83,600, ,600,287 8,374,492 8,123,403 98,931 5,728,378 89,480, ,480,823 8,577,028 8,246, ,405 6,139,585 95,849, ,849,378 8,796,403 8,363, ,940 6,585, ,763, ,763,336 2,349,812 8,459, ,538 6,939, ,487, ,487, ,280 8,524, ,202 6,950, ,242, ,242, ,873 8,566, ,932 6,860, ,820, ,820, ,891 8,599, ,730 6,759,439 99,222, ,222, ,530 8,622, ,598 6,645,936 97,447, ,447, ,433 8,608, ,538 6,521,327 95,522, ,522, ,866 8,581, ,552 6,386,733 93,451, ,451, ,124 8,557, ,641 6,241,972 91,228, ,228, ,733 8,493, ,807 6,087,893 88,881, ,881, ,547 8,425, ,052 5,925,198 86,403,040 Column b Contributions on behalf of current employees only as of the Actuarial Valuation Date. Column d Based on average administrative expenses in recent years and projected to increase going forward. Column e Based on the current expected return on assets. Does not factor in allocation changes. Moline Firefighters Pension Fund Page 38

46 PROJECTION OF THE PENSION PLAN S FIDUCIARY NET POSITION YEARS 31 TO 60 Projected Projected Beginning Projected Projected Projected Projected Ending Fiduciary Net Total Benefit Administrative Investment Fiduciary Net Year Position Contributions Payments Expenses Earnings Position (a) (b) (c) (d) (e) (a)+(b)-(c)-(d)+(e) 31 $ 86,403,040 $ 125,563 $ 8,342,009 $ 136,378 $ 5,753,930 $ 83,804, ,804,146 98,192 8,210, ,788 5,575,950 81,127, ,127,855 75,153 8,077, ,282 5,392,707 78,375, ,375,254 57,052 7,918, ,864 5,205,099 75,572, ,572,057 42,093 7,750, ,536 5,014,334 72,727, ,727,494 30,317 7,554, ,299 4,821,722 69,871, ,871,064 21,561 7,355, ,157 4,628,427 67,007, ,007,623 13,426 7,138, ,111 4,435,261 64,155, ,155,283 8,153 6,929, ,163 4,242,675 61,310, ,310,272 4,667 6,697, ,318 4,051,444 58,498, ,498,757 2,391 6,463, ,576 3,862,632 55,725, ,725,846 1,737 6,233, ,940 3,676,411 52,991, ,991, ,002, ,413 3,492,923 50,299, ,299,405-5,766, ,999 3,312,543 47,657, ,657,215-5,531, ,699 3,135,653 45,068, ,068,531-5,296, ,516 2,962,491 42,536, ,536,566-5,062, ,454 2,793,289 40,064, ,064,969-4,827, ,515 2,628,312 37,657, ,657,971-4,592, ,703 2,467,860 35,320, ,320,171-4,357, ,021 2,312,253 33,056, ,056,450-4,122, ,471 2,161,829 30,871, ,871,920-3,887, ,058 2,016,937 28,771, ,771,801-3,653, ,785 1,877,933 26,761, ,761,365-3,420, ,654 1,745,166 24,845, ,845,699-3,188, ,671 1,618,976 23,029, ,029,741-2,958, ,837 1,499,681 21,317, ,317,967-2,732, ,158 1,387,556 19,714, ,714,041-2,510, ,637 1,282,827 18,220, ,220,972-2,293, ,278 1,185,661 16,840, ,840,706-2,083, ,085 1,096,150 15,574,006 Column b Contributions on behalf of current employees only as of the Actuarial Valuation Date. Column d Based on average administrative expenses in recent years and projected to increase going forward. Column e Based on the current expected return on assets. Does not factor in allocation changes. Moline Firefighters Pension Fund Page 39

47 PROJECTION OF THE PENSION PLAN S FIDUCIARY NET POSITION YEARS 61 TO 80 Projected Projected Beginning Projected Projected Projected Projected Ending Fiduciary Net Total Benefit Administrative Investment Fiduciary Net Year Position Contributions Payments Expenses Earnings Position (a) (b) (c) (d) (e) (a)+(b)-(c)-(d)+(e) 61 $ 15,574,006 $ - $ 1,881,940 $ 286,062 $ 1,014,300 $ 14,420, ,420,304-1,689, , ,026 13,377, ,377,604-1,507, , ,167 12,443, ,443,190-1,335, , ,508 11,613, ,613,403-1,174, , ,763 10,883, ,883,449-1,026, , ,589 10,247, ,247, , , ,601 9,700, ,700, , , ,373 9,235, ,235, , , ,450 8,845, ,845, , , ,361 8,523, ,523, , , ,615 8,261, ,261, , , ,716 8,053, ,053, , , ,173 7,890, ,890, , , ,506 7,767, ,767, , , ,257 7,676, ,676, , , ,997 7,611, ,611, , , ,326 7,567, ,567, , , ,882 7,539, ,539,565-80, , ,331 7,522, ,522,084-61, , ,376 7,511,310 NOTES TO PROJECTION OF FIDUCIARY NET POSITION Total contributions are Employee and Employer contributions anticipated to be made under the funding policy on behalf of employees in the fund as of the Actuarial Valuation Date. The amounts shown were detailed earlier in this section. Projected benefit payments shown represent only employees active as of the Actuarial Valuation Date. The fund will also be paying benefit payments in the future on behalf of employees hired after the Actuarial Valuation Date, but those have not been estimated for this purpose. Projected investment earnings are based on the current expected rate of return on plan assets. Administrative expenses are not typically charged on a per employee basis. Administrative expenses shown have not been adjusted to distinguish between current employees and future employees. The projected Net Position represents assets held or projected to be held on behalf of current employees as of the Actuarial Valuation Date. The fund will also hold assets in the future on behalf of new employees that are not shown here. Moline Firefighters Pension Fund Page 40

48 ACTUARIAL PRESENT VALUES OF PROJECTED BENEFIT PAYMENTS YEARS 1 TO 30 Projected Benefit Payments Present Value (PV) of Projected Benefit Payments PV of "Funded" PV of "Unfunded" PV of Total Projected "Funded" "Unfunded" Portion of Portion of Projected Payments Beginning Projected Portion of Portion of Benefit Benefit Using the Single Fiduciary Net Benefit Benefit Benefit Payments Payments Discount Rate Year Position Payments Payments Payments (7.00%) (3.78%) (7.00%) 1 $ 27,518,665 $ 5,394,543 $ 5,394,543 $ - $ 5,215,102 $ - $ 5,215, ,319,758 5,555,956 5,555,956-5,019,762-5,019, ,399,490 5,731,572 5,731,572-4,839,654-4,839, ,588,185 5,904,838 5,904,838-4,659,773-4,659, ,892,070 6,072,665 6,072,665-4,478,704-4,478, ,329,162 6,249,224 6,249,224-4,307,401-4,307, ,906,086 6,422,497 6,422,497-4,137,227-4,137, ,639,932 6,594,713 6,594,713-3,970,247-3,970, ,544,937 6,777,468 6,777,468-3,813,339-3,813, ,629,853 6,941,281 6,941,281-3,650,007-3,650, ,924,812 7,131,818 7,131,818-3,504,859-3,504, ,416,266 7,286,532 7,286,532-3,346,628-3,346, ,160,400 7,450,215 7,450,215-3,197,949-3,197, ,167,612 7,583,690 7,583,690-3,042,283-3,042, ,491,930 7,722,069 7,722,069-2,895,136-2,895, ,154,551 7,866,905 7,866,905-2,756,483-2,756, ,181,924 8,014,472 8,014,472-2,624,476-2,624, ,600,287 8,123,403 8,123,403-2,486,119-2,486, ,480,823 8,246,654 8,246,654-2,358,728-2,358, ,849,378 8,363,994 8,363,994-2,235,785-2,235, ,763,336 8,459,074 8,459,074-2,113,272-2,113, ,487,229 8,524,694 8,524,694-1,990,341-1,990, ,242,123 8,566,669 8,566,669-1,869,291-1,869, ,820,352 8,599,004 8,599,004-1,753,595-1,753, ,222,948 8,622,801 8,622,801-1,643,410-1,643, ,447,014 8,608,026 8,608,026-1,533,265-1,533, ,522,209 8,581,589 8,581,589-1,428,557-1,428, ,451,667 8,557,348 8,557,348-1,331,329-1,331, ,228,774 8,493,067 8,493,067-1,234,886-1,234, ,881,527 8,425,180 8,425,180-1,144,874-1,144,874 The projected Fiduciary Net Position and the Projected Benefit Payments are based only on the current employee group as of the Actuarial Valuation Date. The development of the Projected Fiduciary Net Position was shown in more detail earlier in this section. Moline Firefighters Pension Fund Page 41

49 ACTUARIAL PRESENT VALUES OF PROJECTED BENEFIT PAYMENTS YEARS 31 TO 60 Projected Benefit Payments Present Value (PV) of Projected Benefit Payments PV of "Funded" PV of "Unfunded" PV of Total Projected "Funded" "Unfunded" Portion of Portion of Projected Payments Beginning Projected Portion of Portion of Benefit Benefit Using the Single Fiduciary Net Benefit Benefit Benefit Payments Payments Discount Rate Year Position Payments Payments Payments (7.00%) (3.78%) (7.00%) 31 $ 86,403,040 $ 8,342,009 $ 8,342,009 $ - $ 1,059,413 $ - $ 1,059, ,804,146 8,210,645 8,210, , , ,127,855 8,077,179 8,077, , , ,375,254 7,918,483 7,918, , , ,572,057 7,750,455 7,750, , , ,727,494 7,554,170 7,554, , , ,871,064 7,355,273 7,355, , , ,007,623 7,138,916 7,138, , , ,155,283 6,929,676 6,929, , , ,310,272 6,697,308 6,697, , , ,498,757 6,463,359 6,463, , , ,725,846 6,233,421 6,233, , , ,991,632 6,002,441 6,002, , , ,299,405 5,766,690 5,766, , , ,657,215 5,531,638 5,531, , , ,068,531 5,296,940 5,296, , , ,536,566 5,062,432 5,062, , , ,064,969 4,827,794 4,827, , , ,657,971 4,592,957 4,592, , , ,320,171 4,357,953 4,357, , , ,056,450 4,122,887 4,122, , , ,871,920 3,887,999 3,887, , , ,771,801 3,653,584 3,653, , , ,761,365 3,420,178 3,420,178-91,626-91, ,845,699 3,188,264 3,188,264-79,825-79, ,029,741 2,958,617 2,958,617-69,229-69, ,317,967 2,732,324 2,732,324-59,751-59, ,714,041 2,510,258 2,510,258-51,304-51, ,220,972 2,293,648 2,293,648-43,810-43, ,840,706 2,083,765 2,083,765-37,198-37,198 The projected Fiduciary Net Position and the Projected Benefit Payments are based only on the current employee group as of the Actuarial Valuation Date. The development of the Projected Fiduciary Net Position was shown in more detail earlier in this section. Moline Firefighters Pension Fund Page 42

50 ACTUARIAL PRESENT VALUES OF PROJECTED BENEFIT PAYMENTS YEARS 61 TO 80 Projected Benefit Payments Present Value (PV) of Projected Benefit Payments PV of "Funded" PV of "Unfunded" PV of Total Projected "Funded" "Unfunded" Portion of Portion of Projected Payments Beginning Projected Portion of Portion of Benefit Benefit Using the Single Fiduciary Net Benefit Benefit Benefit Payments Payments Discount Rate Year Position Payments Payments Payments (7.00%) (3.78%) (7.00%) 61 $ 15,574,006 $ 1,881,940 $ 1,881,940 $ - $ 31,397 $ - $ 31, ,420,304 1,689,512 1,689,512-26,343-26, ,377,604 1,507,037 1,507,037-21,960-21, ,443,190 1,335,237 1,335,237-18,184-18, ,613,403 1,174,958 1,174,958-14,954-14, ,883,449 1,026,418 1,026,418-12,209-12, ,247, , ,869-9,892-9, ,700, , ,485-7,953-7, ,235, , ,057-6,341-6, ,845, , ,323-5,012-5, ,523, , ,127-3,928-3, ,261, , ,844-3,050-3, ,053, , ,898-2,347-2, ,890, , ,586-1,790-1, ,767, , ,997-1,352-1, ,676, , ,310-1,012-1, ,611, , , ,567, , , ,539,565 80,653 80, ,522,084 61,836 61, NOTES TO THE ACTUARIAL PRESENT VALUE OF PROJECTED BENEFIT PAYMENTS The projected Fiduciary Net Position and the Projected Benefit Payments are based only on the current employee group as of the Actuarial Valuation Date. The development of the Net Position was shown in more detail earlier in this section. The Funded and Unfunded portion of the Benefit Payments is split based on the time that the Fiduciary Net Position is projected to go to $0 (based on assets for current fund members). The Present Value of the Funded portion and Unfunded portion of the benefit payments has been determined separately. The PV of the funded portion of the benefit payments uses the assumption for the expected rate of return on plan assets. The PV of the unfunded portion of the benefit payments has been determined using the high quality Municipal Bond Rate as of the Measurement Date as described in the Actuarial Assumption section of the report. The discount rate used for GASB purposes is the rate that is when applied to the total Projected Benefit payments results in a present value that equals the sum of the present value of the funded and unfunded payments. The discount rate has been rounded to four decimal places. Therefore, the resulting present value comparisons might show a slight difference due to rounding. Moline Firefighters Pension Fund Page 43

51 Lauterbach & Amen, LLP 27W457 Warrenville Road Warrenville, IL Actuarial Valuation as of January 1, 2017 MOLINE FIREFIGHTERS PENSION FUND Utilizing Data as of December 31, 2016 For the Contribution Year January 1, 2017 to December 31, 2017 LAUTERBACH & AMEN, LLP

52 Actuarial Valuation Funding Recommendation MOLINE FIREFIGHTERS PENSION FUND Submitted by: Contribution Year Ending: December 31, 2017 Actuarial Valuation Date: January 1, 2017 Utilizing Data as of December 31, 2016 Lauterbach & Amen, LLP Phone Contact: Todd A. Schroeder April 6, 2017 LAUTERBACH & AMEN, LLP

53 TABLE OF CONTENTS ACTUARIAL CERTIFICATION... 1 MANAGEMENT SUMMARY... 2 Contribution Recommendation... 3 Funded Status... 3 Management Summary Comments and Analysis... 4 Actuarial Contribution Recommendation - Reconciliation... 8 VALUATION OF FUND ASSETS... 9 Market Value of Assets Market Value of Assets (Gain)/Loss Development of the Actuarial Value of Assets (Gain)/Loss on the Actuarial Value of Assets Historical Asset Performance RECOMMENDED CONTRIBUTION DETAIL Actuarial Accrued Liability Funded Status Development of the Employer Normal Cost Normal Cost as a Percentage of Expected Payroll Contribution Recommendation Actuarial Methods Recommended Contribution ILLINOIS STATUTORY MINIMUM CONTRIBUTION Statutory Minimum Contribution Funded Status Statutory Minimum Actuarial Methods Illinois Statutory Minimum Contribution ACTUARIAL VALUATION DATA Active Employees Inactive Employees Summary Of Benefit Payments ACTUARIAL FUNDING POLICIES Actuarial Cost Method Financing Unfunded Actuarial Accrued Liability Actuarial Value of Assets ACTUARIAL ASSUMPTIONS Nature of Actuarial Calculations Actuarial Assumptions in the Valuation Process Actuarial Assumptions Utilized SUMMARY OF PRINCIPAL PLAN PROVISIONS Establishment of the Fund Moline Firefighters Pension Fund Table of Contents

54 TABLE OF CONTENTS Administration Employee Contributions Normal Retirement Pension Benefit Normal Retirement Pension Benefit - Continued Early Retirement Pension Benefit Pension to Survivors Termination Benefit Disability Benefit GLOSSARY OF TERMS Glossary of Terms Moline Firefighters Pension Fund Table of Contents

55 ACTUARIAL CERTIFICATION This report documents the results of the actuarial valuation of the Moline Firefighters Pension Fund. The purpose is to report the actuarial contribution requirement for the contribution year January 1, 2017 to December 31, Determinations for purposes other than meeting the employer s actuarial contribution requirements may be significantly different from the results herein. The results in this report are based on information and data submitted by the Moline Firefighters Pension Fund including studies performed by prior actuaries. We did not prepare the actuarial valuations for the years prior to January 1, Those valuations were prepared by other actuaries whose reports have been furnished to us, and our disclosures are based upon those reports. An audit of the information was not performed, but high-level reviews were performed for general reasonableness, as appropriate, based on the purpose of the valuation. The accuracy of the results is dependent upon the accuracy and completeness of the underlying information. The results of the actuarial valuation and these supplemental disclosures rely on the information provided. The valuation results summarized in this report involve actuarial calculations that require assumptions about future events. The Moline Firefighters Pension Fund selected certain assumptions, while others were the result of guidance and/or judgment. We believe that the assumptions used in this valuation are reasonable and appropriate for the purposes for which they have been used. To the best of our knowledge, all calculations are in accordance with the applicable funding requirements, and the procedures followed and presentation of results conform to generally accepted actuarial principles and practices. The undersigned of Lauterbach & Amen, LLP, with actuarial credentials, meets the Qualification Standards of the American Academy of Actuaries to render this Actuarial Opinion. There is no relationship between the Moline Firefighters Pension Fund and Lauterbach & Amen, LLP that impairs our objectivity. The information contained in this report was prepared for the use of the Moline Firefighters Pension Fund and the City of Moline, Illinois in connection with our actuarial valuation. It is not intended or necessarily suitable for other purposes. It is intended to be used in its entirety to avoid misrepresentations. Respectfully Submitted, LAUTERBACH & AMEN, LLP Todd A. Schroeder, EA Moline Firefighters Pension Fund Page 1

56 MANAGEMENT SUMMARY Contribution Recommendation Funded Status Management Summary

57 MANAGEMENT SUMMARY CONTRIBUTION RECOMMENDATION Prior Valuation Current Valuation Contribution Requirement $4,890,673 $5,169,813 Expected Payroll $4,256,620 $4,399,273 Contribution Requirement as a Percent of Expected Payroll % % FUNDED STATUS Prior Valuation Current Valuation Normal Cost $923,098 $1,021,073 Market Value of Assets $26,431,261 $27,518,665 Actuarial Value of Assets $28,287,484 $28,954,910 Actuarial Accrued Liability $87,178,963 $90,468,035 Unfunded Actuarial Accrued Liability $58,891,479 $61,513,125 Percent Funded Actuarial Value of Assets 32.45% 32.01% Recommended Contribution has Increased $279,140 from Prior Year. Funded Percentage has Decreased 0.44 on an Actuarial Value of Assets Basis. Market Value of Assets 30.32% 30.42% Moline Firefighters Pension Fund Page 3

58 MANAGEMENT SUMMARY MANAGEMENT SUMMARY COMMENTS AND ANALYSIS Contribution Results The contribution recommendation is based on the funding policies and procedures that are outlined in the Actuarial Funding Policies section of this report. The State of Illinois statutes for pension funds contain parameters that should be used to determine the minimum amount of contribution to a public pension fund. Those parameters and the resulting minimum contribution can be found in the Illinois Statutory Minimum Contribution section of this report. Defined Benefit Plan Risks Asset Growth Pension funding involves preparing plan assets to pay benefits for the members when they retire. During their working careers, assets need to build with contributions and investment earnings, and then the pension fund distributes assets during retirement. Based on the fund s current mix of employees and funded status, the fund should be experiencing positive asset growth on average if requested contributions are made and expected investment earnings come in. In the current year, the fund asset growth was positive by approximately $1.1 million dollars. Asset growth is important long-term. Long-term cash flow out of the pension fund is primarily benefit payments. Expenses make up a smaller portion. The fund should monitor the impact of expected benefit payments and the impact on asset growth in the future. In the next 5 years, benefits payments are anticipated to increase 15-20%, or approximately $992,000. In the next 10 years, the expected increase in benefit payments is 35-40%, or approximately $1.9 million dollars. Unfunded Liability: Unfunded liability represents dollars we expect to be in the pension fund already for the fund members based on funding policy. To the extent dollars are not in the pension fund the fund is losing investment returns on those dollars going forward. Payments to unfunded liability pay for the lost investment earnings, as well as the outstanding unfunded amount. If payment is not made, the unfunded liability will grow. In the early 1990s, many pension funds in Illinois adopted an increasing payment to handle unfunded liability due to a change in legislation. The initial payments decreased, and payments were anticipated to increase annually after that. In many situations, payments early on may be less than the interest on unfunded liability, which means unfunded liability is expected to increase even if contributions are at the recommended level. Moline Firefighters Pension Fund Page 4

59 MANAGEMENT SUMMARY The current contribution recommendation includes a payment to unfunded liability that is approximately $216,000 more than interest on the unfunded liability. All else being equal and contributions being made, unfunded liability would still be expected to decrease. The employer and the fund should anticipate currently that improvement in the funded percent will be mitigated in the short-term. The employer and the fund should understand this impact as we progress forward to manage expectations. Actuarial Value of Assets: The pension fund smooths asset returns that vary from expectations over a five-year period. The intention over time is that asset returns for purposes of funding recommendations are a combination of several years. The impact is intended to smooth out the volatility of contribution recommendations over time, but not necessarily increase or decrease the level of contributions over the long-term. When asset returns are smoothed, there are always gains or losses on the Market Value of Assets that are going to be deferred for current funding purposes, and recognized in future years. Currently, the pension fund is deferring approximately $1.4 million dollars in losses on the Market Value of Assets. These are asset losses that will be recognized in upcoming periods, independent of the future performance of the Market Value of Assets. Plan Assets The results in this report are based on the assets held in the pension fund. Assets consist of funds held for investment and for benefit payments as of the valuation date. In addition, assets may be adjusted for other events representing dollars that are reasonably expected to be paid out from the pension fund or deposited into the pension fund after the actuarial valuation date as well. The current fund assets are unaudited. As of the date of this report, the audit of the fund assets is not complete, not available, or has not been provided. The current fund assets are based on the year-end financials as prepared by the pension fund accountant. The year-end financials represent a full accrual version of the fiduciary fund as of the end of the fiscal year, prepared in preparation for the audit. The changes to the fund cash balance as of the fiscal year-end are non-cash items that can include accrued interest, due/unpaid expenses, prepaids and other adjustments. The Plan Assets Used in this Report are Unaudited. The actuarial value of assets under the funding policy is equal to the fair market value of assets, with unexpected gains and losses smoothed over 5 years. More detail on the Actuarial Value of Assets can be found in the funding policy section of the report. Moline Firefighters Pension Fund Page 5

60 MANAGEMENT SUMMARY Demographic Data Demographic factors can change from year to year within a pension fund. Changes in this category include hiring new employees, employees retiring or becoming disabled, retirees passing away, and other changes. Demographic changes can cause an actuarial gain (contribution that is less than expected compared to the prior year) or an actuarial loss (contribution that is greater than expected compared to the prior year). Demographic gains and losses occur when the assumptions over the one-year period for employee changes do not meet our long-term expectation. For example, if no employees become disabled during the year, we would expect a liability gain. If more employees become disabled than anticipated last year, we would expect a liability loss. Generally, we expect short-term fluctuations in demographic experience to create 1%-3% gains or losses in any given year, but to balance out in the long-term. In the current report, the key demographic changes were as follows: New hires: The fund added 6 new active members in the current year through hiring. When a new member is admitted to the pension fund, the employer contribution will increase to reflect the new member. The increase in the recommended contribution in the current year for new fund members is approximately $37,000. Disability: There was 1 member of the fund who became disabled during the year. When a member becomes disabled, the fund will often experience a decrease in normal cost, but an increase in unfunded liability. The increase in the recommended contribution in the current year for the new disability was approximately $100. Retirement: There were 2 members of the fund who retired during the year. When a fund member retires, the normal cost will decrease. Any change in the actuarial liability will be considered when determining the amount to pay towards unfunded liability each year. The increase in the recommended contribution in the current year due to the retirement experience is approximately $2,300. Deferred Annuitants: There was 1 vested member of the fund who terminated employment during the year. The fund may be obligated to pay a benefit to the member in the future. The decrease in the recommended contribution in the current year due to the termination experience is approximately $14,000. Mortality: There was 1 retiree and 2 surviving spouses who passed away during the year. When a beneficiary passes away, the fund liability will decrease as the pension fund no longer will make future payments to the beneficiary. If there is an eligible surviving spouse, the fund liability will increase to represent the value of the expected payments that will be made to the spouse. The decrease in the recommended contribution in the current year due to the passing of the retiree is approximately $19,000. Moline Firefighters Pension Fund Page 6

61 MANAGEMENT SUMMARY Salary Increases: Salary increases were more than anticipated in the current year. Most active members received an increase of 4.50% or greater. This caused an increase in the recommended contribution in the current year of approximately $6,000. Assumption Changes In the current valuation, we have updated the mortality assumption to include mortality improvements as stated in the most recently released MP-2016 table. In addition, the rates are being applied on a fullygenerational basis. See page 29 for more details on the specific mortality updates made. In the current valuation, we have also updated the individual pay scale assumption and the total payroll assumption, based on review of the current collective bargaining agreement. These changes were made to better reflect the future anticipated experience in the fund. See the table on the following page for the impact of these changes on the current valuation. Funding Policy Changes The funding policy was changed from the prior year. The funding target was changed from 90% over the remaining 24 future years to 100% over the remaining 20 future years. The amortization method was also changed from level dollar payments to level percent of pay payments. The new funding policy represents a better fit for the goals of pension funding for all stakeholders. See the table on the following page for the impact of these changes. Moline Firefighters Pension Fund Page 7

62 MANAGEMENT SUMMARY ACTUARIAL CONTRIBUTION RECOMMENDATION - RECONCILIATION Actuarial liability is expected to increase each year for both interest for the year and as active employees earn additional service years towards retirement. Similarly, actuarial liability is expected to decrease when the fund pays benefits to inactive employees. Contributions are expected to increase as expected pay increases under the funding policy for the Fund. Actuarial Contribution Liability Recommendation Prior Valuation $ 87,178,869 $ 4,890,673 Expected Changes 1,770, ,174 Initial Expected Current Valuation $ 88,949,831 $ 5,061,846 Other increases or decreases in actuarial liability (key changes noted below) will increase or decrease the amount of unfunded liability in the plan. To the extent unfunded liability increases or decreases unexpectedly, the contribution towards unfunded liability will also change unexpectedly. Actuarial Contribution Liability Recommendation Salary Increase Greater than Expected 86,375 5,978 Demographic Changes 869,941 55,073 Assumption/Funding Policy Changes 561,888 (51,597) Asset Return Less than Expected * - 77,540 Contributions Less than Expected - 20,972 Total Actuarial Experience $ 1,518,204 $ 107,966 Current Valuation $ 90,468,035 $ 5,169,813 *The impact on contribution due to asset performance is based on the Actuarial Value of Assets. Key demographic changes were discussed in the prior section. Moline Firefighters Pension Fund Page 8

63 VALUATION OF FUND ASSETS Market Value of Assets Actuarial Value of Assets

64 VALUATION OF FUND ASSETS MARKET VALUE OF ASSETS Statement of Assets Prior Valuation Current Valuation Cash and Cash Equivalents $ 1,152,097 $ 8,730 Money Market - 1,789,004 Fixed Income 9,151,060 10,842,745 Mutual Funds 16,063,036 15,933,099 Receivables (Net of Payables) 65,067 (1,054,914) Net Assets Available for Pensions $ 26,431,261 $ 27,518,665 Statement of Changes in Assets Total Market Value - Prior Valuation $ 26,431,261 Plus - Employer Contributions 4,574,093 Plus - Employee Contributions 433,773 Plus - Return on Investments 1,475,375 Less - Benefit and Related Payments (5,257,128) Less - Other Expenses (123,650) Prior Period Audit Adjustment (15,058) Total Market Value - Current Valuation $ 27,518,665 The Total Value of Assets has Increased $1,087,404 from Prior Valuation. The Return on Investment on the Market Value of Assets for the Fund was Approximately 5.1% Net of Administrative Expenses. The return on investments shown has been determined as the Return on Assets from the statement of changes in assets, as a percent of the average of the beginning and ending Market Value of Assets. Return on Investment is net of the Other Expenses as shown. The Return on Investments has been excluded from the Total Market Value of Assets at the end of the year for this calculation. Moline Firefighters Pension Fund Page 10

65 VALUATION OF FUND ASSETS MARKET VALUE OF ASSETS (GAIN)/LOSS Current Year (Gain)/Loss on Market Value of Assets Total Market Value - Prior Valuation $ 26,431,261 Contributions 5,007,865 Benefit Payments (5,257,128) Expected Return on Investments 1,841,464 Initial Expected Total Market Value - Current Valuation 28,023,462 Prior Period Audit Adjustments (15,058) Expected Total Market Value - Current Valuation 28,008,404 Actual Total Market Value - Current Valuation 27,518,665 Current Market Value (Gain)/Loss $ 489,739 Expected Return on Investments $ 1,841,464 Actual Return on Investments (Net of Expenses) 1,351,725 Current Market Value (Gain)/Loss $ 489,739 The Return on the Market Value of Assets was Lower than Expected Over the Most Recent Year. The (Gain)/Loss on the Market Value of Assets has been determined based on expected returns at the actuarial rate. Moline Firefighters Pension Fund Page 11

66 VALUATION OF FUND ASSETS DEVELOPMENT OF THE ACTUARIAL VALUE OF ASSETS Total Market Value - Current Valuation $ 27,518,665 Adjustment for Prior (Gains)/Losses Full Amount First Preceding Year $ 489, ,791 Second Preceding Year 1,826,144 1,095,687 Third Preceding Year 240,063 96,025 Fourth Preceding Year (736,292) (147,258) Total Deferred (Gain)/Loss 1,436,245 Initial Actuarial Value of Assets - Current Valuation $ 28,954,910 Less Contributions for the Current Year and Interest - Less Adjustment for the Corridor - Actuarial Value of Assets - Current Valuation $ 28,954,910 (GAIN)/LOSS ON THE ACTUARIAL VALUE OF ASSETS Total Actuarial Value - Prior Valuation $ 28,287,484 Plus - Employer Contributions 4,574,093 Plus - Employee Contributions 433,773 Plus - Return on Investments 1,055,397 Less - Benefit and Related Payments (5,257,128) Less - Other Expenses (123,650) Prior Period Audit Adjustment (15,058) The Actuarial Value of Assets is Equal to the Fair Market Value of Assets with Unanticipated Gains/Losses Recognized over 5 Years. The Actuarial Value of Assets is Currently 105% of the Market Value. The Return on Investment on the Actuarial Value of Assets for the Fund was Approximately 3.3% Net of Administrative Expenses. Total Actuarial Value - Current Valuation $ 28,954,910 The Actuarial Value of Assets incorporates portions of gains and losses over multiple years. Moline Firefighters Pension Fund Page 12

67 VALUATION OF FUND ASSETS HISTORICAL ASSET PERFORMANCE The chart below shows the historical rates of return on plan assets for both Market Value of Assets and Actuarial Value of Assets. Market Value Actuarial Value First Preceding Year 5.1% 3.3% Second Preceding Year 0.2% 4.0% Third Preceding Year 6.1% 5.4% The returns on assets shown above were calculated based on the annual return on investment for the year, as a percentage of the average value of the assets for the year. For purposes of determining the average value of assets during the year, the ending market value of assets has been adjusted to net out to the portion related to the investment returns themselves. All other cash flows are included. For purposes of determining the annual return on investment we have adjusted the figures shown on the preceding pages. The figures shown on the preceding pages are net of investment expenses. We have made an additional adjustment to net out administrative expenses. Netting out administrative expenses allows us to capture returns for the year that can be used to make benefit payments as part of the ongoing actuarial process. The adjustment we make is for actuarial reporting purposes only. By netting out administrative expenses and capturing return dollars that are available to pay benefits, it provides us a comparison to the estimated rate of return on assets, but does not provide a figure that would be consistent with the return rates that are determined by other parties. Therefore, this calculated rate of return should not be used to analyze investment performance of the Fund or the performance of the investment professionals. Moline Firefighters Pension Fund Page 13

68 RECOMMENDED CONTRIBUTION DETAIL Actuarial Accrued Liability Funded Status Development of the Normal Cost Recommended Contribution Actuarial Methods Recommended Contribution

69 RECOMMENDED CONTRIBUTION DETAIL ACTUARIAL ACCRUED LIABILITY Prior Valuation Current Valuation Active Employees $ 22,943,576 $ 22,955,863 Inactive Employees Terminated Employees - Vested - 17,867 Retired Employees 50,229,139 53,180,672 Disabled Employees 8,761,602 9,460,712 Other Beneficiaries 5,244,552 4,852,921 Total Inactive Employees 64,235,293 67,512,172 Total Actuarial Accrued Liability $ 87,178,869 $ 90,468,035 FUNDED STATUS Total Actuarial Accrued Liability $ 87,178,869 $ 90,468,035 Total Actuarial Value of Assets 28,287,484 28,954,910 Unfunded Actuarial Accrued Liability $ 58,891,385 $ 61,513,125 Total Market Value of Assets $ 26,431,261 $ 27,518,665 Percent Funded Actuarial Value of Assets Market Value of Assets Prior Valuation Current Valuation 32.45% 32.01% 30.32% 30.42% The Total Actuarial Liability has Increased $3,289,166 from Prior Valuation. Funded Percentage as of the Valuation Date is Subject to Volatility on Assets and Liability in the Short-Term. Moline Firefighters Pension Fund Page 15

70 RECOMMENDED CONTRIBUTION DETAIL DEVELOPMENT OF THE EMPLOYER NORMAL COST Prior Current Total Normal Cost $ 923,098 $ 1,021,073 Estimated Employee Contributions (402,463) (415,951) Employer Normal Cost $ 520,635 $ 605,122 Valuation Valuation At a 100% Funding Level, the Normal Cost Contribution is Still Required. NORMAL COST AS A PERCENTAGE OF EXPECTED PAYROLL Expected Payroll $ 4,256,620 $ 4,399,273 Employee Normal Cost Rate Employer Normal Cost Rate Total Normal Cost Rate Prior Valuation CONTRIBUTION RECOMMENDATION Current Valuation 9.455% 9.455% 12.23% 13.76% 21.69% 23.21% Prior Valuation Current Valuation Employer Normal Cost* $ 585,252 $ 647,481 Amortization of Unfunded Accrued Liability/(Surplus) 4,305,421 4,522,332 Funding Requirement $ 4,890,673 $ 5,169,813 Ideally, the Employer Normal Cost Rate will Remain Stable. The Recommended Contribution has Increased 5.7% from Prior Valuation. *Employer Normal Cost Contribution includes interest through the end of the year. Moline Firefighters Pension Fund Page 16

71 RECOMMENDED CONTRIBUTION DETAIL ACTUARIAL METHODS RECOMMENDED CONTRIBUTION Actuarial Valuation Date Data Collection Date Actuarial Cost Method Amortization Method January 1, 2017 December 31, 2016 Entry Age Normal (Level % Pay) Level % Pay (Closed) Amortization Target Asset Valuation Method 100% Funded over 20 years 5-Year Smoothed Market Value The contribution and benefit values of the Pension Fund are calculated by applying actuarial assumptions to the benefit provisions and census information furnished, using the actuarial cost methods described. The actuarial cost and amortization method allocates the projected obligations of the plan over the working lifetimes of the plan participants. The recommended contribution amount shown in this report is based on the methods summarized above. The Actuarial Funding Policies section of the report will include a more detail description of the funding methods being used. The Actuarial Funding Methods are meant to provide a systematic process for determining contributions on an annual basis. The methods do not impact the expectation of future benefit payments. The methods only impact the way dollars are contributed towards future benefit payments. Different Actuarial Funding Methods may achieve funding goals with differing levels of success. Certain methods are more efficient and more stable on an annual basis. Moline Firefighters Pension Fund Page 17

72 ILLINOIS STATUTORY MINIMUM CONTRIBUTION Minimum Contribution Methods and Assumptions

73 ILLINOIS STATUTORY MINIMUM CONTRIBUTION STATUTORY MINIMUM CONTRIBUTION Minimum Contribution Contribution Requirement $3,970,478 Expected Payroll $4,399,273 Contribution Requirement as a Percent of Expected Payroll 90.25% FUNDED STATUS STATUTORY MINIMUM Minimum Contribution Normal Cost $1,145,423 Market Value of Assets $27,518,665 Actuarial Value of Assets $28,954,910 Actuarial Accrued Liability $86,541,123 Unfunded Actuarial Accrued Liability $57,586,213 Percent Funded Actuarial Value of Assets 33.46% Market Value of Assets 31.80% Moline Firefighters Pension Fund Page 19

74 ILLINOIS STATUTORY MINIMUM CONTRIBUTION The Statutory Minimum Contribution is based on funding methods and funding parameters in the Illinois statutes for pension funding. The resulting contribution is lower than the recommended contribution for the current plan year. The lower contribution amount is not recommended because it represents a deferral of contributions when compared to the recommended contribution method. Actuarial Funding methods for pensions are best applied to provide a balance between the long-term goals of a variety of stakeholders: 1. Beneficiaries the fund participants are interested in benefit security and having the dollars there to pay benefits when retired 2. Employers cost control and cost stability over the long-term 3. Taxpayers paying for the services they are receiving from active employees The Statutory Minimum Contribution methods are not intended to provide a better system in any of the above categories long-term. The parameters are not recommended for a long-term funding strategy. The Statutory Minimum methods put into place in 2011 were intended to provide short-term budget relief for Employer contributions. An employer using the Statutory Minimum parameters for current funding should view the contributions as short-term relief. Our recommendation in this situation is for a pension fund and an employer to work towards a long-term funding strategy that better achieves the long-term funding goals, over a period that does not exceed 3-5 years. The Securities and Exchange Commission in 2013 used the phrase Statutory Underfunding to describe situations where contributions appear to be more manageable in the short-term, but set up future contribution requirements that are less likely to be manageable. Moline Firefighters Pension Fund Page 20

75 ILLINOIS STATUTORY MINIMUM CONTRIBUTION ACTUARIAL METHODS ILLINOIS STATUTORY MINIMUM CONTRIBUTION Actuarial Valuation Date Data Collection Date Actuarial Cost Method Amortization Method January 1, 2017 December 31, 2016 Projected Unit Credit (Level % of Pay) Level % Pay (Closed) Remaining Amortization Period Asset Valuation Method 90% Funded over 24 years 5-Year Smoothed Market Value The contribution and benefit values of the Pension Fund are calculated by applying actuarial assumptions to the benefit provisions and census information furnished, using the actuarial cost methods described. The actuarial cost and amortization method allocates the projected obligations of the plan over the working lifetimes of the plan participants. The recommended contribution amount shown in this report is based on the methods summarized above. The Actuarial Funding Policies section of the report will include a more detail description of the funding methods being used. The Actuarial Funding Methods are meant to provide a systematic process for determining contributions on an annual basis. The methods do not impact the expectation of future benefit payments. The methods only impact the way dollars are contributed towards future benefit payments. Different Actuarial Funding Methods may achieve funding goals with differing levels of success. Certain methods are more efficient and more stable on an annual basis. Moline Firefighters Pension Fund Page 21

76 ACTUARIAL VALUATION DATA Active Employees Retirees and Beneficiaries

77 ACTUARIAL VALUATION DATA ACTIVE EMPLOYEES Prior Valuation Current Valuation INACTIVE EMPLOYEES Vested Nonvested Total Active Employees Total Payroll $ 4,183,410 $ 4,328,928 Prior Valuation Current Valuation Terminated Employees - Vested 0 1 Retired Employees Disabled Employees Other Beneficiaries Total Inactive Employees SUMMARY OF BENEFIT PAYMENTS Prior Valuation Current Valuation Terminated Employees - Vested $ - $ 688 Retired Employees 301, ,575 Disabled Employees 55,037 60,513 Other Beneficiaries 62,390 60,013 Total Inactive Employees $ 419,391 $ 440,788 Benefits shown for terminated employees under deferred retirement are not currently in pay status. Moline Firefighters Pension Fund Page 23

78 ACTUARIAL FUNDING POLICIES Actuarial Cost Method Financing Unfunded Accrued Liability Actuarial Value of Assets

79 ACTUARIAL FUNDING POLICIES ACTUARIAL COST METHOD The actuarial cost method allocates the projected obligations of the plan over the working lifetimes of the plan participants. In accordance with the Pension Fund s Funding Policy the actuarial cost method for the recommended contribution basis is Entry Age Normal (Level Percent of Pay). The Entry Age Normal Cost Method is a method under which the actuarial present value of the projected benefits of each individual included in an actuarial valuation is allocated on a level basis over the earnings or service of the individual between entry age and assumed exit age. The portion of this actuarial present value allocated to a valuation year is called normal cost. The portion of the actuarial present value not provided at a valuation date by the actuarial present value of future normal costs is called the actuarial liability. FINANCING UNFUNDED ACTUARIAL ACCRUED LIABILITY The Unfunded Actuarial Accrued Liability may be amortized over a period either in level dollar amounts or as a level percentage of projected payroll. In accordance with the Pension Fund s Funding Policy for the recommended contribution the unfunded actuarial accrued liabilities are amortized by level percent of payroll contributions to 100% funding target over the remaining 20 future years. ACTUARIAL VALUE OF ASSETS The pension fund is an ongoing plan. The employer wishes to smooth the effect of volatility in the market value of assets on the annual contribution. The Actuarial Value of Assets is equal to the Market Value of Assets with unanticipated gains/losses recognized over five years. The asset valuation method is intended to create an Actuarial Value of Assets that remains reasonable in relation to the Market Value of Assets over time. The method produces results that can fall above and below the Market Value of Assets. The period of recognition is short. It is intended that the period of recognition is short enough to keep the Actuarial Value of Assets within a decent range of the Market Value. The employer has not placed a specific corridor around the Market Value of Assets. Moline Firefighters Pension Fund Page 25

80 ACTUARIAL ASSUMPTIONS Nature of Actuarial Calculations Actuarial Assumptions in the Valuation Process Actuarial Assumptions Utilized

81 ACTUARIAL ASSUMPTIONS NATURE OF ACTUARIAL CALCULATIONS The results documented in this report are estimates based on data that may be imperfect and on assumptions about future events. Certain plan provisions may be approximated or deemed immaterial, and, therefore, are not valued. Assumptions may be made about participant data or other factors. Reasonable efforts were made in this valuation to ensure that significant items in the context of the actuarial liabilities or costs are treated appropriately, and not excluded or included inappropriately. Actual future experience will differ from the assumptions used in the calculations. As these differences arise, the expense for accounting purposes will be adjusted in future valuations to reflect such actual experience. A range of results different from those presented in this report could be considered reasonable. The numbers are not rounded, but this is for convenience only and should not imply precision which is not inherent in actuarial calculations. ACTUARIAL ASSUMPTIONS IN THE VALUATION PROCESS The contribution and benefit values of the Pension Fund are calculated by applying actuarial assumptions to the benefit provisions and census information furnished, using the actuarial cost methods described in the previous section. The principal areas of financial risk which require assumptions about future experience are: Long-term Rates of Investment Return Patterns of Pay Increases for Members Rates of Mortality Among Members and Beneficiaries Rates of Withdrawal of Active Members Rates of Disability Among Members Age Patterns of Actual Retirement Actual experience of the Pension Fund 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 to the computed contribution requirement. 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). Details behind the selection of the actuarial assumptions can be found in the assumption document provided to the client. The client has reviewed and approved the assumptions as a reasonable expectation of the future anticipated experience under the plan. Moline Firefighters Pension Fund Page 27

82 ACTUARIAL ASSUMPTIONS ACTUARIAL ASSUMPTIONS UTILIZED Expected Return on Investments 7.00% net of adminstrative expenses. CPI-U 2.00% Total Payroll Increases 3.25% Individual Pay Increases 3.25% % Retirement Rates Individual salary increases include a long-term average increase for inflation, average annual increases for promotions, and any additional increases for a step program. Sample Rates as Follows: Service Rate Service Rate % % % % % % % % % % % % % % % % 100% of the L&A Assumption Study Cap Age 65 for Firefighters Sample Rates as Follows: Age Rate Age Rate Moline Firefighters Pension Fund Page 28

83 ACTUARIAL ASSUMPTIONS Withdrawal Rates 100% of the L&A Assumption Study for Firefighters Sample Rates as Follows: Age Rate Age Rate Disability Rates 100% of the L&A Assumption Study for Firefighters Sample Rates as Follows: Age Rate Age Rate Mortality Rates Active Mortality follows the Sex Distinct Raw Rates as Developed in the RP-2014 Study, with Blue Collar Adjustment. These Rates are Improved Generationally using MP-2016 Improvement Rates. Retiree Mortality follows the L&A Assumption Study for Firefighters These Rates are Experience Weighted with the Raw Rates as Developed in the RP-2014 Study, with Blue Collar Adjustment and Improved Generationally using MP-2016 Improvement Rates. Disabled Mortality follows the Sex Distinct Raw Rates as Developed in the RP-2014 Study for Disabled Participants, with Blue Collar Adjustment. These Rates are Improved Generationally using MP-2016 Improvement Rates. Spouse Mortality follows the Sex Distinct Raw Rates as Developed in the RP-2014 Study. These Rates are Improved Generationally using MP-2016 Improvement Rates. Married Participants 80% of Active Participants are Assumed to be Married. Female Spouses are Assumed to be 3 Years Younger than Male Spouses. Moline Firefighters Pension Fund Page 29

84 SUMMARY OF PRINCIPAL PLAN PROVISIONS Establishment of the Fund Administration Employee Contributions Normal Retirement Pension Benefits Pension to Survivors Termination Benefits Disability Benefits

85 SUMMARY OF PRINCIPAL PLAN PROVISIONS ESTABLISHMENT OF THE FUND The Firefighters Pension Fund is established and administered as prescribed by Article 4. Firefighters Pension Fund Municipalities 500,000 and Under of the Illinois Pension Code. ADMINISTRATION The Firefighters Pension Fund is administered by a Board of Trustees located in each municipality maintaining a pension fund for its firefighters. Its duties are to control and manage the pension fund, to hear and determine applications for pensions, to authorize payment of pensions, to establish rules, to pay expenses, to invest funds, and to keep records. EMPLOYEE CONTRIBUTIONS Employees contribute 9.455% of salary. NORMAL RETIREMENT PENSION BENEFIT Hired Prior to January 1, 2011 Eligibility: Age 50 with at least 20 years of creditable service and no longer a firefighter. Benefit: 50% of final salary is payable commencing at retirement for 20 years of service. An additional 2.5% of final salary is added for each additional year of service (prorated monthly) in excess of 20 years of service (not to exceed 75% of final salary). Final salary is based on the pay rate for the firefighter at retirement. Annual Increase in Benefit: A firefighter is entitled to an initial pension increase equal to 1/12 of 3% of the original monthly benefit for each full month that has passed since the pension began. The initial increase date will be the later of the first day of the month following the attainment of age 55, or the first anniversary of the date of retirement. Subsequent increases of 3% of the current pension amount will be provided in each January thereafter. Moline Firefighters Pension Fund Page 31

86 SUMMARY OF PRINCIPAL PLAN PROVISIONS NORMAL RETIREMENT PENSION BENEFIT - CONTINUED Hired on or After January 1, 2011 Eligibility: Age 55 with at least 10 years of creditable service and no longer a firefighter. Benefit: 2.5% of final average salary for each year of service is payable at retirement (not to exceed 75% of final average salary). Final average salary is determined by dividing the highest total salary over 96 consecutive months of service in the last 120 months of service by the total number of months of service in the period. Annual salary for this purpose will not exceed $106,800, indexed by the lesser of 3% or ½ of the CPI-U for the 12 months ending with the September preceding each November 1. The salary cap will not decrease. Annual Increase in Benefit: The initial increase date will be the January 1 st following the attainment of age 60, or the first anniversary of the date of retirement. Subsequent increases will occur on each subsequent January 1 st. The first increase and subsequent increases will be the lesser of 3% of the original benefit or ½ of the CPI-U for the 12 months ending with the September preceding each November 1, applied to the original pension amount. EARLY RETIREMENT PENSION BENEFIT Hired Prior to January 1, 2011 None Hired on or After January 1, 2011 Eligibility: Age 50 with at least 10 years of creditable service and no longer a firefighter. Benefit: The normal retirement pension benefit reduced by ½ of 1% for each month that the firefighter s age is under age 55. Annual Increase in Benefit: The initial increase date will be the January 1 st following the attainment of age 60, or the first anniversary of the date of retirement. Subsequent increases will occur on each subsequent January 1 st. The first increase and subsequent increases will be the lesser of 3% of the original benefit or ½ of the CPI-U for the 12 months ending with the September preceding each November 1, applied to the original pension amount. Moline Firefighters Pension Fund Page 32

87 SUMMARY OF PRINCIPAL PLAN PROVISIONS PENSION TO SURVIVORS Hired Prior to January 1, 2011 Death - Line of Duty Surviving spouse is entitled to 100% of the salary attached to the rank of the firefighter on the last day of service, payable immediately. Death - Non-Duty Current Pensioners (Including Disabled Pensioners): Surviving spouse to receive continuation of the pension at the time of death or 54% of pensionable salary at the time pension began, if greater. Active Employee with 20+ Years of Service: Surviving spouse is entitled to the full pension earned by the firefighter at the time of death, or 54% of the pensionable salary at death if greater. Active Employee with Years of service: Surviving spouse is entitled to 54% of the salary attached to the rank of the firefighter on the last day of service, payable immediately Annual Increase in Benefit: None. Hired on or After January 1, 2011 Death - Line of Duty Surviving spouse is entitled to 100% of the salary attached to the rank of the firefighter on the last day of service, payable immediately. Death - Non-Duty Current Pensioners (Including Disabled Pensioners), Active Employee with 20+ Years of Service, and Active Employee with Years of service: Surviving spouse to receive 66 ⅔% of the firefighter s earned pension at the date of death. Annual Increase in Benefit: The initial increase date will be the January 1 st after the attainment of age 60 by the recipient of the survivor s pension. Subsequent increases will occur on each subsequent January 1 st. The first increase and subsequent increases will be the lesser of 3% of the original benefit or ½ of the CPI-U for the 12 months ending with the September preceding each November 1, applied to the original survivor s pension amount. Moline Firefighters Pension Fund Page 33

88 SUMMARY OF PRINCIPAL PLAN PROVISIONS TERMINATION BENEFIT Hired Prior to January 1, 2011 Eligibility: At least 10 years but less than 20 years of creditable service. Benefit: An accrual factor times final salary for each year of service is payable beginning at age 60. Accrual Factor is a factor of 1.5% at 10 years of service, increasing ratably up to 2.4% at 19 years of service. Final salary is based on the pay rate for the firefighter on the date of separation. Annual Increase in Benefit: A firefighter will receive an initial increase of 3% on the first anniversary of the date of start of payments. Subsequent increases of 3% of the current pension amount will be provided in each January thereafter. Hired on or After January 1, 2011 Eligibility: At least 10 years but less than 20 years of creditable service. Benefit: An accrual factor times final salary for each year of service is payable beginning at age 60. Accrual Factor is a factor of 1.5% at 10 years of service, increasing ratably up to 2.4% at 19 years of service. Final salary is based on the greater of salary during the last year of service prior to termination of employment or the pay rate for the firefighter at termination of employment. Annual salary for this purpose will not exceed $106,800, indexed by the lesser of 3% or ½ of the CPI-U for the 12 months ending with the September preceding each November 1. The salary cap will not decrease. Annual Increase in Benefit: The initial increase date will be the January 1 st following the first payment. Subsequent increases will occur on each subsequent January 1 st. The first increase and subsequent increases will be the lesser of 3% of the original benefit or ½ of the CPI-U for the 12 months ending with the September preceding each November 1, applied to the original pension amount. Moline Firefighters Pension Fund Page 34

89 SUMMARY OF PRINCIPAL PLAN PROVISIONS DISABILITY BENEFIT Hired Prior to January 1, 2011 Eligibility: Disability (duty; or non-duty with 7 years of service). Benefit: A firefighter who becomes disabled on duty is entitled to receive a pension equal to the greatest of 65% of final salary or the pension they would have been entitled to upon retirement at the time of disability. For a non-duty disability, the firefighter is entitled to 50% of final salary. Final salary is based on the pay rate for the firefighter at retirement. Annual Increase in Benefit: The initial increase date will be the January 1 st following the attainment of age 60. Subsequent increases will occur on each subsequent January 1 st. The first increase is 3% of the original benefit for each full year that has passed since the pension began. Subsequent increases are 3% of the original pension benefit amount. Hired on or after January 1, 2011 Eligibility: Disability (duty; or non-duty with 7 years of service). Benefit: A firefighter who becomes disabled on duty is entitled to receive a pension equal to the greater of 65% of final salary or the pension they would have been entitled to upon retirement at the time of disability. For a non-duty disability, the firefighter is entitled to 50% of final salary. Final salary is based on the pay rate for the firefighter at last day of service. Annual Increase in Benefit: The initial increase date will be the January 1 st following the attainment of age 60. Subsequent increases will occur on each subsequent January 1 st. The first increase and subsequent increases will be the lesser of 3% of the original benefit or ½ of the CPI-U for the 12 months ending with the September preceding each November 1, applied to the original pension amount. Moline Firefighters Pension Fund Page 35

90 GLOSSARY OF TERMS

91 GLOSSARY OF TERMS GLOSSARY OF TERMS Actuarial Accrued Liability The actuarial present value of future benefits based on employees service rendered to the measurement date using the selected actuarial cost method. It is that portion of the Actuarial Present Value of plan benefits and expenses allocated to prior years of employment. It is not provided for by future Normal Costs. Actuarial Cost Method The method used to allocate the projected obligations of the plan over the working lifetimes of the plan participants. Actuarial Value of Assets The value of the assets used in the determination of the Unfunded Actuarial Accrued Liability. The Actuarial Value of Assets is related to Market Value of Assets, with adjustments made to spread unanticipated gains and losses for a given year over a period of several years. Actuarial Value of Assets is generally equally likely to fall above or below the Market Value of Assets, and generally does not experience as much volatility over time as the Market Value of Assets. Asset Valuation Method A valuation method designed to smooth random fluctuations in asset values. The objective underlying the use of an asset valuation method is to provide for the long-term stability of employer contributions. Funding Policy A set of procedures for a Pension Fund that outlines the best practices for funding the pension benefits based on the goals of the plan sponsor. A Funding Policy discusses items such as assumptions, Actuarial Cost Method, assets, and other parameters that will best help the sponsor meet their goal of working in the best interest of the plan participant. Market Value of Assets The value of the cash, bonds, securities and other assets held in the pension trust as of the measurement date. Normal Cost The present value of future benefits earned by employees during the current fiscal year. It is that portion of the Actuarial Present Value of benefits and expenses which is allocated to a valuation year by the Actuarial Cost Method. Unfunded Actuarial Accrued Liability The excess of the Actuarial Accrued Liability over the Actuarial Value of Assets. The Unfunded Actuarial Accrued Liability is amortized over a period either in level dollar amounts or as a level percentage of projected payroll. Moline Firefighters Pension Fund Page 37

92 Lauterbach & Amen, LLP 27W457 Warrenville Road Warrenville, IL Actuarial Valuation as of January 1, 2017 MOLINE POLICE PENSION FUND Utilizing Data as of December 31, 2016 For the Contribution Year January 1, 2017 to December 31, 2017 LAUTERBACH & AMEN, LLP

93 Actuarial Valuation Funding Recommendation Submitted by: MOLINE POLICE PENSION FUND Contribution Year Ending: December 31, 2017 Actuarial Valuation Date: January 1, 2017 Utilizing Data as of December 31, 2016 Lauterbach & Amen, LLP Phone Contact: Todd A. Schroeder April 6, 2017 LAUTERBACH & AMEN, LLP

94 TABLE OF CONTENTS ACTUARIAL CERTIFICATION... 1 MANAGEMENT SUMMARY... 2 Contribution Recommendation... 3 Funded Status... 3 Management Summary Comments and Analysis... 4 Actuarial Contribution Recommendation - Reconciliation... 8 VALUATION OF FUND ASSETS... 9 Market Value of Assets Market Value of Assets (Gain)/Loss Development of the Actuarial Value of Assets (Gain)/Loss on the Actuarial Value of Assets Historical Asset Performance RECOMMENDED CONTRIBUTION DETAIL Actuarial Accrued Liability Funded Status Development of the Employer Normal Cost Normal Cost as a Percentage of Expected Payroll Contribution Recommendation Actuarial Methods Recommended Contribution ILLINOIS STATUTORY MINIMUM CONTRIBUTION Statutory Minimum Contribution Funded Status Statutory Minimum Actuarial Methods Illinois Statutory Minimum Contribution ACTUARIAL VALUATION DATA Active Employees Inactive Employees Summary Of Benefit Payments ACTUARIAL FUNDING POLICIES Actuarial Cost Method Financing Unfunded Actuarial Accrued Liability Actuarial Value of Assets ACTUARIAL ASSUMPTIONS Nature of Actuarial Calculations Actuarial Assumptions in the Valuation Process Actuarial Assumptions Utilized SUMMARY OF PRINCIPAL PLAN PROVISIONS Establishment of the Fund Moline Police Pension Fund Table of Contents

95 TABLE OF CONTENTS Administration Employee Contributions Normal Retirement Pension Benefit Normal Retirement Pension Benefit - Continued Early Retirement Pension Benefit Pension to Survivors Termination Benefit Disability Benefit GLOSSARY OF TERMS Glossary of Terms Moline Police Pension Fund Table of Contents

96 ACTUARIAL CERTIFICATION This report documents the results of the actuarial valuation of the Moline Police Pension Fund. The purpose is to report the actuarial contribution requirement for the contribution year January 1, 2017 to December 31, Determinations for purposes other than meeting the employer s actuarial contribution requirements may be significantly different from the results herein. The results in this report are based on information and data submitted by the Moline Police Pension Fund including studies performed by prior actuaries. We did not prepare the actuarial valuations for the years prior to January 1, Those valuations were prepared by other actuaries whose reports have been furnished to us, and our disclosures are based upon those reports. An audit of the information was not performed, but high-level reviews were performed for general reasonableness, as appropriate, based on the purpose of the valuation. The accuracy of the results is dependent upon the accuracy and completeness of the underlying information. The results of the actuarial valuation and these supplemental disclosures rely on the information provided. The valuation results summarized in this report involve actuarial calculations that require assumptions about future events. The Moline Police Pension Fund selected certain assumptions, while others were the result of guidance and/or judgment. We believe that the assumptions used in this valuation are reasonable and appropriate for the purposes for which they have been used. To the best of our knowledge, all calculations are in accordance with the applicable funding requirements, and the procedures followed and presentation of results conform to generally accepted actuarial principles and practices. The undersigned of Lauterbach & Amen, LLP, with actuarial credentials, meets the Qualification Standards of the American Academy of Actuaries to render this Actuarial Opinion. There is no relationship between the Moline Police Pension Fund and Lauterbach & Amen, LLP that impairs our objectivity. The information contained in this report was prepared for the use of the Moline Police Pension Fund and the City of Moline, Illinois in connection with our actuarial valuation. It is not intended or necessarily suitable for other purposes. It is intended to be used in its entirety to avoid misrepresentations. Respectfully Submitted, LAUTERBACH & AMEN, LLP Todd A. Schroeder, EA Moline Police Pension Fund Page 1

97 MANAGEMENT SUMMARY Contribution Recommendation Funded Status Management Summary

98 MANAGEMENT SUMMARY CONTRIBUTION RECOMMENDATION Prior Valuation Current Valuation Contribution Requirement $4,029,962 $4,266,776 Expected Payroll $5,650,604 $5,720,125 Contribution Requirement as a Percent of Expected Payroll 71.32% 74.59% FUNDED STATUS Prior Valuation Current Valuation Normal Cost $992,579 $1,106,539 Market Value of Assets $34,325,384 $36,480,191 Actuarial Value of Assets $36,546,794 $38,145,160 Actuarial Accrued Liability $86,288,015 $88,327,636 Unfunded Actuarial Accrued Liability $49,741,221 $50,182,476 Percent Funded Actuarial Value of Assets 42.35% 43.19% Recommended Contribution has Increased $236,814 from Prior Year. Funded Percentage has Increased 0.84 on an Actuarial Value of Assets Basis. Market Value of Assets 39.78% 41.30% Moline Police Pension Fund Page 3

99 MANAGEMENT SUMMARY MANAGEMENT SUMMARY COMMENTS AND ANALYSIS Contribution Results The contribution recommendation is based on the funding policies and procedures that are outlined in the Actuarial Funding Policies section of this report. The State of Illinois statutes for pension funds contain parameters that should be used to determine the minimum amount of contribution to a public pension fund. Those parameters and the resulting minimum contribution can be found in the Illinois Statutory Minimum Contribution section of this report. Defined Benefit Plan Risks Asset Growth Pension funding involves preparing plan assets to pay benefits for the members when they retire. During their working careers, assets need to build with contributions and investment earnings, and then the pension fund distributes assets during retirement. Based on the fund s current mix of employees and funded status, the fund should be experiencing positive asset growth on average if requested contributions are made and expected investment earnings come in. In the current year, the fund asset growth was positive by approximately $2.1 million dollars. Asset growth is important long-term. Long-term cash flow out of the pension fund is primarily benefit payments. Expenses make up a smaller portion. The fund should monitor the impact of expected benefit payments and the impact on asset growth in the future. In the next 5 years, benefits payments are anticipated to increase 35-40%, or approximately $1.6 million dollars. In the next 10 years, the expected increase in benefit payments is 65-70%, or approximately $2.9 million dollars. Unfunded Liability: Unfunded liability represents dollars we expect to be in the pension fund already for the fund members based on funding policy. To the extent dollars are not in the pension fund the fund is losing investment returns on those dollars going forward. Payments to unfunded liability pay for the lost investment earnings, as well as the outstanding unfunded amount. If payment is not made, the unfunded liability will grow. In the early 1990s, many pension funds in Illinois adopted an increasing payment to handle unfunded liability due to a change in legislation. The initial payments decreased, and payments were anticipated to increase annually after that. In many situations, payments early on may be less than the interest on unfunded liability, which means unfunded liability is expected to increase even if contributions are at the recommended level. Moline Police Pension Fund Page 4

100 MANAGEMENT SUMMARY The current contribution recommendation includes a payment to unfunded liability that is approximately $177,000 more than interest on the unfunded liability. All else being equal and contributions being made, unfunded liability would still be expected to decrease. The employer and the fund should anticipate currently that improvement in the funded percent will be mitigated in the short-term. The employer and the fund should understand this impact as we progress forward to manage expectations. Actuarial Value of Assets: The pension fund smooths asset returns that vary from expectations over a five-year period. The intention over time is that asset returns for purposes of funding recommendations are a combination of several years. The impact is intended to smooth out the volatility of contribution recommendations over time, but not necessarily increase or decrease the level of contributions over the long-term. When asset returns are smoothed, there are always gains or losses on the Market Value of Assets that are going to be deferred for current funding purposes, and recognized in future years. Currently, the pension fund is deferring approximately $1.7 million dollars in losses on the Market Value of Assets. These are asset losses that will be recognized in upcoming periods, independent of the future performance of the Market Value of Assets. Plan Assets The results in this report are based on the assets held in the pension fund. Assets consist of funds held for investment and for benefit payments as of the valuation date. In addition, assets may be adjusted for other events representing dollars that are reasonably expected to be paid out from the pension fund or deposited into the pension fund after the actuarial valuation date as well. The current fund assets are unaudited. As of the date of this report, the audit of the fund assets is not complete, not available, or has not been provided. The current fund assets are based on the year-end financials as prepared by the pension fund accountant. The year-end financials represent a full accrual version of the fiduciary fund as of the end of the fiscal year, prepared in preparation for the audit. The changes to the fund cash balance as of the fiscal year-end are non-cash items that can include accrued interest, due/unpaid expenses, prepaids and other adjustments. The Plan Assets Used in this Report are Unaudited. The actuarial value of assets under the funding policy is equal to the fair market value of assets, with unexpected gains and losses smoothed over 5 years. More detail on the Actuarial Value of Assets can be found in the funding policy section of the report. Moline Police Pension Fund Page 5

101 MANAGEMENT SUMMARY Demographic Data Demographic factors can change from year to year within a pension fund. Changes in this category include hiring new employees, employees retiring or becoming disabled, retirees passing away, and other changes. Demographic changes can cause an actuarial gain (contribution that is less than expected compared to the prior year) or an actuarial loss (contribution that is greater than expected compared to the prior year). Demographic gains and losses occur when the assumptions over the one-year period for employee changes do not meet our long-term expectation. For example, if no employees become disabled during the year, we would expect a liability gain. If more employees become disabled than anticipated last year, we would expect a liability loss. Generally, we expect short-term fluctuations in demographic experience to create 1%-3% gains or losses in any given year, but to balance out in the long-term. In the current report, the key demographic changes were as follows: New hires: The fund added 3 new active members in the current year through hiring. When a new member is admitted to the pension fund, the employer contribution will increase to reflect the new member. The increase in the recommended contribution in the current year for new fund members is approximately $9,000. Rehires: The fund rehired 1 active member in the current year. When a member is rehired to the pension fund, the employer contribution will increase to reflect the new member. The increase in the recommended contribution in the current year for the rehired fund member is approximately $25,000. Retirement: There were 3 members of the fund who retired during the year. When a fund member retires, the normal cost will decrease. Any change in the actuarial liability will be considered when determining the amount to pay towards unfunded liability each year. The decrease in the recommended contribution in the current year due to the retirement experience is approximately $3,000. Deferred Annuitants: There was 1 vested member of the fund who terminated employment during the year. The fund may be obligated to pay a benefit to the member in the future. The decrease in the recommended contribution in the current year due to the termination experience is approximately $22,000. Termination: There was 1 member of the fund who terminated employment during the year. The fund is no longer obligated to pay a benefit to the member in the future. The decrease in the recommended contribution in the current year due to the termination experience is approximately $6,000. Moline Police Pension Fund Page 6

102 MANAGEMENT SUMMARY Mortality: There were 3 retirees who passed away during the year, 2 of whom had eligible surviving spouses. When a retiree passes away, the fund liability will decrease as the pension fund no longer will make future payments to the retiree. If there is an eligible surviving spouse, the fund liability will increase to represent the value of the expected payments that will be made to the spouse. The net decrease in the recommended contribution in the current year due to the mortality experience is approximately $48,000. Salary Increases: Salary increases were less than anticipated in the current year. Although there were three promotions within the year, almost a third of all active members received increases of 3.25% or less. This caused a decrease in the recommended contribution in the current year of approximately $5,000. Assumption Changes In the current valuation, we have updated the mortality assumption to include mortality improvements as stated in the most recently released MP-2016 table. In addition, the rates are being applied on a fullygenerational basis. See page 29 for more details on the specific mortality updates made. In the current valuation, we have also updated the individual pay scale assumption and the total payroll assumption, based on review of the most recent collective bargaining agreement. These changes were made to better reflect the future anticipated experience in the fund. See the table on the following page for the impact of these changes on the current valuation. Funding Policy Changes The funding policy was changed from the prior year. The funding target was changed in the current year from 90% over the remaining 24 future years to 100% over the remaining 20 future years. The amortization method was also changed from level dollar payments to level percent of pay payments. The new funding policy represents a better fit for the goals of pension funding for all stakeholders. See the table on the following page for the impact of these changes. Moline Police Pension Fund Page 7

103 MANAGEMENT SUMMARY ACTUARIAL CONTRIBUTION RECOMMENDATION - RECONCILIATION Actuarial liability is expected to increase each year for both interest for the year and as active employees earn additional service years towards retirement. Similarly, actuarial liability is expected to decrease when the fund pays benefits to inactive employees. Contributions are expected to increase as expected pay increases under the funding policy for the Fund. Actuarial Contribution Liability Recommendation Prior Valuation $ 86,288,015 $ 4,029,962 Expected Changes 2,794, ,049 Initial Expected Current Valuation $ 89,082,187 $ 4,171,010 Other increases or decreases in actuarial liability (key changes noted below) will increase or decrease the amount of unfunded liability in the plan. To the extent unfunded liability increases or decreases unexpectedly, the contribution towards unfunded liability will also change unexpectedly. Actuarial Contribution Liability Recommendation Salary Increase Less than Expected (50,162) (4,664) Demographic Changes 175,606 (5,679) Assumption/Policy Changes (879,995) 5,949 Asset Return Less than Expected * - 80,733 Contributions Less than Expected - 19,428 Total Actuarial Experience $ (754,551) $ 95,766 Current Valuation $ 88,327,636 $ 4,266,776 *The impact on contribution due to asset performance is based on the Actuarial Value of Assets. Key demographic changes were discussed in the prior section. Moline Police Pension Fund Page 8

104 VALUATION OF FUND ASSETS Market Value of Assets Actuarial Value of Assets

105 VALUATION OF FUND ASSETS MARKET VALUE OF ASSETS Statement of Assets Prior Current Cash and Cash Equivalents $ 1,581,919 $ 1,148,477 Fixed Income 11,592,406 13,273,743 Mutual Funds 21,151,059 22,255,446 Receivables (Net of Payables) - (197,475) Net Assets Available for Pensions $ 34,325,384 $ 36,480,191 Statement of Changes in Assets Total Market Value - Prior Valuation $ 34,325,384 Plus - Employer Contributions 3,740,468 Plus - Employee Contributions 585,208 Plus - Return on Investments 2,060,859 Less - Benefit and Related Payments (4,192,128) Valuation Valuation The Total Value of Assets has Increased $2,154,808 from Prior Valuation. Less - Other Expenses (39,599) Total Market Value - Current Valuation $ 36,480,191 The Return on Investment on the Market Value of Assets for the Fund was Approximately 5.9% Net of Administrative Expenses. The return on investments shown has been determined as the Return on Assets from the statement of changes in assets, as a percent of the average of the beginning and ending Market Value of Assets. Return on Investment is net of the Other Expenses as shown. The Return on Investments has been excluded from the Total Market Value of Assets at the end of the year for this calculation. Moline Police Pension Fund Page 10

106 VALUATION OF FUND ASSETS MARKET VALUE OF ASSETS (GAIN)/LOSS Current Year (Gain)/Loss on Market Value of Assets Total Market Value - Prior Valuation $ 34,325,384 Contributions 4,325,676 Benefit Payments (4,192,128) Expected Return on Investments 2,407,451 Expected Total Market Value - Current Valuation 36,866,382 Actual Total Market Value - Current Valuation 36,480,191 Current Market Value (Gain)/Loss $ 386,191 Expected Return on Investments $ 2,407,451 Actual Return on Investments (Net of Expenses) 2,021,260 Current Market Value (Gain)/Loss $ 386,191 The Return on the Market Value of Assets was Lower than Expected Over the Most Recent Year. The (Gain)/Loss on the Market Value of Assets has been determined based on expected returns at the actuarial rate. Moline Police Pension Fund Page 11

107 VALUATION OF FUND ASSETS DEVELOPMENT OF THE ACTUARIAL VALUE OF ASSETS Total Market Value - Current Valuation $ 36,480,191 Adjustment for Prior (Gains)/Losses Full Amount First Preceding Year $ 386, ,953 Second Preceding Year 2,405,993 1,443,596 Third Preceding Year 243,071 97,228 Fourth Preceding Year (924,038) (184,808) Total Deferred (Gain)/Loss 1,664,969 Initial Actuarial Value of Assets - Current Valuation 38,145,160 Less Contributions for the Current Year and Interest - Less Adjustment for the Corridor - Actuarial Value of Assets - Current Valuation $ 38,145,160 (GAIN)/LOSS ON THE ACTUARIAL VALUE OF ASSETS Total Actuarial Value - Prior Valuation $ 36,546,794 Plus - Employer Contributions 3,740,468 Plus - Employee Contributions 585,208 Plus - Return on Investments 1,504,418 Less - Benefit and Related Payments (4,192,128) Less - Other Expenses (39,599) Total Actuarial Value - Current Valuation $ 38,145,160 The Actuarial Value of Assets is Equal to the Fair Market Value of Assets with Unanticipated Gains/Losses Recognized over 5 Years. The Actuarial Value of Assets is Currently 105% of the Market Value. The Return on Investment on the Actuarial Value of Assets for the Fund was Approximately 4.0% Net of Administrative Expenses. The Actuarial Value of Assets incorporates portions of gains and losses over multiple years. Moline Police Pension Fund Page 12

108 VALUATION OF FUND ASSETS HISTORICAL ASSET PERFORMANCE The chart below shows the historical rates of return on plan assets for both Market Value of Assets and Actuarial Value of Assets. Market Value Actuarial Value First Preceding Year 5.9% 4.0% Second Preceding Year 0.0% 3.5% Third Preceding Year 6.2% 5.1% The returns on assets shown above were calculated based on the annual return on investment for the year, as a percentage of the average value of the assets for the year. For purposes of determining the average value of assets during the year, the ending market value of assets has been adjusted to net out to the portion related to the investment returns themselves. All other cash flows are included. For purposes of determining the annual return on investment we have adjusted the figures shown on the preceding pages. The figures shown on the preceding pages are net of investment expenses. We have made an additional adjustment to net out administrative expenses. Netting out administrative expenses allows us to capture returns for the year that can be used to make benefit payments as part of the ongoing actuarial process. The adjustment we make is for actuarial reporting purposes only. By netting out administrative expenses and capturing return dollars that are available to pay benefits, it provides us a comparison to the estimated rate of return on assets, but does not provide a figure that would be consistent with the return rates that are determined by other parties. Therefore, this calculated rate of return should not be used to analyze investment performance of the Fund or the performance of the investment professionals. Moline Police Pension Fund Page 13

109 RECOMMENDED CONTRIBUTION DETAIL Actuarial Accrued Liability Funded Status Development of the Normal Cost Recommended Contribution Actuarial Methods Recommended Contribution

110 RECOMMENDED CONTRIBUTION DETAIL ACTUARIAL ACCRUED LIABILITY Prior Valuation Current Valuation Active Employees $ 30,297,757 $ 30,031,750 Inactive Employees Terminated Employees - Vested 1,496,985 1,031,756 Retired Employees 46,866,385 48,879,643 Disabled Employees 3,641,303 3,677,890 Other Beneficiaries 3,985,585 4,706,597 Total Inactive Employees 55,990,258 58,295,886 Total Actuarial Accrued Liability $ 86,288,015 $ 88,327,636 FUNDED STATUS Total Actuarial Accrued Liability $ 86,288,015 $ 88,327,636 Total Actuarial Value of Assets 36,546,794 38,145,160 Unfunded Actuarial Accrued Liability $ 49,741,221 $ 50,182,476 Total Market Value of Assets $ 34,325,384 $ 36,480,191 Percent Funded Actuarial Value of Assets Market Value of Assets Prior Valuation Current Valuation 42.35% 43.19% 39.78% 41.30% The Total Actuarial Liability has Increased $2,039,621 from Prior Valuation. Funded Percentage as of the Valuation Date is Subject to Volatility on Assets and Liability in the Short-Term. Moline Police Pension Fund Page 15

111 RECOMMENDED CONTRIBUTION DETAIL DEVELOPMENT OF THE EMPLOYER NORMAL COST Prior Current Total Normal Cost $ 992,579 $ 1,106,539 Estimated Employee Contributions (559,975) (566,864) Employer Normal Cost $ 432,604 $ 539,675 Valuation Valuation At a 100% Funding Level, the Normal Cost Contribution is Still Required. NORMAL COST AS A PERCENTAGE OF EXPECTED PAYROLL Expected Payroll $ 5,650,604 $ 5,720,125 Employee Normal Cost Rate Employer Normal Cost Rate Total Normal Cost Rate Prior Valuation CONTRIBUTION RECOMMENDATION Current Valuation 9.910% 9.910% 7.66% 9.43% 17.57% 19.34% Prior Valuation Current Valuation Employer Normal Cost* $ 502,085 $ 577,452 Amortization of Unfunded Accrued Liability/(Surplus) 3,527,877 3,689,324 Funding Requirement $ 4,029,962 $ 4,266,776 Ideally, the Employer Normal Cost Rate will Remain Stable. The Recommended Contribution has Increased 5.9% from Prior Valuation. *Employer Normal Cost Contribution includes interest through the end of the year. Moline Police Pension Fund Page 16

112 RECOMMENDED CONTRIBUTION DETAIL ACTUARIAL METHODS RECOMMENDED CONTRIBUTION Actuarial Valuation Date Data Collection Date Actuarial Cost Method Amortization Method January 1, 2017 December 31, 2016 Entry Age Normal (Level % Pay) Level % Pay (Closed) Amortization Target Asset Valuation Method 100% Funded over 20 years 5-Year Smoothed Market Value The contribution and benefit values of the Pension Fund are calculated by applying actuarial assumptions to the benefit provisions and census information furnished, using the actuarial cost methods described. The actuarial cost and amortization method allocates the projected obligations of the plan over the working lifetimes of the plan participants. The recommended contribution amount shown in this report is based on the methods summarized above. The Actuarial Funding Policies section of the report will include a more detail description of the funding methods being used. The Actuarial Funding Methods are meant to provide a systematic process for determining contributions on an annual basis. The methods do not impact the expectation of future benefit payments. The methods only impact the way dollars are contributed towards future benefit payments. Different Actuarial Funding Methods may achieve funding goals with differing levels of success. Certain methods are more efficient and more stable on an annual basis. Moline Police Pension Fund Page 17

113 ILLINOIS STATUTORY MINIMUM CONTRIBUTION Minimum Contribution Methods and Assumptions

114 ILLINOIS STATUTORY MINIMUM CONTRIBUTION STATUTORY MINIMUM CONTRIBUTION Minimum Contribution Contribution Requirement $3,326,128 Expected Payroll $5,720,125 Contribution Requirement as a Percent of Expected Payroll 58.15% FUNDED STATUS STATUTORY MINIMUM Minimum Contribution Normal Cost $1,405,354 Market Value of Assets $36,480,191 Actuarial Value of Assets $38,145,160 Actuarial Accrued Liability $83,782,140 Unfunded Actuarial Accrued Liability $45,636,980 Percent Funded Actuarial Value of Assets 45.53% Market Value of Assets 43.54% Moline Police Pension Fund Page 19

115 ILLINOIS STATUTORY MINIMUM CONTRIBUTION The Statutory Minimum Contribution is based on funding methods and funding parameters in the Illinois statutes for pension funding. The resulting contribution is lower than the recommended contribution for the current plan year. The lower contribution amount is not recommended because it represents only a deferral of contributions when compared to the recommended contribution method. Actuarial Funding methods for pensions are best applied to provide a balance between the long-term goals of a variety of stakeholders: 1. Beneficiaries the fund participants are interested in benefit security and having the dollars there to pay benefits when retired 2. Employers cost control and cost stability over the long-term 3. Taxpayers paying for the services they are receiving from active employees The Statutory Minimum Contribution methods are not intended to provide a better system in any of the above categories long-term. The parameters are not recommended for a long-term funding strategy. The Statutory Minimum methods put into place in 2011 were intended to provide short-term budget relief for Employer contributions. An employer using the Statutory Minimum parameters for current funding should view the contributions as short-term relief. Our recommendation in this situation is for a pension fund and an employer to work towards a long-term funding strategy that better achieves the long-term funding goals, over a period that does not exceed 3-5 years. The Securities and Exchange Commission in 2013 used the phrase Statutory Underfunding to describe situations where contributions appear to be more manageable in the short-term, but set up future contribution requirements that are less likely to be manageable. Moline Police Pension Fund Page 20

116 ILLINOIS STATUTORY MINIMUM CONTRIBUTION ACTUARIAL METHODS ILLINOIS STATUTORY MINIMUM CONTRIBUTION Actuarial Valuation Date Data Collection Date Actuarial Cost Method Amortization Method January 1, 2017 December 31, 2016 Projected Unit Credit (Level % of Pay) Level % Pay (Closed) Remaining Amortization Period Asset Valuation Method 90% Funded over 24 years 5-Year Smoothed Market Value The contribution and benefit values of the Pension Fund are calculated by applying actuarial assumptions to the benefit provisions and census information furnished, using the actuarial cost methods described. The actuarial cost and amortization method allocates the projected obligations of the plan over the working lifetimes of the plan participants. The recommended contribution amount shown in this report is based on the methods summarized above. The Actuarial Funding Policies section of the report will include a more detail description of the funding methods being used. The Actuarial Funding Methods are meant to provide a systematic process for determining contributions on an annual basis. The methods do not impact the expectation of future benefit payments. The methods only impact the way dollars are contributed towards future benefit payments. Different Actuarial Funding Methods may achieve funding goals with differing levels of success. Certain methods are more efficient and more stable on an annual basis. Moline Police Pension Fund Page 21

117 ACTUARIAL VALUATION DATA Active Employees Retirees and Beneficiaries

118 ACTUARIAL VALUATION DATA ACTIVE EMPLOYEES Prior Valuation Current Valuation INACTIVE EMPLOYEES Vested Nonvested Total Active Employees Total Payroll $ 5,553,419 $ 5,628,659 Prior Valuation Current Valuation Terminated Employees - Vested 5 5 Retired Employees Disabled Employees 7 7 Other Beneficiaries Total Inactive Employees SUMMARY OF BENEFIT PAYMENTS Prior Valuation Current Valuation Terminated Employees - Vested $ 12,210 $ 9,139 Retired Employees 276, ,570 Disabled Employees 18,371 18,371 Other Beneficiaries 41,282 48,885 Total Inactive Employees $ 347,960 $ 363,966 Benefits shown for terminated employees under deferred retirement are not currently in pay status. Moline Police Pension Fund Page 23

119 ACTUARIAL FUNDING POLICIES Actuarial Cost Method Financing Unfunded Accrued Liability Actuarial Value of Assets

120 ACTUARIAL FUNDING POLICIES ACTUARIAL COST METHOD The actuarial cost method allocates the projected obligations of the plan over the working lifetimes of the plan participants. In accordance with the Pension Fund s Funding Policy the actuarial cost method for the recommended contribution basis is Entry Age Normal (Level Percent of Pay). The Entry Age Normal Cost Method is a method under which the actuarial present value of the projected benefits of each individual included in an actuarial valuation is allocated on a level basis over the earnings or service of the individual between entry age and assumed exit age. The portion of this actuarial present value allocated to a valuation year is called normal cost. The portion of the actuarial present value not provided at a valuation date by the actuarial present value of future normal costs is called the actuarial liability. FINANCING UNFUNDED ACTUARIAL ACCRUED LIABILITY The Unfunded Actuarial Accrued Liability may be amortized over a period either in level dollar amounts or as a level percentage of projected payroll. In accordance with the Pension Fund s Funding Policy for the recommended contribution the unfunded actuarial accrued liabilities are amortized by level percent of payroll contributions to 100% funding target over the remaining 20 future years. ACTUARIAL VALUE OF ASSETS The pension fund is an ongoing plan. The employer wishes to smooth the effect of volatility in the market value of assets on the annual contribution. The Actuarial Value of Assets is equal to the Market Value of Assets with unanticipated gains/losses recognized over five years. The asset valuation method is intended to create an Actuarial Value of Assets that remains reasonable in relation to the Market Value of Assets over time. The method produces results that can fall above and below the Market Value of Assets. The period of recognition is short. It is intended that the period of recognition is short enough to keep the Actuarial Value of Assets within a decent range of the Market Value. The employer has not placed a specific corridor around the Market Value of Assets. Moline Police Pension Fund Page 25

121 ACTUARIAL ASSUMPTIONS Nature of Actuarial Calculations Actuarial Assumptions in the Valuation Process Actuarial Assumptions Utilized

122 ACTUARIAL ASSUMPTIONS NATURE OF ACTUARIAL CALCULATIONS The results documented in this report are estimates based on data that may be imperfect and on assumptions about future events. Certain plan provisions may be approximated or deemed immaterial, and, therefore, are not valued. Assumptions may be made about participant data or other factors. Reasonable efforts were made in this valuation to ensure that significant items in the context of the actuarial liabilities or costs are treated appropriately, and not excluded or included inappropriately. Actual future experience will differ from the assumptions used in the calculations. As these differences arise, the expense for accounting purposes will be adjusted in future valuations to reflect such actual experience. A range of results different from those presented in this report could be considered reasonable. The numbers are not rounded, but this is for convenience only and should not imply precision which is not inherent in actuarial calculations. ACTUARIAL ASSUMPTIONS IN THE VALUATION PROCESS The contribution and benefit values of the Pension Fund are calculated by applying actuarial assumptions to the benefit provisions and census information furnished, using the actuarial cost methods described in the previous section. The principal areas of financial risk which require assumptions about future experience are: Long-term Rates of Investment Return Patterns of Pay Increases for Members Rates of Mortality Among Members and Beneficiaries Rates of Withdrawal of Active Members Rates of Disability Among Members Age Patterns of Actual Retirement Actual experience of the Pension Fund 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 to the computed contribution requirement. 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). Details behind the selection of the actuarial assumptions can be found in the assumption document provided to the client. The client has reviewed and approved the assumptions as a reasonable expectation of the future anticipated experience under the plan. Moline Police Pension Fund Page 27

123 ACTUARIAL ASSUMPTIONS ACTUARIAL ASSUMPTIONS UTILIZED Expected Return on Investments 7.00% net of adminstrative expenses. CPI-U 2.00% Total Payroll Increases 3.25% Individual Pay Increases 3.25% % Individual salary increases include a long-term average increase for inflation, average annual increases for promotions, and any additional increases for a step program. Sample Rates as Follows: Service Rate Service Rate % % % % % % % % % % % % % % % % Retirement Rates 100% of the L&A Assumption Study Cap Age 65 for Police Sample Rates as Follows: Age Rate Age Rate Moline Police Pension Fund Page 28

124 ACTUARIAL ASSUMPTIONS Withdrawal Rates 100% of the L&A Assumption Study for Police Sample Rates as Follows: Age Rate Age Rate Disability Rates Mortality Rates Married Participants 100% of the L&A Assumption Study for Police Sample Rates as Follows: Age Rate Age Rate Active Mortality follows the Sex Distinct Raw Rates as Developed in the RP-2014 Study, with Blue Collar Adjustment. These Rates are Improved Generationally using MP-2016 Improvement Rates. Retiree Mortality follows the L&A Assumption Study for Police These Rates are Experience Weighted with the Raw Rates as Developed in the RP-2014 Study, with Blue Collar Adjustment and Improved Generationally using MP-2016 Improvement Rates. Disabled Mortality follows the Sex Distinct Raw Rates as Developed in the RP-2014 Study for Disabled Participants, with Blue Collar Adjustment. These Rates are Improved Generationally using MP-2016 Improvement Rates. Spouse Mortality follows the Sex Distinct Raw Rates as Developed in the RP-2014 Study. These Rates are Improved Generationally using MP-2016 Improvement Rates. 80% of Active Participants are Assumed to be Married. Female Spouses are Assumed to be 3 Years Younger than Male Spouses. Moline Police Pension Fund Page 29

125 SUMMARY OF PRINCIPAL PLAN PROVISIONS Establishment of the Fund Administration Employee Contributions Normal Retirement Pension Benefits Pension to Survivors Termination Benefits Disability Benefits

126 SUMMARY OF PRINCIPAL PLAN PROVISIONS ESTABLISHMENT OF THE FUND The Police Pension Fund is established and administered as prescribed by Article 3. Police Pension Fund Municipalities 500,000 and Under of the Illinois Pension Code. ADMINISTRATION The Police Pension Fund is administered by a Board of Trustees located in each municipality maintaining a pension fund for its police officers. Its duties are to control and manage the pension fund, to hear and determine applications for pensions, to authorize payment of pensions, to establish rules, to pay expenses, to invest funds, and to keep records. EMPLOYEE CONTRIBUTIONS Employees contribute 9.910% of salary. NORMAL RETIREMENT PENSION BENEFIT Hired Prior to January 1, 2011 provided in each thereafter. January Eligibility: Age 50 with at least 20 years of creditable service and no longer a police officer. Benefit: 50% of final salary is payable commencing at retirement for 20 years of service. An additional 2.5% of final salary is added for each additional year of service in excess of 20 years of service (not to exceed 75% of final salary). Final salary is the salary attached to rank held on the last day of services or for 1 year prior to the last day, whichever is greater. Annual Increase in Benefit: An officer will receive an initial increase of 1/12 of 3% for each month that has elapsed since retirement. The initial increase date will be the later of the first day of the month following the attainment of age 55, or the first anniversary of the date of retirement. Subsequent increases of 3% of the current pension amount (including prior increases) will be Moline Police Pension Fund Page 31

127 SUMMARY OF PRINCIPAL PLAN PROVISIONS NORMAL RETIREMENT PENSION BENEFIT - CONTINUED Hired on or After January 1, 2011 Eligibility: Age 55 with at least 10 years of creditable service and no longer a police officer. Benefit: 2.5% of final average salary for each year of service is payable at retirement (not to exceed 75% of final average salary). Final average salary is determined by dividing the highest total salary over 96 consecutive months of service in the last 120 months of service by the total number of months of service in the period. Annual salary for this purpose will not exceed $106,800, indexed by the lesser of 3% or ½ of the CPI-U for the 12 months ending with the September preceding each November 1. The salary cap will not decrease. Annual Increase in Benefit: The initial increase date will be the January 1 st following the later of the attainment of age 60, or the first anniversary of the date of retirement. Subsequent increases will occur on each subsequent January 1 st. The first increase and subsequent increases will be the lesser of 3% of the original benefit or ½ of the CPI-U for the 12 months ending with the September preceding each November 1, applied to the original benefit. EARLY RETIREMENT PENSION BENEFIT Hired Prior to January 1, 2011 None Hired on or After January 1, 2011 Eligibility: Age 50 with at least 10 years of creditable service and no longer a police officer. Benefit: The normal retirement pension benefit reduced by ½ of 1% for each month that the police officer s age is under age 55. Annual Increase in Benefit: The initial increase date will be the January 1 st following the later of the attainment of age 60, or the first anniversary of the date of retirement. Subsequent increases will occur on each subsequent January 1 st. The first increase and subsequent increases will be the lesser of 3% of the original benefit or ½ of the CPI-U for the 12 months ending with the September preceding each November 1, applied to the original benefit. Moline Police Pension Fund Page 32

128 SUMMARY OF PRINCIPAL PLAN PROVISIONS PENSION TO SURVIVORS Hired Prior to January 1, 2011 Death - Line of Duty Surviving spouse is entitled to 100% of the salary attached to the rank of the police officer on the last day of service, payable immediately. Death - Non-Duty Current Pensioners (Including Disabled Pensioners): Surviving spouse to receive continuation of the pension. Active Employee with 20+ Years of Service: Surviving spouse is entitled to the full pension earned by the police officer at the time of death. Active Employee with Years of service: Surviving spouse is entitled to 50% of the salary attached to the rank of the police officer on the last day of service, payable immediately Annual Increase in Benefit: None. Hired on or After January 1, 2011 Death - Line of Duty Surviving spouse is entitled to 100% of the salary attached to the rank of the police officer on the last day of service, payable immediately. Death - Non-Duty Current Pensioners (Including Disabled Pensioners), Active Employee with 20+ Years of Service, and Active Employee with Years of service: Surviving spouse to receive 66 ⅔% of the police officer s earned pension at the date of death. Annual Increase in Benefit: The initial increase date will be the January 1 st after the attainment of age 60 by the recipient of the survivor s pension. Subsequent increases will occur on each subsequent January 1 st. The first increase and subsequent increases will be the lesser of 3% of the original benefit or ½ of the CPI-U for the 12 months ending with the September preceding each November 1, applied to the original survivor s benefit amount. Moline Police Pension Fund Page 33

129 SUMMARY OF PRINCIPAL PLAN PROVISIONS TERMINATION BENEFIT Hired Prior to January 1, 2011 Eligibility: At least 8 years but less than 20 years of creditable service. Benefit: 2.5% of final salary for each year of service is payable beginning at age 60. Final salary is based on the greater of salary during the last year of service prior to termination of employment or the pay rate for the police officer at termination of employment. Annual Increase in Benefit: An officer will receive an initial increase of 3% on the first anniversary of the date of start of payments. Subsequent increases of 3% of the current pension amount will be provided in each January thereafter. Hired on or After January 1, 2011 Eligibility: At least 10 years but less than 20 years of creditable service. Benefit: 2.5% of final salary for each year of service is payable beginning at age 60. Final salary is based on the greater of salary during the last year of service prior to termination of employment or the pay rate for the police officer at termination of employment. Annual salary for this purpose will not exceed $106,800, indexed by the lesser of 3% or ½ of the CPI-U for the 12 months ending with the September preceding each November 1. The salary cap will not decrease. Annual Increase in Benefit: The initial increase date will be the January 1 st following the first payment. Subsequent increases will occur on each subsequent January 1 st. The first increase and subsequent increases will be the lesser of 3% of the original benefit or ½ of the CPI-U for the 12 mos. ending with the September preceding each November 1, applied to the original benefit amount. Moline Police Pension Fund Page 34

130 SUMMARY OF PRINCIPAL PLAN PROVISIONS DISABILITY BENEFIT Hired Prior to January 1, 2011 Eligibility: Disability (duty or non-duty). Benefit: A police officer who becomes disabled on duty is entitled to receive a pension equal to the greater of 65% of final salary or the pension they would have been entitled to upon retirement at the time of disability. For a non-duty disability, the police officer is entitled to 50% of final salary. Final salary is based on the pay rate for the police officer on the last day of service. Annual Increase in Benefit: The initial increase date will be the January 1 st following the attainment of age 60. Subsequent increases will occur on each subsequent January 1 st. The first increase is 3% of the original benefit for each full year that has passed since the pension began. Subsequent increases will be the 3% of the original pension benefit amount. Hired on or after January 1, 2011 Eligibility: Disability (duty or non-duty). Benefit: A police officer who becomes disabled on duty is entitled to receive a pension equal to the greater of 65% of final salary or the pension they would have been entitled to upon retirement at the time of disability. For a non-duty disability, the police officer is entitled to 50% of final salary. Final salary is based on the pay rate for the police officer on the last day of service. Annual Increase in Benefit: The initial increase date will be the January 1 st following the attainment of age 60. Subsequent increases will occur on each subsequent January 1 st. The first increase and subsequent increases will be the lesser of 3% of the original benefit or ½ of the CPI-U for the 12 months ending with the September preceding each November 1, applied to the original benefit amount. Moline Police Pension Fund Page 35

131 GLOSSARY OF TERMS

132 GLOSSARY OF TERMS GLOSSARY OF TERMS Actuarial Accrued Liability The actuarial present value of future benefits based on employees service rendered to the measurement date using the selected actuarial cost method. It is that portion of the Actuarial Present Value of plan benefits and expenses allocated to prior years of employment. It is not provided for by future Normal Costs. Actuarial Cost Method The method used to allocate the projected obligations of the plan over the working lifetimes of the plan participants. Actuarial Value of Assets The value of the assets used in the determination of the Unfunded Actuarial Accrued Liability. The Actuarial Value of Assets is related to Market Value of Assets, with adjustments made to spread unanticipated gains and losses for a given year over a period of several years. Actuarial Value of Assets is generally equally likely to fall above or below the Market Value of Assets, and generally does not experience as much volatility over time as the Market Value of Assets. Asset Valuation Method A valuation method designed to smooth random fluctuations in asset values. The objective underlying the use of an asset valuation method is to provide for the long-term stability of employer contributions. Funding Policy A set of procedures for a Pension Fund that outlines the best practices for funding the pension benefits based on the goals of the plan sponsor. A Funding Policy discusses items such as assumptions, Actuarial Cost Method, assets, and other parameters that will best help the sponsor meet their goal of working in the best interest of the plan participant. Market Value of Assets The value of the cash, bonds, securities and other assets held in the pension trust as of the measurement date. Normal Cost The present value of future benefits earned by employees during the current fiscal year. It is that portion of the Actuarial Present Value of benefits and expenses which is allocated to a valuation year by the Actuarial Cost Method. Unfunded Actuarial Accrued Liability The excess of the Actuarial Accrued Liability over the Actuarial Value of Assets. The Unfunded Actuarial Accrued Liability is amortized over a period either in level dollar amounts or as a level percentage of projected payroll. Moline Police Pension Fund Page 37

133 Council Bill/Resolution No Sponsor: A RESOLUTION AUTHORIZING the Mayor and City Clerk to execute an agreement with GovHR USA, LLC ( GovHR ) for a classification and compensation study in the amount of $53, WHEREAS, the City of Moline published a request for proposals for a classification and compensation study; and and WHEREAS, the City received eight proposals in response to its request for proposals; WHEREAS, the City s Classification and Compensation Study Committee, comprised of the City s Human Resources Manager, Human Resources Specialist, City Attorney, Planning and Development Director and Alderman Schoonmaker, has made its recommendation; and WHEREAS, GovHR was the provider whose proposal was the most advantageous to the City and in the City s best interest. NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF MOLINE, ILLINOIS, as follows: That the Mayor and City Clerk are hereby authorized to execute an agreement with GovHR USA, LLC for a classification and compensation study in the amount of $53,000.00; provided, however, that said agreement is in substantially similar form and content to that attached hereto and incorporated herein by this reference thereto as Exhibit A and has been approved as to form by the City Attorney. CITY OF MOLINE, ILLINOIS Mayor Passed: April 25, 2017 April 25, 2017 Date Approved: May 2, 2017 Attest: Deputy City Clerk Approved as to Form: City Attorney

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