CITY OF ALLEN PARK EMPLOYEES RETIREMENT SYSTEM

Transcription

1 CITY OF ALLEN PARK EMPLOYEES RETIREMENT SYSTEM GASB STATEMENTS NO. 67 AND NO. 68 ACCOUNTING AND FINANCIAL REPORTING FOR PENSIONS DECEMBER 31, 2015

2 August 29, 2016 Board of Trustees Dear Board Members: This report provides information required by the in connection with the Governmental Accounting Standards Board (GASB) Statements No. 67 (Financial Reporting for Pension Plans) and No. 68 (Accounting and Financial Reporting for Pensions). Our actuarial calculations for this report were prepared for the purpose of complying with the requirements of GASB Statements No. 67 and No. 68. These calculations have been made on a basis that is consistent with our understanding of these Statements. The calculation of the plan s liability for this report is not applicable for funding purposes of the plan. A calculation of the plan s liability for purposes other than satisfying the requirements of GASB Statements No. 67 and No. 68 may produce significantly different results. This report may be provided to parties other than the only in its entirety and only with the permission of the City. GRS is not responsible for unauthorized use of this report. This report is based upon information, furnished to us by your onsite Plante Moran contracted staff, concerning retirement and ancillary benefits, active members, deferred vested members, retirees and beneficiaries, and financial data. This information was checked for internal consistency, but it was not audited. This report complements the actuarial valuation report that was provided to the City and should be considered in conjunction with that report. Please see the actuarial valuation report as of December 31, 2015 for additional discussion of the nature of actuarial calculations and more information related to participant data, economic and demographic assumptions, and benefit provisions. To the best of our knowledge, the information contained with this report is accurate and fairly represents the actuarial position of the. All calculations have been made in conformity with generally accepted actuarial principles and practices as well as with the Actuarial Standards of Practice issued by the Actuarial Standards Board. This information is intended to assist in preparation of the financial statements of the City of Allen Park Employees Retirement System. Financial statements are the responsibility of management, subject to the auditor s review. Please let us know if the auditor recommends any changes.

3 Board of Trustees August 29, 2016 Page 2 The signing individuals are independent of the plan sponsor. Jeffrey T. Tebeau is a Member of the American Academy of Actuaries (MAAA) and meets the Qualification Standards of the American Academy of Actuaries to render the actuarial opinions contained herein. Respectfully submitted, Jeffrey T. Tebeau, ASA, MAAA David L. Hoffman JTT/DLH:sc

4 TABLE OF CONTENTS Section A Section B Section C Section D Executive Summary Executive Summary... 1 Discussion... 2 Page Financial Statements Statement of Pension Expense... 5 Statement of Outflows and Inflows Arising from Current Reporting Period... 6 Statement of Outflows and Inflows Arising from Current and Prior Reporting Periods... 7 Statement of Fiduciary Net Position... 8 Statement of Changes in Fiduciary Net Position... 9 Required Supplementary Information Schedule of Changes in Net Pension Liability and Related Ratios Current Period Schedule of Changes in Net Pension Liability and Related Ratios (Multiyear) Schedule of Net Pension Liability (Multiyear) Schedule of Contributions (Multiyear) Notes to Schedule of Contributions Schedule of Investment Returns (Multiyear) Notes to Financial Statements Asset Allocation and Sensitivity of Net Pension Liability to the Single Discount Rate Assumption Summary of Population Statistics Section E Summary of Benefits Section F Section G Actuarial Cost Method and Actuarial Assumptions Actuarial Methods Actuarial Assumptions, Input to Discount Rates, Mortality Assumptions, and Experience Studies Miscellaneous and Technical Assumptions Calculation of the Single Discount Rate Calculation of the Single Discount Rate Projection of Contributions Projection of Plan Fiduciary Net Position Present Values of Projected Benefits Projection of Plan Net Position and Benefit Payments Section H Glossary of Terms... 35

5 SECTION A EXECUTIVE SUMMARY Section A Executive Summary 0

6 Section A EXECUTIVE SUMMARY AS OF DECEMBER 31, 2015 Actuarial Valuation Date December 31, 2015 Measurement Date of the Net Pension Liability December 31, 2015 Fiscal Year Ending Date June 30, 2016 Reporting Date December 31, 2015 Membership Number of - Retirees and Beneficiaries Inactive, Nonretired Members 17 - Active Members 87 - Total 325 Covered Payroll $ 5,846,208 Net Pension Liability Total Pension Liability $ 106,709,566 Plan Fiduciary Net Position 82,569,087 Net Pension Liability $ 24,140,479 Plan Fiduciary Net Position as a Percentage of Total Pension Liability % Net Pension Liability as a Percentage of Covered Payroll % Development of the Single Discount Rate Single Discount Rate 7.00 % Long-Term Expected Rate of Investment Return 7.00 % Long-Term Municipal Bond Rate* 3.57 % Last year ending December 31 in the 2016 to 2115 projection period for which projected benefit payments are fully funded 2115 Total Pension Expense $ 5,446,303 Deferred Outflows and Deferred Inflows of Resources by Source to be Recognized in Future Pension Expenses Deferred Outflows of Resources Deferred Inflows of Resources Difference between expected and actual experience $ 962,465 $ 836,285 Changes in assumptions 2,013,732 - Net difference between projected and actual earnings on pension plan investments 4,567,170 - Total $ 7,543,367 $ 836,285 *Source: State & local bonds rate from Federal Reserve statistical release (H.15) as of December 24, The statistical release describes this rate as "Bond Buyer Index, general obligation, 20 years to maturity, mixed quality." In describing this index, the Bond Buyer notes that the bonds average credit quality is roughly equivalent to Moody s Investors Service s Aa2 rating and Standard & Poor s Corp. s AA. 1

7 Section A DISCUSSION Accounting Standard For pension plans that are administered through trusts or equivalent arrangements, Governmental Accounting Standards Board (GASB) Statement No. 67 establishes standards of financial reporting for separately issued financial reports and specifies the required approach for measuring the pension liability. Similarly, GASB Statement No. 68 establishes standards for state and local government employers (as well as non-employer contributing entities) to account for and disclose the Net Pension Liability, pension expense, and other information associated with providing retirement benefits to their employees (and former employees) on their basic financial statements. The Net Pension Liability is not an appropriate measure for the sufficiency of plan assets to cover the estimated cost of settling the employer s obligation. The Net Pension Liability is not an appropriate measure for assessing the need for or amount of future employer contributions and differs from the Actuarial Accrued Liability for funding purposes. The following discussion provides a summary of the information that is required to be disclosed under these accounting standards. A number of these disclosure items are provided in this report. However, certain information, such as notes regarding accounting policies and investments, is not included in this report and the retirement system and/or plan sponsor will be responsible for preparing and disclosing that information to comply with these accounting standards. Financial Statements GASB Statement No. 68 requires state or local governments to recognize the Net Pension Liability and the pension expense on their financial statements. The Net Pension Liability is the difference between the Total Pension Liability and the plan s Fiduciary Net Position. In traditional actuarial terms, this is analogous to the accrued liability less the market value of assets (not the smoothed actuarial value of assets that is often encountered in actuarial valuations performed to determine the employer s contribution requirement). The pension expense recognized each fiscal year is equal to the change in the Net Pension Liability from the beginning of the year to the end of the year, adjusted for deferred recognition of the liability and investment experience. Pension plans that prepare their own, stand-alone financial statements are required to present two financial statements a statement of Fiduciary Net Position and a Statement of Changes in Fiduciary Net Position in accordance with GASB Statement No. 67. The statement of Fiduciary Net Position presents the assets and liabilities of the pension plan at the end of the pension plan s reporting period. The Statement of Changes in Fiduciary Net Position presents the additions, such as contributions and investment income, and deductions, such as benefit payments and expenses, and net increase or decrease in the Fiduciary Net Position. 2

8 Section A Notes to Financial Statements GASB Statement No. 68 requires the notes of the employer s financial statements to disclose the total pension expense, the pension plan s liabilities and assets, and deferred outflows and inflows of resources related to pensions. GASB Statements No. 67 and No. 68 require the notes of the financial statements for the employers and pension plans, to include certain additional information. The list of disclosure items should include: a description of benefits provided by the plan; the type of employees and number of members covered by the pension plan; a description of the plan s funding policy, which includes member and employer contribution requirements; the pension plan s investment policies; the pension plan s Fiduciary Net Position, Net Pension Liability, and the pension plan s Fiduciary Net Position as a percentage of the Total Pension Liability; the Net Pension Liability using a discount rate that is 1% higher and 1% lower than used to calculate the Total Pension Liability and Net Pension Liability for financial reporting purposes; significant assumptions and methods used to calculate the Total Pension Liability; inputs to the discount rates; and certain information about mortality assumptions and the dates of experience studies. Retirement systems that issue stand-alone financial statements are required to disclose additional information in accordance with GASB Statement No. 67. This information includes: the composition of the pension plan s Board and the authority under which benefit terms may be amended; a description of how fair value is determined; information regarding certain reserves and investments, which include concentrations of investments greater than or equal to 5%, receivables, and insurance contracts excluded from plan assets; and annual money-weighted rate of return. 3

9 Section A Required Supplementary Information GASB Statement No. 67 requires a 10-year fiscal history of: sources of changes in the Net Pension Liability; information about the components of the Net Pension Liability and related ratios, including the pension plan s Fiduciary Net Position as a percentage of the Total Pension Liability, and the Net Pension Liability as a percent of covered-employee payroll; and comparison of the actual employer contributions to the actuarially determined contributions based on the plan s funding policy. Timing of the Valuation An actuarial valuation to determine the Total Pension Liability is required to be performed at least every two years. The Net Pension Liability and pension expense should be measured as of the pension plan s fiscal year end (measurement date) on a date that is within the employer s prior fiscal year. If the actuarial valuation used to determine the Total Pension Liability is not calculated as of the measurement date, the Total Pension Liability is required to be rolled forward from the actuarial valuation date to the measurement date. The Total Pension Liability shown in this report is based on an actuarial valuation performed as of December 31, 2015 and a measurement date of December 31, Single Discount Rate Projected benefit payments are required to be discounted to their actuarial present values using a Single Discount Rate that reflects (1) a long-term expected rate of return on pension plan investments (to the extent that the plan s Fiduciary Net Position is projected to be sufficient to pay benefits) and (2) tax-exempt municipal bond rate based on an index of 20-year general obligation bonds with an average AA credit rating (which is published by the Federal Reserve) as of the measurement date (to the extent that the contributions for use with the long-term expected rate of return are not met). For the purpose of this valuation, the expected rate of return on pension plan investments is 7.00%; the municipal bond rate is 3.57% (based on the weekly rate closest to but not later than the measurement date of the state & local bonds rate from Federal Reserve statistical release (H.15)); and the resulting Single Discount Rate is 7.00%. 4

10 SECTION B FINANCIAL STATEMENTS Section B Financial Statements Auditor s Note This information is intended to assist in preparation of the financial statements of the. Financial statements are the responsibility of management, subject to the auditor s review. Please let us know if the auditor recommends any changes. 5

11 Section B PENSION EXPENSE UNDER GASB STATEMENT NO. 68 YEAR ENDED DECEMBER 31, 2015 A. Expens e 1. Service Cost $ 1,171, Interest on the Total Pension Liability 7,053, Current-Period Benefit Changes 279, Employee Contributions (made negative for addition here) (404,395) 5. Projected Earnings on Plan Investments (made negative for addition here) (5,871,446) 6. Pension Plan Administrative Expense 78, Other Changes in Plan Fiduciary Net Position 1, Recognition of Outflow (Inflow) of Resources due to Liabilities 1,963, Recognition of Outflow (Inflow) of Resources due to Assets 1,174, Total Pension Expense $ 5,446,303 5

12 Section B STATEMENT OF OUTFLOWS AND INFLOWS ARISING FROM CURRENT REPORTING PERIOD YEAR ENDED DECEMBER 31, 2015 A. Outflows (Inflows) of Resources due to Liabilities 1. Difference between expected and actual experience of the Total Pension Liability (gains) or losses $ 1,491, Assumption Changes (gains) or losses $ - 3. Recognition period for Liabilities: Average of the expected remaining service lives of all employees {in years} Outflow (Inflow) of Resources to be recognized in the current pension expense for the difference between expected and actual experience of the Total Pension Liability =1./3. $ 528, Outflow (Inflow) of Resources to be recognized in the current pension expense for assumption changes = 2./3. $ - 6. Outflow (Inflow) of Resources to be recognized in the current pension expense due to Liabilities = $ 528, Deferred Outflow (Inflow) of Resources to be recognized in future pension expenses for the difference between expected and actual experience of the Total Pension Liability = $ 962, Deferred Outflow (Inflow) of Resources to be recognized in future pension expenses for assumption changes = $ - 9. Deferred Outflow (Inflow) of Resources to be recognized in future pension expenses due to Liabilities = $ 962,465 B. Outflows (Inflows) of Resources due to Assets 1. Net difference between projected and actual earnings on pension plan investments (gains) or losses $ 5,220, Recognition period for Assets {in years} Outflow (Inflow) of Resources to be recognized in the current pension expense due to Assets = 1./2. $ 1,044, Deferred Outflow (Inflow) of Resources to be recognized in future pension expenses due to Assets = $ 4,176,619 6

13 Section B STATEMENT OF OUTFLOWS AND INFLOWS ARISING FROM CURRENT AND PRIOR REPORTING PERIODS YEAR ENDED DECEMBER 31, 2015 A. Outflows and Inflows of Resources due to Liabilities and Assets to be Recognized in Current Pension Expense Outflows Inflows Net Outflows of Resources of Resources of Resources 1. Due to Liabilities $ 2,982,956 $ 1,019,238 $ 1,963, Due to Assets 1,174,338-1,174, Total $ 4,157,294 $ 1,019,238 $ 3,138,056 B. Outflows and Inflows of Resources by Source to be Recognized in Current Pension Expense Outflows Inflows Net Outflows of Resources of Resources of Resources 1. Differences between expected and actual experience $ 528,682 $ 1,019,238 $ (490,556) 2. Assumption changes 2,454,274-2,454, Net difference between projected and actual earnings on pension plan investments 1,174,338-1,174, Total $ 4,157,294 $ 1,019,238 $ 3,138,056 C. Deferred Outflows and Deferred Inflows of Resources by Source to be Recognized in Future Pension Expenses Deferred Outflows Deferred Inflows Net Deferred Outflows of Resources of Resources of Resources 1. Differences between expected and actual experience $ 962,465 $ 836,285 $ 126, Assumption changes 2,013,732-2,013, Net difference between projected and actual earnings on pension plan investments 4,567,170-4,567, Total $ 7,543,367 $ 836,285 $ 6,707,082 D. Deferred Outflows and Deferred Inflows of Resources by Year to be Recognized in Future Pension Expenses Year Ending December 31 Net Deferred Outflows of Resources 2016 $ 2,880, ,608, ,174, ,044, Thereafter - Total $ 6,707,082 7

14 Section B STATEMENT OF FIDUCIARY NET POSITION AS OF DECEMBER 31, 2015 Assets Cash and Deposits $ 1,701,794 Receivables Accounts Receivable - Sale of Investments $ - Accrued Interest and Other Dividends - Contributions - Accounts Receivable - Other - Total Receivables $ - Investments Fixed Income $ 23,244,467 Domestic Equities 57,622,826 International Equities - Real Estate - Other - Total Investments $ 80,867,293 Total Assets $ 82,569,087 Liabilities Payables Accounts Payable - Purchase of Investments $ - Accrued Expenses - Accounts Payable - Other - Total Liabilities $ - Net Position Restricted for Pensions $ 82,569,087 8

15 Section B STATEMENT OF CHANGES IN FIDUCIARY NET POSITION FOR YEAR ENDED DECEMBER 31, 2015 Additions Contributions Employer $ 2,699,151 Employee 404,395 Other - Total Contributions $ 3,103,546 Investment Income Net Appreciation in Fair Value of Investments $ (1,012,548) Interest and Dividends 1,772,489 Less Investment Expense (109,269) Net Investment Income $ 650,672 Other $ - Total Additions $ 3,754,218 Deductions Benefit Payments, including Refunds of Employee Contributions $ 6,943,101 Pension Plan Administrative Expense 78,030 Other 1,172 Total Deductions $ 7,022,303 Net Increase in Net Position $ (3,268,085) Net Position Restricted for Pensions Beginning of Year $ 85,837,172 End of Year $ 82,569,087 9

16 SECTION C REQUIRED SUPPLEMENTARY INFORMATION Section C Required Supplementary Information Auditor s Note This information is intended to assist in preparation of the financial statements of the. Financial statements are the responsibility of management, subject to the auditor s review. Please let us know if the auditor recommends any changes. 10

17 Section C SCHEDULE OF CHANGES IN NET PENSION LIABILITY AND RELATED RATIOS CURRENT PERIOD YEAR ENDED DECEMBER 31, 2015 A. Total pension liability 1. Service Cost $ 1,171, Interest on the Total Pension Liability 7,053, Changes of benefit terms 279, Difference between expected and actual experience of the Total Pension Liability 1,491, Changes of assumptions 0 6. Benefit payments, including refunds of employee contributions (6,943,101) 7. Net change in total pension liability $ 3,052, Total pension liability beginning 103,656, Total pension liability ending $ 106,709,566 B. Plan fiduciary net position 1. Contributions employer $ 2,699, Contributions employee 404, Net investment income 650, Benefit payments, including refunds of employee contributions (6,943,101) 5. Pension Plan Administrative Expense (78,030) 6. Other (1,172) 7. Net change in plan fiduciary net position $ (3,268,085) 8. Plan fiduciary net position beginning 85,837, Plan fiduciary net position ending $ 82,569,087 C. Net pension liability $ 24,140,479 D. Plan fiduciary net position as a percentage of the total pension liability 77.38% E. Covered-employee payroll $ 5,846,208 F. Net pension liability as a percentage of covered-employee payroll % 10

18 Section C SCHEDULES OF REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF CHANGES IN NET PENSION LIABILITY AND RELATED RATIOS (MULTIYEAR) Ultimately 10 Years will be displayed Year ending December 31, Total Pension Liability Service Cost $ 1,171,406 $ 1,210,976 Interest on the Total Pension Liability 7,053,955 6,724,409 Benefit Changes 279,525 (277,263) Difference between Expected and Actual Experience 1,491,147 (2,874,762) Assumption Changes - 6,922,280 Benefit Payments (6,864,673) (6,911,331) Refunds (78,428) (101,684) Net Change in Total Pension Liability 3,052,932 4,692,625 Total Pension Liability - Beginning 103,656,634 98,964,009 Total Pension Liability - Ending (a) $ 106,709,566 $ 103,656,634 Plan Fiduciary Net Position Employer Contributions $ 2,699,151 $ 5,028,314 Employee Contributions 404, ,203 Pension Plan Net Investment Income 650,672 5,059,609 Benefit Payments (6,864,673) (6,911,331) Refunds (78,428) (101,684) Pension Plan Administrative Expense (78,030) (49,565) Other (1,172) 5,307 Net Change in Plan Fiduciary Net Position (3,268,085) 3,456,854 Plan Fiduciary Net Position - Beginning 85,837,172 82,380,318 Plan Fiduciary Net Position - Ending (b) $ 82,569,087 $ 85,837,172 Net Pension Liability - Ending (a) - (b) 24,140,479 17,819,462 Plan Fiduciary Net Position as a Percentage of Total Pension Liability % % Covered-Employee Payroll $ 5,846,208 $ 5,250,588 Net Pension Liability as a Percentage of Covered-Employee Payroll % % Notes to Schedule: N/A 11

19 Section C SCHEDULES OF REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF THE NET PENSION LIABILITY (MULTIYEAR) Ultimately 10 Years will be displayed Total Plan Net Position Net Pension Liability Year Ending Pension Plan Net Net Pension as a % of Total Covered as a % of December 31, Liability Position Liability Pension Liability Payroll* Covered Payroll 2014 $103,656,634 $85,837,172 $17,819, % $5,250, % 2015 $106,709,566 $82,569,087 $24,140, % $5,846, % * Covered Payroll shown is valuation payroll in force on the valuation date. Payroll paid during the year may vary. 12

20 Section C SCHEDULE OF CONTRIBUTIONS (MULTIYEAR) Ultimately 10 Years will be displayed Actuarially Contribution Actual Contribution Year Ending Determined Actual Deficiency Covered as a % of December 31, Contribution Contribution (Excess) Payroll* Covered Payroll 2014 $2,995,152 # $5,028,314 $(2,033,162) $5,250, % 2015 $2,699,151 $2,699,151 - $5,846, % * Covered Payroll shown is valuation payroll in force on the valuation date. Payroll paid during the year may vary. # Average of calculated contributions from two prior years funding reports. 13

21 Section C NOTES TO SCHEDULE OF CONTRIBUTIONS Valuation Date: December 31, 2015 Notes Actuarially determined contribution rates are calculated as of December 31, which is 6 months prior to the beginning of the fiscal year in which contributions are reported. Methods and Assumptions Used to Determine Contribution Rates: Actuarial Cost Method Entry Age Normal Amortization Method General (AFSCME) Level Dollar, Closed Police & Fire Level Percentage of Payroll, Closed Remaining Amortization Period General (AFSCME) 17 years (out of 20) Police & Fire 23 years (out of 25) Asset Valuation Method 4-Year smoothed market; 25% corridor Inflation 2.50% -- approximate; No explicit price inflation assumption is used in this valuation. Salary Increases 3.0% to 6.8% including inflation at 2.5% Investment Rate of Return 7.00% Retirement Age Experience-based table of rates that are specific to the type of eligibility condition. Mortality RP-2014 Mortality Tables projected five years to 2019, with MP Other Information: Notes Benefit changes include changes to the benefit formulas for Police and Police Lieutenants and Sergeants. The member contribution rate is now 7% for all members. 14

22 Section C SCHEDULE OF INVESTMENT RETURNS (MULTIYEAR) LAST 10 FISCAL YEARS FY Ending Annual June 30, Return * * 1 Annual money-weighted rate of return, net of investment expenses. ** To be supplied by auditor. 15

23 SECTION D NOTES TO FINANCIAL STATEMENTS Section D Notes to Financial Statements Auditor s Note This information is intended to assist in preparation of the financial statements of the. Financial statements are the responsibility of management, subject to the auditor s review. Please let us know if the auditor recommends any changes. 16

24 Section D Long-Term Expected Return on Plan Assets The assumed rate of investment return was adopted by the plan s trustees after considering input from the plan s investment consultant(s) and actuary. Additional information about the assumed rate of investment return is included in our actuarial valuation report as of December 31, The target asset allocation and real return expectation are provided by the plan s investment consultant. Single Discount Rate A Single Discount Rate of 7.00% was used to measure the Total Pension Liability. This Single Discount Rate was based on the expected rate of return on pension plan investments of 7.00%. The projection of cash flows used to determine this Single Discount Rate assumed that plan member contributions will be made at the current contribution rate and that employer contributions will be made at rates equal to the difference between actuarially determined contribution rates and the member rate. Based on these assumptions, the pension plan s Fiduciary Net Position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the Total Pension Liability. Regarding the sensitivity of the Net Pension Liability to changes in the Single Discount Rate, the following presents the plan s Net Pension Liability, calculated using a Single Discount Rate of 7.00%, as well as what the plan s Net Pension Liability would be if it were calculated using a Single Discount Rate that is one percent lower or one percent higher: SENSITIVITY OF NET PENSION LIABILITY TO THE SINGLE DISCOUNT RATE ASSUMPTION One Percent Decrease 6.00% Current Single Discount Rate Assumption 7.00% One Percent Increase 8.00% Total Pension Liability $118,853,344 $106,709,566 $96,510,710 Plan Fiduciary Net Position 82,569,087 82,569,087 82,569,087 Net Pension Liability $ 36,284,257 $ 24,140,479 $13,941,623 16

25 Section D SUMMARY OF POPULATION STATISTICS Inactive Plan Members or Beneficiaries Currently Receiving Benefits 221 Inactive Plan Members Entitled to But Not Yet Receiving Benefits* 17 Active Plan Members 87 Total Plan Members 325 * Includes four members whose payment status was undetermined as of the December 31, 2015 valuation. 17

26 SECTION E SUMMARY OF BENEFITS Section E Summary of Benefits 18

27 Section E SUMMARY OF BENEFIT PROVISIONS EVALUATED DECEMBER 31, 2015 Eligibility Regular Retirement General: Age 53 with 10 (8 for Administrative/Appointees) or more years of service. Closed to new AFSCME hires effective October 2005 and Administrative/Appointee new hires effective January Police & Fire: Age 52 with 10 or more years of service if hired before December 31, 2012; age 55 with 25 or more years of service if hired on or after January 1, By ordinance definition, normal retirement age is equal to the eligibility age plus 5 years. Annual Amount Administrative/Appointees: 2.9% of FAC times service. Maximum benefit is 75% of FAC. Police hired before December 16, 2008: 2.9% of FAC times service accrued before July 1, 2013, plus 2.25% of FAC times service accrued between July 1, 2013 and June 30, 2015, plus 2.50% of FAC times service accrued on and after July 1, Maximum benefit is 75% of FAC (80% for Police Chief). Police hired after December 16, 2008 and before January 1, 2013: 2.5% of FAC times service accrued before July 1, 2013, plus 2.25% of FAC times service accrued between July 1, 2013 and June 30, 2015, plus 2.50% of FAC times service accrued on and after July 1, Maximum benefit is 75% of FAC. Police and Police Lieutenants & Sergeants hired after January 1, 2013: 2.0% of FAC times service accrued before July 1, 2015, plus 2.50% of FAC times service accrued on and after July 1, Maximum benefit is 75% of FAC. Police and Police Lieutenants & Sergeants hired after July 1, 2015: 2.25% of FAC times service. Maximum benefit is 75% of FAC. Police Lieutenants & Sergeants Hired Before July 1, 2015: 2.9% of FAC times service accrued before July 1, 2013, plus 2.25% of FAC times service accrued between July 1, 2013 and June 30, 2015, plus 2.50% of FAC times service accrued on and after July 1, Maximum benefit is 75% of FAC. Fire Lieutenants & Sergeants: 2.9% of FAC times service accrued before July 1, 2013 plus 2.25% of FAC times service accrued after July 1, Maximum benefit is 75% of FAC. Fire hired before July 1, 2008: 2.9% of FAC times service accrued before July 1, 2013 plus 2.50% of FAC times service accrued after July 1, Maximum benefit is 75% of FAC (80% for Fire Chief). Fire hired after July 1, 2008 and before January 1, 2013: 2.5% of FAC times service. Maximum benefit is 75% of FAC. Fire hired after January 1, 2013: 2.0% of FAC times service. Maximum benefit is 75% of FAC. General: 2.9% of FAC times service accrued before April 1, 2014 plus 2.5% of FAC times service accrued after April 1, Maximum benefit is 75% of FAC. In the event of any discrepancy between what is outlined in this Summary of Benefits and individual contracts, the provisions within the contracts shall supersede. 18

28 Section E Type of Final Average Compensation Average of the covered compensations paid during the highest 3 consecutive years (5 consecutive for Police or Fire members hired on or after January 1, 2013) of service out of the last 10 years of service. Firefighters hired after July 1, 2008 and Police hired after December 16, 2008 shall not have their overtime included in the FAC. Police and Fire members hired on or after January 1, 2013 shall include base wages only. Prospectively commencing July 1, 2013, Fire hired on or before December 31, 2012 shall have overtime and lump sum payments excluded from FAC. Annuity Withdrawal Up to 2 Police and Fire members and 3 Lieutenants and Sergeants may elect to withdraw 50% of their accumulated contributions at retirement. The benefit otherwise payable is actuarially reduced based upon PBGC assumptions. This is not available to Police and Fire members hired on or after January 1, Eligibility Deferred Retirement (Vested Benefit) Termination at any age with 10 (8 for Administrative/Appointees) or more years of service. Annual Amount Computed in the same manner as regular retirement based upon service and FAC at time of termination. Eligibility No age or service requirements. Duty Disability Retirement Annual Amount To normal retirement age (retirement eligibility age plus 5 years): 66 2/3% of final compensation at time of disability. At normal retirement age the benefit is recomputed based on a regular retirement formula with additional service credit granted from the date of disability to the date of recomputation and a final average compensation based upon the pay of the rank during the 3 years preceding normal retirement date. Worker s compensation payments are offset. In the event of any discrepancy between what is outlined in this Summary of Benefits and individual contracts, the provisions within the contracts shall supersede. 19

29 Section E Eligibility 10 or more years of service. Non-Duty Disability Retirement Annual Amount Police and Lieutenants & Sergeants: Computed based on a regular retirement formula (with service as of the date of disability). Minimum benefit is 20% of FAC. All other groups: To normal retirement age (or until recovered from disability): Computed in the same manner as regular retirement, but using a 2% benefit multiplier. At normal retirement age, the benefit is recomputed based on a regular retirement formula (with service as of the date of disability). Minimum benefit is 20% of FAC. Eligibility No age or service requirements. Duty Death Before Retirement Annual Amount To the surviving spouse until death, age 62, or remarriage, whichever occurs first, a benefit of 50% of deceased member s final compensation (75% for Lieutenants & Sergeants, and Police & Fire). If there is no surviving spouse, unmarried children under age 18 receive equal shares of 50%, (75% for Lieutenants & Sergeants, and Police & Fire) of the deceased member s final compensation. Worker s compensation payments are offset. Non-Duty Death Before Retirement Eligibility 10 or more years of service and attainment of voluntary retirement age or 15 or more years of service. Annual Amount Computed in the same manner as regular retirement but actuarially reduced in accordance with a 100% joint and survivor election. Death after Retirement Survivor s Pension Payable to a surviving spouse (of a Lieutenant or Sergeant), if any, upon the death of a retired member who was receiving a straight life pension. Spouse s pension equals 70% of the straight life pension the deceased retiree was receiving. Member Contributions 7.0% of covered compensation for all eligible employees. Covered compensation includes base salary, longevity, and pay in lieu of vacation time. For Lieutenants & Sergeants and Firefighters, overtime and pay in lieu of holiday pay. For Lieutenants & Sergeants, Police Officers and Firefighters, up to 10 days of unused vacation time and 42 days of unused sick time. In the event of any discrepancy between what is outlined in this Summary of Benefits and individual contracts, the provisions within the contracts shall supersede. 20

30 SECTION F ACTUARIAL COST METHOD AND ACTUARIAL ASSUMPTIONS Section F Actuarial Cost Methods and Assumptions 21

31 Section F ACTUARIAL METHODS Normal cost and the allocation of benefit values between service rendered before and after the valuation date were determined using an individual entry-age normal cost method having the following characteristics: (i) The annual normal costs for each individual active member, payable from the date of employment to the date of retirement, are sufficient to accumulate the portion of the value of the member s benefit at the time of retirement; and (ii) Each annual normal cost is a constant percentage of the member s year-by-year projected covered pay. For funding purposes, the normal cost is based on the benefits in effect in the year of service rendered. For GASB No. 67 and No. 68 purposes, the service cost is based on the benefit accruing during each member s career. Financing of Unfunded Actuarial Accrued Liabilities. Unfunded actuarial accrued liabilities were amortized by level percent-of-payroll (principal and interest combined) over a period of 23 future years for Police & Fire (starting amortization period of 25 years), and as a level dollar amount over a period of 17 future years for General, Water Department and Court Members (starting amortization period of 20 years). Police & Fire payroll is assumed to grow with wage inflation. General, Water Department and Court payroll is assumed to decline as the closed population decreases. Amortization rates are developed by projecting the unfunded actuarial accrued liabilities to the beginning of the fiscal year for which rates are determined. Asset Valuation Method. For funding purposes, the prior year s valuation assets are increased by contributions and reduced by refunds and benefit payments. An amount equal to the assumed investment return net of expenses for the year is then added. Differences between actual return on a market value basis and an assumed return are phased-in over a four-year period. Valuation assets are restricted to a range of 75% to 125% of Market Value of Assets. Valuation assets are allocated based on actual contributions and estimated disbursements by member classification. For GASB Statements No. 67 and No. 68 reporting purposes, the Market Value of Assets is used. Investment gains and losses are recognized over five years in the Pension Expense. 21

32 Section F ACTUARIAL ASSUMPTIONS USED FOR THE VALUATION The contribution requirements and benefit values of the System are calculated by applying actuarial assumptions to the benefit provisions and census data furnished, using the actuarial cost methods described on the previous page. The rationale for the actuarial assumptions is as follows. The principal areas of financial risk which require assumptions about future plan activities are: Long-term rates of investment return to be generated by the assets of the System. Patterns of pay increases to members. Rates of mortality among members, retirees and beneficiaries. Rates of withdrawal of active members (without entitlement to a retirement benefit). Rates of disability among members. The age patterns of actual retirements. The monetary effect of each assumption is calculated for the length of time for which each present covered person survives. Actual experience of the System will not coincide exactly with assumed experience. Each valuation provides a complete recalculation of assumed future experience and takes into account all past differences between assumed and actual experience. The result is a continual series of adjustments (usually small) to the computed contribution rate. From time to time it becomes appropriate to modify one or more of the assumptions, to reflect experience trends (but not random year-to-year fluctuations). Actuarial assumptions were last reviewed and updated based on a report issued December 11, 2014 and adopted by the Board January 14, 2015 for use beginning with the December 31, 2014 actuarial valuation. All actuarial assumptions are estimates of future experience, not market measures. 22

33 Section F VALUATION ASSUMPTIONS The rate of investment return is 7.0% (net of expenses) per year, compounded annually. This assumption is used to make money payable at one point in time equal in value to an amount of money payable at another point in time. The assumed real rate of return (the net return in excess of the wage inflation rate) is 4.0% The wage inflation assumption is 3.0%. The price inflation assumption is 2.5% (not explicit in the valuation). Economic experience during the last 5 years has been as follows: Year Ended December 31, Average 1) Nominal rate of return # 9.1 % 9.5 % 10.6 % 9.6 % (1.4)% 7.4 % 2) Increase in CPI 0.7 % 0.8 % 1.5 % 1.7 % 3.0 % 1.5 % 3) Average salary increase 8.8 % (9.4)% (7.8)% 7.4 % 5.1 % 0.5 % 4) Spread between recognized return and average salary increase Actual 6.9% Assumed 4.0%* # The nominal rate of return was computed using the approximate formula: i = I divided by 1/2 (A+B-I), where I is realized investment income net of expenses, A is the beginning of year asset value and B is the end of year asset value. * 3.5% during The rates of salary increase used for individual members are in accordance with the following table. This assumption is used to project a member s current salary to the salaries upon which benefit amounts will be based. Salary Increase Assumptions for an Individual Member Sample Merit & Base Increase Ages Seniority (Economic) Next Year % 3.0% 6.8% % 3.0% 6.6% % 3.0% 5.8% % 3.0% 5.3% % 3.0% 4.9% % 3.0% 4.5% % 3.0% 4.1% % 3.0% 3.7% Ref 93 If the number of active members remains constant, then the total active member payroll will increase 3.0% annually, the base portion of the individual salary increase assumptions. 23

34 Section F The mortality table used to measure post-retirement mortality is the RP-2014 Healthy Annuitant Mortality Table for males and females projected five years to 2019, with MP The provision for future mortality improvement is the projection to Sample values follow: Single Life Retirement Values Sample Attained Present Value of $1 Monthly for Life Percent Dying Next Year Future Life Expectancy (years) Ages Men Women Men Women Men Women 55 $ $ % % % % % % % % % % % % Ref: 1208 x x 1.00 sb 0 sb 0 For pre-retirement mortality, the RP-2014 Employee Mortality Table for males and females projected to 2019 with MP-2014 is used. Ten percent of pre-retirement deaths were assumed to be Duty related. The RP-2014 Disabled Retiree Mortality Table projected to 2019 with MP-2014 is used for current disability retirees for projecting disability costs. Published mortality tables have been extended to high and low ages using a cubic spline method. The rates of retirement used to measure the probability of eligible members retiring during the next year were as follows: General, Retirement Water and Retirement Ages Court Ages Police & Fire 52 40% 53 25% 53 40% 54 25% 54 40% 55 25% 55 40% 56 25% 56 40% 57 25% 57 40% 58 25% 58 40% 59 25% 59 40% 60 30% % 61 40% 62 50% 63 60% 64 70% 65 80% % Ref In addition to the retirement probabilities shown above, it was assumed that at least 50% of remaining eligible members would retire upon accruing the maximum pension of 75% of FAC. Also, Police and Fire members hired on or after January 1, 2013 are assumed to retire at a rate of 60% upon first (age) eligibility at age

35 Section F Rates of separation from active membership are represented by the following table (rates do not apply to members eligible to retire and do not include separation on account of death or disability). This assumption measures the probabilities of members remaining in employment. % of Active Members Separating within Next Year Sample Years of General, Police Ages Service Water and Court & Fire ALL % N/A % % % % 20 5 & Over 5.00% 3.50% % 3.50% % 2.90% % 1.50% % 0.60% % 0.50% % 0.50% % 0.50% Ref This assumption measures the probabilities of members remaining in employment. The rates do not apply to members eligible to retire and do not include separation on account of disability. Rates of disability were as follows: % of Active Members Becoming Sample Disabled within Next Year Ages Men Women % 0.15% % 0.18% % 0.20% % 0.29% % 0.42% % 0.65% % 1.05% % 1.84% Ref

36 Section F MISCELLANEOUS AND TECHNICAL ASSUMPTIONS Marriage Assumption: Pay Increase Timing: Decrement Timing: Eligibility Testing: Decrement Relativity: Decrement Operation: 100% of males and 100% of females are assumed to be married for purposes of death-in-service benefits. Male spouses are assumed to be three years older than female spouses. Beginning of (Fiscal) year. This is equivalent to assuming that reported pays represent amounts paid to members during the year ended on the valuation date. Decrements of all types are assumed to occur mid-year. Eligibility for benefits is determined based upon the age nearest birthday and service nearest whole year on the date the decrement is assumed to occur. Decrement rates are used directly from the experience study, without adjustment for multiple decrement table effects. Disability and turnover do not operate during retirement eligibility. Liability Adjustments: Age and Service Retirement Present Values were adjusted by 3% for Police and Fire members (excluding Sergeants and Lieutenants) hired before December 16, 2008 and 9% for Police and Fire Chiefs hired before December 16, 2008 to account for the additional amount included in the FAC due to unused sick leave and unused vacation time. Police and Fire Actuarial Accrued Liabilities were increased by 2% to account for FAC calculations using pay prior to pay cuts. Police hired after December 16, 2008 and Firefighters hired after July 1, 2008 were given no adjustment. Age and Service retirement present values were adjusted by 3% to account for annuity withdrawal, with the exception of Police hired after December 16, 2008 and Firefighters hired after July 1, A 0.43% load was added to the Normal Cost to reflect Military Service Purchases for General, Water Department, and Court Members. Police members were reported as having a significant amount of overtime in this year s reported payroll which was not itemized. For purposes of the valuation, liabilities were reduced by one year wage inflation to reflect the potential short term nature of overtime utilization. Data Assumptions: There were four members whose payment status was undetermined as of the December 31, 2015 valuation. One of the members was valued as receiving a retirement benefit and three were valued as receiving a deferred retirement benefit. Estimated liability for these members was adjusted by 20% to reflect data uncertainty. 26

37 Section F MISCELLANEOUS AND TECHNICAL ASSUMPTIONS Option Factors (as of the date of this report): Incidence of Contributions: Benefit Service: Deferred Retirement: Option factors are based upon 7.5% interest and 90% of the 1983 Group Annuity Mortality Table with a 90% Unisex Blend. General, Water and Court members are assumed to elect straight life annuities. 90% of Police and Fire Chiefs, Lieutenants and Sergeants hired before July 2008 are assumed to elect unreduced 70% Joint and Survivor. Contributions are assumed to be received each month throughout the year based upon the computed monthly dollar amount shown in this report. Exact Fractional service is used to determine the amount of benefit payable. Terminated members with a vested benefit are assumed to retire at first eligibility for voluntary retirement. 27

38 SECTION G CALCULATION OF THE SINGLE DISCOUNT RATE Section G Calculation of the Single Discount Rate 28

39 Section G CALCULATION OF THE SINGLE DISCOUNT RATE GASB Statement No. 67 includes a specific requirement for the discount rate that is used for the purpose of the measurement of the Total Pension Liability. This rate considers the ability of the fund to meet benefit obligations in the future. To make this determination, employer contributions, employee contributions, benefit payments, expenses and investment returns are projected into the future. The Plan Net Position (assets) in future years can then be determined and compared to its obligation to make benefit payments in those years. As long as assets are projected to be on hand in a future year, the assumed valuation discount rate is used. In years where assets are not projected to be sufficient to meet benefit payments, the use of a municipal bond rate is required, as described in the following paragraph. The Single Discount Rate (SDR) is equivalent to applying these two rates to the benefits that are projected to be paid during the different time periods. The SDR reflects (1) the long-term expected rate of return on pension plan investments (during the period in which the Fiduciary Net Position is projected to be sufficient to pay benefits) and (2) tax-exempt municipal bond rate based on an index of 20-year general obligation bonds with an average AA credit rating (which is published by the Federal Reserve) as of the measurement date (to the extent that the contributions for use with the long-term expected rate of return are not met). For the purpose of this valuation, the expected rate of return on pension plan investments is 7.00%; the municipal bond rate is 3.57%; and the resulting Single Discount Rate is 7.00%. The tables in this section provide background for the development of the Single Discount Rate. The Projection of Contributions table shows the development of expected contributions in future years. Normal Cost contributions for future hires are not included (nor are their liabilities). The Projection of Plan Fiduciary Net Position table shows the development of expected asset levels in future years. The Present Values of Projected Benefit Payments table shows the development of the Single Discount Rate (SDR). It breaks down the benefit payments into present values for funded and unfunded portions and shows the equivalent total at the SDR. 28

40 Section G SINGLE DISCOUNT RATE DEVELOPMENT PROJECTION OF CONTRIBUTIONS ENDING DECEMBER 31, 2065 Year Projected Payroll for Current Employees Projected Contributions from Current Employees Projected Service Cost and Expense Contributions Projected UAL Contributions Projected Total Contributions 0 $ 5,846, ,017,542 $ 421,228 $ 817,444 $ 1,992,064 $ 3,230, ,072, , ,396 1,958,135 3,205, ,026, , ,775 1,987,427 3,222, ,884, , ,503 2,017,597 3,217, ,744, , ,538 2,048,672 3,216, ,476, , ,844 2,080,679 3,187, ,089, , ,260 2,113,646 3,134, ,660, , ,486 2,147,603 3,073, ,216, , ,911 2,182,578 3,012, ,809, , ,290 2,218,602 2,962, ,463, , ,721 2,255,707 2,924, ,234, , ,400 2,293,926 2,913, ,054, , ,891 2,333,291 2,917, ,810, , ,527 2,373,836 2,910, ,555, , ,536 2,415,599 2,902, ,351, , ,302 2,458,614 2,904, ,119, , ,086 2,502,919 2,902, ,910, , ,981 2,057,672 2,414, ,771, , ,723 1,613,794 1,941, ,685, , ,702 1,662,208 1,971, ,539, , ,419 1,712,074 1,992, ,277,211 89, ,708 1,763,436 1,991, ,243 67,147 99,804 1,816,340 1,983, ,767 48,074 68, ,591 1,038, ,905 36,953 50,974-87, ,911 30,934 42,097-73, ,696 26,019 35,614-61, ,071 20,375 27,788-48, ,162 14,781 19,786-34, ,747 10,552 13,704-24, ,031 6,582 8,053-14, ,252 4,008 4,754-8, ,757 1,803 2,163-3, , , , ,