C I T Y O F S O U T H F I E L D E M P L O Y E E S R E T I R E M E N T S Y S T E M G A S B S T A T E M E N T N O S. 6 7 A N D 6 8 A C C O U N T I N G

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1 C I T Y O F S O U T H F I E L D E M P L O Y E E S R E T I R E M E N T S Y S T E M G A S B S T A T E M E N T N O S. 6 7 A N D 6 8 A C C O U N T I N G A N D F I N A N C I A L R E P O R T I N G F O R P E N S I O N S J U N E 3 0,

2 November 20, 2015 Board of Trustees Dear Trustees: This report provides accounting and financial reporting information that is intended to comply with the Governmental Accounting Standards Board (GASB) Statement Nos. 67 and 68 for the City of Southfield Employees Retirement System. These calculations have been made on a basis that is consistent with our understanding of these accounting standards. GASB Statement No. 67 is the accounting standard that applies to the stand-alone financial reports issued by retirement systems. GASB Statement No. 68 establishes accounting and financial reporting for state and local government employers who provide their employees (including former employees) pension benefits through a trust. Our calculation of the liability associated with the benefits described in this report was performed for the purpose of providing reporting and disclosure information that satisfies the requirements of GASB Statement Nos. 67 and 68. The calculation of the plan s liability for this report may not be applicable for funding purposes of the plan. A calculation of the plan s liability for purposes other than satisfying the requirements of GASB Statement No. 67 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. This report is based upon information, furnished to us by the City, 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 otherwise 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 June 30, 2014 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. Judith A. Kermans and Jeffrey T. Tebeau are Members of the American Academy of Actuaries (MAAA) and meet the Qualification Standards of the American Academy of Actuaries to render the actuarial opinion contained herein. The signing actuaries are independent of the plan sponsor. Respectfully submitted, By Judith A. Kermans, EA, FCA, MAAA By Jeffrey T. Tebeau, ASA, MAAA JAK/JTT:sc

3 TABLE OF CONTENTS Section A Section B Section C Section D Executive Summary Executive Summary... 1 Discussion Financial Statements Statement of Pension Expense... 5 Statement of Outflows and Inflows Arising from Current Period... 6 Statement of Outflows and Inflows Arising from Current and Prior 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 Notes to Financial Statements Asset Allocation Sensitivity of Net Pension Liability to the Single Discount Rate Assumption Summary of Population Statistics Page Section E Summary of Benefits Section F Actuarial Cost Method and Actuarial Assumptions Valuation Methods, Entry Age Normal Actuarial Assumptions, Input to Discount Rates, Mortality Assumptions, and Experience Studies Miscellaneous and Technical Assumptions Section G 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

4 SECTION A EXECUTIVE SUMMARY Section A Executive Summary 0

5 Section A EXECUTIVE SUMMARY AS OF JUNE 30, 2015 Actuarial Valuation Date June 30, 2014 Measurement Date of the Net Pension Liability June 30, 2015 Employer's Fiscal Year Ending Date (Reporting Date) June 30, Membership Number of - Retirees and Beneficiaries Inactive, Nonretired Members 39 - Active Members Total 618 Covered Payroll (1) $ 13,455,647 Net Pension Liability Total Pension Liability $ 139,375,667 Plan Fiduciary Net Position 115,094,332 Net Pension Liability $ 24,281,335 Plan Fiduciary Net Position as a Percentage of Total Pension Liability 82.58% Net Pension Liability as a Percentage of Covered Payroll % Development of the Single Discount Rate Single Discount Rate 8.00% Long-Term Expected Rate of Investment Return 8.00% Long-Term Municipal Bond Rate (2) 3.80% Last year ending June 30 in the 2016 to 2115 projection period for which projected benefit payments are fully funded 2115 Total Pension Expense $ 3,520,964 Deferred Outflows and Deferred Inflows of Resources by Source to be recognized in Future Pension Expenses Deferred Outflows Deferred Inflows of Resources of Resources Difference between expected and actual experience $ - $ 802,069 Changes in assumptions - - Net difference between projected and actual earnings on pension plan investments 5,155,068 - Total $ 5,155,068 $ 802,069 (1) (2) The amount provided represents the annual pays for members active on the valuation date. Source: State & local bonds rate from Federal Reserve statistical release (H.15) as of June 25,2015. The statistical release describes this rate as Bond Buyer Index, general obligations, 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. AA. 1

6 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 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). Paragraph 57 of GASB Statement No. 68 states, Contributions to the pension plan from the employer subsequent to the measurement date of the collective net pension liability and before the end of the employer s reporting period should be reported as a deferred outflow of resources related to pensions. The information contained in this report does not incorporate any contributions made to the City subsequent to the measurement date of June 30, 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

7 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 Statement Nos. 67 and 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

8 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 a 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 June 30, 2014 and a measurement date of June 30, Single Discount Rate Projected benefit payments are required to be discounted to their actuarial present values using a Single Discount Rate that reflects (1) a long-term expected rate of return on pension plan investments (to the extent that the plan s fiduciary net position is projected to be 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 8.00%; the municipal bond rate is 3.80% (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 8.00%. 4

9 SECTION B FINANCIAL STATEMENTS Section B Financial Statements 5

10 Section B PENSION EXPENSE UNDER GASB STATEMENT NO. 68 FISCAL YEAR ENDED JUNE 30, 2015 A. Expense 1. Service Cost $ 1,630, Interest on the Total Pension Liability 10,698, Current-Period Benefit Changes (29,546) 4. Employee Contributions (made negative for addition here) (711,807) 5. Projected Earnings on Plan Investments (made negative for addition here) (9,214,119) 6. Pension Plan Administrative Expense 141, Other Changes in Plan Fiduciary Net Position 0 8. Recognition of Outflow (Inflow) of Resources due to Liabilities (283,117) 9. Recognition of Outflow (Inflow) of Resources due to Assets 1,288, Total Pension Expense $ 3,520,964 5

11 Section B STATEMENT OF OUTFLOWS AND INFLOWS ARISING FROM THE CURRENT REPORTING PERIOD FISCAL YEAR ENDED JUNE 30, 2015 A. Outflows (Inflows) of Resources due to Liabilities 1. Difference between expected and actual experience of the Total Pension Liability (gains) or losses $ (1,085,186) 2. 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 $ (283,117) 5. Outflow (Inflow) of Resources to be recognized in the current pension expense for Assumption Changes $ - 6. Outflow (Inflow) of Resources to be recognized in the current pension expense due to Liabilities $ (283,117) 7. 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 $ (802,069) 8. 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 $ (802,069) B. Outflows (Inflows) of Resources due to Assets 1. Net difference between projected and actual earnings on pension plan investments (gains) or losses $ 6,443, Recognition period for Assets {in years} Outflow (Inflow) of Resources to be recognized in the current pension expense due to Assets $ 1,288, Deferred Outflow (Inflow) of Resources to be recognized in future pension expenses due to Assets $ 5,155,068 6

12 Section B STATEMENT OF OUTFLOWS AND INFLOWS ARISING FROM THE CURRENT AND PRIOR REPORTING PERIODS FISCAL YEAR ENDED JUNE 30, 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 $ - $ 283,117 $ (283,117) 2. Due to Assets 1,288,767-1,288, Total $ 1,288,767 $ 283,117 $ 1,005,650 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 $ - $ 283,117 $ (283,117) 2. Assumption Changes Net Difference between projected and actual earnings on pension plan investments 1,288,767-1,288, Total $ 1,288,767 $ 283,117 $ 1,005,650 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 $ - $ 802,069 $ (802,069) 2. Assumption Changes Net Difference between projected and actual earnings on pension plan investments 5,155,068-5,155, Total $ 5,155,068 $ 802,069 $ 4,352,999 D. Deferred Outflows and Deferred Inflows of Resources by Year to be Recognized in Future Pension Expenses Year Ending June 30 Net Deferred Outflows of Resources 2016 $ 1,005, ,005, ,052, ,288, Thereafter - Total $ 4,352,999 7

13 Section B STATEMENT OF FIDUCIARY NET POSITION AS OF JUNE 30, 2015 Assets 2015 Cash and Deposits $ 171,789 Receivables Investments Accounts Receivable - Sale of Investments $ - Accrued Interest and Other Dividends 107,406 Contributions - Accounts Receivable - Other 103,938 Total Receivables $ 211,344 Fixed Income $ 9,210,360 Domestic Equities 94,914,670 International Equities - Real Estate 11,526,496 Other 3,266,079 Total Investments $ 118,917,605 Total Assets $ 119,300,738 Liabilities Payables Accounts Payable - Purchase of Investments $ 3,414,583 Accrued Expenses 321,255 Accounts Payable - Other 470,568 Total Liabilities $ 4,206,406 Net Position Restricted for Pensions $ 115,094,332 8

14 Section B STATEMENT OF CHANGES IN FIDUCIARY NET POSITION FOR YEAR ENDED JUNE 30, 2015 Additions 2015 Contributions Employer $ 3,233,204 Employee 711,807 Other - Investment Income Total Contributions $ 3,945,011 Net Appreciation in Fair Value of Investments $ 1,976,759 Interest and Dividends 1,379,185 Less Investment Expense (585,660) Net Investment Income $ 2,770,284 Other $ - Total Additions $ 6,715,295 Deductions Benefit payments, including refunds of employee contributions $ 9,507,989 Pension Plan Administrative Expense 141,901 Other - Total Deductions $ 9,649,890 Net Increase in Net Position $ (2,934,595) Net Position Restricted for Pensions Beginning of Year $ 118,028,927 End of Year $ 115,094,332 9

15 SECTION C REQUIRED SUPPLEMENTARY INFORMATION Section C Required Supplementary Information 10

16 Section C SCHEDULE OF CHANGES IN THE NET PENSION LIABILITY AND RELATED RATIOS FISCAL YEAR ENDED JUNE 30, 2015 A. Total pension liability 1. Service Cost $ 1,630, Interest on the Total Pension Liability 10,698, Changes of benefit terms (29,546) 4. Difference between expected and actual experience of the Total Pension Liability (1,085,186) 5. Changes of assumptions - 6. Benefit payments, including refunds of employee contributions (9,507,989) 7. Net change in Total Pension Liability $ 1,706, Total Pension Liability beginning 137,669, Total pension liability ending $ 139,375,667 B. Plan fiduciary net position 1. Contributions employer $ 3,233, Contributions employee 711, Net investment income 2,770, Benefit payments, including refunds of employee contributions (9,507,989) 5. Pension Plan Administrative Expense (141,901) 6. Other - 7. Net change in plan fiduciary net position $ (2,934,595) 8. Plan fiduciary net position beginning 118,028, Plan fiduciary net position ending $ 115,094,332 C. Net pension liability $ 24,281,335 D. Plan fiduciary net position as a percentage of the Total Pension Liability 82.58% E. Covered-employee payroll (1) $ 13,455,647 F. Net pension liability as a percentage of covered-employee payroll % (1) The amount provided represents the annual pays for members active on the valuation date. 10

17 Section C SCHEDULES OF REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF CHANGES IN THE EMPLOYERS' NET PENSION LIABILITY AND RELATED RATIOS Last 10 Fiscal Years (which may be built prospectively starting from 2014) Fiscal year ending June 30, Total Pension Liability Service Cost $ 1,630,427 $ 1,716,931 Interest on the Total Pension Liability 10,698,458 10,496,636 Benefit Changes (29,546) - Difference between expected and actual experience of the Total Pension Liability (1,085,186) - Assumption Changes - - Benefit Payments and Refunds (9,507,989) (9,787,091) Net Change in Total Pension Liability 1,706,164 2,426,476 Total Pension Liability - Beginning 137,669, ,243,027 Total Pension Liability - Ending (a) $ 139,375,667 $ 137,669,503 Plan Fiduciary Net Position Employer Contributions $ 3,233,204 $ 3,108,024 Employee Contributions 711, ,449 Pension Plan Net Investment Income 2,770,284 19,846,251 Benefit Payments and Refunds (9,507,989) (9,787,091) Pension Plan Administrative Expense (141,901) (121,077) Other - - Net Change in Plan Fiduciary Net Position (2,934,595) 13,763,556 Plan Fiduciary Net Position - Beginning 118,028, ,265,371 Plan Fiduciary Net Position - Ending (b) $ 115,094,332 $ 118,028,927 Net Pension Liability - Ending (a) - (b) 24,281,335 19,640,576 Plan Fiduciary Net Position as a Percentage of Total Pension Liability % % Covered-Employee Payroll (1) $ 13,455,647 $ 14,054,199 Net Pension Liability as a Percentage of Covered-Employee Payroll % % Notes to Schedule: (1) The amount provided represents the annual pays for members active on the valuation date. 11

18 Section C SCHEDULES OF REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF THE EMPLOYERS' NET PENSION LIABILITY Last 10 Fiscal Years (which may be built prospectively starting from 2014) Total Plan Net Position Net Pension Liability FY Ending Pension Plan Net Net Pension as a % of Total Covered as a % of June 30, Liability Position Liability Pension Liability Payroll (1) Covered Payroll $137,669,503 $118,028,927 $19,640, % $14,054, % ,375, ,094,332 24,281, % 13,455, % (1) The amount provided represents the annual pays for members active on the valuation date. 12

19 Section C SCHEDULE OF CONTRIBUTIONS Last 10 Fiscal Years (which may be built prospectively starting from 2014) Actuarially Contribution Actual Contribution FY Ending Determined Actual Deficiency Covered as a % of June 30, Contribution (2) Contribution (Excess) Payroll (1) Covered Payroll $ 3,108,024 $ 3,108,024 $ - $ 14,054, % ,233,204 3,233,204-13,455, % (1) (2) The amount provided represents the annual pays for members active on the valuation date. Since it was reported to the actuary that the City s practice is to contribute the percent-of-payroll employer contribution rate shown in the actuarial valuation report, the actuarially determined contribution shown above are the actual contributions made by the City in the fiscal year. 13

20 Section C NOTES TO SCHEDULE OF CONTRIBUTIONS Valuation Date: June 30, 2014 Notes Actuarially determined contribution amounts are calculated as of June 30 each year, which is 12 months prior to the beginning of the fiscal year in which contributions are reported. Methods and Assumptions Used to Determine Contribution Rates for the Fiscal Year Ending June 30, 2015: Actuarial Cost Method Entry-Age Normal Amortization Method Level Percent, Closed Remaining Amortization Period Asset Valuation Method Inflation Salary Increases Investment Rate of Return Retirement Age Mortality 27 years for the June 30, 2013 valuation 5-Year smoothed market 3.50% wage inflation; no explicit price inflation assumption is used in this valuation. 3.50% to 9.50% including wage inflation 8.00% (net of investment and administrative expenses) Experience-based table of rates that are specific to the type of eligibility condition. RP-2000 Mortality Combined Healthy Tables, projected to 2015, with a 1 year setforward for males. Other Information: Notes The employer contribution for the fiscal year ending June 30, 2015 was determined as part of the Retirement System's June 30, 2013 actuarial valuation. 14

21 SECTION D NOTES TO FINANCIAL STATEMENTS Section D Notes to Financial Statements 15

22 Section D Long-Term Expected Return on Plan Assets The long-term expected rate of return on pension plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment and administrative expenses and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. 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(s). For each major asset class that is included in the pension plan s target asset allocation as of June 30, 2015, these best estimates are summarized in the following table: Asset Allocation Long-Term Expected Asset Class Target Allocation Real Rate of Return * Domestic Equity 48.0% 7.5% International Equity 12.5% 8.5% U.S. Fixed Income 20.0% 2.5% Global Fixed Income 5.0% 3.5% Real Estate 6.0% 4.5% Timberland 3.5% 4.5% Hedge Fund 5.0% 5.0% Total % * Real rate of return is based on investment manager inflation assumption of 2.5%. The figures in the above table were supplied by The Bogdahn Group to the City of Southfield Employees Retirement System. Gabriel, Roeder, Smith & Company does not provide investment advice. 15

23 Section D Single Discount Rate A Single Discount Rate of 8.00% 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 8.00%. 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 8.00%, 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 the Net Pension Liability to the Single Discount Rate Assumption Current Single Discount 1% Decrease Rate Assumption 1% Increase 7.00% 8.00% 9.00% Total Pension Liability $ 153,097,785 $ 139,375,667 $ 127,553,753 Plan Fiduciary Net Position 115,094, ,094, ,094,332 Net Pension Liability/(Asset) $ 38,003,453 $ 24,281,335 $ 12,459,421 16

24 Section D Summary of Population Statistics Inactive Plan Members or Beneficiaries Currently Receiving Benefits 317 Inactive Plan Members Entitled to But Not Yet Receiving Benefits 39 Active Plan Members 262 Total Plan Members

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

26 Section E SUMMARY OF BENEFIT PROVISIONS EVALUATED JUNE 30, 2015 TIER I MEMBERS Regular Retirement (no reduction factor for age) Eligibility - Sum of age and service equals 82, or age 65 with 5 or more years of service. Annual Amount - Total service times 2.5% of FAC. Type of Final Average Compensation - Highest 3 consecutive years out of last 5. Normal Form of Payment - Ten-year certain and life. Early Retirement (age reduction factor used) Eligibility - Age 57 with 20 or more years of service or age 60 with 10 years of service. Annual Amount - Computed as regular retirement, but reduced 1/2 of 1% for each month by which retirement date precedes attainment of age 62 with 20 or more years of service or age 65 with 10 or more years of service. Deferred Retirement (vested benefits) Eligibility - 10 or more years of service. Reduced benefit may begin at age 60 with 10 or more years of service. Full benefit eligibility at age 57 with 25 or more years of credited service; or 62 with 20 to 25 years of credited service; or 65 with 10 to 20 years of credited service, or sum of frozen years of credited service plus age equals 82 points. Annual Amount - Computed as regular retirement but based upon service and final average compensation and benefit levels in place at termination of covered employment. Eligibility - No service requirement. Duty Disability Annual Amount - Computed as a regular retirement with additional service credit granted from date of disability to age 60 if under age 60. Worker s Compensation payments are offset. 18

27 Section E SUMMARY OF BENEFIT PROVISIONS EVALUATED JUNE 30, 2015 TIER I MEMBERS (CONTINUED) Eligibility - 10 years of service. Non-Duty Disability Retirement Annual Amount - Computed as regular retirement but based upon service and final average compensation at commencement of disability. Eligibility - 10 years of service. Death-In-Service Annual Amount - Computed as regular retirement but based upon service and final average compensation on the day before death. Member Contributions AFSCME: 5.41%, made as a salary reduction under 414(h). All Others: 5.00%, made as a salary reduction under 414(h). Refund of Member Contributions Public Safety Technicians - Member receives a refund of account balance as of 6/30/95 (with interest) upon commencement of Normal Retirement, Early Retirement, Disability Retirement, Death-in-Service or Deferred Retirement benefits. Others - Member receives a refund of account balance as of 6/30/2009 (with interest) upon commencement of Normal Retirement, Early Retirement, Disability Retirement, Death-in-Service or Deferred Retirement benefits. (The recently added member contribution requirements of 5% or 5.41% are excluded from this refund provision.) 19

28 Section E SUMMARY OF BENEFIT PROVISIONS EVALUATED JUNE 30, 2015 TIER I MEMBERS (CONCLUDED) Covered Compensation Items of compensation recognized for Retirement System purposes include: base salary, longevity pay, pay in lieu of holiday and/or vacation time for the current year, lump sum vacation payoff at retirement up to 400 hours maximum, and residency bonus. Items of compensation not recognized for retirement purposes are overtime pay, expense allowances, and lump sum payments at retirement in consideration of unused sick leave. Tier I members are defined as: Tier I Members Definition PST members hired prior to February 2, 2009; PSS members hired prior to March 2, 2009; AFSCME 329 members hired prior to April 23, 2007; AFSCME 3636 members hired prior to March 6, 2007; TPOAM members hired prior to April 9, 2007; and All other covered employees hired prior to June 1,

29 Section E SUMMARY OF BENEFIT PROVISIONS EVALUATED JUNE 30, 2015 TIER II MEMBERS Regular Retirement (no reduction factor for age) Eligibility - Age 57 with 25 years of service, age 62 with 20 years of service, or age 65 with 10 or more years of service. Annual Amount - Total service times 2.0% of FAC. Maximum benefit is 70% of FAC. Type of Final Average Compensation - Highest 5 consecutive years out of last 10. Normal Form of Payment - Ten-year certain and life. Early Retirement (age reduction factor used) Eligibility - Age 57 with 20 or more years of service or age 60 with 10 years of service. Annual Amount - Computed as regular retirement, but reduced 1/2 of 1% for each month by which retirement date precedes attainment of age 62 with 20 or more years of service or age 65 with 10 or more years of service. Deferred Retirement (vested benefits) Eligibility - 10 or more years of service. Reduced benefit may begin at age 60 with 10 or more years of service. Full benefit eligibility at age 57 with 25 or more years of credited service; or 62 with 20 to 25 years of credited service; or 65 with 10 to 20 years of credited service. Annual Amount - Computed as regular retirement but based upon service and final average compensation and benefit levels in place at termination of covered employment. Eligibility - No service requirement. Duty Disability Annual Amount - Computed as a regular retirement with additional service credit granted from date of disability to age 60 if under age 60. Worker s Compensation payments are offset. 21

30 Section E SUMMARY OF BENEFIT PROVISIONS EVALUATED JUNE 30, 2015 TIER II MEMBERS (CONTINUED) Eligibility - 10 years of service. Non-Duty Disability Retirement Annual Amount - Computed as regular retirement but based upon service and final average compensation at commencement of disability. Eligibility - 10 years of service. Death-In-Service Annual Amount - Computed as regular retirement but based upon service and final average compensation on the day before death. Member Contributions AFSCME: 5.41%, made as a salary reduction under 414(h). All Others: 5.00%, made as a salary reduction under 414(h). None. Refund of Member Contributions Covered Compensation Items of compensation recognized for Retirement System purposes include: base salary, longevity pay, pay in lieu of holiday and/or vacation time for the current year, lump sum vacation payoff at retirement up to 100 hours maximum, and residency bonus. Items of compensation not recognized for retirement purposes are overtime pay, expense allowances, and lump sum payments at retirement in consideration of unused sick leave. 22

31 Section E SUMMARY OF BENEFIT PROVISIONS EVALUATED JUNE 30, 2015 TIER II MEMBERS (CONCLUDED) Tier II members are defined as: Tier II Members Definition PST members hired on or after February 2, 2009; PSS members hired on or after March 2, 2009; AFSCME 329 members hired on or after April 23, 2007; AFSCME 3636 members hired on or after March 6, 2007; TPOAM members hired on or after April 9, 2007; and All other covered employees hired on or after June 1,

32 SECTION F ACTUARIAL COST METHOD AND ACTUARIAL ASSUMPTIONS Section F Actuarial Cost Methods and Assumptions 24

33 Section F ACTUARIAL COST METHOD Normal cost and the allocation of benefit values between service rendered before and after the valuation date was determined using an individual entry-age actuarial cost method having the following characteristics: The annual normal cost for each individual active member, payable from the date of employment to the date of retirement, is sufficient to accumulate the value of the member s benefit at the time of retirement; and each annual normal cost is a constant percentage of the member s year by year projected covered pay. Financing of Unfunded Actuarial Accrued Liabilities. The unfunded actuarial accrued liability (UAAL) was determined using the market value of assets and actuarial accrued liability calculated as of the valuation date. The UAAL amortization payment (one component of the contribution requirement), is the level percent of pay required to fully amortize the UAAL over a 25 year period for the June 20, 2015 actuarial valuation. This UAAL payment does not reflect any payments expected to be made between the valuation date and the date contributions determined by this report are scheduled to begin. The value of the assets for GASB Statement Nos. 67 and 68 reporting purposes was the fair market value of assets. The total pension liability shown in this report is based on an actuarial valuation performed as of June 30, 2014, rolled-forward to the measurement date of June 30, The roll-forward procedure increases the June 30, 2014 actuarial accrued liability with normal cost and interest and decreases it with actual benefit payments. 24

34 Section F ACTUARIAL ASSUMPTIONS USED FOR THE GASB NOS. 67 AND 68 VALUATION The actuary calculates the contribution requirements and benefit values of the System by applying actuarial assumptions to the benefit provisions and member information furnished, using the actuarial cost method described on the previous page. The principal areas of financial risk which require assumptions about future experience 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, and the age patterns of actual retirements. In a valuation, the actuary calculates the monetary effect of each assumption for as long as a present covered person survives a period of time which can be as long as a century. Actual experience of the System will not coincide exactly with assumed experience, regardless of the accuracy of the assumptions, or the skill of the actuary and the precision of the many calculations made. 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). The assumptions are established by the Board after consulting with the actuary. New assumptions were adopted for the June 30, 2011 valuation pursuant to the Experience Study dated July 27, 2011, which contains the rationale for those assumptions. All actuarial assumptions are based on future expectations, not market measures. 25

35 Section F The rate of investment return was 8.0% per year, compounded annually (net of administrative and investment expenses). This assumption is used to make money payable at one point in time equal in value to a different 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) was 4.5%. 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. If the number of active members remains constant, then the total active member payroll will increase 3.5% annually, the base portion of the individual salary increase assumptions. This increasing payroll was recognized in amortizing unfunded actuarial accrued liabilities. 26

36 Section F The mortality table was RP-2000 mortality table projected to 2015 with a 1-year set-forward for males. Value at Retirement: Future Life Sample $1 Monthly for Life Expectancy (years) Ages Men Women Men Women 50 $ $ This assumption is used to measure the probabilities of each benefit payment being made after retirement. At the time of the most recent Experience Study, we estimated that these rates included a margin for future mortality improvement of approximately 3% for females and no margin for males. Fifty percent of these rates are used to measure the probabilities of members dying before retirement. 27

37 Section F The rates of retirement used to measure the probability of eligible members retiring during the next year were as follows: Retirement Percents of Active Members Retiring Within Next Year Ages Normal Retirement Early Retirement Rule of 82 Tier I members: assumed to be eligible for normal retirement when the sum of their age and service is at least 82, or age 65 with 5 or more years of service. A member was assumed to be eligible for early retirement after attaining age 57 with 20 or more years of service or age 60 with 10 or more years of service % % 5% Tier II members: assumed to be eligible for normal retirement at age 57 with 25 or more years of service, age 62 with 20 or more years of service, or age 65 with 10 or more years of service. A member was assumed to be eligible for early retirement after attaining age 57 with 20 or more years of service or age 60 with 10 or more years of service. 28

38 Section F Rates of separation from active membership were as shown below (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. Rates of disability were as follows: Expense Load. None. Sample Years of % of Active Ages Service Separating ALL % & Over Sample Ages % of Active Becoming Disabled %

39 Section F MISCELLANEOUS AND TECHNICAL ASSUMPTIONS Marriage Assumption: Pay Increase Timing: Decrement Timing: Eligibility Testing: Benefit Service: Decrement Relativity: Other: Miscellaneous Adjustment Factors: 100% of members are assumed to be married for purposes of valuing death-in-service benefits. Beginning of the fiscal year. 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. Exact fractional service as of the valuation date is used to determine the amount of benefit payable. Decrement rates are used directly from the experience study, without adjustment for multiple decrement table effects. Disability and withdrawal decrements do not operate after member reaches retirement eligibility. All decrements operate during the first 10 years of service. A load of 1.0% is used to approximate the value of the lump sum vacation payoff for the Tier II members. For Tier I members, a 3% load is used. 30

40 SECTION G CALCULATION OF THE SINGLE DISCOUNT RATE Section G Calculation of the Single Discount Rate 31

41 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 8.00%; the municipal bond rate is 3.80%; and the resulting SDR is 8.00%. The tables in this section provide background for the development of the SDR. 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 SDR. It breaks down the benefit payments into present values for funded and unfunded portions and shows the equivalent total at the SDR. There may be cases where schedules do not add, or where they do not exactly balance to other related schedules due to rounding. 31

42 Section G CALCULATION OF THE SINGLE DISCOUNT RATE Please note the following regarding the projections used for purposes of determining the single discount rate. Total Contributions were projected based on the actuarial assumptions and methods used in the most recent actuarial valuation (for funding purposes) as of June 30, These assumptions and methods may or may not be consistent with assumptions and methods required by GASB Statement No. 67 for purposes of determining such items as Total Pension Liability, Net Pension Liability, etc. Projected Service Cost results are based on the entry age actuarial cost method as defined in GASB Statement No. 67. This may or may not be consistent with the actuarial cost method used to determine projected Total Contributions. If there is a difference in actuarial cost methods between the method used to determine Total Contributions and the method used to determine Service Cost, the impact of this difference is included in the projected UAL Contributions results. Projected Total Contributions do not reflect the one-year-lag method currently used for funding purposes. While this may result in variations in year-by-year projected contributions from what would actually be contributed, it does not impact the estimated present value of total future contributions during the projection period. Given that our projections indicate there are sufficient assets to pay all future benefit payments throughout the projection period, we would expect to get the same result (i.e., no unfunded benefit payments) if the one-year-lag method had been used in these projections. 32

43 Section G SINGLE DISCOUNT RATE DEVELOPMENT Year PROJECTION OF CONTRIBUTIONS Payroll for Contributions from Current Employees Current Employees Service Cost and Expense Contributions UAL Contributions Total Contributions 1 12,948,670 $ 657,535 $ 907,032 $ 1,885,841 $ 3,450, ,429, , ,704 1,839,854 3,337, ,834, , ,322 1,668,968 3,090, ,176, , ,011 1,614,839 2,952, ,472, , ,708 1,765,310 3,013, ,822, , ,437 1,827,096 2,994, ,239, , ,107 1,891,044 2,985, ,701, , ,408 1,957,231 2,984, ,155, , ,960 2,025,734 2,984, ,574, , ,842 2,096,635 2,982, ,969, , ,729 2,170,017 2,981, ,337, , ,217 2,245,968 2,979, ,644, , ,956 2,324,576 2,973, ,934, , ,720 2,405,937 2,968, ,292, , ,312 2,490,144 2,975, ,679, , ,773 2,577,299 2,989, ,115, , ,869 2,667,505 3,013, ,625, , ,645 2,760,868 3,048, ,191, , ,847 2,857,498 3,094, ,825,455 91, ,861 2,957,510 3,152, ,508,683 75,891 82,418 3,061,023 3,219, ,248,231 62,744 65,657 3,168,159 3,296, ,036,863 52,089 52,422 3,279,045 3,383, ,766 43,222 41,440 3,393,811 3,478, ,628 35,862 32,543 3,512,595 3,581, ,923 30,335 25,808 3,635,535 3,691, ,196 25,412 20,428-45, ,823 20,769 15,730-36, ,324 17,079 12,089-29, ,013 14,005 9,187-23, ,831 11,592 6,992-18, ,968 9,698 5,392-15, ,891 8,045 4,259-12, ,589 6,479 3,287-9, ,418 5,171 2,544-7, ,479 4,074 1,930-6, ,751 3,138 1,461-4, ,948 2,247 1,013-3, ,915 1, , ,706 1, , , , , , , , ,

44 Section G SINGLE DISCOUNT RATE DEVELOPMENT PROJECTION OF PLAN FIDUCIARY NET POSITION Year Projected Beginning Plan Net Position Projected Total Contributions Projected Benefit Payments Projected Investment Earnings at 8.00% Projected Ending Plan Net Position (a) (b) (c) (d) (f)=(a)+(b)-(c)+(d) 1 $ 115,094,332 $ 3,450,408 $ 9,979,637 $ 8,951,402 $ 117,516, ,516,505 3,337,888 10,324,154 9,127, ,657, ,657,484 3,090,479 10,708,043 9,273, ,313, ,313,679 2,952,592 11,153,874 9,383, ,495, ,495,751 3,013,920 11,533,500 9,465, ,441, ,441,604 2,994,353 11,879,171 9,526, ,083, ,083,558 2,985,357 12,233,106 9,563, ,399, ,399,700 2,984,419 12,551,384 9,576, ,409, ,409,394 2,984,665 12,842,628 9,566, ,117, ,117,450 2,982,838 13,159,819 9,530, ,470, ,470,618 2,981,231 13,457,388 9,466, ,461, ,461,125 2,979,370 13,724,702 9,375, ,091, ,091,139 2,973,383 14,001,723 9,254, ,317, ,317,443 2,968,319 14,229,197 9,103, ,160, ,160,190 2,975,469 14,382,856 8,925, ,678, ,678,101 2,989,975 14,507,471 8,722, ,883, ,883,015 3,013,665 14,567,180 8,497, ,826, ,826,891 3,048,942 14,535,024 8,255, ,596, ,596,355 3,094,790 14,450,582 8,002, ,242, ,242,778 3,152,285 14,292,325 7,742,393 98,845, ,845,131 3,219,332 14,047,944 7,482,799 95,499, ,499,318 3,296,560 13,750,625 7,229,827 92,275, ,275,081 3,383,556 13,404,773 6,988,869 89,242, ,242,732 3,478,474 13,015,733 6,765,267 86,470, ,470,740 3,581,000 12,567,693 6,565,107 84,049, ,049,154 3,691,678 12,063,405 6,395,505 82,072, ,072,931 45,840 11,529,055 6,115,342 76,705, ,705,059 36,499 10,984,068 5,706,926 71,464, ,464,416 29,168 10,421,057 5,309,474 66,382, ,382,002 23,192 9,855,730 4,924,825 61,474, ,474,288 18,583 9,303,729 4,553,682 56,742, ,742,825 15,090 8,745,682 4,196,921 52,209, ,209,154 12,304 8,192,331 3,855,826 47,884, ,884,952 9,766 7,648,116 3,531,140 43,777, ,777,743 7,715 7,117,426 3,223,302 39,891, ,891,334 6,004 6,603,498 2,932,484 36,226, ,226,324 4,598 6,108,163 2,658,660 32,781, ,781,419 3,261 5,638,524 2,401,439 29,547, ,547,596 2,211 5,188,531 2,160,346 26,521, ,521,621 1,677 4,749,645 1,935,465 23,709, ,709,118 1,308 4,330,904 1,726,877 21,106, ,106, ,934,664 1,534,190 18,706, ,706, ,561,629 1,356,847 16,502, ,502, ,209,629 1,194,309 14,487, ,487, ,878,707 1,046,088 12,655, ,655, ,569, ,616 10,997, ,997,336-2,281, ,278 9,505, ,505,988-2,013, ,498 8,174, ,174,239-1,766, ,657 6,992, ,992,869-1,540, ,985 5,951,102 34