City of Dearborn Retiree Health Care Plan

Transcription

1 City of Dearborn Retiree Health Care Plan Summary Annual Report To Members June 30, 2016 Dear Retiree Health Care Plan Member: The Retiree Health Care Plan, which is managed by the City of Dearborn, is designed to provide health care coverage for you and your designated beneficiary during your retirement. The City also supports Defined Benefit and Defined Contribution Retirement Pension Plans, and a Health Care Savings Plan. These plans are separate from the Retiree Health Care Plan. The City's fiduciary responsibility to you is to supervise the general administration of the Plan and invest its assets. The City invests with professional money managers to assist it in fulfilling these duties. This summary report is prepared to give you a brief overview of the Retiree Health Care Plan and how it operates. We hope you will find it useful and informative. However, a summary cannot cover all the details of the Plan, which is governed by Michigan Public Employee Health Care Fund Investment Act 149 of 1999, the provisions of the City's charter, the Retiree Health Care Plan Investment Policy, and various labor contracts. Additional information about the Plan and its financial operation is available in the Finance Department. This report complies with Public Act 530 of 2016 which amends Public Act 314 of Respectfully submitted, City of Dearborn City of Dearborn Retiree Health Care Plan Investment Fiduciaries Susan Dabaja, Council President World Assets Management Thomas Tafelski, Council President Pro Tem Victory Capital Management Michael T. Sareini, Council Member Brian O Donnell, Council Member. David Bazzey, Council Member Robert Abraham, Council Member Mark Shooshanian, Council Member Master Trust Custodian Comerica Bank Actuary Gabriel, Roeder, Smith & Company Mayor John B. O Reilly, Jr. Finance Director James J. O Connor Legal Advisor Jeremy Romer Accountant Ginger Soles 1

2 Summary Results of Actuarial Valuation Your retiree health care plan s financial objective is to establish and receive contributions, which will remain approximately level from year to year and will not have to be increased for future generations of taxpayers. Contribution levels are expressed in terms of percents of the city's active member payroll. To determine an appropriate Employer contribution level for the ensuing year and to gauge how the system's funding is meeting this fundamental objective, an independent firm of actuaries and employee benefit consultants, Gabriel, Roeder, Smith & Company, conducts biennial actuarial valuations. These valuations are based on your System's past experience, information about current participation and financial markets, claims experience, and assumptions concerning the System s future demographic and economic activity. The results of the June 30, 2016 valuation, based on the established funding objective, are summarized below: Fiscal year 2018 Employer Contribution Rates As a Percentage of Active Member Payroll Contributions for General Employees Public Safety Normal Cost of Benefits 23.38% 13.09% Accrued Liabilities Computed Employer Rate % The System did not receive the recommended employer contributions for the year covered by this report. Funded Status $ Millions Actuarial accrued liabilities $ Applied assets (smoothed market value) 64.5 % Funded 28.5 % Number of Active Members Inactive Vested Members... 9 Number of Retirees and Beneficiaries Average Annual Benefit Expense... $12, Annual Required Contribution... $17,235,903 $17,123,897 $16,817,893 Estimated Claims Paid for Retirees... $12,747,844 $13,616,162 $12,494,004 Employer Contributions $13,356,484 Reimbursements $ 409,043 Valuation Payroll... $37,603,605 Weighted Average of Member Contributions None Total Soft Dollar Expenditures... No soft dollar expenditures Travel / Training Expenditures... None Itemized Budget and Expenditures... See Attached Assumed Rate of Investment Return % Assumed Rate of Long Term Wage Inflation 3.0% % Assumed Health Care Cost Trend Rate 9.0% Initial; 3.0% Ultimate Smoothing Method... None Amortization Method and Period... Level Dollar Closed /20 Years Actuarial Cost Method... Individual Entry Age Investment Performance Net of Fees on rolling calendar-year basis: 1 Year 4.5% 5 Year 8.7% 10 Year Unavailable 3 Year 7.6% 7 Year 9.6% 2

3 SUMMARY OF CURRENT ASSET INFORMATION Revenues & Expenditures 2015 / / 2016 Operating Revenues: ACTUAL BUDGET Employer Contributions $ 13,356,484 $ 12,563,364 Reimbursements 409, ,000 Interest and dividends 3,047,000 2,131,198 Net decrease in value of investments (213,076) 2,098,053 Investment expenses (103,544) (96,000) Total Operating Revenues 16,495,907 17,071,615 Operating Expenses: Benefits 10,732,369 10,920,000 Administrative Expenses 19,000 23,000 Total Operating Expenses 10,751,369 10,943,000 Net Income (Loss) 5,744,538 6,128,615 Fund Balance, July 1, ,766,348 58,766,348 Fund Balance, June 30, 2016 $ 64,510,886 $ 64,894,963 Investments Stock and equity mutual funds... 40% Bonds Cash and equivalents... 3 Total 100% The market rate of return on system assets for the year ended June 30, 2016 was 4.5 %. SUMMARY OF BENEFITS AS OF JUNE 30, Plan Participants Full-Time Employees of the City of Dearborn are eligible to receive retiree health care benefits. Except: E & A: employees hired on or after July 1, Department Heads: employees hired on or after July 1, Communications Supervisors: employees hired on or after July 1, Court: employees hired on or after January 1, STP: employees hired on or after October 11, Dispatch: employees hired on or after September 7, MWD: employees hired on or after October 11, POAD: employees hired on or after June 20, Teamsters: employees hired on or after November 15, Fire: employees hired on or after August 26,

4 2. Normal Retirement Benefits Normal retirement eligibility conditions for retiree health care benefits are as follows: Police and Fire: 25 years of service or 10 years of service and 55 years old. P & F New Hires: Police effective April 2009 and Fire effective May 2009 are eligible at 25 years of service and 50 years old. General Employees: 25 years of service and 55 years old, or 10 years of service and 60 years old. Dispatchers: 25 years of service and 50 years old, or 10 years of service and 60 years old. Member: City pays 100% of the premium with varying prescription drug co-pays. continues to receive a pension and dependents are eligible. 3. Early Retirement Benefits Certain members and eligible dependents retiring under early retirement conditions are eligible for retiree health care as and if /when negotiated. 4. Deferred Retirement Benefits Deferred retirement eligibility conditions for retiree health care benefits are as follows: Police and Fire: benefit commences when member would have been eligible for normal retirement until January 1, 1999 for non-supervisory Police and July 1, 1998 for Sergeants and Lieutenants, and Fire. Thereafter, no health care for deferred retirees. General Employees: Benefit commences when deferred retiree with 25 or more years of service attains age 55, or 50 years old for dispatchers. 25 or more years of service required to obtain deferred retiree health care. Member: City pays 100% of the premium with varying prescription drug co-pays. continues to receive a pension and dependents are eligible. 5. Duty Death-In-Service Retirement Benefit. Duty Death retirement eligibility conditions for retiree health care benefits are as follows: Health Care Benefits Eligibility Conditions Benefit commences immediately. 6. Non-Duty Death-In-Service Retirement Benefits Non-Duty Death retirement eligibility conditions for retiree health care benefits are as follows: Health Care Benefits Eligibility Conditions Benefit commences immediately. 7. Duty Disability Retirement Benefits Duty Disability retirement eligibility conditions for retiree health care benefits are as follows: 4

5 Health Care Benefits Eligibility Conditions Benefit commences immediately. Member: City pays 100% of premium. 8. Non-Duty Disability Retirement Benefits Non-Duty disability retirement eligibility conditions for retiree health benefits are as follows: Fire: any age with 25 years of service. Non-Supervisory Police: Effective July 1, 2009, non-duty disability retirees, spouse and eligible dependents will have the premium paid in accordance with the schedule below: Lieutenants and Sergeants: Non-duty disability retirees, spouse and eligible dependents will have the premium paid in accordance with the schedule below: Years of Service Completed Percent Paid by City 0 through 9 years 0% 10 through 14 years 40% 15 through 19 years 60% 20 through 24 years 80% 25 years and over 100% General Employees: 25 years of service and 55 years old or 10 years of service and 60 years old. Benefit commences when member would have been eligible for normal retirement. Member: City pays 100% of premium. 9. Benefits for Spouses of Retired Employees (Currently at Retirement) Spouses of retired employees are eligible to receive retiree health care benefits. Coverage continues to surviving spouses of deceased retirees. All eligible spouses must be spouse at time of retirement. 10. Non-Medicare and Medicare-Eligible Provisions (Currently) Retirees are required to enroll in Medicare one eligible. Retiree pays Medicare premiums and will be enrolled in one of the two Medicare Advantage plans. 11. Vision Coverage 12. Dental Coverage Members and dependents are not eligible for vision coverage. Members and dependents may receive dental benefits. Member: must pay 100% of premium Spouse and Dependents: must pay 100% of premium 5

6 13. Life Insurance Coverage Retiree voluntarily elects and pays a monthly fee for $2,000 or $2,500 of life insurance coverage. 14. Retiree Opt-Out Retirees who decide to opt-out of the health care plan will be eligible to receive $1,250 (single employee), $2,000 (2 person), or $2,500 (family) in any year they receive coverage from another source up until age 66 for all retirees. This is a brief summary of the City of Dearborn Other Postemployment Benefits provisions. In the event that any description contained herein differs from the actual eligibility or benefit, the appropriate employee contract or governing document will prevail. Steps the City is taking to Decrease the Plan s Unfunded Actuarial Accrued Liability 1. The City of Dearborn annually budgets and contributes at least the pay-as-you-go amount to the Plan, plus an additional amount towards the Unfunded Actuarial Accrued Liability. It is working to increase year-over-year funding to ultimately achieve the full actuarial determined annual funding level. 2. The City appropriated an additional $2 million in the 2016 / 2017 budget to increase contributions to the Plan. 3. The City regularly examines its personnel budget to seek opportunities for additional funding for the Plan. 4. The City lowered its assumed rate of return from 7.25% to 7.00% beginning in the 2018 fiscal year to more accurately reflect recent investment performance. 5. The City periodically reviews its investment managers and asset allocation in the Plan s portfolio to improve investment performance. 6. The City generally combines contracts with its pension systems for the best pricing and volume discounts. 7. The City regularly reviews the Plan s portfolio performance and rebalances as necessary. 8. The City became self-insured for employee and retiree healthcare. This has provided considerable savings to the Plan. 9. The City monitors health care expenses and providers in the Plan and seeks opportunities for savings. 10. The Plan is closed to new members. 6