OPERATION OF THE RETIREMENT PLAN 1-2 Financial Objective 3 Financing Diagram

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1 KENT COUNTY EMPLOYEES R E T I R E M E N T PLAN AND TRUST 49 TH A N N U A L A C T U A R I A L V A L U A T I O N R E P O R T DECEMBER 31, 2015

2 TABLE OF CONTENTS SECTION PAGE Cover Letter A OPERATION OF THE RETIREMENT PLAN 1-2 Financial Objective 3 Financing Diagram B VALUATION RESULTS 1 Computed Contributions 2 Unfunded Actuarial Accrued Liabilities 3 Derivation of Experience Gain (Loss) 4 Benefit Reserve Fund - Comparative Statement 5 Summary Statement of Resources and Obligations 6-8 Comments, Recommendation and Conclusion 9-10 Other Observations Comparative Statements C SUMMARY OF BENEFIT PROVISIONS AND VALUATION DATA 1-3 Summary of Benefit Provisions 4-7 Retired Life Data 8 Inactive Member Data 9-11 Active Member Data 12 Asset Information 13 Development of Funding Value of Assets D SUMMARY OF VALUATION METHOD AND ASSUMPTIONS 1 Valuation Method 2-7 Actuarial Assumptions 8-10 Plan Funding Policy Glossary E ADDITIONAL DISCLOSURE INFORMATION 1 Actuarial Accrued Liability 2 Analysis of Funding Progress 3 Contributions Required and Made Kent County Employees Retirement Plan and Trust

3 June 10, 2016 The Board of Trustees Kent County Employees Retirement Plan and Trust Grand Rapids, Michigan Dear Board Members: The results of the 49th Annual Actuarial Valuation of the Kent County Employees Retirement Plan and Trust are presented in this report. The purpose of the annual valuation is to measure the Plan's financial progress and to determine the County's contribution rate for the ensuing fiscal year in accordance with the established funding policy. The computed contribution rate shown on page B-1 may be considered as a minimum contribution rate that complies with the Board s funding policy. Users of this report should be aware that contributions made at that rate do not guarantee benefit security. Given the importance of benefit security to any retirement system, we suggest that contributions to the Plan in excess of those presented in this report be considered. This report should not be relied on for any purpose other than those described above. It was prepared at the request of the Board and is intended for use by the Retirement Plan and those designated or approved by the Board. This report may be provided to parties other than the Plan only in its entirety and only with the permission of the Board. GRS is not responsible for unauthorized use of this report. The signing individuals are independent of the plan sponsor. The valuation was based upon information, furnished by the County, concerning retirement plan benefits, financial transactions, and individual members, terminated members, retirees and beneficiaries. Data was checked for internal and year to year consistency, but was not audited. We are not responsible for the accuracy or completeness of the information supplied by others. The date of the valuation was December 31, Future actuarial measurements may differ significantly from the current measurements presented in this report due to such factors as the following: plan experience differing from that anticipated by the economic or demographic assumptions; changes in economic or demographic assumptions; increases or decreases expected as part of the natural operation of the methodology used for these measurements; and changes in plan provisions or applicable law. This report does not contain an analysis of the potential range of such future measurements. This valuation assumed the continuing ability of the plan sponsor to make the contributions necessary to fund this plan. A determination regarding whether or not the plan sponsor is actually able to do so is outside our scope of expertise and was not performed. This report has been prepared by individuals who have substantial experience valuing public employee retirement systems. To the best of our knowledge, this report is complete and accurate and was conducted in accordance with standards of practice prescribed by the Actuarial Standards Board of the American Academy of Actuaries. The actuarial assumptions used for the valuation produce results which, individually and in the aggregate, are reasonable. C0608

4 The Board of Trustees June 10, 2016 Page 2 James D. Anderson 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, James D. Anderson, FSA, EA, MAAA David L. Hoffman JDA/DLH:ah C0608

5 SECTION A O P E R ATION OF T H E R E T I R E M E N T P L A N

6 Basic Financial Objective and Operation of the Retirement Plan Benefit Promises Made Which Must Be Paid For. A retirement program is an orderly means of handing out, keeping track of, and financing contingent pension promises to a group of employees. As each member of the retirement Plan acquires a unit of service credit they are, in effect, handed an "IOU" which reads: "The Employees Retirement Plan promises to pay you one unit of retirement benefits, payments in cash commencing when you retire." The principal related financial question is: When shall the money required to cover the "IOU" be contributed? This year, when the benefit of the member's service is received? Or, some future year when the "IOU" becomes a cash demand? The Constitution of the State of Michigan is directed to the question: "Financial benefits arising on account of service rendered in each fiscal year shall be funded during that year and such funding shall not be used for financing unfunded accrued liabilities." This retirement Plan meets the constitutional requirement by having the following Financial Objective: To establish and receive contributions, expressed as percents of active member payroll, which will remain approximately level from year to year and will not have to be increased for future generations of taxpayers. Translated into actuarial terminology, a level percent-of-payroll contribution objective means that the contribution rate must be at least: Normal Cost (the current value of benefits likely to be paid on account of members' service being rendered in the current year)... plus... Interest on the Unfunded Actuarial Accrued Liability (the difference between the actuarial accrued liability and current Plan assets). Kent County Employees Retirement Plan and Trust A-1

7 If contributions to the retirement program are less than the preceding amount, the difference, plus investment earnings not realized thereon, will have to be contributed at some later time, or, benefits will have to be reduced, to satisfy the fundamental fiscal equation under which all retirement programs must operate; that is: B = C + I - E Benefit payments to any group of members and their beneficiaries cannot exceed the sum of: Contributions received on behalf of the group... plus... Investment earnings on contributions received and not required for immediate cash payments of benefits... minus... Expenses incurred in operating the program. There are retirement programs designed to defer the bulk of contributions far into the future. The inevitable consequence is a relentlessly increasing contribution rate to a level which may be greatly in excess of the level percent-of-payroll rate. This method of financing is prohibited in Michigan by the state constitution. The accumulation of invested assets is a by-product of a level percent-of-payroll contributions, not the objective. Investment income becomes a major contributor to the retirement program and the amount is directly related to the amount of contributions and investment performance. Computed Contribution Rate Needed to Finance Benefits. From a given schedule of benefits and from the data furnished, the actuary calculates the contribution rate by means of an actuarial valuation - the technique of assigning monetary values to the risks assumed in operating a retirement Plan. Kent County Employees Retirement Plan and Trust A-2

8 Kent County Employees Retirement Plan and Trust A-3

9 SECTION B VA L U AT I O N R E S U LT S

10 Contributions Computed to Meet the Financial Objective of the Retirement Plan for Fiscal Years Beginning January 1, 2017 and January 1, 2016 Contributions for Fiscal Year Beginning Percent of Active Payroll January 1, 2017 January 1, 2016 Normal Cost of Benefits: Age & service allowances 16.66% 15.97% Disability allowances Death-in-service allowances Refunds of member contributions Totals Members' Contributions # Employer Normal Cost For Liabilities Associated with Ad-Hoc Costof-Living Adjustment Granted in Unfunded Actuarial Accrued Liabilities* 1.14 (0.12) COMPUTED EMPLOYER RATE 9.57% 7.68% * Amortized as a level percent-of-payroll over a closed period of 23 years. # Weighted average of rates described on page C-3. DETERMINING EMPLOYER DOLLAR CONTRIBUTIONS For any period of time, the percent-of-payroll contribution rate needs to be converted to dollars and then contributed to the Retirement Plan. The recommended procedure is: (1) at the end of each payroll period, multiply the active member payroll for the period by the employer contribution percent; and (2) promptly contribute the dollar amount so determined. Actual employer contributions for the last completed fiscal year were reported to be $8,858,387. Kent County Employees Retirement Plan and Trust B-1

11 Unfunded Actuarial Accrued Liabilities In financing the actuarial accrued liabilities, the valuation assets of $794,741,438 were distributed as shown below. Please see page C-13 for information concerning the derivation of valuation assets. Valuation assets were applied against actuarial accrued liabilities to determine unfunded actuarial accrued liabilities as follows: Retired Lives Active & Inactive Members Total Computed Actuarial Accrued Liabilities and Reserves $ 415,851,853 $399,686,924 * $815,538,777 Valuation Assets 415,851, ,889, ,741,438 Unfunded Actuarial Accrued Liabilities $ NONE $ 20,797,339 $ 20,797,339 * Includes accumulated member contributions. Kent County Employees Retirement Plan and Trust B-2

12 Derivation of Experience Gain (Loss) Year Ended December 31, 2015 Actual experience will not (except by coincidence) coincide exactly with assumed experience. It is hoped that gains and losses will offset each other over a period of years, but sizable year to year fluctuations are common. Detail on the derivation of the experience gain (loss) is shown below, along with a year by year comparative schedule. (1) UAAL * at start of year $ (3,204,898) (2) Total normal cost from last valuation 16,804,590 (3) Actual employer plus employee contributions 18,223,209 (4) Interest accrual: [(1) + 1/2 [(2) - (3)]] x.07 (273,995) (5) Expected UAAL before changes: (1) + (2) - (3) + (4) $ (4,897,512) (6) Change from benefit adjustments (148,500) (7) Change from revised actuarial assumption and methods 27,954,621 (8) Expected UAAL at end of year 22,908,609 (9) Actual UAAL at end of year 20,797,339 (10) Gain (loss): (8) - (9) $ 2,111,270 (11) Gain (loss) as percent of actuarial accrued liabilities at start of year ($743,093,569) 0.3% * Unfunded actuarial accrued liabilities. Valuation Date December 31 Experience Gain (Loss) as a % of Beginning of Year Accrued Liability % 2002 (8.0) 2003 (7.1) 2004 (1.8) 2005 (0.9) (6.2) (3.1) 2011 (2.8) Kent County Employees Retirement Plan and Trust B-3

13 Benefit Reserve Fund Actuarial Accrued Liabilities & Valuation Assets Comparative Statement Valuation Date December 31 No. Allowances Being Paid Monthly Rate Valuation Assets* Computed Actuarial Accrued Liabilities Assets/ Liabilities $ 245,217 $ 29,543,208 $ 29,543, ,855 31,538,904 31,538, ,680 38,251,688 38,251, ,564 49,012,284 49,012, ,818 62,784,504 62,784, ,959 91,185,024 91,185, ,493 91,111,752 91,111, ,492 93,447,936 93,447, ,961 96,488,532 96,488, , ,359, ,359, , ,010, ,010, ,045, ,382, ,382, ,260, ,596, ,596, ,297, ,359, ,359, ,359, ,750, ,750, ,428, ,339, ,339, ,003 1,590, ,482, ,482, ,012 1,682, ,567, ,567, ,043 1,792, ,316, ,316, ,077 1,934, ,454, ,454, ,164 2,230, ,101, ,101, ,196 2,358, ,257, ,257, ,246 2,504, ,954, ,954, ,298 2,677, ,903, ,903, ,330 2,850, ,851, ,851, * After recommended transfer. Kent County Employees Retirement Plan and Trust B-4

14 Summary Statement of Plan Resources and Obligations Present Resources and Expected Future Resources A. Present valuation assets: 1. Net assets from Plan financial statements $ 771,969, Funding value adjustment 22,772, Actuarial assets 794,741,438 B. Actuarial present value of expected future employer contributions: 1. For normal costs 60,198, For unfunded actuarial accrued liability 20,797, Total 80,996,187 C. Actuarial present value of expected future member contributions 80,728,314 D. Total Present and Expected Future Resources $ 956,465,939 Actuarial Present Value of Expected Future Benefit Payments A. To retired members and beneficiaries $ 415,851,853 B. To vested terminated members 20,661,239 C. To present active members: 1. Allocated to service rendered prior to valuation date - actuarial accrued liability 379,025, Allocated to service likely to be rendered after valuation date 140,927, Total 519,952,847 D. Total Actuarial Present Value of Expected Future Benefit Payments $ 956,465,939 Kent County Employees Retirement Plan and Trust B-5

15 Comments, Recommendation and Conclusion Comment A: Overall experience was more favorable than assumed experience during 2015, with a net gain from all sources of $2.1 million (approximately 0.30% of the actuarial accrued liability at the beginning of the year, as shown on page B-3). The primary reason for the gain was higher than expected return on assets phased in from prior years, offset by liability losses due to higher salary increases and lower withdrawal than expected. The Retirement Plan s valuation liabilities exceed recognized valuation assets by $20.8 million for funding purposes. Due to the Board s use of a four-year smoothed market asset valuation method, lower than expected market returns were only 25% recognized, and combined with the scheduled phase-in of the prior three years unrecognized investment income. As a result, the market value of assets returned 0.3% in 2015 while the return on valuation assets was 8.9%. The ratio of the funding value of assets to the market value of assets increased from 94.5% last year to 102.5% this year. The ratio of the funding value of assets to actuarial accrued liabilities decreased from 100.4% last year to 97.4% this year. The ratio of the market value of assets to actuarial accrued liabilities decreased from 106.3% last year to 94.7% this year. Comment B: Given annual investment returns of 7.00% going forward, a net investment gain is scheduled for the next year and investment losses are scheduled for the second and third years (see page C-13 for further details.) Over time, this will exert upward pressure on computed County contribution rates and downward pressure on the funded ratio in absence of future gains. If the computed employer contribution of 9.57% (see page B-1) had been determined using the market value of assets rather than the funding value of assets, the computed employer contribution rate would have been 10.95%. Comment C: In 2003, all retirees or spouses retired prior to 1991 received a one-time ad-hoc cost-ofliving increase ranging between 10% and 25%. This was in addition to the regular cost-of-living adjustment granted each January. This increased the County s computed contribution rate by 0.11% of active member payroll in this report and is reflected as a separate line item on page B-1. Comment D: The following figures form the basis for the Variable Employee Contribution Rate, representing aggregate Normal Cost and Unfunded Liability for all plan members, including only the 1% Post-Retirement Cost-of-Living Adjustment that has applied for all plan members since January 1, Total Normal Cost of Benefits = 17.50% Unfunded Actuarial Accrued Liabilities = 0.00% This lowered the weighted average Member contribution rate shown on page B-1 by 0.40% to 9.81% of payroll. Kent County Employees Retirement Plan and Trust B-6

16 Comments, Recommendation and Conclusion Comment E: The base variable portion of employee contribution rates for the plan year beginning January 1, 2017 has been determined to be 8.50% for POAM/KCLEA. Effective January 1, 2017, the member contribution rate ceiling will increase from 8.50% to 9.50% for Lieutenants and Captains, KCDSA, Management Pay Plan, Judges, Elected Officials and Commissioners, Circuit Court Referees, Airport Command Officers Association, Teamsters-Parks, Teamsters-PHN, Prosecuting Attorneys, Attorney Referees, UAW General, UAW Courts/TPOAM, and Court Reporters. Comment F: The December 31, 2015 actuarial valuation includes an update to the mortality assumption using the RP-2014 Mortality Tables with 2-dimensional, fully generational improvements projected with the MP-2015 Mortality Improvement Scales as adopted by the Board. The effect of this change increased the computed employer contribution rate. Benefit provision changes have been reflected in the valuation as well. Effective January 1, 2016, the Non-Duty Disability benefit provision of the Pension Plan will be replaced with an insured Long Term Disability (LTD) Program for the following groups: Airport Command Officers, Circuit Court Referee Association, Management Pay Plan, Teamsters PHN, UAW General, Prosecuting Attorneys, Court Reporters, and Teamster Parks (effective March 1, 2016). This change was partially reflected in the December 31, 2014 valuation. The effect of this change slightly decreased the computed employer contribution rate. The net impact of all changes increased the computed employer contribution rate by 1.93%. Kent County Employees Retirement Plan and Trust B-7

17 Comments, Recommendation and Conclusion Recommendation for Reserve Transfers: In accordance with (i) the established practice concerning the distribution of year end Income-Expense Reserve balances as provided in Section 9.05, and (ii) the Section 9.04(b) requirement that the year end balance in the Reserve for Retired Benefit Payments be set equal to the present value of pensions being paid, we recommend the following reserve transfers as of January 1, Any undistributed Income-Expense Reserve balance should be transferred to the Reserve for County Contributions and the January 1, 2016 Reserve for Retired Benefit Payments balance should be set equal to $415,851,853 by transfer of any shortfall or surplus from/to the Reserve for County Contributions. These transfers were assumed to have been made for purposes of computing the employer contribution rates on page B-1. Conclusion: The County's contribution rate for the fiscal year beginning January 1, 2017 has been computed to be 9.57% of active member payroll. It is the actuary s opinion that the required contribution rates determined by the most recent actuarial valuation are sufficient to meet the Plan s financial objective, presuming continued timely receipt of required contributions. Kent County Employees Retirement Plan and Trust B-8

18 OTHER OBSERVATIONS General Implications of Contribution Allocation Procedure or Funding Policy on Future Expected Contributions and Funded Status Given the Plan s contribution allocation procedure, if all actuarial assumptions are met (including the assumption of the Retirement Plan earning 7.00% on the Market Value of Assets), it is expected that: 1. The employer normal cost is sufficient to cover the cost of benefits accruing each year; 2. The Unfunded Actuarial Accrued Liabilities (UAAL) will continue to be fully amortized; and 3. The funded status of the Retirement Plan will continue to increase gradually towards a 100% funded ratio. Limitations of Funded Status Measurements Unless otherwise indicated, a funded status measurement presented in this report is based upon the Actuarial Accrued Liability (AAL) and the Funding Value of Assets (FVA). Unless otherwise indicated, with regard to any funded status measurements presented in this report: 1. The measurement is inappropriate for assessing the sufficiency of Retirement Plan assets to cover the estimated cost of settling the Retirement Plan s benefit obligations, for example: transferring the liability to an unrelated third party in a market value type transaction. 2. The measurement is dependent upon the Actuarial Cost Method which, in combination with the Retirement Plan s amortization policy, affects the timing and amounts of future contributions. The amounts of future contributions will most certainly differ from those assumed in this report due to future actual experience differing from assumed experience based upon the actuarial assumptions. A funded status measurement in this report of 100% is not synonymous with no required future contributions. Even if the funded status is over 100%, the Pension Plan would still require future normal cost contributions (i.e., contributions to cover the cost of active membership accruing an additional year of service credit). 3. The measurement would produce a different result if the Market Value of Assets (MVA) were used instead of the FVA, unless the MVA is used in the measurement. Kent County Employees Retirement Plan and Trust B-9

19 OTHER OBSERVATIONS Limitations of Project Scope Actuarial standards do not require the actuary to evaluate the ability of the plan sponsor or other contributing entities to make required contributions to the plan when due. Such an evaluation was not within the scope of this project and is not within the actuary s domain of expertise. Consequently, the actuary performed no such evaluation. Risks to Future Employer Contributions There are ongoing risks to future employer contribution requirements to which the Retirement Plan is exposed, such as: Actual and Assumed Investment Rate of Return Actual and Assumed Mortality Rates Amortization Policy Kent County Employees Retirement Plan and Trust B-10

20 Valuation Date Computed Employer Contributions - Comparative Statement Employer Contributions Active Members Retirants & Beneficiaries as %'s of Payroll Valuation Payroll Active Per Annual Allowances Normal No. Total Average % Incr. No. Retired $ %'s of Pay Cost Total ,151 $56,694,952 $26, % $3,166, % % 9.39 % 1993@ 1,675 48,001,022 28, ,800, ,694 50,160,804 29, ,686, ,752 53,070,396 30, ,793, *& 1,547 50,927,718 32, ,847, # 1,707 57,399,622 33, ,913, # 1,685 60,462,675 35, ,177, # 1,740 66,065,896 37, ,495, # 1,841 71,334,801 38, ,291, # 1,819 74,193,122 40, ,323, # 1,857 78,296,675 42, ,541, #^ 1,836 81,946,947 44, ,124, ,860 85,022,274 45, ,567, ,831 87,221,605 47, ,311, * 1,821 90,839,349 49, ,144, ,793 91,215,447 50, , ,087, # 1,780 93,308,014 52, , ,189, ,737 94,508,103 54, , ,515, # 1,686 92,487,613 54, , ,217, ,631 90,889,046 55, , ,765, # 1,605 91,209,371 56, , ,301, * 1,596 91,944,708 57, , ,059, # 1,549 90,602,575 58, , ,124, ,559 96,301,376 61, , ,207, #* 1,559 96,301,376 61, , ,207, * Revised actuarial After transfer of Hospital active members out of Plan. # Retirement Plan amended. & After transfer of Library District active members out of Plan. ^ After transfer of Community Mental Health active members out of Plan. Kent County Employees Retirement Plan and Trust B-11

21 Actuarial Accrued Liabilities & Assets - Comparative Statement Valuation Date December 31 Actuarial Accrued Liability (AAL) Valuation Assets Unfunded Accrued Liability Valuation Assets as $ Millions a % of AAL UAAL as a % of Valuation Payroll 1992 $ $ $ (19.0) 111.7% @ (11.2) (10.8) (18.0) *& (21.6) # (38.5) # (72.8) # (97.1) # (101.9) # (105.5) # (72.5) #^ (40.1) (29.0) (23.7) * (45.6) (60.3) # (26.6) (2.5) # % # # # (3.2) (7.0) #* * Revised actuarial assumptions. # Retirement Plan After transfer of Hospital active members out of Plan. & After transfer of Library District active members out of Plan. ^ After transfer of Community Mental Health members out of Plan. Valuation Assets as a percent of AAL is a traditional measure of a Plan's funding progress. Except in years when the Plan is amended or actuarial assumptions are revised, this percent can be expected to increase gradually toward 100%. UAAL as a percent of Valuation Payroll is another relative index of condition. Unfunded actuarial accrued liabilities represent debt, while active member payroll represents the Plan's capacity to collect contributions to pay toward debt. The lower the percent, the greater the financial strength and vice-versa. Kent County Employees Retirement Plan and Trust B-12

22 SECTION C S U M M A RY OF BENEFIT P R O V I S I O N S AND VA L U AT I O N D ATA

23 Benefit Provisions Evaluated December 31, 2015 Regular Retirement (no reduction factor for age): Eligibility - Age 60 with 5 years of service or 25 years of service regardless of age. Military service may be purchased. For members hired on or after January 1, 2011, age 62 with 5 years of service or age 60 (age 55 for Captains/Lieutenants) with 25 years of service, for the following groups: MPP, UAW (all), Court Reporters, Teamsters-PHN, and Prosecuting Attorneys. For members hired on or after January 1, 2012, age 62 with 5 years of service or age 60 with 25 years of service, for the following groups: Teamsters-Parks, Airport Command Officers Association, and Circuit Court Referees. For KCDSA members hired on or after January 1, 2013, age 62 with 5 years of service or age 55 with 25 years of service. For POAM/KCLEA members hired on or after January 1, 2015, age 62 with 5 years of service or age 50 with 25 years of service. Annual Amount % of FAS times years of credited service. Maximum County financed benefit is 75% of FAS. Type of Final Average Salary - Highest 3 consecutive years out of last 5. Early Retirement (age reduction factor used): Eligibility - Age 55 with 15 or more years of service. Annual Amount - Computed as regular retirement but reduced to the actuarial equivalent of a life allowance at normal retirement age. Deferred Retirement (vested benefit): Eligibility - 8 years of service for: Commissioners, Lieutenants/Captains, POLC-Attorney Referees/POLC-Prosecuting Attorney. 5 years of service for all other units. Annual Amount - Same as regular retirement but based upon service and final average salary at termination. Kent County Employees Retirement Plan and Trust C-1

24 Duty Disability Retirement: Eligibility - No minimum age or service requirement. Annual Amount - Computed as regular retirement but with additional service granted from date of disability to age 60. Maximum is 90% of FAS less any other payments such as worker's compensation or Social Security. Non-Duty Disability Retirement: Eligibility - 10 years of service. Effective January 1, The Non-Duty Disability benefit provision will not apply to employees in the following groups: Airport Command Officers, Circuit Court Referee Association, Management Pay Plan, Teamsters PHN, UAW General, Prosecuting Attorneys, and Court Reporters. Effective March 1, The Non-Duty Disability benefit provision will not apply to employees in the following groups: Teamsters Parks Annual Amount - Same as regular retirement benefit. Death Before Retirement: Eligibility - 5 years of service. Annual Amount - Computed as a regular retirement but actuarially reduced in accordance with a 100% joint and survivor election. If the participant dies before attaining earliest retirement age and has less than 15 years of service, the benefit will be reduced to reflect commencement prior to the participant s normal retirement age. Post-Retirement Cost-of-Living Adjustments: Annual increase equal to 1% of original benefit, beginning 3 full years after retirement, providing there has been a corresponding increase in the Consumers Price Index. The first increase was January 1, Lieutenants and Captains have a 3% Cost-of-Living Adjustment (compounded) effective for retirements on or after July 1, 2000, beginning 3 full years after retirement. KCDSA, effective July 1, 2002, have a Cost-of-Living Adjustment equal to the increase in CPI up to 2% (compounded), beginning 3 full years after retirement. Retirements on or after April 1, 2013 have a 2% COLA (compounded) beginning 3 full years after retirement. POAM/KCLEA have a 2% Cost-of-Living Adjustment (compounded) effective for retirements on or after July 1, 2010, beginning 3 full years after retirement. Kent County Employees Retirement Plan and Trust C-2

25 Member Contributions: UAW Courts (changing to TPOAM contract not settled): ½ annual amortized actuarial valuation not to exceed 8.5%. Management Pay Plan, Judges, Elected Officials and Commissioners, Circuit Court Referees, Airport Command Officers Association, Teamsters Parks, Teamster PHN, UAW-General, Prosecuting Attorney, Court Reporter, and Attorney Referees: ½ annual amortized actuarial valuation not to exceed 8.5% (9.5% effective 1/1/17). Lieutenants/Captains: ½ annual amortized actuarial valuation not to exceed 8.5% plus 3.5%. Combined KCDSA: ½ annual amortized actuarial valuation not to exceed 8.5% plus 3.8%. POAM/KCLEA: ½ annual amortized actuarial valuation not to exceed 8.5% plus 3.32%. Covered Salary: Salary for Retirement Plan purposes includes base pay, overtime pay and employer sponsored sickness and accident benefits. Salary excludes longevity pay, cost-of-living allowance, clothing allowance, mileage allowance, retirement bonus for unused sick time, compensation due to waiver of health insurance, retirement incentive bonuses, and lump sums due to holiday and/or vacation time. KCDSA and POAM/KCLEA have limitations on overtime included in final average compensation. Kent County Employees Retirement Plan and Trust C-3

26 Retirees and Beneficiaries Added to and Removed from Rolls Comparative Statement Added to Rolls Expected Year Annual Allowances Removed from Rolls Rolls End of Year Removals Ended December 31 No. Allowance Inc. No. Annual Allowances No. Annual Allowances Average Allowance No. Dollars $ 228,643 $ 20, $ 109, $ 2,942,562 $ 5, $ 68, ,251 23, , ,166,265 5, , ,962 26, , ,800,161 6, , ,161 28, , ,686,773 7, , ,169,378 30, , ,793,816 8, , ,172,887 33, , ,847,503 9, , ,028 38, , ,913,917 10, , ,236 51, , ,177,904 10, , ,224 73, , ,495,532 11, , ,006 74, , ,291,572 11, , ,070,764 69, , ,323,912 12, , ,373,564 60, , ,541,608 14, , ,507, , , ,124,488 16, , , , , ,567,720 16, , , , , ,311,828 17, , , , , ,144,586 17, , ,088, , ,796 1,003 19,087,870 19, , ,334, , ,469 1,012 20,189,385 19, , ,527, , ,334 1,043 21,515,592 20, , ,864, , ,987 1,077 23,217,756 21, , ,632, , ,036 1,164 26,765,436 22, , ,868, , ,464 1,196 28,301,328 23, , ,983, , ,681 1,246 30,059,376 24, , ,316, , ,360 1,298 32,124,144 24, , ,224, , ,840 1,330 34,207,308 25, ,575 Expected ,576 Kent County Employees Retirement Plan and Trust C-4

27 Retirees and Beneficiaries as of December 31, 2015 by Type of Benefits Being Paid Type of Benefits Being Paid Age and Service Pensions No. Monthly Allowances Total Average Age and service allowances: - Straight life 502 $ 989,974 $ 1,972 - Option A - joint & 100% survivor 454 1,098,777 2,420 - Option B - joint & 50% survivor ,194 2,507 - Option C months certain & life thereafter ,280 1,743 Surviving beneficiaries of deceased age and service retirants ,667 1,564 Totals 1,291 2,792,892 2,163 Allowances to surviving beneficiaries of deceased members who died while in service 9 14,692 1,632 Total Age and Service pensions being paid 1,300 2,807,584 2,160 Disability Pensions Non-duty disability: - Straight life 7 12,153 1,736 - Option A 11 17,194 1,563 - Option C 3 4,894 1,631 - Survivor 3 3,306 1,102 Duty disability: - Straight life 2 2,624 1,312 - Option A 3 2, Option C Total Disability pensions being paid 30 43,025 1,434 Total Allowances Being Paid 1,330 $ 2,850,609 $ 2,143 Kent County Employees Retirement Plan and Trust C-5

28 Allowances Being Paid December 31, 2015 Tabulated by Attained Ages Attained Ages No. Retirants Monthly Allowances Surviving Beneficiaries Monthly No. Allowances No. Disability Monthly Allowances Death-In-Service Monthly No. Allowances $ 2, $ , $ 2, , , , ,988 1 $ 2, , , , , , , , , , , , , , , , , , ,823 Over , , , ,851 Totals 1,203 $ 2,655, $ 140, $ 39,719 9 $ 14,692 Averages Retirement Age Attained Age Kent County Employees Retirement Plan and Trust C-6

29 Allowances Being Paid December 31, 2015 Tabulated by Year of Retirement Year of Retirement Monthly Allowances No. Total Average $ 284 $ , , ,290 1, , , , ,692 1, ,842 1, ,952 1, ,510 2, ,351 1, ,989 1, ,064 1, ,769 2, ,556 2, ,620 2, ,775 2, ,045 2, ,543 2, ,085 2, ,144 2, ,947 2, ,125 2, ,074 2, ,765 2, ,568 2, ,727 1, ,408 2, ,519 2,703 Totals 1,330 $ 2,850,609 $ 2,143 Kent County Employees Retirement Plan and Trust C-7

30 Vested terminated members included in the valuation totaled 233, involving estimated deferred annual allowances of $3,120,540. A vested terminated member is a person who has left County employment with entitlement to a retirement allowance after attaining normal retirement age and upon application thereof. Vested Terminated Members as of December 31, 2015 Tabulated by Attained Ages Attained Ages Deferred Pensions Estimated Monthly No. Allowances 29 2 $ 1, , , , , , , , , , , , , , , , , , , , , , , , , , , , , Totals 233 $ 260,045 Kent County Employees Retirement Plan and Trust C-8

31 Valuation Date December 31 Active Members Included in Valuation Number Added to and Removed from Active Membership Active Members Gen. Hosp. Total Vested Term. Member Valuation Payroll Average Service ,819-1, $ 74,193, yrs yrs. $ 40, ,857-1, ,296, , ^ 1,836-1, ,946, , ,860-1, ,022, , ,831-1, ,221, , ,821-1, ,839, , ,793-1, ,215, , ,780-1, ,308, , ,737-1, ,508, , ,686-1, ,487, , ,631-1, ,889, , ,605-1, ,209, , ,596-1, ,944, , ,549-1, ,602, , ,559-1, ,301, ,771 Year Ended December 31 Number Terminations During Year Added During Year Normal Retirement Disability Retirement Vested Other A# A E A E A A* , , ^ , , , , , , , , , , , , ,559 5-Year Totals A represents actual number. Age Other Terminations A Total E E represents expected number. * Estimated. # Includes those completing probationary period during calendar year. ^ Community Mental Health members transferred out of Plan prior to 12/31/2003. Pay Active Members End of Year Kent County Employees Retirement Plan and Trust C-9

32 Active Members December 31, 2015 by Attained Age and Years of Service Age Group Years of Accrued Service Totals & Up No. Salary $ 530, ,532, ,467, ,778, ,473, ,285, ,431, ,085, ,293, ,356, ,524, ,130, , , , , , , & Over ,228 Totals ,559 $ 96,301,376 While not used in the financial computations, the following group averages are computed and shown because of their general interest. Age: 45.1 years Service: 13.4 years Pay: $61,771 Kent County Employees Retirement Plan and Trust C-10

33 Plan Maturity Indicators Active/Retired Ratio Pensions/Payroll Ratio Ultimate Disposition of Current Active Members as of December 31, % 22.0% 1.0% 4.0% 2.0% Normal & Early Disability Non-Vested DIS Vested Kent County Employees Retirement Plan and Trust C-11

34 Summary of Current Asset Information from Financial Data Furnished for Valuation Balance Sheet Reported Assets Market Value Cash & equivalents $ 12,050,661 Receivables & accruals 2,203,006 Stocks 461,030,674 Bonds & government securities 226,024,397 Real Estate 72,085,619 Accounts Payable (1,425,296) Total Current Assets $ 771,969,061 Revenues and Expenditures Balance January 1 $ 757,005,057 $ 789,770,521 Revenues: Employees' contributions 9,209,179 9,364,822 Employer contributions 8,929,617 8,858,387 Investment income* 51,649,613 1,804,294 Total 69,788,409 20,027,503 Expenditures: Benefit payments 31,099,736 33,243,393 Refund of member contributions 582, ,321 Administrative and investment expenses 5,340,319 4,108,249 Total 37,022,945 37,828,963 Asset correction 0 0 Balance - December 31 $ 789,770,521 $ 771,969,061 * Balancing item. Valuation assets are derived on the following page. Kent County Employees Retirement Plan and Trust C-12

35 Development of Funding Value of Assets Year Ended December 31: A. Funding Value Beginning of Year $ 644,210,465 $ 693,348,539 $ 746,298,467 B. Market Value End of Year * 757,005, ,770, ,969,061 C. Market Value Beginning of Year 654,383, ,005, ,770,521 D. Non-Investment Net Cash Flow (13,030,295) (14,289,097) (16,097,987) E. Investment Income: E1. Market Total: B - C - D 115,651,401 47,054,561 (1,703,473) E2. Amount for Immediate Recognition (7.0%) 44,638,672 48,034,279 51,677,463 E3. Amount for Phased-In Recognition: E1-E2 71,012,729 (979,718) (53,380,936) F. Phased-In Recognition of Investment Income: F1. Current Year: 0.25 x E3 17,753,182 (244,930) (13,345,234) F2. First Prior Year 8,700,476 17,753,182 (244,930) $ (13,345,234) F3. Second Prior Year (7,003,984) 8,700,476 17,753,182 (244,930) $ (13,345,234) F4. Third Prior Year (1,919,977) (7,003,982) 8,700,477 17,753,183 (244,928) $ (13,345,234) F5. Total Recognized Investment Gain 17,529,697 19,204,746 12,863,495 4,163,019 (13,590,162) (13,345,234) G. Funding Value End of Year: A + D + E2 + F5 693,348, ,298, ,741,438 H. Difference between Market & Funding Value 63,656,518 43,472,054 (22,772,377) I. Recognized Rate of Return 9.7% 9.8% 8.7% J. Ratio of Funding to Market Value 91.6% 94.5% 102.9% * Unaudited amount. The Funding Value of Assets recognizes assumed investment income (line E2) fully each year. Differences between actual and assumed investment income (line E3) are phased-in over a closed 4-year period. During periods when investment performance exceeds the assumed rate, Funding Value of Assets will tend to be less than market value. During periods when investment performance is less than the assumed rate, Funding Value of Assets will tend to be greater than market value. The Funding Value of Assets is unbiased with respect to Market Value. At any time it may be either greater or less than Market Value. If actual and assumed rates of investment income are exactly equal for 3 consecutive years, the Funding Value will become equal to Market Value. Kent County Employees Retirement Plan and Trust C-13

36 SECTION D SUMM A RY OF VA L U AT I O N ME T H O D A N D A S S U M PTIONS

37 Actuarial Valuation 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 normal cost method having the following characteristics: (i) (ii) 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 value of the member's benefit at the time of retirement; each annual normal cost is a constant percentage of the member's year-byyear projected covered pay. Financing of Unfunded Actuarial Accrued Liabilities. Unfunded actuarial accrued liabilities were amortized by level (principal & interest combined) percent-of-payroll contributions over a closed period of 23 years. Kent County Employees Retirement Plan and Trust D-1

38 Assumptions Used in the Valuation The actuarial assumptions are adopted by the Retirement Board after consultation with the actuary. In general, the actuarial assumptions were based on plan experience, as well as on experience of other plans in Michigan. In addition, the mortality tables also reflect national trends. The reasonableness of the economic assumptions was based upon capital market expectations provided by various investment consultants and other sources such as the Social Security Trustees report. The actuarial assumptions represent estimates of future experience. The actuary calculates the contribution requirements and benefit values by applying assumptions to the benefit provisions and participant information furnished, using the valuation methods described on the previous page. The principal areas of financial risk which require assumptions about future experiences are: long term rates of investment return to be generated by the assets of the Plan, patterns of pay increases to members, rates of mortality among members, retirees and beneficiaries, rates of withdrawal from active memberships, rates of disability among members, and the age patterns of service 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 Plan will not coincide exactly with assumed experience, regardless of the wisdom 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). Assumptions were last revised for the December 31, 2015 actuarial valuation. Kent County Employees Retirement Plan and Trust D-2

39 The rate of investment return was 7.0% per year compounded yearly. 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 return for funding purposes is the rate of return in excess of average salary increases. Considering other current assumptions used in the valuation, the 7.0% translates to a real return of approximately 3.0%. Experience over the last 5 years is illustrated below: Year Ending December Year Average 1) Nominal rate (net) 8.7% 9.8% 9.7% 7.0% 5.5% 8.1% 2) Increase in CPI ) Average salary increase # ) Real return as measured - CPI Average salary increase Assumption 3.0 # Excludes new hires and terminations during year. The nominal rate of return was computed using the approximate formula: i = I divided by 1/2 (A+B-I), where I is the net realized investment income, A is the beginning of year asset value and B is the end of year asset value. 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. Sample Ages Salary Increase Assumptions For an Individual Member Base (Economic) Merit & Seniority Increase Next Year % 4.0 % 11.0 % If the number of active members remains constant, then the total active member payroll will increase 4.0% annually, the base portion of the individual salary increase assumptions. This increasing payroll was recognized in amortizing unfunded accrued liabilities. These rates were first used for the December 31, 2013 valuation. Kent County Employees Retirement Plan and Trust D-3

40 The mortality table was the RP-2014 Mortality Tables with 2-dimensional, fully generational improvements projected with the MP-2015 Mortality Improvement Scales. These tables were first used for the December 31, 2015 valuation. (These tables were used for valuation purposes only. For optional form of payment actuarial equivalent benefit computations, a unisex mortality table based on the 1983 Group Annuity Mortality Table made up of 60% male and 40% female rates, is used.) Single Life Retirement Values Present Value of $1.00 Sample Attained Monthly Increasing by $.01 Yearly After 3 Years Percent Dying Next Year Future Life Expectancy (Years) Ages Men Women Men Women Men Women 50 $ $ % % % % % % % % % % % % % % This assumption is used to measure the probabilities of members dying before retirement and the probabilities of each benefit payment being made after retirement. Rates of separation from active membership were as shown below. This assumption measures the probabilities of members remaining in employment. Sample Ages Years of Service % of Active Members Separating within Next Year ALL % & Over Kent County Employees Retirement Plan and Trust D-4