February 27, 2015 The Board of Trustees Employee Pension Plan Auburn Hills, Michigan 48326-2753 Dear Board Members: The purpose of the annual actuarial valuation of the Employee Pension Plan as of December 31, 2014, is to: Compute the present value of future pension benefits likely to be paid on behalf of current retired and active members of the Pension Plan, and Compute the City s recommended contribution rate for the Fiscal Year beginning January 1, 2015. This valuation has been conducted in accordance with generally accepted actuarial principles and practices. Data concerning active members, retirees, beneficiaries and assets was provided by the. This data has been reviewed for reasonableness, but no attempt has been made to audit such information. The valuation was based on the provisions of the Pension Plan as amended through December 31, 2014. The actuarial assumptions used in this valuation represent reasonable expectations of future aggregate experience under the Plan. This valuation has been prepared under the supervision of a Member of the American Academy of Actuaries who meets the qualification standards of the American Academy of Actuaries to render the actuarial opinions contained herein. The valuation of retiree health insurance benefits is presented in a separate report. Respectfully submitted, Denise M. Jones Senior Consultant Sandra W. Rodwan Member, American Academy of Actuaries
Employee Pension Plan Actuarial Valuation as of December 31, 2014
Table of Contents Section One: Valuation Summary Valuation Summary... 1 Section Two: Actuarial Calculations Funding Computed Contribution Rates... 4 Recommended City Contributions... 6 Section Three: Pension Plan Benefit Provisions Benefit Provision Summary... 9 Section Four: Actuarial Assumptions and Methods Actuarial Assumptions... 11 Actuarial Methods... 14 Asset Summary... 15 Section Five: Valuation Data Participant Summary... 16
Section One: Valuation Summary
Section One: Valuation Summary Purpose of Valuation The purpose of the annual actuarial valuation of the Employee Pension Plan as of December 31, 2014 is to: Compute the present value of future pension benefits likely to be paid on behalf of current retired and active members of the Pension Plan, Compute the City s recommended contribution rate for the Fiscal Year beginning January 1, 2015. Funding Value of Assets The market value of assets was used for the December 31, 2014 valuation, consistent with the prior valuation. City s Computed Contribution Rate for Pensions The City s contribution for the fiscal year beginning January 1, 2015 has been computed to be $474,821, which is 22.35% of active member valuation payroll as of December 31, 2014. This contribution rate was computed using the aggregate actuarial cost method. This method is appropriate for retirement systems which are closed to new hires. The aggregate method produces an employer contribution rate which together with current assets, investment earnings and member contributions, can be expected to accumulate over the future working lifetimes of the active members to the value of the benefits payable at retirement. The actuarial accrued liability under this method is defined to be the current actuarial value of assets. Employee Pension Plan - 1 - December 31, 2014 Valuation
Section One: Valuation Summary Benefit Provision Changes There were no benefit provision changes in this valuation. Assumption and Method Changes The mortality table was changed from the 1983 Group Annuity Mortality table for males and females to the RP 2014 Healthy Annuitant Mortality Table for males and females. In addition the salary increase assumption was changed from 5.0% to 4.5%. The changes were adopted by the Board of Trustees in December, 2014. Participant Data 12/31/2014 12/31/2013 Active Members 32 41 Active Member Payroll $2,124,477 $2,823,161 Retirees and Beneficiaries 104 96 Annual Pensions $2,888,552 $2,364,612 Inactive Vested Members 19 21 Deferred Annual Pensions $132,503 $166,820 Financial Data 12/31/2014 12/31/2013 Market Value of Assets $48,765,043 $47,291,748 Employee Pension Plan - 2 - December 31, 2014 Valuation
Section One: Valuation Summary Pension Plan Experience The increase in the City s computed contribution reflects the net effect of assumption changes that were adopted by the Board. If the assumptions had not been changed, the City s contribution rate would have decreased from last year by 0.73% of active payroll. Conclusion The financial security of the Pension Plan continues to depend upon receipt of future contributions as recommended. Employee Pension Plan - 3 - December 31, 2014 Valuation
Section Two: Actuarial Calculations Funding
Section Two: Actuarial Calculations Funding Recommended City Contribution Rate for Fiscal Year 2015 The City s computed contribution rate for the year beginning January 1, 2015 has been computed to be 22.35% of payroll, or $474,821. 1. Actuarial Present Value of all Future Benefits 12/31/14 Valuation Active Members: Regular Retirement $13,921,855 Pre-Retirement death 212,694 Disability 538,476 Withdrawal 180,597 Total 14,853,622 Inactive Members 1,143,117 Retirees and Beneficiaries 37,829,046 Total Present Value of Future Benefits 53,825,785 2. Valuation Assets (Market Value) 48,765,043 3. Present Value of Future Member Contributions 962,787 4. Unfunded Present Value of Benefits: 1. 2. 3. 4,097,955 5. Present Value of Future Pay 18,502,571 6. City s Contribution as a percent of Payroll: 4. / 5. 22.15% 7. Expenses 0.20% 8. Total Employer Contribution Rate: 6. + 7. 22.35% 9. City s Dollar Amount Based on Valuation Payroll $474,821 Employee Pension Plan - 4 - December 31, 2014 Valuation
Section Two: Actuarial Calculations Funding Computed Normal Cost Contribution Rates as of December 31, 2014 Based on Entry Age Actuarial Cost Method For Illustration Purposes Only The normal cost contribution rate based on the entry age actuarial cost method is shown for illustration purposes only and for comparison to prior years normal costs. Last year the computed entry age normal cost was 13.52%. The aggregate cost method used to compute the City s recommended contribution rate shown on page 4 is the appropriate method for a plan closed to new hires. Percent of Payroll Normal Cost Regular Retirement 14.32% Pre-Retirement Death 0.42 Disability 0.69 Withdrawal 2.31 Expenses 0.23 Total Normal Cost 17.97 Member portion 5.62 Total Entry Age Normal Cost 12.35% Employee Pension Plan - 5 - December 31, 2014 Valuation
Section Two: Actuarial Calculations Funding Recommended City Contributions (Excluding Health Insurance) Valuation Date Recommended % of Payroll Contributions Recommended Dollar Contributions 01/01/2002 35.18% $1,591,762 12/31/2002 39.39 1,736,504 12/31/2003 35.80 1,670,414 12/31/2004 31.95 1,384,529 12/31/2005 35.05 1,502,180 12/31/2006 37.55 1,567,171 12/31/2007 36.06* 1,601,259 12/31/2008 40.53* 1,800,155 12/31/2009 29.73* 1,202,471 12/31/2010 21.97* 823,353 12/31/2011 22.35* 739,046 12/31/2012 21.69* 697,085 12/31/2013 15.99* 451,423 12/31/2014(b) 15.26* 324,195 12/31/2014(a) 22.35* 474,821 Note: Results prior to 12/31/2002 are based on reports provided by previous actuarial firm. *Based on the Aggregate Cost method. The Entry Age Normal Cost method was used prior to the 12/31/2007 valuation. (a) After assumption changes. (b) Before assumption changes. Employee Pension Plan - 6 - December 31, 2014 Valuation
Section Two: Actuarial Calculations Funding History of Assets and Accrued Liabilities (Excluding Health Insurance) Actuarial Accrued Liabilities Unfunded Actuarial Accrued Liabilities Valuation Date Valuation Assets Funded Ratio 1/1/1995 $ 5,595,875 $11,392,114 49.1% $ 5,796,239 1/1/1996 8,194,112 12,928,428 63.4 4,734,316 1/1/1997 9,550,565 13,511,315 70.7 3,960,750 1/1/1998 12,827,577 16,784,386 76.4 3,956,809 1/1/1999 14,826,944 18,254,045 81.2 3,427,101 1/1/2000 16,975,974 21,450,883 79.1 4,474,909 1/1/2001 15,424,423 22,637,823 68.1 7,213,400 1/1/2002 15,243,527 26,007,423 58.6 10,763,896 12/31/2002 14,199,574 27,723,143 51.2 13,523,569 12/31/2003 18,229,129 30,459,067 59.8 12,229,938 12/31/2004 21,163,078 30,440,335 69.5 9,277,257 12/31/2005 23,341,525 33,270,684 70.2 9,929,159 12/31/2006 26,814,910 37,247,171 72.0 10,432,261 12/31/2007 29,310,064 38,917,397# 75.3 9,607,333 12/31/2008 28,953,896 39,912,676# 72.5 10,958,780 12/31/2009 35,442,269 41,446,950# 85.5 6,004,681 12/31/2010 40,067,153 43,094,123# 93.0 3,026,970 12/31/2011 39,509,413 42,317,470# 93.4 2,808,057 12/31/2012 43,553,899 45,912,137# 94.9 2,358,238 12/31/2013 47,291,748 47,936,893# 98.7 645,145 12/31/2014 48,765,043 50,653,898# 96.3 1,888,855 # Based on entry age actuarial accrued liability for comparison to prior years. The entry age accrued liability has not been used to compute contribution requirements after the 2006 valuation. Under the aggregate cost method used to compute contributions beginning in 2007, the accrued liability is defined to be equal to the accrued assets. Results shown throughout this report, for years prior to 12/31/2002, were prepared by the previous actuarial firm. Employee Pension Plan - 7 - December 31, 2014 Valuation
Section Two: Actuarial Calculations Funding Comment 1: The increase in the City s computed contribution reflects net effect of the assumption changes that were adopted by the Board. If the assumptions had not been changed, the City s contribution rate would have decreased from last year by 0.73% of active payroll. Comment 2: The Employee Pension Plan is closed to new hires. An actuarial cost method frequently used to compute contributions rates for closed plans is the aggregate cost method. The aggregate cost method is expected to result in a more level percent of payroll contribution rate for closed plans than the entry-age actuarial cost method which had been used for prior to the December 31, 2007 annual actuarial valuation. The aggregate cost method finances the portion of the present value of all future benefits that is not covered by current assets and the present value of future member contributions over the prospective payroll of the active members. The employer contribution rate computed in this valuation based on the aggregate actuarial cost method was 22.35% of payroll. Employee Pension Plan - 8 - December 31, 2014 Valuation
Section Three: Pension Plan Benefit Provisions
Section Three: Retirement Plan Benefit Provisions Benefit Provision Summary Service Retirement Eligibility: Administration age 55 with 10 years. AFSCME age 55 with 10 years or age 50 with 28 years. Dispatchers age 55 with 15 years. Police Patrol any age with 25 years or age 50 with 15 years. Command and Detectives - age 50 with 15 years of service. Amount: Unit Multiplier Max. Final Avg. Comp. Member Contrib. COLA (Non-Compound) Percent Start Max. Admin. 2.65% 80% Final 5 6% 2.5% 55 15 yrs. AFSCME 2.65% 80% Highest 3 5% 2.5% 55 15 yrs. of final 5 Police 2.80%/1% 80% 5 highest 6% 2.5% 50 (a) 15 yrs. Officers @25 yrs. consecutive Police 2.80% 80% 5 highest 5% 2.5% 50 15 yrs. Command consecutive Detect. 2.80% 80% 5 highest 5% 2.5% 50 15 yrs. consecutive Dispatch 2.65% 90.1% 5 highest 5% 2.5% 55 15 yrs. consecutive IA Fire 2.65% 80% Highest 3 6% 2.5% 55 15 yrs. of final 5 PT Fire (b) n/a 0% n/a (a) Normal retirement is either 25 years of service or age 50 with 15 years of service; an officer with 25 years of service could have normal retirement prior to age 50 and would begin receiving benefit increases each January 1 following 1 year of retirement. (b) $ 5 per month for each year of service prior to 1/1/1988. $10 per month for each year of service after 1/1/1988. Employee Pension Plan - 9 - December 31, 2014 Valuation
Section Three: Retirement Plan Benefit Provisions Deferred Retirement Eligibility: Amount: 50% vested after 5 years of service increasing by 10% per year. City Council - 100% immediately. Part-Time Firefighters 100% after 10 years. Computed as service retirement but based upon service, AFC and benefit multiplier in effect at termination. Benefit begins at the date retirement would have occurred had the member remained in employment. Death after Retirement Eligibility: Amount: Payable to a surviving spouse, if any, upon the death of a retired member. The excess of member contributions with interest over the total of benefits paid. Death in Service Eligibility: Amount: Payable to a surviving beneficiary, if any, upon the death of a member. 100 times the projected monthly benefit. Disability Eligibility: Amount: Payable upon total and permanent disability of a member. With LTD: The greater of a member s accrued benefit or 60% of the projected benefit, based on AFC at the date of disability and years of service until earliest retirement (payable at age 65). Without LTD: The accrued benefit payable immediately with 10 years of service if age 40. Employee Pension Plan - 10 - December 31, 2014 Valuation
Section Four: Actuarial Assumptions And Methods
Section Four: Actuarial Assumptions and Methods Actuarial Assumptions Economic Assumptions (i) Interest Rate 7.5% (net of expenses) (ii) Salary Increases Across-the-Board 4.5% (iii) Inflation Wage 4.5% Employee Pension Plan - 11 - December 31, 2014 Valuation
Section Four: Actuarial Assumptions and Methods Demographic Assumptions (i) Mortality RP 2014 Healthy Annuity Mortality Table Future Life Sample Expectancy (Years) Ages Men Women 55 28.23 30.70 60 24.07 26.29 65 20.05 22.04 70 16.23 18.01 75 12.70 14.28 80 9.54 10.90 (ii) Termination of Employment Prior to Retirement, Death or Disability Sample Rates Ages Fire Others 20 43.5% 7.6% 25 39.1 6.9 30 29.6 5.2 35 18.8 3.3 40 9.0 1.6 45 2.2 0.4 50 0.0 0.0 Employee Pension Plan - 12 - December 31, 2014 Valuation
Section Four: Actuarial Assumptions and Methods (iii) Retirement Rates Age-related rates Percent of Active Members Retiring within Year Following Attainment of Indicated Retirement Age Retirement Ages Public Safety Others 50 40.0% 51 40.0 52 30.0 53 30.0 54 30.0 55 25.0 20.0% 56 20.0 15.0 57 12.5 10.0 58 9.0 8.0 59 8.0 7.0 60 45.0 25.0 61 25.0 10.0 62 50.0 30.0 63 50.0 20.0 64 50.0 20.0 65 100.0 40.0 66 45.0 67 35.0 68 40.0 69 45.0 70 100.0 (iv) Expenses were assumed to be approximately $10,000. Employee Pension Plan - 13 - December 31, 2014 Valuation
Section Four: Actuarial Assumptions and Methods Actuarial Method Used for the Valuation Aggregate Cost Method. This method spreads the unfunded present value of future benefits as of the valuation date over the expected future working lifetimes of the remaining active members. Characteristics of this method are as follows: The aggregate annual normal costs payable from the valuation date to the group s projected dates of retirement, disability or death are expected to accumulate to the actuarial present value of the group s benefit at date of retirement, disability or death. By definition, the accrued liability is equal to the actuarial funding value of assets. Employee Pension Plan - 14 - December 31, 2014 Valuation
Summary of Asset Information Submitted for the Valuation Statement of Assets Section Four: Actuarial Assumptions and Methods As of December 31, 2014, the net market value of Pension Plan assets was reported to be $48,765,043. The net market value used for the valuation as of December 31, 2013 was $47,291,748. Market Value December 31, 2013 $47,291,748 Additions Employer contributions 589,805 Member contributions 30,916 Total 620,721 Investment earnings Net increase in fair value 3,691,685 Deductions Pension benefits 2,661,802 Investment expense 177,309 Market Value December 31, 2014 $48,765,043 Employee Pension Plan - 15 - December 31, 2014 Valuation
Section Five: Valuation Data
Section Six: Accounting Disclosures Participant Summary Retirees and Beneficiaries Included in the Valuation There were 102 retirees and beneficiaries and two alternate payees included in the valuation, with annual pensions totaling $2,888,552. Nine members retired during 2014 and 2 additional retirements were added from inactive vested status. Three retirees were removed. Pensions Being Paid Valuation Annual % of Active Average Discounted Value of Pensions Date No. Pensions Payroll Pension Total (+000) Average 12/31/02 46 $649,235 14.7% $14,755 $9,696,288 $112,748 12/31/03 50 715,643 15.3 14,313 10,573,343 211,467 12/31/04 56 766,642 17.7 13,690 10,730,845 191,622 12/31/05 61 939,147 21.9 15,396 13,371,330 219,202 12/31/06 65 1,060,386 25.4 16,314 15,597,886 239,967 12/31/07 63 1,041,671 23.5 16,534 14,926,042 236,921 12/31/08 64 1,100,345 24.8 17,193 14,925,432 233,210 12/31/09 73 1,366,787 33.8 18,723 19,525,416 267,471 12/31/10 77 1,619,314 43.2 21,030 23,161,211 300,795 12/31/11 83 1,857,409 56.2 22,378 24,484,189 294,990 12/31/12 88 2,057,684 64.0 23,383 27,414,646 311,530 12/31/13 96 2,364,612 83.8 24,631 30,633,451 319,098 12/31/14 102 2,888,552 74.5 27,957 37,829,046 370,873 Employee Pension Plan - 16 - December 31, 2014 Valuation
Section Six: Accounting Disclosures Retiree and Beneficiaries as of December 31, 2014 Attained Annual Age No. Pensions 45-49 6 $279,244 50-54 9 351,117 55-59 17 424,423 60 3 63,458 61 2 34,169 62 1 33,560 63 2 79,698 64 7 211,563 65 6 178,288 66 6 228,224 67 4 103,165 68 3 61,802 69 3 32,556 71 1 22,355 72 5 128,262 73 3 30,470 74 2 99,262 75 1 32,120 76 2 58,897 77 1 43,346 78 4 66,755 79 1 18,923 80 1 1,444 81 5 114,964 82 2 25,228 86 1 57,591 87 3 20,089 90 1 50,651 Totals 102 $2,851,624 In addition there are two alternate payees receiving $36,928 annually. Employee Pension Plan - 17 - December 31, 2014 Valuation
Section Six: Accounting Disclosures There were 19 inactive vested members with estimated annual benefits of $132,503 included in the valuation. Employee Pension Plan Inactive Vested Members - December 31, 2014 Attained Annual Age No. Pensions 39 1 $600 44 1 1,873 46 2 1,886 49 1 36,992 50 3 8,146 51 1 1,700 52 1 37,189 53 1 1,502 54 1 2,785 57 1 11,308 58 1 12,349 61 1 1,864 62 2 10,373 64 1 3,177 74 1 759 Totals 19 $132,503 Employee Pension Plan - 18 - December 31, 2014 Valuation
Section Six: Accounting Disclosures Employee Pension Plan Active Members as of December 31, 2014 Attained Totals Age 0-4 10-14 15-19 20-24 25-29 Over 30 No. Payroll 35-39 4 4 $216,637 40-44 9 9 747,504 45-49 5 6 4 15 976,719 50-54 2 1 3 136,255 55-59 1 1 47,362 Totals 20 7 5 32 $2,124,477 Group Averages Age: 45.7 years Service: 20.1 years Annual Pay: $66,390 Employee Pension Plan - 19 - December 31, 2014 Valuation