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GRAND TRAVERSE COUNTY REPORT ON UNFUNDED PENSION & RETIREE HEALTH CARE LIABILITIES Prepared By Mary Lannoye March 2016 1

PRESENTATION SUMMARY Overall County Finances Defined Benefit Plan (DB) Other Post Employment Benefits (OPEB) Options 2

OVERALL COUNTY FINANCES 2016 Total Budget $155.6 million 2016 General Fund Budget 37.8 million 3

Defined Benefit Pension and OPEB County Joined MERS (Michigan Employee Retirement System) in 1967 County has provided Defined Benefit Pension plans that are based upon a multiplier, years of service, and the final average compensation. County has provided Other Post Employment Benefits Retiree Healthcare Benefits Unfunded Pension Liabilities (projected thru 2016) $ 51,157,000 Unfunded OPEB Liabilities (projected thru 2016) $ 7,704,335 TOTAL UNFUNDED LIABILITIES $ 58,861,331 County s DEFINED BENEFIT Plan is ONLY 48% FUNDED Average rate is 76% Grand Traverse County is the lowest funded Defined Benefit Plan of all counties in the MERS plan. 4

Independent Financial Analysis Projects Shortfalls General Fund Projected Shortfalls Expenditures Exceed Revenues Revenues Expenditures Est. SHORTFALL 2017 $ 37,640,283 $ 41,752,050 $ 4,111,767 2018 $ 38,392,409 $ 43,003,138 $ 4,610,729 2019 $ 39,159,566 $ 43,799,030 $ 4,636,463 2020 $ 39,942,057 $ 45,032,004 $ 5,089,947 In FY 2016, $500,000 shortfall, eliminated services, all department budget reductions Rehman Robson November 2015 5

DB PENSION & OPEB CONTRIBUTORS TO THE GF SHORTFALLS DB OPEB 2017 $440,000 $100,000 2018 410,000 100,000 2019 400,000 100,000 2020 430,000 100,000 CBIZ Retirement Plan Services Sept. 3, 2015 letter regarding projections of employer contributions 6

DB COST VS DC COST FOUR YEAR PROJECTION 2016 2020 DB COSTS GROWS FASTER THAN DC DEFINED BENEFIT Cost will increase from $4.8 to $6.5 million A $1.6 million or 35% increase 400+ Participants ( retirees, actives, & vested) DEFINED CONTRIBUTION Cost will increase from $1.6 to 1.725 million* A $125,000 or 7.8% increase 300+ Active Employees *Assumes a 1.9% annual payroll increase CBIZ Retirement Plan Services Sept. 3, 2015 letter regarding projections of employer contributions 7

GRAND TRAVERSE COUNTY HISTORY OF THE DB PLAN Joined Municipal Retirement System (MERS) in 1967 Benefit Multipliers Range from 2.25% to 2.8% 14 Divisions In 2000 Twelve Divisions Closed to New Hires In 2012 Two Divisions Closed to New Hires UAL in 2000 was $20.6 million Funded Status in 2000 63% 8

DB EVENTS LEADING TO DECREASE IN FUNDED STATUS & INCREASE IN UAL 2000 Close 12 Divisions to New Hires 2000 Early Out Incentives 2005 Early out Incentives 2000 2004 MERS did not Hit Investment Targets 2000 2011 Three Year Freeze on Amortization 2008 MERS did not Hit Investment Target 2015 County ended the last open DB plan Circuit Court 9

EMPLOYER CONTRIBUTION HISTORY 2004 2016 A 50% INCREASE YEAR CONTRIBUTION 2004 $3,188,538 2006 3,023,727 2009 3,572,015 2012 3,879,285 2015 4,466,904 2016 4,782,300 MERS 2014 Annual Valuation 10

BREAKDOWN OF THE EMPLOYER CONTRIBUTIONS FOR THE 2014 VALUATION Normal Cost $ 545,844* UAL Cost 4,236,456 Total Contribution 4,782,300 *Normal Cost is the cost of future benefits earned by employees in the current year MERS 2014 Valuation 11

Grand Traverse County Compared to Other Municipalities Average employee contribution to the MERS DB pension plan is between 5.5 6.5% in other communities. In 2014 only 9 of Grand Traverse County s active 88 MERS participants contribute. The Grand Traverse County contributing members rate are only.67% and 2%. Average funded status of ALL DB plans administered by MERS is 78%. The funded status of all Counties in the MERS DB plan is 76%. Grand Traverse County s 48% funded status is the lowest of all counties in MERS. Absent changes in the County s DB plan, it will require an increase in funding of $4.78 million or 84% from the County between 2016 2026. Funding in 2026 will increase to $8.8 million Source: MERS Summary Report of the 69 th Annual Actuarial Valuations as of 12/31/14 for the 728 DB Plan & Hybrid Plan Municipalities, Sept, 22, 2015 12

PREFERRED OPTIONS TO ELIMINATE AND/OR REDUCE UAL & EMPLOYER CONTRIBUTIONS Bridge Benefit Plan Frozen FAC and a 1.0 multiplier would lower employer s contribution by $750,000 the 1st year FAC Based on termination, with a 1.0 multiplier would lower employer s contribution by $450,000 the 1 st year Increase Employee Contribution Each 1% increase in the employee s contribution would save about $45,000 per year Increase Employer Contribution Increase the 2017 employer s contribution ($5.24 million) by an additional $100,000, $500,000, $1 million or any amount each year 13

OTHER OPTIONS TO ELIMINATE AND/OR REDUCE UALs & EMPLOYER CONTRIBUTIONS Hybrid Pension Plans Combination of DB & DC options. Example DB multiplier of 1.0 and an employer contribution of 2% to a DC plan. Issue Pension Obligation Bonds Municipal Securities County could issue municipal securities for all or a portion of the UAL. 14

POBs/MUNICIPAL SECURITIES Public Act 34 of 2001 as amended authorizes certain municipalities to issue municipal securities in order to reduce or eliminate pension and OPEB shortfalls Issuance requires approval of the State of Michigan s Department of Treasury DB proceeds would be forwarded to MERS 15

POB RISKS & REWARDS POBs could reduce or eliminate UALs for DB & OPEB Actually trading one debt for another Debt payments on the bonds would be built into the County s annual budget. Employer Contribution for DB and OPEB would be reduced Budget savings are at risk of volatile stock market If POBs are pursued without other structural changes the County s credit rating could be at risk No guarantee the Treasury Department would approve the issuance of POBs 16

OPEB FUNDING Funded Status 0% UAL as of 12/31/15 $7.3 million Projected UAL as of 12/31/16 $7.7 million Liability Analytics, 2015 Valuation Report for Grand Traverse County, November 25, 2015 17

OPEB ANNUAL REQUIRED CONTRIBUTION (ARC) Assuming a 30 year amortization period 2016 ARC $640,000 2016 Budget 250,000 Shortfall 390,000 Liability Analytics, 2015 Valuation Report for Grand Traverse County, November 24, 2015 18

PREFERRED OPTIONS TO REDUCE OPEB UAL Close access to retiree health insurance for all new hires Increase the retiree s and future retirees premiums share for employees represented by a Collective Bargaining Agreement Phase in an annual increase to the employer s ARC 19

POBs/MUNICIPAL SECURITIES Public Act 34 of 2001 as amended authorizes certain municipalities to issue municipal securities in order to reduce or eliminate pension and OPEB shortfalls Issuance requires approval of the State of Michigan s Department of Treasury OPEB proceeds would be deposited into a irrevocable trust fund. 20

RANKING 2014 2013 2012 2011 2010 2009 1 St.Joseph 95.8 94.8 99.0 101.7 104.0 106.5 2 Mecosta 98.5 97.8 96.7 96.6 98.3 98.8 3 Branch 60.9 99.3 93.3 91.9 97.7 92.7 4 Lapeer 88.2 89.4 90.8 91.7 92.1 92.1 5 Osceola 88.0 87.0 88.0 88.2 89.8 87.4 6 Tuscola 83.4 85.4 86.6 86.9 89.0 89.7 7 Oceana 81.7 83.1 85.5 87.9 88.5 86.9 8 Washtenaw 80.3 82.5 85.3 84.8 90.1 88.9 9 Roscommon 80.4 83.6 85.0 86.0 86.6 85.1 10 Ionia 87.5 85.3 84.4 83.2 84.6 85.7 11 Ogemaw 81.0 82.4 84.1 84.6 87.4 86.0 12 Kalkaska 81.2 81.9 83.3 84.7 86.2 86.4 13 Antrim 79.5 81.0 82.9 84.0 84.8 84.9 14 Iron 79.7 81.2 82.2 83.1 86.2 86.6 15 Cass 78.9 79.3 81.5 81.0 83.7 83.4 16 Delta 78.7 80.9 81.5 83.6 85.0 85.2 17 Newago 83.8 82.5 81.4 81.2 83.2 84.7 18 Mason 79.8 80.0 80.9 83.7 85.8 88.3 19 Leelanau 82.8 80.7 80.8 80.3 73.7 73.4 20 Clinton 94.2 84.3 80.3 78.9 78.6 77.9 21 Lake 79.8 79.2 80.2 81.3 82.6 84.5 22 Cheboygan 78.6 80.0 79.5 79.4 79.8 80.1 23 Ottawa 90.0 78.5 79.3 81.4 82.6 81.2 24 Clare 75.3 76.8 78.9 80.3 84.9 89.7 25 Gladwin 75.0 75.1 78.2 80.4 80.6 79.1 26 Huron 75.6 75.8 78.0 94.0 87.0 87.7 27 Keweenaw 78.8 79.1 77.9 77.7 79.1 77.0 28 Chippewa 75.5 76.9 72.2 78.4 79.3 81.9 29 Mackinac 76.5 75.5 76.7 76.9 78.0 78.4 30 Presque Isle 73.0 75.0 76.7 78.2 80.4 80.5 31 Ontonagon 74.5 75.7 76.5 76.7 78.3 77.8 32 Missaukee 79.2 78.6 76.5 76.0 73.6 69.9 33 Isabela 77.9 78.1 76.4 76.6 77.4 76.7 34 Manistee 74.7 76.3 76.4 77.1 78.8 78.2 35 Muskegon 73.0 75.0 76.0 77.3 80.2 82.2 36 Alger 75.6 75.8 75.2 72.2 69.0 72.3 37 Gratiot 75.3 76.0 75.1 74.4 74.8 74.7 38 Barry 78.0 76.1 74.7 73.9 74.2 78.0 39 Arenac 74.5 74.5 73.9 74.6 76.0 72.5 40 Livingston 74.6 74.1 73.9 73.9 73.7 76.4 41 Charlevoix 75.5 76.6 73.5 73.0 73.3 74.2 42 Baraga 74.2 75.7 73.3 75.0 75.2 77.6 43 Benzie 73.1 73.2 72.5 72.5 74.3 74.2 44 Ingham 70.8 71.9 72.4 72.9 74.9 76.1 45 Otsego 71.2 71.4 72.1 71.8 72.8 73.1 46 Alcona 68.3 69.6 72.0 73.3 73.7 74.0 47 Schoolcraft 71.3 71.6 71.7 72.8 74.0 75.5 48 Iosco 71.5 72.2 71.5 73.3 75.4 74.8 49 VanBuren 71.5 71.3 71.4 70.5 69.7 68.4 50 Menominee 71.6 70.5 71.1 72.6 73.6 76.0 51 Allegan 99.7 69.4 70.9 73.8 76.9 77.9 52 Alpena 66.3 68.2 70.6 71.2 73.0 74.6 53 Wexford 71.1 70.6 70.6 73.1 72.7 73.8 54 Crawford 70.3 70.5 70.3 70.7 71.3 70.5 55 Oscoda 71.7 71.6 69.4 70.7 71.2 70.7 56 Dickinson 65.3 67.0 68.8 70.4 73.9 75.6 57 Marquette 68.6 68.0 67.7 67.5 67.7 67.7 58 Eaton 63.4 65.9 63.7 64.7 64.6 65.2 59 Houghton 63.3 63.4 63.1 64.5 66.4 66.0 60 Montmorency 61.3 61.7 63.1 64.7 65.4 64.9 61 Saginaw 97.7 61.7 63.0 64.5 66.0 68.0 62 Shiawassee 70.0 71.0 62.5 64.1 66.1 66.3 63 Hillsdale 62.1 61.4 61.0 60.5 59.8 56.2 64 Luce 59.7 59.5 60.1 60.8 63.4 59.7 65 Calhoun 63.5 64.1 55.2 53.9 52.5 50.2 66 Grand Traverse 48.4 48.9 49.1 50.2 50.6 49.8

ACCRUED ANNUAL $ ANNUAL % VALUATION ANNUAL $ ANNUAL % VALUATION FUNDED CURR YR PREV YR CUM YEAR LIABILITIES LIABILITY DIFF LIABILITY DIFF ASSETS ASSETS DIFF ASSETS DIFF ASSETS PERCENT UAL UAL LIABILITY 1984 $4,850,659 $5,205,441 $5,205,441 107.31% ($354,782) $0 ($354,782) 1985 $5,390,556 $539,897 11.13% $6,225,956 $1,020,515 19.60% $6,225,956 115.50% ($835,400) ($354,782) ($480,618) 1986 $6,123,017 $732,461 13.59% $7,586,532 $1,360,576 21.85% $7,586,532 123.90% ($1,463,515) ($835,400) ($628,115) 1987 $6,077,788 ($45,229) -0.74% $8,655,326 $1,068,794 14.09% $8,655,326 142.41% ($2,577,538) ($1,463,515) ($1,114,023) 1988 $7,175,462 $1,097,674 18.06% $9,232,053 $576,727 6.66% $9,232,053 128.66% ($2,056,591) ($2,577,538) $520,947 1989 $8,345,592 $1,170,130 16.31% $10,318,638 $1,086,585 11.77% $10,318,638 123.64% ($1,973,046) ($2,056,591) $83,545 1990 $11,798,400 $3,452,808 41.37% $11,900,680 $1,582,042 15.33% $11,900,680 100.87% ($102,280) ($1,973,046) $1,870,766 1991 $13,412,549 $1,614,149 13.68% $13,285,482 $1,384,802 11.64% $13,285,482 99.05% $127,067 ($102,280) $229,347 1992 $18,220,601 $4,808,052 35.85% $15,012,939 $1,727,457 13.00% $15,012,939 82.40% $3,207,662 $127,067 $3,080,595 1993 $27,864,025 $9,643,424 52.93% $17,275,766 $2,262,827 15.07% $17,275,766 62.00% $10,588,259 $3,207,662 $7,380,597 1994 $31,413,306 $3,549,281 12.74% $19,471,835 $2,196,069 12.71% $19,471,835 61.99% $11,941,471 $10,588,259 $1,353,212 1995 $38,774,211 $7,360,905 23.43% $22,411,599 $2,939,764 15.10% $22,411,599 57.80% $16,362,612 $11,941,471 $4,421,141 1996 $43,253,171 $4,478,960 11.55% $26,085,634 $3,674,035 16.39% $26,085,634 60.31% $17,167,537 $16,362,612 $804,925 1997 $40,464,588 ($2,788,583) -6.45% $25,824,854 ($260,780) -1.00% $25,824,854 63.82% $14,639,734 $17,167,537 ($2,527,803) 1998 $46,657,486 $6,192,898 15.30% $29,945,269 $4,120,415 15.96% $29,945,269 64.18% $16,712,217 $14,639,734 $2,072,483 1999 $52,077,669 $5,420,183 11.62% $35,531,831 $5,586,562 18.66% $35,531,831 68.23% $16,545,838 $16,712,217 ($166,379) 2000 $56,377,005 $4,299,336 8.26% $35,782,574 $250,743 0.71% $35,782,574 63.47% $20,594,431 $16,545,838 $4,048,593 2001 $63,054,329 $6,677,324 11.84% $37,124,063 $1,341,489 3.75% $37,124,063 58.88% $25,930,266 $20,594,431 $5,335,835 2002 $68,579,572 $5,525,243 8.76% $37,803,420 $679,357 1.83% $37,803,420 55.12% $30,776,152 $25,930,266 $4,845,886 2003 $73,682,260 $5,102,688 7.44% $40,355,536 $2,552,116 6.75% $40,355,536 54.77% $33,326,724 $30,776,152 $2,550,572 2004 $78,893,261 $5,211,001 7.07% $42,747,512 $2,391,976 5.93% $42,747,512 54.18% $36,145,749 $33,326,724 $2,819,025 2005 $71,993,673 ($6,899,588) -8.75% $35,193,962 ($7,553,550) -17.67% $35,193,962 48.88% $36,799,711 $36,145,749 $653,962 2006 $74,170,541 $2,176,868 3.02% $36,695,376 $1,501,414 4.27% $36,695,376 49.47% $37,475,165 $36,799,711 $675,454 2007 $76,407,968 $2,237,427 3.02% $38,487,034 $1,791,658 4.88% $38,487,034 50.37% $37,920,934 $37,475,165 $445,769 2008 $78,874,560 $2,466,592 3.23% $39,109,567 $622,533 1.62% $39,109,567 49.58% $39,764,993 $37,920,934 $1,844,059 2009 $79,212,816 $338,256 0.43% $39,448,510 $338,943 0.87% $39,448,510 49.80% $39,764,306 $39,764,993 ($687) 2010 $80,396,593 $1,183,777 1.49% $40,647,280 $1,198,770 3.04% $40,647,280 50.56% $39,749,313 $39,764,306 ($14,993) 2011 $82,943,903 $2,547,310 3.17% $41,634,521 $987,241 2.43% $41,634,521 50.20% $41,309,382 $39,749,313 $1,560,069 2012 $85,327,602 $2,383,699 2.87% $41,910,582 $276,061 0.66% $41,910,582 49.12% $43,417,020 $41,309,382 $2,107,638 2013 $86,837,752 $1,510,150 1.77% $42,433,906 $523,324 1.25% $42,433,906 48.87% $44,403,846 $43,417,020 $986,826 2014 $88,858,803 $2,021,051 2.33% $43,044,874 $610,968 1.44% $43,044,874 48.44% $45,813,929 $44,403,846 $1,410,083 $45,813,929