Unfunded Accrued Liability About MERS We are a nonprofit - PDF document

Unfunded Accrued Liability

About MERS We are a nonprofit organization, independent from the State, that has helped provide retirement plans for municipal employees for more than 65 years 2,000+ N umber of plans MERS administers 800 + Number of Michigan municipalities we partner with 100,000 Number of MERS participants we serve www.mersofmich.com | 2

How We Help • We provide one-stop access to shared professional retirement services • MERS offers a range of customizable plans, which employers can choose from to fit their budget and provide long-term sustainability for their employees • We have fiscal best practices and cost-reducing options that assist members www.mersofmich.com | 3

Distribution of Funded Percentage Our Defined Benefit Plan is a multiple-employer plan • Assets are pooled for investment purposes only • Separate trusts are maintained for each individual employer • We do not borrow from one municipality’s account to cover another municipality’s obligation www.mersofmich.com | 4

Funding Concepts • State statute requires that pension plans be pre-funded, meaning regular contributions for each worker are made into the retirement fund during the course of that worker’s career o Set aside money now to pay for the benefit payments later o Investment income helps pay for the benefits • OPEB plans have historically not been pre-funded, however some employers have setup funding vehicles to help advance-fund the benefits Basic Funding Equation Investment Benefit Expenses Contributions Income Payments www.mersofmich.com | 5

Funding Concepts The employer contribution rate is made of up two parts: 1. Employer Normal Cost – Present value of benefits allocated to the current plan year less any employee contribution 2. Amortization Payment of Unfunded Accrued Liability – Payment to reduce any shortfall between liability for past service and assets www.mersofmich.com | 6

What is Unfunded Liability? Unfunded liability is the difference between a pension or OPEB plan’s estimated benefits and assets that have been set aside to pay for them • The dollar value of the benefits is actuarially determined each year • Assets are held in a trust and are professionally managed over the years www.mersofmich.com | 7

Why Do Unfunded Liabilities Occur? • Benefit improvements • When municipalities don’t meet the minimal required contributions as determined by the actuary • Experience of the plan (investment experience and demographic experience) o This is the difference between what actually happens in the plan compared to the actuarial assumptions www.mersofmich.com | 8

EVIP Category 3 Collaborating for Our Members www.mersofmich.com | 9

EVIP Category 3 EVIP Category 3 addresses unfunded accrued liabilities Requires local units of governments with unfunded accrued liabilities in pensions or other post employment benefits to submit a plan to lower liabilities www.mersofmich.com | 10

EVIP Category 3 Template Our goal is to offer you a quick and easy way to report what your UAL Plan to Treasury www.mersofmich.com | 11

Pension UAL – Plan Design www.mersofmich.com | 12

Pension UAL – Plan Design www.mersofmich.com | 13

Pension UAL – Plan Design www.mersofmich.com | 14

Pension Liability – Funding www.mersofmich.com | 15

Pension Liability www.mersofmich.com | 16

OPEB Liability – Plan Design Changes www.mersofmich.com | 17

OPEB Liability – Plan Design Changes www.mersofmich.com | 18

OPEB Liability – Defined Contribution Style Health Care www.mersofmich.com | 19

OPEB Liability – Eliminating Retiree Health Care www.mersofmich.com | 20

OPEB Liability – Funding www.mersofmich.com | 21

OPEB Liability – No Actions Taken www.mersofmich.com | 22

Section 6 – Other Actions That Do Not Qualify for EVIP www.mersofmich.com | 23

Other Actions – Policies/Best Practices www.mersofmich.com | 24

Other Actions – Policies/Best Practices www.mersofmich.com | 25

Section 7 – Actions That May Be Taken www.mersofmich.com | 26

Submitting Your Plan Each plan submitted to Department of Treasury must include your UAL plan and certification form (found on treasury website) will be due June 1, 2014 www.mersofmich.com | 27

Conclusion • Review of your municipality’s funding status through the Annual Actuarial Valuation • Evaluate options for the future • Continue to review best practices and implement fiscally responsible policies • Ongoing outreach to stakeholders www.mersofmich.com | 28