charter township of harrison f'iremen's pension … › fin report fire 2013.pdfthe...

CHARTER TOWNSHIP OF HARRISON F'IREMEN'S PENSION SYSTEM

Charter Township of Harrison, Michigan

FINANCIAL REPORT WITH SUPPLEMENT ARY INFORMATION

FOR THE YEAR ENDED DECEMBER 31, 2013

Stewart, r~ ·~ Beauvais It T.. _&Whi~_·p_~_e_P.C.~~~~~~~~~-•\\ CERTIFIED PUBLIC ACCOUNTANTS

CHARTER TOWNSHIP OF HARRISON FIREMEN'S PENSION SYSTEM

TABLE OF CONTENTS

Independent Auditor's Report

Management's Discussion and Analysis

Basic Financial Statements:

Statement of Plan Net Position

Statement of Changes in Plan Net Position

Notes to Financial Statements

Required Supplementary Information

Schedule of Funding Progress

Schedule of Employer Contributions

Page Number

3

5

6

7

13

13

Stewart, ~ ·~ Beauvais ft rj _&_Whi--=·p~p-~_P.C_· ~~~~~~~~~~~~~a\~ CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS

Firemen's Retirement Board Charter Township of Harrison Firemen's Pension System

INDEPENDENT AUDITOR'S REPORT

Report on the Financial Statements

We have audited the accompanying basic financial statements of the Charter Township of Harrison Firemen's Pension System (the System) as of and for the year ended December 31, 2013, and the related notes to the financial statements.

Management's Responsibility for tlte Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor's Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our aud it in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the system's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the system's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the plan's net position of the Charter Township of Harrison Firemen's Pension System as of December 31, 2013, and the changes in the plan net position for the year then ended in accordance with accounting principles generally accepted in the United States of America.

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1979 Holland Avenue, Suite A, Port Huron, M ichigan 48060 (81 Ol 984 -3829 Fax (810) 984-8943

Emphasis of Matter

As discussed in Note l , the financial statements referred to above present only the Charter Township of Harrison Firemen 's Pension System and do not purport to, and do not, present fairly the financial position of the Charter Township of Harrison, Michigan, as of December 31, 2013, and the changes in its financial position and where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to this matter.

Other Matters

Required Supplementary Information

Accounting principles generally accepted in the United States of America required that the management' s discussion and analysis on pages 3 and 4 and the schedules of funding progress and employer contributions on page 13 be presented to supplement the basic financial statements. Such information, although not a paii of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

f ....1- . .//' ) I ,. ~,UJO;;c, ~~~ !/ ~?-1

Certified Public Accountants

May 22, 2014

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Charter Township of Harrison Firemen's Pension System

Management's Discussion and Analysis

Our discussion and analysis of the financial performance of the Charter Township of Harrison Firemen's Pension System (the "System") provides an overview of the System's financial activities for the calendar years ended December 31, 2013 and 2012. Please read this in conjunction with the financial statements.

Overview of this Annual Report

This annual report consists of three pa1ts: (J) management's discussion and analysis (this section), (2) the basic financial statements, and (3) required supplemental information. The financial statements also include notes that explain some of the information in the financial statements and provide more detailed data. The statements are followed by a section of required supplemental information that further explains and supports the infonnation in the financial statements.

System Objectives

The System was established to provide retirement, disability, and death benefits to plan members, retirees, and their beneficiaries. Active members earn service credit that entitles them to receive benefits in the future. Annual employee contributions are determined by an actuary contracted by the Board.

The Pension Board is authorized by the plan document and under Michigan Jaw to engage the services of an investment consultant, a custodian, and investment managers and to set the direction for the investments. The Board requires that the investment consultant, custodian, and investment managers comply with all applicable laws, rules, and regulations.

Financial Overview

The table below presents the plan net position, in a condensed format as of December 31 , 2013 and 2012:

Total Assets Total Liabilities

Net Position - Held in Trust for Pension Benefits

$

$

2013

11,935,055

11 .935.055

20 12

$ 11,465, 700 100

$ 11.465.600

The table below presents the Changes in plan net position, in a condensed fom1at, for the years ending December 31, 20 13 and 2012:

2013 2012

Employer Contributions $ 722,091 $ 692,509 Employee Contributions 176,773 170,176 Net Investment Income 859,648 779,461 Benefit Payments ( 1,269,057) ( 1,238,856) Administration Expenses ( 20 000) ( 34 219) Net Increase in Plan Net Position Available

for Pension Benefits $ 462,455 $ 362,01 1

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During the plan year 2013, plan assets experienced a net increase of $469 ,45 5 or 4.1 % of beginning of the year assets. The increase occurred, because although the plan paid out $1.29 million in retirement benefits and expenses, it received a net inflow of $1. 76 million. Net inflow consists of employer and employee contributions, and investment income. Combined employer and employee contributions increased 4.2% over prior year, primarily due to a rise in the actuarial required minimum contribution and to a lesser degree because of an increase in pensionable wages . The plan 's net investment earnings rose to $859,648 against prior year's gain of $779,461. The plan's investment earnings therefore, were 7.5% of beginning plan assets during 2013 vs. a 7.0% gain in 201 2.

Asset Allocation

The Firemen's Pension Board establishes its asset allocation policies, which are expected to provide sufficient long-term investment income, when coupled with other contributions will satisfy its obligations to pay benefits promised to members of the System. The priority listing of investment objectives is presentation of capital, risk aversion, diversification of assets, liquidity of assets and adherence to investment discipline.

The investments held at December 31, 2013 and 2012 were as follows:

Corporate Debt/Pref erred Securities Treasury Securities Federal Agencies Stocks Exchange Traded & Closed End Funds Mutual Funds Alternate Investments

Economic Factors, Investment Returns and Other Matters

2013

$ 1,432,938 624,128 245,582

3,358,346 3,531,227 1,657,568

2 16,989

$

2012

1,363,064 1,522,244

302,812 4,969,905

2,194,303 258,014

It is the Pension System's purpose to provide long-term benefit payments to its members, and it is through long-tenn investment strategies that these benefits will be primarily funded. It is recognized that in the short term there will be market fluctuations that may result in negative returns in any given period. Through its investment policy asset allocation, the Board positions the portfolio to meet its long te1m obligations. In addition, to further maximize investment returns, the Board carefully monitors the performance of each of its investment managers and takes necessary corrective action to ensure acceptable investment results. Management believes that the plan will continue to provide the benefits to pa1iicipants as it is contractually obligated.

Contacting the System's Management

This financial report is intended to provide a general overview of the System's finances and to show the System's accountability for the money it receives. Questions concerning any of the information should be addressed to the Township Accounting Department at 38151 L 'Anse Creuse, Harrison Township, Michigan 48045.

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Assets:


STATEMENT OF PLAN NET POSITION DECEMBER 31, 2013

Cash and Cash Equivalents

Accrued Interest

Investments, at fair value -Corporate Debt/Preferred Securities Treasury Securities Federal Agencies Stocks Exchange Traded & Closed End Funds Mutual Funds Alternate Investments

Net Position-Held in Trust For Pension Benefits

fhe accompanying notes are an integral part of the financial statements.

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$ 851,464

16,813

1,432,938 624,128 245,582

3,358,346 3,53 1,227 1,657,568

216,989 11,066,778

$ 11,935,055

CHARTER TOWNSHIP OF' HARRISON FIREMEN'S PENSION SYSTEM

STATEMENT OF CHANGES IN PLAN NET POSITION FOR THE YEAR ENDED DECEMBER 31, 2013

Additions:

Contributions -Employer contribution Employee contribution

Total contributions

Investment Income -Net appreciation (depreciation) in fair value of investments Interest and dividends

Less investment expense Net Investment Income

Total Additions

Deductions:

Benefit payments and refunds to participants Administrative expenses

Net Increase in net position held in trust for pension benefits

Net Position-Held in Trust J<'or Pension Benefits-

Beginning of year

End of year

The accompanying notes are an integral part of the financial statements .

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$ 722,091 176,773 898,864

662,103 306,324 968,427 108,779) 859,648

1,758,512

1,269,057 20,000

1,289,057

469,455

11,465,600

$ 11,935,055


NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2013

NOTE l - DESCRIPTION OF PLAN:

The following brief description of the Charter Township of Harrison Firemen' s Pension System (the "Plan") is provided for general information purposes only. Participants should refer to the plan agreement or direct inquiries to the plan administrator for more complete information.

The Plan's financial statements are also included in the Annual Financial Statements of the Charter Township of Harrison, Michigan as a pension trust fund.

General -

The Charter Township of Harrison Firemen 's Pension System (the "System") is a singleemployer defined benefit pension plan that is administered by the Charter Township of Harrison Firemen' s Pension Board; this plan covers substantially all full-time employees of the Charter Township of Harrison Fire Department. The System's financial statements are included as a pension trust fund in the financial statements of the Charter Township of Harrison (the "Township").

The System provides retirement, disability and death benefits to plan members and their beneficiaries in accordance with the Township' s pension ordinance. For members hired prior to July 1, 2011, retirement benefits fully vest after 20 years ofcredited service regardless of age or when the sum of age and credited services meet or exceed 70, with partial vesting granted for 10 and 20 years of service. For members hired on or after July 1, 2011 retirement benefits fully vest after 25 or more years of service regardless of age, or when the sum of age and credited service meet or exceed 75.

Employees who retire with full benefits are entitled to an annual retirement benefit, payable monthly in an amount equal to 2.8% of 3-year average final compensation (AFC) times the first 20 years of service plus 1.8% of AFC for the next five years, plus 1 % of AFC times years of service in excess of 25 years up to 30 years. Maximum benefit is 70% times AFC.

At December 31 , 2012, the Plan Participants consisted of:

Retirees and beneficiaries currently receiving benefits Terminated plan members entitled to but not yet

receiving benefits Active plan members

Total

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

31

Basis of Accounting - The System uses the accrual method of accounting. Plan member contributions are recognized in the period in which the contributions are due. Employer contributions to the plan are recognized when due and the employer has made a formal commitment to provide the contributions. Benefits and refunds are recognized when due and payable in accordance with terms of the plan.

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NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (cont'd):

Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the plan administrator to make estimates and assumptions that affect the reported amounts of assets, liabilities and changes therein, disclosure of contingent assets and liabi lities, and the actuarial present value of accumulated plan benefits at the date of the financial statements. Actual results could differ from those estimates.

Investment Valuation and Income Recognition - The System's investments are stated at fair value. Investments that have no quoted market price are stated at estimated fair market value as determined by the Trustee. Securities traded on a national exchange are valued at the last reported sales price.

Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis.

Administration - Administration costs are financed through the System's earnings.

Actuarial Present Value of Expected Future Benefits - Expected future benefits are those future periodic payments including lump-sum distributions that are attributable under the System's provisions to the services employees have rendered. Expected future benefits include benefits expected to be paid to (a) retired or terminated employees or their beneficiaries, (b) beneficiaries or employees who have died, and ( c) present employees or their beneficiaries.

The actuarial present value of accumulated plan benefits is determined by an actuary from Gabriel Roeder Smith and Company. That amount results from applying actuarial assumptions to adjust the accumulated plan benefits to reflect the time value of money (through discounts for interest) and the probability of payment (by means of decrements such as for death, disability, withdrawal, or retirement) between the valuation date and the expected date of payment. The foregoing actuarial assumptions are based on the presumption that the System will continue. If the System were to tenninate, different actuarial assumptions and other factors might be applicable in determining the actuarial present value of accumulated plan benefits.

Net Appreciation (Depreciation) in Fair Value oflnvestments - Net realized and unrealized appreciation (depreciation) is recorded in the accompanying financial statements as net appreciation (depreciation) in fair value of investments.

Payment of Benefits - Benefit payment to participants are recorded upon distribution.

Upcoming Accounting Pronouncements -

The Governmental Accounting Standards Board (GASB) issued the following statement that will have an impact on the System's financial statement when adopted. The System is currently evaluating the implications of the pronouncement.

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CHARTER TOWNSIDP OF HARRISON FIREMEN'S PENSION SYSTEM


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (cont'd):

GASB Statement No. 67, Financial Reporting/or Pension Plans was issued in June 2012 and will become effective for the System's December 31, 2014 fiscal year. The statement establishes accounting and financial reporting as they relate to pension plans that are administered through trusts or equivalent arrangements that meet certain criteria. The statement builds upon the existing framework for financial reports of defined benefits pension plans and enhances note disclosures and required supplementary information for both defined benefit and defined contribution pension plans. The statement also requires the presentation of new information about annual rates of return in the notes to financial statements and ten year required supplementary information.

NOTE 3 - CASH AND INVESTMENTS:

The Michigan Public Employees Retirement Systems' Investment Act, Public Act 314of1965, as amended, authorizes the System to invest in stocks, government and corporate securit ies, mortgages, real estate, and various other investment instruments, subject to certain limitations. The System's Board has the responsibility and authority to oversee the investment portfolio. Various professional investment managers are contracted to assist in managing the System's assets. All investment decisions are subject to Michigan law and the investment policy established by the Board.

The System's investments are reported at fair value and are held in a trust fund administered by MorganStanley SmithBamey.

The System's deposits and investments are included on the Statement of Plan Net Position under the following classifications as of December 3 1, 2013:

Cash and cash equivalents Investments

$ 851,464 11,066,778

$ 11.918.242

As of December 31, 2013 the System had $85 L,464 of cash and cash equivalents of which $373,476 was held by the Plan investment brokers. The amount that was insured for these broker accounts could not be dete1mined. Of the cash balance held by the Township of $477,988, $250,000 was insured with the remaining balance uninsured and uncollateralized.

The investments are categorized as follows at December 31, 2013:

Corporate Bonds Treasury Securities Federal Agencies Stocks Exchange Traded & Closed End Funds Mutual Funds Alternate Investments (Hedge Funds)

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$ 1,432,938 624,128 245,582

3,358,346 3,53 1,227 1,657,568

216.989

$ 11.066. 778



NOTE 3 - CASH AND INVESTMENTS - (cont' d) :

Credit Risk - Investments - is the risk that an issuer of or other counterparty to an investment will not fulfi ll its obligations. The investment policy specifies that a maximum of 30% of fixed income investments be BBB, the balance investment grade bonds rated A (or equivalent) or better at the time of purchase. In the event of a downgrading, the investment manager must notify the Board. In addition, the System assets may be invested in commercial paper, maturing within 270 days for any domestic issues, provided such commercial paper shall be rated Al (or equivalent).

As of December 31, 2013 , the credit quality ratings of investments are as follows:

Fair Market Rating Value Rating Organization

Federal Agency $ 245,582 NIA NIA Corporate Bonds 95,899 AA+ S&P

48,205 AA- S&P 100,902 A+ S& P 291,219 A S&P 441 ,187 A- S&P 260,567 BBB+ S&P 144,612 BBB S& P 50,347 BBB- S& P

Custodial Credit Risk - Investments - is the risk that in the event of the fai lure of the counterparty, the System may not be able to recover the value of its investments that are in the possession of another paity. The System' s policy requires that securities may be held by a third party custodian designated by the Treasurer and evidenced by safekeeping receipts. As of December 31 , 2013 , $11,066,778 of investments was held in third-party safekeeping not in the System's name; however, they were evidenced by safekeeping receipts.

Concentration of Credit Risk - Investments - is the risk of loss attributed to the magnitude of the plan's investment in a single issuer. The investment policy specifies in order to achieve a prudent level of portfolio diversification, the securities of any one company or government agency should not exceed 5% of the total fund, and no more than 20% of the total fund should be invested in any one industry. The total allocation to treasury bonds and notes may represent up to 100% of the Harrison Township Firemen's Pension System's aggregate bond position and treasury securities may represent up to 60% of the total fund .

Interest Rate Risk - Investments - is the risk that the value of investments will decrease as a result of a rise in interest rates. The investment policy restricts fixed income securities for any single security to 30 years and the weighted average portfolio maturity to no more than 10 years. As of December 31, 2013, the System' s investments had the following range of maturity dates:

Maturity (Years) Investment Ty12e Fair Value <l 1-5 5-10 >10

Corporate Debt/Preferred Securities $ 1,432,938 $ 239,567 $ 649,009 $ 544,362 $

Treasury Securities 624,128 73,028 534,852 16,248

Federal Agencies 245,582 184.300 61,282

U ,3Q2,648 $ 312,525 $ l,368,161 $ 56Q,61Q $ 61 ,282 - 10 -



NOTE 3 ·-CASH AND JNVESTMENTS- (cont'd):

Foreign Credit Risk - Investments - is the risk that significant fluctuations in exchange rates may adversely affect the fair value of an investment. The Township investment policy allows for no more than 20% of the System's assets may be invested in foreign securities and no more than 5% of the outstanding foreign securities of any one issue. As of December 31, 2013, there were no investments in foreign securities .

NOTE 4- CONTRIBUTION RATES AND FUNDED STATUS:

Annual Pension Cost-For the year ended December 31, 2013, the Township's annual pension cost of $722,091 for the Pension System was equal to the Pension System's required and actual contribution. The annual required contribution was determined as part of an actuarial valuation at December 31, 2011.

Required Contribution - The obligation to contribute to and maintain the System for these employees was established by negotiation with the Township's collective bargaining units and requires a contribution from the employees of 8.14% of the total actuarial required contribution. The funding policy provides for periodic employer contributions at actuarially determined rates for 2013 of 32.56%.

Actuarial Methods and Assumptions -The annual required contribution was determined as part of an actuarial valuation at December 31, 2011. The required supplemental information that follows this section presents multi-year trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits.

The following assumptions were used to detennine the actuarial present value of accumulated plan benefits for December 31, 2012:

Actuarial Cost Method Amortization Method Amortization Period Asset Valuation Method Assumed Rate of Return on Investments Projected Salary Increases Cost-of-Living Adjustment

Entry-Age Level percentage open 30 years Open 4 year smoothed market with 40% corridor 7.5% 4.5% - 14.2% None

Funded Status and Funding Progress - The funded status for the most recent actuarial valuation is as follows:

Actuarial value of assets Actuarial accrued liability (AAL) entry age Unfunded AAL (UAAL) Funded ratio Covered payroll UAAL as a percentage ofcovered payroll

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Fiscal Year Ended December 31,

2012

$ 13,082,714 $ 20,656,101 $ 7,573,387

63.3% $ 2, 174,865

348.2%



NOTE 5 - RESERVE OF NET POSITION:

Employees' Contributions -The Employees' Contribution reserve represents amounts contributed by the members plus interest on these amountc; at a rate set by the retirement system board of trustees (currently 2% per year on the outstanding balance and l % on the current year's contributions). Members ' deposits, including accumulated interest, are transferred to the Retirement Benefit Payments reserve upon retirement, unless eligible employees have exercised their option to request a lump-sum or annuity withdrawal, or they are returned to the employee if employment is terminated with no retirement benefit rights.

Employer's Contribution -The Employer's Contribution reserve represents accumulated contributions received from the Township. Transfers are made to the Retirement Benefit Payment reserve for the pensions awarded on the basis of actuarial computations of the amount necessary to pay the pension, less any amount transferred from the Employees' Contributions reserve.

Retirement Benefit Payments - The Retirement Benefit Payment reserve represents the accumulated amounts transferred for pensions from the Employees' Contributions reserve and Employer's Contribution reserve, plus earnings on these amounts, when available.

As of December 31, 2013, the System legally required pension reserves are as follows:

Reserve for Employees' Contributions Reserve for Employer's Contributions Reserve for Retirement Benefit Payments

NOTE 6 - RISKS AND UNCERTAINTIES:

$ l,424,818 ( 2,414,960)

12.925,197

$ 11.935 055

The plan invests in various investment securities. Investment securities are exposed to various risks such as interest rate, market and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near tenn and that such changes could materially affect the amounts reported in the Statement of Plan Net Position.

Plan contributions are made and the actuarial present value of accumulated plan benefits are reported based on certain assumptions pertaining to interest rates, inflation rates and employee demographics, all of which are subjected to change. Due to uncertainties inherent in the estimations and assumptions process, it is at least reasonably possible that changes in these estimates and assumptions in the near term would be material to the financial statements.

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REQUIRED SUPPLEMENTARY INFORMATION

Actuarial Valuation

Date (December 31)

12/31/2003 12/31/2004 12/3112005 12/31/2006 12/31/2007 12/31/2008 12/31/2009 12/31/2010 12/31/2011 12/31/2012


REQUIRED SUPPLEMENTARY INFORMATION (Unaudited)

Schedule of Funding Progress

(b) (b-a) Actuarial Unfunded

(a) Accrued Actuarial Actuarial Liability Accrued (a/b) Value of (AAL Attained) Liability Funded Assets Age (Asset} Ratio

13,592,377 13,706,190 113,813 99.2% 14.400,476 14,294,856 (105,620) 100.7% 14,821 ,085 15,779,232 958,147 93.9% 15,500,248 16,693 ,350 1,193,102 92.9% 16,192,586 17,359,058 1,166,472 93.3% 14,033,754 18,542, 191 4,508,437 75.7% 13,508,403 19,063,126 5,554,723 70.9% 13,482,961 19,711 ,080 6,228,119 68.4% 13,294,669 20,239,057 6,944,388 65.7% 13,082,714 20,656,101 7,573,387 63.3%

Schedule of Employer Contributions

Fiscal Annual Actual Year Ended Required Annual Percent

(December 31} Contribution Contribution Contributed

2004 410,281 410,281 100.00% 2005 436,636 436,636 100.00% 2006 409,663 409,663 100.00% 2007 495 ,935 495,935 100.00% 2008 463,914 463,914 100.00% 2009 497,579 497,579 100.00% 2010 693,421 693 ,421 100.00% 2011 670,168 670,168 100.00% 2012 692,509 692,509 100.00% 2013 722,091 722,091 100.00%

The infonnation presented above was detennined as part of the actuarial valuations at the dates indicated. Additional information as of December 31 , 2012, the latest actuarial valuation, follows:

Entry-Age Level percentage open 30 years

( c) Covered Payroll

2,046,793 1,863,799 1,992,634 1,994,621 2,139,604 1,988,731 2,138,467 1,998,689 2,126,019 2,174,865

Actuarial Cost Method Amortization Method Amortization Period Asset Valuation Method Assumed Rate of Return on Investments Projected Salary Increases Cost-of-Living Adjustment

Open 4 year smoothed market with 40% corridor 7.50% 4.5%-14.2% None

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((b-a)/c) UAAL

as a% of Covered Payroll

5.6% (5.7)% 48.1% 59.8% 54.5%

226.7% 259.8% 311.6% 326.6% 348.2%

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