City of Kalamazoo, Michigan Employees' Retirement System

Jan 4, 2013

The financial objective of the Retirement System is to accumulate a pool of assets that will be sufficient to pay the benefits promised by the system, at the lowest possible cost, and to do so solely in the interest of the participants and beneficiaries. 

Within this objective, the system's assets are to be invested to achieve the maximum long term (3-4 market cycles) cumulative annual rate of return possible in relation to risk under the laws and regulations under which the assets can be invested. The Investment Committee has established an investment policy, which provides that the maximum amount permitted under the laws and regulations, will be targeted for investment in common stocks with the balance invested in bonds, short-term securities and real estate.

The investment objective is to achieve a "real" rate of return (nominal rate less inflation) of 5% over time. This objective has been achieved since the inception of the current organization in 1982.

The market value of assets is not used for funding level calculation purposes. Instead, each year's investment gains or losses are spread equally over the following five (5) years by the actuary. This reduces annual fluctuations in asset value and contribution rates caused by changes in market conditions

Employer contributions, if applicable, are made in accordance with the funding rates recommended by Gabriel, Roeder, Smith & Company, in the annual Actuarial Valuation Report. The 2011 valuation report is again recommending $0 contributions. Employee contributions are made in accordance with union contracts or, in the case of non-bargained employees, in accordance with provisions within the code of ordinances

At year-end 2011 the unrecognized loss was $27,050,248. By policy, any annual gain or loss will be recognized over five years however; the actuarial assets may not be less than 80% of the market value of assets.

At year-end 1981, when the Investment Committee was created and applicable policies were implemented, the actuarial value of the assets was approximately $26 million, the accrued liabilities were $45.9 million and the funded ratio (actuarial assets divided by accrued liabilities) was 56%. The market value of the assets at 12/31/2011 was $483 million, the actuarial value was $509 million, the accrued liabilities were $381 million, and the funded ratio was 133.9% on a valuation basis.

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