Summary Annual Report for the State Employees’ Retirement System, a Pension and Other Post-Employment Benefits Trust Fund of the State of Michigan Fiscal Year Ended Sept. 30, 2019 Prepared by Michigan Office of Retirement Services Department of Technology, Management and Budget A Message From The Director The Department of Technology, Management and Budget’s (DTMB) Office of Retirement Services (ORS) is pleased to present the Summary Annual Report for the State Employees’ Retirement System (SERS), henceforth referred to as the System, for the fiscal year (FY) ended Sept. 30, 2019. ORS provides retirement and related retiree healthcare plans to help attract, retain, and reward a highly qualified workforce. ORS is able to cost-effectively provide these benefits to retirees. In 2018, the total defined benefit (DB) pension administration cost was $65 per active member and retiree. This was $32 below the peer average of $97 per active member and retiree (CEM Benchmarking). Accomplishments Paperless Options use realistic scenarios in simulated A new feature was implemented in environments so staff members can miAccount that lets customers opt out of practice completing various transactions receiving paper direct deposit statements and processes. The training helps as well as paper Form 1099-R annual ensure Customer Service staff members statements. Both direct deposit and are completing tasks accurately Form 1099-R statements are available and efficiently, improving customer electronically to view and print in miAccount experiences through consistent for current and past years. If customers account handling. Upon completion choose the paperless option, their Form of each module, staff members take 1099-R statements are available online a a quiz to evaluate their learning. week or two before the printed one is mailed. They can also view their pension payment Mailing Security Process Improvement history on a monthly basis versus receiving An information security change was a paper statement four to five times a made that will improve end-to-end year. In addition to providing the member processing of the daily mailings and with more personalized information faster, ensure that ORS customers are getting going paperless helps the environment their mail and only their mail. The and reduces print and mailing costs. solution uses 2-D bar codes which are tracked by the automated print and mail New E-Learning Modules equipment to ensure that each printed Customer Service now has online page is accounted for as it passes modules available to help train staff through various machines, reducing the members. The training modules risk of mail going to the wrong customer. 2 State Employees’ Retirement System Honors Government Finance Officers Public Pension Standards Award Association Award ORS was awarded the 2019 Standards The Government Finance Officers Association Award from the Public Pension Coordinating (GFOA) of the United States and Canada Council’s Standards Program (PPCC) for awarded the System with the Certificate both funding and administration. ORS has of Achievement for Excellence in Financial received this award every year since 2004. Reporting for our FY 2018 comprehensive The PPCC Standards reflect expectations for annual financial report (CAFR). This marks the public retirement system management and 28th consecutive year ORS has received this administration and serve as a benchmark prestigious award. for all DB public plans to be measured. Summary Annual Report 2019 3 About The State Employees’ Retirement System This report is issued in compliance with the Public Employee Retirement System Investment Act, 1965 Public Act (PA) 314, and the State Employees’ Retirement Act, 1943 PA 240, both as amended. The contents come from the complete SERS 2019 CAFR, available on our website at Michigan.gov/ORSStateDB, the annual actuarial valuations as of Sept. 30, 2019, and additional analysis performed after Sept. 30, 2019. State employees’ pensions are protected by Michigan’s Constitution. The System’s net assets are held in trust to meet future benefit payments. ORS also administers the State of Michigan 401(k) Plan for state employees hired after March 31, 1997. The State of Michigan Investment Board is the investment fiduciary and custodian of all investments of the System pursuant to state law. 4 State Employees’ Retirement System Executive Summary The present value of the assets as of Sept. 30, 2019, was Statement Of Assets And Liabilities $15.5 billion for pension and FY 2019 Pension1 OPEB2 other post-employment benefits (OPEB), and the total actuarial AAL $18,921,130,920 $9,223,148,521 accrued liability (AAL) was Present Value of Assets $12,374,070,881 $3,078,401,755 $28.1 billion resulting in a total unfunded actuarial accrued UAAL $6,547,060,039 $6,144,746,766 liability (UAAL) of $12.6 billion. Funding Ratio 65.40% 33.40% The System’s assets increased FY 2018 Pension3 OPEB4 by $396 million in FY 2019. Asset increases were primarily AAL $18,995,243,989 $10,630,303,662 due to investment income and Present Value of Assets $12,494,360,972 $2,561,630,541 contributions from the state and employees. The overall AAL for UAAL $6,500,883,017 $8,068,673,121 pension and OPEB decreased Funding Ratio 65.80% 24.10% by $1.5 billion primarily due to positive demographic experience 1. 2019 SERS Pension Actuarial Valuation, Page B–1. 2. 2019 SERS OPEB Actuarial Valuation, Page A–2. in the retiree health plan. 3. 2018 SERS Pension Actuarial Valuation, Page B–1. 4. 2018 SERS OPEB Actuarial Valuation, Page A–2. The pension funding ratio declined slightly by 0.4 percentage points primarily as a result of investment and demographic losses. The OPEB funding ratio improved by 9.3 percentage points primarily due to demographic and experience gains in the retiree healthcare plan. Summary Annual Report 2019 5 Membership Members of the DB plan include Plan Membership And Retirement Allowances employees of the state of Michigan and As Of Sept. 30, 2019 its noncentral agencies as listed below: Membership1 • Classified or unclassified state employees, including civil service Retirees And Beneficiaries Currently Receiving Benefits employees, appointed officials in the Regular Benefits 49,841 executive branch, and employees of Survivor Benefits 7,455 the legislative and judiciary branches Disability Benefits 3,205 who were hired before March 31, 1997. Total 60,501 Current Employees • Employees who work for the Business Vested 7,996 Enterprise Program, Mackinac Island Non-Vested 111 State Park, or Michigan State Bar, and Total2 8,107 were hired before March 31, 1997. Inactive Employees • Employees hired before Oct. 1, 1996, Entitled to benefits and not yet receiving them 2,929 and employed by the American Legion, Total All Members 71,537 1. CAFR for the FY ended Sept. 30, 2019, Page 21. American Veterans, Disabled American 2. Includes DB members who converted to the Defined Contribution (DC) Veterans, Marine Corps League, Military plan and employees who elected to participate only in the DC plan. Order of the Purple Heart, Wayne Retirement Allowances3 County Clerk Recorders Court, Third Average annual retirement allowance $23,198 Circuit Court, or 36th District Court. Total Annual Retirement Allowances Being Paid $1,403,492 (In Thousands) 3. Pension Actuarial Valuation for the FY ended Sept. 30, 2019, Page D–2. Assets And Liabilities The System’s total assets on a market basis as of Sept. 30, 2019, Assets And Liabilities1 (Dollars In Thousands) were $15.9 billion, mostly (Combined Pension And OPEB) composed of cash, investments, and contributions due from the Assets FY 2018 FY 2019 employer. Cash $ 133,340 $ 119,126 Receivables 136,782 130,340 Total liabilities as of Sept. 30, 2019, Investments 14,734,342 15,064,065 were $639.5 million and include Securities Lending Collateral 668,255 597,767 accounts payable, unearned Total Assets $ 15,672,720 $ 15,911,298 revenue, and obligations under securities lending. Liabilities FY 2018 FY 2019 Unearned Revenue $ 27 $ 32 Total net assets held in trust for Accounts Payable and Other Liabilities 43,434 41,782 pension and OPEB increased Obligations Under Securities Lending 668,435 597,698 $311 million from the previous year. Total Liabilities 711,897 639,513 Net Assets $ 14,960,823 $ 15,271,786 1. CAFR for the FY ended Sept. 30, 2019, Page 15. Liabilities in this context are exclusive of AAL for pension and OPEB. The sum total of all the line items may not equal the total due to rounding. 6 State Employees’ Retirement System Revenue And Expenditures, Change In Net Assets The reserves needed to finance pension and OPEB are accumulated through the collection of employer and employee contributions including earnings on investments. Contributions and net investment income for FY 2019 totaled $2.2 billion. The primary expenses of the System include the payment of pension benefits to members and beneficiaries, payment for health, dental and vision benefits, refunds of contributions to former members, and the cost of administering the System. Additions And Deductions1 (Dollars In Thousands) Additions FY 2018 FY 2019 Member Contributions $ 35,598 $ 28,442 Employer Contributions 1,339,624 1,365,318 Other Governmental Contributions 83,620 65,604 Net Investment Income (Loss) 1,503,048 755,266 Miscellaneous Income 236 83 Total Additions $ 2,962,126 $ 2,214,713 Deductions FY 2018 FY 2019 Pension Benefits $ 1,362,275 $ 1,398,265 Healthcare Benefits 461,376 468,671 Refunds and Transfers to Other Systems 220 130 Uncollectable Receivable Write-Off – 4,423 Administrative and Other Expenses 31,720 32,262 Total Deductions $ 1,855,591 $ 1,903,751 Net Position FY 2018 FY 2019 Net Increase (Decrease) in Net Position $ 1,106,535 $ 310,962 Beginning of Year 13,854,288 14,960,823 End Of Year $ 14,960,823 $ 15,271,786 1.