MICHIGAN PUBLIC SCHOOL EMPLOYEES’ RETIREMENT SYSTEM A Pension and Other Employee Benefit Trust Fund of the State of Michigan Comprehensive Annual Financial Report for the Fiscal Year Ended September 30, 2016 M P S E R S Prepared by: Financial Services for Office of Retirement Services P.O. Box 30171 Lansing, Michigan 48909-7671 517-322-5103 1-800-381-5111 MICHIGAN PUBLIC SCHOOL EMPLOYEES’ RETIREMENT SYSTEM ● 1 TABLE OF CONTENTS INTRODUCTORY SECTION .............................................................................................................................. 3 Certificate of Achievement .............................................................................................................................. 4 Public Pension Standards Award .................................................................................................................... 5 Letter of Transmittal ........................................................................................................................................ 6 Administrative Organization .......................................................................................................................... 10 Retirement Board Members ...................................................................................................................... 10 Advisors and Consultants .......................................................................................................................... 10 Organization Chart .................................................................................................................................... 11 FINANCIAL SECTION ..................................................................................................................................... 13 Independent Auditor's Report ....................................................................................................................... 14 Management’s Discussion and Analysis ...................................................................................................... 16 Basic Financial Statements ........................................................................................................................... 20 Statement of Pension Plan and Other Postemployment Benefit Plan Fiduciary Net Position ......................... 20 Statement of Changes in Pension Plan and Other Postemployment Benefit Plan Fiduciary Net Position ...... 21 Notes to Basic Financial Statements ........................................................................................................ 22 Required Supplementary Information ........................................................................................................... 51 Schedule of Funding Progress – Other Postemployment Benefit Plan .................................................... 51 Schedule of Changes in Net Pension Liability .......................................................................................... 52 Schedule of Net Pension Liability .............................................................................................................. 53 Schedules of Contributions ....................................................................................................................... 53 Schedule of Investment Returns ............................................................................................................... 54 Note to Required Supplementary Information ........................................................................................... 55 Supporting Schedules ................................................................................................................................... 56 Summary Schedule of Pension Plan Administrative and Other Expenses ............................................... 56 Schedule of Investment Expenses ............................................................................................................ 57 Schedule of Payments for Professional Services ..................................................................................... 57 Detail of Changes in Plan Fiduciary Net Position (Pension and Other Postemployment Benefits) .......... 58 INVESTMENT SECTION ................................................................................................................................. 61 Report on Investment Activity ....................................................................................................................... 62 Asset Allocation ......................................................................................................................................... 63 Investment Results .................................................................................................................................... 64 Largest Assets Held ...................................................................................................................................... 74 Schedule of Investment Fees ....................................................................................................................... 75 Schedule of Investment Commissions .......................................................................................................... 76 Investment Summary .................................................................................................................................... 77 ACTUARIAL SECTION .................................................................................................................................... 79 Actuary’s Certification ................................................................................................................................... 80 Summary of Actuarial Assumptions and Methods ........................................................................................ 83 Actuarial Valuation Data ............................................................................................................................... 85 Prioritized Solvency Test .............................................................................................................................. 87 Analysis of System Experience ..................................................................................................................... 89 Summary of Plan Provisions ......................................................................................................................... 91 STATISTICAL SECTION ................................................................................................................................. 95 Schedules of Additions by Source ................................................................................................................ 97 Schedules of Deductions by Type ................................................................................................................ 98 Schedules of Changes in Fiduciary Net Position ........................................................................................ 100 Schedules of Benefits and Refunds by Type .............................................................................................. 102 Schedules of Retired Members by Type of Benefit .................................................................................... 103 Schedule of Funding Progress – Pension Plan .......................................................................................... 104 Schedule of Other Postemployment Benefits ............................................................................................. 105 Schedules of Average Benefit Payments ................................................................................................... 106 Schedule of Principal Participating Employers ........................................................................................... 109 Ten Year History of Membership ................................................................................................................ 110 Schedule of Participating Employers .......................................................................................................... 111 ACKNOWLEDGMENTS................................................................................................................................. 118 2 ● MICHIGAN PUBLIC SCHOOL EMPLOYEES’ RETIREMENT SYSTEM INTRODUCTORY SECTION Certificate of Achievement Public Pension Standards Award Letter of Transmittal Retirement Board Members Advisors and Consultants Organization Chart MICHIGAN PUBLIC SCHOOL EMPLOYEES’ RETIREMENT SYSTEM ● 3 INTRODUCTORY SECTION Certificate of Achievement 4 ● MICHIGAN PUBLIC SCHOOL EMPLOYEES’ RETIREMENT SYSTEM INTRODUCTORY SECTION Public Pension Standards Award MICHIGAN PUBLIC SCHOOL EMPLOYEES’ RETIREMENT SYSTEM ● 5 INTRODUCTORY SECTION Letter of Transmittal Michigan Public School Employees’ Retirement System P.O. Box 30171 Lansing, Michigan 48909-7671 Telephone 517- 322-5103 Outside Lansing 1-800-381-5111 STATE OF MICHIGAN RICK SNYDER, Governor DEPARTMENT OF TECHNOLOGY, MANAGEMENT & BUDGET January 11, 2017 The Honorable Rick Snyder Governor, State of Michigan, Members of the Legislature State of Michigan, Retirement Board Members and Members, Retirees and Beneficiaries Ladies and Gentlemen: We are pleased to present the comprehensive annual financial report of the Michigan Public School Employees’ Retirement System (System) for fiscal year 2016. INTRODUCTION TO REPORT