The Summary Annual Report of the City of Kalamazoo Employees’ Retirement System is presented for your information.
The report summarizes the financial condition of the Retirement System as of December 31, 2011. The information presented in this report is based on the financial statements as audited by Abraham and Gaffney and the 2011 Actuarial Valuation prepared by Gabriel, Roeder, Smith & Company.
The City Charter requires that the City maintain an employees’ retirement system. The City of Kalamazoo Employees’ Retirement System was established as a “defined benefit” plan on July 1, 1942, by authority of Ordinance 188, as amended. As a “defined benefit” plan, the City must provide the benefits as defined in the plan, regardless of the cost. Therefore, the entire risk associated with providing the promised benefits rests with the City.
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.
Our investment managers continue to do hard work for the participants in a difficult market and economy. The year 2011 was not rewarding with a -2.2% return, adjusted for inflation and net of fees. The Investment Committee has remained dedicated to their strategy and feels confident about the long-term outcome. There have been no changes in fund managers this year.
Merion Capital LLC continues to provide investment analysis, reporting services and additional investment information as needs arise. The Committee has been very pleased with this relationship.
The Retirement System continues to be managed very cost effectively. The total expenses for the plan were $2,008,537, or 0.416% for 2011. The Actuary assumes 0.50% for expenses. The average total cost for both private and public retirement systems is between 0.90% and 1.20%. Our low expense ratio is a substantial cost savings to the System.
Once again, this year’s annual report has been combined with a pension guide for employees. This guide will help employees become familiar with the provisions of the plan.
It is a pleasure to report that the Employees’ Retirement System is in sound financial condition and that the fiduciaries remain committed to meet the obligations of the defined benefit plan in a prudent manner.