Dearborn Heights actuary: general employee pension contribution rises after large salary increases

Jason Franken, actuary at Foster & Foster, told the Dearborn Heights City Council that the general employee retirement system’s required contribution increased by about $200,000 for the most recent valuation period, primarily because payroll rose substantially.

Franken said the plan’s projected payroll increased from about $6,660,000 to about $7,140,000 and that the larger-than-expected salary increases over the last three years are the main driver of higher pension liabilities and the increased contribution requirement. "I don't think any any need for alarm here," Franken said about the plan's investment returns and overall status.

The report shows two asset measures: a five-year smoothed actuarial value and a market value; the smoothed actuarial value was slightly higher than market, and the plan earned about 7.1% on a smoothed basis—near the assumed 7% return. Franken said the funded ratio declined modestly from 72.7% to 71.7% on the plan's actuarial basis. Under the uniform assumptions required by state disclosure (Public Act 202), the funded ratio is reported slightly lower at 70.9%.

Franken explained the structure of the contribution requirement: normal cost (the cost of benefits being earned) increased by about $46,000, administrative expenses currently are not covered by contributions (an issue the actuary flagged for future discussion), and roughly two-thirds of the total contribution is an amortization payment to reduce unfunded liability. The plan currently uses a level percentage of payroll amortization and a 17-year amortization period; the actuary noted that under the current method the amortization portion of the contribution is designed to increase about 3.5% per year unless there are favorable future gains.

Council members asked for clarification on whether overtime was included in pay definitions for different employee groups. Franken and staff said the plan uses group-specific definitions of salary; for many general employees only limited overtime is included depending on contract terms, whereas other plans (police and fire) may roll in more overtime. Franken said contributions are calculated using actual end-of-year payroll data and that the normal cost for the plan is about 12.8% of pay while total contribution (including amortization) is about 33.8% of payroll.

The council asked the actuary to make the report available to members; staff agreed to distribute the actuarial report to council members by email for further review. "There's nothing here... that has me, concerned about what's gonna happen going forward," Franken said, summarizing his view that the current unrecognized losses are small relative to the plan’s size.

The presentation closed with the council opening the item to public comment (none were offered for this item) and thanking Franken for the review.