Deferred Compensation Plans

In 2011, the City created the City of Grand Rapids Deferred Compensation (CGRDC) Plan for most newly hired full-time, non-uniformed employees. This retirement arrangement is mandatory for new employees under most labor contracts and replaces the formerly required participation in the City of Grand Rapids General Retirement System defined benefit pension plan described in Note 7. This plan is administered by the ICMA Retirement Corporation (ICMA-RC) in accordance with Section 401(a) of the Internal Revenue Code (I(ICMA-RC), a Trust Document with the Vantage Trust Company, and an Administrative Services Agreement approved by the City Commission. Participation in the CGRDC Plan begins six months after date of hire and requires an employee contribution of 6% of pay with a 100% match by the employer. Contribution requirements are specified in labor agreements covering each employee group and may be changed during the collective bargaining process. Five year cliff-vesting applies to the employer contributions. During the fiscal year ended June 30, 2015 employee contributions were $236,312 and the employer contributions were $236,312 to this Plan. At June 30, 2015, the plan had 124 active and 5 terminated participants. The fair market value of plan assets was $1,018,989.

The City also maintains the Officer’s Option Plan, a defined contribution contributory savings plan created in accordance with IRC Section 401(a) and offered to executive and appointed employees hired prior to the establishment of the CGRDC. The plan was established and may be amended by city ordinance.

Participants with the 401(a) plan may not participate in the City’s defined benefit pension plans. Participants are immediately vested in required employee contributions of 6%, optional contributions of 1 - 3%, and employer contributions of 12% of employees’ current salaries. Plan contributions are maintained with earnings in a deferred account for each participant. At June 30, 2015, there were 11 active and 23 terminated plan participants with a total fair market value of plan assets for both active and retired participants of approximately $9,718,445. Contributions made by employees and the City totaled $101,679 and $149,035 respectively, for the fiscal year ended June 30, 2015. This plan was closed to new hires in 2012.

City of Grand Rapids, Michigan Notes to Financial Statements

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11. Deferred Compensation Plans

The City offers its employees deferred compensation plans created in accordance with IRC Section 457. The plans, available to all City employees, permit the voluntary deferral of a portion of current salary until future years. The deferred compensation is not available to the employee until termination, retirement, death or listed emergency. All amounts of compensation deferred under the plan, all property and rights purchased with such amounts and all income attributable to such amounts, property or rights are solely the property and rights of each individual participant. At June 30, 2015, the total market value of plan assets was approximately $84,420,243. Net of the effect of employee contributions, withdrawals and earnings, the fair market value of plan assets increased $1,064,953 for the year ended June 30, 2015. It is the opinion of the City’s legal counsel that the City has no liability for losses under the plan but does have the duty of due care that would be required of an ordinary prudent administrator.

All permanent, full-time employees that are not covered by one of the City’s defined benefit retiree health care plans described in Note 8 are enrolled in an agent multi-employer defined contribution post-employment health care program which is administered by the Municipal Employees’ Retirement System of Michigan. This program is defined in the Internal Revenue Code Section 115 as a Governmental Integral Part Trust. After six months of employment, bi-weekly deposits are made into each employee’s individual account in amounts determined by labor agreements or personnel policies. Following a 30 month phase-in period after initial employment, an employee’s mandatory bi-weekly contribution will be between $38.46 and $42.31, depending on labor agreement.

The employee’s contribution vests immediately. The employer’s contribution steps up over the same time period until it reaches $67.30 to $76.93 bi-weekly, which will vest after an eight or ten year period as specified in each labor agreement. Withdrawals from each employee’s account are permitted at any time after separation from employment, but only for medical expense reimbursement to the former employee or legal dependents. At June 30, 2015, 611 employees were participating in this defined contribution retiree health care plan. For the fiscal year ended June 30, 2015, regular contributions made by employees and the employer totaled $498,091 and $886,581 respectively. As the current participants in the defined benefit retiree health care plans described in Note 8 reach age 65, this defined contribution savings program will become the primary, and eventually the City’s only retiree health care plan.

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In 2015 the City of Grand Rapids implemented GASB Statement No. 68, Accounting and Financial Reporting for Pensions and GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date, which amended Statement No. 68.

Statement No. 68 fundamentally changed the required reporting by governments for defined benefit pension plans by moving the unfunded portion of the total pension liability onto the statement of net position for the government-wide, proprietary, and other full accrual statements. Pension expense will be presented as the change in net pension liability after a smoothing of the differences between actuarial projections and actual results; over five years for investment results and over the average remaining period of service of plan members, approximately four years, for all other differences. In addition Statement No. 68 requires revised and expanded disclosures in the notes and required supplemental information section. Individual fund financial statements for governmental activities that have a current financial resources measurement focus continue to present pension expenditures as the amount of cash contributions to the pension trusts.

The differences between the two measurement focuses can be found on pages 18 and 20. The principal objective of the Statements is to improve the usefulness of information for decisions made by the various users of the financial reports of governments whose employees are provided with retirement benefits in the form of a defined benefit pension. Prior to the implementation of this standard the City had never reported an asset or liability on the financial statements related to pensions because each pay period the City made a proportion of the actuarially required contribution to the defined benefit pension plan and the contractually required contribution to the defined contribution trust covering each employee. Under prior reporting standards that meant the only reported liability related to pension benefits was for the payroll in process at year-end. Achieving the financial reporting objective necessitated severing the link that had previously existed between the employer’s funding of pension costs and the reporting of pension expenses.

GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date, requires at transition from the prior reporting standard to the Statement No. 68 standard, the government recognize contributions made after the measurement date of the pension liability, and prior to the government’s fiscal year end, as deferred outflows of resources. The reporting of other sources of deferred outflows and deferred inflows is permitted only if it is practical to determine all such amounts which should be reported. The City of Grand Rapids has determined that recreating the actuarial studies necessary to determine the unamortized portion of all deferred inflows and outflows is impractical and accordingly has only presented employer contributions subsequent to the 2013 measurement dates of the net pension liability as deferred outflows in restating net position at transition.

Adoption of these statements required the restatement of Net Position on the Government Wide Statements follows:

Governmental Business-Type Component

Activities Activities Units

Net Position as reported at June 30, 2014 $ 366,312,055 $ 479,182,438 $ 21,825,036 Adjustment for net pension asset 2,322,083 - -Adjustment for deferred outflows 9,147,027 2,280,468 701,683 Adjustment for net pension liability (50,293,509) (19,812,595) (6,096,183) Net Position, as restated $ 327,487,656 $ 461,650,311 $ 16,430,536

City of Grand Rapids, Michigan Notes to Financial Statements

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