Title
Resolution to Approve an Agreement with Aon Consulting, Inc. for Advisory Services Related to De-Risking the City's Pension System ($38,500.00) (8 Votes Required)
Memorandum
In FY2008 the City's pension system was funded at 100%. As a result of the Great Recession, the system's funded status dropped to a low of 80% (on an actuarial basis) in FY2013. Through strong financial market returns, increased city and employee contributions and plan design changes, which transferred some of the future liability to employees, the pension system's funding level improved to 86% by FY2015. For the past several years the funded status has remained between 85% to 87%. When the plan is less than 100% funded, the City is required to make additional contributions above the amount of benefits earned by employees in each year. During this time the City's contributions have increased from approx. $8 million in FY2009 to approx. $15 million in FY2019.
As a result, the City of Ann Arbor is seeking the expertise and services of a consultant to evaluate the feasibility and cost for the City to purchase an annuity to pay its pension benefits. The purchase of an annuity will in essence sell the City's pension liability to a third party (anticipated to be an insurance company) thereby eliminating the volatility of future City contributions related to fluctuations in financial markets. Additionally, the City desires to know if there are other alternatives it should explore to eliminate the City's financial exposure for all or a portion of the plan members. The consultant will address existing accrued benefits, duty death benefits, as well as other plan provisions. The final report will include at a minimum an actuarial assessment of the cost, estimated pricing from sellers of annuities, options to fund the purchase of an annuity, and alternative strategies to reduce the City's exposure to increasing plan contributions. If this first phase is completed and Council desires to pursue a...
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