Actuarial Assumptions - MERS | Municipal Employees' Retirement System of Michigan

Required contributions in a defined benefit plan are calculated by an accredited actuary using assumptions about future events. These assumptions fall into two broad categories: economic and demographic.

As part of our fiduciary responsibility and fiscal best practices, these assumptions are checked regularly and adjusted as needed to ensure plans are properly funded. These reviews are conducted by an independent actuary and follow guidelines set forth by the Actuarial Standards Board in Actuarial Standards of Practice (ASOP).

MERS Funding Policy

Our primary goal is to ensure that each municipality’s plan assets are adequate to provide for the benefits that are expected to be paid and that each plan is making reasonable progress to achieve full funding.

Our secondary goal is to have each generation incur the cost of benefits for the employees who provide service in that generation, rather than deferring those costs to future employees. Our funding policy also supports our overarching organizational goals of transparency and accountability.

Our final goal is to balance contribution stability with the commitment to ensure plans are properly funded.

Economic Assumptions

Economic assumptions are based on forward looking trends. In today’s ever-changing world, it is a fiscal best practice to review economic assumptions more frequently so plans can make incremental changes on an ongoing basis. Public retirement systems, like MERS, follow a process for establishing economic assumptions that consider various financial, economic and market factors, and is based on a long-term view.

Review of Economic Assumptions

A capital market analysis is the process of collecting and interpreting data of anticipated performance of various investment asset classes in an investment portfolio. Our independent actuarial consultants, Gabriel, Roeder, Smith & Company (GRS) conducts a capital market analysis for MERS every three years.

Using Dedicated Gains to Reduce the Investment Return Assumption

Based on feedback from employers, MERS worked with GRS to develop a Dedicated Gains Policy that that automatically lowers the assumed rate of investment return by using excess asset gains to mitigate large increases in required contributions to the Plan. Full details of this dedicated gains policy are available in the Actuarial Policy.

Some goals of the dedicated gains policy are to:

Provide a systematic approach to lower the assumed rate of investment return between experience studies, and
Use excess gains to cover both the increase in normal cost and any increase in UAL payment the first contribution year after application (i.e., minimize the first-year impact (i.e., increase) in employer contributions).

The dedicated gains policy was implemented with the December 31, 2021 annual actuarial valuation and was reflected in the computed employer contribution amounts beginning in fiscal year 2023.

For more information about how MERS uses dedicated gains to reduce the investment return assumption, feel free to contact your Regional Manager.

Demographic Assumptions

Demographic assumptions look back at the actual experience of the plan. As a best practice, MERS performs an “Experience Study” at least every five years to check key assumptions against the real world and make adjustments if necessary. Our most recent five-year Experience Study (covering years 2019-2023) was completed in February 2025.

Review of Demographic Assumptions

As a result of this Study, the MERS Retirement Board approved adjustments to several assumptions, including updates to unreduced Rates (the anticipated age at which an individual is completely retired and no longer earning an income through active employment), Final Average Compensation (FAC), and withdrawal rates. All adjustments were minor demographic-related changes, as our economic assumptions were deemed reasonable. The result: minor adjustments to underlying assumptions and generally minimal aggregate impact to both contribution and funded levels across all plans.

Importantly, while the aggregate impact is minimal, employers should keep in mind that the actual impact may vary by employer, given the varying demographics, unique experience and funded status of the plans.

Partnering to Help You Reduce Unfunded Accrued Liability (UAL) & Contribution Relief Options

Required contributions are based on the full impact of these assumption changes, which is in keeping with our goal of helping you achieve and maintain adequate funding. Based on feedback from our customers, we understand that some of you may need flexibility to prepare for potential increases. Your Regional Manager is available to discuss plan design strategies that may reduce your projected liability, as well as options to phase-in the impact over a longer period.

In addition, while we strongly recommend groups use the funding policy in place, you may request an analysis to determine if an extension of the amortization schedule for existing UAL is possible. By extending the amortization period, you are deferring costs into the future, which will result in higher overall costs over the long-term. Any new UAL will be layered based on the plan’s original schedule.

For more information on your options, see our Managing UAL Page.