The annual actuarial valuation (AAV) is an important tool to help you budget for your municipality’s retirement benefits, with information specific to your municipality’s retirement plan. While MERS pools assets for investment purposes, individual accounts are maintained for each municipality. Each entity is responsible for the employer contributions needed to provide benefits for its employees and former employees. View a  consolidated report of all MERS plans.

The annual actuarial valuation is a report provided to you as a snapshot of your MERS Defined Benefit Plan as of December 31 each year. The information in the report will provide your contribution rates for your following fiscal year. The report also provides insight to your plan’s liabilities, funding levels, contributions for both the employer and employee, and important GASB information.

When to Expect Your Report

You can expect your report to be available in your Employer Portal by about June 30 for the previous calendar year. For instance, you can expect the 2022 report to arrive around June 30, 2023. This report will contain contribution rate information for the 2024 fiscal year.

Understanding Your Annual Actuarial Valuation

This guide outlines each section of your report and provides answers to some frequently asked questions. For more information, please contact your MERS Regional Manager.

Click the titles below for more information:

Funded Ratio
In the 2022 report, you will see that your funding level reflects any contributions made to surplus division(s). An explanation of surplus divisions can be found in the following section on Required Employer Contributions.


Required Employer Contributions
Your required Employer Contributions are shown in this section of the Executive Summary, as well as in Table 1. MERS will invoice you based on the amount in the “No Phase-in” columns. To request to be billed the “Phase-in” rate, please contact your Benefit Plan Coordinator.

Employers are strongly encouraged to contribute more than the minimum required contribution, where possible. With the implemented Dedicated Gains policy, market gains and losses will continue to be smoothed over five years; however, since excess return are being used to lower the investment assumption, there will be less gains to smooth in down markets. Having additional funds in Surplus divisions will assist plans with navigating any market volatility. Any additional contributions can be made in one of two ways:

  • Applied to an existing division.
    Funds allocated to an existing division may increase the funding level for the next year and may result in lower annual required contributions throughout the remaining amortization period.
  • Applied to a surplus division.
    Funds allocated to a surplus division may increase the funding level of the plan as a whole, but are not considered when calculating future annual required contributions. In this way, contributions made to a surplus division may result in unfunded accrued liability being paid off more quickly.

You can learn more about the surplus division option in our Managing UAL publication or by contacting your Benefit Plan Coordinator.

Investment Rate of Return Assumption
The current Investment Return Assumption is 7.00%.

For those local units of government who wish to plan more conservatively, your Annual Actuarial Valuation contains a “what if” scenario showing what your required contributions would be with a lower investment return assumption.

Assumption and Method Change in 2022

Effective February 17, 2022, the MERS Retirement Board adopted a dedicated gains policy that automatically adjusts 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. Investment performance measured for the one-year period ending December 31, 2022, did not result in excess gains for use in lowering the assumed rate of investment return. As a result, this assumption remains at 7.00%. 

There were no other assumption or method changes in 2022. 

Comments on Asset Smoothing

To avoid dramatic spikes and dips in annual contribution requirements due to short-term fluctuations in asset markets, MERS applies a technique called asset smoothing. This spreads out each year’s investment gains or losses over the prior year and the following four years. After initial application of asset smoothing, remaining excess market gains are used to buy down the assumed rate of investment return and increase the level of valuation assets, to the extent allowed by the dedicated gains policy.

This smoothing method is used to determine your actuarial value of assets (valuation assets), which is then used to determine both your funded ratio and your required contributions. The (smoothed) actuarial rate of return for 2022 was 3.51%, while the actual market rate of return was (10.61%). 

For more information on smoothing, watch the “How Smoothing Works” video.  

Alternate Scenarios to Estimate the Potential Volatility of Results (“What If Scenarios”)
The calculations in this report are based on assumptions about long-term economic and demographic behavior. These assumptions will never materialize in a given year, except by coincidence. This section provides a glimpse into what your required employer contributions for FY 2023 would look like using a Lower Assumed Investment Return:

  • Lower Future Annual Returns (5.00%) – The first column demonstrates the impact using a lower investment return assumption of 5.00% would have on employer contributions
  • Lower Future Annual Returns (6.00%) – The second column demonstrates the impact using a lower investment return assumption of 6.00% would have on employer contributions
  • Valuation Assumptions – The third column shows the 7.00% assumption used in the 2022 AAV, allowing for easy comparison

Projection Scenarios
The 2022 report also includes six-year projections of your plan’s funded ratio and computed employer contributions and graphs for each of the above scenarios. All three projections take into account the past investment losses that will continue to affect the actuarial rate of return in the short term.

You will note that the charts have been expanded until the year 2048, and have added data showing any assets you may have in surplus division(s). The graphical projections show your plan’s funded ratio and computed employer contributions in each the three scenarios. Your projection scenarios also include green lines to indicate the 60% funded level and 20 years following the valuation date to assist with PA 202 reporting.

Table 1 provides information regarding your employer contributions. The table shows contribution details, including the Normal Cost and any unfunded accrued liability for each division. Required contributions are shown as both a percentage of payroll as well as an estimated monthly dollar amount for open divisions, based on your municipality’s payroll as of December 31, 2022. If a division is open, both percentages and dollars will display. Closed divisions will show only employer contributions as a dollar amount only.

In Table 1 there is a column showing the total Normal Cost (calculating the employer and employee portions together) including the no phase-in and phase-in rates.

This table also shows the employee contribution conversion factor. If employee contributions are increased/decreased by 1% of pay, the employer contribution requirement will be decreased/increased by the member contribution factor listed on this table. Please see the FAQ section below for more information.

Specific benefit provisions for each of your divisions are shown in Table 2. This includes both open divisions and closed divisions. The table provides information for the current valuation as well as for the previous year.

Table 2 can be helpful when determining if benefit provisions were changed from the prior year.

Table 3 provides information about each division’s membership, including number of active, deferred and retired members, as well as annual payroll. The table provides information for the current valuation as well as for the previous year.

For each division there are columns describing the average age, average benefit service, and average eligible service for members of your divisions. This information can be important when determining if there was a substantial change in employment levels or total payroll in the last year.

Table 4 details the reported assets for each division in the current and previous valuation years, including the total asset amount for the municipality. The Combined Assets amount is the market value of assets as of December 31, 2022. The information in this table should match your financial recordkeeping information, as well as the defined benefit statements that MERS sends out on a quarterly and annual basis.

If you have one or more surplus divisions, those assets will be shown here. Please note the explanation after the chart.

Table 5 shows the actuarial value of assets, separated by employer and member contributions. This is important because it shows the investment income generated by the plan, as well as the amount of benefit payments to retirees.

An important feature in Table 5 is the Additional column under Employer Contributions, which displays any additional voluntary contributions your municipality has made in the previous years. This includes any surplus division assets. Additional contributions can reduce your liability and increase your funding level. Talk to your Regional Manager for information regarding voluntary contributions.

Table 6 shows each division’s assets, liabilities and funded percentage, as well as the total municipality funded level. For convenience, linked divisions (if applicable) are shown together, as well as individually. The funding level of each division is important because it is a key element in determining the total employer contribution requirement.

Table 7 provides a 15-year history of the entire municipality’s funded levels.

Based on feedback from employers, we have added tables that show a breakdown by division of the history of funded levels (Table 8) and (Table 9) contribution schedules. Contributions are shown as a percent for open divisions and dollar amount for closed divisions.

Table 10 breaks down your unfunded accrued liability for each division to help you understand the changes by UAL type each year.

This is information that your auditor will likely need, as it details important GASB 67 and GASB 68 information. Your auditors may also need additional information for GASB 68 and employee census information. Both of these reports are available on the employer portal under the Program Summary tab. You can also check out our GASB 68 resource page.

For impacted municipalities, you will see information in this section regarding your Qualified Excess Benefit Arrangement (QEBA) liability letter, which is now found in the back of your AAV. Your QEBA letter is necessary for GASB 68 reporting, and was sent out as a separate document in previous years.

This section provides a history of benefit provision changes for each division since inception. In some cases, this information may help explain why liabilities have changed over time.

This section shows information that specifically pertains to your municipality. (View the current actuarial assumptions used by MERS.) This information is important because these factors help to determine your total plan cost.

As required by the Protecting Local Government Retirement Benefits Act (Public Act 202 of 2017), the state treasurer has established uniform actuarial assumptions which will be used for reporting purposes only. View the uniform assumptions.

This includes plan maturity measures calculated for each employer to assist in determining your risk. Risks facing a pension plan evolve over time, and a four-year history has been included. MERS uses these metrics gain additional insight into the viability of our members’ plans and identify sustainability trends. We will be proactively reaching out to the employers with the most at risk plan to partner with them to ensure they have the information they need to adequately fund the projected costs of their retirement plan.

This section includes data necessary for your municipality to complete the State of Michigan’s Local Government Retirement System Annual Report (form 5572).

AAV Frequently Asked Questions

The new rates will go into effect the first day of your next fiscal year. So if you are reviewing the AAV for December 31, 2022, the new rates will go into effect the first day of your fiscal year that begins in 2024. For example, if your fiscal year starts June 1, these rates would be effective June 1, 2024.

You can find your percent funded in the Executive Summary. Also, Table 6 shows you the percent funded for each division and as an aggregate total for the municipality.

If you made a change after December 31, 2022, it will not be listed on this report. However, it will show on the December 31, 2023 report.

Normal Cost is the cost of pre-funding the accrual of projected benefits for active participants for the next year.

UAL is the projected cost of benefits that have accrued to current and former employees that have not been funded by contributions and investment earnings.

The standard MERS Defined Benefit Plan allows an individual to retire at an age earlier than the Normal Retirement age if years of service requirements are also met. However, in doing so, the annual pension amount is permanently reduced for each month before normal retirement age.

Please contact your MERS Regional Manager for more information. We will be glad to assist you!

Please contact your MERS Regional Manager, who will be glad to assist in exploring options.

Yes, the minimum required payment is just that — the minimum. You can make additional contributions at any time through the MERS Employer Portal, or contact your Benefit Plan Coordinator to add the additional amount to your contributions on a going-forward basis. Any additional contributions will be noted on Table 5 of the report.

Please see the FAQ below on surplus divisions for more information on making extra contributions.

Remember that the information shown is what MERS had on file as of December 31, 2022. For further participant detail please review the Census report located on the MERS Employer Portal or contact your Benefit Plan Coordinator and we will be glad to assist!

Investment rates of return can be found on the last pages in the appendix to the annual actuarial valuation. View the appendix (pdf).

If you were to increase the employee contribution percentage by 1%, it would decrease the employer contribution by the factor listed in the Employee Contribution Conversion Factor column found in Table 1. Please contact yourRegional Manager for information about your specific situation.

Yes. To make voluntary contributions to pay down UAL without affecting how your future required minimum contributions are calculated, you will need to create a surplus division.

By creating a surplus division for voluntary contributions, you will be able to allocate the funds either:

  • To a surplus division(s) associated with a specific employee division(s)
  • To a surplus division NOT associated with an employee division

You will have a one-time option to transfer previous voluntary contributions to a newly established surplus division. Any voluntary contributions not assigned to a surplus division will result in lowering your future required minimum contributions.

Your Benefit Plan Coordinator or Regional Manager will help you get started.

Yes it is. MERS offers the option for municipalities to apply extra contributions to one or more surplus divisions. The goal of this option is to decrease the amount of time it takes to fund your plan, versus a reduction of contribution requirements, which happens when these extra contributions are accounted for and applied in your annual valuation. To request a transfer of voluntary funds into a surplus division, and to have your valuation rates recalculated, contact your Benefit Plan Coordinator.