ACTUARIAL SECTION

Summary of Actuarial Assumptions and Methods

1. The investment return rate used in the valuations of the MIP and Basic Pension plans was 8% per year (7% for the Pension Plus plan) net of expenses, compounded annually. This rate of return is not the assumed real rate of return. The real rate of return is the rate of investment return in excess of the inflation rate. Considering other financial assumptions, this investment return rate translates to an assumed long-term real rate of return of 4.5% (3.5% for the Pension Plus plan). Adopted 2004 (2010 for the Pension Plus plan). The healthy life mortality table used in evaluating allowances to be paid was the RP-2000 Combined Healthy Mortality Table adjusted for improvements to 2020 using projection scale AA. Adopted 2010 Sample probabilities of regular, unreduced retirement are shown in Schedule 1 on the next page. Adopted 2010. Sample probabilities of withdrawal from service and disability, together with individual pay increase assumptions, are shown in Schedule 2 on the next page of this report. Adopted 2010. Total active member payroll is assumed to increase 3.5% per year. This represents the portion of the individual pay increase assumptions attributable to inflation. In effect, this assumes no change in the number of active members. Adopted 2004. An individual entry age actuarial cost method of valuation was used in determining age and service and deferred retirement actuarial liabilities and normal cost. Adopted 1975. Unfunded actuarial accrued liabilities, are financed over a declining 40-year period beginning October 1, 1996. Adopted 1996. The Department of Technology, Management & Budget approved the use of market value of assets as of September 30, 2006, for valuation purposes. For investment gains and losses that occur after that date, a 5year smoothing technique will be used. Specifically, the excess (shortfall) of actual investment income (including interest, dividends, realized and unrealized gains or losses) over the imputed-income at the valuation interest rate is considered the gain (loss), which is spread over five years. Adopted 2007. The data about persons now covered and about present assets was furnished by the Systems administrative staff. Although examined for general reasonableness, the data was not audited by the actuary. The actuarial valuation computations were made by or under the supervision of a Member of the American Academy of Actuaries (MAAA). The assumptions used in the actuarial valuations were adopted by the Systems Board and the Department of Technology, Management & Budget after consulting with the actuary.

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10. A 5-year experience investigation, covering the period from October 1, 2002, through September 30, 2007, was completed in 2010. The purpose of the study was to analyze the actual experience of the System versus that anticipated by actuarial assumptions then in use. Adopted 2010. 11. Gabriel Roeder Smith and Co. was awarded the actuarial and consulting services contract beginning October 4, 2006.

MICHIGAN PUBLIC SCHOOL EMPLOYEES RETIREMENT SYSTEM 79