City of San José Police and
Fire Department Retirement
Plan
Actuarial Valuation Report
as of June 30, 2021
Produced by Cheiron
December 2021
3a(1)
P&F 1.6.22
TABLE OF CONTENTS
Section Page
Section I Board Summary .......................................................................................................1
Section II Identification and Assessment of Risk ...................................................................11
Section III Certification ...........................................................................................................21
Section IV Assets .....................................................................................................................23
Section V Measures of Liability .............................................................................................27
Section VI Contributions..........................................................................................................32
Section VII Actuarial Section of the ACFR ..............................................................................42
Appendices
Appendix A Membership Information .......................................................................................45
Appendix B Actuarial Assumptions and Methods .....................................................................57
Appendix C Summary of Plan Provisions ..................................................................................64
Appendix D Glossary of Terms ..................................................................................................72
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
SECTION I – BOARD SUMMARY
1 Dashboard
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
SECTION I – BOARD SUMMARY
2 Membership
As shown in Table I-1 below, total membership grew 2.0% from 2020 to 2021, and active membership increased 1.7%. Active membership continues its shift from Tier 1 to Tier 2. Tier 1 active membership decreased by 91 members while Tier 2 active membership increased by 120 members. Total expected payroll increased by 4.9% in aggregate, with Tier 1 payroll decreasing
5.1% and Tier 2 payroll increasing 27.0%.
Table I-1
Total Membership
June 30, 2021 June 30, 2020 Change
Active Members
Tier 1 1,053 1,144 -8.0%
Tier 2 685 565 21.2%
Total Actives 1,738 1,709 1.7% Terminated Members 347 346 0.3% Members In Pay Status 2,438 2,380 2.4% Total 4,523 4,435 2.0%
Annual Rate of Pay for Active Members
Tier 1 157,674$ 166,112$ -5.1%
Tier 2 94,884 74,686 27.0%
Total 252,558$ 240,798$ 4.9%
Dollar amounts in thousands
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
SECTION I – BOARD SUMMARY
3 As shown in the chart below, the number of active members remained around 2,000 from 2001 through 20 10, at which point active membership declined significantly. The decline leveled around 2 015 and has since recovered some of the lost active membership. T he active membership this year is 1,738, the largest since 2010. At the same time, the number of members in pay status has more than doubled from 1,164 in 2001 to 2,438 in 2021. As a result, the number of memb ers in pa y status or with deferred benefits that each active member has to support if there are actuarial losses or assumption changes has increased from approximately 0.6 in 2001 to
1.6 in 2021. An increase in this ratio is to be expected for a maturing plan, but the impact of the recession accelerated the trend significantly. As there are more retirees to be supported by each active member, contributions tend to become more volatile and sensitive to changes.
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
SECTION I – BOARD SUMMARY
4 Funded Status
This report measures assets and liabilities for funding purposes. Table I-2 below summarizes the Actuarial Liability, assets, and related ratios as of June 30, 2020 and 2021.
Table I-2
Actuarial Liability, Assets and Funded Status
June 30, 2021 June 30, 2020 Change
1. Actuarial Liability
a. Actives 1,566,100$ 1,579,888$ -0.9%
b. Deferred Vested 102,469 94,975 7.9% c. In Pay Status 3,773,091 3,560,472 6.0%
d. Total 5,441,660$ 5,235,335$ 3.9%
2. Market Value of Assets (MVA) 4,726,642$ 3,702,023$ 27.7%
3. UAL - MVA Basis (1.d. - 2.) 715,018$ 1,533,312$ -53.4%
4. Funding Ratio - MVA Basis (2. ÷ 1.d.) 86.9% 70.7% 16.1%
5. Actuarial Value of Assets (AVA) 4,210,447$ 3,851,948$ 9.3%
6. UAL - AVA Basis (1.d. - 5.) 1,231,213$ 1,383,387$ -11.0%
7. Funding Ratio - AVA Basis (5. ÷ 1.d.) 77.4% 73.6% 3.8%
8. Expected Payroll 252,558$ 240,798$ 4.9%
9. Asset Leverage Ratio (2. ÷ 8.) 18.7 15.4 21.7%
10. Actuarial Liability Leverage Ratio (1.d. ÷ 8.) 21.5 21.7 -0.9% Dollar amounts in thousands
The Actuarial Liability represents the target amount of assets the plan should have in the trust as of the valuation date based on the actuarial cost method. The Actuarial Liability increased 3.9% and the Market Value of Assets increased 27.7%. As a result, the Unfunded Actuarial Liability (UAL) measured on the Market Value of Assets decreased 53.4% from ap proximately $1,533.3 million to $715.0 million, and the funding ratio on an MVA basis increased from 70.7% to 86.9%.
The asset smoothing method defer s 80% of the i nvestment gain while recognizing 20% of the prior four years’ gains and losses, resulting in a 9.3% increase in the Actuarial Value of Assets.
The UAL measu red on th e Actuarial Value of Assets decreased 11.0% from approximately $1,383.4 million to $ 1,231.2 million and the funding ratio increased from 73.6% to 77.4%. The Market Value of Assets is larger than the Actuarial Value of Assets, so if the investment return assumption is met in the future, we expect a decrease in contribution rates as the deferred asset gains are recognized in the Actuarial Value of Assets.
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
SECTION I – BOARD SUMMARY
5 The asset leverage ratio of 18.7 means tha t if the Plan experiences a 10% loss on assets compared to the discount rate of 6.625% (-3.375% return), the loss would be equivalent to 187% of payroll. Interest payments alone on such a loss would be approximately 12.0% of payroll.
As the Plan becomes better funded, the asset leverage rat io will increase , and if it was 100% funded, the leverage ratio would be 21.5. These leverage ratios are extremely high compared to other public pension plans indicating that this plan is far more sensitive to investment gains and losses and assumption changes than other large public pension plans.
The chart below shows the historical and projected t rends for assets (both market and sm oothed actuarial value) versus the Actuarial Liability, and also shows the progress of the funding ratios (based on the Market Value of Assets) since 2012. The historical Actuarial Liability is shown in light gray while the projected Actuarial Liability is shown in a darker gray. From 2012 to 2020, the funding ratio declined from 75% to 71% due to lower-than-expected investment returns and assumption changes, including reductions of the discount rate . The exceptional investment returns in 2021 increased the funding ratio from 71% to 87 % based on the Market Value of Assets. Based on the Actuarial Value of Assets, the funding ratio increased from 74% to 77%. If all assumptions are met in the future, the funded s tatus is expected to reach 100% by 2029 and 103% by 2036.
Historical and Projected Assets and Actuarial Liability
While the funded status is expected to improve, the UAL depends on actual investment returns , changes in assumptions and actuarial gains and losses, so there is potentially a wide range for the projected UAL. More detail on the assets can be found in section IV of this report, a nd more detail on the measures of liability can be found in section V of this report.
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
SECTION I – BOARD SUMMARY
6 Changes in UAL
The chart below and Table I-3 on the following page show the historical changes to the UAL broken out by the foll owing sources: investment gains and losses on the Actuarial Value of Assets (AVA), liability gains and losses, assumption changes, benefit changes, and contributions compared to normal cost plus i nterest on the UA L. It is worth noting that 2014 , 2015, and 2021 are the only year s in t he las t 10 years in which there were investment gain s on the Actuarial Value of Assets. With the exceptional market returns in 2021, we expect investment gains on the AVA over the next few years as the deferred investment gains are recognized . The number of liability gains and losses ha ve been the same over the la st 10 ye ars, but there has been a net liability loss primarily due to higher-than-expected salary increases. There have been c hanges in assumptions in each of the last 10 years and only once did the cha nge reduce the Actuarial Liability.
Over the last 10 years, the UAL increased about $721 million. Investment experience increased the UAL about $ 483 million and assumption changes (primarily reduc ing the discount rate) increased the UAL about $ 466 million. Losses on other assumpt ions further increased the UAL by about $ 93 million. Contributions reduced the UAL by ab out $ 292 million, and benefit changes, primarily the elimination of the SRBR, reduced the UAL by about $28 million.
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
SECTION I – BOARD SUMMARY
7 Table I-3
Changes in Unfunded Actuarial Liability
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Total Discount Rate 7.25% 7.125% 7.00% 7.00% 6.875% 6.875% 6.75% 6.75% 6.625% 6.625% Source
AVA (G)/L 172.8$ 91.3$ (78.5)$ (2.8)$ 106.8$ 50.9$ 53.6$ 116.2$ 89.5$ (117.2)$ 482.6$ Liability (G)/L (39.4) (9.9) 14.7 (7.3) 61.3 61.8 (15.1) 35.1 (15.4) 6.7 92.5 Assumptions 107.7 28.2 56.3 90.0 72.7 (131.8) 76.4 80.9 73.5 12.4 466.3 Benefit Changes (32.5) 0.0 0.0 0.0 0.0 4.3 0.2 0.0 0.0 0.0 (28.1) Contributions (24.6) 2.2 (9.9) (23.4) (27.0) (19.6) (39.7) (49.8) (46.5) (54.1) (292.4) Total UAL Change 184.0$ 111.9$ (17.4)$ 56.5$ 213.7$ (34.4)$ 75.4$ 182.3$ 101.3$ (152.2)$ 720.9$ Dollar amounts in millions
Table I-4 below shows the breakdown of the changes in UAL during the last year by source. In total, there was a decrease in the UAL of approximately $ 152 million, mostly attribut able to investment gains and contributions greater than nor mal cost and interest on the UAL. The total change in the UAL is about 2.8 percent of the Actuarial Liability.
Table I-4
Sources of FYE 2021 Change in UAL
Amount % of AL
Unfunded Actuarial Liability, June 30, 2021 1,231,212$ 22.6% Unfunded Actuarial Liability, June 30, 2020 1,383,387 25.4% Change in Unfunded Actuarial Liability (152,175)$ -2.8% Sources of Changes
Plan Changes 0$ 0.0%
Assumption changes 12,389 0.2%
Normal Cost and Interest on UAL less Contributions (54,095) -1.0% Investment experience (117,195) -2.2%
Liability experience
Salary experience 9,202$ 0.2%
Termination experience 6,401 0.1%
Mortality experience (5,753) -0.1%
Other experience (3,124) -0.1%
Total Liability Experience 6,726$ 0.1%
Total Changes (152,175)$ -2.8%
Dollar amounts in thousands
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
SECTION I – BOARD SUMMARY
8 Contribution Amounts and Rates
As shown in t he upper left corner of the dashboard (page 1) , t he total City contribution rate decreased from 87.4% to 81.5% of payroll. The light purple bars are the Member contributions, and t he dark purple bars are the City’s portion o f th e normal cost (including administrativ e expenses), representing the expected cost of benefits attributable to the next year of service. The dark g old bars represent the interest on the UA L based on the Market Va lue of Assets, and contributions up to th is level are referred to as the tread water rate. Contribution s equal to the tread water rate are needed to prevent t he UAL from growing as a d ollar a mount if all assumptions are met. The light gold bars represent the contributions above the tread water rate and the amount by which the principal o f the UAL is expected to be reduced if all assumptions are met. The excepti onal investment r eturns of 2021 significantly reduced the interest on the UAL based on the Market Value of Assets, increasing the portion of the contribution that goes directly to reducing the UAL principal.
Table I -5 and t he chart on the next p age summarize the contribution rates and contribution amounts by Tier for the fiscal years ending in 2022 and 2023. Tier 1 City and Tier 2 contributions decreased from 2022 to 2023, reflectin g the investment gains. Tier 1 membe r contributions increased slightly reflecting the higher normal cost rates for Tier 1 members.
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
SECTION I – BOARD SUMMARY
9 Table I-5
Contribution Rates and Amounts
(Throughout the Year)
FYE 2023 FYE 2022 Change
Member Rates
Tier 1
Police 11.03% 10.89% 0.14%
Fire 12.12% 11.92% 0.20%
Tier 2
Police 14.37% 14.43% -0.06%
Fire 15.18% 15.28% -0.10%
Aggregate 12.87% 12.58% 0.29%
City Contributions
Tier 1 UAL 146,040$ 151,808$ (5,768)$
49,389$ 51,589$ (2,199)$
33.76% 33.03% 0.73%
16,597$ 13,460$ 3,137$
14.58% 14.66% -0.08%
212,026$ 216,856$ (4,830)$
81.51% 87.43% -5.93%
Dollar amounts in thousands
Tier 1 Normal Cost
(Including Admin Expenses)
Tier 2 Contribution
Aggregate
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
SECTION I – BOARD SUMMARY
10 The chart below shows historical and projected aggregate contribution rates compared to those projected in the prior valuation. The purple bars are weighted average member contribution rates for Police and Fire for both Tier 1 and Tier 2. The gold bars are weighted average City contribution rates for Police and Fire for both Tier 1 and Tier 2. The gray bars represent historical amounts . The projected rates assume that all assumptions are m et. The black line shows the weight ed average normal cost rate , which is projected to decline as Tier 1 members are repla ced by Tier 2 members . All co ntribution rates above the normal cost rate represent payments toward the UAL. The blue line represents the projection from the prior valuation.
Historical and Projected Aggregate Contribution Rates
City contribution rates increased 1 7% of payroll from FYE 201 6 to FYE 2022 but now will decrease almost 6% of payroll, from 87.4% for FYE 2022 to 81.5% for FYE 2023 due primarily to the exception al investment returns in 202 1. Future City contribution rates are expected to decline significantly over the next four years as the 2021 investment gains are recognized in the Actuarial Value of Assets and decline more gradually thereafter as portions of the UAL are fully amortized.
While there is strong downward pressu re on Ci ty contribution rates, as shown at the bottom of the dashboard (page 2) , t here is a wi de r ange of potential future contribution rates due to the volatility of investment returns. As a result, the range of contribution rates from the 5th to the 95th percentile in FYE 2029 (based on a valuation six years from now), is from 19% of p ayroll to 109% of payroll. Such a wide range is due to the co mbination of the size of the assets compared to payroll and the standard deviation of the investment portfolio. For these projections, we used a
6.625% expected return and 13.1% standard deviation.
Section VI of this report provides additional detail on the contribution rates and the amortization schedules separately by Tier and for Police and Fire.
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
SECTION II – IDENTIFICATION AND ASSESSMENT OF RISK
11 Actuarial valuations are based on a set of assumptions about future economic and demographic experience. These assumptions represent a rea sonable estimate of future experience, but actual future experience will undoubtedly be different a nd may be significantly dif ferent. This section of t he report is intended to identify the primary risks to the plan, provide some background information about those risks, and provide an assessment of those risks.
Identification of Risks
As we have discu ssed with the Board, the fu ndamental risk to the Pla n is that the contributions needed to pay the benefits become unaffordable. While there a re a number of f actors that could lead to contribution amo unts becoming unaffordable, we believe the primary risks for this Plan are:
•Investment risk,
•Interest rate risk, and
•Assumption change risk.
Other risks that we have not identified may also turn out to be important.
Investment Ri sk is the potential for investment returns to be different than expected. Lower investment returns than ant icipated will increase th e Unfunded Actuarial Liability necessitating higher contributions in the future unless there are other gains that offset these investment losses.
The potential volatility of future investment returns is d etermined by the Plan’s ass et allocation and the aff ordability of the investment risk is determined by the amount of assets i nvested relative to the size of the plan sponsor.
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
SECTION II – IDENTIFICATION AND ASSESSMENT OF RISK
12 The chart on the previous page shows the impact of investment gains and losses on the smoothed Actuarial Value of Assets over the last 10 years compared to the Plan’s total change in UAL.
Investment losses have been a significant contributor to the growth in the UAL.
Interest rate risk is the potential for interest rates to be di fferent than expected. For public plans, short-term fluctuations in interest rates have li ttle or no effect as the plan’s liability is usually measured based on the expected return on assets. Longer -term trends in interest rates ; however, can have a powerf ul effect. The chart below shows the yield on a 10 -year Treasury security compared to the plan’s assumed rate of return. The difference is a simple measure of the amount of investment risk taken. As interest rates have declined, plans faced a choice: maint ain the same level of risk and reduce the expected rate of return; maintain the same expected rate of return and take on more investment risk; or some combination of the two strategies.
Assumption change risk is the potential for the environment to change such that future valuation assumptions are different than t he current assumptions. F or example, decl ines in interest rates over the last three decades resulted in higher investment returns for fixed -income investments, but lower expected future returns necessitating either a change in investment policy, a reductio n in discount rate, or some combination of the two. Assumption change risk is an ext ension of the other risks identified, but rather than capturing the risk as it is experienced, it captures the cost of recognizing a change in environment when the current assumption is no longer reasonable.
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
SECTION II – IDENTIFICATION AND ASSESSMENT OF RISK
13 As shown in the chart below, there have been consistent changes in assumptions increasing the UAL. Most of these changes are due to reducing the discount rate from 7.5% to 6.625% over this period, but it also includes changes to demographic assumptions such as mortality and retirement rates. The reductions in the discount rate largely reflect the impact of declining interest rate s on future expected investment returns.
Plan Maturity Measures
The future financia l c ondition of a mature pension plan is more sensi tive to ea ch of the risks identified above than a less mature plan. Before assessing each of these risks, it is impo rtant to understand the maturity of the plan compared to other pl ans and how the maturity has changed over time.
Plan maturity can be measu red in a v ariety of ways, but all of the measures point to one basic dynamic – the larger the plan is compared to the contribution or revenue base that supports it; the more sensiti ve the plan will be t o ri sk. The measures below have been selected as the most important in understanding the primary risks identified for the plan.
Support Ratio (Inactives per Active)
One simple meas ure of pla n maturity is the ratio of the n umber of i nactive members ( those receiving benefits or e ntitled to a deferred benefit) to the n umber of active members. The revenue base supporting the plan is usually proportional to the number of acti ve members, so a relatively high number of inactives compared to actives indicate a l arger plan relative t o its revenue base as well.
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
SECTION II – IDENTIFICATION AND ASSESSMENT OF RISK
14 The chart above shows the distribution from the 5 th to 95 th percentile of s upport ratios for the plans in the Publi c Pl ans Database. The black diamond sho ws how San Jos é Police an d Fire compares, and the gold diamond shows how the combined Federated and Police and Fire plans compare. Through 2007, the Plan was in the middle of th e distribution even as the support ratio increased. However, after the Great Re cession, the Plan’s support ratio increase d dramatically and is now among the highest compared to the plans in the database.
Leverage Ratios
Leverage or volatility ratios meas ure the si ze of the plan compared to its revenue base more directly. An asset leverage ratio of 5.0, for example, means that if the Plan experiences a 10% loss on a ssets compared to the expected return, the loss would be equivalent to 50% of payroll.
The same investment loss for a plan with an a sset leverage ratio of 10.0 would be equivalent to 100% of payroll.
As the Plan becomes better funded, the asset leverage ratio will increase, and if it was 100% funded, the leverage ratio would equal the Actuarial Liability (AL) leverage ratio . The AL leverage ratio also indicates how sensit ive the Plan is to experience gains and lo sses or assumption changes. For example, an assumption change that increases the AL by 5% would add a liability equivalent to about 50% of payroll if the AL leverage ratio is 10.0.
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
SECTION II – IDENTIFICATION AND ASSESSMENT OF RISK
15 The charts above show the dis tribution from t he 5 th to 9 5th percentile of the Market Value of Assets and Actuarial Liability leverage ratios for the plans in the Public Plans Data base. The black diamond shows how San José Police and Fire compares, and the gold diamond shows how the co mbined Federated and Police and Fire plans compare. As we have discussed with the Board for several years and as is shown in the charts above, the leverage ratios for the Police and Fire Plan are much higher than most plan s. As a Police and Fire plan, it is not unusual to be at
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
SECTION II – IDENTIFICATION AND ASSESSMENT OF RISK
16 the high end of the distribution, but even when combined with Federated, the leverage ratios are still very high, indicating that San José is much more sensitive to risk than most plans. In the last year, this sensitivity has worked to San Jose’s advantage as the exceptional investment returns of 2021 have had a more dramatic impact on the City ’s contribution rate s than for other plans.
However, this growth in assets has further heightened the sensitivity to investment returns.
Assessing Costs and Risks
The fundamental risk to the Plan is t hat the contributions needed to fund the benefits become unaffordable. Assessing this risk, however, is complex beca use there is no bright line of what is unaffordable and the contribution amounts themselves are affected not just by the exper ience of the P lan, but also by t he interaction of that experience and decis ions by the B oard related to assumptions, asset smoothing methods, and amortization periods.
Point in Time Assessments
To assess the risks of the Plan independent of the contribu tion strategy, there are two measures on which to focus: normal cost and interest cost. The normal cost represents the expected co st of the benefits attributable to the next year of service. The interest cost represents the interest on the UAL calculated u sing the disco unt rate. Combined, the norm al cost plus the interest cost ar e referred to as the Tread Water Cost. If actual contri butions are less than the Tread Water Cost , the UAL would be expected to grow; and , if actual contributions are greater than the Tread Water Cost, the UAL would be expected to shrink.
The stacked bars in the chart on the following page shows the aggregate member and City contribution rates at the current discount rate compared to a discount rate 100 basis points lower.
The light purple bars a re the member contribution rates, and the dark purple bars ar e the City’s normal cost rate, representing the expecte d cost of benefits att ributable to the next year of service. The dark gold bars are the interest on the UAL, and the light gol d bars are the contributions to reduce the principal of the UAL.
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
SECTION II – IDENTIFICATION AND ASSESSMENT OF RISK
17 Decreasing the discount rate by 100 basis points would i ncrease the member rates about 4% of payroll and the City’s normal cost rate by almost 7% of payroll. The interest on the UAL would increase by about 1 5% of payroll . Using the cur rent amortiza tion me thods, the City’s total contribution rate would increase by almost 26% of payroll to about 107% of pay.
The declines in discount rates over the last decade or more have been largely driven by declines in interest rates that affect expectations of f uture investment returns. If the declines in interest rates since the pandemic began persist or if there is a desire or need to reduce investment risk that reduces expected retu rns, the discount rate may need to be reduce d further and the normal cost and interest cost will increase.
Actual investment returns do not affect the normal cost, but they directly affect the interest on the UAL. One simple measure of the risk inherent in the investment policy is the Interest Cost at Risk (ICaR), which is the amoun t that the inte rest on the UAL would increase if the investment returns for one year were two standard deviations below the expected return. Based on the capital market assumptions of Meket a, t he standa rd deviation f or the current portfolio is 13.06%, making the investment return used to determine ICaR -19.5% (6.625% – 2 x 13.06%).
The chart on the next page shows the contribution rates for FYE 2023, determined in this valuation report in the far left bar graph and the expected FYE 2024 contribution rates based on a
6.625% investment rate of return for FYE 2022, in the middle of the chart . The FYE 2024 bar graph on the right shows the impact of a -19.5% return for FYE 2022. The interest on the UAL would increase by 31% of pay. Using 5-year asset smoothing with a 20% corridor and a 15-year amortization the total contribution rate would increase by 8.8% of pay. The City contribution rate for FYE 2024 in this scenario would be 81.1% of pay and expected to increase in future years.
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
SECTION II – IDENTIFICATION AND ASSESSMENT OF RISK
18 Stochastic Projections
If experience has taugh t us anything, it is that there is a significa nt l evel of uncertainty in projections of the future. The largest source of uncertainty is the projection of investment returns.
In order to better understand the potential impact of investment returns on the P lan, we have included some stochastic projecti ons in the dashboard and in this section o f the repo rt. The stochastic projections are based on a 6.625% geometric return and a 13.1% standard deviation (based on Meketa’s capital market assumptions). Each projection contains 10,000 trials.
The chart on t he next page shows the historical and stochastically projected City con tribution amounts for Tier 1. The purple line repre sents the amou nts paid historically or t he amounts already determined by an actuarial va luation. The projected amounts are shown a s bars that are dark blue at the median of the 10,000 trials and fade to wh ite as the range extends to the 5 th and 95th percentiles of the 10,000 trials. This range is intended to convey the degree of uncertainty in the projections based on future investment returns.
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
SECTION II – IDENTIFICATION AND ASSESSMENT OF RISK
19 Historical and Stochastically Projected Tier 1 City Contribution Amounts
The chart shows a strong downward trend with a very wide range of pote ntial City contribution amounts depending on actual investmen t returns. The range between the 5 th and 95th percentile for FYE 2029 (based on the 2027 actuarial valuation) is from a contribution o f $25 million to a contribution of $ 300 million. This range i s largely driven by the standard deviation of the investment portfolio.
The chart on the following page shows t he histori cal and stochastically projected City contribution amounts for Tier 2. Th e range of co ntribution amounts is much narrower for Tier 2 than Tier 1. Tier 2 is p rojected to grow quickly and as sets are relatively small right now. As a result, actual investment returns have a limited impact on future contribution amounts while the rate of growth will have a larger impact.
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
SECTION II – IDENTIFICATION AND ASSESSMENT OF RISK
20 Historical and Stochastically Projected Tier 2 City Contribution Amounts
More Detailed Assessment
A more detailed assessment is always valuable to enhance the understandi ng of the ris ks identified above. While more detail would provide some a dditional value, we don’t bel ieve it is necessary to perform an in -depth analysis ever y year. Co nsequently, we recommend the Bo ard review the less detailed analysis provided above annu ally and consider a more detail ed analysis periodically and when there i s a substantial change in the financial position or maturity of the plan.
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
SECTION III – CERTIFICATION
21 The purpose of this report is to present the June 30, 2021 Actuarial Valuation of the City of San José Police and Fire D epartment Retirement Plan (“Plan”). This report is for the use of the Plan and the City of San José.
In preparing our report, we relied on info rmation, some oral and some written , supplied by the Plan. This information includes, but is not l imited to, the plan provisions, employee data, and financial information. We performed an informal exa mination of the obvious characteristics of the data for reasonableness and consistency in accorda nce with Actuarial Standard of Practice No. 23.
The economic and demographic assumptions used in this report were adopted by the Board of Administration with our input at the November 4, 2021 Board meeti ng based on recommendations from our experience st udy covering p lan experience for the period ending June 30, 2021. We believe these assumptions are reasonable for the purpose of the valuation.
The funding rat ios in t his re port are for the purpose of establishing contribution rates. These measures are no t appropriate for assessing the sufficiency of plan assets to cover the estimated cost of settling the plan’s benefit obligations.
Cheiron utilizes ProVal actu arial va luation software leased from Winklevoss Technologies (WinTech) to calculate liabilities and project benefit payments. We have relied on WinTech as the developer of ProVal. We have a basic understandin g of ProVal and h ave u sed ProVal in accordance w ith its original intended purpose. We have not identified any material inconsistencies in assumptions or output of ProVal that would affect this valuation.
Deterministic projections in this valuation report were developed using P-scan, a proprietary tool used to illustrate the impact of changes in assumptions, methods, plan provisions, or actual experience (par ticularly investment experience) on the future financial sta tus of the System.
P-scan uses standard roll-forward techniques that implicitly assume a stable active population.
Because P-scan does not automatically capture how changes in one var iable affect all other variables, some scenarios may not be consistent.
Stochastic projections in this valuation report were developed using R-scan, our proprietary tool for assessing the probability of different outcomes based on a range of potential inv estment returns. We relied on Ch eiron colle agues for the development of the model. The stoc hastic projections of investment returns assume that each future year’s investment return is independent from all other years and is identically distributed accordin g to a logno rmal distribution. The standard deviation used in the stocha stic projection of investment returns wa s provided by the System’s investment consultant.
Future actuarial measurements may differ significantly from the current measurements due to such factors as the following: plan experience differing from that anticipated by the economic or demographic assumptions; changes in economic or demographic ass umptions; and, changes in plan provisions or applicable law.
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
SECTION III – CERTIFICATION
22 This report and its contents have b een prepared in accordance with generally r ecognized and accepted actuar ial principles and p ractices and our und erstanding of the Code of Professional Conduct and applicable Actuarial Standards of Practice set out by the Actuarial Standards Board as well a s applicable laws and regulation s. Furthermore, as credentialed actuarie s, we meet the Qualification Standards o f the American Ac ademy of Actuaries to render th e opinion contained in this report. This report does not address any contractual or legal issues . We are not attorneys and our firm does not provide any legal services or advice.
This rep ort was prepared for the Plan for the purposes described herein. Thi s report is no t intended to benefit any third party, and Cheiron assumes no duty or liability to any such party.
William R. Hallmark, ASA, EA, FCA, MAAA Anne D. Harper, FSA, EA, MAAA Consulting Actuary Principal Consulting Actuary
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
SECTION IV – ASSETS
23 The Plan uses and discloses two different asset measurements which are presented in this section of the rep ort: Market Value and Actuarial Value of Assets. The Market Value of Assets represents the val ue of the assets if they were liquid ated on the valuation date. The Actuarial Value of Assets is a value that smooths annual investment returns over five years to reduce the impact of short -term investment volatility on contribution rat es. The Market Value of Assets is used primarily for rep orting and disclosure, and the Actuarial Value of Assets is used primarily to determine contribution rates.
This section shows the changes in the Market Value of Assets and develops the Actuarial Value of Assets.
Statement of Changes in the Market Value of Assets
Table IV-1 shows the changes in the Market Value of Assets by tier for the current fiscal year and in total for the prior fiscal year.
Table IV-1
Change in Market Value of Assets
Fiscal Year Ending 2021 FYE 2020
Tier 1 Tier 2 Fire Tier 2 Police Total Total
Beginning Market Value 3,653,869$ 12,465$ 35,689$ 3,702,023$ 3,588,423$ Contributions
Member 18,557 2,717 7,759 29,033 27,645 City 190,894 2,717 7,759 201,370 188,481 Total 209,451$ 5,434$ 15,519$ 230,404$ 216,126$ Net Investment Earnings 1,027,760 4,288 12,241 1,044,290 134,086 Benefit Payments (244,006) (23) (281) (244,310) (231,007) Administrative Expenses (5,692) (17) (55) (5,764) (5,605) Market Value, End of Year 4,641,382$ 22,146$ 63,113$ 4,726,642$ 3,702,023$ Estimated Rate of Return 27.6% 28.3% 28.3% 27.6% 3.7%
Dollar amounts in thousands
The net investment earnings for the year ended June 30, 2021 represents approximately a 27.6% return on the Market Value of Assets compared to an assumed return of 6.625%. For the year ended June 30, 2020, the net investment return was approximately 3.7% (6.75% was assumed).
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
SECTION IV – ASSETS
24 Actuarial Value of Assets
To determ ine on -going contrib ution amounts, most pen sion funds use an Actuarial Value of Assets that smooth s year -to-year market value returns to reduce the volatility of co ntribution rates.
The Actuarial Value of Assets is calculated by recognizing the deviation of actual investment returns compared to th e expected r eturn ( 6.625% for F YE 2021, 6.75% for FYE ’s 2019 and 2020, and 6.875% for FYE’s 2017 and 2018) over a five -year period. The dollar am ount of the expected return on the Market Value of Assets is determin ed using the actual contributions, benefit payments, and administr ative expenses during the year. Any difference betwe en the expected return and the actual net investment earnings is considered a gain or loss. Table IV-2 on the next page shows the calculation of the Actuarial Value of Assets separately for each tier. For each of the last four years, it shows the actual ea rnings, the expected earnings, the gain or los s, and the portion of the gain or loss that is not recognized in the cu rrent Actuarial Value of Assets.
These deferred amounts will be recognized in future years.
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
SECTION IV – ASSETS
25 Table IV-2
Development of Actuarial Value of Assets
Fiscal Year Ending 2021 FYE 2020
Tier 1 Tier 2 FireTier 2 Police Total Total
Market Assets (MVA) 4,641,382$ 22,146$ 63,113$ 4,726,642$ 3,702,023$ FYE 2021 FYE 2020
Actual Earnings 1,027,760$ 4,288$ 12,241$ 1,044,290$ 134,086$ Expected Earnings 247,182 1,002 2,859 251,043 247,714 Investment Gain/(Loss) 780,578 3,287 9,382 793,247 (113,628) Deferred (80%) 624,463$ 2,629$ 7,506$ 634,598$ (90,902) FYE 2020 FYE 2019
Actual Earnings 132,650$ 373$ 1,064$ 134,086$ 114,180$ Expected Earnings 245,136 669 1,909 247,714 241,113 Investment Gain/(Loss) (112,486) (296) (845) (113,628) (126,934) Deferred (60%) (67,492) (178) (507) (68,177) (76,160) FYE 2019 FYE 2018
Actual Earnings 113,422$ 197$ 560$ 114,180$ 233,474$ Expected Earnings 239,559 404 1,150 241,113 230,741 Investment Gain/(Loss) (126,137) (207) (589) (126,934) 2,733 Deferred (40%) (50,455) (83) (236) (50,773) 1,093 FYE 2018 FYE 2017
Actual Earnings 232,623$ 212$ 640$ 233,474$ 292,733$ Expected Earnings 229,924 203 614 230,741 212,514 Investment Gain/(Loss) 2,699 9 26 2,733 80,220 Deferred (20%) 540 2 5 547 16,044 Total Deferred Gain/(Loss) 507,056$ 2,371$ 6,768$ 516,194$ (149,925)$ Preliminary Actuarial Value
of Assets 4,134,326$ 19,776$ 56,345$ 4,210,447$ 3,851,948$ Minimum (80% of MVA) 3,713,106$ 17,717$ 50,490$ 3,781,313$ 2,961,618$ Maximum (120% of MVA) 5,569,659$ 26,576$ 75,736$ 5,671,970$ 4,442,427$ Actuarial Value of Assets 4,134,326$ 19,776$ 56,345$ 4,210,447$ 3,851,948$ Ratio of Actuarial to Market 89.1% 89.3% 89.3% 89.1% 104.0% Estimated Rate of Return 9.6% 10.1% 10.1% 9.6% 4.4%
Dollar amounts in thousands
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
SECTION IV – ASSETS
26 On the basis of the smoothed Actuarial Value of Assets, the return for the yea r ending June 30, 2021 was ap proximately 9.6%, compared to the assumed return of 6.625%. The estimated rate of return varies by tier, reflecting the differen t cash flows for each tier and the different levels of assets for each tier in each of the last four years.
The chart below shows the historical rates of return on bot h the Market and Actuarial Values of Assets compared to the assu med rates of return (the red line). Because of the 5 -year smoothing, the return on the actuarial v alue is less volatile than the return on the market value. While the return on the market valu e exceeded the assumed return in six of the 11 years, the return on the Actuarial Value of Assets only exceeded the assumed return in three of the 11 years. The returns on the Actuarial Value of Assets from 2011 through 2013 include recognition of deferred investment losses from 2009.
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
SECTION V – MEASURES OF LIABILITY
27 This section presents detai led information on liability mea sures for the Plan for funding purposes, including:
• Present Value of Future Benefits,
• Normal cost
• Actuarial Liability, and
• Analysis of changes in the Unfunded Actuarial Liability during the year.
Present Value of Future Benefits
The present value of future benefits represents the amount of money today that is expected to be needed to pay all benefits both earned as of the valuation date and expected to be earned i n the future by current plan members under the current plan provisions if all assumptions ar e met .
Table V -1 below shows the present value of future benefits as of June 30, 2021 and June 30, 2020 separately by Tier for Police a nd Fire. Police Tier 2 me mbers entered the Plan beginning August 4, 2013. Fire Tier 2 members entered the Plan beginning January 2, 2015.
Table V-1
Present Value of Future Benefits
Fire Police
6/30/2021 6/30/2020 % Change 6/30/2021 6/30/2020 % Change Tier 1
Actives 876,168$ 886,507$ -1.2% 1,027,171$ 1,078,109$ -4.7% Deferred Vested 11,139 6,637 67.8% 90,064 87,286 3.2% In Pay Status
Service Retirees 596,742$ 538,126$ 10.9% 1,700,871$ 1,566,635$ 8.6% Beneficiaries 93,397 90,486 3.2% 111,408 101,870 9.4%
Disabled Retirees 634,111 641,904 -1.2% 636,562 621,451 2.4% Total 1,324,250$ 1,270,516$ 4.2% 2,448,841$ 2,289,956$ 6.9% Tier 1 Total 2,211,557$ 2,163,660$ 2.2% 3,566,076$ 3,455,351$ 3.2% Tier 2
Actives 107,263$ 87,189$ 23.0% 250,296$ 183,769$ 36.2% Deferred Vested 95 103 -7.8% 1,171 950 23.3% In Pay Status 0 0 N/A 0 0 N/A Tier 2 Total 107,358$ 87,292$ 23.0% 251,467$ 184,719$ 36.1% Plan Total 2,318,915$ 2,250,952$ 3.0% 3,817,543$ 3,640,070$ 4.9% Dollar amounts in thousands
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
SECTION V – MEASURES OF LIABILITY
28 Normal Cost
Under the Entry Age (EA) ac tuarial cost method, the present value of future benefits for each individual is spread over the individual’s expected working ca reer under the Plan as a level percentage of the indiv idual’s expected pay . The normal c ost rat e is determined by taking the value of each member’s projected future benefits divided by the va lue of each member’s expected fut ure sal ary, both at entry age in to the Plan. The normal cost rate is multiplied by current salary to determine each member’s normal cost. The normal cost of the Plan is the sum of the normal costs for each individual in the Plan. The normal cost represents the amount of money today that is expected to be needed to pay the benefits attributed to the next year of service if all assumptions are met. Table V-2 below shows the EA normal cost and total normal cost rates as of June 30, 2021 and June 30, 2020 separately b y Tier for Police and Fir e, as well as a breakdown of the normal cost rate between the Retirement and COLA funds.
Table V-2
Entry Age Normal Cost By Group
Fire Police
6/30/2021 6/30/2020 % Change 6/30/2021 6/30/2020 % Change Tier 1
Retirement 17,845$ 18,097$ -1.4% 15,389$ 16,316$ -5.7% Termination 1,259 1,289 -2.4% 5,182 5,535 -6.4%
Death 291 287 1.4% 284 295 -3.8%
Disability 11,009 10,992 0.2% 11,467 12,153 -5.6%
Reciprocity 168 172 -2.3% 818 878 -6.9%
Tier 1 Total 30,572$ 30,838$ -0.9% 33,140$ 35,178$ -5.8% Expected Payroll 70,153$ 71,971$ -2.5% 82,543$ 88,897$ -7.1% Normal Cost Rate 43.58% 42.85% 0.73% 40.15% 39.57% 0.58% Retirement 29.71% 29.19% 0.52% 27.62% 27.22% 0.40%
COLA 13.87% 13.66% 0.21% 12.53% 12.35% 0.18%
Tier 2
Retirement 2,414$ 1,971$ 22.5% 6,166$ 4,561$ 35.2% Termination 201 164 22.2% 3,214 2,445 31.5%
Death 73 59 24.7% 197 148 33.9%
Disability 2,762 2,231 23.8% 7,664 5,778 32.6% Tier 2 Total 5,450$ 4,424$ 23.2% 17,242$ 12,931$ 33.3% Expected Payroll 18,123$ 14,799$ 22.5% 60,661$ 46,118$ 31.5% Normal Cost Rate 30.07% 29.90% 0.17% 28.42% 28.04% 0.38% Retirement 23.72% 23.56% 0.16% 22.37% 22.06% 0.31%
COLA 6.35% 6.34% 0.01% 6.05% 5.98% 0.07%
Dollar amounts in thousands
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
SECTION V – MEASURES OF LIABILITY
29 Actuarial Liability
The Actuarial Liability represents the amount of money today that is expected to be needed to pay f or benef its attributed to service prior to the valuation date under th e EA method if al l assumptions are met . It is the d ifference between the present v alue of future benefits and the present value of future normal costs. Ta ble V -3 below shows the Actuarial Liability as of June 30, 2021 and June 30, 2020 separately by Tier for Police and Fi re, as well as a breakdown of the Actuarial Liability between the Retirement and COLA funds.
Table V-3
Actuarial Liability
Fire Police
6/30/2021 6/30/2020 % Change 6/30/2021 6/30/2020 % Change Tier 1
Actives
Retirement 492,312$ 487,648$ 1.0% 684,938$ 712,453$ -3.9% Termination 5,027 5,291 -5.0% 4,374 5,237 -16.5%
Death 1,480 1,479 0.1% 1,628 1,688 -3.6%
Disability 166,524 168,762 -1.3% 142,538 150,981 -5.6%
Total Actives 665,343$ 663,180$ 0.3% 833,478$ 870,359$ -4.2% Deferred Vested 11,139 6,637 67.8% 90,064 87,286 3.2% In Pay Status 1,324,250 1,270,516 4.2% 2,448,841 2,289,956 6.9% Tier 1 Total 2,000,732$ 1,940,333$ 3.1% 3,372,383$ 3,247,601$ 3.8% Retirement 1,139,796 1,111,024 2.6% 1,894,841 1,838,997 3.0% COLA 860,936 829,309 3.8% 1,477,542 1,408,604 4.9%
Tier 2
Actives
Retirement 9,002$ 6,078$ 48.1% 23,962$ 16,333$ 46.7% Termination 106 75 41.3% 5,387 4,024 33.9%
Death 135 93 45.2% 349 247 41.3%
Disability 8,901 6,006 48.2% 19,436 13,491 44.1%
Total Actives 18,144$ 12,252$ 48.1% 49,134$ 34,095$ 44.1% Deferred Vested 95$ 103$ N/A 1,171$ 950$ 23.3% Tier 2 Total 18,239$ 12,355$ 47.6% 50,305$ 35,045$ 43.5% Retirement 14,327 9,700 47.7% 39,194 27,251 43.8%
COLA 3,912 2,655 47.3% 11,111 7,794 42.6%
Plan Total 2,018,971$ 1,952,688$ 3.4% 3,422,688$ 3,282,646$ 4.3% Dollar amounts in thousands
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
SECTION V – MEASURES OF LIABILITY
30 Table V -4 below shows the dev elopment o f the expected Unfunded Actuari al Liability as of June 30, 2021 and the sources experience gains and losses for each tier.
Table V-4
Development of Experience Gain or (Loss)
Tier 1 Tier 2 Total
Unfunded actuarial liability, 6/30/2020 1,385,485$ (2,098)$ 1,383,387$ Interest 91,788 (139) 91,649
Expected unfunded actuarial liability payment with interest (145,811) 185 (145,626) Change in assumptions/methods 12,264 125 12,389 Expected unfunded actuarial liability, 6/30/2021 1,343,726$ (1,927)$ 1,341,799$ Actual unfunded actuarial liability 1,238,789 (7,577) 1,231,212 Experience Gain or (Loss) 104,937$ 5,650$ 110,587$ Portion due to investment experience 115,097 2,098 117,195$ Portion due to salary experience (8,819) (383) (9,202) Portion due to retirement experience (2,685) 0 (2,685) Portion due to termination experience (4,271) (2,130) (6,401) Portion due to mortality experience 5,640 113 5,753 Portion due to disability experience 985 2,368 3,353 Portion due to other asset and liability experience (1,010) 3,584 2,574 Total 104,937$ 5,650$ 110,587$
Dollar amounts in thousands
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
SECTION V – MEASURES OF LIABILITY
31 Table V-5 below shows a five-year history of sources of liability gain and loss. Salary increases, particularly in 2017 are the primary source of losses.
Table V-5
Historical Sources of Liability (Gain) or Loss
Year Ending June 30th
Source 2021 2020 2019 2018 2017 Total
Salary increases 9,202 (14,405) 29,392 (8,207) 53,246 69,227 Retirement 2,685 (1,099) (1,275) (4,121) 4,080 270 Termination 6,401 4,229 3,238 (2,515) 331 11,683 Mortality (5,753) 2,648 7,072 (450) 134 3,651 Disability (3,353) (7,377) (7,130) (2,628) (485) (20,972) Other (2,456) 653 3,755 2,796 4,517 9,266 Total 6,726$ (15,351)$ 35,053$ (15,124)$ 61,823$ 73,126$ Dollar amounts in thousands
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
SECTION VI – CONTRIBUTIONS
32 Under the contribution allocation procedure employed by the Plan, there are three components to the total contribution: the no rmal cost , assumed adm inistrative expenses, and the Unfunded Actuarial Liability contribution. The normal cos t rate was developed in Section V. This section develops th e UAL and administrative expense contribution rate s and divides the contributions between the members and the City.
Table VI-1 below shows the outstanding balance, remaining period, and amortization payments for each component of the Tier 1 member UAL as of June 30, 2021.
Table VI-1
Tier 1 Member UAL Amortization Bases and Payments
Remaining Amortization Payment
Source Date Balance Period Fire Police Total
Rate Increase Delay 12/17/2006 17 1.0 0 19 19 Reclassified Classics 6/30/2016 53 13.0 1 4 5 Reclassified Fed Svc 6/30/2016 21 N/A 0 3 3 Reclassified Rehires 6/30/2016 301 N/A 5 20 25 Total Members 392$ 6$ 45$ 51$ Retirement 202 3 27 30 COLA 190 3 18 21
Dollar amounts in thousands
The components attributable to reclassifying members from Tier 2 to Tier 1 due to rehire or prior Federated service are paid by the individual affected members at fixed special contribution rates of 1.96% an d 0.87% respectively. These special contribution rates cease for an individual member when their portion of the UAL has been paid off. The payments for reclassified classi c members are paid by all classic members. Table VI-2 below shows the calculation of the classic member special contribution rate for FYE 2023 and FYE 2022.
Table VI-2
Classic Member Contribution Rate
Fiscal Year Ending 2023 Fiscal Year Ending 2022
Retirement COLA Total Retirement COLA Total
Classic UAL Payment 3$ 3$ 6$ 3$ 3$ 6$ Expected Classic Payroll 3,101$ 2,679$
Classic Member Rate 0.09% 0.09% 0.18% 0.10% 0.12% 0.22% Dollar amounts in thousands
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
SECTION VI – CONTRIBUTIONS
33 Table VI-3 on the following page shows the outstanding balance, remaining period , and amortization payments for each com ponent of the Tier 1 City UAL as of June 30, 2021. Each component is amortized over the remaining period shown in the table with payments assumed to increase 2. 25% each year . At the bottom of the table , the total is divi ded into the portion attributable to the basic retirement benefits and the portion attributable to COLA benefits. These amounts are used to set separate contribution r ates for the basic retirement benefits and the COLA benefits portions of the Plan.
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
SECTION VI – CONTRIBUTIONS
34 Table VI-3
Tier 1 City UAL Amortization Bases and Payments
Remaining Amortization Payment
Source Date Balance Period Fire Police Total
Experience Loss 6/30/2005 3,382$ 1.0 1,695$ 1,911$ 3,606$ Ben Improvement 6/30/2005 2,770 1.0 0 2,954 2,954 Ben Improvement 6/30/2007 8,691 2.0 4,730 0 4,730 Experience Gain 6/30/2007 (51,775) 5.0 (5,634) (6,351) (11,985) Assumption Change 6/30/2007 12,635 6.0 1,169 1,318 2,487 Experience Loss 6/30/2009 118,451 5.0 12,889 14,531 27,419 Assumption Change 6/30/2009 79,117 8.0 5,713 6,441 12,154 Experience Loss 6/30/2010 85,201 5.0 9,271 10,452 19,723 Assumption Change 6/30/2010 63,829 9.0 4,179 4,711 8,890 Experience Gain 6/30/2011 (144,139) 5.0 (15,684) (17,682) (33,366) Assumption Change 6/30/2011 44,806 10.0 2,692 3,035 5,727 Experience Loss 6/30/2012 89,460 7.0 7,238 8,160 15,398 SRBR Elimination 6/30/2012 (21,817) 7.0 (1,765) (1,990) (3,755) Assumption Change 6/30/2012 90,522 11.0 5,041 5,684 10,725 Experience Loss 6/30/2013 59,279 8.0 4,281 4,826 9,107 Assumption Change 6/30/2013 24,591 12.0 1,280 1,443 2,723 Experience Gain 6/30/2014 (50,557) 10.0 (3,038) (3,425) (6,462) Assumption Change 6/30/2014 50,053 13.0 2,451 2,763 5,214 Experience Gain 6/30/2015 (8,374) 10.0 (503) (567) (1,070) Assumption Change 6/30/2015 82,855 14.0 3,840 4,329 8,169 Experience Gain 6/30/2016 135,291 10.0 8,129 9,164 17,293 Assumption Change 6/30/2016 68,196 15.0 3,006 3,389 6,394 Measure F (Rehires) 6/30/2016 2,677 11.0 43 274 317 Experience Loss 6/30/2017 94,455 11.0 5,260 5,930 11,191 Assumption Change 6/30/2017 (125,366) 16.0 (5,278) (5,950) (11,228) Measure F (Classic/Fed) 6/30/2018 87 12.0 1 9 10 Experience Loss 6/30/2018 38,082 12.0 1,982 2,234 4,216 Assumption Change 6/30/2018 73,436 17.0 2,964 3,342 6,306 Experience Loss 6/30/2019 135,489 13.0 6,635 7,480 14,115 Assumption Change 6/30/2019 79,270 18.0 3,078 3,470 6,549 Experience Loss 6/30/2020 70,971 14.0 3,289 3,708 6,997 Assumption Change 6/30/2020 72,488 19.0 2,716 3,062 5,778 Experience Gain 6/30/2021 (104,937) 15.0 (4,625) (5,214) (9,840) Assumption Change 6/30/2021 12,264 20.0 445 501 946 2021 UAL Payment 147,016
Total City 1,238,397$ 67,490$ 73,940$ 141,430$ Retirement 643,198 33,461 36,103 69,564 COLA 595,199 34,029 37,837 71,866 Dollar amounts in thousands
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
SECTION VI – CONTRIBUTIONS
35 The chart below shows th e futu re payment schedule for the Tier 1 amortizatio n bases in Table VI-3. Assumption changes are shown in purple; experience gain or loss bases are shown in gold; and benefit changes are shown in green. The blue line shows the net scheduled payment for each year.
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
SECTION VI – CONTRIBUTIONS
36 Table VI-4 below shows the outstanding balance, remaining period , and amortization payments for each component of the Tier 2 UAL as of June 30, 2021. Each component is amortized fro m the valuation date in which it was firs t recognized with payment s assumed to increase 2.25% each year. All components of the Tier 2 UAL are split evenly between the members and the City.
Table VI-4
Tier 2 UAL Amortization Bases
Outstanding Balance Remaining Amortization Payment
Source Date Fire Police Period Fire Police
Members and City
Experience Gain 6/30/2014 0$ (22)$ 10.0 0$ (3)$ Assumption Change 6/30/2014 0 (4) 13.0 0 (0) Experience Gain 6/30/2015 38 16 10.0 5 2 Assumption Change 6/30/2015 7 (17) 14.0 1 (2) Experience Gain 6/30/2016 (51) (118) 10.0 (7) (15) Assumption Change 6/30/2016 17 83 15.0 2 8 Measure F (Rehires) 6/30/2016 189 614 11.0 22 73 Experience Loss 6/30/2017 397 720 11.0 47 85 Assumption Change 6/30/2017 (139) (470) 16.0 (12) (42) Experience Loss 6/30/2018 (459) (959) 12.0 (51) (106) Assumption Change 6/30/2018 138 406 17.0 12 35 Experience Loss 6/30/2019 (74) 15 13.0 (8) 2 Assumption Change 6/30/2019 (205) (10) 18.0 (17) (1) Experience Loss 6/30/2020 (156) (2,248) 14.0 (15) (222) Assumption Change 6/30/2020 (162) 400 19.0 (13) 32 Experience Gain 6/30/2021 (1,094) (4,556) 15.0 (103) (427) Assumption Change 6/30/2021 16 109 20.0 1 8 Total Tier 2 (1,537)$ (6,040)$ (136)$ (573)$ Retirement (1,381) (5,860) (128) (565) COLA (156) (180) (8) (8)
Dollar amounts in thousands
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
SECTION VI – CONTRIBUTIONS
37 The chart below shows the projected aggregate balance of the UAL based on the Actuarial Value of Assets for the Plan under the amortizatio n schedule s shown ab ove assuming all expected payments are made and all assumptions are met. This projection includes new amortization bases for the unrecognized investment gains and losses that will be recognized over the next four years.
In addition to the UAL payments shown in Table VI-1 (page 32), Tier 1 members pay 3/11ths of the normal cost (excluding reciprocity nor mal cost) plus their historical share of administrative expenses. Tier 2 members pay half of the normal cost, half of administrativ e expenses, and half of the UAL payments shown in Table VI-4 on the previous page.
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
SECTION VI – CONTRIBUTIONS
38 Based on the 2021 Experience Study, t he a dministrative expense assumption wa s changed to $1,334 per member for FYE 2022 with annual increases equal to the assumed wage inflation. For FYE 202 3, the ad ministrative expense assump tion is app roximately $1, 374 per member.
Table VI-5 below shows the development of the administrative expense rates for FYE 2023.
Table VI-5
Administrative Expense By Group
Fire Police
Tier 1 Tier 2 Tier 1 Tier 2
Members 1,439 164 2,289 631 Administrative Expense 1,977$ 225$ 3,145$ 867$ Member Admin Expense Rate 0.29% 0.38% 0.29% 0.51%
Retirement 0.20% 0.30% 0.20% 0.41%
COLA 0.09% 0.08% 0.09% 0.10%
City Admin Expense Rate 2.58% 0.38% 3.77% 0.51%
Retirement 1.76% 0.30% 2.83% 0.41%
COLA 0.82% 0.08% 0.94% 0.10%
Dollar amounts in thousands
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
SECTION VI – CONTRIBUTIONS
39 Table V I-6 below shows the member contribution rates for FYE 2023 by Tier split between Police and Fire groups. All Tier 1 members contribute at the rates shown in the subtotal. Certain Tier 1 members also pay a portion of the cost under Measure F either individually or as a par t of a des ignated group as described above . The Meas ure F UAL rates shown in the table are averaged over the entire Tier 1 payroll. Individuals may pay at a substantially higher rate.
Table VI-6
Fiscal Year Ending 2023 Member Contribution Rates
Fire Police
Retirement COLA Total Retirement COLA Total
Tier 1
Normal Cost 8.06% 3.76% 11.82% 7.31% 3.37% 10.68%
Admin Expense 0.20% 0.09% 0.29% 0.20% 0.09% 0.29%
Regular UAL 0.00% 0.00% 0.00% 0.02% 0.00% 0.02%
Subtotal 8.26% 3.85% 12.11% 7.53% 3.46% 10.99%
Measure F UAL 0.00% 0.01% 0.01% 0.02% 0.02% 0.04%
Total 8.26% 3.86% 12.12% 7.55% 3.48% 11.03%
Tier 2
Normal Cost 11.86% 3.18% 15.04% 11.19% 3.02% 14.21%
Admin Expense 0.30% 0.08% 0.38% 0.41% 0.10% 0.51%
UAL -0.22% -0.02% -0.24% -0.35% 0.00% -0.35%
Total 11.94% 3.24% 15.18% 11.25% 3.12% 14.37%
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
SECTION VI – CONTRIBUTIONS
40 Table V I-7 below shows the estimated dollar amounts of t he City’s contributions assuming contributions are made throughout the fiscal year.
Table VI-7
Fiscal Year Ending 2023 Estimated City Contributions
Contribution Amounts Throughout the Year
Fire Police
Retirement COLA Total Retirement COLA Total
Tier 1 UAL Payment 34,551$ 35,138$ 69,689$ 37,280$ 39,070$ 76,350$ 14,894$ 6,949$ 21,842$ 15,741$ 7,108$ 22,849$
21.66% 10.10% 31.76% 20.30% 9.17% 29.47%
1,212$ 566$ 1,778$ 2,191$ 729$ 2,920$
1.76% 0.82% 2.58% 2.83% 0.94% 3.77%
3,540$ 961$ 4,501$ 9,470$ 2,626$ 12,096$
11.94% 3.24% 15.18% 11.25% 3.12% 14.37%
54,197$ 43,613$ 97,810$ 64,682$ 49,534$ 114,216$
55.07% 44.31% 99.38% 40.00% 30.63% 70.63%
Dollar amounts in thousands
Tier 1 Normal Cost
Tier 1 Admin Expenses
Tier 2 Contribution
Total Contribution
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
SECTION VI – CONTRIBUTIONS
41 The chart below shows historical and projected aggregate contribution amounts f or t he Plan compared to thos e projec ted in the prior valuation. The purple ba rs are mem ber contribution amounts for Police and Fi re for both Tier 1 and Tier 2 . Th e gold bars are city contribution amounts for Police and Fire for both Tier 1 and Ti er 2 . The gray bars represent historic al amounts. The projected amounts ass ume that all assumptions are met. The blue line represents the projection from the prior valuation.
Historical and Projected Aggregate Contribution Amounts
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
SECTION VII – ACTUARIAL SECTION OF THE ACFR
42 The Go vernment Finance Officers Association (GFOA) maintains a checklist of items to be included in the System’s Annual Comprehensive Financial Report ( ACFR) in or der to receive recognition for excellence in financial reporting. The schedules in thi s section are listed by the GFOA for inclusion in the Actuarial Section of the System’s ACFR.
Table VII-1
Schedule of Funding Progress
Actuarial Actuarial Actuarial Unfunded Unfunded AL
Valuation Value Liability Actuarial Funded Covered as a % of Date of Assets (AL) Liability Ratio Payroll Covered Payroll 6/30/2021 4,210,447$ 5,441,660$ 1,231,213$ 77.4% 252,558$ 487.5% 6/30/2020 3,851,948 5,235,335 1,383,387 73.6% 240,798 574.5% 6/30/2019 3,706,302 4,988,427 1,282,125 74.3% 235,818 543.7% 6/30/2018 3,596,590 4,696,428 1,099,838 76.6% 218,429 503.5% 6/30/2017 3,439,922 4,464,402 1,024,480 77.1% 203,816 502.6% 6/30/2016 3,303,550 4,355,990 1,052,440 75.8% 194,072 542.3% 6/30/2015 3,212,776 4,058,410 845,634 79.2% 184,733 457.8% 6/30/2014 3,025,101 3,813,825 788,724 79.3% 188,189 419.1% 6/30/2013 2,771,924 3,578,031 806,107 77.5% 184,645 436.6% 6/30/2012 2,703,539 3,397,792 694,253 79.6% 187,959 369.4% Dollar amounts in thousands
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
SECTION VII – ACTUARIAL SECTION OF THE ACFR
43 Table VII-2
Schedule of Funded Liabilities by Type
Actuarial Liability For
Retirees, Remaining
Active Beneficiaries Active Portion of Actuarial
Actuarial Member and Other Members' Liability Covered by Valuation Contributions Inactives Liability Reported Reported Assets Date (A) (B) (C) Assets (A) (B) (C)
6/30/2021 315,820$ 3,875,560$ 1,250,280$ 4,210,447$ 100% 100% 2% 6/30/2020 315,240 3,655,447 1,264,648 3,851,948 100% 97% 0% 6/30/2019 308,023 3,446,977 1,233,427 3,706,302 100% 99% 0% 6/30/2018 304,454 3,227,859 1,164,115 3,596,590 100% 100% 6% 6/30/2017 299,933 3,050,871 1,113,598 3,439,922 100% 100% 8% 6/30/2016 294,535 2,999,773 1,061,682 3,303,550 100% 100% 1% 6/30/2015 285,538 2,819,410 953,462 3,212,776 100% 100% 11% 6/30/2014 288,227 2,585,611 939,987 3,025,101 100% 100% 16% 6/30/2013 280,727 2,452,728 844,576 2,771,924 100% 100% 5% 6/30/2012 276,047 2,310,295 811,450 2,703,539 100% 100% 14% Dollar amounts in thousands
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
SECTION VII – ACTUARIAL SECTION OF THE ACFR
44 In the exhi bit below, non-recurring items include changes in assumptions and changes in plan provisions.
Table VII-3
Analysis of Financial Experience
Gain or (Loss) for Year(s) Ending on Valuation Date Due To:
Actuarial Combined Total
Valuation Investment Liability Financial Non-Recurring Total Date Income Experience Experience Items Experience
6/30/2021 117,195$ (6,608)$ 110,587$ (12,389)$ 98,198$ 6/30/2020 (89,538) 19,032 (70,506) (73,524) (144,030) 6/30/2019 (116,232) (27,406) (143,638) (80,853) (224,491) 6/30/2018 (53,615) 13,448 (40,167) (76,425) (116,592) 6/30/2017 (50,882) (57,971) (108,853) 127,571 18,718 6/30/2016 (106,785) (54,528) (161,313) (72,680) (233,993) 6/30/2015 2,806 7,291 10,097 (90,004) (79,907) 6/30/2014 78,462 (14,678) 63,784 (55,787) 7,997 6/30/2013 (92,499) 11,115 (81,384) (28,233) (109,618) 6/30/2012 (172,759) 39,432 (133,327) (75,220) (208,548) Dollar amounts in thousands
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
APPENDIX A – MEMBERSHIP INFORMATION
45 Data Assumptions and Methods
In preparing our data, w e relied on informa tion supplied by the San José De partment of Retirement Services. This in formation includes, but is not limited to, plan provisions, employee data, and financial information. Our methodology f or obtaining the data used for the val uation is based upon the following assumptions and practices:
• Records on the “Active” data file are considered to be Active if they do not have a reason for termination.
• Records on any of the data files are conside red to be Inactive if they have a reas on for termination of deferred vested or leave of absence/inactive.
• Records on the “Retiree” and “ Beneficiary/QDRO” files are co nsidered in pay s tatus if they do not have a date of death, are not inactive, and have not withdrawn from the plan.
• Salary for the year commencing on the valuation date is defined as the greater of:
o Annualized “compensation rate 2,” increased with one year of wage inflation and one half year of merit increase; and,
o “Pensionable compensation” for the year ending on the valuation date, increased with one year of wage inflation and one year of merit increase.
• The annual benefit for deferred vested members is set to be the accrued benefit provided. If an accrued benefit is not provided, then an annual benefit is estimated at the la ter of t heir current age an d assumed retirement age, using the benefit service provided and annuali zed “compensation rate 2.”
• We assume any membe r found in last year’s “Retiree” file and not in this year’s file is deceased without a beneficiary and should be removed from the valuation data.
• We assume all decease d members with payments continuing to a beneficiary have already been accounted for in the “Retiree” file.
• If a spouse continuance amount is not provided on a Tier 1 retiree or disabled member’s record, it is assumed to equal the member’s benefit, multiplied by 37.5%, and divided by the member’s benefit multiplier at retirement.
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
APPENDIX A – MEMBERSHIP INFORMATION
46 Table A-1
Active Member Data
June 30, 2021 June 30, 2020
Fire Police Total Total % Change
Tier 1
Count 499 554 1,053 1,144 -8.0% Average Current Age 46.9 46.4 46.6 46.2 1.1% Average Eligibility Service 17.8 18.9 18.4 18.0 2.3% Average Benefit Service 17.1 18.2 17.6 17.3 2.1% Average Expected Pensionable Earnings 153,470$ 164,265$ 159,149$ 152,967$ 4.0% Tier 2
Count 158 527 685 565 21.2% Average Current Age 34.2 31.0 31.7 31.4 1.0% Average Eligibility Service 3.7 3.0 3.1 2.8 13.3% Average Benefit Service 3.6 2.9 3.1 2.7 13.6% Average Expected Pensionable Earnings 120,098$ 125,234$ 124,049$ 116,466$ 6.5% Total
Count 657 1,081 1,738 1,709.0 1.7% Average Current Age 43.8 38.9 40.8 41.3 -1.3% Average Eligibility Service 14.4 11.2 12.4 13.0 -4.5% Average Benefit Service 13.8 10.7 11.9 12.5 -4.5% Average Expected Pensionable Earnings 145,444$ 145,237$ 145,315$ 140,900$ 3.1%
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
APPENDIX A – MEMBERSHIP INFORMATION
47 Table A-2
Schedule of Active Member Data
Valuation
Year
Active
Count
Annual
Payroll
Monthly
Average Pay
Percent Change
in Average Pay
2021 1,738 252,558,000$ 12,110$ 3.13%
2020 1,709 240,798,000 11,742 5.66%
2019 1,638 218,429,000 11,113 1.02%
2018 1,544 203,816,000 11,000 12.69%
2017 1,577 184,733,000 9,762 2.96%
2016 1,654 188,189,000 9,481 5.18%
2015 1,707 184,645,000 9,014 -1.13%
2014 1,718 187,959,000 9,117 -0.48%
2013 1,735 190,726,000 9,161 -11.51% 2012 2,021 251,058,000 10,352 1.39%
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
APPENDIX A – MEMBERSHIP INFORMATION
48 Table A-3
Payee Member Data
June 30, 2021 June 30, 2020 %Change
Retired
Count 1,193 1,122 6.3% Average Age 65.0 64.9 0.1% Average Annual Benefit 119,245$ 116,073$ 2.7% Service Disability
Count 851 871 -2.3% Average Age 69.9 69.5 0.5% Average Annual Benefit 104,976$ 101,497$ 3.4% Non-Service Disability
Count 33 29 13.8% Average Age 56.4 58 -2.5% Average Annual Benefit 59,307$ 59,348$ -0.1% Beneficiaries & SADROs
Count 361 358 0.8% Average Age 69.9 68.8 1.7% Average Annual Benefit 49,215$ 47,126$ 4.4% Total
Count 2,438 2,380 2.4%
Average Age 67.3 67.1 0.3% Average Annual Benefit 103,084$ 99,676$ 3.4%
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
APPENDIX A – MEMBERSHIP INFORMATION
49 Table A-4
Schedule of Retirees and Beneficiaries Added to and Removed from Rolls % Increase Average
Period Count
Annual
Allowances Count
Annual
Allowances Count
Annual
Allowances Count
Annual
Allowances
in Annual
Allowances
Annual
Allowances
2020-2021 2,380 237,230$ 121 18,787$ 63 4,699$ 2,438 251,318$ 5.9% 103,084$ 2019-2020 2,318 224,303 112 16,936 50 4,009 2,380 237,230 5.8% 99,676 2018-2019 2,250 211,220 122 17,005 54 3,922 2,318 224,303 6.2% 96,766 2017-2018 2,192 200,197 120 15,558 62 4,535 2,250 211,220 5.5% 93,876 2016-2017 2,149 190,897 87 11,816 44 2,516 2,192 200,197 4.9% 91,331 2015-2016 2,108 182,185 72 10,843 31 2,131 2,149 190,897 4.8% 88,831 2014-2015 2,032 170,872 115 13,700 39 2,387 2,108 182,185 6.6% 86,426 2013-2014 1,994 162,716 73 10,142 35 1,986 2,032 170,872 5.0% 84,091 2012-2013 1,942 154,381 91 10,259 39 1,924 1,994 162,716 5.4% 81,603 2011-2012 1,885 144,139 88 11,583 31 1,341 1,942 154,381 7.1% 79,496 Annual Allowances in Thousands
Beginning Added to Rolls Removed from End of Period
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
APPENDIX A – MEMBERSHIP INFORMATION
50 Table A-5
Inactive Member Data
June 30, 2021 June 30, 2020 %Change
Tier 1
Terminated Vested / Reciprocal
Count 209 210 -0.5% Average Age 46.7 45.7 2.2% Average Annual Benefit 26,264$ 25,269$ 3.9% Average Contribution Balance with Interest 131,357$ 128,960$ 1.9% Non-Vested Terminated
Count 28 31 -9.7% Average Age 41.9 41.2 1.7% Average Annual Benefit 10,236$ 10,139$ 1.0% Average Contribution Balance with Interest 58,734$ 66,282$ -11.4% Total
Count 237 241 -1.7% Average Age 46.1 45.1 2.2% Average Annual Benefit 24,491$ 23,433$ 4.5% Average Contribution Balance with Interest 122,778$ 120,898$ 1.6% Tier 2
Terminated Vested / Reciprocal
Count 9 9 0.0% Average Age 33.4 32.4 3.1% Average Annual Benefit 4,189$ 4,188$ 0.0% Average Contribution Balance with Interest 23,141$ 22,679$ 2.0% Non-Vested Terminated
Count 101 96 5.2% Average Age 34.7 34.1 1.8% Average Annual Benefit 1,483$ 1,400$ 6.0% Average Contribution Balance with Interest 10,244$ 8,690$ 17.9% Total
Count 110 105 4.8%
Average Age 34.6 34.0 1.9% Average Annual Benefit 1,729$ 1,643$ 5.2% Average Contribution Balance with Interest 11,299$ 9,889$ 14.3% Total
Count 347 346 0.3%
Average Age 42.5 41.8 1.8% Average Annual Benefit 17,744$ 16,871$ 5.2% Average Contribution Balance with Interest 87,438$ 87,210$ 0.3% For inactive members, benefit is calculated using the assumptions and methods outlined in Appendix A if not provided in the data CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
APPENDIX A – MEMBERSHIP INFORMATION
51 Table A-6
Distribution of Active Members as of June 30, 2021
Years of Benefit Service
Age Under 1 1 to 4 5 to 9 10 to 14 15 to 19 20 to 24 25 to 29 30 and Up Total Under 25 27 8 0 0 0 0 0 0 35
25 to 29 60 150 6 0 0 0 0 0 216
30 to 34 35 163 99 1 0 0 0 0 298
35 to 39 14 60 89 63 5 0 0 0 231
40 to 44 0 25 60 119 50 14 0 0 268
45 to 49 1 9 16 54 79 123 18 0 300
50 to 54 1 1 7 28 51 151 69 3 311
55 to 59 0 1 2 3 11 32 19 2 70
60 to 64 0 0 0 0 2 3 4 0 9
65 to 69 0 0 0 0 0 0 0 0 0
70 and up 0 0 0 0 0 0 0 0 0
Total Count 138 417 279 268 198 323 110 5 1,738 Distribution of Average Expected Salary as of June 30, 2021 Years of Benefit Service
Age Under 1 1 to 4 5 to 9 10 to 14 15 to 19 20 to 24 25 to 29 30 and Up Total Under 25 $108,576 $115,505 $0 $0 $0 $0 $0 $0 $110,160
25 to 29 107,526 121,606 140,702 0 0 0 0 0 118,225
30 to 34 106,063 124,289 144,072 148,435 0 0 0 0 128,801 35 to 39 105,443 124,238 145,759 156,714 160,391 0 0 0 141,030 40 to 44 0 127,409 142,431 151,876 165,929 161,400 0 0 150,598 45 to 49 108,576 130,896 146,537 151,731 158,888 165,239 194,252 0 160,659 50 to 54 250,131 157,002 137,746 152,571 156,000 164,800 173,371 201,348 164,150 55 to 59 0 152,854 130,500 148,495 157,779 160,346 161,541 164,718 158,924 60 to 64 0 0 0 0 164,718 156,360 168,216 0 163,487
65 to 69 0 0 0 0 0 0 0 0 0
70 and up 0 0 0 0 0 0 0 0 0
Avg. Salary 108,190$ 123,624$ 144,070$ 153,006$ 159,957$ 164,300$ 174,557$ 186,696$ 145,315$ CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
APPENDIX A – MEMBERSHIP INFORMATION
52 Chart A-1
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
APPENDIX A – MEMBERSHIP INFORMATION
53 Table A-7
Retirees and Disabled by Attained Age and Benefit Effective Date Age
Under 50 50 to 54 55 to 59 60 to 64 65 to 69 70 to 74 75 to 79 80 to 84 85 to 89 90 and up Total Pre-2001 0 0 3 7 14 56 172 149 56 23 480
PYE 2001 0 0 0 1 0 19 18 5 1 0 44
PYE 2002 0 0 1 2 3 22 18 2 1 0 49
PYE 2003 0 0 1 2 3 20 21 0 0 0 47
PYE 2004 0 1 1 3 9 34 20 2 0 0 70
PYE 2005 0 0 0 1 12 24 7 0 0 0 44
PYE 2006 0 0 2 1 23 35 9 3 0 0 73
PYE 2007 0 0 0 0 12 16 7 0 0 0 35
PYE 2008 0 0 3 2 32 19 6 0 0 0 62
PYE 2009 0 4 0 8 27 18 3 0 0 0 60
PYE 2010 0 0 3 28 72 39 4 1 0 0 147
PYE 2011 1 0 2 58 57 12 1 0 0 0 131
PYE 2012 3 2 4 64 35 2 0 0 0 0 110
PYE 2013 5 1 14 36 9 3 0 0 0 0 68
PYE 2014 5 5 22 15 3 3 0 0 0 0 53
PYE 2015 4 5 23 18 2 0 0 0 0 0 52
PYE 2016 6 7 49 28 5 1 0 0 0 0 96
PYE 2017 3 5 36 9 3 0 0 0 0 0 56
PYE 2018 7 7 40 14 0 0 0 0 0 0 68
PYE 2019 4 26 29 7 2 0 0 0 0 0 68
PYE 2020 1 33 43 5 0 0 1 0 0 0 83
PYE 2021 9 87 73 10 2 0 0 0 0 0 181
Total 48 183 349 319 325 323 287 162 58 23 2,077 Average Age at Retirement/Disability 52.4
Average Current Age 66.9
Average Annual Pension
Benefit
Effective
112,447$
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
APPENDIX A – MEMBERSHIP INFORMATION
54 Table A-8
Distribution of Retirees, Disabled Members,
and Beneficiaries as of June 30, 2020
Age Count Annual Benefit
Under 50 78 4,173,861$
50 to 54 189 18,608,926
55 to 59 370 38,371,312
60 to 64 356 40,497,894
65 to 69 361 44,224,094
70 to 74 384 44,699,557
75 to 79 365 34,481,982
80 to 84 202 17,663,955
85 to 89 87 5,916,762
90 and up 46 2,679,887
Total 2,438 251,318,228$
Chart A-2
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
APPENDIX A – MEMBERSHIP INFORMATION
55 Chart A-3
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
APPENDIX A – MEMBERSHIP INFORMATION
56 Table A-9
Changes in Plan Membership
TIE R 1
Vested In-Pay
Actives
Terminations
/ Reciprocals
Non-Vested
Terminations Retirees Disabilities
Beneficiaries /
SADRO Total
June 30, 2020 1,144 210 31 1,122 900 358 3,765
New Entrants 1 0 0 0 0 0 1
Rehires 4 (4) (1) 0 0 0 (1)
Non-Vested Terms (1) 0 0 0 0 0 (1)
Vested Deferrals (2) 2 0 0 0 0 0
Refunds (1) (1) (1) 0 0 0 (3)
Disabilities (12) (2) 0 (12) 13 0 (13)
Retirements (80) (5) 0 85 0 0 0
Deaths 0 0 0 (1) (30) 22 (9)
Beneficiary Deaths 0 0 0 0 0 (15) (15)
Benefits Expiring 0 0 0 0 0 (4) (4)
Adjustments 0 9 (1) (1) 1 0 8
June 30, 2021 1,053 209 28 1,193 884 361 3,728
TIE R 2
June 30, 2020 565 9 96 0 0 0 670
New Entrants 131 0 8 0 0 0 139
Rehires 8 0 (8) 0 0 0 0
Non-Vested Terms (19) 0 13 0 0 0 (6)
Vested Deferrals 0 0 0 0 0 0 0
Refunds 0 0 0 0 0 0 0
Disabilities 0 0 0 0 0 0 0
Retirements 0 0 0 0 0 0 0
Deaths 0 0 0 0 0 0 0
Beneficiary Deaths 0 0 0 0 0 0 0
Benefits Expiring 0 0 0 0 0 0 0
Adjustments 0 0 (8) 0 0 0 (8)
June 30, 2021 685 9 101 0 0 0 795
TOTAL
June 30, 2020 1,709 219 127 1,122 900 358 4,435
New Entrants 93 0 4 0 0 0 97
Rehires 51 (3) (9) 0 0 0 39
Non-Vested Terms (14) 0 13 0 0 0 (1)
Vested Deferrals (2) 1 0 0 0 0 (1)
Refunds (6) (1) (9) 0 0 0 (16)
Disabilities (12) (1) 0 (1) 14 0 0
Retirements (80) (9) 0 85 0 0 (4)
Deaths 0 0 0 (12) (30) 22 (20)
Beneficiary Deaths 0 0 0 0 0 (13) (13)
Benefits Expiring 0 0 0 0 0 (6) (6)
Adjustments (1) 12 3 (1) 0 0 13
June 30, 2021 1,738 218 129 1,193 884 361 4,523
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
APPENDIX B – ACTUARIAL ASSUMPTIONS AND METHODS
57 A. Actuarial Assumptions
The economic and demographic assumptions used in this re port were adopted by the Board of Administratio n at the November 4, 2021 Board meeting based on our in put and recommendations from our experience study covering plan experience throu gh June 30, 2021. Please refer to the experience study report and presentations for the rationale for each of the assumptions.
1. Discount Rate
6.625% n et of investment expense s. The long-term ex pected return on assets based on Meketa’s capital market assumptions for a 10-year and 20-year time horizons are 5.89% and 6.75%, respectively.
2. Price Inflation
2.25% per annum.
3. Wage Inflation
Reflect currently bargained across-the-board increases and 3.00% per annum (0.75% real wage growth ) thereafter. For this valuation, F ire me mbers have bargained increases of
4.25% for FYE 2022 and 3.00% for FY E 2023. Police members bargained increases of
3.85% for FYE 2022.
4. Merit Salary Increase Rate
The following merit component is added to wage inflation, based on an individual member’s years of service:
Table B-1
Merit Salary Increases
Years of Service Merit/ Longevity
0 6.50%
1 6.50
2 6.25
3 5.75
4 5.25
5 4.25
6 2.50
7 1.50
8 1.00
9 0.80
10+ 0.60
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
APPENDIX B – ACTUARIAL ASSUMPTIONS AND METHODS
58 5. Rates of Retirement
Rates of retirement are based on age and service according to the following Table s B-2, B-3, and B-4. Tier 1 rates only apply when the member is eligible for unreduced benefits.
Table B-2
Tier 1 Rates of Retirement by Age and Service
Police Fire
Age <30 Years 30+ Years <30 Years 30+ Years
50 55.0% 100.0% 35.0% 100.0%
51 45.0 100.0 35.0 100.0
52 40.0 100.0 35.0 100.0
53 30.0 100.0 35.0 100.0
54 30.0 100.0 35.0 100.0
55 30.0 100.0 30.0 100.0
56 30.0 100.0 25.0 100.0
57 30.0 100.0 20.0 100.0
58 – 61 50.0 100.0 27.5 100.0
62+ 100.0 100.0 100.0 100.0
Table B-3
Tier 2 Rates of Retirement by Age and Service
Police
Age
5 – 19
Years
20 – 24
Years
25 – 29
Years 30+ Years
50 – 56 2.0% 2.0% 2.0% 5.0%
57 – 59 7.5 10.0 20.0 100.0
60 – 61 10.0 20.0 35.0 100.0
62 – 64 25.0 50.0 75.0 100.0
65+ 100.0 100.0 100.0 100.0
Table B-4
Tier 2 Rates of Retirement by Age and Service
Fire
Age
5 – 19
Years
20 – 24
Years
25 – 29
Years 30+ Years
50 – 56 1.0% 1.0% 1.0% 2.5%
57 – 59 5.0 7.5 15.0 100.0
60 – 61 7.5 15.0 25.0 100.0
62 – 64 20.0 35.0 50.0 100.0
65+ 100.0 100.0 100.0 100.0
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
APPENDIX B – ACTUARIAL ASSUMPTIONS AND METHODS
59 Tier 1 vested terminated members are assumed to retire at age 50 if they have 25 or more years of service o r at ag e 5 5 if they ha ve l ess t han 25 years of service. Tier 2 vested terminated members are assumed to retire at age 57.
6. Rates of Termination
Rates of termination are shown in Table B-5 below.
Table B-5
Rates of Termination
Service Police Fire
0 13.75% 8.50%
1 11.75 4.00
2 10.00 2.75
3 8.50 1.75
4 7.50 1.25
5 6.75 1.00
6 6.00 0.90
7 5.50 0.80
8 5.00 0.70
9 4.75 0.60
10 4.50 0.50
11 4.25 0.50
12 3.75 0.50
13 3.25 0.50
14 2.75 0.50
15 2.25 0.50
16 1.75 0.50
17 1.50 0.50
18 1.25 0.50
19+ 1.00 0.50
* Termination rates do not apply once retirement rates apply.
Tier 1 members who terminate with less than 10 years of service and Tier 2 members who terminate with less th an 5 years of service are assum ed t o receive a refund of contributions. For terminating employees who are not assumed to receive a refund, 75% are assumed to subsequently work for a reciprocal employer and receive 3. 00% pay increases per year.
7. Rates of Disability
For Police, disability rates are equ al to the CalPERS police industrial and non -industrial rates for public agencies multiplied by 90% for ages under 50 and 140% for ages 50 and older. For Fire, disability rates are equal to the CalPERS fire indu strial and non-industrial CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
APPENDIX B – ACTUARIAL ASSUMPTIONS AND METHODS
60 rates for public agencies multiplied by 90% for ages under 50 and 180% for ages 50 and older. Sample disability rates of active participants are provided in Table B-6.
Table B-6
Rates of Disability at Selected Ages
Age Police Fire
25 0.16% 0.03%
30 0.45 0.08
35 0.74 0.15
40 1.03 0.28
45 1.32 0.50
50 2.70 5.08
55 6.88 7.54
60 8.71 10.77
65 10.47 14.84
100% of disabilities are assumed to be duty related.
8. Rates of Mortality
Mortality rates for actives, retirees, benef iciaries, terminated vested, and reciprocals are based on the sex -distinct employee and annuitan t mortality tables shown on the next page. Future mortality improvements are reflected by applyi ng t he SOA MP -2021 projection scale on a generational basis from the base year of 2010.
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
APPENDIX B – ACTUARIAL ASSUMPTIONS AND METHODS
61 Table B-7
Base Mortality Tables
Category Male Female
Healthy
Retirees
1.002 times the 2010 Public
Safety Above Median Income
Mortality Table (Pub(s)-2010(A))
for Healthy Retirees
1.002 times the 2010 Public
Safety Above Med ian Income
Mortality Table (Pub(s)-2010(A))
for Healthy Retirees
Disabled
Retiree
0.915 times the Public Sa fety
Mortality Table (PubS-2010) for
Disabled Retirees
0.915 times the Public Safety
Mortality Table (PubS-2010) for
Disabled Retirees
Beneficiaries
1.032 times the 2010 General
Member Mortality Tab le ( PubG-
2010) for Healthy Retirees
1.032 times the 2010 General
Member Mortality Table ( PubG-
2010) for Healthy Retirees
Healthy
Non-Annuitant
0.979 times the 2010 Public
Safety Above Median Income
Mortality Table (Pub(s)-2010(A))
for Healthy Employees
0.979 times the 2010 Public
Safety Above Median Income
Mortality Table (Pub(s)-2010(A))
for Healthy Employees
It is assumed that 50% of active deaths are service related.
9. Family Composition
Percentage married is shown in the following Table B-8. Women are assumed to be three years younger than men.
Table B-8
Percentage Married
Gender Percentage
Males 85%
Females 85%
10. Administrative Expenses
For FYE 2022, administrative expenses are assumed to equal $1,334 per member and are assumed to incr ease at the wage inflation assumption of 3. 00% per annum. Historically, the administrative expenses were assumed to reduce the investment return assumpti on by 10 bas is points which resulted in a higher normal cost. To maintain the same historic division of Tier 1 member an d City contributions for administrative expenses f or this valuation, m embers were allocat ed a portion of the administrative expenses equ al to 3/11ths of the difference in normal cost that a 10 b asis point reduction in the investment CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
APPENDIX B – ACTUARIAL ASSUMPTIONS AND METHODS
62 return assumption would cause. Tier 2 members pay 50 percent of administr ative expenses.
11. Changes Since Last Valuation
The merit salary scale, the beneficiary base mortality table, the mortality projection scale, and the assumed administrative expenses were updated for this valuation. Please refer to our experience study report for an explanation of the rationale for these changes.
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
APPENDIX B – ACTUARIAL ASSUMPTIONS AND METHODS
63 B. Contribution Allocation Procedure
The contribution a llocation procedure primarily consists of an act uarial cost method, an asset smoothing method , and an amort ization method as described below. All components of the contribution allocation procedure were established prior to the June 30, 2011 actuarial valu ation except as specifically noted below.
1. Actuarial Cost Method
The Entry Age actuarial cost method was used for active employees, whereby the normal cost is computed as the level annual percentag e of pay required to fund th e retirement benefits between each member’s date o f hire a nd assumed retiremen t. The Actuarial Liability is t he difference between the present value of future benefits and the present value of future normal cost. The Unfunded Actuarial Liability is the dif ference between the Actuarial Liability and the Actuarial Value of Assets.
2. Asset Valuation Method
For the purposes of det ermining the employer’s contribution, we use an Actuarial Value of Assets. The asset smoothing method dam pens the volatili ty in asset values that could occur because of the fluctuations in market conditions. Use of an asset smoothing method is consistent w ith the long -term nature of the actuarial valuat ion process. Assets are assumed to be used exclusively for the provision of retirement benefits and expenses.
The Actuarial Value of Assets is calculated by recognizing the deviation of actual investment returns compared to the expected return over a five -year period. The dollar amount of the expected return on the Market Value of Assets is determined using the actual contributions and benefit payments during the year. Any difference between thi s amount and the actual net investment earnings is considered a gain or loss.
Finally, the Actuarial Value of Assets is restricted to a corridor between 80 percent and 120 percent of the Market Value of Assets.
3. Amortization Method
Actuarial g ains and lo sses and plan changes are amort ized over a 1 5-year period (16 years for gains and losses prior to June 30, 2016) beginning with the valuation date in which they first arise. Changes in methods and assumptions are amortized over a 20-year period (16 years for changes prior to June 30, 2011) beginning with the valuation date on which they are e ffective. Amortization payments are assumed to i ncrease 2. 25% each year. Some prior amortization periods have been adjusted in prior years to smooth the pattern of future contributions.
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
APPENDIX C – SUMMARY OF PLAN PROVISIONS
TIER 1
64 1. Membership Requirement
Participation in the plan is immediate upon the first day of employment with the City of San José as a police officer or fire fighter except for the following:
• Independent contractors,
• Person in City service principally for training or educational purposes, • Auxiliary or voluntary police officers or fire fighters, • Part-time or non-salaried employees, and
• Employees receiving credit in any other retirement or pension system.
Persons eligible for Tier 1 membership include:
• Any police office r hired prior to August 4 , 2013 or any fi refighter hired prior to January 2, 2015.
• Any person who was a me mber of this p lan as an employee of the police department prior to Augus t 4, 2013, and terminated employment with the city, and returned to employment with the city in a position covere d by t his plan on or after August 4, 2013.
• Any person who was a member of this plan as an employee of the fire department prior to January 2, 2015, and terminated employment with the city, and returned to employment with the city in a po sition c overed by this p lan on or after January 2, 2015.
• Any person accepting employment in the police department or fire department of the city on or after January 1, 2013, who is otherwise eligible for this pl an and who was an active member in another California public retirement system with which this plan has reciprocity under Part 16, an d who has a br eak in service of less than six months from that covered employment and employment with the city.
2. Final Compensation
The highest twelv e consecutive mon ths of c ompensation in c overed employment.
However, in determining Final Compensation, no compensation in the last 12 months of employment that exce eds 108% of c ompensation during the 12 months immediately preceding the last 1 2 month shall be considered. C ompensation exclud es overtime pay and expense allowances.
3. Credited Service
Years of ser vice in covere d employment plus service purchased for milit ary leave of absence, Federated service, and unpaid leaves of absence.
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
APPENDIX C – SUMMARY OF PLAN PROVISIONS
TIER 1
65 4. Contributions
a. Member:
The amount n eeded to fund 3/11 ths of normal cost calculated under the Entry Age actuarial cost method plus the amor tization payment on the February 4, 1996 bene fit improvement. For Police members, there is an additional amor tization payme nt for member contributions not made for the last 6 months of 2006.
b. Employer:
The Employer contributes the remaining amounts necess ary to fund the Plan in accordance with the Board’s funding policy.
5. Service Retirement
Eligibility
Age 55 with 20 years of service, age 50 with 25 yea rs of service, age 70 with no service requirement, or any age with 30 years of service. Reduced benefits are also available at age 50 with 20 years of service.
Benefit
Police: 2.5% of Final Compensation for eac h year of cred ited service up to 20 years plus 4.0% of Final Compensation for each year of credited service in excess of 20, subject to a maximum of 90% of Final Compensation.
Fire: For members with less than 20 years of service, 2.5% of Final Compensatio n for each yea r of credited service. For mem bers with 20 or mo re years of service, 3.0% of Final Compensation for each year of servic e, subject to a maximum of 90% of Final compensation.
6. Service Connected Disability Retirement
Eligibility
No age or service requirement.
Benefit
Police: 50% of Final Compensation plus 4.0% of Final Compensation for each year of credited service in exc ess of 20 , sub ject to a maximum of 90% of Final Compensation.
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
APPENDIX C – SUMMARY OF PLAN PROVISIONS
TIER 1
66 Fire: For members with less than 20 years of service, 50% of Final Compensation.
For members with 20 or m ore years of servi ce, 3.0% of Final Compensation for each year of service, subject to a m aximum of 90% of Final Compensation.
7. Non-Service Connected Disability Retirement
Eligibility
Two years of service.
Benefit
For members with less than 20 years of service, 32% of Final Compensation plus 1% of Final Compensation for each year of service in excess of two. For members with 20 or more years of ser vice, the ben efit amount equals the amount that would be calcula ted under the service retirement formula.
8. Non-Service-Connected Death
Less than 2 Years of Service:
Lump sum benefit equal to the greater of accumulated employee contributions with interest or $1,000.
Disabled retirees or members ineligible for service retirement:
Spouse receives 24% of Final Compensation plus 0.75% of Final Compensation for each year of service in excess of two, sub ject to a maximum of 37.5% of Final Compensation.
If a member has eligible dependent children, an additional benefit is payable as follows:
1 Child: 25% of Final Compensation
2 Children: 37.5% of Final Compensation
3+ Children: 50% of Final Compensation
The total benefit payable to a family is limited to 75% of Final Compensation.
If a member does not have a spouse or e ligible dependent children, a lump sum benef it equal to the greater of accumulated employee contributions with interest or $1,000.
Service retirees or members eligible for service retirement:
Spouse receives the greater of 37.5% of Final Compensation or 5 0% of the memb er’s service retirement benefi t, subject to a maximum of 42.5% of Final Compensation for Police and 45% of Final Compen sation for Fire. Eligible dependent children will receive the same benefit as defined under the non-service-connected death for disabled retirees or CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
APPENDIX C – SUMMARY OF PLAN PROVISIONS
TIER 1
67 members ineligible for service retirement. The total benefit payable to a family is limited to 75% of Final Compensation.
9. Service-Connected Death
Spouse receives th e g reater of 37.5% of Final Compensation or 50% of the member’s service retire ment benefit, subject to a max imum of 42.5% of F inal C ompensation for Police and 45% of Final Compensation for Fire. If a member has eligible dependent children, an additional benefit of 25% of Final Compensation is payable for each eligible dependent chil d. The total benefit payable t o a family is limi ted to 75% of Final Compensation.
10. Termination Benefits
Less than 10 Years of Service:
Lump sum benefit equal to the accumulated employee contributions with interest at 2% per annum.
10 or more years of credited service:
The amount of t he service retirement benefit, payable at the later of age 55 or 20 years from date of membership.
11. Post-retirement Cost-of-Living Benefit
Benefits are increased every February 1 by 3.0%.
12. Changes Since Last Valuation
None.
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
APPENDIX C – SUMMARY OF PLAN PROVISIONS
TIER 2
68 1. Membership Requirement
Any police officer who is hired by the City on or after August 4, 2013 , or any fire fighter who is hired by the City on or after January 2, 2015, and who does not meet the eligibility requirements for Tier 1.
2. Final Compensation
The highest a verage monthly co mpensation of the member during any thirty -six consecutive months of covered employment. Compensation e xcludes overtime pay and expense allowances.
3. Credited Service
One year of service credit is given for 2,080 or more hours of city service rendered in any calendar year. A partial year (fraction with the numerator equal to the hours worked, and the denomi nator equal to 2,080) is given for each calen dar year with less than 2,080 hours worked.
4. Member Contributions
50% of total Tier 2 contributions to the pension plan, incl uding, but not limited to administrative expenses, normal cost , and Unfunded Actuarial Liability. Increases in members’ Unfunded A ctuarial Liab ility contribution are limited to one -third of one percent of com pensation eac h year. Contribut ions cannot be les s than 50% of normal cost.
5. Unreduced Service Retirement
Eligibility
Age 57 with five years of service.
Benefit – Member
2.4% of Final Compensation for each year of credited service up to 20 years, plus 3.0% of Final Compensation for each year of credi ted service between 20 years and 25 years, plus 3.4% of Final Compensat ion for each y ear of credited service in excess of 25 years , subject to a maximum of 80% of Final Compensation.
Benefit – Survivor
50% joint and survivor annuity.
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
APPENDIX C – SUMMARY OF PLAN PROVISIONS
TIER 2
69 6. Early Service Retirement
Eligibility
Age 50 with five years of service.
Benefit – Member
Reduced 7% per year for each year between age 57 and the member’s age at retirement.
7. Service-Connected Disability Retirement
Eligibility
No age or service requirement.
Benefit – Member
The greater of:
• Monthly benefit equivalent to 50% of Final Compensation, • The service retirement benefit, if eligible for service retirement, • A service retirement benefit actuarially redu ced from age 5 0, if not eli gible for service retirement.
8. Non-Service Connected Disability Retirement
Eligibility
Five years of service.
Benefit – Member
1.8% of Final Compensation for eac h year of cre dited service if less than age 50, or the service pension benefit if older than age 50.
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
APPENDIX C – SUMMARY OF PLAN PROVISIONS
TIER 2
70 9. Death Before Retirement
If death occurs before retirement eligibility is reached and after two years of service
Monthly benefit equal to 24% of Final Co mpensation plus 0.75% of Final Compensation for each year of ser vice in excess of two, up t o a maximum of 37 .5% of F inal Compensation
If death occurs after retirement eligibility is reached
Benefit equivalent to what the employee would have received if r etired at the time of death.
Employees killed in the line of duty
Monthly benefit equal to the greater of:
• 37.5% of Final Compensation or
• 50% of what the employee would have received if retired at the time of death.
10. Withdrawal Benefits
Less than five years of credited service
Lump sum benefit equal to the accumulated employee contributions with interest.
Five or more years of credited service
The amount of the service retirement benefit, actuarially reduced for early retirement, and payable when retirement eligibility is reached.
11. Benefit Forms
Retiree may c hoose an optio nal settlement at retirement t hat reduces their allowance to provide a higher survivorship allowance to their spouse/domestic partner.
12. Post-retirement Cost-of-Living Benefit
Benefits are in creased every April 1 by the change in the December CPI-U for San José -San Fr ancisco-Oakland, subject to a cap o f 2.0%. The first COLA after retirement shall be prorated based on the number of months retired.
13. Changes Since Last Valuation
There have been no changes in plan provisions since the last valuation.
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
APPENDIX C – SUMMARY OF PLAN PROVISIONS
TIER 2
71 Note: The summary of major plan provi sions is designed to outline principal plan benefits. If the Department of Retirement Ser vices should f ind the plan summary no t in accordance with t he actual provisions, the actuary should immediately be alerted so the proper provisions are valued.
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
APPENDIX D – GLOSSARY OF TERMS
72 1. Actuarial Liability
The Actuarial Liability is the difference between the present value of fu ture benefits and the present value of total future normal costs. This i s also referred to by some actuaries as the “accrued liability” o r “actuarial accrued liability .” The A ctuarial L iability represents the amount of assets a plan should have as of a val uation date ac cording to the actuarial cost method.
2. Actuarial Assumptions
Estimates of future experience with respect to rates of morta lity, disabil ity, turnover, retirement rate or r ates o f investment income , and salary increases. Demographic actuarial assumptions (rates of mortality, disability, turnover , and retirement) are generally based on past experience, often modifi ed for project ed changes in conditions. Economic assumptions (price inflation, wage inflation , and investment income) are generally b ased on expectations for the future that may differ from the Plan’s past experience.
3. Actuarial Cost Method
A mathematical budgeting procedure for allocating the dollar amount of the present value of future benefits between future normal cost and Actuarial Liability.
4. Actuarial Gain (Loss)
The difference between actual exper ience and the anticipated experience based on the actuarial assumptions during the period between two actuarial valuation dates.
5. Actuarial Present Value
The amount of funds currently required to p rovide a payment or series of payments in the future. It i s determined by discounting future payments at the discount rate and by probabilities of payment.
6. Actuarially Determined Contribution
The payment to the Plan as determined by the act uary using a contribution allocation procedure. It may or may not be the actual amount contributed to the Plan.
7. Amortization Method
A m ethod for det ermining the amou nt, timing, and pa ttern of payment of the Unfunded Actuarial Liability.
CITY OF SAN JOSÉ POLICE AND FIRE DEPARTMENT RETIREMENT PLAN JUNE 30, 2021 ACTUARIAL VALUATION REPORT
APPENDIX D – GLOSSARY OF TERMS
73 8. Asset Valuation Method
The method used to develop the Actuarial Value of Assets from the Market Value of Assets typically by smoothing investment returns above o r below the assum ed rate of return over a period of time.
9. Contribution Allocation Procedure
A procedure typically usin g an actuarial cost method, an asset valuation method, and an amortization method to develop the Actuarially Determined Contribution.
10. Discount Rate
The rate of interest used t o discount future benefit payments to determine the actuarial present value. Fo r purposes of determining an Actuarially Dete rmined Contri bution, the discount rate is typically based on the long-term expected return on assets.
11. Funded Status or Funding Ratio
Either the Market or Actuarial Value of Assets divided by the Actuarial Liab ility. For purposes of this report, the funded status represents the proportion of the actual assets as of the valuation da te compared t o the assets expe cted by the actuarial cost method. These measures are for contribution budgeting purposes and are not a ppropriate for assessing the sufficiency of plan assets to cover the estimated cost of settling the plan’s benefit obligations.
12. Normal Cost
The portion of the present va lue of future benefits allocated to the current year by the actuarial cost method.
13. Present Value of Future Benefits
The actuarial present value of all benefits both earned as of the valuation date and expected to be ear ned in the future by current plan m embers based on current plan provisions and actuarial assumptions.
14. Unfunded Actuarial Liability (UAL)
The Unfunded Actuarial Liability is the difference between Actuarial Liability and either the Market or the Actuarial Value of Assets. This value is som etimes referred to as “ unfunded actuarial accrued liability .” It repres ents the diffe rence between the actual assets and the amount of assets expected by the actuarial cost method as of the valuation date.
74