Attachment (g) — San Jose City Council, April 26, 2022

This report has been prepared at the request of the Board of Administration to assist in administering the fund. This report may not otherwise be copied or reproduced in any form without the consent of the Board of Administration and may only be provided to other parties in its entirety, unless expressly authorized by Segal. The measurements shown in this report may not be applicable for other purposes. © 2022 by The Segal Group, Inc.

City of San Jose Police and Fire Department
Retirement Plan
Audit of June 30, 2021 Pension
Actuarial Valuation
January 25, 2022
4d
P&F 2.3.22

180 Howard Street
Suite 1100
San Francisco, CA 94105-6147
segalco.com
T 415.263.8273 / [email protected]
T 415.263.8283 / [email protected]

January 25, 2022

Board of Administration
City of San Jose Police and Fire Department Retirement Plan 1737 North 1st Street, Suite 600
San Jose, CA 95112
Re: Audit of June 30, 2021 Pension Actuarial Valuation Dear Members of the Board:

We are pleased to present the results of our audit of the June 30, 2021 Pension Actuarial Valuation for the City of San Jose Police and Fire Department Retirement Plan (“Plan”). The purpose of this audit was to verify the calculations completed by Cheiron and to offer comments on the methodology and the results of their actuarial valuation.

This review was conducted by Paul Angelo, a Fellow of the Society of Actuaries, Member of the American Academy of Actuaries, and an Enrolled Actuary under ERISA, and Andy Yeung, an Associate of the Society of Actuaries, Member of the American Academy of Actuaries, and an Enrolled Actuary under ERISA. This review was conducted in accordance with the standards of practice prescribed by the Actuarial Standards Board.

The assistance of Cheiron and the Plan is gratefully acknowledged. We appreciate the opportunity to be of service to the Board of Administration, and we are available to answer any questions you may have on this report.

We are Members of the American Academy of Actuaries and we meet the Qualification Standards of the American Academy of Actuaries to render the actuarial opinion herein.

Sincerely,

Paul Angelo, FSA, MAAA, FCA, EA Andy Yeung, ASA, MAAA, FCA, EA Senior Vice President and Actuary Vice President and Actuary

ST/jl

cc: William Hallmark
Anne Harper
Timothy Doyle

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Table of Contents

Executive Summary .................................................................................................................... 1 Purpose and Scope of the Actuarial ............................................................................................ 7 Results of the Valuation Audit ..................................................................................................... 8 Review of Economic Assumptions ............................................................................................ 16

Exhibits
Exhibit A - Analysis of Participant Data 21-A
Exhibit B – Test Life Comparison 22-A
Exhibit C – Comparison of Results 23-A
Exhibit D – Recommended Action Items Before June 30, 2022 Valuation 24-A

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Executive Summary

This report has been prepared by Segal to present an audit of the June 30, 2021 Pension Actuarial Valuation performed by Cheiron for the Plan. As described in the Plan’s contract for actuarial audit services, the scope of our audit is to review the liabilities and the contribution rates by Tier for each of Police and Fire that were included in the Plan’s June 30, 2021 Pension Actuarial Valuation Report.

Summary of Results and Recommendations
This audit report includes an independent reproduction of the detailed valuation results that appear in the June 30, 2021 valuation report prepared by Cheiron. This audit was based on actuarial reports, employee data and supplemental information provided by both the Plan and Cheiron.

We have performed this actuarial audit of the Plan's June 30, 2021 Pension Actuarial Valuation to provide assurance to the Plan's Board of Administration that the actuarial calculations are reasonable and that the actuarial process was conducted according to generally accepted actuarial principles and practices. Our audit confirms that the results of the actuarial calculations as of June 30, 2021 are reasonable, and that those calculations are based on generally accepted actuarial principles and practices.

The following is a high-level summary of the results from our audit of the June 30, 2021 Pension Actuarial Valuation:

• The valuation results were prepared using the non-economic (demographic) actuarial assumptions approved by the Board based on the experience study as of June 30, 2021.

Those non-economic assumptions were used in the June 30, 2021 valuation, including updating the assumed rate of mortality improvement from MP-2019 to MP-2021

1. A review of
those non-economic assumptions is not included in our contract for actuarial services and is therefore beyond the scope of this assignment.
• The economic (6.625% investment return, 2.25% price inflation and 3.00% wage inflation) actuarial assumptions previously used in the June 30, 2020 valuation were subsequently reviewed by the Board and all of these assumptions were unchanged as part of the June 30, 2021 valuation. We have performed a high level review of those assumptions for reasonableness. We concluded that Cheiron has recommended a set of economic assumptions that are reasonable for use in the June 30, 2021 valuation for the Plan. We note that the investment return and the price inflation assumptions appear to have been developed independently, and that the information provided in those developments did not allow an assessment of whether the investment return assumption and the other economic _______________________
1 According to the information provided by the Society of Actuaries (SOA), MP-2021 projection scale is based on historical mortality information through 2019 that does not reflect the COVID-19 pandemic and due to the uncertainty about the near-term and long- term effects of COVID-19, no adjustments to scale MP-2021 have been made for the pandemic. However, a tool has been provided by the SOA to allow practitioners to adjust the projection scale for COVID-19.

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assumptions are consistent with regard to inflation expectations1. Our review is included in Section III of this report.
• We understand that the Board has followed a practice of reviewing the economic assumptions (in particular, the investment return assumption) before each annual valuation. While the annual review of economic assumptions should allow the Plan to incorporate the most up-to- date capital market information in calculating the liabilities, that practice of performing an annual review is becoming less common practice among similar systems particularly when selecting long term economic assumptions (such as the investment return assumption).

When continuing with the current practice, we recommend to the Board that they consider their deliberation of those economic assumptions for the upcoming valuation before (or just immediately after) the date of the valuation. Based on our prior experience working with other investment consulting firms, we understand that the long-term capital market assumptions provided by those firms are updated only periodically during the year, and that by starting the review of those economic assumptions earlier (e.g., earlier than the discussion that started in October 2021 as was the case during the review of the assumptions for the June 30, 2021 valuation), it should allow the Board more time to review, deliberate and adopt or modify the investment return and other economic assumptions recommended by Cheiron. • Cheiron initially sent their “final” scrubbed 2021 valuation data to Segal on November 5, 2021 for use in matching their results. On January 11, 2022, Segal asked Cheiron about a discrepancy between the projected salary reported for their active test lives and the projected salary in their final scrubbed data file. On January 14, 2022, Cheiron sent a revised final 2021 valuation data file to Segal and told us that they had updated the salaries since they sent us the data on November 5, 2021.

Due to the late arrival of Cheiron’s revised final data file, Segal has used Cheiron’s November 5, 2021 data file to calculate the Plan’s liabilities, except for the projected salaries which come from the January 14, 2022 data file. (With the exception of the projected salaries, we confirmed that the data fields had only changed for a few members in the new file.) Given that our calculation of the Plan’s liabilities was quite close to Cheiron’s calculations to begin with, we are comfortable in concluding that the results of the actuarial calculations as of June 30, 2021 are reasonable without explicitly reflecting the updates made to the data file.

For any future actuarial audits, Segal would recommend that Cheiron inform the auditing actuary of any changes to their final data file after its delivery to the auditing actuary, and deliver any revised data file as soon as possible.
• The demographic data used in the 2021 valuation by Cheiron was essentially the same as that supplied by the Plan, and included only minimal changes made by Cheiron.

Cheiron reported 17 more terminated vesteds and 4 fewer beneficiaries than included in the Plan’s data. We understand from Cheiron that the relevant records are alternate payees who have yet to start receiving benefits, but whose former spouses have retired and commenced benefits. While we could not confirm the basis behind each of the changes, we have concluded that Cheiron’s valuation data (sent on November 5, 2021 with projected salaries _______________________
1 As discussed in Section III, Cheiron’s PowerPoint recommending the investment return assumption did not include the specific price inflation assumptions that were used in developing the range of expected returns on the Plan’s portfolio using 10-year and 20-year returns from Meketa and Horizon. It is our understanding from collecting information from these sources that they have used different inflation assumptions over the two different time horizons.

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sent on January 14, 2022) overall is reasonable for use in the June 30, 2021 valuation for the Plan.

Segal would recommend that the Plan request Cheiron provide a copy of the final membership data file used in the valuation so that any differences could be reviewed and confirmed by the Plan to be accurate and reasonable before the next valuation. • In calculating refunds that involved members’ contribution balances, Cheiron did not include the “Insurance Contributions and Interest” field in the Plan’s data. We note that the insurance contributions were included in Cheiron’s 2021 valuation for the Federated Employees’ Retirement System (System), and the 2016 valuations for both the Plan and the System when we performed the previous audit. We have confirmed with the Plan that insurance contributions are included in refunds of members’ contribution balances, and we have included the insurance contributions in our calculations of the Plan’s liabilities. We estimate the impact of including the insurance contributions to be an increase of 0.04% in the total average employer rate. We note that according to Cheiron the insurance contributions and interest should only be included in member refunds if the member is not covered by the VEBA.

Segal would recommend that Cheiron discuss with the Plan whether (and if so, for which members) the insurance contributions in the Plan’s data should be included in members’ contribution balances in the next valuation.
• In performing the actuarial valuation, there was a need to take the salary earned during 2020/2021 to project it forward to estimate the amount that would be earned during 2021/2022 and thereafter in their valuations for the Plan and the System. While we are satisfied with the explanation provided by Cheiron for the two methods based on two different starting salaries used in their valuations for the Plan and the System, we note that it is not common for the same actuary to use two methods to project salaries for different employee groups who worked for the same employer. Note that we provided this comment in our prior audit of the June 30, 2016 valuation; the two methods applied are now more similar to each other than they were in the June 30, 2016 valuation.
• Cheiron’s Statement of Actuarial Assumptions and Methods (page 57 of their 2021 valuation report) says that wage inflation will reflect currently bargained increases for FYE 2022 of

4.25% for Fire members and 3.85% for Police members. However, in estimating the 2021/2022 salaries in the January 14, 2022 data file, Cheiron used a wage inflation assumption of 3.00% for all members. We estimate that reflecting these bargained increases in the estimated 2021/2022 salaries would increase active Fire liabilities by about 1.2% and active Police liabilities by about 0.8%. (The increase in the total Plan liabilities, including all members, is about 0.3%.) However, we have used Cheiron’s projected salaries from the January 14, 2022 data file to calculate the Plan’s liabilities.

Segal would recommend that the projected salaries used in the valuation reflect any currently bargained across-the-board increases, unless Cheiron modifies their Statement of Actuarial Assumptions to say that such increases are not reflected in their valuation assumption of wage inflation.
• All active employees were assumed by Cheiron to earn one year of service between valuations. This means all employees were assumed by Cheiron to work full-time in the future; however, that assumption was not disclosed in their report. Segal would recommend

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that Cheiron disclose their service accrual assumption in the next valuation report, similar to the disclosure in the System’s valuation report.
• We observed that, unlike the calculations Cheiron prepared for the System, when computing the liabilities for current retirees, benefits were not limited to those that can be paid under the IRC Section 415 limitation. With that exception, all other major benefits have been appropriately included by Cheiron in their valuation. It should be noted that based on the relatively small $495,000 in annual benefits (out of a total of $251.3 million) that were in excess of the Section 415 limitation (i.e., for only 14 out of 2,438 current retirees and beneficiaries), we would not expect the contribution rate impact from not reflecting such limitation in the valuation for current retirees to be material. • Market value of assets has been maintained by the Plan for each of the two tiers of Police and Fire. We have reviewed and agreed with the calculation of the (smoothed) actuarial value of assets used in the valuation.
• Segal’s total (Tier 1 and Tier 2 for all of Police and Fire) present value of future benefits (PVB) is 101% of Cheiron’s total present value of future benefits. This key result is the basis for all other liabilities and cost calculations in the valuation. • Segal’s total City contribution rate is 83.69% of payroll and Cheiron’s total City contribution rate is 81.51% of payroll. The total City contribution rate calculated by Segal is about 103% of that calculated by Cheiron. This level of difference can generally be explained by differences in procedures and methods used by Segal and Cheiron in allocating the present value of future benefit between the past actuarial accrued liability and the future normal costs. Also, in calculating the contribution rates, we have applied a more conservative assumption by assuming that benefit payments are made at the beginning instead of at the end of every month. If we had used an end-of-month payment timing, our contribution rate would have decreased by about 1.2% of payroll.
• Segal’s total employee contribution rate is 12.77% of payroll and Cheiron’s total employee contribution rate is 12.87% of payroll. The total member rate calculated by Segal is about 99% of that calculated by Cheiron. Again, this level of difference can generally be explained by differences in procedures and methods used by Segal and Cheiron. • A list of all action items we would recommend as part of the June 30, 2022 valuation is provided in Exhibit D. (Note that in preparing the list, we have included several items that are only addressed in Sections II and III of this report.)
Detailed Findings
Our detailed findings and recommendations are summarized as follows:
• As indicated in Section III of this report, we found the economic assumptions reviewed as part of the June 30, 2021 valuation and used by Cheiron to be reasonable and in accordance with generally accepted actuarial standards and principles, with the sole exception that we were unable to assess the consistency of the economic assumptions with respect to expected price inflation. We have subsequently received information indicating that the price inflation assumptions used were generally consistent across the economic assumptions. • Segal’s total present value of future benefits as of June 30, 2021 is 101% of Cheiron’s present value.

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• A comparison of Segal’s present value of future benefits (PVB) to Cheiron’s present values by Tier for each of Police and Fire and in total indicates that the total liabilities of each plan are reasonable as shown in the following table.

Plan
Ratio of Segal’s PVB to
Cheiron’s PVB
Fire Tier 1 101%
Police Tier 1 101%
Fire Tier 2 101%
Police Tier 2 99%
Total combined 101%

• Segal’s total actuarial accrued liability as of June 30, 2021 is 101% of Cheiron’s liability.

For this audit, our first focus was on matching the core numbers on which the Police and Fire Tiers’ ultimate costs depend: the present values of future benefits. The results of this analysis were shown in the previous table. We also focused on more detailed analyses of (i) the proper implementation of the demographic assumptions as determined by the 2021 experience study as well as the economic assumptions reviewed and approved as part of the 2021 valuation, (ii) the breakdown of the total normal cost contribution rate into the portions paid by the City and by the members, and (iii) the determination of the UAAL contribution rate paid by the City and by the members. Those detailed analyses produced the following findings and recommendations:
• Segal’s total City contribution rate is 83.69% of payroll and Cheiron’s total City contribution rate is 81.51% of payroll. The total City contribution rate calculated by Segal is about 103% of that calculated by Cheiron. This level of difference can generally be explained by differences in procedures and methods used by Segal and Cheiron in allocating the present value of future benefit between the past actuarial accrued liability and the future normal costs. Also, in calculating the contribution rates, we have applied a more conservative assumption by assuming that benefit payments are made at the beginning instead of at the end of every month. If we had used an end-of-month payment timing, our contribution rate would have decreased by about 1.2% of payroll.
• Segal’s total employee contribution rate is 12.77% of payroll and Cheiron’s total employee contribution rate is 12.87% of payroll. The total member rate calculated by Segal is about 99% of that calculated by Cheiron. Again, this level of difference can generally be explained by differences in procedures and methods used by Segal and Cheiron. • While we were able to locate and opine on Cheiron’s calculations for the total City contribution rate of 81.51% as provided on page 9 of their report, we were not able to locate Cheiron’s breakdown of the total City contribution rate between the normal cost rate and the Unfunded Actuarial Accrued Liability (UAAL) contribution rate. The same is true for the member rates.

In the tables on the next page we show the ratios of the normal cost rate, the UAAL contribution rate, the administrative expenses rate, and the total rate for the City and the members by Tiers for each of Police and Fire separately, and in total. Rates that have not been included in Cheiron’s valuation report are shown as “not available (N/A)”.

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RATIO OF SEGAL/CHEIRON Fire Tier 1 Police Tier 1 Fire Tier 2 Police Tier 2 Total Net City Normal Cost Rate 100% 97% 101% 99% N/A
City Admin Expenses Rate 99% 100% 100% 102% N/A
City UAAL Rate ($ Amount for Tier 1) 105% 104% 33%1 86%1 N/A Total City Rate N/A N/A 102% 99% 103%

RATIO OF SEGAL/CHEIRON Fire Tier 1 Police Tier 1 Fire Tier 2 Police Tier 2 Total Member Normal Cost Rate 100% 97% 101% 99% N/A
Member Admin Expenses Rate 110%2 97% 100% 102% N/A
Member UAAL Rate 100% 100% 33%1 86%1 N/A
Total Member Rate 100% 97% 102% 99% 99%

• For funding purposes, market value of assets has been maintained by the Plan separately by Tier for each of Police and Fire and we agreed with the calculation of the (smoothed) actuarial value of assets used in the valuation.
• In determining the UAAL contribution rate, Cheiron uses a methodology that first projects the outstanding balances of the various UAAL layers to the next valuation date (i.e., one year in the future). Based on those projected outstanding balances and the remaining amortization periods as of that same future date, they determine the UAAL amortization payments for each of the UAAL layers. The total of those amortization payments is then converted to a percent by using the expected payroll for the fiscal year that begins one year after the date of the current valuation. It is our understanding that the purpose of this methodology is to adjust for the one-year delay between the valuation date and the date that the contribution rates are implemented and to more accurately reflect the payroll for the fiscal year that begins one year after the valuation date. We believe that the methodology they are applying is reasonable for this purpose.
• Overall, we have verified that Cheiron’s calculations of the normal cost, UAAL and the total City contribution rate as a percentage of payroll are reasonable. Similarly, we have verified that Cheiron’s calculations of the normal cost, UAAL and the total member contribution rate as a percentage of payroll are reasonable.

_______________________
1 The Tier 2 UAAL dollar contribution amount is small compared to the total Tier 2 contribution amount. Differences between Cheiron’s calculation and Segal’s calculation are primarily due to differences in procedures and methods used by Segal and Cheiron and is therefore not considered material.
2 Segal’s Fire Tier 1 member administrative expenses rate is 0.32% of payroll vs. Cheiron’s rate of 0.29% of payroll.

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Purpose and Scope of the Actuarial
Audit
Purpose of the Audit
Segal has performed an actuarial audit of Cheiron’s June 30, 2021 Pension Actuarial Valuation to provide assurance to the Plan's Board of Administration that the actuarial calculations are reasonable and that the actuarial process was conducted according to generally accepted actuarial principles and practices.

Scope of the Audit
The scope of the audit, as described in the Plan’s Actuarial Audit Services Agreement with Segal, includes the following:
• Evaluation of the available data for the performance of such valuation, the degree to which such data is sufficient to support the conclusions of the valuation, and the use and appropriateness of any assumptions made regarding such data. • Comparison of the major benefits summarized in Appendix C of Cheiron’s 2021 valuation report against those that are included in the online Summary of Plan Description. For some benefits, we have also consulted the relevant provisions in the City Ordinance to confirm our understanding. We observed that, unlike the calculations Cheiron prepared for the System, when computing the liabilities for current retirees, benefits were not limited to those that can be paid under the IRC Section 415 limitation. With that exception, all the other major benefits have been appropriately included by Cheiron in their valuation. It should be noted that based on the relatively small $495,000 in annual benefits (out of a total of $251.3 million) that were in excess of the Section 415 limitation (i.e., for only 14 out of 2,438 current retirees and beneficiaries), we would not expect the contribution rate impact from not reflecting such limitation in the valuation for current retirees to be material. • Completion of a parallel valuation as of June 30, 2021 using the assumptions, methodologies and funding methods used by the Plan's consulting actuary in their performance of the June 30, 2021 valuation.
• Evaluation of the parallel valuation results that were included in the June 30, 2021 Actuarial Valuation Report by Tier for each of Police and Fire, and reconciliation of any discrepancies between the findings, assumptions, methodology, rates, and/or adjustments with the Plan's consulting actuary.

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Results of the Valuation Audit

Several steps are involved in conducting an actuarial audit of a retirement benefits program.

Outlined below are the primary steps we took to comply with the scope of the audit services.

Following each step is a description of our observations.

Cheiron initially sent their “final” scrubbed 2021 valuation data to Segal on November 5, 2021 for use in matching their results. On January 11, 2022, Segal asked Cheiron about a discrepancy between the projected salary reported for their active test lives and the projected salary in their final scrubbed data file. On January 14, 2022, Cheiron sent a revised final 2021 valuation data file to Segal and told us that they had updated the salaries since they sent us the data on November 5, 2021.

Step 1: Compare the demographics of the 2021 data
provided by the Plan with the valuation data used by
Cheiron for the June 30, 2021 actuarial valuation
Results
EXHIBIT-A provides a comparison, by membership type (i.e., Tiers 1 and 2 and Fire and Police), of the number of participants, their average ages, average salaries (active members), average service (active members) and average benefits (pensioners). This exhibit indicates that Cheiron had only made a few adjustments, estimations or corrections to the data received from the Plan. In general, the data received was “valuation ready” with the exception of adjustments to include 17 more terminated vested records and 4 fewer beneficiaries.

Observations

1. Segal noticed that Cheiron reported 17 more terminated vested records and 4 fewer beneficiaries than included in the Plan’s data. We understand from Cheiron that the relevant records are alternate payees who have yet to start receiving benefits, but whose former spouses have retired and commenced benefits. While we could not confirm the basis behind each of the changes, we have concluded that Cheiron’s valuation data (sent on November 5, 2021 with projected salaries sent on January 14, 2022) in whole are reasonable for use in the June 30, 2021 valuation for the Plan. We recommend that the Plan request Cheiron provide a copy of the final membership data file used in the valuation

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so that any differences could be reviewed and confirmed by the Plan to be accurate and reasonable before the next valuation.

2. The payments awarded to ex-spouses under the combined account option (records indicated in the beneficiary data file with a code of “Q” for Qualified Domestic Relations Order or “QDRO”) have been combined by Cheiron with the payments awarded to the corresponding members into a single record. No combining was necessary with respect to the annuity and pension portions of the benefit reported on the member record as the Plan has already included the ex-spouse’s portions of those benefits in the member’s record.

Only the COLA portion of the benefit that has been paid to the ex-spouse needed to be combined with the COLA portion of the benefit for the retiree. We are only noting this detail for documentation purposes as the method used by Cheiron is consistent with how the data should be handled based on our discussion with the Plan.

3. In calculating refunds that involved members’ contribution balances, Cheiron did not include the “Insurance Contributions and Interest” field in the Plan’s data. We note that the insurance contributions were included in Cheiron’s 2021 valuation for the System, and Cheiron’s 2016 valuations for both the Plan and the System, and we have included the insurance contributions in our calculations of the Plan’s liabilities. We estimate the impact of including the insurance contributions to be an increase of 0.04% in the total average employer rate. We note that according to Cheiron the insurance contributions and interest should only be included in member refunds if the member is not covered by the VEBA. We recommend that Cheiron discuss with the Plan whether (and if so, for which members) the insurance contributions in the Plan’s data should be included in members’ contribution balances in the next valuation.

4. Unlike the calculations they prepared for the System, Cheiron did not limit the benefit amounts for the current retirees by the IRC Section 415 limitation. It should be noted that based on the relatively small $495,000 in annual benefits (out of a total of $251.3 million) that were in excess of the Section 415 limitation (i.e., for only 14 out of 2,438 current retirees and beneficiaries), we would not expect the contribution rate impact from not reflecting such limitation in the valuation for current retirees to be material.

Step 2: Develop a valuation program based on the
relevant provisions of the Plan as summarized in the
Summary Plan Descriptions, using the actuarial
methods and assumptions outlined in the most recent
valuation report, and further defined by Cheiron.

Observations

1. Cheiron assumes that all Tier 1 actives who have less than 10 years of service and all Tier 2 actives who have less than 5 years of service when they terminate employment are assumed to receive a refund of contributions (100% refund of contributions). The reciprocity assumption is only applied to Tier 1 actives that have more than 10 years of service and Tier 2 actives who have more than 5 years of service. We note that in the 2021 data, there are about 231 Tier 1 inactives who have less than 10 years of service and Tier 2 inactives

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who have less than 5 years of service, of which about 92 are reciprocal terminations. Segal would recommend to Cheiron that they consider modifying their reciprocity assumption at the next experience study to account for reciprocal terminations for Tier 1 actives who have less than 10 years of service and Tier 2 actives who have less than 5 years of service.

2. Cheiron confirmed for us that in their valuation, they assumed service would increase by one year for all actives in between valuations. This means all employees were assumed by Cheiron to work full-time in the future; however, that assumption made by Cheiron was not disclosed in their report. Segal would recommend that Cheiron disclose their service accrual assumption in the next valuation report, similar to the disclosure in the System’s valuation report.

3. In performing the actuarial valuation, there was a need to take the salary earned during 2020/2021 to project it forward to estimate the amount that would be earned during 2021/2022 and thereafter in their valuations for the Plan and the System. While we are satisfied with the explanation provided by Cheiron for the two methods based on two different starting salaries used in their valuations for the Plan and the System, we note that it is not common for the same actuary to use two methods to project salaries for different employee groups who worked for the same employer. Note that we provided this comment in our prior audit of the June 30, 2016 valuation; the two methods applied are now more similar to each other than they were in the June 30, 2016 valuation.

4. Cheiron’s Statement of Actuarial Assumptions and Methods (page 57 of their 2021 valuation report) says that wage inflation will reflect currently bargained increases for FYE 2022 of 4.25% for Fire members and 3.85% for Police members. However, in estimating the 2021/2022 salaries in the January 14, 2022 data file, Cheiron used a wage inflation assumption of 3.00% for all members. We estimate that reflecting these bargained increases in the estimated 2021/2022 salaries would increase active Fire liabilities by about

1.2% and active Police liabilities by about 0.8%. (The increase in the total Plan liabilities, including all members, is about 0.3%.) However, we have used Cheiron’s projected salaries from the January 14, 2022 data file to calculate the Plan’s liabilities. We recommend that the projected salaries used in the valuation reflect any currently bargained across-the-board increases, unless Cheiron modifies their Statement of Actuarial Assumptions to say that such increases are not reflected in their valuation assumption of wage inflation.

5. As previously noted in Step 1, Cheiron did not limit the benefit amounts for current retirees by the IRC Section 415 limitation.

6. The Plan provides for a post-retirement death benefit of $1,000 to the estate of retirees that have no surviving spouse/domestic partner or surviving children at the time of death (i.e., retirees eligible for a life annuity benefit). We confirmed with Cheiron that they value this benefit for future retirees, but not current retirees eligible for a life annuity benefit. We recommend that Cheiron value the $1,000 post-retirement death benefit to current retirees eligible for a life annuity benefit, and that Cheiron add this benefit to the plan provisions of the report. Due to the small amount of this benefit, we do not expect the contribution rate impact of this change to be material.

7. On page 66 of Cheiron’s valuation report there are different non-service-connected death benefits provided for Tier 1 “Disabled retirees or member ineligible for service retirement” and “Service retirees or members eligible for service retirement.” We note that Cheiron assumes that 100% of future disabilities are duty related, and further assumes that those

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duty disabled retirees receive the same non-service-connected death benefits as service retirees. We recommend that Cheiron refine the language in the plan provisions of the report.

8. On page 70 of Cheiron’s valuation report, the Tier 2 pre-retirement death benefit after retirement eligibility is stated as the “benefit equivalent to what the employee would have received if retired at the time of death.” We note that the death benefit is not equal to the benefit the employee would have received, but instead the survivorship allowance the beneficiary would have received had the employee been retired at the time of death. We recommend that Cheiron refine the language in the plan provisions of the report.

9. We confirmed with Cheiron that the spousal continuance for Tier 1 deferred vested members is based on a formula that uses a 1.875% multiplier per year of service with a maximum of 37.5%. We recommend that Cheiron add this formula to the plan provisions in the report.

10. We confirmed with Cheiron that their amortization payment growth assumption is 2.25% per annum. We recommend that Cheiron add this assumption to the actuarial assumptions and methods in the report, similar to how they show the amortization payment growth assumption in the System’s valuation report.

11. On page 59 of Cheiron’s valuation report, the assumed retirement age for Tier 2 terminated vested members is age 57. We confirmed with Cheiron that the assumed retirement age for Tier 2 terminated vested members is age 60 as shown on page 10 and page 41 in the 2021 Demographic Experience Study Report. We have assumed age 60 in our liability calculations. We recommend that Cheiron review that the correct assumption is used in their valuation system and stated in the valuation report.

12. Tier 1 terminated vested members are eligible to retire when they turn age 55 and at least 20 years have passed since they first became a member of the Plan. We confirmed with Cheiron that they assume Tier 1 terminated vested members retire at age 55 without consideration to the 20-year requirement. We recommend that Cheiron consider modifying their retirement assumption to require that 20 years have passed since the member first became a member of the Plan.

Step 3: Run the valuation program with specific
individuals (test lives) who illustrate particular benefit provisions and compare results to Cheiron’s results
Results
EXHIBIT-B provides a comparison of Segal’s and Cheiron’s test life results for (i) the present value of future benefits, (ii) the present value of future normal costs, and (iii) the actuarial accrued liability.
• Present Value of Future Benefits: This measure represents the current value of the member’s projected benefits, recognizing the time value of money (i.e., the investment return assumption), the salary increase assumption and the probabilities of retirement, death, disability and turnover. This value is the cornerstone for the entire valuation as it represents

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the amount expected to be needed to provide all future expected benefit payouts for current members, based on the valuation assumptions.

The ratio of Segal’s results to Cheiron’s results, on a total present value of future benefits basis, range from 97% to 102% for the active test lives. The ratio of Segal’s results to Cheiron’s results is about 101% for the terminated vested and retired test lives.

We believe our results are within an acceptable range of Cheiron’s results to provide assurance that the significant plan liabilities are properly valued. • Present Value of Future Normal Costs and Actuarial Accrued Liability: The funding method adopted by the Plan, the Entry Age Actuarial Cost Method, separates the present value of future benefits for active members into two components, the actuarial accrued liability and the present value of future normal costs. Simply stated, the Entry Age Actuarial Cost Method determines a level cost as a percentage of pay for each year of service, called the normal cost. For active members, the actuarial accrued liability is the accumulated value of past normal costs (less any expected benefits, and assuming all actuarial assumptions were exactly realized), while the present value of future normal costs represents the current value of future normal costs required to fully fund the member’s projected benefits before the member is expected to retire.

The method used to separate the present value of projected benefits into its two components can differ somewhat from valuation system to valuation system, even though the underlying funding method used in the systems is the same.

For the active test lives, the ratios of Segal’s results to Cheiron’s is about 98% (range from 97% to 99%) for the present value of future normal costs and about 103% (range from 102% to 117%) for the actuarial accrued liability [See page 22A].

Observations

1. Segal’s valuation system generally assumed active members decrement (i.e., retirement, termination, etc.) at the beginning of each plan year (July 1). The Cheiron system, in contrast, assumes decrements occur in the middle of the year (January 1). As part of this audit for the Plan, we have changed our timing of the decrement to allow for the middle of the year timing for the decrements assumed by Cheiron. Either methodology is acceptable, with each actuarial firm establishing its own approach for the assumed timing of decrements.

2. Segal’s valuation system used beginning-of-month timing for benefit payments. We confirmed with Cheiron that they used end-of-month timing for benefit payments for the Police and Fire Plan. The difference in methodologies may explain why Segal’s results for the retired test lives are slightly higher than Cheiron’s results. We note that in our audit of the Federated System, we used beginning-of-month timing for benefit payments and matched exactly with Cheiron’s retired test lives results.

3. COLA in the first year for Tier 2 retirees should be pro-rated based on the fraction of the year that the Tier 2 retirees would have been retired (e.g., one-quarter of a year assuming the retirement on January 1). Segal confirmed that Cheiron has not pro-rated the 2.0% COLA for Tier 2 members in their first partial year after retirement. Accordingly, Cheiron overestimated both the actuarial accrued liability and normal cost for Tier 2 by 1.5%. This overstatement should not have a significant impact on the contribution rates for the Plan as

5703779v2/09381.008 13

a whole because there was relatively low liability in Tier 2. We have pro-rated the 2.0% COLA for Tier 2 members in their first partial year after retirement in our liability calculations.

4. Segal set a minimum liability in our valuation for each member to be at least equal to the member’s account balance. Cheiron assumed that all current inactive vested and reciprocal members receive a monthly deferred retirement benefit without comparing the value of that benefit to the account balance. We would recommend that Cheiron compare the value of a member’s deferred retirement benefit to the member’s account balance. We believe this should not affect the overall results materially.

Step 4: Run the valuation program with all participant
data, compile results, and compare to Cheiron’s
results
Results
EXHIBIT-C provides a comparison, by Tier for each of Police and Fire, of Segal’s results and Cheiron’s results for (i) the present value of future benefits, (ii) the present value of future normal costs, (iii) the UAAL, (iv) the total normal cost and UAAL contribution rates, (v) the City normal cost and UAAL contribution rates and (vi) the member normal cost and UAAL contribution rates.
• The ratios of Segal’s results to Cheiron’s results, on a total present value of future benefits basis, is 101% (ranging by Tier from 99% to 102%) for active members. For the retirees, the ratio is also 101%. For the terminated vested members, the ratio is 97%. In total, our present value of future benefits is 101% of Cheiron’s present value as shown in the column labeled “TOTAL” on page 23-A.
• The present value of future normal costs is allocated between member contributions and the City contributions. For Tier 1 for each of Police and Fire, members contribute 3/11 of the normal cost rate (excluding the cost for reciprocal benefits), the historical share of the administrative expenses; and the amortization payment on the February 4, 1996 benefit improvement. For Tier 1 Police members, there is an additional amortization payment for member contributions not made due to the 2006 rate increase delay. For Tier 1 for each of Police and Fire, the City pays the remainder of the total contribution rate, including the remaining UAAL payments. For Tier 2 for each of Police and Fire, the members and the City each pays one-half of the total contribution rate including both normal cost and UAAL payments.

Cheiron does not include a description of the fact that the cost for reciprocal benefits is excluded in calculating the member contributions for Tier 1 for each of Police and Fire in Appendix C (summary of plan provisions) in the 2021 valuation report (although it is disclosed on page 37 of the report). Segal would recommend that Cheiron add that description to the plan provisions section in their future valuation reports. • The actuarial accrued liability depends in part on the valuation system’s methodology for separating the present value of projected benefits into its two components – the actuarial accrued liability and the present value of future normal costs. The UAAL is then simply the

5703779v2/09381.008 14

difference between the actuarial accrued liability and the actuarial value of assets. Therefore, differences in the actuarial accrued liabilities due to the variations in the valuation systems impact the UAAL, and the related City and member normal cost contribution rates. • Segal’s total City contribution rate is 83.69% of payroll and Cheiron’s total City contribution rate is 81.51% of payroll. The total City contribution rate calculated by Segal is about 103% of that calculated by Cheiron. This level of difference can generally be explained by differences in procedures and methods used by Segal and Cheiron in allocating the present value of future benefit between the past actuarial accrued liability and the future normal costs. Also, in calculating the contribution rates, we have applied a more conservative assumption by assuming that benefit payments are made at the beginning instead of at the end of every month. If we had used an end-of-month payment timing, our contribution rate would have decreased by about 1.2% of payroll.
• Segal’s total employee contribution rate is 12.77% of payroll and Cheiron’s total employee contribution rate is 12.87% of payroll. The total member rate calculated by Segal is about 99% of that calculated by Cheiron. Again, this level of difference can generally be explained by differences in procedures and methods used by Segal and Cheiron. • While we were able to locate and opine on Cheiron’s calculations for the total City contribution rate of 81.51% as provided on page 9 of their report, we were not able to locate Cheiron’s breakdown of the total City contribution rate between the normal cost rate and the Unfunded Actuarial Accrued Liability (UAAL) contribution rate. The same is true for the member rates.

In the tables below we show the ratios of the normal cost rate, the UAAL contribution rate, the administrative expenses rate, and the total rate for the City and the members by Tiers for each of Police and Fire separately, and in total. Rates that have not been included in Cheiron’s valuation report are shown as “not available (N/A)”.

5703779v2/09381.008 15

Step 5: Evaluate the valuation results and
methodology as presented in the Cheiron actuarial
valuation report
Observations

1. As we were not provided with a draft of Cheiron’s actuarial valuation report (as originally anticipated in our contract for audit services), we reviewed Cheiron’s final actuarial report in detail after it had already been presented to the Board. If it has been the intent of Cheiron to include the higher wage increases as stated on page 57 of their 2021 valuation report, there would have been an increase in the active Fire liabilities by 1.2% and active Police liabilities by 0.8% due to using a 3.00% wage inflation assumption in estimating the 2021/2022 salaries. (The increase in the total Plan liabilities, including all members, is about 0.3%.) Otherwise, most of our other comments (already discussed in the previous steps) based on that final report are relatively minor and deal primarily with providing additional disclosures for documentation purposes.

5703779v2/09381.008 16

Review of Economic Assumptions

The economic assumptions reviewed by Cheiron during the 2021 actuarial valuation are the investment rate of return, price inflation and wage growth (price inflation and real wage increases). Actuarial Standard of Practice No. 27 (ASOP 27) provides the actuary guidance in developing these assumptions. Among these guidelines is the need for consistency among the economic assumptions selected by the actuary.

Results
Cheiron has recommended a set of economic assumptions that are reasonable for use in the June 30, 2021 valuation for the Plan. This is the case even though the investment return and the price inflation assumptions appear to have been developed independently, with the result that we were unable to assess whether the investment return assumption and the other economic assumptions are consistent with regard to inflation expectations.

We understand that the Board has followed a practice of reviewing the economic assumptions (in particular, the investment return assumption) before each annual valuation. While the annual review of economic assumptions should allow the Plan to incorporate the most up-to-date capital market information in calculating the liabilities, that practice of performing an annual review is becoming a less common practice particularly when selecting long term economic assumptions (such as the investment return assumption).

When continuing with the current practice, we would recommend to the Board that they consider their deliberation of those economic assumptions for the upcoming valuation before (or just immediately after) the date of the valuation. Based on our prior experience working with other investment consulting firms, we understand that the long-term capital market assumptions provided by those firms are updated only periodically during the year, and that by starting the review of those economic assumptions earlier (e.g., earlier than the discussion that started in October 2021 as was the case during the review of the assumptions for the June 30, 2021 valuation), it should allow the Board more time to review, deliberate and adopt or modify the investment return assumption(s) recommended by Cheiron.

Details of Review
In order to demonstrate the interconnection and the consistency among the investment return, price inflation and wage inflation assumptions, Segal utilized a “building block” approach in developing and documenting our review of these three assumptions. Under this approach, the investment rate of return assumption is the combination of the price inflation component and the real rate of return component (used by the investment consultants), less an expense component. Similarly, the wage growth assumption is the combination of the price inflation component and the real wage increase component. (It should be noted that the salary increase assumption is developed using the wage growth assumption and the merit increase assumption.) In our experience, this is generally the preferred approach for documenting and developing these assumptions.

5703779v2/09381.008 17

Inflation Assumption for Use in Projecting Benefit
Obligations
The first “building block” to consider is the price inflation component assumption. This assumption underlies all other economic assumptions, including both the investment return and the projection of benefit liabilities (i.e., salary increase for actives and COLAs for retirees in Tier 2). In their analysis, as part of the 2021 economic assumptions review, Cheiron cited the inflation expectations from the Federal Reserve Survey of Professional Economic Forecasters, the inflation expectations from Horizon’s survey of investment consultants, the inflation assumptions used by plans in the Public Plan Database, and the inflation assumptions used by different California public retirement plans in their valuations.

There was a disparity between the 50
th percentile assumptions of 2.44% from the economic
forecasters and 2.75% from the California public retirement plan valuations. While we would find the 2.25% assumption used by Cheiron to be within the reasonable range for this assumption, it is important to acknowledge the relatively shorter time horizons used by the economic forecasters and the relatively longer time period used by the California public retirement plans in their valuations could have support different inflation assumptions. For example, the benefits for some members currently in their 30’s and 40’s will not commence until they retire at 60’s and 70’s and then be paid for 20 to 30 years after their retirement. Due to the difference in the time horizon, for Segal’s California public retirement system clients (that have recently reviewed these assumptions) we have been recommending an inflation assumption of 2.50% to those clients in 2021.

Administrative and Investment Expenses Paid from the
System and the Deduction of some of those Expenses in
Development of Investment Return Assumption
Administrative Expenses
In their 2021 experience study, Cheiron analyzed the administrative expenses as an expense per member for each plan year since 2014. The administrative expense per member (including actives, retirees, and inactive members) had ranged from a low of $914 to a high of $1,297.

Rather than to offset the administrative expenses with actual investment income, which would lower the investment return assumption, Cheiron included an additional contribution in their valuation to defray those expenses. That assumption was set at $1,334 per member for FYE 2022 (increasing annually by the 3.00% wage increase assumption), to allocate expenses between Tier 1 and Tier 2 and between Police and Fire in proportion to headcount of members (including actives, retirees and inactive members). The projected administrative expenses for the fiscal year are divided by projected payroll for that fiscal year to arrive at a total administrative expense rate, with separate rates for Police and Fire and for each tier. Tier 1 members pay 3/11ths of their historical share of administrative expenses for Tier 1, and Tier 2 members pay half of the administrative expenses expected for Tier 2.

Note that using headcount of all members to determine administrative expenses in dollars will lead to increases in administrative expenses as a percentage of payroll for Tier 1 because Tier

5703779v2/09381.008 18

1 is a closed group with projected compensation expected to decrease in future years faster than the total member headcount. For example, the aggregate administrative expense rate for Police and Fire Tier 1 was 3.27% of payroll in the June 30, 2020 valuation vs. 3.50% of payroll in the June 30, 2021 valuation. The aggregate administrative expense rate for the Plan was

2.43% of payroll in the June 30, 2020 valuation vs. 2.39% of payroll in the June 30, 2021 valuation.

We agree with Cheiron that the collection of $1,334 per member (assumed to increase with wage inflation) to defray administrative expenses may be subject to increase in future valuations and that the investment return assumption does not have to be adjusted to anticipate the payment of such expenses.

Investment Expenses
The actual amount of investment expenses paid out of the plan during fiscal year 2021 was $15.2 million. (Of that amount, about 94% was paid out as investment managers fees and the remaining 6% was paid out for investment consulting, custodian banking, and other expenses.) Because Cheiron made no provision to collect those investment expenses as an additional contribution rate, these investment expenses came out of investment return. Because Cheiron did not make an explicit reduction for these, there was an implicit 0.00% investment expense assumption used by Cheiron in their development of the investment return assumption. While we have not audited the capital market assumptions, it has been our experience working with the investment consultants retained by our California public retirement system clients that their capital market assumptions are generally gross of (i.e. not reduced for) investment expenses.

It should be noted that individual actuarial firms use different models with different criteria and parameters to develop the investment return assumption, and the model used by Segal is different from that used by Cheiron. Segal would generally subtract some portion of the investment expenses (average investment expenses were about 40 basis points or bps for the last four years) from the indexed (or passively managed) returns in developing the investment return assumption, which would lower the expected investment return assumption

1. Furthermore, in the case of the Plan, it appears based on information provided in the comparison of asset performance section of the Fiscal Year 2021 ACFR that the average market return net of manager fees was lower than the policy benchmark by about 20 bps during a 10-year period. While this may be a coincidence (40 bps versus 20 bps), this observation could be used to support some reduction in the investment return assumption for payment of those expenses.

We also note that about 6% of the total investment expense paid in Fiscal Year 2021 was for investment consulting, custodian banking, and other expenses that either were not directly in _______________________
1 Our practice may be considered by some to be more conservative than that required under the Actuarial Standard of Practice (ASOP) No. 27, which states in part in Section 3.8.3.d, “Investment Manager Performance -- Anticipating superior (or inferior) investment manager performance may be unduly optimistic (pessimistic). The actuary should not assume that superior or inferior returns will be achieved, net of investment expenses, from an active investment management strategy compared to a passive investment management strategy unless the actuary believe, based on relevant supporting data, that such superior or inferior returns represent a reasonable expectation over the measurement period.” (emphasis added). We believe this means that assuming only enough superior return to cover related investment expenses would not require the relevant supporting data referenced in ASOP No. 27.

5703779v2/09381.008 19

pursuit of “alpha” returns or were expenses that had not been netted out of the capital market assumptions. For all these reasons, we recommend that Cheiron review their methodology in conjunction with the ASOP 27 to consider making some provisions for payment of future investment expenses when they review the investment return assumption before the June 30, 2022 valuation.

Development of Investment Rate of Return Assumption
For the investment rate of return assumption, the Board chose to maintain the current assumption of 6.625% used in the June 30, 2020 valuation for the June 30, 2021 valuation.

Cheiron derived the 6.625% investment return assumption by applying the Plan’s target asset allocation in a stochastic model developed using the capital market assumptions provided by Meketa, the Plan’s investment consultants, and by Horizon in preparing their investment return assumption recommended for the June 30, 2021 valuation. While the reductions from 6.875% for the June 30, 2016 valuation (applicable at the time of our last audit) to 6.75% for the June 30, 2018 valuation and then to 6.625% for the June 30, 2020 and 2021 valuations were consistent with the trend in the industry to adopt more conservative investment return assumptions, we would nonetheless recommend to Cheiron that they include a more detailed writeup of their analysis behind their recommendation in a more formal report. This should supplement the high level analysis provided in their Power Point presentation made to the Board at the October 2021 meeting.

We have the following observations with respect to the development of the 6.625% investment return assumption that Cheiron provided in their June 30, 2021 economic assumptions review. • To estimate the expected return from each category class, Cheiron used the capital market assumptions from both Meketa and Horizon
1 as opposed to just using assumptions from
Meketa. We agree that the current approach is preferable as it allows for more market information to be used and does not suffer from the undesired outcome (and possibly significant variability) of having the expected investment returns dependent on which investment consultant is employed by a retirement plan. • As noted above, Cheiron used the capital market assumptions by asset class provided by Meketa and Horizon to develop the distribution of expected returns on the Plan’s portfolio that was the basis for their recommended investment return assumption. However Cheiron did not include the capital market assumptions for inflation from either Meketa or Horizon in their PowerPoint presentation

2. This means we were unable to determine whether the inflation assumptions used to develop the expected return were consistent with the inflation assumption of 2.25% that was used in developing the salary increase and COLA assumptions. We have subsequently received information indicating that the price inflation assumptions used were generally consistent across the economic assumptions. • As an independent check, Segal has applied the model that we use for other California public retirement systems to review the adopted 6.625% investment return assumption. While, especially when first applied, our model does not necessarily produce an absolute investment return recommendation, it is very useful for comparing the level of risk inherent in the _______________________
1 According to Cheiron, the Horizon survey includes expected returns from 39 consultants over a 10-year horizon and 24 consultants over a 20-year horizon.
2 While we were not provided with the specific price inflation assumptions that were used in developing range of expected returns on the Plan’s portfolio using 10-year and 20-year returns from Meketa and Horizon, it is our understanding from collecting information from these sources that they have used different inflation assumptions over the two different time horizons.

5703779v2/09381.008 20

investment return assumptions adopted by a given retirement system at different points in time or with other retirement systems that have previously been analyzed using that model.

Based on the application of our model, we believe that the level of risk implicit in the 6.625% investment return assumption, along with a 2.25% price inflation assumption, is somewhat lower than the comparable risk measure used by other California public retirement systems that have been analyzed using that model. The main reason is that for those other California public retirement systems, we have used a higher inflation assumption (2.50% in 2021) in developing their investment return assumption.
• Another test of the recommended investment return assumption is to compare it against those used by other public retirement systems, both in California and nationwide. We note that an investment return assumption of 6.625% is in the low range for this assumption among the California public sector retirement systems. The most common range, with a few exceptions, is from 6.75% to 7.25%. Again, part of the reason is that a number of those other California public retirement system are using a higher inflation assumption.

Taking into account the above discussion and based on our own independent analysis, we believe that the 6.625% investment return assumption that has been recommended by Cheiron to the Board is reasonable. However, we believe that they should consider making adjustment in their model to address the issues related to investment expenses and inflation as discussed above, including an explicit disclosure of the inflation component of the capital market assumptions used to develop their expected returns.

Wage Increase Assumption
In developing the wage inflation assumption, Cheiron compared the actual wage inflation with actual price inflation for local governments over the past 5, 10, and 20 years and took the difference to determine the real wage growth. Under that approach, there was a wide range of results they observed for real wage growth (ranged from 0.58% to 1.50%).

This information, together with the 3.85% and 4.25% FYE 2022 general across the board wage increases negotiated for Police and Fire, respectively, and 3.00% FYE 2023 general across the board wage increase for Fire, as well as the median wage inflation in their survey of California systems of 3.25% were all considered in coming up with their 3.00% wage increase assumption using a “building block” approach.

Even though we find the 0.75% they used as the real wage growth assumption that they added to the 2.25% inflation assumption to determine the final 3.00% wage increase assumption to be within the reasonable range for this assumption, we would nonetheless recommend to Cheiron that they include a more detailed writeup of their analysis behind their recommendation in a more formal report.

21-A

Exhibit – A
City of San Jose Police and Fire Department Retirement Plan June 30, 2021 Valuation
Analysis of Participant Data

Active Member Data – Tier 1

Fire Police Total
Plan Cheiron Plan Cheiron Plan Cheiron

Number 499 499 554 554 1,053(1) 1,053
Average Age 46.9 46.9 46.4 46.4 46.6 46.6
Average Eligibility Service 17.8 17.8 18.9 18.9 18.4 18.4 Average Benefit Service(2) 16.9 17.1 18.1 18.2 17.6 17.6 TOTAL
Pensionable Compensation
rate as of 6/30/2021(3) $2,796,298 $3,375,020 $6,171,318 Pensionable compensation
for 7/1/2020-6/30/2021(3) $73,390,621 $83,907,254 $157,297,875 Expected salary for
7/1/2021-6/30/2022(4) $76,581,475 $91,002,533 $167,584,008

AVERAGE
Expected salary for
7/1/2021-6/30/2022
(4) $153,470 $153,470 $164,265 $164,265 $159,149 $159,149 % DIFFERENCE
Number 0.0% 0.0% 0.0%
Average Age 0.0% 0.0% 0.0%
Average Eligibility Service 0.0% 0.0% 0.0%
Average Benefit Service 1.2% 0.6% 0.0%

AVERAGE
Expected salary for
7/1/2021-6/30/2022(4)

0.0% 0.0% 0.0%

21-B

Exhibit – A (continued)
City of San Jose Police and Fire Department Retirement Plan June 30, 2021 Valuation
Analysis of Participant Data

Active Member Data – Tier 2

Fire Police Total
Plan Cheiron Plan Cheiron Plan Cheiron

Number 158 158 527 527 685(1) 685
Average Age 34.1 34.2 31.0 31.0 31.7 31.7
Average Eligibility Service 3.7 3.7 3.0 3.0 3.1 3.1
Average Benefit Service 3.6 3.6 2.9 2.9 3.1 3.1
TOTAL
Pensionable Compensation
rate as of 6/30/2021(3) $676,848 $2,382,081 $3,058,929 Pensionable compensation
for 7/1/2020-6/30/2021(3) $17,382,043 $52,784,771 $70,166,814 Expected salary for
7/1/2021-6/30/2022(4) $18,975,416 $65,998,398 $84,973,814

AVERAGE
Expected salary for
7/1/2021-6/30/2022
(4) $120,098 $120,098 $125,234 $125,234 $124,049 $124,049 % DIFFERENCE
Number 0.0% 0.0% 0.0%
Average Age 0.3% 0.0% 0.0%
Average Eligibility Service 0.0% 0.0% 0.0%
Average Benefit Service 0.0% 0.0% 0.0%

AVERAGE
Expected salary for
7/1/2021-6/30/2022(4)

0.0% 0.0% 0.0%

21-C

Exhibit – A (continued)
City of San Jose Police and Fire Department Retirement Plan June 30, 2021 Valuation
Analysis of Participant Data

Active Member Data – Total

Fire Police Total
Plan Cheiron Plan Cheiron Plan Cheiron

Number 657 657 1,081 1,081 1,738(1) 1,738
Average Age 43.8 43.8 38.9 38.9 40.7 40.8
Average Eligibility Service 14.4 14.4 11.1 11.2 12.4 12.4 Average Benefit Service(2) 13.7 13.8 10.7 10.7 11.8 11.9 TOTAL
Pensionable Compensation
rate as of 6/30/2021(3) $3,473,146 $5,757,101 $9,230,247 Pensionable compensation
for 7/1/2020-6/30/2021(3) $90,772,664 $136,692,025 $227,464,689 Expected salary for
7/1/2021-6/30/2022(4) $95,556,891 $157,000,931 $252,557,822

AVERAGE
Expected salary for
7/1/2021-6/30/2022
(4) $145,444 $145,444 $145,237 $145,237 $145,315 $145,315 % DIFFERENCE
Number 0.0% 0.0% 0.0%
Average Age 0.0% 0.0% 0.2%
Average Eligibility Service 0.0% 0.9% 0.0%
Average Benefit Service 0.7% 0.0% 0.8%

AVERAGE
Expected salary for
7/1/2021-6/30/2022(4)

0.0% 0.0% 0.0%

21-D

Exhibit – A (continued)
City of San Jose Police and Fire Department Retirement Plan June 30, 2021 Valuation
Analysis of Participant Data

(1) 13 records in the Plan’s original data reported as actives were reclassified as non-vested terminated members based on the response to a data question raised by Cheiron. 1 record with very low service and no plan assignment was excluded from the valuation.

(2) If we were to include members’ “SADRO service” with their benefit service we would match Cheiron’s average benefit service exactly.

(3) Pensionable compensation rate and pensionable compensation are fields in the Plan’s original data and were not provided on Cheiron’s scrubbed data file.

(4) The expected salary for 2021/2022 has been calculated using a method consistent with that used by Cheiron and it is as follows:

Step One - An annualized salary was calculated by multiplying “Compensation Rate 2 Pensionable” times 365/14 and increased with one year of wage inflation (3.00%) and one-half year of merit.

Step Two – Pensionable Compensation was increased with one year of wage inflation (3.00%) and one year of merit.

Step Three – Expected Salary for 2021/2022 was calculated as the greater of the salaries calculated in Step One and Step Two. The assumed wage inflation was 3.00% and not the bargained increases of 4.25% and 3.85% for FYE 2022 for Fire and Police members, respectively.

21-E

Exhibit – A (continued)
City of San Jose Police and Fire Department Retirement Plan June 30, 2021 Valuation
Analysis of Participant Data

Retired & Disabled Member Data

Service Disability Non-Service Disability
Plan Cheiron Plan Cheiron

Number 851 851 33 33
Average Age 69.9 69.9 56.4 56.4
Total Annual Benefit(1) $89,229,827 $89,334,576 $1,957,135 $1,957,131 Average Annual Benefit $104,853 $104,976 $59,307 $59,307 % DIFFERENCE
Number 0.0% 0.0%
Average Age 0.0% 0.0%
Total Annual Benefit(1) 0.1% 0.0%
Average Annual Benefit 0.1% 0.0%

Retired Total Retired and Disabled
Plan Cheiron Plan Cheiron

Number 1,193(2) 1,193 2,077(2) 2,077
Average Age 65.0 65.0 66.9 66.9
Total Annual Benefit(1) $141,835,174 $142,259,827 $233,022,136 $233,551,560 Average Annual Benefit $118,890 $119,245 $112,192 $112,447 % DIFFERENCE
Number 0.0% 0.0%
Average Age 0.0% 0.0%
Total Annual Benefit(1) 0.3% 0.2%
Average Annual Benefit 0.3% 0.2%

(1) The annual benefit amount includes the COLA benefit for any corresponding QDRO record from the beneficiary file and is calculated as: Pension Amount + Annuity Amount + COLA Adjustment + QDRO COLA Adjustment. Cheiron did not reduce the benefit amount for 13 retirees and 1 service disabled whose benefit were in excess of 415 limit.

The total of those benefits in excess of 415 limit was $495,000.

(2) 1 retiree record had a duplicate in the Plan’s original data. We have excluded the duplicate record.

21-F

Exhibit – A (continued)
City of San Jose Police and Fire Department Retirement Plan June 30, 2021 Valuation
Analysis of Participant Data

Beneficiaries

Beneficiaries
Plan Cheiron

Number(1) 365 361(2)
Average Age 69.4 69.9
Total Annual Benefit(3) $17,916,832 $17,766,667
Average Annual Benefit $49,087 $49,215
% DIFFERENCE
Number(1) -1.1%
Average Age 0.7%
Total Annual Benefit(3) -0.8%
Average Annual Benefit 0.3%

(1) Does not include 122 records indicated in the beneficiary file with the indicator of “Q” for Qualified Domestic Relations Order or “QDRO”. We understand from Cheiron that the discrepancy in beneficiary count is due to alternate payees who have yet to start receiving benefits, but whose former spouses have retired and commenced benefits.

(2) In Cheiron’s November 5, 2021 data file, there were 365 beneficiaries, which matched the beneficiary count in the Plan’s data exactly. In Cheiron’s January 14, 2022 data file, there were 361 beneficiaries.

(3) None of the non-QDRO beneficiaries in the Plan’s data had benefits in excess of the 415 limit.

21-G

Exhibit – A (continued)
City of San Jose Police and Fire Department Retirement Plan June 30, 2021 Valuation
Analysis of Participant Data

Inactive Member Data

Terminated
Vested/Reciprocal
Tier 1 Tier 2 Total
Plan Cheiron Plan Cheiron Plan Cheiron

Number(1) 192 209 9 9 201 218
Average Age 46.4 46.7 33.5 33.4 45.8 46.2
Total Annual Benefit $5,261,922 $5,489,176 $37,702 $37,702 $5,299,624 $5,526,878 Average Annual
Benefit
$27,406 $26,264 $4,189 $4,189 $26,366 $25,353
Total Contribution
Balance with Interest(2)
$29,453,221 $27,453,613 $268,666 $208,271 $29,721,887 $27,661,884 Average Contribution
Balance with Interest
(2)
$153,402 $131,357 $29,852 $23,141 $147,870 $126,889
% DIFFERENCE
Number(1) 8.9% 0.0% 8.5%
Average Age 0.6% -0.3% 0.9%
Total Annual Benefit 4.3% 0.0% 4.3%
Average Annual
Benefit
-4.2% 0.0% -3.8%
Total Contribution
Balance with Interest
(2)
-6.8% -22.5% -6.9%
Average Contribution
Balance with Interest(2)
-14.4% -22.5% -14.2%

(1) We understand from Cheiron that the discrepancy in terminated vested counts is due to alternate payees who have yet to start receiving benefits, but whose former spouses have retired and commenced benefits.

(2) We have included the “Insurance Contributions with Interest” in the members’ contribution balances for the Plan.

21-H

Exhibit – A (continued)
City of San Jose Police and Fire Department Retirement Plan June 30, 2021 Valuation
Analysis of Participant Data

Inactive Member Data (continued)

Non-Vested
Terminated
Tier 1 Tier 2 Total
Plan Cheiron Plan Cheiron Plan Cheiron

Number(1) 28 28 101 101 129 129
Average Age 41.8 41.9 34.7 34.7 36.3 36.3
Total Contribution
Balance with Interest(2)
$1,917,857 $1,644,552 $1,162,073 $1,034,604 $3,079,930 $2,679,156 Average Contribution
Balance with Interest(2)
$68,495 $58,734 $11,506 $10,244 $23,875 $20,769
% DIFFERENCE
Number(1) 0.0% 0.0% 0.0%
Average Age 0.2% 0.0% 0.0%
Total Contribution
Balance with Interest
(2)
-14.3% -11.0% -13.0%
Average Contribution
Balance with Interest(2)
-14.3% -11.0% -13.0%

(1) 13 records in the Plan’s original data reported as actives were reclassified as non-vested terminated members based on the response to a data question raised by Cheiron.

(2) We have included the “Insurance Contributions with Interest” in the members’ contribution balances for the Plan.

21-I

Exhibit – A (continued)
City of San Jose Police and Fire Department Retirement Plan June 30, 2021 Valuation
Analysis of Participant Data

Inactive Member Data (continued)

Total Inactives
Tier 1 Tier 2 Total
Plan Cheiron Plan Cheiron Plan Cheiron

Number(1) 220 237 110 110 330 347
Average Age 45.8 46.1 34.6 34.6 42.1 42.5
Total Contribution
Balance with Interest(2)
$31,371,078 $29,098,165 $1,430,739 $1,242,875 $32,801,817 $30,341,040 Average Contribution
Balance with Interest(2)
$142,596 $122,778 $13,007 $11,299 $99,399 $87,438
% DIFFERENCE
Number(1) 7.7% 0.0% 5.2%
Average Age 0.7% 0.0% 1.0%
Total Contribution
Balance with Interest(2)
-7.2% -13.1% -7.5%
Average Contribution
Balance with Interest(2)
-13.9% -13.1% -12.0%

(1) 13 records in the Plan’s original data reported as actives were reclassified as non-vested terminated members based on the response to a data question raised by Cheiron. We understand from Cheiron that the discrepancy in terminated vested counts is due to alternate payees who have yet to start receiving benefits, but whose former spouses have retired and commenced benefits. There were 342 total inactives in Cheiron’s November 5, 2021 data file, compared to 347 total inactives in Cheiron’s January 14, 2022 data file.

(2) We have included the “Insurance Contributions with Interest” in the members’ contribution balances for the Plan.

5703779v2/09381.008 22-A

Exhibit – B
City of San Jose Police and Fire Department Retirement Plan June 30, 2021 Valuation
Test Life Comparison

ACTIVES
Testlife #1 Testlife #2 Testlife #3 Testlife #4
Police Tier 1 Police Tier 1 Fire Tier 1 Fire Tier 1
Cheiron Segal Cheiron Segal Cheiron Segal Cheiron Segal

Total PVB $2,013,088 $2,054,596 $1,567,488 $1,587,876 $2,254,868 $2,302,375 $1,955,316 $1,989,329 PV - Future Normal Costs $68,846 $66,953 $565,119 $545,866 $127,448 $125,843 $630,438 $614,867 Actuarial Accrued Liability $1,944,242 $1,987,643 $1,002,369 $1,042,009 $2,127,420 $2,176,532 $1,324,878 $1,374,462

RATIO OF SEGAL/CHEIRON
Total PVB 102% 101% 102% 102%
PV - Future Normal Costs 97% 97% 99% 98%
Actuarial Accrued Liability 102% 104% 102% 104%

ACTIVES
Testlife #5 Testlife #6 Testlife #7 Testlives #1-7
Police Tier 2 Fire Tier 2 Police Tier 1 Total Actives
Cheiron Segal Cheiron Segal Cheiron Segal Cheiron Segal

Total PVB $451,275 $439,201 $542,224 $545,603 $1,332,725 $1,355,593 $10,116,984 $10,274,573 PV - Future Normal Costs $391,872 $378,569 $484,500 $478,327 $491,541 $483,704 $2,759,764 $2,694,130 Actuarial Accrued Liability $59,403 $60,632 $57,724 $67,276 $841,184 $871,889 $7,357,220 $7,580,443

RATIO OF SEGAL/CHEIRON
Total PVB 97% 101% 102% 102%
PV - Future Normal Costs 97% 99% 98% 98%
Actuarial Accrued Liability 102% 117%(1) 104% 103%

5703779v2/09381.008 22-B

Exhibit – B (continued)
City of San Jose Police and Fire Department Retirement Plan June 30, 2021 Valuation
Test Life Comparison

INACTIVES
Testlife #8 Testlife #9 Testlife #10 Testlife #11 Testlife #12 Testlives #8-12 Retired Police
Tier 1
Retired Fire
Tier 1
Disability Fire
Tier 1
Deferred Police
Tier 1
Reciprocal Fire
Tier 2 Total Inactives
Cheiron Segal Cheiron Segal Cheiron Segal Cheiron Segal Cheiron Segal Cheiron Segal

Total PVB $257,816 $262,909 $515,025 $522,382 $2,087,748 $2,105,028 $408,990 $410,655 $29,475 $25,616 $3,299,054 $3,326,590

RATIO OF SEGAL/CHEIRON
102%(2) 101% 101% 100% 87%(3) 101%

(1) The dollar amount of the difference in Actuarial Accrued Liability for Testlife #6 is small. Differences between Cheiron’s calculation and Segal’s calculation are primarily due to differences in procedures and methods used by Segal and Cheiron and therefore not a concern.

(2) Segal’s PVB is higher than Cheiron’s PVB for Testlife #8 because we value the $1,000 post-retirement death benefit for retirees eligible for a life annuity benefit, and assume beginning-of-month payment timing while Cheiron assumes end-of-month payment timing.

(3) We have assumed age 60 for the Tier 2 deferred retirement age, as confirmed by Cheiron, and pro-rated the COLA for the first year of retirement. There are no insurance contributions in the data for Testlife #12. If we were to assume age 57 as shown in the 2021 valuation report, and not pro-rate the COLA for the first year of retirement, the ratio of Segal to Cheiron’s PVB would be 101% for Testlife #12.

5703779v2/09381.008 23-A

Exhibit – C
City of San Jose Police and Fire Department Retirement Plan June 30, 2021 Valuation
Comparison of Results
(All Dollar Amounts are in Thousands)

PRESENT VALUE OF

FUTURE BENEFITS
(PVB)
Fire Tier 1 Police Tier 1 Fire Tier 2 Police Tier 2 Total Cheiron Segal Cheiron Segal Cheiron Segal Cheiron Segal Cheiron Segal

Actives(1) $876,168 $889,229 $1,027,171 $1,045,389 $107,263 $108,784 $250,296 $248,708 $2,260,898 $2,292,110 Retirees 1,324,250 1,335,979 2,448,841 2,470,148 0 0 0 0 3,773,091 3,806,127 Inactive Vesteds 11,139 10,526 90,064 87,923 95 101 1,171 1,332 102,469 99,882 Total PVB $2,211,557 $2,235,734 $3,566,076 $3,603,460 $107,358 $108,885 $251,467 $250,040 $6,136,458 $6,198,119

RATIO OF SEGAL/CHEIRON
Actives(1)

101%

102%

101%

99%

101%
Retirees

101%

N/A

101%
Inactive Vesteds

94%

98%

106%(2)

114%(2)

97%
Total PVB 101% 101% 101% 99% 101%

(1) Cheiron’s Statement of Actuarial Assumptions and Methods (page 57 of their 2021 valuation report) says that wage inflation will reflect currently bargained increases for FYE 2022 of 4.25% for Fire members and 3.85% for Police members. However, in estimating the 2021/2022 salaries in the January 14, 2022 data file, Cheiron used a wage inflation assumption of 3.00% for all members. We estimate that reflecting these bargained inc reases in the estimated 2021/2022 salaries would increase active Fire liabilities by about 1.2% and active Police liabilities by ab out 0.8%. However, we have used Cheiron’s projected salaries from the January 14, 2022 data file to calculate the Plan’s liabilities. (2) If we had assumed age 57 for Tier 2 deferred retirement age, excluded insurance contributions from members’ contributi on balances, and not pro-rated the COLA for the first year of retirement, the ratio of Segal’s to Cheiron’s PVB would be 99% and 103% for Fire Tier 2 and Po lice Tier 2, respectively.

5703779v2/09381.008 23-B

Exhibit – C (continued)
City of San Jose Police and Fire Department Retirement Plan June 30, 2021 Valuation
Comparison of Results

Fire Tier 1 Police Tier 1 Fire Tier 2 Police Tier 2 Total CONTRIBUTION RATES Cheiron Segal Cheiron Segal Cheiron Segal Cheiron Segal Cheiron(1) Segal

1. Normal Cost Rate (excl. admin. exp.) 43.58% 43.41% 40.15% 38.78% 30.08% 30.32% 28.42% 28.14%

2. Member Normal Cost Rate 11.82% 11.78% 10.68% 10.33% 15.04% 15.16% 14.21% 14.07%

3. Net City Normal Cost Rate (1. - 2.) 31.76% 31.63% 29.47% 28.45% 15.04% 15.16% 14.21% 14.07%

4. Total Admin Expenses Rate 2.87% 2.88% 4.06% 4.05% 0.76% 0.76% 1.02% 1.04%

5. Member Admin Expenses Rate 0.29% 0.32% 0.29% 0.28% 0.38% 0.38% 0.51% 0.52%

6. City Admin Expenses Rate (4. - 5.) 2.58% 2.56% 3.77% 3.77% 0.38% 0.38% 0.51% 0.52%

7. Total UAAL Rate -0.48% -0.16% -0.70% -0.60%

8. Member UAAL Rate 0.01% 0.01% 0.06% 0.06% -0.24% -0.08% -0.35% -0.30%

9. City UAAL Rate (Payment for Tier 1) $69,689 $72,856 $76,350 $79,759 -0.24% -0.08% -0.35% -0.30%

10. Total Member Rate (2. + 5. + 8.) 12.12% 12.11% 11.03% 10.67% 15.18% 15.46% 14.37% 14.29% 12.87% 12.77%

11. Total City Rate (3. + 6. + 9.) 15.18% 15.46% 14.37% 14.29% 81.51% 83.69%

5703779v2/09381.008 23-C

Exhibit – C (continued)
City of San Jose Police and Fire Department Retirement Plan June 30, 2016 Valuation
Comparison of Results

Fire Tier 1 Police Tier 1 Fire Tier 2 Police Tier 2 Total RATIO OF SEGAL/CHEIRON Cheiron Segal Cheiron Segal Cheiron Segal Cheiron Segal Cheiron(1) Segal

1. Normal Cost Rate (excl. admin. exp.) 100% 97% 101% 99%

2. Member Normal Cost Rate 100% 97% 101% 99%

3. Net City Normal Cost Rate (1. - 2.) 100% 97% 101% 99%

4. Total Admin Expenses Rate 100% 100% 100% 102%

5. Member Admin Expenses Rate 110% 97% 100% 102%

6. City Admin Expenses Rate (4. - 5.) 99% 100% 100% 102%

7. Total UAAL Rate 33%(2) 86%(2)

8. Member UAAL Rate 100% 100% 33%(2) 86%(2)

9. City UAAL Rate (Payment for Tier 1) 105% 104% 33%(2) 86%(2)

10. Total Member Rate (2. + 5. + 8.) 100% 97% 102% 99% 99%

11. Total City Rate (3. + 6. + 9.) 102% 99% 103%

(1) While we were able to locate and opine on Cheiron’s calculations for the total City contribution rate of 81. 51% as provided on page 9 of their report, we were not able to locate Cheiron’s breakdown of the total City contribution rate between the normal cost rate and the UAAL contribution rate.

As Cheiron did not include the breakdown of the total normal cost rate and UAAL rate for each of the City and the member s in their report, in the table above we only show the ratios of the normal cost rate and the UAAL contribution rate for the City and the members for Tier 1 and Tier 2 for each of Police and Fire separately, and not in the total.
(2) The Tier 2 UAAL dollar contribution amount is small compared to the total Tier 2 contribution amount. Differences between Cheiron’s calculation and Segal’s calculation are primarily due to differences in procedures and methods used by Segal and Cheiron and therefore not a concer n.

5703779v2/09381.008 23-D

Exhibit – C (continued)
City of San Jose Police and Fire Department Retirement Plan June 30, 2021 Valuation
Comparison of Results

UNFUNDED

ACTUARIAL

LIABILITY
Fire Tier 1 Police Tier 1 Fire Tier 2 Police Tier 2 Total Cheiron Segal Cheiron Segal Cheiron Segal Cheiron Segal Cheiron Segal

Present Value of
Future Benefits
$2,211,557 $2,235,734 $3,566,076 $3,603,460 $107,358 $108,885 $251,467 $250,040 $6,136,458 $6,198,119 PV Future NC
Contributions
210,825 210,137 193,693 188,065 89,119 89,662 201,162 198,876 694,799 686,740 Actuarial Accrued
Liability
2,000,732 2,025,597 3,372,383 3,415,395 18,239 19,223 50,305 51,164 5,441,659 5,511,379 Current Assets at
Actuarial Value
See note(1) See note(1) See note(1) See note(1) 19,776 19,776 56,345 56,345 4,210,447 4,210,447 UAAL See note(1) See note(1) See note(1) See note(1) -1,537 -553 -6,040 -5,181 1,231,212 1,300,932 Total UAAL Rate -0.48% -0.16% -0.70% -0.60%

RATIO OF SEGAL/CHEIRON
Present Value of
Future Benefits

101%

99%

101%
PV Future NC
Contributions

100%

97%

101%

99%

99%
Actuarial Accrued
Liability

101%

105%

102%

101%
Current Assets at
Actuarial Value
100%

100%

100%
UAAL 105%

105%

36%(2)

86%(2)

106%
Total UAAL Rate

33%(2)

86%(2)

5703779v2/09381.008 23-E

Exhibit – C (continued)
City of San Jose Police and Fire Department Retirement Plan June 30, 2021 Valuation
Comparison of Results

(1) The combined AVA and UAAL for Tier 1 Police and Fire are as follows:

Tier 1 Cheiron Segal
Current Assets at Actuarial Value $4,134,326 $4,134,326 UAAL 1,238,789 1,306,666

(2) The Tier 2 UAAL dollar contribution amount is small compared to the total Tier 2 contribution amount. Differences between Cheiron’s calculation and Segal’s calculation are primarily due to differences in procedures and methods used by Segal and Cheiron and therefore not a concern.

5703779v2/09381.008 24-A

Exhibit – D
City of San Jose Police and Fire Department Retirement Plan Recommended Action Items Before June 30, 2022 Valuation

• In developing the economic assumptions for the 2022 valuation, Cheiron should consider providing additional documentation on their recommended investment return and wage inflation assumptions. Cheiron should consider some provisions for payment of future investment expenses when they review the investment return assumption. • The Board might want to consider their deliberation of the economic assumptions before (or just immediately) after the date of the valuation.
• The Plan should request a copy of Cheiron’s final membership data used in the valuation so that any differences could be reviewed and confirmed by the Plan to be accurate and reasonable before the next valuation. • Cheiron should discuss with the Plan whether (and if so, for which members) the insurance contributions in the Plan’s data should be included in members’ contribution balances in the 2022 valuation. • Cheiron should reflect any currently bargained across-the-board increases in the projected salaries used in the 2022 valuation, unless Cheiron modifies their Statement of Actuarial Assumptions to say that such increases are not reflected in their valuation assumption of wage inflation.
• Cheiron should document the assumption that all employees are assumed to earn 1 year of service between valuations. • Cheiron should consider modifying the reciprocity assumption at the next experience study to account for reciprocal terminations for Tier 1 actives who have less than 10 years of service and Tier 2 actives who have less than 5 years of service. • Cheiron should prorate the COLA for Tier 2 members in the 2022 valuation. • Cheiron should take the IRC Section 415 limitation into account in the 2022 valuation. • Cheiron should value the $1,000 post-retirement death benefit to current retirees eligible for a life annuity benefit, and add this benefit to the plan provisions in the 2022 valuation.
• Cheiron should review that the correct Tier 2 terminated vested retirement age assumption is used in the valuation system and stated in the valuation report in the 2022 valuation.
• Cheiron should consider modifying their Tier 1 terminated vested retirement age assumption to require that 20 years have passed since the member first became a member of the Plan.

5703779v2/09381.008 24-B

Exhibit – D (continued)
City of San Jose Police and Fire Department Retirement Plan Recommended Action Items Before June 30, 2022 Valuation

• Cheiron should consider comparing the value of a member’s deferred retirement benefit to the member’s account balance. • Cheiron should refine the language in the plan provisions and actuarial assumptions and methods in the 2022 valuation, as described in items #7-10 on pages 10-11 of this report.
• Cheiron should describe that the cost for reciprocal benefits is excluded when they calculate the member contributions for Tier 1 for each of Police and Fire in Appendix C (summary of plan provisions section) in the 2022 valuation. • For any future actuarial audits, Cheiron should inform the auditing actuary of any changes to their final data file after its delivery to the auditing actuary, and deliver any revised data file as soon as possible.

San Jose City CouncilApril 26, 2022

San Jose City Council
April 26, 2022