BOSTON CHICAGO LONDON NEW YORK PORTLAND SAN DIEGO MEKETA.COM Public Safety, Finance, and
Strategic Support Committee
(PSFSS) Meeting
SanJose Federated City Employees’ Retirement System
San Jose Police & Fire Department Retirement Plan
December 5, 2024
SanJose Federated City Employees’ Retirement Systemand San JosePolice& FireDepartment Retirement Plan Public Safety, Finance, and Strategic Support Committee (PSFSS) Meeting Asset Allocation–The Most Important Determinant of Return
SanJose Federated City Employees’ Retirement Systemand San JosePolice& FireDepartment Retirement Plan Public Safety, Finance, and Strategic Support Committee (PSFSS) Meeting → The San Jose Federated City Employees’ Retirement System investment return ranked in the top third of the peer group for the calendar year-to-date time period and at the median of the peer group for the past year. For the longer-term periods of three and five years ending June 30, 2024, the Retirement System’s annualized returns ranked in the top quartile and top decile of the peer group, respectively. The peer group included 95 public defined benefit pension plans with market values over $1 billion.
SanJose Federated City Employees’ Retirement Systemand San JosePolice& FireDepartment Retirement Plan Public Safety, Finance, and Strategic Support Committee (PSFSS) Meeting → The City of San Jose Police and Fire Department Retirement Plan investment returns ranked in the top half of the peer group for the calendar year-to-date time period and for the past year. For the longer-term periods of three and five years ending June 30, 2024, the Retirement Plan’s annualized returns ranked in the top third of the peer group. The peer group included 95 public defined benefit pension plans with market values over $1 billion.
SanJose Federated City Employees’ Retirement Systemand San JosePolice& FireDepartment Retirement Plan Public Safety, Finance, and Strategic Support Committee (PSFSS) Meeting Appendix
SanJose Federated City Employees’ Retirement Systemand San JosePolice& FireDepartment Retirement Plan Public Safety, Finance, and Strategic Support Committee (PSFSS) Meeting → The chart above illustrates that a portfolio comprised of 65% domestic stocks and 35% investment grade bonds has produced diminishing expected returns, as well as actual returns, over the past 30 years. 1 Expected return assumptions for 1) Bonds equals the yield of the ten-year Treasury plus 100 basis points, and 2) Equities equals the dividend yield plus the earnings yield of the S&P 500 index (using the inflation-adjusted trailing 10-year earnings).
Probability calculation is for the subsequent ten years. 0%
20%
40%
60%
80%
100%
16%
14%
12%
10%
8%
6%
4%
2%
0%
There Has Been a Decline in Available Investment Returns1 18%
1980 1985 1990 1995 2000 2005 2010 2015 2020 2024
Equity Expected Return 16.6% 15.0% 8.9% 7.9% 3.5% 5.3% 6.7% 7.6% 6.4% 4.9% Bond Expected Return 12.4% 11.6% 9.6% 7.6% 7.0% 5.3% 4.2% 3.3% 2.9% 4.9% 65/35 Eq/Bond Exp. Ret. 15.4% 14.1% 9.4% 8.1% 5.0% 5.6% 6.1% 6.4% 5.5% 5.1% Actual 10-year Return 15.5% 12.8% 14.3% 10.8% 2.4% 6.9% 10.3% Probability of Earning 7.0% 99% 98% 74% 61% 29% 35% 40% 43% 33% 29% Probability
Percent Return
SanJose Federated City Employees’ Retirement Systemand San JosePolice& FireDepartment Retirement Plan Public Safety, Finance, and Strategic Support Committee (PSFSS) Meeting Federated Discount Rate History
10 Year US Treasury Rate Discount Rate Fiscal Year Return1 Excess Performance to Discount Rate Years Fiscal Year (%) (%) (%) (%)
1997 6.51 8.25
1 2015 2.35 7.00 -1.0 -8.0
2 2016 1.49 6.875 -0.7 -7.6
3 2017 2.31 6.875 7.5 0.6
4 2018 2.85 6.75 5.9 -0.9
5 2019 2.00 6.75 4.3 -2.5
6 2020 0.66 6.75 3.6 -3.2
7 2021 1.45 6.625 29.2 22.6
8 2022 2.98 6.625 -4.4 -11.0
9 2023 3.81 6.625 7.5 0.9
10 2024 4.39 6.625 9.7 3.1
2015
Source: ORS, Meketa.
→ The Federated System has had an average annual return for the past 10 years of 5.8%. Financial optimizers typically project a 50% probability of meeting the expected returns each year, so we would expect that approximately half of the time investments will outperform the expected return, and approximately half of the time, investments will lag the projected return.
-1.0% -0.7% -4.4%
7.0% 6.9% 7.5%6.9% 5.9%6.8% 4.3%6.8% 3.6%6.8% 6.6% 6.6% -8.0% -7.6%
0.6%
-0.9% -2.5% -3.2%
22.6%
7.5%6.6%0.9%
9.7%6.6%3.1%
Plan Return versus Discount Rate 29.2%
-
11.0%
2016 2017 2018 2019 2020 2021 2022 2023 2024
Fiscal Return Discount Rate Excess Return
1 Fiscal Year Ends 6/30. Returns are net of fund management fees.
SanJose Federated City Employees’ Retirement Systemand San JosePolice& FireDepartment Retirement Plan Public Safety, Finance, and Strategic Support Committee (PSFSS) Meeting Police & Fire Discount Rate History
10 Year
US Treasury Rate Discount Rate Fiscal Year Return1
Excess Performance to
Discount Rate
Years Fiscal Year (%) (%) (%) (%)
1997 6.51 8.00
1 2015 2.35 7.00 -1.0 -8.0
2 2016 1.49 6.875 -0.6 -7.5
3 2017 2.31 6.875 9.7 2.8
4 2018 2.85 6.75 6.9 0.2
5 2019 2.00 6.75 4.3 -2.5
6 2020 0.66 6.75 3.1 -3.7
7 2021 1.45 6.625 26.3 19.7
8 2022 2.98 6.625 -5.0 -11.6
9 2023 3.81 6.625 7.7 1.1
10 2024 4.39 6.625 9.7 3.1
2015
Source: ORS, Meketa.
→ The Police & Fire Plan has had an average annual return for the past 10 years of 5.8%. Financial optimizers typically project a 50% probability of meeting the expected returns each year, so we would expect that half of the time, investments will outperform the expected return, and half the time, investments will lag the projected return. -1.0% -0.6%
-5.0%
7.0% 6.9% 6.9%6.8% 4.3%6.8% 3.1%6.8% 6.6% 6.6%
-8.0% -7.5%
9.7%6.9%
2.8% 0.2%
-2.5% -3.7%
7.7%6.6%
1.1%
9.7%6.6%
3.1%
-
11.6%
2016 2017 2018 2019 2020 2021 2022 2023 2024
Plan Return versus Discount Rate
Fiscal Return Discount Rate Excess Return 26.3%
19.7%
1 Fiscal Year Ends 6/30. Returns are net of fund management fees.
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