TO: HONORABLE MAYOR
AND CITY COUNCIL
FROM: John Flynn
SUBJECT: See Below DATE: March 14, 2025
COUNCIL DISTRICT: Citywide
SUBJECT: Review of the Retirement Plans’ Pension and Postemployment Healthcare Plan Actuarial Valuations as of June 30, 2024
RECOMMENDATION
Review the following actuarial valuation reports (links to the reports are included):
1. Federated City Employees’ Retirement System Actuarial Valuation (Pension) as of June 30, 2024 https://www.sjretirement.com/Resources/8a68e7ee-a272- 4781-b71b-c86ec0df008d/2024.pdf; and
2. Federated City Employees’ Retirement System Postemployment Healthcare Plan Actuarial Valuation (OPEB) as of June 30, 2024
https://www.sjretirement.com/Resources/5f7b704e-9de3-4d64-a401- 6a18e1c9577e/2024.pdf; and
3. Police and Fire Department Retirement Plan Actuarial Valuation (Pension) as of June 30, 2024 https://www.sjretirement.com/Resources/34e18047-1ca7-4b13- bc3d-fabe9940ed29/2024.pdf; and
4. Police and Fire Department Postemployment Healthcare Plan Actuarial Valuation (OPEB) as of June 30, 2024
https://www.sjretirement.com/Resources/cd6aa067-7621-4fcb-8df9- 3d1ebe9d2217/2024.pdf.
SUMMARY AND OUTCOME
Council review of the Federated City Employees’ Retirement System Actuarial Valuations for the Pension Plan and Postemployment Healthcare Plan as of June 30, 2024 and the Police and Fire Department Retirement Plan Actuarial Valuations for the COUNCIL AGENDA: 4/8/25
FILE: 25-332
ITEM: 3.4
HONORABLE MAYOR AND CITY COUNCIL
March 14, 2025
Subject: Retirement Plans’ Actuarial Valuations
Pension Plan and Postemployment Healthcare Plan as of June 30, 2024 (collectively “Valuations”) will provide relevant financial information to the Council for the two retirement plans and ensure the Council is properly informed on the retirement plans’ funding status and retirement benefit costs for the City.
BACKGROUND
The Valuations provide detailed information regarding the actuarial value of the assets and pension and Other Postemployment Employee Benefit (“OPEB”) liability of the Retirement Plans as of June 30, 2024. The information is used to determine the employee and employer’s contribution rates in the next fiscal year and are generally divided into the following sections:
• A Summary Section intended to recap the most important information of the report;
• Risk and Certification Sections to identify, explain and assess the risks to the plan, as well as certify the report;
• An Asset Section that details the calculation of the actuarial value of the plans’ assets;
• A Liability Section that discloses the present value of all future benefits, normal cost and changes in unfunded actuarial liabilities;
• A Contribution Section that details the effects of assumption changes on the contribution rates and amortization of unfunded liabilities; and • An Actuarial Section of the Annual Comprehensive Financial Report (“ACFR”) which contains schedules that are required reporting by the Governmental Accounting Standards Board for the ACFR.
ANALYSIS
The Valuations were prepared by the Boards’ Actuarial Consultant, Cheiron Inc. The report and its contents have been prepared in accordance with generally recognized and accepted actuarial principles and practices which are consistent with the Code of Professional Conduct and applicable Actuarial Standards of Practice set out by the Actuarial Standards Board. The credentialed actuaries who prepared the reports meet the Qualification Standards of the American Academy of Actuaries to render the opinion contained in the reports.
For the Pension Valuations as of June 30, 2024, the following are the key actuarial results, as compared to the results from the June 30, 2023 Valuations. Funding ratio on an actuarial valuation basis increased for both plans for pension. The increase in the funded status is mainly due to the increases in the actuarial value, which is due to the asset smoothing method recognizing 20% of the gains from the most recent fiscal year.
HONORABLE MAYOR AND CITY COUNCIL
March 14, 2025
Subject: Retirement Plans’ Actuarial Valuations
$ Amounts in millions Federated Police and Fire
PENSION Valuation Date 2024 2023 2024 2023
Actuarial Liability $5,137.9 $4,965.7 $6,132.8 $5,908.6 Actuarial Value $3,116.8 $2,890.0 $5,013.6 $4,739.7
UAL $2,021.1 $2,075.7 $1,119.2 $1,168.8
Funded Ratio 60.7% 58.2% 81.8% 80.2%
The following is a summary of the contribution rates shown in the pension actuarial valuations. Both Boards will approve contribution rates at their May meetings. Amounts shown below are contribution amounts throughout the year.
PENSION Federated Police Fire
FY25-26 FY25-26 FY25-26
Member Contribution Rates
Tier 1 Member 6.55% 10.43% 12.00%
Tier 2 Member 8.62% 13.55% 15.01%
City Contributions
Tier 1 UAL Payment $180.1 million
$143.2 million $10.1 million
Tier 1 Admin Expenses $5.9 million
$4.4 million $3.6 million
Tier 1 Normal Cost $23.6 million
18.56%
$19.4 million
28.67%
$20.8 million
32.23%
Tier 2 Contribution $32.2 million
8.62%
$15.5 million
13.55%
$7.1 million
15.01%
Total City Contribution $241.8 million
48.27%
$182.5 million
100.26%
$41.6 million
37.19%
The funding ratio for all pension and OPEB plans increased from the Valuations as of June 30, 2023 to the Valuations as of June 30, 2024. While the actuarial liability for all plans increased, the asset sizes increased at a greater rate, thus resulting in a decrease in UAL and an increase in the funded ratios.
$ Amounts in
thousands
Federated Police Fire
OPEB Valuation
Date – Explicit
Subsidy Only
2024 2023 2024 2023 2024 2023
Actuarial Liability $643.6 $634.0 $501.9 $495.3 $297.8 $296.2 Assets $413.5 $374.6 $218.9 $191.7 $125.3 $107.7
UAL $230.1 $259.4 $283.0 $303.6 $172.5 $188.5
Funded Ratio 64.3% 59.1% 43.6% 38.7% 42.1% 36.4%
HONORABLE MAYOR AND CITY COUNCIL
March 14, 2025
Subject: Retirement Plans’ Actuarial Valuations
With the implementation of Measure F in 2017, health contribution rates were fixed at
7.5% of pensionable pay for Federated members and 8.0% of pensionable pay for Police and Fire members. The City’s contribution toward the explicit subsidy is actuarially determined on an annual basis; and the City will also pay the implicit subsidy based on a pay-as-you-go basis as a part of active health premiums. In addition, the City has an option to limit its contribution to 14% of pensionable payroll for Federated and 11% of pensionable payroll for Police and Fire.
OPEB Federated Police Fire
FY25-26 FY25-26 FY25-26
Member Contribution Rates
Federated Member 7.50% N/A N/A
Police and Fire Member N/A 8.0% 8.0%
Explicit Subsidy Members $8.5 million $4.8 million $4.5 million City Contribution Rates
Estimated City Optional Cap
(Explicit Subsidy – 14% for Fed
and 11% for PF of pensionable
payroll)
$65.5 million $32.3 million
Actuarially Determined Amount
(Explicit Subsidy)
$21.9 million $19.4 million $12.7 million
City’s Implicit Subsidy Payment $7.0 million $4.1 million $1.8 million City’s Total Payment for
Healthcare (Explicit + Implicit
Subsidy)
$28.9 million $23.5 million $14.5 million
EVALUATION AND FOLLOW-UP
The Office of Retirement Services staff will present the Retirement Plans’ Valuations on an annual basis to the City Council per the recommendation of the City Auditor’s report on Pension Sustainability (Audit #10-10) to update the Council on the financial status of the Retirement Plans.
COORDINATION
Production of the Valuations was coordinated with the Board of Administration for the Federated City Employees Retirement System, the Board of Administration for the Police and Fire Department Retirement Plan, the City Manager’s Office, and the City Manager’s Office of Employee Relations.
HONORABLE MAYOR AND CITY COUNCIL
March 14, 2025
Subject: Retirement Plans’ Actuarial Valuations
PUBLIC OUTREACH
This memorandum will be posted on the City’s Council Agenda website for the March 11, 2025 City Council meeting.
Outreach was undertaken for this item in addition to the agenda posting described above. These outreach efforts are described below.
These Valuations and audits of the Valuations were presented to the Federated System and Police and Fire Boards at their meetings from October through February, which were open to the public.
COMMISSION RECOMMENDATION AND INPUT
No commission recommendation or input is associated with this action.
CEQA
Not a Project, File No. PP17-009, Staff Reports, Assessments, Annual Reports, and Informational Memos that involve no approvals of any City action.
PUBLIC SUBSIDY REPORTING
This item does not include a public subsidy as defined in section 53083 or 53083.1 of the California Government Code or the City’s Open Government Resolution.
John Flynn
Chief Executive Officer,
Office of Retirement Services
For questions, please contact Benjie Chua Foy, Accounting Division Manager, Office of Retirement Services, at email [email protected].