Portsmouth retirement funds: OPEB 56% funded; pension plan 71.5% after 2024; board to review assumptions

Portsmouth officials received updates on retiree benefit finances and investment performance at the retirement board meeting, where staff said the city's retiree health trust (OPEB) was 56% funded and the pension plan's funded status was 71.5% as of Dec. 31, 2024.

The discussion focused on when OPEB would cover benefit payouts instead of the general fund, the actuary's assumed investment return, recent portfolio changes and manager performance. Board members and consultants also described a partial real-estate exit that returned cash for benefit payments.

Trey, a staff member, reported the OPEB account was "at a 56% funded status with a $19,000,000, $19,400,000 liability and a $10,900,000, asset." He said he did not know of any current benefit payments being made from the OPEB assets and that roughly $1.2 million a year had been paid in benefits but the source (OPEB assets versus general fund) was not clear from the materials he had. Trey told the board he would follow up with BACO and provide a projected fully funded date by the board's next meeting.

Jim, an investment consultant, framed the city's decision to prefund OPEB as ahead of common practice: "I give the city a lot of credit, for putting money, aside into this plan, to eventually cover those benefits." Jim said many local governments still "pay as you go" and do not set aside assets.

On the pension plan, a representative from John Hancock said the plan's funded status reconciliation for the fourth quarter stood at 71.5% as of Dec. 31, 2024, a slight pullback from earlier months but with positive performance in the opening weeks of 2025. John Hancock staff described plan demographics including the number of retirees in paid status and participants with vested but not-yet-started benefits, and noted participant education webinars provided by John Hancock.

Investment consultant Brian said the investment team would bring a discussion of the actuary's 7.25% assumed rate of return to the next board meeting. "I would suspect we can probably tee up the topic at the next board meeting and sort of frame the issues at a general level," he said, adding the conversation would likely take place over multiple meetings rather than be decided immediately. Brian and Jim noted that while the plan has met the 7.25% assumption in many recent years, current equity valuations make future returns more uncertain.

Consultants outlined several portfolio changes made in mid-2024: introduction of a global equity manager with the authority to shift weight between U.S. and non-U.S. stocks, a benchmark change effective Jan. 1, 2025 that increases small-cap weighting to better match the portfolio's construction, and active manager adjustments intended to diversify away from the heavy concentration in a handful of large U.S. technology stocks. Brian said the global manager holds roughly 10% exposure to technology versus about 25% in the global equity benchmark.

On alternatives, the board's target allocation remains about 8%. Brian reported the retirement system recovered roughly $1.6 million from a real-estate investment near the end of last year as part of an intended step back from certain office-related holdings. That cash will be used to pay benefit obligations.

Performance notes: consultants said the portfolio underperformed benchmark in the fourth quarter of 2024 but began 2025 with positive relative performance. Brian summarized early 2025 performance as roughly +4% on the equity side and +0.15% for bonds, with a blended gain of approximately 2.5% for the period mentioned during the meeting.

Board business and next steps: the board did not have a quorum and therefore "passed on the approval of minutes," Mark Gardner said during roll call. Brian told the board the consultants would prepare materials for the next meeting to frame the assumed-rate review, and Trey pledged to follow up with BACO on the projected fully funded date for OPEB. The board scheduled the next meeting for May 1.

The meeting record shows substantive operational and policy items remain under review: when to begin funding benefit payouts from OPEB assets rather than the general fund; whether to revisit the actuary's 7.25% investment-return assumption; and continued portfolio rebalancing to address concentration risk and return objectives.

(Reporting note: figures and statements above are taken from board presenters and consultants during the meeting.)