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Palatka pension plan posts strong investment year; consultant recommends 7.4% long-term return
Summary
A consultant told the Palatka Pension Board that plan assets rose and the actuarial funding requirement dropped from 30.7% to 27.6% of payroll, driven by strong investment returns and higher payroll. The consultant recommended a 7.4% assumed rate of return for budgeting and long‑term projections.
Patrick, the actuarial consultant for the Palatka Pension Board, reported that the pension plan had a strong fiscal year and recommended a 7.4% long-term rate of return for budgeting and valuation work.
The consultant told the board the plan held about $19 million in market value at the start of the year, that the investment team expected roughly $1.0 million in earnings but actually realized about $4.0 million, and that the excess earnings will be recognized over five years. “We actually earned $2,992,000 extra earnings more than what we expected to earn,” Patrick said. He added, “we're gonna recognize $598,000 each year for the next 5 years.”
The report presented two accounting measures of return: a five‑year smoothed (actuarial) return of about 6.6%, which produced an actuarial loss of roughly $284,000 when smoothing and prior losses were included, and a market return that was substantially higher for the year. Board materials showed the funded ratio rising from 72.9% to 74.9% and the city’s required contribution falling from 30.7% of payroll for the current year to 27.6% of payroll for the next fiscal year.
Board members and staff discussed why the required contribution dropped. Patrick said hiring 35 new employees during the valuation year increased the payroll base, spreading fixed amortization payments over a larger payroll and reducing the percentage cost to the city. He also noted higher-than-expected turnover during the year reduced liabilities because departing, nonvested employees receive only their contributions.
The board reviewed actuarial smoothing rules that spread gains and losses over multiple years; Patrick explained that a $2.99 million gain this year will be recognized at $598,000 per year over five years but that a prior $5.5 million loss remains being recognized under the five‑year smoothing schedule. He described how those smoothing rules converted the market-year gains into a modest actuarial loss for the valuation year.
On investment strategy, the consultant reviewed asset-class performance (large-cap, mid-cap, small-cap and fixed income), noting recent quarters of mixed returns and explaining how bond duration and coupon interact with current yields. He said long-term asset allocations remain designed to achieve the board’s assumed return objective.
A board member asked whether the 7.4% assumption should change; Patrick said, “I'm comfortable with the 7.4% right now,” and described that figure as the recommendation for next year’s budget and for long-term projections. A motion to accept the consultant's recommendation was made and seconded during the meeting; the vote tally and final roll-call were not recorded in the provided transcript.
The board also asked for and was offered an electronic copy of the full valuation and supporting schedules. The consultant flagged several pages for follow-up questions: turnover and DROP movement details, the reconciliation of the unfunded actuarial accrued liability, and the reconciliation of market versus actuarial asset returns.
Board members indicated the 27.6% contribution rate should be used for the city’s upcoming budget process. The consultant said he would circulate the complete valuation report to members after the meeting.
