Federated board receives final OPEB valuation showing funded ratio improvement and smaller unfunded liability

The San Jose Federated Retirement System board unanimously voted Jan. 16 to receive the final actuarial valuation of its other post-employment benefits plan (OPEB), which shows a funding improvement driven by investment gains and continued employer contributions.

Actuarial consultants from Chiron presented the results. The valuation covers liabilities and assets through fiscal year 2024 and develops the city’s contribution requirement for fiscal 2026, not member contribution rates, which remain fixed at 7.5% of pay for eligible employees.

Consultant Bill (Chiron) and Jackie King (Chiron) told trustees the OPEB plan’s actuarial value rose and the funded ratio increased from 59.1% to 64.3% over the year. The plan’s unfunded actuarial liability fell from $259,000,000 to $230,000,000, a change driven largely by investment earnings and higher-than-minimum employer contributions, the consultants said.

The valuation shows projected dynamics different from the pension plan because the OPEB benefit tier for full benefits is closed to new entrants. Chiron projected the plan’s actuarial liability to peak in roughly eight years and then decline. If assumptions hold, the consultants said the original unfunded liability is expected to be substantially paid off by about 2038.

Chiron’s presentation broke the changes in the unfunded actuarial liability into components: strong investment returns produced approximately $15 million of favorable experience; contribution levels above the “trade order” rate reduced the liability; and medical trend assumption updates were modestly favorable compared with the prior valuation. Offsetting items included higher-than-expected premiums for some Medicare-eligible retirees; net demographic experience was roughly neutral.

The consultants noted membership shifts: the population eligible for full OPEB benefits is aging and slowly declining in count as newer hires enter a catastrophic-disability-only tier. Projections show benefit payments rising for the next 15–18 years before gradually declining as the closed cohort runs off; catastrophic-disability payments are expected to remain a very small portion of total benefits and cease at age 65 for those recipients.

Chiron warned trustees that the OPEB plan will face increasing liquidity needs as benefit payments grow faster than contributions in coming years, requiring coordination with investment policy and possibly a review of asset allocation to meet cash-flow requirements.

Trustee Linder moved to receive the report; Trustee Abbott seconded. Trustees voted by roll call; all trustees voted aye and the board recorded unanimous approval to receive the valuation.

Consultants recommended the board revisit the OPEB funding policy within a few years to consider options for surplus use, amortization design and liquidity requirements now that the plan’s liability profile has shifted. The board and consultants noted the smaller scope for surplus uses in a closed benefit group and recommended continued monitoring of Medicare- and health-care-related assumption risk.

Chiron also reminded trustees that the valuation does not change member contribution rates and that any future staffing or payroll changes at the city (for example, from layoffs or hiring freezes) would affect future valuations and funding needs, and should be examined in the next valuation cycle.

The board’s formal receipt of the valuation ends the item for this meeting; trustees recorded no further action beyond receiving the report and asking staff and consultants to bring future funding-policy discussions back to the governance committee for consideration.