Actuarial and investment staff presented a conceptual framework for reducing pension volatility once funded status reaches or exceeds 100%: use surplus assets to seed a dedicated, immunized cash‑flow tranche (high‑quality bonds sized to match near‑term retiree benefit payments) and calculate contributions on the remaining diversified portfolio. The objective is to lower downside risk to city and member contributions without increasing normal‑cost obligations.

Staff explained the current practice of maintaining several years of liquidity (a five‑year immunized matching sleeve to pay benefits) and how approaching full funding would change the size of that sleeve. The proposal described splitting the valuation into two parts: 1) a matching portfolio valued at market yields (used to fund near‑term retiree cash flows) and 2) a diversified growth portfolio for the residual liabilities. In the illustrative models shown, moving a material tranche (e.g., 30% of assets) into a matching sleeve reduced the plan’s “asset leverage ratio” and lowered the expected cost of a hypothetical large negative market shock.

Actuaries cautioned that using lower‑yield fixed income for matching increases the measured actuarial liability for that tranche (because the tranche is valued at market yields below the plan’s discount rate), and that any decision to change valuation or allocation practice has consequences for normal cost calculations, statutory reporting and contribution timing. Staff emphasized this design is intended to avoid raising normal‑cost contributions for members and the city; instead the surplus above 100% would be used to pay the spread between the plan discount rate and the matching‑portfolio yield.

Trustees asked operational and governance questions: whether the approach requires council approval, accounting and financial‑reporting implications, how and when to trigger a move into the immunized tranche, what quality of bonds to use (treasuries vs. high‑quality corporates) and how to structure an orderly unwind if market conditions changed. Staff said the idea is conceptual and would require more detailed analysis, policy definitions (trigger levels, time‑in‑status, reversion rules) and coordination with city counsel, investment staff and the actuarial team before any implementation.

Trustees generally welcomed a formal policy discussion and asked staff to return with a detailed options analysis and operational steps, including any legal or accounting considerations.