Pompano Beach pension actuary: plan returns improved but funded ratio remains under 60%

The Pompano Beach City Commission heard an update May 13 from the retirement system's actuary on the Police & Firefighters Retirement System valuation as of Oct. 1, 2024. Lawrence Watts, the plan actuary retained by the pension board, said the plan saw a 19.1% market return for the year but is still recognizing prior losses under the board's smoothing policy. That smoothing produced an approximately 6% realized actuarial return used for the valuation, below the pension's 7% assumption.

Watts told commissioners the plan's funded ratio declined to about 55% on the actuarial basis used in the valuation, down roughly 2 percentage points from the prior valuation. He said three main drivers explain the updated figures: (1) investment losses in 2022 that are still being smoothed into the actuarial value; (2) larger-than-assumed salary increases and earlier retirements that raised liabilities; and (3) an experience study that led the board to adopt more conservative assumptions.

The actuary described a recent pattern of retirements immediately after the 2022'23 collective bargaining changes, which temporarily reduced active-service payroll and related contribution pressure. Watts warned the city that, as those retirees are eventually replaced by new hires earning the enhanced benefits, employer contributions are projected to increase further.

Watts also summarized the board's action to mitigate future contribution volatility by smoothing the year-to-year changes projected over the next 6'7 years. He said the board remains comfortable with the 7% discount rate assumption for now, though large market volatility or future assumption changes could require higher city contributions.

Commissioners asked whether the funded ratio drop was unusual. Watts said other plans experienced similar declines from 2022 market losses, but the recent benefit increases for firefighters are a distinguishing factor that accounts for much of the plan's liability growth. Vice Mayor Allison Fournier noted the plan's recent return recovery.

No formal action was taken by the commission at the May 13 meeting. The pension board and city staff confirmed they will continue monitoring market experience, new hires, and benefits costs and will report back on near-term contribution projections.

Ending: The valuation underscores two near-term pressures for the city budget: smoothing-in of past market losses and the fiscal effect of benefit changes that became effective in 2022 and 2023. The board and city staff said they will continue to coordinate on contribution planning and will present further detail to the commission as funding demands evolve.