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City review: funded ratios rose but San Jose retirement plans still carry $3.1 billion unfunded liability
Summary
City staff and system actuary told the council the pension plans' funded ratios improved for the fiscal year ending June 30, 2024, largely because actuarial smoothing recognized recent gains; the plans still show about $3.1 billion in unfunded actuarial liability and higher near-term contribution requirements.
City retirement staff and the board's actuary told the San Jose City Council on April 8 that actuarial valuations as of June 30, 2024, show improved funded ratios for both the Police and Fire and Federated retirement plans, but the systems continue to carry a multi-billion-dollar unfunded actuarial liability.
The valuations were prepared by the board's actuary, Chiron, and "have been prepared in accordance with generally recognized and accepted actuarial principles and practices," John Flynn, the city's director of retirement services, said during the presentation.
Nut graf: The increase in funded status reflects the actuarial smoothing method that recognizes 20% of recent investment gains, staff said, but the plans still face a long-term repayment schedule. System speakers and trustees emphasized contributions and past market losses as the principal drivers of the remaining unfunded liabilities.
Key takeaways from the presentation: staff and the actuary reported that the plans' actuarial funding ratios rose between the June 30, 2023 and June 30, 2024 valuations, driven in part by the actuarial asset-smoothing method that recognizes 20 percent of the most recent fiscal-year gains. Bill Hallmark, the systems actuary attending, noted the magnitude of the long-run shortfall: "There's about a $3,100,000,000 unfunded liability," he said and explained that much of that growth dated to the Great Recession and subsequent changes in return assumptions.
The report also outlined contribution and membership changes: the total annual contribution requirement across stakeholders increased to about $615.8 million, and the city's modeled normal cost rose to about $115 million. The retirement system serves roughly 15,805 members and beneficiaries, an increase of about 445 people (approximately 2.9%) from the previous year, staff said.
Actuarial assumptions have also shifted in recent years, Flynn and Hallmark said. The plans' assumed investment returns were lowered from levels above 8 percent in earlier decades to 6.625 percent ("6 and 5/8 percent" in the presentation), which increases modeled liabilities and required contributions.
Vice Mayor Foley, who led the motion to accept the report, emphasized that the unfunded actuarial liability affects general-fund capacity to fund city services and moved acceptance of the valuation reports; the motion passed unanimously.
Ending: Council accepted the actuarial valuations and will consider the valuation data during upcoming budget discussions and labor negotiations; staff said it will return with any required follow-ups tied to contribution-setting and plan administration.
