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Board reduces prefunding discount offered to city by 15% under valuation trigger
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Summary
The board applied a pre-set methodology tied to market valuation metrics and voted to reduce the discount it will offer the city for prepaying sponsor contributions by 15 percent.
The San Jose Police and Fire Retirement Board voted to reduce, by 15 percent, the discount rate the board offers the city for prepaying sponsor contributions, citing a valuation trigger in the board's prefunding methodology.
Staff explained the prefunding process: the city may prepay its annual sponsor contribution at the start of the fiscal year in exchange for a discount. The board has used a three‑trigger methodology to adjust the offered discount; triggers consider time since recent market pullbacks, time since economic recessions, and market valuation metrics (the CAPE ratio). Staff said the valuation trigger had been met and recommended lowering the discount offered to the city by 15 percent.
Board members discussed transparency for the city and the fiscal effect of the change. Staff advised that if the city prefunded and the board offered the full discount, the city would save about $7.3 million (pension and healthcare combined). Under the reduced discount recommendation the estimated city saving would be about $6.3 million.
Trustees moved and seconded the staff recommendation. The motion passed; the board recorded the action as approved. The chair said the reduction reduces but does not eliminate savings available to the city if it chooses to prefund.
