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San Jose retirement board raises OPEB discount rate to 6.25%; actuary reports pension funded status improvement
Summary
Actuary Bill Hallmark reported preliminary results showing the pension plan’s funded status improved to roughly 65% (market) / 64% (actuarial). The board voted unanimously to raise the OPEB discount rate from 6.00% to 6.25% and approved related health-trend assumption updates.
The San Jose Federated City Employees Retirement System Board on Nov. 20 received preliminary valuations from actuary Bill Hallmark (Chiron) showing improvement in the pension plan’s funded status and approved a modest increase to the OPEB discount rate.
Hallmark told trustees the pension plan recorded about a 10.4% market return this year, producing an investment gain of roughly $119 million, of which roughly $96 million is being deferred under the five‑year smoothing method. He said those results, plus increased contributions, reduced the actuarial unfunded actuarial liability (UAL) by about $100 million to about $1.9 billion and lifted funded ratios: about 65% on a market‑value basis and about 64% on a smoothed actuarial basis.
The actuary identified recent across‑the‑board salary increases, promotions and step increases as the principal drivers of liability growth in recent years and noted contribution policy and investment gains as the components now reducing the UAL.
On the board’s OPEB (retiree medical) agenda, Hallmark recommended updating short‑term health‑trend assumptions and offered two discount‑rate options: retain 6.00% or increase to 6.25%. Hallmark said 6.25% would remain conservative relative to many benchmarks, that the OPEB plan is much smaller and closed (so budgetary impacts of modest changes are limited), and that recent capital‑market assumptions have been higher for several years.
Trustees debated the tradeoffs between conservatism and current market assumptions. Trustee Linder moved to raise the OPEB discount rate from 6.00% to 6.25%, Trustee Evasti seconded, and the board approved the motion by voice vote with no opposition.
The board also approved recommended updates to the short‑term health‑trend model parameters and accepted the rest of Hallmark’s assumption recommendations as presented. Hallmark and staff reiterated these valuation numbers are preliminary and that the final valuation, sensitivity analyses and Makita (capital market) assumptions will be presented at the December meeting.
What’s next: the actuary will return in December with the final valuations, scenario analyses and a sensitivity run showing the effect of discount‑rate and trend‑rate changes on contributions and funded status.
