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SFERS keeps 7.2% discount rate and adopts supplemental COLA for 2025 valuation
Summary
Actuarial advisers recommended retaining price inflation at 2.5%, wage inflation at 3.25%, and the 7.2% discount rate for the 07/01/2025 valuation; the board adopted the recommendation and accepted the supplemental COLA analysis to pay eligible retirees effective 07/01/2025.
The retirement board voted unanimously to adopt staff’s recommended economic assumptions for the July 1, 2025 actuarial valuation and to accept the supplemental cost‑of‑living‑adjustment (COLA) analysis.
Actuarial advisers Bill Hallmark and Ann Harper told the board that the system’s building‑block assumptions—price inflation at 2.5% and an ultimate wage inflation of 3.25%—remain reasonable when compared with market break‑even inflation and survey medians. Consultants stressed the building‑block role of price inflation for wage assumptions and discount‑rate analysis and noted that, while headline inflation recently ran above 2.5%, long‑term forward indicators (five‑ and twenty‑year break‑even measures) are consistent with the assumption.
On the discount rate, staff reported that SFERS’ 7.2% assumption sits within the reasonable range derived from capital‑market assumptions applied to SFERS’ asset allocation; consultants said a lower rate would be defensible but that 7.2% remains justifiable given the board’s strategic allocation and Wilshire/horizon assumptions. Commissioners discussed peer comparisons and the downside risk of setting a high discount rate; staff emphasized that actual returns, not the assumption alone, determine future contribution adjustments.
The board then accepted the supplemental COLA analysis and directed staff to calculate and process the supplemental COLA payable effective July 1, 2025, to eligible retirees.
Why it matters: The discount rate and inflation/wage assumptions directly influence contribution rates and the actuarial valuation; retaining 7.2% means the plan’s budgeting assumptions remain unchanged and staff will proceed to finalize the valuation and associated contribution projections.
Next steps: Staff will incorporate census updates and finalize the actuarial valuation using the adopted assumptions; the supplemental COLA will be calculated and processed for eligible retirees effective 07/01/2025.
