West Palm Beach police pension actuary: funded ratio improved but citys required contribution rose

Jack Frost, chair of the West Palm Beach Police Pension Fund, introduced the plans actuarial review at the Jan. 12 work session and turned the presentation over to the funds consulting actuary, Jeff Ambrose of Gabriel, Roeder, Smith & Company.

Ambrose described results from the 10/01/2024 actuarial valuation, saying the plans funded ratio stood at about 84.3% and that the required city contribution for the current fiscal year is a little under $12.3 million, roughly $4.2 million higher than the prior valuation. He said the required contribution is composed of employer normal cost (about $7.5 million, or 24.33% of covered payroll, including roughly $400,000 in administrative expenses) and amortization payments on the unfunded accrued liability (about $7.36 million).

Ambrose attributed much of the year-over-year increase to recently updated assumptions: a one-time 17% pay-increase assumption and a mandated change to mortality tables. He estimated those assumption changes accounted for about $2.9 million of the rise in city contribution. Ambrose also said the board applied $2.1 million from a Contribution Stabilization Reserve to offset part of the citys payment this year.

The actuary walked commissioners through the effect of the July 2016 $50 million pension obligation bond, telling the commission that the bond proceeds were deposited into the plan and that investment returns on the bond money have, to date on the slides, materially exceeded the bondholder payments. Ambrose described the bond infusion as one of two main reasons the plans funding position improved (the other being strong investment returns in recent years), noting that timing of issuance and markets mattered for the positive outcome.

On returns, Ambrose said the plans average return since 2012 was about 9.3% per year (slides) and reiterated the actuarial return assumption is 7%. "We're assuming that the fund earns 7% every year. So anything north of 7% is a victory," he said. Ambrose noted that fiscal year 2022 produced a negative return (he cited about -16.4%), which still factors into amortization calculations and contributed to a cumulative plan loss position the presenters described as roughly $65 million.

Ambrose explained the plan uses a smoothed value of assets for valuation purposes, which defers recognition of some market gains and losses; he said the valuation showed approximately $8.2 million of deferred investment losses to be recognized over coming years and that recognizing those losses immediately would raise the citys contribution by an estimated ~$600,000 (ambroses slide remark). By contrast, Ambrose said a near-9% return for the fiscal year ending 2025 should help reduce some of that pressure if similar returns continue.

Operational factors will also affect required contributions, Ambrose said. He and Frost noted hiring more officers (higher payroll) and a change in the benefit multiplier (slides discussed moving from 3% to 3.2%) will raise normal cost; Ambrose gave a rough estimate that the multiplier change will add on the order of $1 million to the citys contribution.

During Q&A, Commissioner Ward asked why the fire pensions normal cost rate differed materially from the police plans rate; Ambrose said he would research structural differences between the plans and follow up with commissioners. Jack Frost responded to a board-management question about recoveries by noting the fund sometimes serves as a lead plaintiff in securities litigation and said the fund had recently been named lead plaintiff in a case involving Krispy Kreme. Commissioners also asked about manager diversity; Frost said some managers are largely women- or minority-owned and agreed to provide specific manager-diversity numbers on follow-up.

No formal motions or votes were taken. Frost and Ambrose concluded by offering to provide follow-up data on requested items, and commissioners thanked the presenters.