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Board hears actuarial proposal to tie supplemental‑COLA amortization to investment credits, asks staff for formal policy
Summary
Chiron actuaries presented a proposed change tying supplemental‑COLA amortization length (5–10 years) to realized investment‑gain credits to avoid situations where retirees receive supplemental increases while active members face higher contribution rates. Board directed staff to return with a formal policy amendment for the next meeting.
The San Francisco Retirement Board received a technical presentation from Chiron actuaries about a possible change to the system’s amortization methodology for supplemental cost‑of‑living adjustments (COLAs).
Bill Hallmark of Chiron explained the problem the current method creates: when a supplemental COLA is granted and the associated liability is amortized over five years while investment gains are smoothed into assets over longer periods, the timing mismatch can cause employer and active member contribution rates to rise in the near term. "The higher the investment returns are, the lower contributions are," Hallmark said, describing the principle the proposed method aims to preserve.
Chiron proposed a variable approach where the amortization period would range between five and ten years depending on how much of the investment gain credit is recognized in the short term; the method would not extend beyond ten years and would include a five‑year phase‑in in some scenarios. Actuaries showed numeric examples and stochastic funded‑status simulations indicating a modest short‑term reduction in contribution‑rate volatility with similar long‑term funded ratio projections under the two approaches.
Commissioners pressed for clarity on retrospective application (staff confirmed the change would be prospective and applied to the July 1, 2025 valuation if the board directs), peer practice comparisons and equity across membership tiers. The board asked staff to prepare a formal policy amendment and the valuation applying the new methodology for consideration at the next board meeting.
This item was discussion only; no policy change was adopted at this meeting.
