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Actuarial valuation raises city pension contribution to 14.62% of payroll; board approves valuation and experience study
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Summary
Foster & Foster presented an actuarial valuation that raised the city's required pension contribution from 12.1% to 14.62% of payroll, largely driven by a mandated mortality-table change and higher-than-expected salary increases; the board approved the valuation, adopted a 7.25% assumed net investment return, and authorized an experience study.
The General Employees Pension Board unanimously approved the annual actuarial valuation presented by Foster & Foster, which increased the city's required pension contribution from 12.1% to 14.62% of payroll.
Doug Losing, the actuary from Foster & Foster, summarized the valuation and its drivers: “The true up is going from 12.1% of payroll to 14.62%,” he said. He attributed about one-third of the increase to a mandated change in mortality assumptions (the plan must use the same life-expectancy tables required by the Florida Retirement System) and the remaining two-thirds to larger-than-expected salary increases and a four-year smoothed investment-return average that is below the plan's 7.25% assumption.
Losing explained the smoothing mechanism used for investment returns and the short-term volatility implications: because the plan uses a four-year smoothing approach the current four-year smoothed return sits at about 4.4% compared with the 7.25% assumption. He said that if investment returns are closer to assumption in the coming year, the smoothed rate could increase materially when older poor-return years drop out of the average.
As an example of near-term budget implications, the actuary noted the plan's pensionable payroll was roughly $8 million and that the current-year contribution under the lower rate would be roughly $1 million; staff were advised to budget using the 14.62% figure for the coming fiscal year. The board moved, seconded and approved the valuation by voice vote.
The board also performed the required declaration of returns exercise for the coming year, recording an expectation of a 7.25% net-of-fees investment return as its formal assumption, and approved a motion to perform a full experience study (recommended timing: August) to reassess key assumptions including salary scale, turnover and retirement rates.
Losing reported the plan's funded status is in the mid-80-percent range (about 85%), down from earlier levels; he and staff emphasized that increased employer contributions are the primary short-term remedy to arrest a decline in funded ratio. The board directed staff and the actuary to proceed with the experience-study schedule and to present findings at a later meeting.
