Consultants recommend modest policy tweak ("Alternative One") to modestly improve funded status and shorten time to full funding

Varis consultants presented the commission with an asset‑liability study that evaluated the current policy target, three portfolio alternatives and a 70/30 public reference portfolio. The consultants recommended "Alternative One," a modest retargeting that largely aligns policy targets with the plan’s current market positioning.

Mike Patski, presenting for the consultants, explained that the study used updated 2025 capital market assumptions and both 10‑year and 30‑year outlooks. The consultants reported a 10‑year expected return for the recommended allocation of about 6.8% and a 30‑year expected return near 7.1%. They emphasized that elevated public‑equity valuations reduce near‑term return expectations.

The asset‑liability modeling showed projected funded‑ratio trajectories and downside scenarios. Dan Hogard, the consulting actuary, summarized the modeled outcomes: under the current Target portfolio the median funded ratio was projected to rise from roughly 62% to about 83.4% over 10 years; adopting Alternative One increased the median 10‑year funded‑ratio projection to about 84.8%, and moving to Alternative Two (higher private markets exposure) increased it further, to roughly 86.4% in the base projection.

Consultants translated those outcomes into employer cost implications. They estimated Alternative One would reduce the cumulative additional cash needed to reach full funding by about $1.7 billion compared with the current Target in the modeled baseline; Alternative Two showed larger projected savings (greater reduction in cumulative required contributions), while the more conservative Alternative Three would modestly increase the cumulative cash required and delay full funding. Consultants summarized time‑to‑full‑funding results as: Target ~2039; Alternative One/Two ~2038; Alternative Three ~2040; 70/30 reference ~2043 (all subject to modeling assumptions and market outcomes).

Liquidity testing was a material part of the analysis. The consultants introduced a liquidity‑coverage ratio (liquid assets plus expected positive inflows divided by near‑term cash uses). In median scenarios the Target portfolio produced an LCR of about 1.8× and remained above stress thresholds in the modeled adverse scenarios due in part to the plan’s current high net contributions.

On the recommendation, Patski said the modest retargeting of Alternative One "provides good continuation of that strategy" and aligns policy targets with where the actual portfolio stands today. Commissioners discussed manager selection dispersion in private markets and asked for quarterly manager‑performance attribution materials; staff committed to provide additional detail on manager selection results and historical liquidity context.

The commission took no formal vote on policy at this meeting; consultants and staff will return with implementation steps and any requested supplemental analyses.