SUBJECT/RECOMMENDATION:
Title
Accept the January 1, 2025 Annual Actuarial Valuation for the Employees’ Pension Plan.
Body
SUMMARY:
Per the actuarial valuation report dated January 1, 2025, a minimum City employer contribution of $8.34 million, or 7% of covered payroll, is required for fiscal year 2025. This is a decrease of approximately $7.9 million from the fiscal 2024 required contribution of $16.23 million, which represented 14.42% of covered payroll. This decrease is primarily due to the change in actuarial funding method from the Entry Age Normal Cost method to the Aggregate Cost Method. The actuarially required contribution was actually 6.15% of covered payroll ($7.3 million), however the minimum employer contribution per the pension ordinance is 7% of covered payroll.
The breakout of the required contribution by group is as follows:
Police $ 2,812,119 11.39% of covered payroll
Fire $ 3,256,590 16.25% of covered payroll
Non-public safety $ 2,269,743 3.05% of covered payroll
Total $ 8,338,451 7.00% of covered payroll
The calendar year 2024 investment return was 9.92%, versus an assumed rate of 6.50%. The five-year smoothed actuarial investment rate of return was 6.51% versus the 6.50% assumption. Calendar 2020 through 2024 investment returns were 15.12%, 12.90%, (-14.02%), 13.72%, and 9.92%, respectively.
As stated above, the decrease in the required employer contribution is primarily due to the change in the funding method to the Aggregate Cost Method. Another significant assumption change was an update to the mortality assumptions used by the Florida Retirement System (FRS). Florida Statutes mandate that we use the mortality rates used in either of the last two published FRS valuation reports. We have elected to update to the mortality rates used in the July 1, 2024 FRS actuarial valuation. The change in the mortality assumption increased the required employer contribution by approximately $0.5 million.
The plan experienced a net actuarial experience loss of $3.98 million for the year. The loss was primarily due to salary increases of 7.85% versus an expected increase of 5.74%; as well as mortality experience loss. Salary increases were impacted by additional FTE’s, promotions, and contractual salary increases. These losses were partially offset by investment returns in excess of the 6.5% assumption. This actuarial experience loss had no impact on the required employer `contribution but did decrease the funded ratio by approximately 0.4%.
The plan’s funded ratio at January 1, 2025 was 110.02% (including the credit balance) versus 112.00% for the prior year. The actuarial value of assets exceeds the market value of assets by $12.4 million as of January 1, 2025. This difference will be a gradual “hit” to the plan over subsequent years, in the absence of offsetting gains.
The plan’s credit balance, which reflects actual contributions in-excess of actuarially required contributions in prior years, increased from $38.14 million to $40.18 million during calendar 2024, primarily due to interest earned on the credit balance. This credit balance is available to subsidize volatile employer contribution requirements during future investment market downturns. Staff is recommending the annual use of the interest earnings on the credit balance (approx. $2.5 million) to reduce the required employer contribution for the foreseeable future, which would effectively maintain the credit balance at the current $40 million level.