SUBJECT/RECOMMENDATION:
Title
Accept the January 1, 2026 Annual Actuarial Valuation for the City of Clearwater Employees’ Pension Plan.
Body
SUMMARY:
Per the actuarial valuation report dated January 1, 2026, a minimum City employer contribution of $12.355 million, or 9.61% of covered payroll, is required for fiscal year 2027. This is an increase of approximately $4.1 million from the fiscal 2026 required contribution of $8.34 million, which represented 7.0% of covered payroll. This increase was due to unfavorable actuarial experience including salary increase experience, mortality experience, and investment return experience.
The breakout of the required contribution by group is as follows:
% of Covered Payroll
Police $ 4,355,583 15.23%
Fire $ 4,910,854 21.90%
Non-public safety $ 3,088,343 3.98%
Total $12,354,780 9.61%
The calendar year 2025 investment return was 11.40%, versus an assumed rate of 6.50%. The five-year smoothed actuarial investment rate of return was 6.27% versus the 6.50% assumption. Calendar 2021 through 2025 investment returns were 12.90%, (14.02%), 13.72%, 9.92%, and 11.40%, respectively.
The plan experienced a net actuarial experience loss of $39.05 million for the year. The loss was primarily due to salary increases of 11.56% versus an expected increase of 5.74%; as well as mortality experience loss. Salary increases were impacted by contractual salary increases, promotions, and additional FTE’s. Additionally, the recognized actuarial value investment return of 6.27% was below the 6.5% assumption and contributed to the experience loss. This net actuarial experience loss of $39.05 million had no impact on the required employer contribution but did contribute towards the current year decrease in the funded ratio of approximately 2.5%.
The plan’s funded ratio at January 1, 2026 was 107.52% (including the credit balance) versus 110.02% for the prior year. The market value of assets exceeds the actuarial value of assets by $54.3 million as of January 1, 2026. This difference will be recognized as a gradual gain to the plan over subsequent years, in the absence of offsetting losses.
The plan’s credit balance, which reflects actual contributions in-excess of actuarially required contributions in prior years, increased from $40.18 million to $44.16 million during calendar 2025, 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 near the current $44 million level.