City of San Diego's Pension Fund Stabilizes Unfunded Liability Up to $1.37 Billion, Funded Ratio steady.

SAN DIEGO -- The actuarial funded ratio of the City of San Diego's pension fund has stabilized, decreasing slightly from 67% in 2003 to 66% in 2004, according to the June 30, 2004 actuarial valuation presented today at the San Diego City Employees' Retirement System (SDCERS) Business and Procedures Committee. Actuarial valuation methods compare the present value of future liabilities with assets valued using a 5-year averaging method.

Notwithstanding the stabilized funding ratio, the City's pension fund's unfunded liability grew by $212 million to reach $1.37 billion according to the draft actuarial valuation report issued by Gabriel, Roeder & Smith, the retirement system's actuary. During the year, the actuarial value of assets grew by $254 million, while liabilities increased by $466 million. Pension officials reported they were pleased by the stabilized funded ratio, and indicated that the unfunded liability had been expected to increase during the year.

"The SDCERS Board took actions during the last year to modify actuarial assumptions and increase the cost for city employees to purchase service credit (`PSC')," said SDCERS Administrator Lawrence Grissom. "A rush of PSC applications at the old rates and the costs associated with assumption changes were expected to increase the unfunded liability."

Other factors contributing to the growth in the unfunded liability included a higher than anticipated number of City employee retirements, higher calculated costs of retiree cost of living ("COLA") increases, and revised demographic information.

Recent superior investment results indicate recovery may be on the horizon for the City Pension Fund. SDCERS earned a 20% return on investment for fiscal year 2004, ranking in the top 3% of comparable public retirement systems. "As a result of investment performance, the funded ratio on a market value basis increased from 66% last year to 71% at June 30, 2004," said retirement board president Frederick W. Pierce, IV. "On a market value basis, the SDCERS unfunded liability actually declined last year from $1.2 billion in 2003 to $1.14 billion at June 30, 2004."

"The actuarial valuation process takes many years to fully reflect current market performance," Pierce indicated. "Also, the reported improvement in the market value funded ratio of the City pension fund doesn't yet include more than $520 million in unrealized gains currently held in the system's investment portfolio."

"As the City looks forward in planning solutions to funding the pension plan, the market value analyses provides a better indicator of the scale of the problem in the years ahead," Pierce concluded. Since early 2003, total system assets have grown from $2.3 billion to over $3.6 billion today.

Copies of the draft actuarial valuation report are available at the Retirement System Offices.