On Feb. 6 the Sedona Police Department Public Safety Personnel Retirement System (PSPRS) board reviewed the June 30, 2024 actuarial valuation and heard that tiers 1 and 2 are currently overfunded while tier 3 remains substantially overfunded.

Barbara Whitehorn, director of financial services, told the board "the unfunded liability is negative. 1,300,000.0. So we are currently overfunded," and said the tier 3 plan is "that's $13,000,000 overfunded." Whitehorn said a $1,200,000 payment made in fiscal 2025 was not included in the actuarial number the board received, and that omission means the actual overfunding is larger than the report's headline figure.

Whitehorn said the valuation report establishes minimum required contribution rates for the following fiscal year and recommended the city make the required minimum contribution for fiscal 2026 rather than increasing payments. She described the funded status as likely to decline over time as payroll and other assumptions change, and recommended monitoring that trajectory rather than increasing contributions now.

Why it matters: funded status and contribution rates affect the city's budget and long-term pension sustainability. Whitehorn emphasized that lump-sum payments from city reserves in prior years materially improved the funded status, reducing near-term contribution requirements.

Key points from the presentation:

- Funding status and recent payments: Whitehorn noted a negative unfunded liability of $1,300,000 for tiers 1 and 2 and said the actuarial calculation did not reflect a roughly $1.2 million additional payment made in fiscal 2025.

- Tier 3: Whitehorn described tier 3 as managed differently and said it is approximately $13 million overfunded; no additional payments have been made specifically for tier 3.

- Assumptions and risks: Whitehorn flagged a change in PSPRS payroll-growth assumptions, from 2% down to 1.5%, as a concern. She said, "if their assumption is a growth of only 1.5 and our growth is 5%, that difference is something that we're gonna have to make up unless the rate of return remains high." She also noted the plan's rate-of-return assumptions have moved and that PSPRS increased assumed rates after strong investment returns.

- Covered persons: For tiers 1 and 2 the board was told there are 19 retirees and beneficiaries, 12 active employees, five inactive vested members and one participant in a DROP arrangement; tier 3 showed nine active employees.

- Governance and policy: Whitehorn said the city council previously adopted a policy to pay down unfunded liability and that the city's strategy of making lump-sum payments from reserves improved the funded status and budgetary flexibility.

Board reaction and next steps: board members and staff did not take formal action on the valuation at the meeting; Whitehorn said the board should "keep an eye on" the payroll-growth assumption and the PSPRS board's changing assumptions. She said the board can consider an additional payment scenario in a future year if assumptions or experience warrant it.

The presentation closed with the board praising the city's proactive payments and management of the pension plans. No vote was taken on contributions or policy at the Feb. 6 meeting.