Mesa staff report $60 million decline in PSPRS unfunded liability; funding policy aims for full funding by 2042

Sam Schultz, assistant director in Mesa's Office of Management and Budget, told the City Council during the May 21 study session that the city's continued additional contributions and stronger-than-expected investment returns reduced the Public Safety Personnel Retirement System (PSPRS) unfunded liability by roughly $60 million in the latest actuarial update.

The presentation, which staff said will be brought back as a funding policy resolution on the June 1 council agenda, outlines three objectives: stabilize contribution levels, meet the actuarially required contribution each year and reach a 100% funded ratio by June 30, 2042. "This year is the first year that our funded status grew but for our unfunded liability we actually decreased that about $60 million," Schultz said.

Schultz walked council through the city's actions since 2018'19, when Mesa began setting aside additional funding into a pension stabilization fund. He said the stabilization fund is projected to reach $20 million by the end of this fiscal year and that the city budgets roughly $107'$109 million toward PSPRS contributions across all tiers in FY26'27. The city has maintained a 25-year amortization schedule, a step staff said has allowed the municipality to shorten the payoff timeline compared with a 30-year option.

Staff noted PSPRS uses a multi-year smoothing method that amortizes gains and losses over seven years; recent investment gains and the phasing out of prior losses improved the near-term outlook. Schultz also flagged potential statewide assumption changes under PSPRS, including an experience study and a proposed discount rate reduction from 7.2% to 7%, both of which staff have modeled conservatively.

Council members asked about the $20 million stabilizing reserve and whether the program is on track. Schultz said the reserve allows the city to smooth payments and reduce volatility in contribution demands if market conditions shift. He recommended council adopt the pension funding policy on June 1 so the city can post the policy and submit it to PSPRS as required by state statute.

Next steps: staff will present the formal funding policy for adoption at the regular meeting; the council asked for continued annual updates and for staff to monitor PSPRS assumption changes and the results of the system'level experience study.