The Plan began in the 1880s for public safety positions, and general positions were added in the early 1900s. This continues to be one of the best plans in the US because San Francisco’s voters are committed to funding it, and the City and County of San Francisco are committed to paying employees’ benefits every year. The SFERS Plan was approved by voters in 1920 and state legislature in 1921. As of 2017, SFERS serves more than 70,900 active, vested and retired employees of the City and County of San Francisco.
SFERS Trustees, fiduciaries to the Plan members and beneficiaries, the Retirement Board, Retirement System staff and our investment consultants continuously monitor the Plan’s investment strategies, which comply with a “prudent expert” standard to secure and maintain the sustainability of the Plan.
In FY 2016-17, the Plan ranked in the 22nd percentile versus other pension peers, and in the past three and five years the Plan has ranked in the top 3% and 6%, respectively. Over the past ten years, the returns rank in the 20th percentile of pension systems.
For the fiscal year that ended on June 30, 2017, the SFERS Plan returned 13.81%. Comparatively, the median public pension with $1 billion or more in assets returned 12.66%. Over the past four years, the Plan investments returned 6.19% annualized, while they have gained 9.98% per year over the past five years. The past ten years, the Plan’s portfolio has returned 5.40%, while over the past twenty years it has gained 7.46%, both annualized.
As the financial markets have become more complex and the pace of technology and innovation has accelerated, the Retirement Board and investment staff have implemented a series of initiatives, including the following:
- Reduced our allocation to long-only public equity, to increase diversification and reduce the potential for a large loss
- Reduced our allocation to bonds, due to low yields and low expected future returns
- Increased our allocation to private equity, to increase our expected returns
- Increased our allocation to real assets, to further broaden diversification
- Initiated an allocation to absolute return, to further diversify plan assets, reduce the potential for a large loss, and increase the plan’s risk adjusted returns
- Designed and implemented a differentiated investment strategy for each asset class, with an objective to increase portfolio returns
- Implemented a comprehensive analytics platform, to better evaluate our portfolio exposures and risks, liquidity, and attribution of returns, as well as conduct more comprehensive historical, what-if and scenario-based modeling
The overall objective of these initiatives is to maximize total plan returns while prudently taking investment risk.
Most of the pension plans that are problematic and have so much media attention do not have the same standards or type of governance board that the SFERS Plan has. Unlike many plans across the US, local elected officials cannot make any changes to the SFERS Plan. Only the voters of San Francisco have made changes to the SFERS Plan since it was first created over 98 years ago.