The $28 billion Iowa Public Employees’ Retirement System’s (IPERS) has lowered its assumed rate of return for investments, inflation, wage growth, payroll growth, and interest on member accounts.
Among the changes, which were voted on by the IPERS investment board, the assumed investment return drops to 7% from 7.5%, the assumed inflation has been lowered to 2.6% from 3%, assumed interest on member accounts falls to 3.5% from 3.75%; assumed wage growth declines to 3.25% from 4%, and assumed payroll growth has been downgraded to 3.25% from 4%.
The changes followed an economic assumption study conducted by consulting actuarial firm Cavanaugh Macdonald. The actuarial valuation is intended to provide a best estimate of the ultimate costs of a retirement system, and determine whether the actuarial assumptions currently in use have accurately projected actual emerging experience.
Although the next experience study was not scheduled until 2018, the investment board requested the study be accelerated to the spring of 2017. The changes will be implemented in the June 30 actuarial valuation of the system, which will be used to determine the contribution rates effective July 1, 2018.
The fund said that the net result of the changes will be a lower funded ratio, and an increase in liabilities of $1.4 billion.
“Even though these changes will have a negative impact on IPERS’ funded ratio,” said the investment board, “these modifications will provide a more accurate valuation of future liabilities.”
IPERS, which is Iowa’s largest public pension system, serves more than 114,000 retirees and beneficiaries, and paid $1.8 billion in retirement benefits during the last fiscal year. Because IPERS pays out more in benefits than it collects in contributions, it relies nearly 70% on investment returns to pay current benefits.
By Michael Katz