The North Carolina Retirement Systems is lowering its investment assumption rate from 7.20% to 7%, a move first proposed 20 years ago.
At the $98 billion fund’s Thursday board meeting, the Teachers’ and State Employees Retirement System and Local Government Employees’ Retirement System’s boards unanimously approved of the decision.
At 88% funded status, the pension system is one of the top five best-funded in the country and the ninth-largest public pension fund in the country. The fund provides retirement benefits for more than 950,000 state and local government workers.
Despite this funded status, the fund has not been able to meet its assumptions in 20 years. Last year, the fund lowered its rate from 7.25% to 7.2%.
Treasurer Dale Folwell, the sole trustee of the fund, praised the board’s decision, saying that in order to meet future expectations, “realistic assumptions” are needed. “Lowering this assumption will provide the best opportunity to meet the state’s long-term obligations as well as maintain its AAA bond rating,” he said in a statement.
According to the 2016 Asset Allocation Study conducted by the Investment Management Division, the new assumption rate has a more than 50% chance of being achieved over the next 30 years.
The 7% reduction is effective immediately, with changes to employer contribution rates to occur over a three-year period. It is expected that some of these employer contribution rate increases have already transpired under stabilization policies the boards had already adopted in 2016.
Another result of the change is a 2-3% increase in pension plan obligations (both funding and financial reporting), which will also lower the funded status of the affected systems by the same amount.