Ohio Retirement System Lowers Assumed Rate of Return

Fund is cutting the rates for public employee and healthcare plans due to lower market expectations.

The Ohio Public Employees Retirement System’s trustees have decided to lower its assumed rate of return for two of its five pension funds, owing to a more downbeat view of market performance ahead.

The $101.4 billion organization will drop the rate for its public pension fund to 7.2% and its healthcare plan to 6% from 7.5% and 6.5%, respectively. The board made the change  at its Wednesday  meeting, citing what it called “declining market expectations.”

The rates for the other three funds, the school employees retirement system, the state teachers retirement system, and the police and fire fund,  remained unchanged.

Liabilities for the plan, which is 81% funded, currently total $117 billion, and it expects to pay out about 60% of that amount to retirees over the next 10 to 15 years.

Karen Carraher, the retirement system’s executive director, said it “does not take this step lightly,” as lowering the rate of return could have negative effects on member benefits.

“Determining what steps to make after changing the rate will be a challenging decision,” she said.

The Ohio retirement organization’s defined benefit asset allocation, which totaled $98 billion in assets as of March 31, was 29.5% alternatives, 21.7% domestic equities, and 21.7%  fixed income. About 18.8% of assets were in international equities and 5.3% was in risk parity. Closing out the portfolio was 1.9% in global tactical asset allocation, 1% in commodities, and 0.1% in opportunistic strategies.

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