Oregon PERS to Lower Fund’s Assumed Rate 0.3%, Increasing Unfunded Liability

New rate suggested by Milliman based on study.

A unanimous vote at Oregon Public Employees Retirement System’s (PERS) July 28 board meeting will lower the pension fund’s assumed rate of return, further straining the long-term budgets of the state’s school districts and other public agencies.

The 0.3% reduction—from 7.5% to 7.2% per year—will add an estimated $2.4 billion to PERS’s unfunded liability, expanding it to $24.4 billion, according to National Public Radio affiliate KOUW.

According to The Register Guard, this is the third time since 2013 that the board lowered its assumed rate of return. The Register Guard also said that prior to 2013, the fund kept a steady return rate of 8% for 23 years.

The move will cause public employers to make more annual contributions into the overall system to meet the required pension payments to retirees. To cover the balance of these payments, PERS will use returns from stocks and bond investments.

In addition, money from property and tax receipts paid into PERS by government agencies will reduce the available funds agencies have for public services. This includes teachers, police, library staff, and others.

The rate was lowered due to suggestions in a formal report issued to the board by the board’s actuary, Milliman. In the report, Milliman calculated 10- and 20-year data from Pension Consulting Alliance (PCA), primary investment consultant Callan, a 2016 Horizon survey of capital market assumptions, and Milliman data, and determined that the new assumed rate should be between 7% and 7.25%, as told to CIO by Milliman principal, consulting actuary Matt Larrabee.

The report also finds that long-term market projections compiled from Milliman and the PCA would have set the return rate between 6.7% and 7.6% over the next 20 years.

In a statement, Pat McCormick, spokesman for statewide business coalition Brighter Oregon, said “a more realistic assumption is an important first step toward unmasking the severity of the problem.”

The new assumed earnings rate takes effect in 2018.

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