Pension Board Votes Down Proposal to Lower Assumed Rate of Return

At this week’s meeting of the State Retirement and Pension System Board of Trustees, the trustees voted down a proposal to reduce the assumed rate of return for the Pension System’s investments. Reducing the rate of return would have increased contribution rates, and increased the normal costs of the teacher’s pension system by more than $25M in FY 2017.

The Board is currently using a projection baseline of 7.55% assumed rate of return for FY 2017 but had asked its consultant actuaries to produce a report on the effect on contribution rates of a change to rates of 7.40% and 7.25% in the Board’s last meeting.

The current projection for normal costs of the teacher’s pension system for FY 2017 is $279.8M, or $25M more than local school boards were required to pay by statute for FY 2016. Under a 7.40% assumed rate of return, that amount would have increased to $307.4M, or $52.6M more than the required payment for FY 2016.

As described by the Board’s actuary in the preface to the data,

  • Beginning in fiscal year 2013, local employers contribute a portion of the statutory normal cost contribution for the Teachers Combined System.
  • Normal cost contribution amounts for local employers for fiscal years 2013 through 2016 are defined in statute.
  • Beginning in fiscal year 2017, local employers will contribute the full normal cost contribution for their TCS [Teacher Combined System] employees.

For more information, see our previous posts, the presentation of the Board’s actuaries, and this comparison of assumed rates of return from pension systems around the country.