In uncharacteristically blunt language, the actuaries for the Public Employee Retirement System have literally demanded that the PERS board reduce its assumed rate of return on PERS investments, stating “in our opinion it is necessary to lower the long-term future investment return assumption by at least 0.20% from the current 7.20% assumption. We recommend lowering it further to better reflect the current range of outlooks.”
This comes after the actuaries sharply lowered their projection for future investment returns, from 6.87 percent in 2019 to 6.27 percent. Even the advisor to the Oregon Investment Council predicted sharply lower returns, forecasting 6.6 percent, down from 7.32 percent in 2019.
The actuaries had already stated at the March 29 board meeting that “a disclaimer would be required under Actuarial Standards of Practice (ASOPs) if the assumption significantly conflicts with what the actuary considers reasonable.”
With the board’s current assumed rate now so far above projected returns, PERS’s actuaries are clearly deeply concerned about the health of the system and have laid out the clear expectation that they will not tolerate a timid action such as the one that occurred the last time the board reviewed its assumed rate of return in 2019.
At the 2019 meeting, new chairperson Sadhana Shenoy cast the deciding vote in a rare split decision to keep the assumed rate unchanged. This was after three consecutive rate setting cycles where the board, under then-chairman John Thomas, steadily reduced the assume rate from 8.0 percent to 7.2 percent.
I attended that 2019 meeting, and the actuaries were clearly uncomfortable with it. But the high forecast for future returns from the Investment Council’s advisor held sway with chairperson Shenoy.
I have been writing about the danger of such a high assumed rate for some time, and I addressed the PERS board in 2019 to urge a rate reduction. I am very heartened that finally the actuaries feel they must flex their muscles to ensure this board does not make another ill-advised decision and further endanger the system.
Doug— Just curious, are you a PERS beneficiary? Sounds like you may not be but it make a difference in interpreting your Letter to the Editor in today’s R-G (6/2). FWIW, I am not a PERS member and have always been opposed to the inequality built into to that program. I am retired from private practice and have no retirement. Respectfully,
Robert– No, I’m not a PERS beneficiary. I started observing and commenting on PERS a few years ago out of concern for the danger the system poses to the state if there is a big stock market decline. This year, the PERS board has a unique opportunity to improve the health of the system with market valuations so high and a very good revenue picture. Now is the time to ask public employers to pay a little more into the system. It’s a much easier lift now than it will be if they wait for a big market drop. It’s true it’s a very rich pension, especially for people who retired a few years ago. Recent reforms have brought pension benefits for newer employees down into the realm of reality. Correctly navigating the next 5-10 years will be critical.
I live in Eugen and read your letter to the editor this morning. Thank goodness there are people like you keeping a watch on PERS and OIC. The Register-Guard, a shadow of it’s former self, surely won’t and The Oregonian hasn’t had a PERS article in recent memory. An unfunded liability of $25-30B and the press doesn’t care. I applaud you!
Hello David,
Thank you for the kind comment. You’re right things have been pretty quiet recently regarding PERS, but we should see more reporting in the coming weeks because the PERS board is going through its biennial rate setting cycle to determine employer contributions to the pension fund. There was an article just today in the Oregonian/Oregonlive. I don’t know if you subscribe so you may not have access to it, but their PERS reporter, Ted Sickinger, had a good recap of what’s going on. In fact, he quoted me at the end. The next few months are worth watching. There could and should be progress on the unfunded liability.