At its July 30th meeting, the Oregon PERS Board voted to lower the rate of return assumed to be earned on its investments in future years from 7.75% to 7.50%. Not long ago the assumed rate was 8.0%. Except for a relatively small number of PERS members, this is good news all around.
For starters, the Board’s willingness to lower the rate again is an indication that PERS is on stronger financial footing than it was a few short years ago. Lowering the assumed rate of return increases employer contribution rates in the short-term. With other pressures pushing contribution rates up in years past, and projection of further increases looming, there was appropriate resistance to adding to the increasing rates. Legislative “fixes” and improved investment results have materially eased those concerns.
That is good news for Oregon taxpayers, who through their taxes pay for the cost of PERS. Stable PERS costs can lead to more tax funds available for police and fire protection, and other public services. The other good news is that looking to the future, PERS need only earn 7.5% on its investments to hit its funding target. The difference between 7.5% and 7.75% may not sound like much, but a .25% spread on a $70 billion fund is the equivalent of about a $175 million annual funding cushion.
The change from 7.75% to 7.5% has no impact on the benefits that most PERS members will receive. For a few members, almost exclusively Tier 1 members who joined PERS before 1996, the lowered rate will reduce how much of an excess benefit they might earn in the future. Even for this group, the change has no impact on their guaranteed – “Full Formula” – benefit.
You can find more information at http://www.oregon.gov/pers/docs/assumed_rate_change_7-31-15.pdf