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Thursday, April 02, 2015

Future People

Not a heck of lot going on in PERSland, but I thought I’d write a brief post to do two things:  to let people know I’m still alive, and to let future retirees know that the PERS Board has tipped its hand that the assumed interest rate may be changing again.  At the most recent Board meeting (3/30/15), the actuarial assumptions going forward were briefly discussed.  The actuaries will present their study of the PERS system for the next system valuation at the May meeting.  In the meantime, two numbers were whispered about.  The assumed interest rate (currently 7.75%) is expected to drop again on 1/1/16 to 7.5% or 7.25%.  Bear in mind that the PERS fund did NOT make the assumed rate in 2014, coming in with earnings at 7.3%.  While the Board did not have to dip into the gain/loss reserve to fund the 45 basis point discrepancy, it is clear that neither the Oregon Investment Council nor the PERS Board/Actuaries think the higher 7.75% is sustainable.  So, be prepared for another drop in the assumed rate.  If you want to know how this might affect you, just remember that the earnings on Tier 1 accounts, as well as the mortality factors to determine retirement benefits are negatively affected by a lowering of the assumed rate.  For each 25 basis point drop, it takes working about 3 months longer to make up the difference.  So, between the previous 25 basis point drop (from 8 to 7.75%), and the anticipated drop, Tier 1 members remaining in the system will have to work 6 months to possibly 9 months longer to earn the same benefit that would have been received if the assumed rate had remained at 8%.
If things like this worry you, plan on attending the May and July Board meeting where these issues will be discussed.
Here’s hoping the Oregon Supreme Court will finally release its decision in the Moro et al cases (COLA and tax remedy) this month.  We cross the 6 month boundary since the hearings in about 10 days.


Phil H. said...

Just an FYI for folks. Assuming the new whispered assumed rate ends up being effective 1/1/2016 (the most likely date) one will need to retire on 12/1/2015 in order to keep the current 7.75% assumed rate applied to their retirement income stream.

Unknown said...

No news really is good news while the legislative session is going on. Friday was the last day for bills to get a work session or die in committee. Now the only worry for PERS members (other than the OSC) is the outside chance of a gut-and-stuff move late in the session. Even that does not seem likely this time around.

mrfearless47 said...

Gut and stuff is only likely if the OSC goes in our favor and one of the crazies on the wrong side of the aisle decides to wage a holy war against PERS. Not likely to succeed in the current climate, but we've seen stranger things happen.