October 17, 2017 - 1:28 pm
CARSON CITY — For the first time in more than three decades, the board of Nevada’s public employee retirement system will consider a change to its investment assumption when it meets Thursday.
The change from a projected 8 percent return on its investments to 7.5 percent over the next several years could mean higher contribution rates from public employees and employers — from state workers to school teachers — to offset the lower expectations.
Contribution rates are important because more money flowing into the retirement system from public agencies could mean less money for other priorities.
PERS has used an 8 percent return assumption since 1984, and it has exceeded that target, hitting just over 9 percent. The retirement fund is now worth more than $38 billion. The plan saw a return on investment of 11.8 percent last fiscal year.
But other public pension plans, notably the massive $300 billion-plus CalPERS plan in California, have been lowering assumptions as critics have suggested that prior expectations were unrealistic.
“Most funds are headed in this direction,” said Nevada PERS Executive Officer Tina Leiss. “It does take a little risk off the table if you can do this.”
While it is a significant policy decision for the board of the Nevada retirement system, Leiss said actual returns on investments will ultimately play a big role in contribution rates.
The assumptions are used to ensure the solvency of the plan over the long term for the approximately 105,000 active members and 54,000 retired and disabled members. Because the public retirement plan is a defined benefit plan where retirees get a fixed monthly pension, taxpayers are ultimately responsible for its fiscal health.
The overall funded ratio of the plan increased to 74.1 percent in 2016 from 73.2 percent in the prior year.
A 70 percent funding ratio is considered the threshold for fiscally sound public pension plans by the investment and research firm Morningstar Inc. The goal of Nevada’s plan, as with other public pension plans, is to become 100 percent fully funded.
Leiss said the ratio could decline when the board gets the next report in November if the 7.5 percent return rate is adopted.
The current contribution rate for regular employees is 28 percent, which is shared half by the public agency and half by the employee. The current rate has been in place since Fiscal Year 2016. Before that, the rate was 25.75 percent. Rates for police and firefighters are higher and calculated separately.
The investment return is one of several assumptions that will be considered as part of the Actuarial Experience Study by Segal Consulting for the board. Other assumptions include inflation, which is projected to be lower and so will benefit the plan’s bottom line.