Oregon PERS Keeping Assumed Rate at 7.2% | Chief Investment Officer

The Oregon Public Employees Retirement System (PERS) has decided to keep its assumed rate of return at 7.2% until 2021.

The board revisits the topic every two years. Until its meeting, held Friday, it had been gradually reducing its assumption due to lower returns —specifically in its bond portfolio, reports Oregon Live.

The Oregon pension fund’s decision came amid long-term return forecasts from consultants and Milliman, its actuary. Callan, the plan’s consultant, predicted 7.32% returns over 10 years, compared to a survey of 34 investment adviser outlooks based on specific asset classes.

Source: Milliman / Oregon PERS

In the survey, respondents estimated that they would accrue 6.64% over the same timeframe, meeting materials show. Milliman was somewhere in the middle, suggesting 6.87% returns for the retirement system over a 20-year period.

“Based on the capital market outlooks modeled, we believe the current investment return assumption is reasonable,” meeting materials said. “However, the PERS Board should give consideration to reducing the assumption out of acknowledgement of the uncertainty of future outlooks and the variance of single point-in-time measurement models such as those discussed above.”

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Actual performance, however, has been closer to the consultants over the five-year period, returning 6.5% annually. The 10-year duration has been kinder, with 10.2% returns, but it is not counting the fund’s 26.75% loss in 2008, according to Oregon Live. It returned 7.9% year-to-date.

The fund will also keep things the same because it doesn’t want its liabilities to balloon further under lower rates. The plan owes $27 billion to its members, and although those liabilities will accrue regardless, a cut would only increase the amount of money owed to retirees more quickly.

“We would not recommend increasing the return assumption at this time, given the uncertainty in future outlooks and the influence of the point-in-time measurement at year-end 2018,” the fund’s materials said.

Source: Milliman / Oregon PERS

Public plans have been reducing their assumed rates over the last several years as less-productive investment results are becoming more and more expected. More than 50% of the 129 retirement systems tracked by NASRA’s 2019 public fund survey have reduced their assumptions in the past two to three years, Oregon PERS’s board agenda shows. Most are in the 7.26%-7.74% area.

Tags: Assumed Rate of Return, Funded Status, Oregon, Oregon Public Employees Retirement System (PERS), Pension

The UK’s Universities Superannuation Scheme (USS) posted 6.2% returns for the year ended March 31, but it fell short of its 7% benchmark.

The plan’s defined benefit plan assets grew to £67.4 billion ($84.1 billion), according to its recent annual report. The fund also has a $900 million defined contribution plan, which was created in 2017.

The DB plan’s funding ratio fell slightly, to 92%, from 94%. Roger Gray, its retiring chief investment officer, said the plan was affected by gilt yields (10-year British government bonds) “falling to historical lows” during its fiscal year.

“Looking forward, performance patterns will change with the next turn of events. USS will continue to seek the best long-term investment strategies to meet the scheme’s objectives, and to support these with committed teams, both internal and external,” he said.

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Universities Superannuation Scheme said although markets reversed “sharply” in its fourth fiscal quarter (January-March) from fourth quarter 2018’s slump, it didn’t get enough of the equity boost other funds experienced as it was underweight in US stocks.

Brexit and low interest rates have also been affecting the college pension plan, as well as tuition fees and school funding. Sir David Eastwood, the superannuation’s board chair, said it was also worried about the global economy as growth continues to slow.

“These factors make both past benefits and the benefits being earned today more expensive to fund,” he said. “While we might reasonably assume that conditions will be better in the future, we also need to weigh in the potential consequences of being overly optimistic in this regard, which could be severe.”

However, the fund’s DB plan did slightly outperform its five-year benchmark by 0.31 percentage point. It has returned 10.1% over that period, increasing in value by about $31.7 billion.

A superannuation plan is a retirement institution that handles the investments of a nation’s specific sectors, such as medical professionals or, in this case, university employees.

Tags: Brexit, Pension, Returns, Roger Gray, UK, Universities Superannuation Scheme