“assumed rate”—the rate of investment returns (including inflation) that the PERS Fund’s regular account is expected to earn over the long term—is reviewed by the PERS Board every two years when considering all the actuarial methods and assumptions that are used to assess the system’s financial position.
At its July 28, 2017 meeting, the PERS Board lowered the assumed rate to 7.2 percent. For member transactions, this rate will take effect January 1, 2018. The current assumed rate is 7.5 percent and has been in effect for member transactions since January 1, 2016.
Who does this impact?
During a Tier One member’s career, the assumed rate is used when crediting Tier One regular accounts with annual earnings. Beginning in 2018, annual earnings will be credited based on the new rate of 7.2 percent.
The assumed rate is also used to credit pro-rated earnings to a Tier One member’s regular account upon retirement or withdrawal, so those earnings will also be pro-rated at the new assumed rate.
At retirement, this change will affect the benefits for members whose highest retirement calculation method is either Money Match or Formula Plus Annuity. That’s because, under these methods, a Tier One or Tier Two member’s account is annuitized based on actuarial equivalency factors (AEFs). AEFs convert account balances to monthly payments based on life expectancy and assumed earnings. Annuitizing the account under these calculation methods actually affects the benefit amount paid.
The basic Full Formula benefit is based on final average salary, years of service, and a statutory factor. None of those elements are affected by a change in the assumed rate. However, if the member elects a survivorship benefit option, AEFs are applied, and a change to the assumed rate would affect those factors slightly.
A member would need to retire no later than December 1, 2017, to have the current assumed rate used at retirement.
When the Board changes either the mortality or earnings rate assumptions, AEF tables must be updated. The recalculated AEFs are then used to calculate benefits for members who retire once these updated tables are effective. The actuary will provide updated AEF tables for the Board to adopt at their December 1, 2017 meeting. These updated AEFs will then become effective January 1, 2018.
NOTE: Updated AEFs will be available after December 1, 2017; online and written
benefit estimates will not include updated AEFs until after this date.
Monthly benefit payment amounts for members who retire December 1, 2017, or earlier (before the assumed rate and resulting AEF table changes take effect) will not be affected.
Why did the PERS Board make this change?
The Board revises the assumed rate based on the long-term projection of investment returns that can
be expected from the asset allocations of the Oregon Investment Council and related capital market expectations.
Example of the change for a Tier One member
The example below shows how an assumed rate of 7.2 percent, instead of the current 7.5 percent, would
affect a future retiree under the Money Match formula.
Assumptions used in this example:
Tier One general service member
Age 59 1/2
$135,000 accumulated Tier One member
contribution account balance as of June 30, 2017.
||December 1, 2017
||January 1, 2018
||April 1, 2018
The example above shows that the change in the assumed rate from 7.5 percent to 7.2 percent would require delaying retirement for about four months to reach the initial benefit level.