Oregon PERS Holds Rate Assumption Steady

July 29, 2011 (PLANSPONSOR.com) - The Oregon Public Employees Retirement System (OPERS) has voted 4 to 1 to maintain the system’s assumed rate of return. 


The rate of 8%, which has been in place at OPERS since 1989, was voted on at the July 29, 2011 Board meeting.  According to an announcement on OPERS web site, the Board also approved other demographic assumptions for the 2010 Experience Study presented by PERS’ actuary, Mercer. 

That assumption will be used to calculate the pension rates that public employers will pay during the 2013-15 biennium, and it also factors into the benefit calculations for the system’s longest-serving workers, according to the Oregon Statesman. 

The assumed earnings rate is the investment return rate (including inflation) that the PERS Fund’s regular account is expected to earn over the long term and is used to establish employer contribution rates, calculate some retirement benefits, and for crediting Tier One regular accounts with annual earnings, according to the Statesman. 

According to the report, the board had considered reducing the rate of return to 7.5% or 7.75%, in view of the recession’s market effects and soft economy, but the Mercer report indicated that an 8% return was the median return – and most common assumption – used by 120 large public sector systems in the NASRA survey.  Additionally, Mercer cited two market analyses, one using its own numbers and one using data from market consulting firm Strategic Investment Solutions Inc. that both concluded that the 8% assumed rate of return was “in the reasonable range based on current expectation.”  The report also concluded, however, that assumed rates of 7.5%, 7.75%, and 7.90% were also in the reasonable range. 

According to the Statesman, the only vote against the 8% assumption came from PERS board chairman James Dalton.  “Personally, in my own life, I would not bet on 8,” Dalton told the Statesman. “I would be OK with moving the rate down a quarter-point.” 

The Statesman also reported that, after the board’s vote, PERS Executive Director Paul Cleary noted that the pension system already rests on a number of very conservative assumptions outside the assumed rate of return: 

  • Using a 20-year amortization, while many other states use a 30-year window to calculate costs. 
  • Oregon PERS does not “smooth” its investment returns by averaging them over three to five years, which can mask the immediate impact of market losses, another practice commonly used by other states. 
  • The agency updates its mortality tables and employer rates every two years. 
  • Employers are required to make their payments into the system, something that does not happen in some other states, according to the report. 

Oregon PERS was named PLANSPONSOR’s Public Plan Sponsor of the Year in 2007 (see Public Plan Sponsor of the Year: The Oregon Trail).