April 27, 2017

State Worker Retirement Fund Reduces Investment Return Assumption, Adds $1 Billion To Unfunded Liability

The Board of the PA State Employees’ Retirement System Wednesday announced it has reduced the long-term investment rate of return and the inflation assumptions and continued restructuring the public markets portfolio by shifting $2.1 billion into passive investments.
Capitolwire.com reported the change in assumptions will add $1.02 billion to PSERS’ unfunded liability, which at the end of 2016 stood at $19.5 billion.
The board moved to reduce the assumed rate of return from 7.5 percent to 7.25 percent compounded annually and the annual assumed rate of inflation from 2.75 percent to 2.6 percent compounded annually, effective with the December 31, 2016, actuarial valuation to be published in June.
“Adjusting the assumed rate of return is something this board considers very carefully and reviews each year,” explained SERS Board Chairman David Fillman. “The board feels a quarter percentage point reduction in the long-term rate is right for this fund at this time and reflects a reasonable long-term target to be achieved over the next 20-30 year period.”
Turning to investment activity, the board moved to reallocate $2.1 billion of the public markets portfolio into low-cost index funds. This action will occur over time, following the strategic initiative outlined in the 2016-2017 Strategic Investment Plan (pg. 9).
Both Gov. Wolf and State Treasurer Joe Torsella have been advocating for a change to index-type funds for the last two weeks to reduce investment management costs.
For more information, visit the PSERS’ Investment Program webpage.
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