Retirement Board Lowers Rate of Return

The Nebraska Public Employees Retirement Systems Board of Directors approved a plan to lower the assumed rate of return for retirement plan investments from 7.5 percent annually to 7 percent. The drop will take place incrementally, over the next four years.

Lowering the assumed rate of return increases the chance that the rate of return will be met in future years. The move was suggested by representatives of Cavanaugh Macdonald Consulting, a firm that advises the board, during a presentation in November.

The plan, approved in December, lowers the assumed rate of return from 7.5 percent to 7.3 percent the first year, and then to 7.2 percent, 7.1 percent and 7 percent in the ensuing three years.

In October 2016, the board reduced the actuarial assumed rate of investment return on plans from 8 to 7.5 percent annually, effective July 1, 2017. At the time, consultants said lowering of expectations was an industry trend, and that before the Great Recession, 60 percent of retirement plans used the 8 percent assumed rate. By 2016, that figure had fallen to 20 to 25 percent of retirement plans.

In 2016, the drop from 8 percent to 7.5 percent, combined with a slight upward adjustment of mortality rates, reduced the projected school plan funded rate to 84 percent in 2019. However, that drop was never realized, and the plan’s sturdiness has strengthened each year since. At the board’s annual review of the plan in November, the plan’s funded ratio was 91.65 percent, much improved over the 77 percent funded ratio of seven years ago.