(October 18, 2018) Yesterday, the OPERS board took action to change the “discount rate” associated with future Defined Benefit Fund investments. The change was important as it effectively dictates how much money OPERS expects to receive from investments and in turn, how much money is available to pay benefits. The lower the expected rate of return, the less likely the fund is to keep their unfunded liabilities to under 30 years, thereby triggering a potential reduction in benefits or other plan design changes that could impact members and employers.
In September, the board was given a report by their actuary firm, GRS Retirement Consulting. The report stated that their current discount rate of 7.5% was too high. Failure to lower it to a level between 6.5% and 7.2% would result in the issuance of a “qualified letter” which is an indicator that the fund is in poor financial health and could have negative consequences for the fund in the future. Needless to say, the board was not eager to receive this letter and wanted to take action to prevent it.
After a vigorous discussion and several failed motions to set the discount rate at various levels between 7.5% and 6.75%, the board settled on a rate of 7.2%. In doing so, the board set a rate that will keep unfunded liabilities under 30 years, and thus avoid the need for legislatively mandated plan design changes. PERI is hopeful that this action by the OPERS board will allow adequate time for our organization to work with OPERS, the legislature, and other stakeholders to address all the implications of reducing the discount rate. We continue to work toward the goal of maintaining the long-term health of the fund while not jeopardizing the benefits PERI members have earned through their years of service.