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Florida Retirement System mulls lower return assumption

Ash Williams
Ash Williams, executive director and chief investment officer of the Florida State Board of Administration

Florida Retirement System, Tallahassee, could consider lowering its investment return assumption to 7.25% from the current 7.75%, which could raise employer contributions and lower funded status of the $128.1 billion pension fund, when officials meet at an actuarial conference on the issue Oct. 1.

Ash Williams, executive director and chief investment officer of the Florida State Board of Administration, Tallahassee, in a memorandum said the Florida Retirement System Actuarial Assumption Conference, which develops and sets assumptions for the FRS' actuarial study, “should consider … lowering the return assumption from 7.75% to 7.25% and lowering the wage increase assumption from 4% to 3%.

“The combination of these assumption changes could result in an increase in employer cost (about 2% of payroll) and decrease in reported funded status (about 7% to 8%),” Mr. Williams wrote.

The plan was 88% funded as of July 1, 2011, according to the memo.

Hewitt EnnisKnupp, a consultant to the $157 billion Florida State Board of Administration, which oversees FRS, “estimates the probability of meeting or exceeding a new 7.25% investment return assumption over 15 years is about 55%, vs. the 50% probability for the current 7.75% assumption,” Mr. Williams said in the memo.

In addition, Mr. Williams wrote that legislation that deferred funding of unfunded actuarial liability “may amount to about $1 billion in lower contributions” for the next fiscal year.

Expected to meet at the conference are Kevin SigRist, FSBA deputy executive director as well as representatives of Gov. Rick Scott, who is one of the three FSBA trustees; the Florida Legislature's Office of Economic and Demographic Research; and the Department of Management Services, Division of Retirement.

Required contributions to FRS were $2 billion for the fiscal year ended June 30, 2012, according to a study