Oklahoma Teachers lowers assumed rate of return

Oklahoma Teachers' Retirement System, Oklahoma City, lowered its assumed rate of return to 7.5% from 8%, said Tom Spencer, executive director of the $14.2 billion fund, in an e-mail.

The change was approved at Wednesday’s board of trustees meeting and will be incorporated into the pension fund’s actuarial valuation as of June 30.

The rate was lowered among expectations of low inflation and interest rates moving forward, Mr. Spencer said.

“Ten years ago a fund could count on earning 5%-6% on bonds and perhaps 9%-10% on equities. A core bond portfolio in the near future will struggle to get that return. We cannot count on equities out-performing consistently over historical averages,” Mr. Spencer wrote.

He added that “most investment advisers are counseling a more pessimistic return picture over the next several years” and 7.5% or slightly lower is now the median assumed rate of return for public pension funds.

Contribution rates, which are statutorily set in Oklahoma, did not change with the board’s vote. “When (contribution rates) are statutorily set by the Legislature, they can be set based on the will of the Legislature,” Mr. Spencer said. “Nothing requires them to include reasons for the rates. The current employee and employer contributions have been in statute and not amended for several years. Fortunately, prior Legislatures and governors have also enacted legislation that provides Oklahoma Teachers Retirement with dedicated revenue from income and sales taxes, lottery revenue, etc., which is in addition to the contribution income.”

Employees currently contribute 7%. Higher education employers contribute 8.55% of covered salary and all other employers, 9.5%.