Hawaii Employees lowers assumed rate of return to 7%

Hawaii Employees’ Retirement System, Honolulu, lowered its assumed rate of return to 7%, effective July 1, said Thomas Williams, executive director of the $14 billion pension fund.

The assumed rate is currently 7.55% and had been scheduled to be lowered to 7.5% on July 1, as part of a plan approved several years ago to incrementally lower the pension fund’s assumed rate of return over three years.

However, Mr. Williams said the pension fund reviews its assumed rate regularly, particularly, with an eye toward the investment environment in the next five to 10 years, and that the pension fund board voted Dec. 12 to lower the rate even further to 7% at the start of the next fiscal year.

A “fairly substantial” increase in employer contributions is expected as a result of the change, Mr. Williams said. He did not have further details at this time.

Muted investment returns for fiscal year 2016 of -0.9% are expected to have lowered the pension fund’s funding ratio somewhat from its previous level of 62.2% on June 30, 2015. Figures for the fiscal ended June 30 are expected to be available Jan. 9.