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North Carolina lowers assumed rate of return by 5 basis points

Dale Folwell
North Carolina Treasurer Dale Folwell

North Carolina Retirement Systems, Raleigh, is lowering its assumed rate of return to 7.2% from 7.25%, state Treasurer Dale Folwell announced Monday.

The change will begin with the Dec. 31, 2016, valuations for the $90 billion system, which includes the Teachers' and State Employees' Retirement System and Local Governmental Employees' Retirement System, whose boards approved it April 20.

With the change, the funding levels will drop to 95.4% from 95.9% for LGERS and to 91.1% from 91.6% for TSERS. Mr. Folwell, the sole trustee, said in a statement that while the General Assembly has fully funded the pension plans and put them on solid footing, “because the projected rate of return has not been met, we must begin taking gradual steps toward reflecting the actual historical rate.” For the calendar year ended Dec. 31, the system returned 6.3%, and has not earned 7.25% on average for the last 15 years.

“Doing this will provide the best opportunity to meet the state's long-term obligations as well as maintain its AAA bond rating,” Mr. Folwell said.

“When interest rates were high, it was relatively easy to make your assumed rate by just investing in low-risk bonds. Since we have been in an essentially zero interest rate environment for the past 15 years, achieving that same rate in the future is unrealistic,” he said.