North Carolina Retirement Systems, Raleigh, lowered its assumed rate of return to 7%, state Treasurer Dale Folwell announced Thursday.
Mr. Folwell is the sole trustee of the $98 billion pension fund, which lowered its rate to 7.2% in 2017 from 7.25% the year before.
The change was unanimously approved by boards of the two main pension funds for teachers and state employees at their meetings Thursday.
The new rate will begin with the Dec. 31, 2017, valuation, but the impact of the change on actuarially recommended employer contribution rates will be phased in over a three-year period. Some of those increases were already expected due to stabilization policies adopted in 2016.
Mr. Folwell said the lower rate was first proposed 20 years ago. Despite being one of the top-five best funded pension systems in the country, "we need to make realistic assumptions regarding our ability to achieve expected returns in the future. We owe it to the General Assembly, taxpayers, public employees and future generations to be transparent and realistic about the true valuation of the pension plans," he said in a statement. The retirement systems were 90.4% funded as of Dec. 31, 2016, the last valuation. The change will reduce the funded status of the affected systems by 2 to 3 percentage points.
On average, the pension fund has not earned its assumed rate of return for the past 20 years. A 2016 asset allocation study conducted by the investment management division projected that the new 7% rate has a slightly greater than 50% chance of being achieved over the next 30 years, Mr. Folwell said.