Kentucky County Employees Retirement System, Frankfort, is raising its assumed rate of return to 6.5% from 6.25%, a news release from the Kentucky Public Pensions Authority said Tuesday.
The CERS board at its May 9 meeting approved the increase for both the system's hazardous and non-hazardous pension and health insurance funds, which hold a total of $16.1 billion in assets. The increase was supported by CERS staff, investment consultant Wilshire Advisors and actuarial consultant Gabriel Roeder Smith.
A KPPA spokesman said in an email that it is the first increase in the assumed rate of return since fiscal year 1996, when it was upped to 8.25% from 8%.
Betty Pendergrass, chairwoman of the CERS board said in the news release: "This increase parallels the pension and insurance plans' consistent performance since 1984 of 8.5% to 9% or better. More importantly, the board's funding strategy shifts the funding burden from taxpayers to investment markets with a prudent asset allocation strategy."
The higher assumed rate of return reflects higher interest rates, as well as higher equity market return expectations. In addition, Gabriel Roeder Smith recommended decreasing life expectancy for retirees, based on data that showed retirees are not living as long on average as previously expected, according to the news release.
The KPPA spokesman said the assumed rate of return has gradually been decreased since the hike to 8.25% in fiscal year 1996, down to 7.75% in FY 2006, 7.5% in FY 2015 and finally to 6.25% in FY 2017.
The Kentucky Public Pensions Authority oversees the investment management and benefits administration of the state's retirement systems.