The Oregon Public Employees Retirement System board, Tigard, which administers the $76.6 billion pension plan, agreed to leave its assumed rate of return at 7.2%.
According to a recording of the July 26 meeting, the system's actuary, Milliman, recommended that the board not increase its 7.2% assumed rate of return, even though the capital markets outlooks of Milliman and the Oregon Investment Council's general investment consultant Callan are slightly higher than they were at the last actuarial review two years ago.
Instead, Milliman recommended the board retain its existing 7.2% assumed rate of return. Matt Larrabee, a principal and consulting actuary at Milliman, told the board it should consider decreasing its assumed rate to 7.1% or 7%. However, a lower assumed rate of return would increase the pension funds unfunded actuarial liability, he noted. Reducing the assumed rate of return to 7.1% would raise the unfunded actuarial liability by $900 million and to 7% would raise the unfunded actuarial liability by $1.8 billion, the board materials showed.
The current median assumption for large public systems is 7.25%, board materials show.
This is the first time in six years that Milliman has not recommended the board reduce its assumed rate of return.
Before the board vote, Chairwoman Sadhana Shenoy said she supported Milliman's recommendation to retain its current assumed rate of return in order on a preliminary basis in part to keep employer contributions predictable and stable. A lower assumed rate of return would increase employer contributions, Milliman's report shows.
Separately, Kevin P. Olineck, director of the Oregon Public Employees Retirement System, reported that the pension plan return was 7.88% for the year-to-date through June 30. Board materials show the pension fund underperformed its benchmark in all time periods. The pension fund annualized return was 6.52% for the one year ended June 30, compared to its 7.2% benchmark. Its return was 9.34% for the three-year period, underperforming its 9.78% benchmark; 6.65% compared to 7.23% benchmark for the five years; and 10.17% vs. 10.33% benchmark for the 10 years ended June 30.
The pension fund returned 9.4% in the year ended June 30, 2018.
Its target asset allocation is 37.5% equities, 20% in fixed income, 17.5% private equity, 12.5% each real estate and alternative investments and zero its opportunity portfolio.
The pension fund's fiscal year ends Dec. 31.