FRANKFORT, Ky. – The County Employees Retirement System (CERS) Board of Trustees voted on May 9, 2023, to increase the assumed rate of return for its investment portfolios to 6.50% from 6.25%. The increase covers the CERS Nonhazardous and Hazardous pension and insurance funds, which as of March 31, 2023, comprised $16.1 billion in assets.
The move was supported by KPPA Investment staff, investment consultant Wilshire, and the systems’ actuary GRS. Betty Pendergrass, CERS Board Chair, said, “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 change was announced in a news release from the Kentucky Public Pensions Authority.
Factoring into expected capital market returns were higher interest rates and higher equity market return expectations following the market decline in recent years. Actuary GRS also recommended decreasing life expectancy for KPPA retirees overall based on data that shows retirees are not living as long on average as previously expected.
As they do each year, GRS will perform an actuarial valuation for the Fiscal Year (FY) ended June 30, 2023, that will incorporate the new assumed rate of return and demographic assumptions, as well as actual experience from FY 2023.
GRS projected that the 25-basis point increase in the assumed rate of return, coupled with the recommended demographic changes, could lower the CERS Nonhazardous employer contribution rate by 2.82 percentage points to 20.52% for Fiscal Year 2025, which begins July 1, 2024. The CERS Hazardous employer contribution rate could fall by 4.17 percentage points to 39.52% for Fiscal Year 2025. The CERS Board will review these rates after the June 2023 actuarial valuation is complete.
The meeting materials are available here and a video of the meeting is available here.
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