Members of the County Employees Retirement System (CERS) Actuarial Committee discussed on Wednesday a proposal to increase the CERS assumed rate of return by a quarter of a percentage point. The committee did not act on the motion, but the CERS Board of Trustees is expected to take up the matter when it meets next week. CERS actuaries told committee members the incremental increase would be a “prudent” and “very reasonable” change.
The former Kentucky Retirement Systems (KRS) Board of Trustees drastically reduced rates in 2017, significantly increasing employer contributions. KLC advocated in 2018 for the legislature to phase in the rates, which is now complete.
CERS employers will see their first drop in rates on July 1, 2023. Fiscal year 2024 nonhazardous rates decreased slightly to 23.34%, while the hazardous rate dropped to 43.69%. You can see current employer contribution rate projections through fiscal year 2052 here.
Increasing the assumed rate of return from the current 6.25% to 6.50% would decrease those rates even more. Danny White, senior consultant for CERS actuaries Gabriel, Roeder, Smith, and Company (GRS), estimated the change would result in a 1.2% decrease in the nonhazardous rate and a 2.8% reduction for hazardous.
GRS also reported that it expects to make small changes to the mortality assumption and termination rates, which will also result in a slight decrease in employer costs. GRS will have a complete actuarial report detailing all the proposed changes later this month.
Craig Morton, vice president for CERS consultants Wilshire, told the board the change is sound. “All in all, when you consider where this projection is, we feel comfortable saying that raising the rate from six-and-a-quarter to six-and-a-half is certainly reasonable and even below what these expectations would say,” he said.
Wilshire projects CERS can expect a 7.53% rate over 10 years, 7.71% over 20 years, and 7.90% over 30 years. Morton pointed out that the 6.50% is still below those rates and “leaves plenty of room for volatility.”
The CERS Board of Trustees will meet on April 19.
