The County Employees Retirement System (CERS) Board of Trustees voted Tuesday afternoon to adopt new assumption rates for Fiscal Year 2025, that should result in a decrease in employer contribution rates beginning July 1, 2024. The board followed recommendations from its actuary ‒ Gabriel, Roeder, Smith, and Company (GRS) ‒ and consultant, Wilshire. The change would result in a -2.82% change in nonhazardous employer rates and a -4.17% change for hazardous.
That means CERS nonhazardous employers would pay 20.52% instead of 23.34%, the Fiscal Year 2024 rate. Hazardous employer contribution rates would change from 43.69% to 39.52%. Both systems’ unfunded liability also changes – nonhazardous would become 55% and hazardous 49.9% funded.
While three CERS trustees voted against the change, Bill O’Mara, Merl Hackbart, and Martin Milkman, the other five were a yes ‒ Betty Pendergrass, Lisle Cheatham, J. Michael Foster, Jerry Powell, and Patricia Carver. Cheatham pointed out that the system has historically surpassed its current 6.25% rate, and the incremental change to 6.50% could significantly impact local governments. “I think that’s the only fair thing to do for those partners and taxpayers,” he said.
Wilshire Managing Director David Lindberg supported the conservative change. “Those expected returns are quite solid from what they were a year and a half ago,” he noted. “You are in a situation where you can comfortably increase that expected level of return, as you’re talking about, and probably do that with a reduced level of risk as well.”
He stressed that the CERS expected rate of return over 10 years is 7.53%. The 20-year expected rate is 7.71%, and 7.90% for 30 years. He added that Wilshire would monitor investments throughout the year and recommend changes if warranted.
GRS also recommended minor demographic changes, such as mortality and inflation rates, which contributes to the reduction in the employer contribution rate.
The board will take a final vote on Fiscal Year 2025 rates at its December meeting.