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Ohio PERS lowers return expectation to 7.2 pct

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Ohio Police & Fire, pension fund, private equity, stone point capital
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  • Why is this important: Weaker return assumptions are trend among U.S. public pensions
  • AUM: $101 bln
  • 11 pct allocation to PE with a 10 pct target

The $101.4 billion Ohio Public Employees Retirement System has lowered its pension plan’s assumed rate of investment return to 7.2 percent from 7.5 percent, based on a more pessimistic near-term view of the capital markets.

OPERS also reduced the assumed rate of return for its Health Care Fund, to 6 percent from 6.5 percent.

The lower assumed rate of return will reduce the system’s funded ratio, calculated at 81 percent before the change, and may affect member benefits and investments as well, according to OPERS.

“Lowering the actuarial rate of return could affect benefits for retirees and working members, so OPERS does not take this step lightly,” Executive Director Karen Carraher said in a news release.

“Determining what steps to make after changing the rate will be a challenging decision.”

The return assumption is more actuarial in nature than investment-related, so it did not directly affect any of the individual asset classes of either fund, spokesman Michael Pramik said.

The board of trustees typically takes up the asset allocation during the first quarter of the year, so it is too soon to predict investment changes,  he added. The lowered return assumption will not affect employer contributions, since those are set by statute, Pramik said.

OPERS previously had lowered its return assumption in 2016, dropping it to 7.5 percent from 8 percent at that time.

The Ohio system isn’t alone in forecasting a rockier investment environment going forward.

Many other pension plans around the country are lowering their assumed rates of return as well, and a July survey of 129 pensions plans by the National Association of State Retirement Administrators showed a median return assumption of 7.45  percent, an all-time low.

Many larger state pension plans, including California Public Employees’ Retirement System and New York Common Retirement Fund, have gone lower than OPERS in recent years, with both settling on 7 percent.

OPERS has allocated 11 percent of its portfolio to PE as of June 30. OPERS’s target allocation to PE is 10 percent, according to Pramik.

Action Item: National Association of State Retirement Administrators’ latest investment return assumptions: https://www.nasra.org/latestreturnassumptions