Nevada public retirement system board lowers investment projections

The Public Employees Retirement System board voted Thursday to lower its expected rate of return on investments for the coming year.

Although PERS has been earning upward of 8 percent even through most of the recession, board members agreed with Brad Ramirez, an actuary with the Segal company, that 7.5 percent is a more realistic rate of return given the slow economic recovery.

But at the same time, the board voted to lower its assumption for inflation over the coming year from 3.5 percent to 2.75 percent. Ramirez said those two changes offset each other since the real rate of return on investment is investment earnings minus inflation.

He said that might not force an increase in premiums but the changes in assumptions for mortality is the big driver of costs in pension plans across the nation. The simple fact is public retirees, like everyone else, are living longer. And every month longer they live means another retirement paycheck. So while longer lifespans are good for the retirees, they hit PERS with added expenses the system can’t control.

The other thing not in control of the system is rising salaries. Every cost of living raise increases the future benefits a public employee qualifies for, again increasing the cost to PERS.

Employee spokesman Kevin Ranft expressed concern lowering the projected rate of return would force PERS to raise premiums.

He said employees, “can’t afford another contribution increase.”

But Controller Ron Knecht said the board’s assumptions are still too generous and risky. He said they should lower projected return on investment to 5 percent and lower inflation assumptions to 1.7 percent which he said is more in line with the state of Nevada’s economic recovery. He predicted the 1.5 to 2 percent inflation over the past six years will remain in that range into the future.

Ramirez will return to the board next month with calculations and estimates of what will happen as a result of those changes in assumptions. But the PERS Board won’t actually decide whether higher premiums are necessary until next year when they build their proposed budget to submit to the governor and legislature.