The TRS Board of Trustees, at an upcoming three-day meeting, will consider a change in how the financial health of the pension fund is gauged. The change could have a negative impact on the actuarial status of the fund, though it would not affect the market value or TRS's ability to pay benefits. (Note: the market value of the TRS pension fund represents the actual assets on hand; the actuarial value is a projection of the fund's long-term health, comparing expected income/revenue to expected benefit payments over a period of many years.)
On Feb. 14, TRS trustees will review all of the assumptions that go into the actuarial calculations. These include not only the investment return assumption, but factors such as mortality rates, inflation, employee pay growth, and others that would affect benefit payouts in the future.
Currently, when reviewing the TRS fund, actuaries assume that the fund will achieve investment returns of at least 8 percent each year, but the board is expected to consider moving to a 7.5 percent assumption.
Lowering the return assumption will have a negative effect on the actuarial value of the pension fund, which could lead to concern from legislators and other policymakers about the financial health of TRS.
Though the investment markets are currently performing quite well, inthe past 10-20 years there have been several serious dips in the market and many investment professionals believe that 8 percent will not continue to be achievable in the long run. A few years ago, 8 percent was the most common investment return assumption for public pension funds across the country, but most have recently lowered their assumptions, with 7.5 percent being the new median rate.