Iowa Pension Cuts Investment Target

The Iowa Public Employees’ Retirement System law week slashed its assumed rate of return from 7.5 percent to 7 percent, following in the footsteps of CalPERS’ similar move from December.

The assumption was reduced in order to achieve a “more accurate valuation of future liabilities”, according to the system’s Board.

From the Des Moines Register:

IPERS’ Chief Executive Officer Donna Mueller said in a statement that the IPERS’ Investment Board approved a set of changes after receiving an economic assumption study from Cavanaugh Macdonald, an actuarial consultant from Bellevue, Neb. Other new assumptions anticipate that inflation will be reduced, interest on members’ accounts will decline, and wage growth and payroll growth will decrease

Using the new assumptions with the 2016 data, IPERS’ funded ratio has dropped from 84 percent to 80 percent, Mueller said. IPERS has about $28 billion in assets and an actuarial report issued in December said the pension system had unfunded liabilities of nearly $5.6 billion.

“Even though these changes will have a negative impact on IPERS’ funded ratio, the Investment Board believes that these modifications will provide a more accurate valuation of future liabilities,” Mueller said. “Each year an investment return is less than the assumed return adds to the liability and increases the needed return in future years which can lead to even higher contribution rates.”

Meanwhile, the state is studying the idea of switching to a 401(k) or hybrid system. From the Register:

Gov. Terry Branstad said in January that commitments already made to state and local government workers will be honored, but a state task force will review possible long-term changes to Iowa public employees’ pension programs. Among key changes that will be studied will be whether to offer a 401(k)-style defined contribution retirement plan, which doesn’t promise a monthly check like the traditional defined benefit pension program now offered by IPERS, the governor said. Many Iowa businesses have switched to 401(k) plans.