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Board lowers assumed earnings rate


Public Safety Personnel Retirement System
State of ARizona
May 31, 2018

Contact: Christian Palmer
Phone: 602-296-3736

Board lowers assumed earnings rate
Effect to be reflected in Tiers 1, 2 rates starting July 2020

ARIZONA – The PSPRS Board of Trustees voted to lower its assumed earnings rate to 7.3 percent from 7.4 percent, effective July 1, 2018.

As a result, employer contribution rates for PSPRS, the Elected Officials Retirement Plan (EORP) and the Corrections Officer Retirement Plan (CORP) could increase in the future. The new earnings rate will be applied as of the June 30, 2019, actuarial valuation date for fiscal 2020-21 employer rates. 

The assumed earnings rate is the long-term return on investment the board expects to earn on the trust’s portfolio. If the market does not allow the portfolio to meet that projection, employer contribution rates could rise as a result. Last fiscal year, PSPRS earned an 11.85 percent net of fee return on investments. The most recent available performance reports for this fiscal year indicate PSPRS is earning a return of slightly above 7 percent.

“I think today’s vote reflects this board’s vision for long-term sustainability of all three of the pensions we manage,” said Board Vice Chairman Will Buividas. “We had to make conservative investment projections and unfortunately this could raise rates in the short term but lowers the bill on taxpayers in the long run.”

The current 7.4 percent assumed earnings rate falls below the 7.5 percent median rate of U.S. pensions identified by Gabriel Roeder Smith, PSPRS’ contracted actuaries. The rate change will determine the required employer contribution rates for so-called “legacy” Tier 1 and 2 employees but does not impact employer rates for Tier 3 members of PSPRS and CORP nor does it change any employee contribution rate.

The assumed earnings rate for PSPRS Tier 3 employees was set at 7 percent by the board last year. Trustees also voted to set the same assumed earnings rate for Tier 3 members of CORP, a group that will consist solely of probation and surveillance officers hired by the Administrative Office of the Courts on or after July 1, 2018.