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Board of trustees changes actuarial assumptions


Board of trustees changes actuarial assumptions
Changes to payroll growth, interest rates effective July 1, 2023

ARIZONA – The PSPRS Board of Trustees at its May meeting voted to continue making conservative adjustments to its actuarial assumptions with the goal of lowering long-term employer costs and increasing savings to taxpayers.

The board’s vote follows the release of its system experience study, completed every five years, and has the effect of continuing a phased-in reduction of actuarial payroll growth assumptions for the public safety, corrections and elected officials retirement plans. The board also voted to reduce its Tier 1 and 2 assumed rate of return for system investments to 7.2 percent from 7.3 percent.

The changes will impact employer valuations and contribution rates beginning July 1, 2023.

“The board’s vote continues the policy goal of reducing payroll growth assumptions that for many employers were unrealistic and a contributing factor to unfunded pension liabilities,” said Board of Trustees Chairman Scott McCarty. “This is a policy that’s designed to improve funding levels, lower contribution rates, and it’s projected to save taxpayers more than $1 billion over the next two decades.”

The PSPRS Board of Trustees implemented its phased-in reduction of payroll growth assumptions in the summer of 2020 in order to avoid negative amortization, which occurs when pension contributions are insufficient to offset the growth in unfunded pension liabilities.

Pension liabilities and contribution rates, calculated annually, are influenced by a variety of demographic, benefit and investment return assumptions and experiences. Click here to watch the PSPRS video on pension financing.

The board’s vote to lower the system’s assumed earnings rate is the first rate reduction since July 2018. Also, the board voted to implement small adjustments to assumptions for inflation, member salaries, and rates for retirement, termination, disability and mortality.