State Board of Investment returns will improve the pension fund status.
The State Board of Investment (SBI) announced last week that for the fiscal year that ended on June 30, 2021, the investment performance for the “combined funds” which include the Public Employees Retirement Association’s (PERA) defined benefit pension plans, was 30.3%. The investment performance is the largest annual increase since 1984 and far exceeded the previous year’s 4.2 percent increase.
The “combined funds” represent the assets for both the active and retired public employees in the statewide retirement systems, the biggest of which are the Public Employees Retirement Association (PERA), the Teachers Retirement Association (TRA), and the Minnesota State Retirement System (MSRS). The PERA defined benefit plans, including the General Plan and the Police and Fire Plan, assume an annual investment return assumption of 7.5%.
PERA’s actuary will be preparing an updated annual actuarial valuation report in the near future and the SBI investment performance will certainly improve the funding status of the PERA Plans. As of July 1, 2020, the PERA General Plan had an actuarial funding ratio of 83.6% while the Police and Fire Plan had a funding ratio of 90.5%.
Although the investment performance is positive news as the pension plans seek full funding, the PERA actuary is recommending that the future investment return assumption be reduced from the current 7.5%. Any future reduction in the assumption will negatively impact the funding status of the plans into the future. Any change in the investment return assumption must be approved by the Legislature.