University of Oregon 2019 Annual Financial Report
Notes to the Financial Statements
For the Year Ended June 30, 2019 (dollars in thousands)
Proportionate share of the net pension liability:
Using discount rate 1.00% lower
Using discount rate 7.20%
■Using discount rate 1.00% higher
Depletion Date Projection
High
Range
OIC
Target
Assumed Asset Allocation
$ 510,638
305,554
Low
Asset Class/Strategy
136,274
Range
Cash
0.0 %
3.0 %
0.0 %
Debt Securities
15.0
25.0
20.0
Public Equity
32.5
42.5
37.5
Private Equity
13.5
21.5
17.5
Real Estate
9.5
15.5
12.5
Alternative Equity
0.0
12.5
12.5
Opportunity Portfolio
Total
0.0
3.0
0.0
100 %
GASB 68, generally requires that a blended discount
rate be used to measure the total pension liability
(the actuarial accrued liability calculated using the
individual entry age normal cost method). The long-
term expected return on plan investments may be
used to discount liabilities to the extent that the plan's
fiduciary net position is projected to cover benefit
payments and administrative expenses. A 20-year high
quality (AA/Aa or higher) municipal bond rate must be
used for periods where the fiduciary net position is not
projected to cover benefit payments and administrative
expenses. Determining the discount rate under GASB
68 will often require that the actuary perform complex
projections of future benefit payments and asset values.
GASB 68 (paragraph 67) does allow for alternative
evaluations of projected solvency, if such evaluation
can reliably be made. GASB 68 does not contemplate a
specific method for making an alternative evaluation of
sufficiency; it is left to professional judgment.
The following circumstances justify an alternative
evaluation of sufficiency for PERS:
• PERS has a formal written policy to calculate an
Actuarially Determined Contribution (ADC), which is
articulated in the actuarial valuation report.
• The ADC is based on a closed, layered amortization
period, which means that payment of the full ADC
each year will bring the plan to a 100 percent funded
position by the end of the amortization period if
future experience follows assumption.
• GASB 68 specifies that the projections regarding
future solvency assume that plan assets earn the
assumed rate of return and there are no future changes
in the plan provisions or actuarial methods and
assumptions, which means that the projections would
not reflect any adverse future experience which might
impact the plan's funded position.
Based on these circumstances, it is the PERS
independent actuary's opinion that the detailed
depletion date projections outlined in GASB 68
would clearly indicate that the fiduciary net position
is always projected to be sufficient to cover benefit
payments and administrative expenses.
Long-Term Expected Rate of Return
To develop an analytical basis for the selection of the
long-term expected rate of return assumption, in July
2015 the PERS Board reviewed long-term assumptions
developed by both Milliman, independent actuarial
and consulting firm, and the Oregon Investment
Council's (OIC) investment advisors. The table below
shows Milliman's assumptions for each of the asset
classes in which the plan was invested at that time
based on the OIC long-term target asset allocation. The
OIC's description of each asset class was used to map
the target allocation to the asset classes shown below.
Each asset class assumption is based on a consistent set
of underlying assumptions, and includes adjustment
for the inflation assumption. These assumptions are
not based on historical returns, but instead are based
on a forward-looking capital market economic model.
Asset Class
Core Fixed Income
Short-Term Bonds.
Compound Annual
(Geometric) Return
Target
8.00 %
3.49 %
8.00
3.38
Bank/Leveraged Loans
3.00
5.09
High Yield Bonds
1.00
6.45
Large/Mid Cap US Equities
15.75
6.30
Small Cap US Equities
1.31
6.69
Micro Cap US Equities
1.31
6.80
Developed Foreign Equities
13.13
6.71
Emerging Market Equities
4.13
7.45
Non-US Small Cap Equities
1.88
7.01
Private Equity
17.50
7.82
Real Estate (Property)
10.00
5.51
Real Estate (REITS)
2.50
6.37
Hedge Fund of Funds - Diversified
2.50
4.09
Hedge Fund Event-driven
Timber
0.63
5.86
1.88
5.62
1.88
6.15
3.75
6.60
1.88
3.84
Assumed Inflation - Mean
2.50 %
Farmland
Infrastructure
Commodities
2019 Annual Financial Report | 39View entire presentation