Pension Reform and Transition Costs
North Dakota Interim Retirement Committee
7
Transition Cost: Myths vs. Reality (cont'd)
2. Discount Rate/Investment Return Assumption: Another policy consulting
actuaries often raise in pension reform discussion is a preference to change
the discount rate/assumed rate of return when closing a defined benefit
pension plan in order to make it less vulnerable to underperforming
investments in the future.
In turn actuaries claim this would require increasing the contributions into the plan
today to account for less expected investment returns decades in the future when
assets are winding down.
Even if you closed the pension tomorrow, you would be paying out liabilities for at
least 50-80 more years, and thus immediate changes to investment policy or
portfolio are not necessary and can be adjusted over time.
Like amortization, North Dakota should consider adopting a lower discount rate for
NDPERS whether new employees are shifted to a new retirement plan or not.
US public pension systems in states like California, New York State, Michigan and
others are now adopting discount rates well below 7%, and so should NDPERS.
While lowering the discount rate might be fiscally prudent, there is no legal or
financial requirement to do so if changing to a new retirement design.
May 23, 2022View entire presentation