PERS recently had a board meeting where it released its 2018 Valuation Report.

The report covers the period ending June 30, 2018. The cover letter notes that since the last valuation, the PERS board increased employer contribution rates from 15.75% to 17.40%. That translates to better funding levels for PERS and more potholes for roads.

Here are the key stats:

  • active members down from 152,382 to 150,687
  • retirees up from 102,260 to 104,973
  • funding ratio up from 61.1% to 61.8%
  • unfunded actuarial accrued liability: $16,940,458,907
  • estimated investment return for 2018: 9.16%
  • assumed investment return: 7.75%

It’s useful to review 10-year (2009-2018) changes to see key trends:

  • participants down from 167,122 to 150,687
  • retirees up from 76,143 to 104,973
  • funding ratio down from 67.3% to 61.8%

Also, from the start of 2012 to June 2018, benefit payments climbed from $1,627,813,430 to $2,500,750,392.

My Take:

A ten year bull market and the funding ratio just does not improve. Imagine what will happen to it when the bull market ends.

The ship is sinking. Even if the investments do return the assumed 7.75% per year (and they probably won’t), it’s still going down because of the reduction of participants and growing number of retirees.

Raising the employer contributions rates will not stop the ship from sinking. It just prolongs it.

Nothing is going to stop the PERS ship from sinking. The only question is when and what happens to the system when it goes under.

There is an emerging view among observes with a clue that PERS systems will blow up nationwide with the next big stock market crash. Maybe that will not be for a few years. Maybe it’s already started. Really, what difference does it make?

It’s going to happen. The only question is when.

Interesting questions include how current participants will grandfather into the new system and how big will cuts be to retirees?

Should participants eligible to retire now go ahead and retire so they are locked into the system? Good question. No one knows because no one is planning the fix.

It’s the ultimate game of kick the can.