The board of the Public Employee Retirement System approved lowering a key investment rate at its meeting Friday, which will increase costs for state and local governments.
PERS board members agreed to lower the assumed rate of return by a quarter point to 7.5 percent, starting in 2017.
The lower rate will likely shift some of the retirement burden to public employers, requiring them to give larger contributions to cover benefits for retired government workers. The decision will also rein in what some retirees can expect to receive.
The assumed rate is what it sounds like: It’s what government officials assume will be earned in the market by billions of dollars in retirement funds. It’s part of a complicated formula to cover retirement obligations. The assumed rate is also the guaranteed return for the most senior PERS retirees.
Two years ago, the PERS board cut the rate to 7.75 percent. Before that, it had been 8 percent for decades.
Financial consultants again advised the board a lower assumed rate would be closer to what the market will deliver.
The PERS equation is further complicated by a recent court decision, which negated limits on cost-of-living increases for retirees who are living longer.