Survey of NASRA Members’ Recent and Anticipated Changes

to Inflation and Investment Return Actuarial Assumptions

Conducted May 2003

 

  1. Have you revised your inflation rate assumption within the past 12 months?

Yes: 5

No: 31

Don’t use an inflation assumption: 1

No response: 1

 

  1. What was the previous assumed rate of inflation and what is the revised rate?

·        4.5% is now 4.0%

·        Previous was 4.0%.  Current is 3.5%.

·        Previous:  3.5%  Revised: 3.25%. This does not include wage growth.

·        Previous 3.5%  Revised 3.0%

·        Wage inflation assumptions prior to 6/30/02 were set at 4.5%.  After this date  the assumption was lowered to 4.0%;  Price inflation assumptions have also been adjusted from 4.5% prior to 6/30/02 to 3.5%.

 

  1. Have you revised your assumed rate of investment return within the last 12 months? 

Yes: 1

No: 37

 

  1. What was the previous assumed rate of investment return and what is the revised rate?

·        Our nominal rate of return assumption of 8.5% has not changed; however, with the change in our price inflation rate from 4.5% to 3.5%, the real rate of return assumption increased from 4% to 5% effective 6/30/02.

 

  1. Do you expect your system's assumed inflation rate or rate of investment return to be changed within the next twelve months?

Yes: 0

No: 26

Comments: 11

·        Our recent actuarial audit identified our inflation rate and investment return assumptions were at the higher end of the reasonable range.  We will review them during our next experience study.

·        We revised our assumptions in December 2001 as part of our normal experience study.

·        We will be reevaluating our assumed rate in the next 12 months

·        The possibility does exist if the KRS Board of Trustees chooses to conduct an experience study earlier than expected.

·        We will be doing an Asset/Liability Study this summer and will consider it based on the results.

·        We conduct an experience study every five years.  That study is due this year and I expect assumptions will change.

·        Consideration will be given to changing both.

·        No, we are comfortable with the 8% investment return and we reduced our inflation rate 2 years ago from 5% to 4.5%.

·        Will do an experience study in the next 4 months and make decision based on results and recommendations of actuary.

·        In 2003-4 we will be completing our 5 year experience studies which may cause us to change them

·        Probably not.

·        We reviewed these assumptions in late February and decided not to change them and not to change the salary growth assumption -- ergo, the spread did not change.

 

  1. Additional comments

·        IMRF's assumed rate of investment return is 7.5%

·        State statute requires five-year experience review. This was done last year. Inflation and salary increase assumptions were lowered. Investment return assumption was maintained; real rate of return assumption was increased.

 

 

Note: A graphical summary of inflation and investment return assumptions is accessible here: http://www.publicfundsurvey.org/ado/assumedrates.pdf