Robust 2017 Market Lowers Assumed Rate of Return for State Retirement Systems; More Than 13 Percent Overall Investment Return Last Year

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With State of Michigan Retirement Systems’ investments receiving returns of more than 13 percent in 2017, the Michigan Department of Technology, Management and Budget (DTMB) has lowered the assumed rate of return to reduce the overall risk for state retirees and employees vested in the pension system.

The change was made under the new Dedicated Investment Gains policy adopted by state retirement boards and DTMB Director David L. DeVries this past summer. 

“The Dedicated Investment Gains policy ensures that these windfalls in the market are used in a way that will make the state better prepared to weather any downturns in the economy,” said Kerrie Vanden Bosch, executive director of the Office of Retirement Services. “When we lower our assumed rate of return, risk is reduced on the state’s retirement systems, which increases their stability. This is good for the state, our retirees and our hard-working employees.”

Based on the new investment gains (as they relate to pensions), a .45 percentage point drop will be realized for both the Michigan Public School Employee’s Retirement System (MPSERS) and the Michigan State Police Retirement System (MSPRS), bringing them to 7.05 percent. A percentage point reduction of .50 will be applied for the State Employees Retirement System (SERS) which will have a new assumed rate of 7 percent.

The previous assumed rate of return on the state’s retirement systems had been 7.5 percent, which had already been lowered from 8 percent during 2018 budget negotiations.

“I am proud of the job that our investments bureau does in making smart investments for the state and it is great news to see the new Dedicated Investment Gains policy furthering the governor’s mission of becoming more fiscally responsible and helping to ensure assets are protected,” State Treasurer Nick Khouri said.  “It also keeps Michigan in line with a movement across the country toward a more conservative assumption.”

The National Association of State Retirement Administrators 2017 report showed a national median assumed rate of return for state retirement systems at 7.5 percent. The new rates enacted because of the Dedicated Investment Gains policy will put Michigan well below this median.