PEER commissioned an independent actuary to review public statements by the Board of Trustees of the Public Employees' Retirement System (PERS) to determine whether the statements accurately reflect the actuarial status of the system and the adequacy of benefits.
PEER's actuary found that when discussing the system's health, the board places too much emphasis on the amortization period of the unfunded actuarial accrued liability as a measure of the system's funding status. This measure tends to inspire calls for increased pension benefits without proper consideration for the long-term funding of the system. The board should use the ratio of unfunded actuarial accrued liability to covered payroll as a measure of the system's health. Since the system's funding is calculated as a percentage of payroll, this measure directly relates to the funding method.
Although PEER's actuary states that the current method of calculating the annual Cost of Living Adjustment (COLA) has not resulted in inequity, the actuary states that reasonable differences of opinion may exist over the need for changes in the PERS COLA or for ad hoc benefit increases for current retirees.
The actuary recommends that the PERS Board use a combination of measures of funding progress when publicly discussing the actuarial status of the system and that any increase in benefits should be funded wholly or partly by an increase in contributions rather than exclusively by an extension of the amortization period of the unfunded accrued actuarial liability.
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