Actuarial Assumptions

The Regents are meeting this week and, as we noted in our review of the preliminary agenda, changes in actuarial assumptions regarding the retirement plan are on the menu. At the time of the preliminary posting, it was not known what the changes were. But as it turns out, the biggies - expected return on investment over the long run (6.75%/annum) and inflation rate (2.5%/annum) are not recommended for change.

It might be noted that mortality and retirement behavior could have been affected by the COVID pandemic. However, the recommended changes that are being put forward seem largely to be projections of retirement behavior. In total, these raise the estimated unfunded liability slightly but lower the normal cost by a small amount. It would be nice if there were included a simple explanation of increases vs. decreases occurring simultaneously. Yours truly's impression is that we are looking at noise in the model being used and that the answer is likely to be "that's what the model says."

Exactly what the Regents will make of all of this will be known shortly. But it is important to note that there is a distinction to be made between estimated measures of such indicators as the unfunded liability and their true value. The true value depends on actual future events which are not known with certainty in the present. These events are not directly affected by the estimates of what those events will turn out to be unless, of course, the estimates trigger changes in Regental policy.