PERAC Memo #5 - 2014: Effective Date of Actuarial Assumed Interest for Buybacks

Effective Date of Actuarial Assumed Interest for Buybacks

Summary

PERAC Memo #05/2014 clarifies when retirement boards must begin applying a new buyback interest rate (defined as half the actuarial assumed investment return rate) after a system's actuarial valuation changes its investment return assumption. Boards should apply the new rate—based on the valuation report—starting January 1 of the year following the report's issuance, ensuring uniform application across systems. Boards must review their most recent valuation report's issue date and update buyback/make-up interest calculations accordingly for applications received on or after that following January 1.

Full Text

MEMORANDUM #05, 2014 Robert B. McCarthy M E M O R A N D U M TO: All Retirement Boards FROM: Joseph E. Connarton, Executive Director RE: Effective Date of Actuarial Assumed Interest for Buybacks DATE: January 13, 2014 We have received several questions regarding when a retirement board should start using the new buyback interest rate in instances where a system changes the investment return assumption used in its actuarial valuation. Buyback interest is defined to be one half the actuarial assumed interest rate which is the rate equal to the system’s actuarial assumed rate of return on investments, as determined by the Commission. To ensure that there is a uniform application by retirement boards, going forward, the new buyback interest rate is to be effective on the January 1 immediately following the date an actuarial valuation report has been issued to a Retirement Board. For example, if a system had a January 1, 2013 actuarial valuation performed and the investment return assumption was reduced from 8% to 7.75% as part of the valuation and the report was issued in 2013 , then the retirement system should begin using 3.875% as the buyback interest rate (half of 7.75%) for any buyback or make-up application received on or after January 1, 2014 in which buyback interest is applicable. We trust the foregoing is of some assistance. If you have any questions concerning this matter, do not hesitate to contact the Commission.