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URS reports fund returns near long-term targets but rising payrolls push Tier 2 contribution rate up
Summary
Utah Retirement Systems staff told the committee that investment returns and fund value remain strong but recent payroll growth raised Tier 2 liabilities, producing a preliminary 11.38% Tier 2 contribution rate (up about 0.49 percentage points) that will be charged to members because employer liability is capped.
Utah Retirement Systems (URS) presented an update on fund size, returns and contribution-rate changes, telling the committee that strong investment returns have grown assets while rapid payroll increases in recent years have driven higher pension liabilities for the newer Tier 2 plan.
Dan Anderson and Dee Larson reviewed URS statistics as of Dec. 31, 2024, noting the defined-benefit fund was approximately $48 billion at the end of 2024 and year-to-date assets were roughly $51 billion. Anderson said the fund returned about 7.5% in the referenced period and that the funded ratio remains in the mid-90s, depending on valuation method.
URS staff told the committee that unusually high pay growth during calendar years 2022'24 raised projected liabilities when actuaries updated assumptions. Dee Larson explained the mechanics: actuaries compare expected payroll growth to actual payroll and smooth investment gains over multiple years; the recent three-year payroll band was substantially higher than earlier averages and that difference increased Tier 2 liabilities.
As a result, URS adopted preliminary Tier 2 contribution rates for fiscal 2026'27 that increase the Tier 2 public-employee rate to 11.38%, an increase of about 0.49 percentage points. URS staff explained the employee will pay that increase in the public-employee Tier 2 pool because the employer's statutory Tier 2 liability is capped at 10%. Dee Larson and Dan Anderson said some amortization-rate reductions (which reduce the employer-paid amortization portion) were applied where statutory triggers were met; local government pools saw larger decreases in amortization rates than the state pool because of differences in recent salary experience.
Committee members asked whether the board considered faster funding targets. URS staff described the contribution-rate management plan the board uses: statutory guidance limits early reductions and the board applies four trigger tests (funded ratio, projected years to full funding, prior-year contribution changes and margin between certified and actuarially determined rates) before lowering amortization rates, a structure designed to avoid volatility in employer budgeting.
URS said its best estimate of reaching full funding remains several years away and that the board added a small contingency (about 30 basis points) into this year's calculation to account for pay increases still in the pipeline. Staff said the actuarial valuation cycle and future pay experience will determine the long-term funded-date projection.
The committee received the financial update; URS staff offered to convene a deeper actuarial briefing for members who requested more technical detail.
