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Board hears educational briefing on member-account interest; DRS replaced 5.5% quarterly crediting with 2.75% daily accrual in 2022
Summary
Staff explained that the Department of Retirement Systems changed member-account interest crediting: through 6/30/2022 accounts earned 5.5% compounded quarterly; effective 7/1/2022 DRS moved to the long-term interest assumption (2.75% at that time) compounded daily following court guidance. The board received the briefing; no action requested.
The board on Sept. 24 received an educational briefing explaining a 2022 change in how accumulated contribution accounts are credited with interest. The Department of Retirement Systems moved from a 5.5% annual rate with quarterly compounding to a daily-accrual model using the plan's long-term interest assumption (2.75% at the time), following court rulings and internal rulemaking.
Jacob White summarized the legal and administrative history. Prior to July 1, 2022, DRS gave 5.5% annual interest compounded quarterly on member accumulated-contribution accounts. After rulemaking, DRS changed to use the long-term interest assumption (then 2.75%) and to accrue interest daily. White told the board the rulemaking authority for the computation is found in state administrative code and that the agency made the change after a court case challenged the quarterly compounding practice.
Why it matters: Accrued interest on member accounts affects refunds, survivor/beneficiary payments that rely on remaining member-account balances and suspended accounts. Under the 2022 change active members who accrued interest after the effective date receive the lower, assumption-based rate compounded daily rather than the prior 5.5% rate compounded quarterly.
Court case and rule change
White said the compounding-frequency change (quarterly to daily) stemmed from a class-action lawsuit involving PERS and TRS members who transferred plans and alleged they lost interest for periods because DRS compounded quarterly and transfers occurred mid-quarter. The court found the quarterly practice was arbitrary and DRS moved to put the accrual approach into rule.
Authority and practice
White noted the WAC and the statute give DRS authority to set interest-crediting methods and that DRS adopted the long-term interest assumption after administrative rulemaking. He said recent actuarial study work will inform whether the long-term assumption used for member-account crediting should be changed in the future.
