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Harlingen Fire defends 7.75% assumed return; PRB urges conservative reassessment
Summary
Harlingen Fireman's Relief and Retirement Fund told the PRB its 7.75% assumed return is supported by a consultant study and a recent decade of net returns; PRB members cautioned that many plans should adopt more conservative assumptions and consider higher cash contributions.
Representatives of the Harlingen Fireman's Relief and Retirement Fund answered board questions July 10 about their 7.75% actuarial investment-return assumption and the fund’s oversight practices.
Mario Alvarado, representing Harlingen, and vice chairman Samuel ("Joey") Albritton described a process in which the fund’s consultant and actuary jointly review asset-allocation studies and return expectations before the board votes on an assumption. The fund lowered its assumed rate to 7.75% in 2017 from 8% and later retained a consultant to assist with portfolio reallocation.
PRB investment analyst Robert Munter had placed Harlingen on a short list of plans with higher-than-average return assumptions. Munter and board members asked how the plan’s asset allocation maps to the assumption and whether the actuary had recommended a lower assumption. Harlingen representatives said the actuary did recommend a 25‑basis‑point reduction to 7.50%, but the board and consultant reviewed an allocation study that shows both a 50th‑percentile projection near 6.87% and a 90th‑percentile projection substantially higher; the Harlingen board estimated its likely outcome would fall between those percentiles.
Board members noted practical consequences: a high assumption reduces the actuarially determined contribution and can mask plan underfunding; conversely, a lower assumption raises required contributions and places budget pressure on sponsors. PRB board members and staff urged Harlingen to document the actuarial and consultant analyses and consider (1) the plan’s active-to-retiree ratio and non‑investment cash flows, (2) worst‑case scenarios for multi‑year losses, and (3) ways to increase employer cash contributions rather than rely on investment outperformance.
Harlingen said it will provide PRB staff with supporting materials — including its asset‑allocation study and historical ten‑year net returns — and indicated the board plans to solicit competitive bids for consultant and actuarial services as part of regular governance practice.
Why it matters: Investment-return assumptions drive contribution requirements and liability measures. PRB members said plans that assume returns with less than a 50% chance of attainment are taking meaningful risk and that boards should be ready to justify such outlier assumptions to oversight bodies and plan members.
