Chester County trustees review actuarial assumptions; consultant recommends keeping 7% return and updating mortality tables

At the Aug. 26, 2025 meeting of the Chester County Employees' Retirement Fund, the board received a detailed five‑year actuarial experience review and a set of recommended updates to the plan’s actuarial assumptions. The consultant recommended no change to the fund’s 7% long‑term investment return assumption but proposed updates to demographic and expense assumptions that would take effect Jan. 1, 2026 if adopted.

Why it matters: actuarial assumptions underpin the plan’s reported liability and annual contribution requirements. Changes affect how much the county and employees must contribute and the plan’s funded ratio.

Key recommendations and rationale - Investment return and inflation: The consultant recommended retaining a 7% investment return assumption and a long‑term inflation assumption of 2.75%. The consultant said a Monte Carlo simulation of the fund’s asset mix produces a median long‑term return above 7% and that Pennsylvania counties commonly retain a 7% assumption. - Salary and career salary increases: The consultant recommended modeling career salary increases that are higher in early career years (the presentation cited a first‑five‑year pattern implying about 8.75% total increases in early service when combined with inflation, then around 3.75% in later career years) rather than a flat 3.5% for all service years. - Mortality tables and projection scales: The package recommended updating the base mortality table to the more recent Pub 2016 public‑sector mortality table and applying Social Security Administration projection scales; because of the plan’s size the consultant proposed partial credibility adjustments (applying scalars of about 98% for males and 95% for females) rather than adopting the plan’s raw experience as fully credible. - Retirement and termination rates: The actuarial report recommended adjusting retirement rates to reflect actual experience (including lowering the plan’s ultimate assumed retirement age from 80 to 75) and updating service‑based termination rates (the plan saw more terminations than expected concentrated in early service years). The consultant said these pattern changes better match observed behavior and have only a modest net cost impact. - Administrative expense: The consultant recommended adopting an explicit administrative‑expense assumption rather than implicitly expecting investment returns to cover those costs. The report said the 10‑year average administrative expense was about $143,000 and recommended an assumption equal to about 0.12% of payroll, which the presenter described in the slide materials as “the assumption we’re gonna recommend,” and tied that percentage to a recurring dollar estimate shown in the report.

Projected budgetary impact - The consultant presented scenario tables showing modest near‑term impacts: salary and administrative updates alone were shown to raise contribution needs by roughly $1 million in the model; demographic assumption changes added further cost in the presentation that the consultant summarized as a total model impact of about $2.1 million and a funding‑ratio decrease of approximately 0.2 percentage points. The presenter emphasized these assumption changes were not material relative to routine annual experience and that investment returns typically have a larger effect on funded status.

Board process and next steps - The consultant asked the board to consider approving the recommendation package so the changes could be used for the next annual valuation. He said the effective date for adopted changes would be Jan. 1, 2026. Board members asked for corrected or clarified graphs and requested staff provide contribution estimates both with and without the recommended assumption changes for budget planning.

Ending: Trustees did not take an immediate vote on the assumptions at the Aug. 26 meeting; staff and the consultant will return with any corrected slides and the requested budget comparisons before the board considers final adoption.