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PERA warns of funding risk from contribution cuts, opposes discount-rate shifts; private equity allocation and Pinnacle disaffiliation debated
Summary
PERA officials told the committee the pension fund is 69.2% funded and that proposed one-year reductions in employer contributions or shifts in discount-rate assumptions would materially affect long-term funded status; PERA opposes discount-rate changes and flagged a Pinnacle disaffiliation payment around $300M under current law.
Andrew Roth, PERA's chief executive officer and executive director, and PERA staff briefed legislators on the retirement system's financial position, investment performance and legislative priorities.
PERA reported a 2024 net return of 10.8% (slightly under the policy benchmark) and a 10-year annualized net return of 8.3%, and noted a current funding status of about 69.2 percent. On the record, Roth warned that cutting employer contributions or changing discount-rate assumptions to reduce near-term budget costs would shift liabilities to other payers or the state. "Increasing COLAs is a boulder," a PERA official said, describing the outsized actuarial cost of raising annual increases for retirees.
PERA staff also discussed proposed legislative options intended to reduce the likelihood of automatic adjustments (AAP) that would raise employer contribution rates and lower retiree annual increases. Those options include more flexible allocation of the $225,000,000 direct distribution payment and reallocating a portion of current employer contributions away from the health care trust fund toward pension liabilities.
On the Pinnacle issue PERA staff said Pinnacle Assurance is a PERA-affiliated employer whose disaffiliation would trigger a payment to cover its share of PERA's unfunded liability; using PERA's current disaffiliation method (a 5.25% discount rate) the actuarial estimate is roughly $300—6305 million. "At the 5 and a quarter discount rate, that disaffiliation payment to PERA is a little over $300,000,000," PERA staff told the committee.
Legislators pressed PERA on private equity exposure, confidentiality of underlying private equity holdings, fee levels (PERA reported approximately 36 basis points of total cost in 2024), and on how long it might take before retirees could again expect an increase in cost-of-living adjustments. PERA said private equity is targeted near 10% of assets (currently about 8%), that confidentiality of limited-partnership documents is common industry practice, and that meaningful COLA increases would be years away absent market outperformance.
PERA did not propose an immediate statutory change during the hearing; staff requested follow-up conversations and provided actuarial figures for committee review.
