During the 2017 Legislative Interim, the Pension Funding Council and LEOFF 2 Board adopted new economic assumptions for interest rate, general salary growth, and inflation effective for the June 30, 2017 actuarial valuation.
The discount rate, or valuation interest rate, is the rate we use to determine the present value of future salaries and present value of future benefits. For the
2016 AVR, the statutory requirement for the discount rate was 7.70 percent for all systems except LEOFF 2 (7.50 percent). Beginning June 30, 2017, the new discount rate assumption is 7.50 percent discount rate for all systems except LEOFF 2 (7.40 percent) for the remaining years of the projection.
Return on Assets
Our deterministic and stochastic projections recognize the market value of assets for actual returns through June 30, 2017. For deterministic projections, we assume a 7.50 percent return on investments each fiscal year beyond 2017 (7.40 percent for LEOFF 2).
Stochastic projections rely on a distribution of possible investment returns in order to calculate potential outcomes. The
Investment Return distribution provides a summary of the range of investment returns we might expect in a single year. The range of returns we expect over a longer period will vary from the distribution of returns for a single year.
2016 AVR, the statutory requirement for inflation was 3.00 percent for all systems. Beginning June 30, 2017, the new inflation assumption is 2.75 percent for deterministic projections.
Stochastic projections rely on a distribution of possible inflation rates in order to calculate potential outcomes. The Inflation distribution provides a summary of the range of inflation rates we might expect in a single year. The range of inflation we expect over a longer period will vary from the distribution of inflation for a single year.
General Salary Growth
2016 AVR, the statutory requirement for general salary growth was 3.75 percent for all systems. Beginning June 30, 2017, the new general salary growth assumption is 3.50 percent for deterministic and stochastic projections.
Nominal Revenue Growth
Nominal revenue growth is used to project General Fund-State (GF-S) revenues over the next 50 years.
We use the
Short-Term General Fund-State Forecast table to project revenue into the future. We relied on the
Economic and Revenue Forecast Council's General Fund-State Forecast as the basis of our assumption.
Our long-term projections for GF-S revenue are assumed to grow as a result of three of our assumptions [inflation + population growth + real revenue growth = nominal revenue growth] following fiscal year (FY) 2021. Please see the
RAAS report for additional detail.