We base our annual actuarial valuations on participant and financial data from a single point-in-time and on a single set of ("deterministic") assumptions. These valuations are the basis for determining on-going contribution rates consistent with the state's funding policy and for monitoring funding progress under that policy.

We also prepare projections and risk assessments to further inform the management of the state pension systems. Both our projections and risk assessments project the results of the next 50 years of actuarial valuations using assumptions and methods that vary from those used for an actuarial valuation. Instead of relying on purely deterministic assumptions, we set underlying distributions or functions for each key assumption. This approach ("stochastic" analysis) allows us to demonstrate the potential volatility and range of outcomes for the pension systems.

We disclose some of the assumptions and methods used for the projections and risk assessments below. These assumptions and methods are generally updated annually and do not appear in our reports. Unless noted otherwise, we disclose the remaining assumptions and methods used for projections and risk assessments in the most recent Actuarial Valuation Report (AVR) and the 2016 Risk Assessment Assumptions Study (RAAS). Please see those reports for additional supporting information.

Demographics of New Entrants

The assumed demographic characteristics of future new entrants in the Washington State retirement systems are summarized in the New Entrant Profiles tables.

Plan Growth

For systems that offer both plan 2 and plan 3 we need to develop specific growth assumptions for each plan. The Assumed Growth Rate by Plan table uses both the system growth for open plans and plan election assumptions to provide assumed plan growth rates, by year, for each open plan. Please see the RAAS report for additional detail on the general methods used for setting this assumption.

Please note that while an individual plan may show a negative growth rate, we still assume the plan has new entrants each year according to the Plan Election assumptions. For instance, the number of current members assumed to exit Teachers’ Retirement System (TRS) Plan 3 is greater than the number of assumed new entrants into that plan, but overall the entire TRS system is expected to grow.

Discount Rate

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. The discount rate assumption for projections is 7.50 percent for all systems except the Law Enforcement Officers’ and Fire Fighters Retirement System (LEOFF) Plan 2 (7.40 percent).

Return on Assets

Our deterministic and stochastic projections recognize the market value of assets for actual returns through June 30, 2020. For deterministic projections, we assume a 7.50 percent return on investments each fiscal year beyond 2020 (7.40 percent for LEOFF 2).

Stochastic projections rely on a distribution of possible investment returns in order to calculate potential outcomes. Our stochastic projections use a downside log-stable distribution of investment returns provided by the Washington State Investment Board. 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.

Inflation

For deterministic projections, we assume 2.75 percent inflation for all systems.

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

The general salary growth assumption is 3.50 percent for deterministic and stochastic projections for all systems.

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 GF-S Forecast table to project revenue into the future. We relied on the Economic and Revenue Forecast Council's GF-S 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) 2025. Please see the RAAS report for additional detail.

Assumed Funding Sources

Where an individual works determines how their contributions are allocated from the various sources used to fund retirement benefits. The Projected State and Local Fund Splits table summarizes our assumption for what percent of total employer contributions, for each system, will be allocated from General Fund-State, Non General Fund-State, and Local Government accounts. The PERS, PSERS, and WSPRS assumptions were developed using data from Office of Financial Management (OFM), Washington State Patrol, and Department of Retirement Systems. TRS and SERS assumptions were informed by input from Senate, House, and OFM staff.

This table should not be used to reflect actual obligations for any funding source. We use long-term assumptions to produce our short-term budget impacts. Therefore, our short-term budget impacts will likely vary from estimates produced from other short-term budget models.

Under current law, no contributions to LEOFF Plan 1 are required when the plan is fully funded. When LEOFF 1 was not fully funded, any unfunded actuarial accrued liability (UAAL) was required, under prior law, to be amortized by June 30, 2024.

A LEOFF 1 UAAL can occur under our stochastic projections. When this occurs under these projections, we assume the UAAL will be amortized, through contributions from the GF-S exclusively, over a ten-year rolling period of total LEOFF system salary. This assumed funding method is similar to the current funding method for PERS 1 and TRS 1 except we do not assume a minimum contribution rate for LEOFF 1.

Last Reviewed: 10/16/2020

Last Updated: 10/16/2020