October 2016 Update

The OPPRS Board met at the regular meeting on Sept. 21st. We received and reviewed the annual Auditor and Actuary reports on the state of the system.

The Auditor stated there were no issues with the system and all of the numbers looked within all acceptable standards.

The Actuary reported the same information and stated our funding ratio has actually increased since last year and the system is now at 98.7% funded.

This is very good, especially in light of the market volatility over the last year. As of August 31st, our plan has $2.25 Billion, and the total unfunded liability is $31 million. Which is not concerning since any public pension in the country that has an 80% or higher funding ratio is considered to have an A rating. Most actuaries and other public pension systems are amazed when they hear our numbers and funding ratio.

A hot pension topic this year, around the country and in Oklahoma, is whether or not to reduce the assumed rate of return for the system. Several pension systems around the country and one in Oklahoma have already reduced their internal rate of return assumption.

This rate determines several factors, one of which is what you are guaranteed if you participate in the Deferred Option Plan (DOP). Our current rate is 7.5%. Over the past 31 years we have experienced an average of 8.29% return and over the last five years our net rate of return has been 7.52%. However, the return has been lower in the past three years, and going forward, the 7.5% rate may be difficult to maintain.

Our Actuary stated that our portfolio supports a better return in future years, but there are no guarantees. The Actuary recommended a disciplined approach of conducting an experience study over the next year and a half before any recommendation should be made about changing our assumed rate of return. This fulfills one of our board duties of “Due Diligence” before making decisions. The national median return of large pension funds, (which we are considered a large pension fund) is around 7.5%. Our board wants to avoid a “lemming” affect on the assumed rate of return decision. In effect…we don’t want to  just reduce our assumed rate of return because other systems have reduced their rate of return. If that is something that becomes necessary it would be for cause.

We continue to pursue litigation on any investments where fraud has been alleged. Many times we request, and obtain, lead plaintiff in the actions. Recent court awards include $23 million from Magnachip, $14 million from Fifth Street Finance Corp., and we expect another $11 million dollar recovery in the near future. Our fund receives its proportionate share of the recoveries, which is based on the involved suit class participants.

The pension system web site contains all of the monthly reports if you want to review them.

Please contact me if you have any questions.

Jeff Pierce
State Trustee
District 6
Oklahoma Police Pension & Retirement System