Note X – Pensions – State Sponsored (DRS) Plans
The following table represents the aggregate pension amounts for all plans for the year 20XX:
|
Aggregate Pension Amounts – All Plans |
|
|
Pension liabilities |
$ |
|
Pension assets |
$ |
|
Deferred outflows of resources |
$ |
|
Deferred inflows of resources |
$ |
|
Pension expense/expenditures |
$ |
State Sponsored Pension Plans
Substantially all (city/county/district’s) full-time and qualifying part-time employees participate in one of the following statewide retirement systems administered by the Washington State Department of Retirement Systems, under cost-sharing, multiple-employer public employee defined benefit and defined contribution retirement plans. The state Legislature establishes, and amends, laws pertaining to the creation and administration of all public retirement systems.
The Department of Retirement Systems (DRS), a department within the primary government of the State of Washington, issues a publicly available annual comprehensive financial report (ACFR) that includes financial statements and required supplementary information for each plan.
The DRS ACFR may be downloaded from the DRS website at www.drs.wa.gov.
Public Employees’ Retirement System (PERS)
PERS members include elected officials; state employees; employees of local governments; and higher education employees not participating in higher education retirement programs.
PERS is composed of and reported as three separate plans for accounting purposes: Plan 1, Plan 2/3 and Plan 3. Plan 1 accounts for the defined benefits of Plan 1 members. Plan 2/3 accounts for the defined benefits of Plan 2 members and the defined benefit portion of benefits for Plan 3 members. Plan 3 accounts for the defined contribution portion of benefits for Plan 3 members. Although employees can be a member of only Plan 2 or Plan 3, the defined benefits of Plan 2 and Plan 3 are accounted for in the same pension trust fund. All assets of Plan 2/3 may legally be used to pay the defined benefits of any Plan 2 or Plan 3 members or beneficiaries.
PERS Plan 1 provides retirement, disability and death benefits. Retirement benefits are determined as 2% of the member’s average final compensation (AFC) times the member’s years of service. The AFC is the average of the member’s 24 highest consecutive service months. Members are eligible for retirement from active status at any age with at least 30 years of service, at age 55 with at least 25 years of service, or at age 60 with at least five years of service. PERS Plan 1 retirement benefits are actuarially reduced if a survivor benefit is chosen. Members retiring from active status prior to the age of 65 may also receive actuarially reduced benefits. Other benefits include an optional cost-of-living adjustment (COLA). PERS 1 members were vested after the completion of five years of eligible service. The plan was closed to new entrants on September 30, 1977.
Contributions
The PERS Plan 1 member contribution rate is established by State statute at 6%. The employer contribution rate is developed by the Office of the State Actuary, adopted by the Pension Funding Council and is subject to change by the legislature. The PERS Plan 1 required contribution rates (expressed as a percentage of covered payroll) for 2023 were as follows:
| PERS Plan 1 | ||
| [1] Actual Contribution Rates | Employer | Employee* |
| January – June | ||
| PERS Plan 1 | 6.36% | 6.00% |
| PERS Plan 1 UAAL | 3.85% | |
| Administrative Fee | 0.18% | |
| Total | 10.39% | 6.00% |
| July – August | ||
| PERS Plan 1 | 6.36% | 6.00% |
| PERS Plan 1 UAAL | 2.85% | |
| Administrative Fee | 0.18% | |
| Total | 9.39% | 6.00% |
| September – December | ||
| PERS Plan 1 | 6.36% | 6.00% |
| PERS Plan 1 UAAL | 2.97% | |
| Administrative Fee | 0.20% | |
| Total | 9.53% | 6.00% |
* For employees participating in JBM, the contribution rate was 12.26%.
PERS Plan 2/3 provides retirement, disability and death benefits. Retirement benefits are determined as 2% of the member’s AFC times the member’s years of service for Plan 2 and 1% of AFC for Plan 3. The AFC is the average of the member’s 60 highest-paid consecutive service months. Members are eligible for retirement with a full benefit at 65 with at least five years of service credit. Retirement before age 65 is considered an early retirement. PERS Plan 2/3 members who have at least 20 years of service credit and are 55 years of age or older, are eligible for early retirement with a benefit that is reduced by a factor that varies according to age for each year before age 65. PERS Plan 2/3 retirement benefits are actuarially reduced if a survivor benefit is chosen. Other PERS Plan 2/3 benefits include a COLA based on the CPI, capped at 3% annually. PERS 2 members are vested after completing five years of eligible service. Plan 3 members are vested in the defined benefit portion of their plan after ten years of service; or after five years of service if 12 months of that service are earned after age 44.
PERS Plan 3 defined contribution benefits are totally dependent on employee contributions and investment earnings on those contributions. Members are eligible to withdraw their defined contributions upon separation. Members have multiple withdrawal options, including purchase of an annuity. PERS Plan 3 members are immediately vested in the defined contribution portion of their plan.
Contributions
The PERS Plan 2/3 employer and employee contribution rates are developed by the Office of the State Actuary to fully fund Plan 2 and the defined benefit portion of Plan 3.The rates are adopted by the Pension Funding Council, and are subject to change by the Legislature. The employer rate includes a component to address the PERS Plan 1 Unfunded Actuarial Accrued Liability (UAAL).
As established by Chapter 41.34 RCW, Plan 3 defined contribution rates are set at a minimum of 5% and a maximum of 15%. PERS Plan 3 members choose their contribution rate from six options when joining membership and can change rates only when changing employers. Employers do not contribute to the defined contribution benefits.
The PERS Plan 2/3 defined benefit required contribution rates (expressed as a percentage of covered payroll) for 2023 were as follows:
| PERS Plan 2/3 | |||
| [1] Actual Contribution Rates | Employer 2/3 | Employee 2* | Employee 3** |
| January – June | |||
| PERS Plan 2/3 | 6.36% | 6.36% | Varies |
| PERS Plan 1 UAAL | 3.85% | ||
| Administrative Fee | 0.18% | ||
| Total | 10.39% | 6.36% | |
| July – August | |||
| PERS Plan 2/3 | 6.36% | 6.36% | Varies |
| PERS Plan 1 UAAL | 2.85% | ||
| Administrative Fee | 0.18% | ||
| Total | 9.39% | 6.36% | |
| September – December | |||
| PERS Plan 2/3 | 6.36% | 6.36% | Varies |
| PERS Plan 1 UAAL | 2.97% | ||
| Administrative Fee | 0.20% | ||
| Total | 9.53% | 6.36% | |
* For employees participating in JBM, the contribution rate was 15.90%.
** For employees participating in JBM, the minimum contribution rate was 7.50%.
The (city/county/district’s) actual PERS plan contributions were $________ to PERS Plan 1 and $________ to PERS Plan 2/3 for the year ended December 31, 20XX.
Public Safety Employees’ Retirement System (PSERS)
PSERS Plan 2 was created by the 2004 Legislature and became effective July 1, 2006.
PSERS membership includes certain public employees whose jobs contain a high degree of physical risk to their own personal safety. In addition to meeting strict statutory work requirements, membership is further restricted to specific employers including:
- Certain State of Washington agencies (Department of Corrections, Department of Natural Resources, Gambling Commission, Liquor and Cannabis Board, Parks and Recreation Commission, and Washington State Patrol),
- Washington State Counties,
- Washington State Cities (except for Seattle, Spokane, and Tacoma),
- Correctional entities formed by PSERS employers under the Interlocal Cooperation Act.
PSERS Plan 2 provides retirement, disability and death benefits. Retirement benefits are determined as 2% of the AFC times the member’s years of service. The AFC is based on the member’s 60 consecutive highest creditable months of service. Members are eligible for retirement at the age of 65 with five years of service; or at the age of 60 with at least ten years of PSERS service credit; or at age 53 with 20 years of service. Benefits are actuarially reduced for each year that the member’s age is less than 60 (with ten or more service credit years in PSERS), or less than 65 (with fewer than ten service credit years). There is no cap on years of service credit. Retirement before age 60 is considered an early retirement. PSERS members who retire before turning 60 receive reduced benefits. If retirement is at age 53 or older with at least 20 years of service, a 3% per year reduction for each year between the age at retirement and age 60 applies. PSERS Plan 2 retirement benefits are actuarially reduced if a survivor benefit is chosen. Other benefits include a COLA, capped at 3% annually. PSERS Plan 2 members are vested after completing five years of eligible service.
Contributions
The PSERS Plan 2 employer and employee contribution rates are developed by the Office of the State Actuary to fully fund Plan 2. The rates are adopted by the Pension Funding Council and are subject to change by the Legislature. The Plan 2 employer rates include components to address the PERS Plan 1 UAAL.
The PSERS Plan 2 required contribution rates (expressed as a percentage of current-year covered payroll) for 2023 were as follows:
| PSERS Plan 2 | ||
| [1] Actual Contribution Rates | Employer | Employee |
| January – June | ||
| PSERS Plan 2 | 6.60% | 6.60% |
| PERS Plan 1 UAAL | 3.85% | |
| Administrative Fee | 0.18% | |
| Total | 10.63% | 6.60% |
| July – August | ||
| PSERS Plan 2 | 6.60% | 6.60% |
| PERS Plan 1 UAAL | 2.85% | |
| Administrative Fee | 0.18% | |
| Total | 9.63% | 6.60% |
| September – December | ||
| PSERS Plan 2 | 6.73% | 6.73% |
| PERS Plan 1 UAAL | 2.97% | |
| Administrative Fee | 0.20% | |
| Total | 9.90% | 6.73% |
The (city/county/district’s) actual plan contributions were $________ to PSERS Plan 2 and $__________ to PERS Plan 1 for the year ended December 31, 20XX.
Law Enforcement Officers’ and Fire Fighters’ Retirement System (LEOFF)
LEOFF was established in 1970, and its retirement benefit provisions are contained in Chapter 41.26 RCW. LEOFF membership includes all of the state’s full-time, fully compensated, local law enforcement commissioned officers, fire fighters and, as of July 24, 2005, emergency medical technicians.
LEOFF Plan 1 provides retirement, disability and death benefits. Retirement benefits are determined per year of service calculated as a percent of final average salary (FAS) as follows:
- 20+ years of service – 2.0% of FAS
- 10-19 years of service – 1.5% of FAS
- 5-9 years of service – 1% of FAS
The FAS is the basic monthly salary received at the time of retirement, provided a member has held the same position or rank for 12 months preceding the date of retirement. Otherwise, it is the average of the highest-paid consecutive 24 months’ within the last ten years of service. Members are eligible for retirement with five years of service at the age of 50. Other benefits include a COLA. LEOFF 1 members were vested after the completion of five years of eligible service. The plan was closed to new entrants on September 30, 1977.
Contributions
Starting on July 1, 2000, LEOFF Plan 1 employers and employees contribute 0%, as long as the plan remains fully funded. The LEOFF Plan I had no required employer or employee contributions for fiscal year 2023. Employers paid only the administrative expense of 0.20% of covered payroll.
LEOFF Plan 2 provides retirement, disability and death benefits. Retirement benefits are determined as 2% of the FAS per year of service (the FAS is based on the highest-paid consecutive 60 months). Members are eligible for retirement with a full benefit at 53 with at least five years of service credit. Members who retire prior to the age of 53 receive reduced benefits. If the member has at least 20 years of service and is age 50 – 52, the reduction is 3% for each year prior to age 53. Otherwise, the benefits are actuarially reduced for each year prior to age 53. LEOFF 2 retirement benefits are also actuarially reduced to reflect the choice of a survivor benefit. Other benefits include a COLA (based on the CPI), capped at 3% annually. LEOFF 2 members are vested after the completion of five years of eligible service.
Contributions
The LEOFF Plan 2 employer and employee contribution rates are developed by the Office of the State Actuary to fully fund Plan 2. . The rates are adopted by the LEOFF Plan 2 Retirement Board and are subject to change by the Legislature.
Effective July 1, 2017, when a LEOFF employer charges a fee or recovers costs for services rendered by a LEOFF 2 member to a non-LEOFF employer, the LEOFF employer must cover both the employer and state contributions on the LEOFF 2 basic salary earned for those services. The state contribution rate (expressed as a percentage of covered payroll) was 3.41% in 2023.
The LEOFF Plan 2 required contribution rates (expressed as a percentage of covered payroll) for 2023 were as follows:
| LEOFF Plan 2 | ||
| [1] Actual Contribution Rates | Employer | Employee |
| January – August | ||
| State and local governments | 5.12% | 8.53% |
| Administrative Fee | 0.18% | |
| Total | 5.30% | 8.53% |
| Ports and Universities | 8.53% | 8.53% |
| Administrative Fee | 0.18% | |
| Total | 8.71% | 8.53% |
| September – December | ||
| State and local governments | 5.12% | 8.53% |
| Administrative Fee | 0.20% | |
| Total | 5.32% | 8.53% |
| Ports and Universities | 8.53% | 8.53% |
| Administrative Fee | 0.20% | |
| Total | 8.73% | 8.53% |
The (city/county/district’s) actual contributions to the plan were $________ for the year ended December 31, 20XX.
The Legislature, by means of a special funding arrangement, appropriates money from the state General Fund to supplement the current service liability and fund the prior service costs of Plan 2 in accordance with the recommendations of the Office of the State Actuary and the LEOFF Plan 2 Retirement Board. This special funding situation is not mandated by the state constitution and could be changed by statute. For the state fiscal year ending June 30, 2023, the state contributed $87,966,142 to LEOFF Plan 2. The amount recognized by the (city/county/district) as its proportionate share of this amount is $__________.
Actuarial Assumptions
The total pension liability (TPL) for each of the DRS plans was determined using the most recent actuarial valuation completed in 2023 with a valuation date of June 30, 2022. The actuarial assumptions used in the valuation were based on the results of the Office of the State Actuary’s (OSA) 2013-2018 Demographic Experience Study and the 2021 Economic Experience Study.
Additional assumptions for subsequent events and law changes are current as of the 2022 actuarial valuation report. The TPL was calculated as of the valuation date and rolled forward to the measurement date of June 30, 2023. Plan liabilities were rolled forward from June 30, 2022, to June 30, 2023, reflecting each plan’s normal cost (using the entry-age cost method), assumed interest and actual benefit payments.
- Inflation: 2.75% total economic inflation; 3.25% salary inflation
- Salary increases: In addition to the base 3.25% salary inflation assumption, salaries are also expected to grow by service-based salary increase.
- Investment rate of return: 7.00%
Mortality rates were developed using the Society of Actuaries’ Pub. H-2010 mortality rates, which vary by member status (e.g. active, retiree, or survivor), as the base table. OSA applied age offsets for each system, as appropriate, to better tailor the mortality rates to the demographics of each plan. OSA applied the long-term MP-2017 generational improvement scale, also developed by the Society of Actuaries, to project mortality rates for every year after the 2010 base table. Mortality rates are applied on a generational basis; meaning, each member is assumed to receive additional mortality improvements in each future year throughout their lifetime.
Methods did not change from the prior contribution rate setting June 30, 2021 Actuarial Valuation Report (AVR). OSA did make an assumption change to adjust TRS Plan 1 assets, LEOFF Plan 1/2 assets, and LEOFF participant data to reflect certain material changes occurring after the June 30, 2022 measurement date.
Discount Rate
The discount rate used to measure the total pension liability for all DRS plans was 7.0%.
To determine that rate, an asset sufficiency test was completed to test whether each pension plan’s fiduciary net position was sufficient to make all projected future benefit payments for current plan members. Based on OSA’s assumptions, the pension plans’ fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return of 7.0% was used to determine the total liability.
Long-Term Expected Rate of Return
The long-term expected rate of return on the DRS pension plan investments of 7.0% was determined using a building-block-method. In selecting this assumption, OSA reviewed the historical experience data, considered the historical conditions that produced past annual investment returns, and considered Capital Market Assumptions (CMAs) and simulated expected investment returns provided by the Washington State Investment Board (WSIB). The WSIB uses the CMA’s and their target asset allocation to simulate future investment returns at various future times.
Estimated Rates of Return by Asset Class
The table below summarizes the best estimates of arithmetic real rates of return for each major asset class included in the pension plan’s target asset allocation as of June 30, 2021. The inflation component used to create the table is 2.2% and represents the WSIB’s most recent long-term estimate of broad economic inflation.
|
Asset Class |
Target Allocation |
% Long-Term Expected Real Rate of Return Arithmetic |
|
Fixed Income |
20% |
1.5% |
|
Tangible Assets |
7% |
4.7% |
|
Real Estate |
18% |
5.4% |
|
Global Equity |
32% |
5.9% |
|
Private Equity |
23% |
8.9% |
|
100% |
Sensitivity of the Net Pension Liability/(Asset)
The table below presents the (city/county/district’s) proportionate share* of the net pension liability calculated using the discount rate of 7%, as well as what the (city/county/district’s) proportionate share of the net pension liability would be if it were calculated using a discount rate that is 1-percentage point lower (6%) or 1-percentage point higher (8%) than the current rate.
| [2] Plan |
1% Decrease (6%) |
Current Discount Rate (7%) |
1% Increase (8%) |
|
PERS 1 |
$ |
$ |
$ |
|
PERS 2/3 |
|||
|
SERS 2/3 |
|||
|
PSERS 2 |
|||
|
LEOFF 1 |
|||
|
LEOFF 2 |
Pension Plan Fiduciary Net Position
Detailed information about the State’s pension plans’ fiduciary net position is available in the separately issued DRS financial report.
Pension Liabilities (Assets), Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions
At June 30, 2023, the (city/county/district) reported its proportionate share of the net pension liabilities and assets as follows:
| Plan |
Liability (or Asset) |
|
PERS 1 |
$ |
|
PERS 2/3 |
|
|
SERS 2/3 |
|
|
PSERS 2 |
|
|
LEOFF 1 |
|
|
LEOFF 2 |
The amount of the asset reported above for LEOFF Plans 1 and 2 reflects a reduction for State pension support provided to the (city/county/district). The amount recognized by the (city/county/district) as its proportionate share of the net pension asset, the related State support, and the total portion of the net pension asset that was associated with the (city/county/district) were as follows:
|
LEOFF 1 Asset |
LEOFF 2 Asset |
|
|
Employer’s proportionate share |
||
|
State’s proportionate share of the net pension asset associated with the employer |
||
|
TOTAL |
At June 30, the (city/county/district’s) proportionate share of the collective net pension liabilities was as follows:
| Plan |
Proportionate Share 6/30/22 |
Proportionate Share 6/30/23 |
Change in Proportion |
|
PERS 1 |
% |
% |
% |
|
PERS 2/3 |
|||
|
SERS 2/3 |
|||
|
PSERS 2 |
|||
|
LEOFF 1 |
|||
|
LEOFF 2 |
Employer contribution transmittals received and processed by the DRS for the fiscal year ended June 30, 2023 are used as the basis for determining each employer’s proportionate share of the collective pension amounts reported by the DRS in the Schedules of Employer and Nonemployer Allocations for all plans except LEOFF 1.
LEOFF Plan 1 allocation percentages are based on the total historical employer contributions to LEOFF 1 from 1971 through 2000 and the retirement benefit payments in fiscal year 2023. Historical data was obtained from a 2011 study by the Office of the State Actuary (OSA). The state of Washington contributed 87.12% percent of LEOFF 1 employer contributions and all other employers contributed the remaining 12.88% percent of employer contributions. LEOFF 1 is fully funded and no further employer contributions have been required since June 2000. If the plan becomes underfunded, funding of the remaining liability will require new legislation. The allocation method the plan chose reflects the projected long-term contribution effort based on historical data.
In fiscal year 2023, the state of Washington contributed 39% of LEOFF 2 employer contributions pursuant to RCW 41.26.725 and all other employers contributed the remaining 61% of employer contributions.
Pension Expense
For the year ended December 31, 20XX, the (city/county/district) recognized pension expense as follows:
| Plan |
Pension Expense |
|
PERS 1 |
$ |
|
PERS 2/3 |
|
|
SERS 2/3 |
|
|
PSERS 2 |
|
|
LEOFF 1 |
|
|
LEOFF 2 |
|
|
TOTAL |
Deferred Outflows of Resources and Deferred Inflows of Resources
At December 31, 20XX, the (city/county/district) reported deferred outflows of resources and deferred inflows of resources related to pensions from the following:
|
[3] (Plan Name) |
Deferred Outflows of Resources |
Deferred Inflows of Resources |
|
Differences between expected and actual experience |
$ |
$ |
|
Net difference between projected and actual investment earnings on pension plan investments |
$ |
$ |
|
Changes of assumptions |
$ |
$ |
|
Changes in proportion and differences between contributions and proportionate share of contributions |
$ |
$ |
|
Contributions subsequent to the measurement date |
$ |
$ |
|
TOTAL |
$ |
$ |
Deferred outflows of resources related to pensions resulting from the (city/county/district’s) contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended December 31, 20XY [4]. Other amounts reported as deferred outflows and deferred inflows of resources related to pensions will be recognized in pension expense as follows:
|
Year ended December 31: |
[3] (Plan Name) |
|
20X1 |
$ |
|
20X2 |
$ |
|
20X3 |
$ |
|
20X4 |
$ |
|
20X5 |
$ |
|
Thereafter |
$ |
[5] Volunteer Fire Fighters’ and Reserve Officers’ Relief and Pension Fund (VFFRPF)
VFFRPF is a cost-sharing, multiple-employer defined benefit plan administered by the State Board for Volunteer Fire Fighters and Reserve Officers. The Board is appointed by the Governor and is comprised of five members of fire departments covered by Chapter 41.24 RCW. Administration costs of the VFFRPF are funded through legislative appropriation. Approximately 362 local governments, consisting of fire departments, emergency medical service districts and law enforcement agencies, contribute to the plan. In addition, the state, a nonemployer contributing entity, contributes 40 percent of the fire insurance premium tax. Retirement benefits are established in Chapter 41.24 RCW and may be amended only the Legislature.
The VFFRPF plan does not issue a stand-alone financial report, but is included in the annual comprehensive financial report (ACFR) of the State of Washington. The State ACFR may be downloaded from the Office of Financial Management (OFM) website at www.ofm.wa.gov.
Membership in the VFFRPF includes volunteer firefighters, emergency medical technicians, and commissioned reserve law enforcement officers of participating employers. Since retirement benefits cover volunteer service, benefits are paid based on years of service, not salary. Normal retirement is available at the age of 65 with at least ten years of service. The monthly plan benefit formula is $50 plus $10 per year of service, for a maximum monthly benefit of $300. Reduced pensions are available for members starting at the age of 60 with at least ten years of service.
Members are vested after ten years of service. The VFFRPF members earn no interest on contributions and may elect to withdraw their contributions upon termination. Death and active duty disability benefits are provided at no cost to the member. Death benefits in the line of duty consist of a lump sum of $214,000 and funeral and burial expenses of $2,000. Members receiving disability benefits at the time of death shall be paid $500.
Contributions
Contribution rates for emergency medical service districts (EMSD) and law enforcement agencies are set each year by the Board based on the actual cost of participation as determined by the OSA. All other contribution rates are set by the Legislature. Municipalities may opt to pay the member’s fee on their behalf.
The contribution rates for 2022 were as follows:
|
VFFRPF |
|
|
|
|
Firefighters |
EMSD and Reserve Officers |
|
Municipality fee |
$30 |
$105 |
|
Member fee |
$30 |
$30 |
The (city/county/district’s) actual contributions to the plan were $______ for the year ended December 31, 20XX. If applicable: The (city/county/district) has opted to pay members’ fees on their behalf. Contributions on behalf of members were $_______ for the year ended December 31, 20XX.
In accordance with Chapter 41.24 RCW, the state contributes 40% of the fire insurance premium tax to the plan. For fiscal year 2023, the state’s fire insurance premium tax contribution was $4.1 million. The (city/county/district) received $_______ of this amount.
Actuarial Assumptions
The total pension asset for the VFFRPF was determined by an actuarial valuation by the OSA based on a measurement date of June 30, 2022, using the following actuarial assumptions:
- Inflation: 2.25%
- Salary increases: N/A
- Investment rate of return: 6.00%
The actuarial assumptions used in the valuation were based on the results of the OSA’s 2021 Report on Financial Condition and Economic Experience Study, the 2021 Pension Experience Study, and the 2018 Relief Experience Study.
Mortality assumptions used for this plan are consistent with assumptions used for Public Employees’ Retirement System.
Discount Rate
The discount rate used to measure the total VFFRPF pension liability was 6%. To determine that rate, an asset sufficiency test was completed to test whether the pension plan’s fiduciary net position was sufficient to make all projected future benefit payments of current plan members. Based on OSA’s assumptions the pension plan’s fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return of 6% on plan investments was applied to determine the total pension liability.
Long-Term Expected Rate of Return
The long-term expected rate of return on the VFFRPF pension plan investments of 6% was determined using a building-block-method. In selecting this assumption, OSA reviewed the historical experience data, considered the historical conditions that produced past annual investment returns, and considered capital market assumptions (CMAs) and simulated expected investment returns provided by the Washington State Investment Board (WSIB). The WSIB uses the CMAs and their target asset allocation to simulate future investment returns over various time horizons.
Estimated Rates of Return by Asset Class
Best estimates of arithmetic real rates of return for each major asset class included in the pension plan’s target asset allocation as of June 30, 2022, are summarized in the table below. The inflation component used to create the table is 2.25% and represents the WSIB’s most recent long-term estimate of broad economic inflation.
|
Asset Class |
Target Allocation |
% Long-Term Expected Real Rate of Return Arithmetic |
|
Fixed Income |
20% |
2.2% |
|
Tangible Assets |
7% |
5.1% |
|
Real Estate |
18% |
5.8% |
|
Global Equity |
32% |
6.3% |
|
Private Equity |
23% |
9.3% |
|
100% |
Sensitivity of the Net Pension Asset
The following presents the (city/county/district’s) proportionate share of the VFFRPF net pension asset calculated using the discount rate of 6%, as well as what the (city/county/district’s) proportionate share of the net pension asset would be if it were calculated using a discount rate that is 1-percentage point lower (5%) or 1-percentage point higher (7%) than the current rate.
|
1% Decrease (5%) |
Current Discount Rate (6%) |
1% Increase (7%) |
|
|
VFFRPF |
$ |
$ |
$ |
Pension Plan Fiduciary Net Position
Detailed information about the VFFRPF plan’s fiduciary net position is available in the separately issued State of Washington ACFR.
Pension Liabilities (Assets), Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions
At June 30, 20XX, the (city/county/district) reported an asset of $______ for its proportionate share of the VFFRPF plan’s net pension asset. The (city/county/district’s) proportion of the net pension asset was based on actual contributions to the plan relative to total contributions of all participating municipalities. At June 30, 20XX the (city/county/district’s) proportion was ____%.
For the year ended December 31, 20XX, the (city/county/district) recognized pension expense of $______. Deferred outflows of resources and deferred inflows of resources are not material to the VFFRPF plan.
Required Supplementary Information (RSI) - all cost-sharing employers
See RSI requirements at RSI Pension Plan Information.
Instructions to preparer:
[1] This note template assumes a FYE of 12/31. Governments with different fiscal year ends should update these contribution rate tables to disclose the contribution rates during the fiscal year (i.e., a 6/30 FYE government should disclose the rates from July 1 through June 30 of the reporting year). The rates can be found in DRS’s employer handbook, chapter 15, Frequently Asked Questions #8.
[2] See Note 4.C of the DRS Participating Employer Financial Information report for the year ended June 30. Multiply the total net pension liability amounts for each applicable plan by your proportionate share for that plan.
[3] Prepare a separate table for each plan. It is optional to prepare a “total” table that includes all plans.
[4] This should be the next fiscal year (not the current fiscal year).
[5] The VFFRPF plan is not administered by DRS. Individual municipalities’ proportionate share of the net pension liability/(asset) is available at www.bvff.wa.gov.