Adjusting the Investment Return Assumption

The TCDRS Board of Trustees adjusted the long-term investment return assumption to synchronize with long-term return expectations.

The board adjusted TCDRS’ investment return assumption to 7.5% from 8% at their March 11, 2021 meeting.

TCDRS’ long-term outlook anticipates rates and returns remain below historical norms. Expectations of returns have decreased across all asset classes. This is largely due to rate cuts and unprecedented stimulus resulting from the pandemic.

Synchronizing the assumption with TCDRS’ expectations keeps your retirement plan sound and strong for the future. The investment return assumption determines how much benefit funding is anticipated to come from investment earnings versus employer contributions.

Adopting a lower investment return assumption will result in increased employer contribution rates. TCDRS is using tools, such as reserves, to help smooth the impact of this adjustment on your rates.

As an employer, you also have the flexibility and local control to annually adjust benefits to meet your workforce needs and budgets.

Supporting you through this transition and helping you make informed plan decisions is our most important investment.

The board made this decision based on the recommendation of outside consulting actuaries, investment consultants and staff, as well as analysis of long-term market trends.

How it affects employer contribution rates

Adopting a lower investment return assumption means that your required employer contribution rates will increase in 2022.

We are using tools to help smooth the impact of this adjustment. We are refinancing any plan liabilities over a closed 20-year period. In addition, the board of trustees has authorized the use of reserve funds to help offset rate increases.

You also have tools to help with the transition. If you need budget relief, you have the flexibility and local control to adjust your benefits.

There will be no change to the benefits employees have already earned. If you adjust your plan of benefits, then employee benefits going forward will reflect those changes.

Retirees are not impacted by the assumption or any adjustments to benefits and will continue to receive the same benefit amount for their lifetimes.

We are committed to supporting you during this transition. We can help you with benefits and cost studies and can speak to your boards and Commissioners’ Courts. Please contact your Employer Services Representative at 800-651-3848 for more information.

Frequently Asked Questions

What is an investment return assumption?

The investment return assumption is used to determine how much funding is expected to come from investment earnings.

There are many assumptions that go into determining employer contribution rates. The investment return assumption is one of the most impactful on employer contribution rates.

Did the pandemic have any impact on this decision?

The pandemic and unprecedented stimulus has significantly contributed to interest rates and future return forecasts remaining below historical norms.

Hasn’t TCDRS been meeting its long-term return goal?

Yes. Although it is great that we have met our long-term goals in the past, we spend most of our time looking at the future. Our forecasts anticipate interest rates and returns remaining below historical norms.

Why did you wait to change the return assumption?

We have been able to adjust our portfolio to meet our long-term goals without having to reduce the assumption too early.

What happens next?

You will see how the investment return assumption will affect your 2022 plan rates in May when you receive your Plan Assessment. Your Employer Services Representative can help you understand how the return assumption affects your plan. We can also help you evaluate different scenarios if you need to adjust your benefits and costs.

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