The expected outlook graph shows the status of pension funding if the state meets the legislative assumption of an annual return of 8% over time.  Remember, that 8% is a “smoothed” assumption.  That means that on years with very high return on investment the full amount of the return is not counted but a bit of the extra is applied to each of the years over a four-year period.  So, when earnings are less than 8% that previous excess absorbers some of the loss.  Hence, the earnings/losses are smoothed.

Other factors also come into play.  For example, the actuarial accounting assumes a 4% increase in the CPI.  In recent years it has been less than that.  In fact, we might even see a negative or near zero CPI this year.  A lower CPI will mean lower liabilities and hence better funding.

In the “Expected Investment Outlook” scenario, the actuary assumes an 8% return on investment.  This is the assumption mandated by the legislature.  Also, it is one that is supported by the long-term investment history of the State Investment Board. The plan would remain fully funded through 2015 and then dip barely into the underfunded status until about 2021.  Future contributions could be required to maintain the healthy status.