CalPERS Eyes Lower Return Assumption

CalPERS is considering lowering its assumed rate of return, according to a report from Reuters.

Pension fund officials submitted a proposal recommending a reduced return assumption. The fund currently assumes a 7.5 percent annual return.

More details from Reuters:

California Public Employees’ Retirement System officials, gearing up for payouts to exceed fund contributions as baby boomers retire, are considering a proposal to lower its assumed rate of return following periods of strong performance.

The change may require cities and public workers across California to pay more into the system to keep it running, according to documents the fund provided to Reuters on Monday.

Calpers’ board is expected to review the proposal next week, the documents said.

[…]

The plan would reduce the fund’s return assumption of 7.5 percent. Calpers, the country’s largest pension fund, last adjusted its investment target in 2011 when it dropped from 7.75 percent.

The proposal would enable the fund, during periods of significantly high performance, to reduce its assumptions of future investment returns. For example, if investment returns exceeded expectations by 10 percent, Calpers would reduce its expected returns by 0.15 percent the following fiscal year.

CalPERS recently disclosed that it expects a cash flow deficit for the next 15 years as waves of baby boomers retire and begin collecting their pension checks.

A reduced return assumption would translate into higher required contributions from the state and workers.

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