CalPERS Proposal Exemplifies Broader Trend of Target Return Reduction

This week, Pension360 covered a CalPERS proposal to lower its investment return assumption from 7.5 percent to as low as 6.5 percent.

If CalPERS goes through with the change, it will hardly be the first fund to do so in recent months. Pension funds across the country are scaling back their return targets and decreasing their reliance on high investment returns.

CNBC reports:

“We’re in the midst of what I would call a secular shift in the return assumptions,” said Keith Brainard, research director of the National Association of State Retirement Administrators. “That has occurred particularly in the wake of sustained reductions of interest rates.”

“It’s a longer-term issue,” Brainard said of the trend by public pension funds to reduce their targets. “There’s a continuous, ongoing review of, among other factors, the [return] rate by all or most public pension funds, so there’s a continuous, multiyear trend toward lower rates.”

[…]

“From our perspective, this is sort of an ongoing trend,” said Amy Resnick, editor of the trade publication Pensions & Investments.

Resnick noted that Oregon’s public employee pension fund lowered its assumed rate of return this summer from 7.75 percent to 7.5 percent.

“Two years ago, they had gone from 8 percent to 7.75 percent,” she said.

The New York State Common Retirement Fund, which is the third-biggest public pension fund in the U.S., cut its target last month from 7.5 percent to 7 percent. The target had been as high as 8 percent in 2010.

CalPERS last lowered its return assumption in 2011, when it was reduced from 7.75 percent to 7.5 percent.

Photo by  rocor via Flickr CC License