CalSTRS Votes to Lower Discount Rate

CalSTRS, which previously assumed a 7.5 percent rate of return on investments, on Wednesday voted to lower its discount rate in two stages: first to 7.25 percent, then to 7 percent by 2018.

From the LA Times:

Board members, faced with a widening gap between investment returns and expectations, said they took action to lessen the likelihood that existing retirement promises made to teachers won’t be kept.

“I fear that waiting may put us, the fund, in a more precarious situation,” board member Joy Higa said during a public meeting in San Diego.

CalSTRS had previously assumed a 7.5% rate of return on its $196-billion portfolio. That rate will now be cut in two stages — first to 7.25%, then to a more conservative 7% assumption in 2018.

The average discount rate among the country’s pension systems is 7.62 percent, according to a NASRA brief.

Meanwhile, the 10-year annualized investment return of the average pension fund is 5.8 percent.