Largest Illinois Pension May Revise Return Target

The Illinois Teachers’ Retirement System will consider revising its assumed rate of return downward as part of an upcoming asset allocation study, according to a report by Bloomberg.

Return targets have been in the news lately, as the country’s largest pension funds have announced investment results that underperform assumptions. Bill Gross went on Bloomberg TV last week and called for pension funds to revise return targets downward to 4 percent.

More from Bloomberg:

Illinois’s largest state pension, the $43.8 billion Teachers’ Retirement System, plans to take another look at how much it assumes it will make in the coming year as part of an asset allocation study, said Richard Ingram, executive director. Currently it assumes 7.5 percent, lowered from 8 percent in June 2014.

“Anybody that doesn’t consider revisiting what their assumed rate of return is would be ignoring reality,” Ingram, whose pension is 41.5 percent funded, said in a phone interview. The fund has yet to report its June 30 return.


Public pensions over 30-year-or-so horizons traditionally could hit targets for returns of 7 percent to 8 percent. But that was in an era before the Fed began holding down interest rates to stimulate the economy and returns in the stock market were not high enough to offset lower fixed-income investments.

Public pensions have been reducing assumed rates of returns, cutting from a median of 8 percent six years ago to 7.5 percent currently, said Keith Brainard, who tracks pensions for the National Association of State Retirement Administrators. Now “more than a handful” are below 7 percent, he said.


Fund managers that have been counting on returns of 7 percent to 8 percent may need to adjust that to around 4 percent, [Bill] Gross, who runs the $1.5 billion Janus Global Unconstrained Bond Fund, said during an Aug. 5 interview on Bloomberg TV.

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