Public Pension Plans Return Assumptions Fall To Record Low

From a median average of 8% in 2010, the return assumptions of public pension plans have fallen to record low of 7.45% as of November this year, according to a report from the National Association of State Retirement Administrators (NASRA). The trend has placed even more pressure on the finances of state governments.

Here is an excerpt from a report filed in Chief Investment Officer:

Since 1987, public pension funds have accrued approximately $7 trillion in revenue, said NASRA, of which $4.3 trillion, or 61%, is from investment earnings, with 27%, or $1.9 trillion, coming from employer contributions, and the remaining 12%, or $844 billion, coming from employee contributions. Because public pensions rely on investment returns for a majority of their revenue, the lower the investment returns are, the more governments will have to spend to cover the shortfall.

Of the 128 public pension plans tracked by NASRA, only six still have investment return assumptions at the 2010 median of 8.0%, which is the highest assumed rate of return among the plans, and only 22 have assumed rates of returns of 7.5% or higher. A majority of the plans (69) have assumed rates of return that range between 7.0% and 7.5%, and 37 plans have assumed rates that are 7.0% or lower. Kentucky’s Non-Hazardous Employee Retirement System pension registered the lowest assumed rate of return at 5.25%, and was the only plan among the 128 with an investment return assumption below 6.25%.