Indiana cuts return assumption to lowest among big public plans

(Updated at 2:25 PM EDT) Indiana Public Retirement System, Indianapolis, adopted the lowest investment return assumption of any major public plan, lowering it to 6.75% from 7%, according to a statement the fund released last night.

The state also plans to transfer $360 million from its $2 billion in reserve assets to bolster the pension plans the $25.6 billion INPRS oversees. That transfer is in addition to expected pension contributions of $2.3 billion in the current fiscal year.

INPRS is the first among the 126 largest public retirement systems to drop its assumed rate below 7%, said Keith Brainard, research director of the National Association of State Retirement Administrators.

On the rate cut, Steve Russo, INPRS executive director, said in the statement. “This is a prudent move by our board to recognize potential long-term global market realities. The risks and consequences of assuming a too high rate of return justify a conservative approach to this and other actuarial assumptions.”

The INPRS actual investment return for the combined defined benefit assets was an annualized 5.74% for the 10 years ended June 30, Jeff Hutson, chief communications officer, said in an e-mail.

“There is no expected change to the asset allocation,” because of the rate cut, Mr. Hutson wrote in the e-mail. “The lowering of the assumed rate reflects the latest return expectations of the current asset allocation.”

Of the seven plans it oversees, INPRS expects the rate cut will affect only the $12.24 billion Indiana Public Employees Retirement Fund. The reduction is expected to raise PERF contributions by 0.7%, Mr. Hutson said in the e-mail.

Strategic Investment Solutions, INPRS' investment consultant, and actuarial consultants PricewaterhouseCoopers and Nyhart assisted in the retirement system's analysis of its long-term investment return assumption, which has a horizon of eight to 10 years, Mr. Hutson said in the e-mail.

As of June 30, INPRS' allocation was 25.2% public equities, 24.2% fixed income, 13.3% private equity, 10.6% inflation-linked fixed income, 7.9% commodities, 7% risk parity, 6.3% absolute return strategies, 4.7% real estate and 0.8% cash.