Chicago Municipal Employees pension fund drops return rate to 7.5%

Chicago Municipal Employees' Annuity & Benefit Fund reduced its assumed annual rate of return to 7.5%, confirmed Michael Walsh, chief investment officer.

The $5.6 billion pension fund's previous assumed rate of return was 8%.

As of Dec. 31, 2011, the pension fund's actuarial assets totaled $5.55 billion vs. liabilities of $12.46 billion, for a funding ratio of 44.6%, according to the pension fund's most recent comprehensive annual report. That ratio was down from 49.8% the previous year.

Mr. Walsh wrote in an e-mail that the decision was based on “the prolonged historically low-interest-rate environment and the plan's significant operating cash flow deficit.”

At a Chicago City Council committee on Oct. 1, Alex Rivera, an actuary with Gabriel Roeder Smith, actuarial consultant for the pension fund, said the 8% assumed return rate was probably too high and could not be supported without a funding correction.

Separately, Mr. Walsh would not comment on reports that the pension fund's board voted to divest investments from gun-makers.

Chicago Mayor Rahm Emanuel had released a statement following the pension fund's board meeting Wednesday applauding the board “for divesting more than $1 million from three companies that manufacture assault weapons.”