California State Teachers’ Retirement System, West Sacramento, cut its assumed annual rate of return to 7.5% from 7.75%, the second reduction since 2010.
The board of the $144.8 billion fund voted Thursday to adopt an actuary’s recommendation to lower its investment forecast because of what a staff report called “dramatic market declines” beginning in 2008.
The change means the plan will need larger contributions from taxpayers, teachers, school districts, or a combination of all three, to cover pension costs. The fund had 71% of what it needs to pay future benefits as of June 30, 2010. Lowering the rate adds $5.9 billion to its $56 billion shortfall, according to Milliman, the fund’s consulting actuary.
“It’s better to err on the side of being conservative,” said board member Sharon Hendricks. “I certainly do that with my personal finances.”
CalSTRS posted a 2.3% investment gain in 2011; for the 10 years ended Dec. 31, the fund gained 5.4%, according to a statement.
The CalSTRS board last cut its assumed rate from 8% in December 2010, rejecting a staff proposal to make it 7.5%.
Of the 11 U.S. pension funds with assets of more than $50 billion, CalSTRS and retirement systems in Wisconsin and New York reduced their assumptions since 2007-‘08, according to the staff report to the CalSTRS board.
