More than three-fourths of public pension plans have reduced their investment return assumptions since 2010, to a median rate of 7.5%, according to a new brief from the National Association of State Retirement Administrators.
“The length of the trend and the magnitude of the trend are both unprecedented. The reality of lower return assumptions is inevitable,” said Keith Brainard, NASRA research director.
A sustained period of low interest rates since 2009 has caused many public pension plans to re-evaluate their long-term returns expectations, NASRA noted. As of Sept. 30, state and local government retirement systems held assets of $3.82 trillion and a funded status of 73%.
From 1986 to 2015, investment earrings accounted for 63% of public pension financing, NASRA found, which means that shortfalls in long-term expected investment earnings have to be made up by higher contributions or reduced benefits. The brief compares assumptions with actual investment experience, and shows each major pension plan's assumed rate of return as of February 2017.
The brief is available on NASRA's website.