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Pension Funds

NASRA says N.J. reduction has company

The reduction in the assumed rate of return for the New Jersey Pension Fund, Trenton, although dramatic, is part of a continuing trend of rate revisions by public pension plans.

"Normally, we see a more typical change of 25 basis points," said Keith Brainard, the Georgetown, Texas-based research director at the National Association of State Retirement Administrators, whose organization says at least 35 public plans have cut their rates since early last year.

New Jersey Treasurer Ford Scudder reduced the $76.6 billion state pension fund's rate to 7.65% from 7.9% in February 2017 for the fiscal year that started July 1, 2017. Last month, he cut the rate to 7% for the upcoming fiscal year.

"We have seen this trend continuing unabated," said Mr. Brainard, referring to the rate reductions. Plan executives cite as reasons their projections that equity returns will be lower and interest rates will remain relatively low, he said.

When plans announce big changes in rate return assumptions, "it's pre-announced and graduated," as with the two large California public pension plans, he said.

The $221.7 billion California State Teachers' Retirement System, West Sacramento, announced in February 2017 that it would cut its assumed rate of return to 7.25% from 7.5% on July 1, 2017, and to 7% as of July 1, 2018.

In December 2016, the now $348.7 billion California Public Employees' Retirement System, Sacramento, announced it would reduce its rate to 7% from 7.5% over the three fiscal years beginning in July 1, 2017.

New Jersey's announcement in less than a year of an aggregate reduction of 90 basis points is "unusual," said Mr. Brainard.

NASRA last published a formal study of assumed rates of return in February 2017, and an updated version will be published next month, said Alex Brown, the association's Washington-based research manager.

In the 2017 study, NASRA found 53 state and local public pension plans had assumed rates of return between 7% and 7.5%, while 52 had rates between 7.5% and 8%. Another 19 had rates of 7% or less, while three had rates higher than 8%.

Preliminary updated results show the number of plans with rates between 7% and 7.5% has climbed to 62, while the number of plans at 7% or less has jumped to 29. Also, the number of plans with rates of 7.5% to 8% has dropped to 35, Mr. Brown said, and only one has a rate higher than 8%.