Maryland State Retirement and Pension System, Baltimore, reduced its actuarial assumed rate of return to 6.8% from 7.4%.
The $65.5 billion pension fund's board approved the change at its July 20 meeting, spokesman Michael Golden said in email.
The new assumed rate of return is effective July 1, 2022, and was the result of an analysis by the pension fund's actuarial consultant Gabriel Roeder Smith.
According to a presentation from GRS, the new 6.8% assumption is the result of lowering the real return assumption to 4.55% from 4.8%, lowering the wage inflation assumption to 2.75% from 3.1% and the inflation assumption to 2.25% from 2.6%.
The change in the real return assumption specifically is due to investment consultant Meketa Investment Group's calculation that the median expected 20-year investment return for the current target allocation is 7.03% with a standard deviation of 12.9%.
"Meketa has indicated that the probability of achieving the current 7.4% over 10/20 years at 38.5%/44.3%," according to the presentation.
The pension fund's target allocation is 16% domestic equities; 13% private equity; 11% emerging markets equities; 10% each international developed markets equities, long-term government bonds and real estate; 8% absolute return; 7% U.S. credit; 5% securitized corporate and investment-grade bonds; 4% each inflation-linked bonds and natural resources; and 2% international credit.