Top US pension fund set to adopt RI’s 7.5% investment outlookMarch 13th, 2012 at 4:23 pm by Ted Nesi under Nesi's Notes, On the Main Site
It looks like the nation’s largest public pension fund will follow the example set by Rhode Island, the L.A. Times reports:
A key committee of the board of the California Public Employees’ Retirement System on Tuesday voted 6 to 2 to cut its benchmark assumed rate of return on its investments to 7.5% from a two-decade-old target of 7.75%. …
Alan Milligan, CalPERS’ chief actuary, recommended that the pension fund’s discount rate, which forecasts assumed rates of return on its $236-billion investment portfolio, be lowered to 7.25%.
The bigger change, Milligan said, “is the best course of action for this fund in the long term.” He predicted that CalPERS had a 54% of reaching the 7.25% goal, but only a 1-in-2 possibility of hitting 7.5% in any given year.
The committee, after hearing testimony from local government officials and public sector labor union representatives, voted to take the more conservative approach.
In practice, this change is less dramatic than what happened in Rhode Island – since CalPERS starts at 7.75%, this would be a decrease of 25 basis points, compared with Rhode Island’s one-time decrease of 75 basis points. But it does make Rhode Island’s outlook seem like less of an outlier.
It’s worth noting, too, that changing the investment forecast was only one of the changes made on paper that ballooned Rhode Island’s pension liability last spring. New longevity forecasts that predict longer lifespans for pensioners also had a major impact, as Paul Valletta memorably noted.
• Related: Investment expert: ‘Getting 7.5% … is going to be a challenge’ (Oct. 28)