(August 2, 2012) — As New Jersey’s $69.9 billion public pension system has returned 2.26% for the year, falling far short of its 7.95% assumed rate of return in fiscal year 2012, Indiana has cut its assumption to the lowest among public plans nationwide, reducing it to 6.75% from 7%.
The Indiana Public Retirement System (INPRS) is the first among the 126 largest public retirement systems to lower its assumed rate below 7%, as monitored by the annual Public Fund Survey. “This is a prudent move by our board to recognize potential long-term global market realities,” said INPRS Executive Director Steve Russo in a statement released yesterday on the fund’s June decision. “The risks and consequences of assuming a too high rate of return justify a conservative approach to this and other actuarial assumptions…While many states have struggled to make necessary contributions to their pension funds, Indiana is in an enviable position due to the strong financial discipline of state officials and lawmakers,” he said.
Since 2008, 45 public pension plans have reduced their return assumptions. Most now use 8%, and more than 90% assume 7.5% or more, according to the National Association of State Retirement Administrators.
Following the news of the New Jersey pension system’s 2.26% return figure, its Chief Investment Officer Timothy Walsh told aiCIO: “We just lowered it from 8.25% to 7.95%.” He did not comment on whether further reductions were in the near future.
The preliminary results were released at a meeting of the New Jersey State Investment Council.
New Jersey’s pension system is one of many public schemes in the US to miss its return target. Last month, the California Public Employees’ Retirement System (CalPERS) announced that it gained 1% in the last 12 months, well below its return target of 7.5% and its 20.9% gain the year before.
In an interview with aiCIO featured in its Summer 2011 Issue, Joe Dear, CalPERS’ CIO, commented on the fund’s stellar returns that year, saying: “Honestly, and not taking anything away from the team here, our 20.7% returns in fiscal 2011 were largely the result of market beta. Public equities are about half our $234 billion portfolio, and it is no secret that public equities significantly increased in value over the past year.”
Summarizing his perspective on CalPERS’ 2011 investment return and his future outlook, Dear said: “Obviously, a 20% return undermines the statements of public pension fund critics—that we are unable to reach our target. I think that’s important—that there is still a lot of earning power in these assets—but let’s be clear: There won’t be a string of 20% years in a row. However, it definitely should boost confidence in the ability to operate a sophisticated portfolio successfully within the public sphere.”
Meanwhile, this year, the California Teachers pension fund, or CalSTRS, earned 1.8% as a number of New York City pension funds reported an annual return of 1.7%. Florida’s $122.7 billion fund grew a measly 0.29%.
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