Re: CalSTRS to cut assumed rate of return to 7%

Posted by By at 7 February, at 18 : 27 PM Print

by Richard Dreyfuss

CalSTRS – the California counterpart to PSERS is lowering their annual assumed investment rate-of-return from 7.5% to 7%.  CalSTRS has about 4X the assets under management compared to PSERS.

Note the observation that using 7.25%, the California consultant concluded the plan had a less than 50% chance of meeting that expectation.

Here in PA – SERS remains at 7.5% and PSERS just lowered their rate to 7.25%.   This raises the question of the likelihood of each of these plans meeting their long-term expectations….

If PSERS & SERS were to adopt a 7% assumption, this change alone would increase the unfunded liabilities in each plan by an estimated $2B plan overnight.

Compared to the $74B combined unfunded liability, adding another $4B may seem somewhat insignificant.  Keep in mind, $4B is more than twice what the “reformers” were marketing as “landmark reform” in any of their proposed 2015-16 hybrid plans.

This reality explains why most “reformers” ignore the fundamental concept of actuarial present-value in favor of their preferred political-math analyses such as “savings” of $11B over 30 years (from last session).

Reference: CalSTRS to cut assumed rate of return to 7%

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