Public pensions still targeted
a 7.5% average rate of return in 2016, according to a survey by the National
Conference on Public Employee Retirement Systems (NCPERS).
The average did not change from
2015, despite a majority of funds reporting that they are at least considering
revising their return assumptions.
In the survey, which polled 159
state, local, and provincial government pension funds between September and
November of last year, NCPERS found that nearly 40% had decreased their
actuarial assumed rate of return in 2016.
A further 30% said they were
considering making downward revisions in the future.
Of the pensions that did lower
their return targets between 2015 and 2016, the reduction was an average of
Although annual returns in 2016
were just 1.7%, according to NCPERS, long-term returns were closer to current
targets: Returns over 3-, 5-, and 20-years hovered around 8%, while 10-year
returns were 6.2% on average.
However, in the last year managers
owners alike have raised concerns that returns will be harder to come by
Allocators surveyed by CIO between May and June 2016 said their
“best guess” of actual performance was 6.15%, below average official return
assumptions of 7.35%.
In December, the California
Public Employees’ Retirement System (CalPERS) announced that it would lower its
long-term expected return from 7.5% to 7% over the next three years.
“This was a very difficult
decision to make, but it is an important step to ensure the long-term
sustainability of the fund,” CalPERS Board of Administration President Rob
Feckner said in a statement at the time.
The Florida State Board of
Administration also slightly lowered its return assumption last year, from
7.65% to 7.6%.
Count on Hitting Your Return Target: Research Affiliates; The