(August 10, 2012) – The trustees of Massachusetts’ public pension “unanimously support” reducing the fund’s target rate of return from 8.25% to 8%, according to the state treasury’s Director of Communication Jon Carlisle.
“MassPRIM [Massachusetts Pension Reserves Investment Management Board] is an outlier at 8.25%,” Carlisle told aiCIO. “And 8% is more in line with the realities of the market.” Massachusetts’ Treasurer Steven Grossman heads the pension’s board, and has been actively agitating for a reduced target. Carlisle seemed confident that Grossman will succeed: “It’s a recommendation from the treasurer, but it’s one that’s had near consensus among elected officials and politicians, and unanimous support from the pension board.”
A number of major public pensions have reduced their return forecasts recently. (Others have tried, unsuccessfully.) Out of 126 systems tracked by the Public Fund Survey, only nine, including Massachusetts, assume investment earnings of 8.25% a year. The most common target is 8%, with 44 pensions following it. Still, 54% of public funds in the US forecast annual returns of less than 8%.
Earlier this month, Indiana cut its assumed rate from 7% to 6.75%—the lowest of any pubic fund in the US. Asked why MassPRIM isn’t lowering the rate further than a quarter of a percent, Carlisle responded, “8% is realistic with MassPRIM’s mix of assets, and the board is confident about it.”
A change in MassPRIM’s return target must be made legislatively, and according to Carlisle, Grossman is currently “looking around for a legislative vehicle to attach it to.”