CalPERS to Maintain Return Assumption
Posted on Sun, Apr 10, 2011
CalPERS has voted to maintain the current rate of return assumption for their investments despite the recommendation from their actuary that they lower the assumptions. CalPERS is the largest public pension fund in the U.S. with nearly $230 billion in assets, they currently have a return assumption of 7.75%.
Critics of current pension fund structures have blamed overly optimistic return assumptions for the current shortfalls faced by most pensions. Currently CalPERS is roughly 70% funded. The recommendation was to lower the return assumption to 7.50%.
CalPERS has lowered the return assumption before, moving to the current 7.75% from 8.00% in 2004. Lowering the return assumption another .25% would have increased the contribution obligations required of California governments.
The vote maintains pressure on the fund to take risk in order to achieve their assumed return. With the paltry returns on U.S. treasuries, achieving a 7.75% return requires large allocations to equity markets as well as alternatives, and the risks that come with these investments. Nevertheless, the committee voted to maintain the return assumption at its current 7.75% rate.
