Investment returns assumptions are declining among US public pension funds, a February 16 Moody’s Investors Service report noted. At a time when pension investment volatility is high, governments are making higher pension contributions as a result of lowered assumed discount rates, as exemplified by the California Public Employees’ Retirement System (CalPERS) among others.

Public Pension

Public pension returns expectations fall as volatility remains constant

It is a difficult realization to make. The model upon which you based projections has, it turns out, a faulty assumption. In a world with negative interest rates and upside-down economic policy, who could have predicted that interest rates – upon which many pension fund investors depend – would be so low or non-existent.

In the case of public pension funds, this means estimates for returns that drive retirements of government workers need to be adjusted.


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