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 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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