In the recent shocking news, New Jersey Treasurer declared on Thursday that the state would be revising the expected rate of return on the New Jersey Public Pension system – from 7 percent to 7.5 percent. This comes entirely as a shock as New Jersey continues to grapple with a struggling public pension system. The attempted switch to a higher assumed rate of return, yet to be realized, is an apparent attempt to shield the ailing pension system from higher cost due to its unfunded pension liabilities which currently stands at an estimated $202 billion. The $77.55 billion pension fund only has 30% of the needed funds to cover current and future employee retirement obligations.
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Carlson Capital's Double Black Diamond Fund posted a return of 3.3% net of fees in August, according to a copy of the fund's letter, which ValueWalk has been able to review. Q3 2021 hedge fund letters, conferences and more Following this performance, for the year to the end of August, the fund has produced a Read More
The higher rate will supposedly save the pension fund about $238 million for the state and more than $400 million for local government, according to tot he the office of Acting State Treasurer Elizabeth Maher Muoio. That is assuming they can obtain 7.5% rate of return on investment, a lofty goal by any estimation. Most states have begun lowering their pension fund’s expected rate of return as poor investment returns, and languishing contributions have exacerbated underfunding for many public pension funds. The nation’s biggest pension fund, the California Public Employees’ Retirement System(CalPERS), decreased its expected rate of return to 7% from 7.5% after its pension committee members voted on it in 2016.The New Jersey Treasurer also plans to decrease the New Jersey Public Pension’s rate of return to 7% but only after the fiscal year 2023.
A constant criticism among pension reform advocates is that Public Pension often incorporates an unreasonable discount rate in calculating their debt. This is due to usually overly optimistic projections regarding their expected rate of return on pension fund investments. It is not uncommon to see public pension funds with an expected rate of return of 8%. To put this into perspective, a study by Deloitte found that 90% of the companies included in the study had an expected rate of return between 3.75 percent and 4.25 percent for 2016 fiscal year.