The Los Angeles Times reports that CalPERS’ chief actuary, Alan Milligan, had recommended lowering the assumed return rate to 7.5%, but also said that the 7.75% rate is “reasonable and achievable.” On Tuesday, the Benefits and Program Administration Committee recommended the board keep the rate steady (see CalPERS Keeps Discount Rate Steady).
According to the Times, the fund says that over the past 20 years its returns averaged 7.9% a year before deducting administrative and investment expenses. Cutting the rate would have forced municipalities statewide to raise their contributions to the fund to make up for the potential future shortfall in the $225-billion investment portfolio.
Critics say the assumption is too high and that pension shortfalls are inevitable if employers and/or employees don’t raise their current contributions to the funds, or if benefits aren’t reduced.
The board of the California State Teachers’ Retirement System (CalSTRS), in December, lowered several long-term actuarial assumptions, including the rate of return on investments from 8% to 7.75% (see CalSTRS Lowers Actuarial Assumptions).