Illinois Teachers’ Pension Reduces Return Assumption Again

The trend of public-sector retirement systems reducing investment return assumptions has been going on since 2008.

The Illinois Teachers’ Retirement System (TRS) Board of Trustees reduced its long-range assumed rate of investment return to 7% from 7.5%, a move it says reflects changes in the world economy which have dampened investment results.

This is the third time in the last four years that TRS has reduced its assumed rate of return in order to keep the system in line with economic reality. In 2012, TRS lowered its assumed rate from 8.5% to 8%, and then lowered the rate to 7.5% in 2014

“This is a prudent move for TRS in light of the conditions that we see in the economy,” says TRS Executive Director Dick Ingram. “We will continue to study expected returns as part of our asset allocation review during the coming year.”

The National Association of State Retirement Administrators (NASRA) reported in 2014 that of 126 major state and municipal pension systems across the country, 32 had set an assumed rate of return between 7.5% and 8%; 37 had set a rate between 7% and 7.5%; and 45 had an 8% rate. A 2013 study by the BNY Mellon Investment Strategy and Solutions Group (ISSG) and BNY Mellon Wealth Management found pension plans and other institutions are not expected to achieve their target returns of 7% to 8% over the next 10 years.

Since 2008, 45 public pension plans have reduced their return assumptions, including the two largest public pension systems in the nation.