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WSJ: 2 Big Public Pensions Warn of Lower Investment Returns

WSJ: 2 Big Public Pensions Warn of Lower Investment Returns

By    |   Monday, 23 July 2018 09:09 AM

The California State Teachers’ Retirement System and California Public Employees’ Retirement System both earned more than 8 percent for the second fiscal year in a row, thanks to a robust performance by stocks and private equity.

However, the nation’s two biggest public pension funds, also known as Calstrs and Calpers, have become cautious and more realistic about their investment targets, the Wall Street Journal explained.

Both rolled back their investment targets this year in an effort to be more realistic about what they can earn in the future. Calstrs dropped its future goal to 7%. Calpers initiated a multistep drop this year that will end at 7% in 2021.

Together they manage $575 billion for 2.8 million public workers and retirees.

Many other public pensions around the country are turning more cautious about future results following a nine-year bull market for U.S. stocks, which remain the single largest holding for most retirement systems. The funds rely on a combination of investment income and contributions from employees, states and cities to fund their mounting obligations to retirees.

The median assumed rate of return held by 130 public pension funds tracked by Wilshire Consulting dropped in 2017 to 7.25%. That median rate was still 8% as recently as 2012.

“We probably want to temper our enthusiasm when we have a year or two years of strong returns because one thing we know for certain is that there will be challenging years,” Wilshire Consulting Chief investment Officer Steve Foresti told WSJ.com.

To be sure, many pension funds for public workers already owe far more in retirement benefits than they have in the bank, and the problem will only grow worse if the economy slows down, according to a recent report.

The study from The Pew Charitable Trusts found that the New Jersey and Kentucky funds are in such perilous shape that they risk running dry.

"Even after eight years of economic recovery — eight straight years of stock market gains — the public pension plans are more vulnerable than they've ever been to the next recession," researcher Greg Mennis told the Associated Press.

Governments have been ramping up contributions to the funds to help cover the promises they've made to retirees, but that leaves less money to spend on schools, police, parks and other core government services.

Another option is reducing pension benefits. A plan to do that in Kentucky led to teacher walkouts earlier this year.

The Pew study, published by the Mossavar-Rahmani Center for Business and Government at Harvard University, examines what would happen to pension funds in 10 states under various economic scenarios.

(Newsmax wire services contributed to this report).

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The nation’s two biggest public pension funds are doing better in 2018. The problem: They don’t think it will last, the Wall Street Journal reported.
pension, investment, returns, calpers, calstrs
Monday, 23 July 2018 09:09 AM
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