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NASRA: Public pension funds outperform assumed rates of return

By Warren S. Hersch

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Since 1987, public pension funds have exceeded their assumed rates of investment return, new research shows.

The National Association of State Retirement Administrators, Lexington, Ky., discloses this funding in a March 2013 report on public pension plan investment return assumptions.

At 8.9 percent, the media annualized investment return for the 25-year period ended December 31, 2012 exceeded the most used investment return assumption of 8.0 percent, the report states. The 10-year return is slightly below the average assumption of 7.77 percent.

“Although public pension funds, like other investor, have experienced sub-par returns over the past decade, median public pension fund returns over longer periods meet or exceed the assumed rates used by most plans,” the report states. “Changes in economic and financial conditions are causing many public plans to reconsider their investment return assumptions.

“Such a consideration must remain consistent with the long timeframe under which plans operate, the report adds.

Since 1982, public pension funds have accrued an estimated $4.8 trillion in revenue, of which $29.9 trillion, or 61 percent, is estimated to have come from investment earnings. Employer (taxpayer) contributions account for $1.3 trillion, or 26 percent of the total. And employee contributions total $623 billion or 13 percent.

The survey adds that nearly one-half of 126 public pension plans have reduced their investment return assumption since fiscal year 2008. While 8.0 percent remains the predominant rate assumption (used by 44 of the 126 public pension funds), the average is 7.77 percent.

At year-end 2012, state and local government returns systems held assets of approximately $3.05 trillion, the report states.