Pssst...hey, STRS, look what CalPERS has to say about investment profit projections one day after Dennis's presentation....it's dropped to........

From John Curry, March 12, 2011

..... 7.5%! Of course, Dr. Leone has warned you (one day earlier) about highballing of investment profit projections, hasn't he?

John

Dr. Leone said, in his presentation to the Ohio House Health, Aging, Retirement and Pensions Sub-Committee on March 9, 2011, the following. I will quote him,

"Take note that the STRS Board is assuming an average yearly 8.0% positive stock market return over the next 30 years, plus an average yearly 4.0% positive payroll growth of active members over the next 30 years."

http://www.sacbee.com/2011/03/10/3463392/calpers-expected-to-cut-forecast.html

CalPERS expected to cut forecast of portfolio profit

By Dale Kasler
dkasler@sacbee.com
Mar. 10, 2011

In a move that could intensify the debate over retirement costs, CalPERS is considering cutting its official forecast of investment profits by a quarter of a percentage point.

While the change seems subtle, it has major implications for taxpayers and public employees. The less CalPERS assumes it will earn on investments, the more it's likely to demand from taxpayers – probably tens of millions of dollars more.

The California Public Employees' Retirement System already imposed a $400 million rate hike on the state this year to help it recover from huge investment losses in 2008.

Following months of study, CalPERS staff this week said the forecast should be shaved to 7.5 percent a year. It's currently 7.75 percent.

"There appears to be a consensus that returns are expected to be lower … over the next 10 years," staffers said in a memo to CalPERS' benefits and program administration committee. The committee is expected to make a recommendation on the issue next week. The full governing board will have final say."

The investment forecasts rarely change. CalPERS hasn't touched its forecast since 2003.

But in the past year, many public pension funds have reduced their forecasts in the face of economic uncertainty. A big factor is a dramatic fall in interest rates, which hurts bond income.

Among those making changes is the California State Teachers' Retirement System, which cut its forecast a quarter point in December, to 7.75 percent.

CalPERS and CalSTRS earned more than 12 percent each last year, but analysts say returns are softening over the long haul.

Because pension funds depend on investments for about three-quarters of their income, even a slight change in the forecast is big. The quarter-point drop in CalSTRS' forecast means the teachers' fund needs an additional $300 million in annual contributions, officials say.

The cost of public pensions is already a major issue at the Capitol. Last fall the Legislature reduced benefits for newly hired state workers, and Republican lawmakers are pushing Gov. Jerry Brown for additional changes.