January 26, 2017 / 4:06 AM / in 2 years

UPDATE 1-CalSTRS to consider lowering expected return rate

(Adds information about the recommendation, and context)

By Robin Respaut

Jan 25 (Reuters) - The California State Teachers’ Retirement System will consider lowering its expected return rate to 7.25 percent from 7.5 percent, based on economic factors and improvements to beneficiaries’ life expectancies.

CalSTRS Board is scheduled to consider the move during its February meeting. The recommendation was published late on Wednesday on the public pension fund’s website.

The changes are based on new lower assumptions for price inflation and general wage growth, which reduced the probability that CalSTRS would achieve its 7.5 percent return to 50 percent over the long-term, according to the report.

Across the country, public pension funds have been steadily decreasing their expectations for investment returns from an 8 percent median discount rate in 2010 to 7.5 percent today, according to the National Association of State Retirement Administrators.

CalSTRS’s sister fund, the California Public Employees’ Retirement System (CalPERS) in December lowered its expected rate of investment return from 7.5 percent to 7 percent by 2020, citing lower market growth forecasts over the next decade.

CalSTRS must also take into account improvements in beneficiaries’ life expectancies, the report noted.

Under the proposed changes, CalSTRS’s funding ratio would drop to 63.9 percent from 67.2 percent, and contribution rates would rise.

CalSTRS estimates that under a 7.25 percent expected return, the state contribution rate would increase by 0.5 percent of payroll for each of the next five years. Currently, the state contribution rate is 8.8 percent of payroll. (Reporting by Robin Respaut; Editing by Sandra Maler and Muralikumar Anantharaman)

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