The colorado public employees retirement association

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The Colorado Public Employees Retirement Association showed in its 2009 financial report the impact of reducing the rate. Using a 8% expected return rate, the plan faced a $23.4 billion deficit, based on market values, at the end of 2009. If the rate was cut to 6.5%, the shortfall would jump to $34 billion. Meredith Williams, the Colorado plan's chief executive, says cutting the rate "creates pain." Nevertheless, Colorado at year-end of 2009 cut its return assumption to 8%, from 8.5%. Mr. Williams says the rate may be lowered again later this year. Others have been more hesitant. In 2009, Matt Smith, state actuary for Washington state, recommended that its retirement system cut its return expectation to 7.5%, from 8%. That advice was rejected by the state's pension-funding council. Mr. Smith says he thinks Washington and other states eventually will lower expected returns, but that it will be a slow process because reduced assumptions "will increase the cost of pension benefits, and right now the budgetary environment is a big obstacle to that." Pension plans say they take a decades-long view of potential returns. "We can't knee-jerk our way through this. Funding a retirement system is a long-term proposition," says David Stella, secretary of Wisconsin's department of employee trust funds. Last year Wisconsin's plan reviewed its expected return rate of 7.8% and remains comfortable with it, he says. Companies have found out the hard way that their options are limited. From 2005 to 2009, S&P 500 companies with pension plans expected to generate about $475 billion in returns. The actual returns were only about $239 billion, a 50% undershoot, according to Jack Ciesielski of the Analyst's Accounting Observer. In recent years, some funds have tried to boost returns by shifting funds out of stock and into alternative investments such as hedge funds or private equity. Some find this approach too risky. This summer, the Virginia Retirement System cut its expected investment rate to 7%, from 7.5%, giving it the lowest assumption among the nation's 15 largest pension systems. The shift began in 2005, when the plan's board cut the rate to 7.5%, from 8%. "There was a general thinking that equity markets were unlikely to repeat the period of the 1990s," explains director Robert Schultze. The alternative was to take more risk, he says, but the board didn't want to "stretch or be swinging for the fences" to meet higher investment expectations. Other plans, he predicts, will follow suit. "I just think people are going to be coming off that 8% Copyright ©2010 Dow Jones & Company, Inc. All Rights Reserved Pension Gaps Loom Larger - ... 3 of 4 9/19/2010 1:41 PM
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MORE IN RETIREMENT PLANNING Email Printer Friendly Order Reprints Share: JOURNAL COMMUNITY Add a Comment We welcome your thoughtful comments. Please comply with our Community rules . All comments will display your real name. Track replies to my comment Go to Comments tab CLEAR POST view," he says. Write to David Reilly at [email protected] Pension Gaps Loom Larger - ... 4 of 4 9/19/2010 1:41 PM
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  • Winter '10
  • Acharya,Kandarp
  • pension plans,, Pension Gaps

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