In a letter to the editor to the Sacramento Bee, Alan Milligan, Chief Actuary for CalPERS, wrote the following in response to a Viewpoint authored by David Crane, former Special Advisor for Jobs and Economic Growth to Governor Schwarzenegger.
RE "Key to pension costs is realistic assumptions" (Viewpoints, June 28): David Crane is right when he says pension funds should use realistic assumptions about expected investment earnings to ensure that enough money is set aside to pay for future benefits.
But he is wrong when he implies that public pension plans are using unrealistic investment return assumptions.
At CalPERS, we assume an average annual investment return of 7.75 percent. Over the past 20 years – including the recent severe recession – we have averaged a 7.9 percent annual return. This is strong historical evidence that our 7.75 percent assumed return is reasonable and achievable.
Our expected long-term rates of return are consistent with what corporate America believes. The long-term rate of return assumed by the 100 largest corporate defined benefit plans in the United States is 8.09 percent, slightly higher than our assumption.
While it is reasonable to consider whether or not we should assume a lower return on investments, it is not reasonable to describe the current assumption as unrealistic.
That is simply not supported by the historical data or by the actions of the corporations sponsoring the largest pension plans.
– Alan Milligan, CalPERS Chief Actuary
CalPERS is working hard to ensure the retirement and health security of our members, provide help to our employers, and manage our investments to meet our long-term liabilities. We hope this information provides education, insight, and clarity.
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