BloombergBusiness has an interesting article about the investment return embedded in the defined benefit pension plan actuarial calculations.
Oregon Public Employee Retirement System has reduced its assumed investment returns by 25 basis points to 7.50% from 7.75% and has reported that this change will increase the amount required to fund the pension liabilities by $1.7 billion (2.3%). The Oregon Public Employee Retirement System is one of the best funded (103.6% funded and a net pension asset of $2.26 billion as of 6/30/2014) state pension plans.
Greater honesty about investment returns, similar to the Oregon Public Employee Retirement System, will have a much more dramatic impact on those pension plans in states that have kept up with the required funding levels. This honesty about investment returns also calls into question the logic of pending pension bond issues.
