It’s not often that a public pension board lowers its investment target rate in order to meet realistic market expectations – so when it does happen, that board deserves to be recognized. Such was the case in late April when the Contra Costa County Employees' Retirement Association (CCCERA ) board voted to lower its target rate to 7 percent (the average target is 7.68 percent). As an editorial in the East Bay Times points out, “The move places the retirement system at the forefront of sanity along with just a few other pension plans, including San Jose, which also recognize how unrealistic investment projections have been in the past.”
As the Retirement Security Initiative has continually pointed out, the U.S. pension crisis is due to years of policymakers playing pension roulette in a high-stakes gamble. Most pensions are built on unsustainable systems that thrive in bull markets, but fall short when markets aren’t performing well. In the end, it’s taxpayers who are left picking up the shortfall. This can be seen looking at California as a whole, which carries nearly $64 billion in pension debt because of such bad state and local policy decisions.
Many pension boards will shoot for an unrealistic target rate, banking on high returns and enabling employees to contribute less toward their retirement futures. But when the target is unrealistically high, and employee contributions are too low, it’s the taxpayers who are responsible for making up the difference. Read more here about what happens when systems are set up to only thrive with high returns in high-risk scenarios. RSI believes that pension systems should be set up with less risk, more sharing of that risk and lower return expectations to meet today’s market realities.
By lowering its target rate, CCERA is thinking long-term about how it will be able to fund its retirement obligations for its 20,000 current and retired public employees, without crippling future generations of taxpayers. RSI applauds the CCERA board for living up to the organization’s mission to deliver retirement benefits to its members and their beneficiaries through prudent asset management. It’s refreshing to see a pension board walk the walk.