Public Pension Funds Rethinking Investment Return Rates

April 17, 2014 – In The News
Fox Business

Michael Sweet was quoted in the Fox Business article, "Public Pension Funds Rethinking Investment Return Rates." Full text can be found in the April 17, 2014, issue, but a synopsis is noted below.

After months of negotiations, Detroit agreed to set the projected investment return rate for the pension funds of the city’s retired firemen and police officers at 6.75 percent, well below the projection rate of 8 percent used by most public pension plans.

In a recent study of 134 state public pension systems, a consulting firm found that 96 percent of them were underfunded.

“If expectations were more realistic we wouldn’t be having these problems,” said Michael Sweet. “The expectations aren’t in line with reality.”

Sweet noted that when projections don’t meet expectations, it pits different constituents against each other and can lead to cutbacks in needed municipal services, ultimately forcing retirees to give back some of the benefits promised to them.

“The whole discussion is unfortunate,” he said.

Pension fund administrators, elected officials and union leaders contributed to the difficulties by taking “what should be a very conservative – hyper-conservative -- investment and putting aggressive expectations on its returns,” Sweet said.

But the trend toward lower projections is good, Sweet said. “It’s certainly moving in the right direction.”