How public pension plans can use last year’s investment returns to reduce debt and future risk

In Politics by Michael Rae

Public pension systems often resist making changes to their plan’s investment assumptions because doing so can come with a high price tag for the state and/or local governments. As a result of this political dynamic, the opportune time to make adjustments to a public pension plan’s investment return assumptions could be after a year of high market returns—when plans have excess or unexpected asset growth.

Last year, 2021, was one such year. Last fiscal year, most public pension plans saw record-breaking investment returns. In 2022, these pension plans have the opportunity to update their investment return rate assumptions.

Discount rates