Goldberg: Lower pension fund return target

Treasurer wants to lower anticipated rate to 7.5%


STATE TREASURER DEBORAH GOLDBERG told lawmakers Wednesday she favors lowering the anticipated rate of return on the state’s $60.7 billion pension fund, an action that would make the return more achievable while increasing the pension liability.

Last year, the pension fund’s actuarial rate of return dropped from 8 percent to 7.75 percent, and Goldberg on Wednesday said she recommends a further decrease to 7.5 percent.

“The pension liability will increase by $1.9 billion if we do this but it is a more realistic rate, and that is what the rating agencies and investors like to see,” Goldberg said after testifying at the annual hearing on projected state revenues. “Being realistic is almost more important than what the unfunded liability is.”

Goldberg said that given mortality rates and the plan to lower the anticipated rate of return, it is possible that the 2036 target for full funding of the fund that is used to pay state workers’ retirements “might get pushed out by a year or two.”

In fiscal 2016 the Pension Reserves Investment Management, which oversees the Pension Reserves Investment Trust Fund, achieved a rate of return of 3.9 percent.

Michael Trotsky, executive director and chief investment officer of the fund, said the expected return over 30 years is 7.9 percent and in the next five to seven years is 6.8 percent. Those rates are distinct from the rate Goldberg recommended lowering. Trotsky said the pension management’s expectations will be readjusted in January and could “possibly” be lowered slightly.

Trotsky said for the past five years the fund has had an annual rate of return of 8.6 percent. For the past 10 years – a period that includes the Great Recession – the rate was 6.6 percent.

“I think we’re seven years into the recovery and we’re generally more cautious on market returns for intermediate term,” Trotsky said. He said if the fund was more fully funded, the fund would be “more cautious” and invest more in fixed-income.

On Wednesday, the fund’s management announced the Private Equity Growth Capital Council had determined the Massachusetts pension fund had the best private equity returns among more than 150 public pension funds. The Bay State’s pension fund secured first place with a 17.93 percent 10-year private equity return.