Indiana pension system is country’s most conservative

The Indiana Public Retirement System has cut its assumed rate of return from 7 percent to 6.75 percent, becoming the first large pension system in the country to go below 7 percent.

russo-steve-mug.jpg Russo

That’s significant because it means local governments will have to make larger contributions to the Indiana Public Employees Retirement Fund. It also means INPRS is being more realistic about its investment return, which was 5.74 percent for the 10 years ended June 30.

INPRS said contributions to the $12.2 billion public employees fund could increase 0.7 percent.

“This is a prudent move by our board to recognize potential long-term global market realities,” Executive Director Steve Russo said. “The risks and consequences of assuming a too-high rate of return justify a conservative approach to this and other actuarial assumptions.”

Pension funds cover future obligations through investment returns, employer contributions and government subsidies. Many assume a larger rate of return from the market in order to lower contributions from employers and taxpayers, but they’re more likely to dip into their fund base to pay retirees.

INPRS had funded 63 percent of its future liabilities in the 2011 fiscal year, though that figure rises to 84.8 percent when a pre-1996 Teachers Retirement Fund is excluded.

The system had 234,000 active members and 122,000 benefit recipients in 2011.

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