Moody’s Warns of Lower State Pension Investment Expectations
Moody’s on February 17 published: “State and Local Government — US: Softening Investment Expectations Signal Accelerating Budget Pressure from Pensions.”
Moody’s Senior Analyst Thomas Aaron commented that with both the California Public Employees’ Retirement System (CalPERS) and the California State Teachers’ Retirement System (CalSTRS) moving to cut investment return assumptions to 7 percent by 2018, large United States public pension systems will be pressured to also drop their return assumptions in response to lower investment outlooks.
Aaron highlighted, “In a market context, these discount rate declines by public pension funds are well overdue.” Such a comment from Moody’s, as the premier credit rating agency, serves as a warning to state and local governments that they must substantially increase public employee pension cash contributions or face suffer credit rating downgrades that will push borrowing costs up dramatically.
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