Here's the good news and bad news if you're a PSPRS retiree expecting a COLA

Normally around this time every month, we can see the monthly returns for PSPRS.  Unfortunately, the PSPRS Board of Trustees is not having a July meeting this year, so I have no PSPRS month end returns to post for May 2015.  The following table has updated monthly returns from the Russell 3000 and estimates for the YTD returns for May and June 2015:

Report	PSPRS	PSPRS	Russell 3000	Russell 3000
Date	Month End	Fiscal YTD	Month End	Fiscal YTD
6/30/2014	0.78%	13.82%	2.51%	25.22%
7/31/2014	-0.67%	-0.67%	-1.97%	-1.97%
8/31/2014	1.73%	1.05%	4.20%	2.14%
9/30/2014	-1.53%	-0.49%	-2.08%	0.01%
10/31/2014	0.40%	-0.09%	2.75%	2.76%
11/30/2014	0.92%	0.82%	2.42%	5.25%
12/31/2014	-0.18%	0.64%	0.00%	5.25%
1/31/2015	0.01%	0.65%	-2.78%	2.32%
2/28/2015	1.91%	2.58%	5.79%	8.25%
3/31/2015	0.83%	3.42%	-1.02%	7.15%
4/30/2015	0.95%	4.40%	0.45%	7.63%
5/31/2015	?	?	1.38%	9.01% (est)
6/30/2015	?	?	-1.67%	7.34% (est)

As can be seen, the Russell 3000 will have a 12-month return of around 7.30%.  While far removed from the 25.22% the returned last year by the Russell 3000, this is still a good return.  However, we are in the pension world here, so we have to look at two particular PSPRS benchmarks: the expected (or assumed) rate of return (ERR) of 7.85% and the permanent benefit increase (PBI) threshold (aka COLA) of 9.00%.

It is unlikely that PSPRS will reach either benchmark this fiscal year.  PSPRS would have to average about 1.75% for each of the last two months to reach 7.85% for the year.  This is important since not meeting your ERR is, for pension accounting purposes, a negative return and increases your liabilities.  Over a long period this is not a big deal since you will likely make it up in another year like last fiscal year, but PSPRS is already in deficit.  This will add more hardship to employers already struggling to pay their annual required contributions.  There is a remote chance that PSPRS could reach its ERR since it did surpass the Russell 3000's returns by 2.35% over the past two months, but I would still consider this very doubtful, especially when we consider that we must subtract half a percentage point from the final PSPRS returns to cover investment fees.  This would mean that PSPRS would actually have to earn about 2% each month to get to 7.85%.

Obviously, if PSPRS has only a remote chance to reach 7.85%, 9.00% will be impossible. PSPRS would have to earn over 5% in the last two months to get to 9.00%, considering investment fees, and barring a miracle, this ain't going to happen.  This means that PBI's will not be paid for the current fiscal year since, according to PSPRS, the PBI fund was depleted last year, and the failure to meet the 9.00% threshold will not allow any replenishment of the PBI fund this year.  That is the bad news if you are a retiree.

The good news is that for the 12-month period ending June 30, 2015 there was almost no inflation, according to the Bureau of Labor Statistics.  The inflation numbers can be found at the U.S. Inflation Calculator.  The past fiscal year inflation rate was 0.1%, meaning something that cost $100.00 on June 30, 2014 would cost only ten cents more a year later.  The 0.1% annual rate compares with a 2.1% inflation rate the year before.  Of course, your bills may tell a different story about how much things cost versus a year ago, but that's what the Consumer Price Index says.  Anyway, PSPRS, like the Cubs, always has next year.