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Friday, September 4, 2015

PSPRS takes the Pension Territorial Cup from ASRS this year

As we had discussed earlier here and here, there will be no permanent benefit increase (aka COLA) this fiscal year (FY) for PSPRS retirees.  This was confirmed by PSPRS Administrator Jared Smout in this message on the PSPRS website.  The only new information in the message is the disclosure of the final FY rate of return, net of fees: 3.68%.  This means that PSPRS missed its expected rate of return (ERR) by about 4% and the COLA threshold by about 5.3%.

According to this August 10, 2015 article, High-return era ends for big public pension plans, by Randy Diamond in Pension and Investments magazine, for this past FY, the median return for public plans with over $5 billion in assets was 3.4%, and the average return for the 265 plans with over $1 billion in assets was 3.2%.  PSPRS surpassed the median by 0.28% and the average by 0.48%.

PSPRS even gets state bragging rights versus the Arizona State Retirement System (ASRS) this year.  ASRS' FY 2015 return was 3.2%, beaten by PSPRS by almost a half-percent.  ASRS also has a higher ERR than PSPRS at 8.0%.  So some congratulations are in order for PSPRS, though these should be qualified by the fact that ASRS has soundly surpassed PSPRS' returns in the three-year, five-year, and ten year averages.  ASRS also returned 18.60% last year versus 13.82% at PSPRS, more than making up the difference for any lagging returns this year.  Most importantly, ASRS is much better funded than PSPRS and has much lower employer and employee contribution rates at 11.47% apiece.

I cannot wait to see the first few months of returns for the current FY.  They should be very interesting. 

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