The median assumed rate of return for state defined benefit retirement plans in the United States is 7%, as of September 2021. The average is 7.03%.

Equable Institute tracks financial reporting for 176 defined benefit plans — e.g. pensions, guaranteed return, and hybrid plans — which are governed by 115 public sector retirement systems. Most of the plans are state-administrated, but our data also includes information for New York City, Chicago, and Los Angeles municipally-sponsored defined benefit plans.

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Equable Analysis: States Will Continue to Lower Investment Assumptions

Capital market forecasts published during the spring and summer of 2021 are generally projecting a modest investment return environment over the next decade. Despite a massive investment return year for public plans, these forecasts combined with low interest rates have collectively been nudging state defined benefit plans to continue lowering their assumed rates of return.

Between July 2020 and August 2021 there were 28 public sector retirement systems, managing 42 defined benefit plans, that lowered investment assumptions. Most notable was CalPERS, which lowered its assumed return from 7% to 6.8%.


Distribution of Investment Assumptions, as of August 2021

The figure below shows the current distribution of assumed rates of return for the top state defined benefit plans. The table that follows provides a list of plan names and their assumed return.


Assumed Rates of Return by Retirement System, as of August 2021

The following table provides a list of plans and their current assumed return. For an expandable table with data about previous assumed returns, investment management, and notes about known future changes, click here.

This table will be updated periodically as state plans announce changes to their assumed return via press release indicating that a board of trustees has voted to make a change, or when such a change is reported in a published actuarial valuation report.


What are the Historic Investment Assumption Trends?

Over the past two decades there has been a wider range in assumptions adopted by plans. The lowest rate adopted by any plan open to new members is 5.25%, while the highest rate currently used is 8%.

Average Assumed Rate of Return for U.S. Statewide Pension Plans, 2001 - 2021

States and pension boards have been slow to reduce their investment assumptions, relative to declining interest rates. The growing gap between interest rates and assumed rates of return reflects as an increased amount of risk that pension funds are accepting. If assumptions had kept pace with declining interest rates since 2001, the average assumption in 2021 would have been around 4.3%.

Assumed Rate of Return v. Interest Rates for U.S. Statewide Pension Plans, 2001 - 2021


Why are Assumed Rates of Return Important?

Assumed rate of return is the single most important assumption that pension systems make to ensure they have enough funding to pay benefits promised. To determine the amount of required contributions, a pension fund and its actuaries make educated guesses about how much they think they can earn by investing those contributions. That educated guess is called the assumed rate of return. The higher the assumed rate of return, the fewer contributions teachers and their employers have to make. The lower the assumed rate of return, the higher contributions need to be in order to pay for the benefits promised. Read more about this important investment assumption in our Pension Basics series.