A new report says Montana’s pension system has unrealistic expectations for how much its investments will grow in the next decade.
The report from the financial consulting firm Montana's Board of Investments uses says that over the next decade there's only a 34 percent chance that the state's pension funds will hit the 7.75 percent return the state is expecting. RVK investment consultants say the state's pension assets could miss that mark by more than a full percent.
That doesn't mean the state won't be able to meet its pension obligations over the next 10 years, but if investment returns don't improve it could make it more difficult for the state to do so in future years.
David Ewer is executive director of Montana's Board of Investments.
"What this model incorporates somewhat is somewhat reflective of what is going on nationwide. I think there is a national consensus that long-term returns are probably not as high as they were if you went back 10 or 15 years ago. And I think that explains, I would say, probably entirely, why pension systems all around America have brought their return assumptions down," Ewer said.
Montana adjusted its investment return assumptions down last year by a tenth of a percent for some state funds, but this week's report says returns are still likely to fall short of the newer, lower expectations over the next 10 years.
Ewer says the time frame used to judge pension investments is important, and that it could be argued that a 10 year forecast isn't an appropriate gauge for an investment with no end date.
He says many of Montana's pension assets, like stocks, have great variability from year to year and a small lens can be misleading.
He notes that over the past 25 years Montana has reached the 7.75 expected return rate.
Ewer says the challenge Montana's pension system managers and investors face is balancing the long-term obligation to build a stable pension system, with the need to keep enough cash on hand to pay out monthly pensions.
Ewer says Montana's pension system is viable and he's not alarmed by the report, although he says it is something policymakers need to consider going forward.
