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Assumed Rate of Return

Assumed rate of return is the single most important assumption that pension systems make to ensure they have enough funding to pay you the benefits you’ve been promised. To determine the amount of contributions required, 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.

Assumed rates of return aren’t historic averages. Analysts look at past performance to inform predictions, but the assumed rate of return is their best guess about the future.

Assumed rates of return also do not determine your benefits. Your benefits are based on formulas that take into account years of service and compensation during your working years—usually your final average salary. Pension systems specialists start by estimating the total amount of benefits and then calculate the contribution rate needed to pay them, factoring in an assumed rate of return.

What is the assumed rate of return for your pension plan?

Select or search your state or plan below.

Note: This is the rate of return in your retirement system’s most recent annual financial report. Some states report on a one or two year lag.