Eye On GASB

Investment Allocation and Rates of Return for Fiscal Year 2016


Effective December 31, 2015, the long-term expected rate of return on TMRS pension plan investments is 6.75%. The pension plan’s policy in regard to the allocation of invested assets is established and may be amended by the TMRS Board of Trustees. Plan assets are managed on a total return basis with an emphasis on both capital appreciation as well as the production of income, in order to satisfy the short-term and long-term funding needs of TMRS. The long-term expected rate of return on pension plan investments was determined using a building-block method in which best estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation of 2.5%. The target allocation and best estimates of arithmetic real rates of return for each major asset class are summarized in the following table:

Asset Class
Target Allocation
Long-Term Expected Real Rate of Return (Arithmetic)
Domestic Equity

17.5%

4.55%

International Equity

17.5%

6.10%

Core Fixed Income

10.0%

1.00%

Non-Core Fixed Income

20.0%

3.65%

Real Return

10.0%

4.03%

Real Estate

10.0%

5.00%

Absolute Return

10.0%

4.00%

Private Equity

5.0%

8.00%

   Total

100.0%