Teacher Pension Workshop: Connecting Evidence-Based Research to Pension Reform

Investment Risk and Its Potential Consequences for Teacher Retirement Systems and School Districts

by Don Boyd, Yimeng Yin

Full Document

FormatFile SizeNotes
PDF file 2.9 MB

Use Adobe Acrobat Reader version 10 or higher for the best experience.

Public pension plans in the United States have more than $4 trillion of invested assets, more than two-thirds of which are in equities and similar assets. Unlike private pension funds, public pension funds have increased their equity allocations dramatically over the last two decades, making their investment returns and unexpected investment gains and losses far more volatile than before. This means that plan funded status and contributions requested of governments also are more volatile than before, increasing the risks to taxpayers, stakeholders in government services and investments, and workers and retirees. One important way to examine the impact of investment-return volatility upon plan funded status and contributions is with a stochastic simulation model that draws investment returns from a probability distribution. We have constructed a pension simulation does that, and we use it to examine the interplay between investment return volatility and funding policy, and to examine the potential consequences of different investment return environments.

Table of Contents

  • Chapter One


  • Chapter Two


  • Chapter Three

    Risky investments put contributions and plan funding on a roller coaster ride

  • Chapter Four

    Beyond individual simulations: Measures we use to evaluate results

  • Chapter Five

    Investment risk-taking and the changing investment-return environment

  • Chapter Six

    Investment risk and funding policy

  • Chapter Seven

    Teacher retirement systems face special risks

  • Chapter Eight


  • Chapter Nine


This research was conducted by RAND Education.

This report is part of the RAND Corporation Working paper series. RAND working papers are intended to share researchers' latest findings and to solicit informal peer review. They have been approved for circulation by RAND but may not have been formally edited or peer reviewed.

Permission is given to duplicate this electronic document for personal use only, as long as it is unaltered and complete. Copies may not be duplicated for commercial purposes. Unauthorized posting of RAND PDFs to a non-RAND Web site is prohibited. RAND PDFs are protected under copyright law. For information on reprint and linking permissions, please visit the RAND Permissions page.

The RAND Corporation is a nonprofit institution that helps improve policy and decisionmaking through research and analysis. RAND's publications do not necessarily reflect the opinions of its research clients and sponsors.