The Connecticut Teachers' Retirement Board's lowering of its long-term investment return assumption to 8% from 8.5% is a credit positive for the state, according to Moody's Investors Service. "It reduces the state's risk of future adverse investment performance and increases Connecticut's contributions to address accumulated unfunded liabilities," Moody's said in a Nov. 16 statement.
State Treasurer Denise Nappier announced the board's actions two weeks ago.
The board's 50-basis-point discount rate decrease will increase reported unfunded liabilities for the state's teacher plan and move them slightly closer to Moody's adjusted net pension liability measurement of $23.6 billion as of June 30, 2014, according to the rating agency.
Moody's rates Connecticut's general obligation bonds Aa3, with a stable outlook. Fitch Ratings and Kroll Bond Rating Agency assign AA ratings with stable outlooks, while Standard & Poor's rates them AA and negative.
"The lower investment return assumption will heighten the state's near-term contribution burden, but the state will reduce its exposure to downside investment performance risk by adhering to a more conservative assumption," said Moody's. "However, Connecticut's teacher plan will continue to have among the highest discount rates, relative to its peers even after the reduction to 8%."
State officials are weighing alternatives to current funding methods after receiving a report from the Center for Retirement Research at Boston College.