you have several holes in your analysis:
https://www.ssa.gov/oact/tr/2016/tr2016.pdf
You should also read ASOP 27, which discusses selecting economic
actuarial assumptions for pension plans.
Can you help me out with pointing out where the financial return projection assumptions are we're discussing? The report is 272 pages
Inflation - SS trustees use 2 to 3.2% in their projections. Your 2% assumption is on the low end. You may want to consider looking at the historical mean and sd for inflation over the last 100 years or so. Who knows what inflation will be 30 40 or 50 years from now? Its never been 2% over the long term.
History is not that relevant here since the Fed has only relatively recently begun with targeting a specific inflation number: 2%.
https://en.wikipedia.org/wiki/Inflation_targeting#United_States
Assuming the Federal Reserve will not achieve its own goals is a pretty bold statement from a pension fund, and cannot be the prudent number to be used in a mainline scenario.
Expenses - many US public sector pension plans have TOTAL expenses less than 50 bips, most of which are investment-related for active management.
https://www.bogleheads.org/wiki/US_pension_fund_performance
Mentions the average in the US is 0.55% as active asset class allocation is up recently. CalPERS as an example had a TER of 1.7% in 2012
CalPERS: “opaquely transparent”, pays more on fees | Top1000Funds.com
I had a range of 0.5% to 1.5%: let's shift it a bit to 0.25% - 1.25%. That won't make a big dent in the outcome.
So getting 8% isn't that unrealistic, IMO, if you start with a 3% inflation assumption and have a 5% net real ROR target.
It wasn't historically, and that's where the 8% comes from, and why it still is what it is. Call it recency bias and inertia.
Over a total asset mix in the current financial environment, it is, and predictably so.
It might still happen, but it's not prudently estimated. And a pension fund not acting prudently and maintaining expectations not in line with current financial reality, is in my view fraudulent.
Banks have been convicted of deception in the past for doing stuff like this, despite disclaimers of "results obtained in the past aren't indicative of the future".
