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US Public Pensions See Best Median Returns Since 2010

Thursday, 03 May 2012 07:34 AM

Investments held by U.S. public pension funds had median returns of 7.5 percent in the first quarter of 2012, the best rate since 2010, in a positive sign for state and local governments' underfunded pension plans, a report showed.

In the year ending March 31, median returns were 4.07 percent and over three years were 16.05 percent, according to the report by Wilshire Trust Universe Comparison Service in California.

Going back 10 years, a time span including the housing boom and bust as well as the financial crisis, the median return was 6.03 percent.

Gains in equities and real estate investment trusts pushed up high returns enjoyed by "all institutional plan types," according to Wilshire, which includes master trusts and foundations and endowments.

Nearly half of pension funds' investments, which provide the bulk of their revenues, are in U.S. equities, with a median allocation of 43.35 percent. U.S. bonds follow, at 24.59 percent. The median allocation for international equities is 12.64 percent, according to Wilshire.

The recession hit public pensions hard, with investment values plunging just as a revenue collapse made it harder for states to make contributions.

According to U.S. Census Bureau data released on Monday, the stocks, bonds and other investments held by pension systems had losses totaling $692.5 billion over 2008 and 2009.

Public pensions are now short at least $600 billion in paying future retiree benefits, and some places, especially Rhode Island, are caught between paying for basic public services and keeping their retirement systems afloat.

Recently, their investments have begun to claw back value. The census data also showed earnings on investments held by 3,418 public retirement plans totaled $346.1 billion in 2010.

Some economists and federal lawmakers are calling for pension funds to lower their projected rates of return on investments, saying they should use a "riskless" rate closer to 4 percent. The systems prefer using historic averages, usually about 8 percent.

Lower projections force governments to pitch in more taxpayer dollars, something many are loathe to do as their revenues are only now recovering.

In fiscal 2010, which for most states ended in June 2010, 30 states shortchanged their pension funds, according to Loop Capital Markets.

When California's pension system lowered its assumed rate of return to 7.5 percent in March, Fitch Ratings said that municipalities and counties would have "near term budgetary pressure."

© 2021 Thomson/Reuters. All rights reserved.

Thursday, 03 May 2012 07:34 AM
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