Friday, October 14, 2011

$726B Drop in Public Pension Assets in 2009

Citing the latest Census figures, aiCIO reports, Public Pension Assets Dropped Over $726B in 2009:
Public pension assets declined more than $726 billion for state and local public employee retirement systems in 2009, according to the Census Bureau's latest report.

According to the Bureau's statistics, the nation's state and local public employee retirement systems had $2.5 trillion in total cash and investment holdings in 2009, a $726.1 billion or 22.7% decrease from $3.2 trillion in 2008.

Meanwhile, losses on investments totaled $633.4 billion in 2009; nearly $600 billion more than in 2008 when losses totaled $38.9 billion. In terms of cash and investment holdings, most investment categories in 2009, showed decreases. Corporate stocks dropped 29.8% from $1.2 trillion in 2008 to $808.9 billion in 2009. Corporate stocks comprised 32.8% of total holdings in 2009.

In April, the Bureau revealed that while US public pension funds' investments increased in value in the fourth quarter of 2010, funding levels are still below their pre-crisis peaks. The Bureau said that for the 100 largest state and local retirement systems in the country, total investment rose 5.5% in the final quarter of 2010, spurred by boosts in stocks, corporate bonds, and international securities. The Bureau reported that the funds' total holdings and investments increased $138 billion to $2.64 trillion in the last three months of the year, reaching the highest level since the second quarter of 2008 and slightly reducing pressure on states and localities.

Meanwhile, Standard & Poor's released a separate report earlier this year in its annual survey of state pension funds indicating that the funding ratios for pension funds in states continue to decline even with improved returns. The report, titled “U.S. States' Pension Funded Ratios Drift Downward,” indicated that state public pension plans had a mean funding ratio of 75% in 2009, down from 80% a year earlier, according to data reviewed for 2009 and 2010. The report claimed that even though pension liabilities are not currently harming any state's ability to fulfill its debt obligations, failure to act could have dire, long-term consequences.

Failure to act could have dire, long-term consequences? Who are we kidding here? It's worth reading the Census Bureau's summary report to see which assets were hit hardest. Not surprisingly, it was stocks as this report covers the fallout from the 2008 crisis (click on image above to enlarge). And while pension assets recovered somewhat in the last couple of years, the stark reality is that pension deficits are getting worse as rates plunge to historic lows and asset values languish, forcing underfunded pensions to take riskier bets. Where does this leave us? As I wrote in my previous comment, Prediction? Pain!.

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