Average Public Pension Assumed Rate of Return Hits 40-Year Low

Link: https://www.ai-cio.com/news/average-public-pension-assumed-rate-of-return-hits-40-year-low/

Excerpt:

The average investment return rate assumption for U.S. public pension funds has fallen below 7.0%, to its lowest level in more than 40 years, according to the National Association of State Retirement Administrators.

Among the 131 funds that NASRA measured, more than half have reduced their investment return assumption since fiscal year 2020 as rising interest rates and other factors have contributed to more volatile investment returns. 

For the 30‐year period that ended in 2020, public pension funds accrued approximately $8.5 trillion in revenue, according to NASRA, of which $5.1 trillion, or 60%, came from investment earnings. Employer contributions accounted for $2.4 trillion, or 28%, and employee contributions totaled $1 trillion, or 12%. 

Author(s): Michael Katz

Publication Date: 1 Aug 2022

Publication Site: ai-CIO

Pension Plunge Puts Eric Adams in Future Financial Squeeze

Link: https://www.thecity.nyc/2022/8/1/23287828/pension-plunge-eric-adams

Excerpt:

New York City’s pension funds lost 8.65% of their value for the fiscal year that ended June 30, according to a release Friday from city Comptroller Brad Lander. 

While more detailed information won’t be released until September, the losses reduced the pension funds to about $240 billion.

While the S&P 500 stock index fell 14% in the first six months of 2022, Lander said that all is well with the pension funds “Despite market declines on a scale that hasn’t been seen in decades, the New York City retirement system outperformed our benchmarks and are well positioned to weather market volatility in the long run,” he said in a statement.

But the city budget — currently $101 billion — will still take a hit.

Author(s): Greg David

Publication Date: 1 Aug 2022

Publication Site: The City

Unfunded public pension liabilities are forecast to rise to $1.3 trillion in 2022

Link: https://reason.org/data-visualization/2022-public-pension-forecaster/

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Excerpt:

According to forecasting by Reason Foundation’s Pension Integrity Project, when the fiscal year 2022 pension financial reports roll in, the unfunded liabilities of the 118 state public pension plans are expected to again exceed $1 trillion in 2022. After a record-breaking year of investment returns in 2021, which helped reduce a lot of longstanding pension debt, the experience of public pension assets has swung drastically in the other direction over the last 12 months. Early indicators point to investment returns averaging around -6% for the 2022 fiscal year, which ended on June 30, 2022, for many public pension systems.

Based on a -6% return for fiscal 2022, the aggregate unfunded liability of state-run public pension plans will be $1.3 trillion, up from $783 billion in 2021, the Pension Integrity Project finds. With a -6% return in 2022, the aggregate funded ratio for these state pension plans would fall from 85% funded in 2021 to 75% funded in 2022. 

Author(s): Truong Bui, Jordan Campbell, Zachary Christensen

Publication Date: 14 July 2022

Publication Site: Reason

Pensions’ Bad Year Poised to Get Worse

Link: https://www.wsj.com/articles/pensions-bad-year-poised-to-get-worse-11652175002

Excerpt:

State and local government retirement funds started the year with their worst quarterly returns since the beginning of the pandemic. Things have only gone downhill since.

Losses across both stock and bond markets delivered a double blow to the funds that manage more than $4.5 trillion in retirement savings for America’s teachers, firefighters and other public workers. These retirement plans returned a median minus 4.01% in the first quarter, according to data from the Wilshire Trust Universe Comparison Service. Recent losses have further eroded their holdings.

“It’s a tough period,” said Jay Bowen, manager of the Tampa Firefighters and Police Officers Pension Fund. “Nobody is immune.”

The declines in stocks and bonds are inflicting pain on household and institutional investors in 2022. The S&P 500 has returned minus 13.5% year to date through Friday, while the Bloomberg U.S. Aggregate bond index — largely U.S. Treasurys, highly rated corporate bonds and mortgage-backed securities — returned minus 10.5%.

Author(s): Heather Gillers

Publication Date: 10 May 2022

Publication Site: WSJ

Maryland is wasting its pensioners’ money

Link:https://www.washingtonpost.com/opinions/2022/02/04/maryland-is-wasting-its-pensioners-money/

Excerpt:

Seven hundred and forty-four million dollars. That is the amount of Wall Street fees paid by the Maryland state pension plan for investment advice in fiscal 2021.

Over the past 10 years, the fees totaled roughly $4.5 billion, or about 15 percent of the plan’s earnings. For that kind of money, you would think the state gets only the prime stock and bond picks from its advisers, but, during that time, Maryland, as with most other states, failed to beat the returns of a simple 60 percent stocks/40 percent bonds index. Many large institutional investors, including public pension plans, use this 60/40 index as a barometer to gauge their portfolios’ results. They structure their portfolios to avoid a 100 percent exposure to the sometimes volatile stock market. If their results are better than the index for a given year, they claim success. Many mutual funds attract smaller individual retail and 401(k) retirement accounts by copying the index and charging low fees for passive management.

….

This drainage damages the financial security of public workers in Maryland and other states, and it forces greater taxpayer contributions to the plans. The ongoing situation has a secondary effect as well: The massive wealth transfer — from public workers and average taxpayers — to a small coterie of Wall Street money managers fosters a new plutocracy, successful at obscuring the problem and blocking reform.

The obvious fix for public plans is to shift from expensive fee investments to low-fee indexing, a tactic endorsed by none other than Warren Buffett, the noted value investor and philanthropist. For large public plans, including Maryland’s, this shift, if implemented, would be gradual. Extricating the fund from its long-term contractual commitments and replacing them with passive investments is going to take time.

Author(s): Jeff Hooke

Publication Date: 4 Feb 2022

Publication Site: Washington Post

Wrong Way CalPERS: Dumping $6 Billion of Private Equity After Struggling to Put Money to Work and Then Increasing Target

Link: https://www.nakedcapitalism.com/2022/01/wrong-way-calpers-dumping-6-billion-of-private-equity-after-struggling-to-put-money-to-work-and-then-increasing-target.html

Excerpt:

When CalPERS does something as obviously nonsensical as planning to dump $6 billion of its private equity holdings, nearly 13% of its $47.7 billon portfolio, when it just committed to increasing its private equity book from 8% to 13%, it’s a hard call: Incompetent? Corrupt? Addled by the latest fads (a subset of incompetent)?

And rest assured, the harder you look, the more it becomes apparent that this scheme is as hare-brained as it appears at the 30,000 foot level. But unlike another recent hare-brained private equity scheme, its “private equity new business model,” beneficiaries won’t have the good luck of having it collapse under its own contradictions. CalPERS has loudly announced that Jeffries & Co. will be handling these dispositions, so they will get done….at least in part. But the fact that CalPERS’ staff has gone ahead and merely informed the board, as opposed to getting its approval, is yet another proof of how the board has abdicated its oversight and control by granting unconscionably permissive “delegated authority” to staff.

The one bit of possible upside would not just be unintended, but the result of CalPERS acting in contradiction to its expressed objectives: that its allocation to private equity would undershoot its targets by an even bigger margin than otherwise.

Author(s): Yves Smith

Publication Date: 14 Jan 2022

Publication Site: naked capitalism

New analysis shows San Diego’s pension system compares favorably to systems across state, nation

Link: https://www.sandiegouniontribune.com/news/politics/story/2022-01-16/new-analysis-shows-san-diegos-pension-system-compares-favorably-to-systems-across-state-nation

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Excerpt:

A new analysis shows the city of San Diego’s pension system is in strong financial shape compared to similar systems across the state and the nation.

While the city’s pension debt is nearly $3 billion, most pension systems face similar gaps between their investment assets and long-term projections of what they will owe employees when those employees eventually retire.

The comparative analysis, which was presented to the city’s pension board Friday, shows that San Diego has been in the top half of the nation’s largest 175 pension systems for “funded ratio” every year since 2013.

And the city’s ratio, which just climbed from 70.2 percent to 74.3 percent thanks to the robust stock market, has been in the top quarter of those national pension systems several times in recent years.

The city’s pension system, formally known as the San Diego City Employees Retirement System, also has among the most conservative policies regarding projections of long-term investment returns.

….

San Diego’s projected rate of long-term investment growth is 6.5 percent, which is at the very low end of the group of 175 pension systems.

Author(s): David Garrick

Publication Date: 16 Jan 2022

Publication Site: San Diego Tribune

Fossil Fuel Investments Are Burning California Pensioners

Link: https://www.dailyposter.com/fossil-fuel-investments-are-burning-california-pensioners/

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California’s two biggest pension funds have invested a staggering $43 billion in fossil fuel companies, and their opposition to divesting from the industry — including fighting legislation that would have stopped them investing in firms involved with the controversial Dakota Access Pipeline (DAPL) — has cost retirees and taxpayers billions, research shows.

The findings hammer home the fact that the divestment movement isn’t just about protecting the planet from the worst effects of climate change. With the oil, gas, and coal industries all on the decline, pension funds’ refusal to divest from fossil fuels is also endangering the retirement savings of teachers, government employees, and other rank-and-file public workers who have paid into these funds.

….

While it is common knowledge that fossil fuel stocks have underperformed the broader stock market, large bank stocks have been lackluster as well — including the banks that helped finance DAPL.

If CalPERS and CalSTRS had not opposed the original DAPL divestment legislation, they could have instead put pressure on the companies involved not to move forward with the pipeline, and such efforts might have been enough to stop the project, given the pipeline project’s turbulent history.

Author(s): MATTHEW CUNNINGHAM-COOK, ANDREW PEREZ

Publication Date: 11 Jan 2022

Publication Site: The Daily Poster

Two Top Pennsylvania Pension Fund Officials to Retire Amid Federal Probe

Link:https://www.wsj.com/articles/pennsylvania-pension-cio-jim-grossman-to-resign-amid-federal-probe-11637243641

Excerpt:

Two top officials at Pennsylvania’s largest pension fund are retiring amid a federal investigation and calls by some board members for their ouster.

The board of Pennsylvania’s $64 billion Public School Employees’ Retirement System voted Thursday to approve resolutions accepting the retirement of Glen Grell, the executive director, and Jim Grossman, the chief investment officer. Board members approved plans for both men to stay on in temporary advisory positions and authorized the board chair to begin a search for their replacements.

The fund has been racked by turmoil since board members learned in March that a report of investment returns was too high. The accurate figure was low enough to trigger an increase in payments from employees that the plan serves. Investigations conducted by the fund haven’t found wrongdoing on the part of investment staff.

The board said in April that it had hired law firms to investigate the miscalculation and to respond to a federal grand jury subpoena requesting documents. The pension declined to comment on what information the grand jury is seeking.

Author(s): Heather Gillers

Publication Date: 18 Nov 2021

Publication Site: Wall Street Journal

CalSTRS Expected to Hit Full Funding Five Years Ahead of Schedule

Link:https://www.ai-cio.com/news/calstrs-expected-to-hit-full-funding-five-years-ahead-of-schedule/

Excerpt:

The California State Teachers’ Retirement System (CalSTRS) is now expected to hit full funding in 2041, five years ahead of last year’s prediction of reaching that level in 2046, according to a presentation from CalSTRS Deputy System Actuary David Lamoureux at the fund’s most recent board meeting on Friday. Additionally, board members anticipate that CalSTRS will hit 80% funding in 2024, 10 years ahead of schedule.

The timeline shift is due to the unexpectedly high 27% return CalSTRS earned in the most recent year. The CalSTRS board plans to release the excess funds from this year’s record return over the course of three years. This means that this year, only one-third of the excess funds will be used to alleviate the funded rate. “Because of that, our funding levels will improve, but they will improve slowly over time,” Lamoureux said at the board meeting.

Author(s): Anna Gordon

Publication Date: 10 Nov 2021

Publication Site: ai-CIO

Tennessee pension system boasts historic investment earnings

Link: https://www.timesnews.net/news/state/tennessee-pension-system-boasts-historic-investment-earnings/article_458bf20e-b7a6-5007-a1ff-246bf738f846.html

Excerpt:

TCRS made $13.6 billion in fiscal 2021; a record high in earnings that put the balance of TCRS’ investments at $65.3 billion. In fiscal 2020, the system had a 4.94% return and finished the fiscal year with a balance of $53.4 billion. The Tennessee Department of Treasury said that return outearned its peers by four times the median 1.2% return during the fiscal year.

“When retirement plans around the nation are under scrutiny for their performance, TCRS is thriving,” Tennessee Treasurer David Lillard said. “Our Governor and General Assembly ensure the plan is fully funded every year. The Tennessee Department of Treasury strives to be good stewards of the state’s financial resources. This $13.6 billion in investment income is evidence of our commitment to both active and retired members of the TCRS pension plan.”

Author(s): Jon Styf, The Center Square

Publication Date: 7 October 2021

Publication Site: Times News

State of Pensions 2021

Link: https://equable.org/state-of-pensions-2021/

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Link to PDF report:https://equable.org/wp-content/uploads/2021/09/Equable-Institute_State-of-Pensions-2021_Final.pdf

Excerpt:

State retirement systems in America improved from last year, but are still Fragile. 

This an annual report on the current status of statewide public pension systems, put into a historic context. State and local governments face a wide range of challenges in general – and some of the largest are growing and unpredictable pension costs. The scale and effects of these challenges are best understood by considering the multi-decade financial trends and funding policy decisions that have brought public sector retirement systems to this moment. 

The financial market volatility over the past 18 months of the COVID-19 pandemic has ultimately been a positive investment climate for institutional investors like state pension plans. And the federal government has provided substantial financial aid to states and municipalities, smoothing over what could have been seismic budgetary shortfalls in some jurisdictions due to tax revenue declines. The combined historically unprecedented nature of these events continues to create an unpredictable environment for state pension plans. However, in this report Equable uses patterns of behavior from the past two decades as a guide to what might happen in the coming decade while also a means to identify areas of concern that should be monitored closely or acted upon immediately.

Authors: Anthony Randazzo, Jonathan Moody, PhD

Publication Date: Accessed 23 Sept 2021

Publication Site: Equable Institute