Public Pensions Miss Fantastic Bitcoin Gains (#GotBitcoin?)
Public pension plans fell short of their projected returns this year, adding to the burden on governments struggling to fund promised benefits to retired workers. Public Pensions Miss Fantastic Bitcoin Gains (#GotBitcoin?)
Public plans with more than $1 billion in assets earned a median return of 6.79% for the year ended June 30, the lowest since 2016
Public plans with more than $1 billion in assets earned a median return of 6.79% for the year ended June 30, the lowest since 2016, according to Wilshire Trust Universe Comparison Service data released Tuesday. Public pension plans project a median long-term return of 7.25%, according to data collected by Wilshire Associates in 2018.
Each year, pension funds must make this estimate on how much they expect to earn on investments.
The projection determines the amount the government that is affiliated with the pension fund must pay into it.
Robust returns reduce the need for government support. When returns fall short, however, the amount the government must contribute increases, potentially diverting money from other public services.
“I think a lot of plans fell a little bit short,” said Becky Sielman, principal and consulting actuary at Milliman. “Bonds generally did well, but there are other asset classes that didn’t do as well.”
Overall, a decades-long bull market in stocks has been good for pensions. Large public plans had five years of double-digit returns and a 10-year annualized return of 9.7% for the year ended June 30, according to Wilshire.
But those returns still haven’t brought pension funding levels close to what is needed to pay for future benefits. State and local pension plans have about $4.4 trillion in assets according to the Federal Reserve, $4.2 trillion less than they need to pay for promised future benefits. Contributing factors include increasing lifespans, overoptimistic return assumptions, and government decisions to skimp on pension payments. Record losses in 2009, when pension funds fell by a median 19.19% according to Wilshire, also played a role.
In hopes of reducing their unfunded liabilities, pensions have pushed further into riskier, less traditional investments over the past decade. Large public pension plans had a median 11.47% of their assets in alternative investments such as private equity for the year ended June 30 and a median 4.45% of their investments in real estate. Public Pensions Miss Fantastic, Public Pensions Miss Fantastic