State pension assets, earnings grew in 2010

Thu Jan 26, 2012 3:02pm EST

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(Reuters) - Bucking criticism about their financial performance, state retirement systems' assets grew in 2010, with investment earnings rising for the first time since 2007, the U.S. Census reported on Thursday.

The pension funds' cash and investments totaled $2.2 trillion in 2010, up 10.7 percent, or $213.9 billion, from 2009, when their cash and investment holdings fell by $610.8 billion.

The funds' investment earnings were $289.6 billion in 2010, compared with 2009, when the investments lost $511.5 billion.

In November 2010, conservative Republicans and Tea Party members swept many state elections, bringing with them to statehouses and governor mansions skepticism about public employee compensation.

For the last year, the country has been in a long, and often angry, debate about how public pensions should work.

Members of Congress, including Senator Orrin Hatch, the highest-ranking Republican on the Finance Committee, and Senator Jim DeMint, a Republican member of the bicameral Joint Economic Committee, are planning to introduce federal legislation to address public pension funding.

The Census found that total pension obligations were $3.2 trillion in 2010, compared with $3.1 trillion in 2009. Benefit payments in 2010 alone rose 6.2 percent to $63.5 billion.

Estimates of how much pensions are short for paying benefits to future retirees range from around $600 billion to $3 trillion, depending on how investment returns are projected. Investments provide the bulk of pension funds' revenue.

According to the Census, contributions from employees and employing governments totaled $97.7 billion in 2010. Government contributions accounted for two-thirds of the pension fund receipts and increased 1.8 percent, while employee contributions decreased 1 percent.

The recession and financial crisis hit pensions hard, with investment values plunging just as a revenue collapse made it harder for states to make contributions. In fiscal 2010, which for most states ended in June 2010, 30 states shortchanged their pension funds, according to Loop Capital Markets.

Meanwhile, public sector lay-offs left fewer employees to contribute to pensions.

In Florida, employees contributed the smallest proportion of pension funds - 1 percent, Census data showed.

In five states, including Wisconsin, where fights over public employee compensation have led to campaigns to recall elected officials and weeks-long demonstrations, they put in half or more of the contributions. The other four states were North Carolina, Pennsylvania, South Dakota and Wyoming.

Most of the dispute over the magnitude of the shortfalls hinge on projections of annual investment returns. The systems prefer using historic averages, usually about 8 percent, while some federal lawmakers say they should use a "riskless" rate closer to 4 percent.

The Census report encompassed 222 state-administered public-employee retirement systems, which can include local government employees.

It found that investment earnings for 2010 were still $112.7 billion below the $402.3 billion level reached in 2007, the last time earnings rose.

Their corporate stock investments, which make up more than a third of total holdings, increased 14 percent and corporate bonds, which represent 15.8 percent of holdings, were up 3.3 percent in 2010, the Census said.

Foreign and international securities were up 14.2 percent and federal government securities were up 4.7 percent. Combined, they comprised a quarter of the total holdings, the data showed.

There were decreases in cash and short-term investments, mortgages and real property, the Census found.

"The most notable of these decreases was mortgages, which declined 14.5 percent from $11.1 billion in 2009 to $9.5 billion in 2010," it said, adding that mortgages made up less than 1 percent of total holdings.

(Reporting By Lisa Lambert; Editing by Dan Grebler)

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