| SAN FRANCISCO/NEW YORK
SAN FRANCISCO/NEW YORK Aug 4 For the second
straight year, U.S. public pension funds have fallen well short
of their investment targets, swelling their vast unfunded
liabilities and placing a greater burden on municipalities to
offset the underperformance through increased contributions,
The funds, which guarantee retirement benefits for millions
of public workers, logged total returns of around 1 percent for
the fiscal year ending June 30, while private pension funds
earned more than triple that, according to preliminary estimates
from consulting firms Wilshire Consulting and Milliman,
respectively. Those figures could change as complete data for
the period becomes available.
That is a poor showing relative to the 7 percent or more
that pension funds seek to earn annually.
The shortfalls could add fuel to the growing debate about
the long-term viability of public pensions - which financier
Warren Buffett once referred to as a "gigantic financial
The funds have suffered from years of underfunding
exacerbated by states lowering their contributions when the
funds were performing well, political resistance to increasing
taxpayer contributions, overly optimistic return assumptions and
retirees living much longer than they used to.
The 100 largest U.S. public pension funds were just 75
percent funded, according to a 2015 study conducted by Milliman.
The pension funds have been challenged by a multi-year
environment of rock-bottom interest rates and mixed stock market
Public pension funds likely did worse than private funds,
because the public funds had more money in short-term bonds
which, during the fiscal year, underperformed the long-term
bonds that private pension funds favor, said Ned McGuire, vice
president and member of the Pension Risk Solutions Group at
Complete data on the public funds isn't available yet, but
early reporters reveal significant underperformance.
The California Public Employees' Retirement System (CalPers)
and The California State Teachers' Retirement System (CalStrs),
the two largest public pension funds, returned 0.6 percent and
1.4 percent respectively, in the 12 months ending June 30. That
is a huge miss compared with the 7.5 percent they need to reach
fund their liabilities in the long run.
The New York State Common Retirement Fund, the nation's
third-largest public pension fund, earned just 0.19 percent
return on investments, missing its 7 percent target.
The Wisconsin Retirement System, the ninth-largest U.S.
public pension fund, had a return of 4.4 percent for its core
fund in fiscal 2016, well below its assumed rate of return of
In response to missing its target, also known as its
"discount rate," CalPers on Monday said it was reviewing the
changing demographics of its members, the economy and
expectations for financial markets.
"We will conduct these reviews over the next year to
determine if our discount rate should be changed sooner rather
than later," CalPers said in a statement.
Public funds had a return of just over 1 percent, while
corporate funds had a return of 1.64 percent, according to a
report released on Tuesday by Wilshire Trust Universe Comparison
Service, a database service provided by Wilshire Analytics.
At the same time, the top 100 corporate funds returned 3.3
percent, according to Milliman. Becky Sielman, an actuary at
Milliman, said the most recent underperformance is harder to
handle because it continues a troubling trend for public and
"It's easier to absorb one down year followed by a good
year," she said. "Likely what we have here for many plans is two
down years in a row."
(Reporting by Rory Carroll; editing by Linda Stern and Dan