WASHINGTON Aug 11 The performance of U.S.
public pensions' investments improved greatly in the second
quarter, returning a median 3.71 percent, compared to median
returns of 1.87 percent in the first quarter, according to a
Wilshire Associates report released on Monday.
Pensions also continued to outperform their peers. The
median return for all institutional assets tracked by the
Wilshire Trust Universe Comparison Service was 3.43 percent
during the second quarter.
For the last year, public pensions have had a median return
of 16.86 percent. Those with assets greater than $1 billion have
seen even greater returns over one year, 17.44 percent,
according to Wilshire.
Investment earnings provide nearly two-thirds of all public
pension revenues, which left the retirement systems particularly
vulnerable during the financial crisis, when their holdings
plummeted to record lows. From coast to coast, battles have
erupted over whether states have enough money to pay promised
benefits, especially now that the first wave of the Baby Boom
generation is retiring.
The fights are especially heated over the annual assumed
rates of return the funds use, with many conservatives saying
the current expected rates are too high to attain and will leave
retirement plans underfunded.
For most plans, the assumed annual rate of return is around
8 percent. Since the 2007-09 recession many funds have cut their
assumptions to closer to 7 percent and the accounting board
overseeing public pensions now requires systems deemed
underfunded use a 'riskless' rate of return of around 5 percent.
The stock market rally of 2013 gave public pensions a hefty
boost. They had a record $4.89 trillion in assets in the first
quarter of 2014, according to Federal Reserve data, but also the
largest liabilities on records going back to 1945, $5.03
Taking a longer view, Wilshire found the median return for
public pensions' assets over five years was 12.69 percent and
over 10 years was 7.27 percent.
For funds with assets greater than $1 billion, the five-year
median was 12.83 percent and the 10-year median was 7.43
percent. For the largest funds, those with assets of more than
$5 billion, the performance was even stronger. Their five-year
median return was 12.9 percent and their 10-year median 7.52
Some critics say those public pensions with higher assumed
rates of return have to take greater risk to achieve their
investment projections, which pushes them into shakier assets.
According to Wilshire, public pensions allocated a median of
45.95 percent of their investments to U.S. equities and only
1.34 percent in "alternative investments." But those with $5
billion or more in assets only allocated a median 39.19 percent
to U.S. stocks and a median 10.49 percent to alternatives.
(Reporting by Lisa Lambert; Editing by James Dalgleish)