* Stocks, corporate bonds in funds' holdings up vs year ago
* International securities' holdings highest in nine years
* But public pension liabilities keep growing
By Lisa Lambert
WASHINGTON, Sept 29 Public pensions, stung by
the financial crisis and government cutbacks, have enjoyed
steadily improving investments for nearly two years, mostly
due to stocks, U.S. Census data released on Thursday showed.
In the second quarter of 2011, public pensions' total
holdings and investments rose for the fourth quarter in a row
to the highest level since the middle of 2008, the Census
said. From the quarter before, they rose 1.3 percent to $2.8
trillion. And from the year before, they jumped 17.6 percent
to $2.4 trillion.
It was the seventh straight quarter of growth.
"There's been a substantial improvement in assets, and
that's a good sign, but it doesn't mean pensions are out of
the woods," said Ron Snell, who tracks the issue as a senior
fellow at the National Conference of State Legislatures.
Namely, much of the improvement came from rising stock
markets, which fared better earlier in the year when the data
was collected. Census numbers from earlier this week told a
similar story for state and local government revenue.
In the second quarter, public pensions' stock holdings
decreased 1.5 percent to $892.2 billion from the quarter
before. But that was 19.5 percent more than in the second
quarter of 2010.
Meanwhile, public pensions' corporate bond holdings rose 2
percent from the previous quarter and 5.6 percent from the
year before to $438.5 billion.
Public pensions' international securities, too, advanced 2
percent from the previous quarter to $522.6 billion, the
highest level on records dating back to 2002. It was also 28.7
percent more than the second quarter of 2010.
"It's going to be largely dictated by the forces of the
larger economy," said Hank Kim, executive director of the
National Conference on Public Employee Retirement Systems, on
whether the pension funds will continue improving. "If we can
get some leadership from Washington, D.C., and if the European
Union can get the political will to do the right thing, the
headwinds will be removed."
Investment earnings are the largest source of pension
funding. Employer contributions, essentially the taxpayers'
bill, make up about a quarter and deposits from employees the
Typically, when investment returns are low, governments
increase contributions. But during recent budget crises, they
cut back just as the stock market plunged. Pension fund
holdings still have not returned to the highs they reached at
the end of 2007, before the financial meltdown.
That has worried voters and political leaders. Most states
and cities are legally bound to pay retiree benefits, and if
fund assets remain sickly, the governments will have to cut
spending on other vital programs to make up the difference.
EMPLOYEES PAY MORE, BUT LITTLE IMPACT
Almost everyone agrees pensions can pay current retirees
but are short on future obligations. Estimates of the
shortfall range from just under $700 billion to $3 trillion,
based on how investment returns are forecast.
The accounting board for the public sector has proposed
changing how the rate of return is projected, suggesting
pension funds with insufficient assets rely on a rate of about
4 percent. Historically, pensions have earned around 8 percent
Last week, the Governmental Accounting Standards Board
extended the comment period on its proposal, citing "competing
priorities of the financial statement preparer community."
Many governments want employees to pitch in more.
Snell noted employee contributions to retirement plans in
the public sector are greater than in the private sector.
Still in 2010 and 2011, 25 out of 50 states required employees
to put in more money. But some states, including Wisconsin,
concurrently cut employer contributions to balance their
On top of that, a rash of public-sector layoffs over the
last year has left fewer employees contributing.
Census said employee and government contributions combined
in the second quarter rose 12.1 percent from the year before
to $34.2 billion. But employee contributions alone decreased
"The contribution rates are going up and the only reason
it would drop in an aggregate fashion is the number of
employees are deceasing, or they're taking furloughs," said
Snell noted many hikes in employee contributions went into
effect recently, so they have yet to show up in Census data.