March 15, 2010 / 8:52 PM / 10 years ago

Public pension funds benefit from equities-study

* State and local plans kept equity allocation at 60 pct

* Little evidence funds carry too much risk, group says

BOSTON, March 15 (Reuters) - U.S. state and local government pension plans received a bigger boost from rising stock markets than did private sector plans, a study reported on Monday.

The analysis by the nonprofit National Institute on Retirement Security in Washington calculated that as a group, public sector pension funds gained 16 percent last year, versus a gain of 13 percent for private sector pension plans as a whole.

The public sector plans did better because they made fewer changes than private plans during the financial crisis and kept more of their assets in equities, the institute found.

Whereas both types of plans had about 60 percent of assets in equities in 2005, private plans had reduced their levels to 40 percent of assets by the end of 2008 and stayed there — meaning many missed out on gains from the stock market recovery in 2009.

The institute based its analysis on figures released by the Federal Reserve last week, taking the funds’ year-end totals and adjusting them for asset flows to calculate gains.

The analysis comes at a time of growing scrutiny of state pension funds’ holdings of riskier assets to meet higher return goals.

The institute’s executive director, Beth Almeida, told Reuters that the Fed’s figures offered evidence suggesting the trend may be overblown, since total public plan assets did not soar last year as they might have if they had taken on too much risk.

“When you look at the bulk of assets in the public plans, they’re in plain-vanilla kinds of things like equities, bonds and Treasuries,” she said.

The value of total corporate equities held in public-sector retirement plans stood at $1.53 trillion at the end of December, up from $1.08 trillion at the market’s lows at the end of March of 2009, according to the Fed. (Reporting by Ross Kerber; Editing by Steve Orlofsky)

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