Public pension assets, obligations rose in 2011

Reuters News
Posted: Aug 09, 2012 2:02 PM
Public pension assets, obligations rose in 2011

By Lisa Lambert

WASHINGTON (Reuters) - State retirement systems continued to rebound in 2011, with cash and investment holdings rising 14.6 percent to $2.5 trillion, the U.S. Census reported on Thursday.

"The 2011 earnings reached pre-market downturn levels, showing a 2.1 percent increase from 2007," the Census found, noting it was the second consecutive year of gains.

The increase from 2010, however, is likely not enough to substantially narrow states' yawning pension gaps. According to the Census, total pension obligations increased 3.7 percent in 2011 to $3.4 trillion.

Earlier this summer, the Pew Center on the States estimated pension systems were short $757 billion to pay for future benefits, based on data for the fiscal year that ended June 30, 2010.

"To close the pension gap, the rate of growth in assets needs to exceed the rate of growth in liabilities," said Keith Brainard, research director the National Association of State Retirement Administrators. "And really for the last 11 years, due to crummy investment markets, the liabilities, or the obligations, have been growing faster than assets."

Taxpayers worry that states, which for the most part are bound by law to make good on retirement promises to employees, will have to pull money from essential services to cover pension benefits. Employees, meanwhile, are alarmed that they will see greatly diminished retirement payments, which is especially troubling to those in states where public workers do not receive Social Security benefits.

"States have been digging themselves into this pension hole for some time," Kil Huh, Pew's research director, said in a presentation to the National Conference of State Legislatures on Wednesday.

The fight over the underfunding of public pensions has engulfed most of the country. Over the last three years almost all states have reformed their pension systems while members of the U.S. Congress have floated different ideas for reshaping the plans' financial structures.

Historically, many states made contributions to their retirement systems that were far less than what actuaries recommended. When the 2007-09 economic recession hit revenue hard, states pulled back pension funding even further. Meanwhile, the financial crisis blew a hole in the funds' investment earnings, with those investments losing $511.5 billion in 2009.

According to the Census, the 2011 growth in assets was fueled by investment gains, in the United States and abroad.

Pension revenue increased by almost a third over the year, to $516.5 billion, with earnings on investments rising $410.6 billion in 2011, the Census reported. Investments provide the lion's share of public pension revenue -- representing 79.5 percent of total revenue in 2011.

The Census found that corporate stock investments, which made up 34.3 percent of the funds' total holdings in 2011, increased 13.8 percent to $873.2 billion, while foreign securities, representing 17.5 percent of holdings, were up 24.1 percent to $446 billion. U.S. government securities, 8.1 percent of holdings, were up 7.4 percent to $206.6 billion.

Only corporate bonds decreased, dropping 2.1 percent to $349.7 billion.

Still, government contributions to pensions, essentially the taxpayers' portion, also rose, by 10.7 percent to $71.7 billion in 2011. Employee contributions were up 3 percent to $34.2 billion.

Many states have recently asked employees to put more money into retirement systems, but those amounts are "being offset by lower employment, which is fewer people paying in," said Brainard. "And those who are paying in, their salaries are not growing in any meaningful way."

State and local payrolls have shrunk by about 3.5 percent over the last four years, while the salaries used to determine pension contribution amounts are growing around 1 percent a year, according to Brainard. Before the recession, employee pension contributions grew closer to 5 percent or 6 percent a year.

No one can say for certain that pension assets have continued to rise in 2012. Recent Census and private reports show that their investments are struggling, with Wilshire Associates on Monday reporting public pension investments had a median loss of 1.73 percent in the second quarter.

Ultimately, pension reforms have required employees to take less in benefits or pay more into the systems, or on some occasions, do both. The effects of the reforms could take years to show up in funds' balance sheets, especially because many only apply to new employees.


The Census found that benefit payments increased 8.2 percent to $176.8 billion in 2011. The number of those receiving benefits also rose, by 4.4 percent to 7.33 million people.

"For every beneficiary receiving periodic benefit payments there were almost twice as many contributors paying into pension systems in 2011," the Census reported, although in Nebraska and Texas there were around three workers putting money into the retirement systems for every beneficiary.

The average annual benefit payment for state-administered pensions across the country was $24,137. Connecticut had the highest average annual benefit, $37,954, and five other states -- Colorado, Massachusetts, California, Rhode Island and Nevada -- had annual payments of more than $30,000.

Twenty states had average annual benefit payments of less $20,000, with North Dakota the lowest at an average of $14,311.

(Additional reporting by Karen Pierog in Chicago; Editing by Leslie Adler and Steve Orlofsky)