stock market

Public Pensions Facing Worst Returns Since Recession

A volatile stock market over the past year has taken a toll on public pension assets.
BY  | AUGUST 3, 2016

Public pension plans are reporting dismal investment returns this year, a development that will likely mean governments will have to pony up more money in the coming years.

So far, no major pension plan has reported a preliminary annual investment return of more than 1.5 percent. That's thanks to a volatile stock market that's seen wild swings spurred mainly by political and economic events abroad. Some smaller plans, such as the New Mexico Educational Retirement Board, have reported earnings as high as 2.6 percent. Still for many, this year marked their worst earnings year since the Great Recession.

The slim earnings for fiscal 2016, which ended June 30 for most plans, is well below the average earnings target of about 7.5 percent. It also marks the second year in a row that plans have missed the assumed rate of return: Most reported an investment gain between 2 percent and 4 percent in fiscal 2015.

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The Week in Public Finance: Good and Bad News for Pensions and for Atlantic City

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A roundup of money (and other) news governments can use.
BY  | MARCH 18, 2016

Pension Plan Peril

The stock market has been kind to pension plans in recent years. But that ended last year: Pension plan returns for fiscal 2015, which mostly closed on June 30, were meager. Many were below 5 percent, lower than their target rate of 7 or 8 percent. To make matters worse, that was before the stock market turmoil that began late last summer, which means that when most pensions close out fiscal 2016 at the end of June, their returns will again fall short.

The two-year hit will effectively wipe out the funding improvements seen in 2013 and 2014, predicts Moody’s Investors Service. In a report released Thursday, the agency analyzed 56 state and local government pension plans with total assets of more than $2 trillion. The report says that under the most optimistic scenario, where investment returns average 5 percent for the year, plans’ overall liabilities will still increase by 10 percent. This is because returns are falling short.

The most pessimistic scenario? That plans report an investment loss of 10 percent. In those cases, Moody’s says that could bump up liabilities by more than half, forcing governments to have to put in more money over the next few years than was previously forecast. With a number of governments already balking at their pension costs, that’s going to be a problem. A little over half of the plans Moody’s sampled already aren’t receiving their full payments from their contributing governments.