U.S. Government Pensions Gain 5.5% as Stock Market Rises
U.S. state and local government pension-fund assets rose in value by 5.5 percent in the last three months of 2010 as stock market gains helped recoup losses incurred since the financial crisis.
The assets of the hundred largest government employee retirement systems grew by $138 billion to $2.64 trillion by the end of 2010 from three months earlier, the U.S. Census Bureau reported today. The rate marks a slowdown from the previous quarter’s growth of 5.9 percent.
The gains ease pressure on pensions that were stung by losses during the financial crisis of 2008. The rout left funds across the U.S. with less than they will need to cover all the benefits they have promised, with the shortfalls estimated at anywhere from $700 billion to more than $3 trillion, depending on the assumptions one uses to calculate future liabilities.
Last quarter’s returns were driven by gains in stocks, corporate bonds and foreign assets, Census figures show. Stocks made up 32 percent of holdings, the biggest chunk. The Standard & Poor’s 500 index advanced 10.2 percent last quarter. The funds posted declines in the value of Treasuries and municipal debt.
Pension fund shortfalls have become a political issue, as Republicans in Congress raised concern they may force states and cities to turn to the federal government for a bailout. Lawmakers held a hearing last month on whether states should be allowed to file for bankruptcy to renegotiate the debts.
Peak Value
The funds’ peak value was $2.93 trillion at the end of 2007. Holdings tumbled to about $2.1 trillion in the first quarter of 2009.
At the local level, Republican governors in states including New Jersey, Wisconsin and Ohio have railed against what they say are excessive benefits or sought to curb the power of unions to bargain for benefits.
Yesterday, Ohio lawmakers passed a bill limiting collective bargaining by state and city workers and requiring workers to make minimum payments for health care and pensions. New Jersey Governor Chris Christie, facing a $53.9 billion deficit in the state pension system, is seeking steps including rolling back benefit increases granted a decade ago.
Democrats and unions say politicians are seeking to curb the clout of labor groups that back Democratic candidates. In 2007, before the financial crisis, state pensions had 95 percent of what they needed to cover all their liabilities, according to Wilshire Associates, a pension consultant. By 2010, the firm estimates that tumbled to 69 percent.
Taxpayer Money
Investment gains are used to generate cash for future benefits. The increases are a positive turn for public officials faced with pouring more taxpayer money into ailing retirement funds, an added pressure on governments whose tax revenue has yet to fully recover from the recession.
In 2010, government pension contributions rose by $8.9 billion, or 12.2 percent, from a year earlier to $81.3 billion, according to the Census data.
This month, the California Public Employees’ Retirement System, the largest U.S. pension, declined to make a reduction in its assumptions about future earnings recommended by its actuaries, saying it would trigger higher contributions that would burden local governments participating in the system.
To contact the reporter on this story: William Selway in Washington at wselway@bloomberg.net
To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net
Rate These Stories
Rate this Page