U.S. Pension Assets Gained 16.4% in 2011, Wilshire Report Says

U.S. public pension funds rose 16 percent in the year ended June 30, narrowing the gap between their assets and liabilities to the lowest level since 2008, according to a report by Wilshire Associates Inc.

The 126 state pension plans had an average of 77 percent of the assets needed to pay their long-term obligations to retirees, up from 69 percent a year earlier, according to the study released today.

Rising retiree costs are straining the budgets of states and cities across the U.S. coping with the lingering effects of the longest recession since the 1930s. The gap is the narrowest since the economic contraction was amplified by the collapse of Lehman Brothers Holdings Inc. in September 2008.

“It’s been a pretty unique and pretty wild ride for the the last decade,” Steven J. Foresti, a managing director at Wilshire, said by telephone from Santa Monica, California. “The funding levels are still at a pretty low point compared to historical levels.”

U.S. pension funds had a median of 75 percent of the assets needed to pay long-term obligations in 2010, according to an annual study by Bloomberg Rankings. That number was down from 76 percent a year earlier, the study found.

Even with the growth in assets last year, 90 percent of U.S. pensions don’t have enough to cover all of their expected liabilities, the Wilshire study shows. A year earlier, the figure was 98 percent.

Annual Return

The 126 pension funds rely on a median 8 percent annual return on invested assets in their projections, while Wilshire forecast 6.4 percent. The numbers aren’t fully comparable because Wilshire’s projections are for 10 years while most pension funds have a window of 20 to 30 years, the report noted.

Over the past decade, the funds have pulled back from U.S. stocks and bonds in favor of an investment strategy that relies more on real estate, non-U.S. stocks and private equity, the report said. That has slightly reduced the funds’ exposure to risk, according to Wilshire.

“What you’re seeing across the systems is a desire to maintain growth embedded in the portfolios but to do it in a more balanced way,” Foresti said.

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