Trump Rally Helps Public Pensions as Investment Gains Hit Target

  • Government worker retirement plans had 7.8% return last year
  • Wilshire 5000 rose 6% after Trump’s election through year-end

The stock market rally since Donald Trump’s election has been good for state and local government retirement plans.

U.S. public pensions reported median returns of 7.8 percent last year, roughly meeting the annual targets they count on to pay benefits, according to the Wilshire Trust Universe Comparison Service. The returns were boosted by U.S. shares, with the Wilshire 5000 index gaining 6 percent between Trump’s election and the end of the year.

“The U.S. equity rally in the last six weeks or so of the quarter saved the quarter, and in turn, let them meet their obligations,” said Robert Waid, a managing director at Wilshire Associates in Santa Monica, California.  

U.S. stock indexes reached record highs following Trump’s victory, driven by speculation that his plans to cut taxes, roll back regulation and increase spending will boost corporate profits. That provided a respite to pensions that were stung when equity prices declined in 2015, a setback that increased states’ and cities’ debts to their retirement funds.

State and local pensions count on annual gains of 7 percent to 8 percent to pay retirement benefits for teachers, police officers and other civil employees. When pensions don’t meet their targets, governments have to put more taxpayer money into the funds to make up the difference. The need to do so has led to credit-rating cuts for Dallas, New Jersey, Chicago, Illinois, and Connecticut, which are being squeezed by rising retirement bills.

Public pensions returned a median 4.87 percent for the three years ending in December, 8.63 percent over five years, 5.45% over 10 years, and 7.13 percent over 20 years, according to Wilshire TUCS.

The two biggest U.S. public pensions, the California Public Employees’ Retirement System and the California State Teachers’ Retirement System, have reduced target returns to 7 percent from 7.5 percent, amid expectations for tepid gains. The move will cost the state billions of dollars in increased contributions.

Nationwide, state and local pensions had a median allocation of 43.3 percent to U.S. stocks and 11.9 percent to foreign equities, according to the Wilshire TUCS. 

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE