Bloomberg News

U.S. State, Local Pension Assets Rise 17.6% to 3-Year High

September 29, 2011

(Adds details on holdings in second paragraph.)

Sept. 29 (Bloomberg) -- U.S. public pension-fund assets grew 17.6 percent in the second quarter from a year earlier as state and city retirement systems continued to recoup losses from the 2008 credit crisis.

Assets of the 100 largest public-worker pension plans rose to $2.77 trillion by the end of June from $2.36 trillion a year earlier, the U.S. Census Bureau said today. The gains were driven by increases in U.S. stocks, corporate bonds and international securities.

The advance pushed the assets to their highest in three years, before the collapse of Lehman Brothers Holdings Inc. accelerated the turmoil in financial markets in late 2008. Investment losses suffered in the wake of that collapse left plans with less than needed to pay benefits they have promised, forcing cash-strapped governments to set more aside and fueling drives to cut back on employee retirement costs.

The pension funds earned $51.4 billion on investments during the second quarter, while employee and government contributions also rose. Compared with the first quarter of this year, the assets were up by 1.3 percent, the worst performance since they slipped during the second quarter of 2010, according to the Census Bureau.

Smoothing Method

The development may not provide much immediate relief for state and local governments. Fund overseers use accounting techniques to spread gains and losses over time, which prevents their required contributions from swinging with changes in financial markets. Pension funds also typically count on earnings of about 8 percent a year, a benchmark they must exceed to make up for years when money is lost.

Since the end of June, world stock markets have swooned amid speculation that Greece will default and investor worries that the economy could be headed toward a second recession.

Joseph Dear, chief investment officer of the California Public Employees’ Retirement System, said yesterday that the fund may struggle in the next few years to make the 7.75 percent returns it relies upon, given the pace of the U.S. recovery and the concerns about European government debts.

The U.S. government pensions had $522.6 billion invested in international securities at the end of the second quarter, the most since the Census Bureau began tracking such holdings in 2002. Such securities comprised 18.9 percent of investments, up from 18.7 percent at the end of the first quarter.

The plans also boosted their holdings of cash and short- term securities to $117 billion in the second quarter from $108.8 billion in the first.

--Editors: Stacie Servetah, Mark Schoifet

To contact the reporter on this story: William Selway in Washington at

To contact the editor responsible for this story: Mark Tannenbaum at

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