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The Wall Street Journal: Market rout sends U.S. state and city pension funds to worst year since 2009

Public pension plans lost a median 7.9% in the year ended June 30, according to Wilshire Trust Universe Comparison Service data released Tuesday, their worst annual performance since 2009 and a fresh sign of the chronic financial stress facing governments and retirement savers. 

Much of the damage occurred in April, May and June, when global markets came under intense pressure driven by concerns about inflationhigh stock valuations and a broad retreat from speculative investments including cryptocurrencies. Funds that manage the retirement savings of teachers, firefighters and police officers returned a median minus 8.9% for that three-month period, their worst quarterly performance since the early months of the global pandemic.

The results underscore the pain felt by many investors in a year characterized by a rare combination: simultaneous sharp declines in both stocks, which are understood to be risky, and bonds, which aren’t and accordingly are often purchased by investment managers as hedges.

That one-two punch has pummeled household and institutional investors alike as the Federal Reserve has pushed short-term interest rates higher to rein in inflation. For state and local governments around the country, the losses will mean higher annual retirement contributions in the coming years, forcing many public officials to raise taxes or other revenues or to cut services. 

Public pension funds have hundreds of billions of dollars less on hand than they will need to cover future benefit promises. A record run in stocks afforded them a decade of relative breathing room. But even after a blockbuster median return of nearly 27% last year, many retirement systems remained underfunded with the growth in expected benefit costs outpacing the growth in assets.

That shortfall, along with aggressive annual return targets of about 7%, have led pension funds to embrace investment risk, with a median equity allocation of 57% as of June 30, according to the Wilshire data. A larger equity allocation increases funds’ exposure to stock-market moves; a rally in stock and bond prices in recent weeks stands to ease some of the pain of the past year.

An example is the minus 6.1% return reported by the nation’s largest pension fund, the California Public Employees’ Retirement System for the year ended June 30. That number reflects a 21.3% return on private equity and a 24.1% return on real estate, both of which cover the 12 months ended March 31 and don’t include losses in the second quarter of 2022.

An expanded version of this story appears on

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