Public pension assets rose in 2011, so did obligations

WASHINGTON (Reuters) - State retirement systems continued to rebound financially in 2011, with cash and investment holdings rising 14.6 percent to $2.5 trillion, the U.S. Census reported on Thursday.

The increase from 2010, however, is likely not enough to substantially narrow states' yawning pension gaps. According to the Census, total pension obligations increased 3.7 percent in 2011 to $3.4 trillion.

Earlier this summer, the Pew Center on the States estimated pension systems were short $757 billion to pay for future benefits, based on data for the fiscal year that ended June 30, 2010.

Voters and taxpayers worry that states, which for the most part are bound by law to make good on retirement promises to employees, will have to pull money from essential services to cover pension benefits. Employees, meanwhile, are alarmed that they will see greatly diminished retirement payments, which is especially troubling to those in states where public workers do not receive Social Security benefits.

"States have been digging themselves into this pension hole for some time," Kil Huh, Pew's research director, said in a presentation to the National Conference of State Legislatures on Wednesday.

The fight over the underfunding of public pensions has engulfed most of the country. Over the last three years almost all states have reformed their pension systems while members of the U.S. Congress have floated different ideas for reshaping the plans' financial structures.

Historically, many states made contributions to their retirement systems that were far less than what actuaries recommended. When the 2007-09 economic recession hit revenues hard, states pulled back pension funding even further. Meanwhile, the financial crisis blew a hole in the funds' investment earnings, with those investments losing $511.5 billion in 2009.

According to the Census, the 2011 growth in assets was fueled by investment gains, both in the United States and abroad.

Pension revenue rose by almost a third over the year, to $516.5 billion, with earnings on investments posting gains of $410.6 billion in 2011, the Census reported. Investments provide the lion's share of public pension revenue - representing 79.5 percent of total revenue in 2011.

The Census found that corporate stock investments, which made up 34.3 percent of the funds' total holdings in 2011, increased 13.8 percent to $873.2 billion, while foreign securities, representing 17.5 percent of holdings, were up 24.1 percent to $446 billion. U.S. government securities, 8.1 percent of holdings, were up 7.4 percent to $206.6 billion.

Only corporate bonds decreased - by 2.1 percent to $349.7 billion.

Still, government contributions to pensions, essentially the taxpayers' portion, also rose, by 10.7 percent to $71.7 billion in 2011. Employee contributions were up 3 percent to $34.2 billion.

No one can say for certain that pension assets have continued to rise in 2012. Recent Census and private reports show that their investments are struggling, with Wilshire Associates on Monday reporting public pension investments had a median loss of 1.73 percent in the second quarter.

Ultimately, pension reforms have required employees to take less in benefits or pay more into the systems, or on some occasions, do both. The effects of the reforms could take years to show up in funds' balance sheets, especially because many only apply to new employees.

The Census found that benefit payments increased 8.2 percent to $176.8 billion in 2011.

(Additional reporting by Karen Pierog in Chicago; Editing by Leslie Adler)

Source: http://news.yahoo.com/public-pension-assets-rose-2011-did-obligations-180251241--sector.html

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