Third Quarter Brings Large Investment Losses for US Public Pensions

Volatile stock markets and tepid bond markets contributed to a fall in asset values within the United States’ $2.5 trillion public pension system, the Census Bureau said.

(December 28, 2011)—The third quarter (Q3) of 2011 was not a positive one for the United States (US) public pension system, according to figures released by the Census Bureau.

Total investment assets held by state and local government pension plans fell by 8.5% in Q3 2011, according to the government agency, although total investments did see a gain of 1.1% over Q3 2010—the eighth straight quarter of year-over-year growth. Total public pension assets now stand at $2.5 trillion, a figure equal to nearly 20% of US Gross Domestic Product.

The Q3 loss was largely the result of pensions' corporate stock holdings, which fell 14.9% to level out at a total of $134.7 billion. International securities—which totaled 18% of total public plan portfolio holdings—also fell, dropping 14.2% on the quarter to $448.9 billion. Corporate bonds holdings—which account for 16% of total holdings—fell 8.6% in Q3 to $398.4 billion.

US Treasury notes provided a relatively safe harbor for pension assets in Q3, falling only 2.4% in value to a total of $177.8 billion; this, however, is 6% above Q3 2010’s holdings.

Perhaps even more shocking than the fall in investment asset values was a 33.5% drop in employee contributions in Q3, although the Census Bureau noted that cyclical trends often contribute to a fall in employee contributions in this quarter. Employer contributions—the money governments pour into public-sector pension plans—also fell in Q3 by 13.4%. Many commentators point out that this number—sponsor contributions—is perhaps the most critical to long-term public pension plan health.