For all the dire concern about public pension plan finances, the National Association of State Retirement Administrators offers some good news.
The upshot: A short-term perspective can be misleading, especially looking at long-term plans.
A NASRA study, released March 15, found that public pension funds on average have exceeded their assumed rates of return over the 25-year period since 1985.
In that period, ended Dec. 31, 2009, the median public pension plan's actual investment return was 9.25% per year, which exceeded the median assumed annual rate of return of 8%.
That period includes three economic recessions and four years of negative public pension fund investment performance, including the 2008 market meltdown, according to a statement about the study, prepared by Keith Brainard, research director.
But there is no reason for complacency. A report recently released by Wilshire Associates Inc. showed the average funded ratio of state-sponsored defined benefit plans has fallen to 65%, its lowest level in two decades.
Even though the NASRA study suggests public plan sponsors have generally done well managing the investment part of the plans, the problem is with benefit and contribution levels. Benefits are growing faster than assets, despite the solid investment returns, and contributions are not keeping pace.
As Steve Foresti, Wilshire managing director, was paraphrased as saying in the March 8 issue of Pensions & Investments, even with future robust results on their investments, it is unrealistic to expect state plans to significantly improve their funding ratio to make up for bear markets at the beginning and end of the decade.
In short, investments are only one part of the equation for a sound, secure defined benefit plan.