State and local government pension fund assets rose 5.5% in the last three months of 2010 as stock market gains helped recoup losses incurred since the financial crisis.
The assets of the 100 largest government employee retirement systems grew by $138 billion in the fourth quarter to $2.64 trillion, the U.S. Census Bureau reported Thursday. The rate marks a slowdown from the previous quarter's growth of 5.9%.
The gains are helping pensions that were stung by losses during the financial crisis of 2008. The rout left funds across the U.S. with less than they will need to cover all the benefits they have promised, with the shortfalls estimated at anywhere from $700 billion to more than $3 trillion, depending on the assumptions one uses to calculate future liabilities.
Last quarter's returns were driven by gains in stocks, corporate bonds and foreign assets, Census figures show. Stocks made up 32% of holdings, the biggest chunk. The S&P 500 index advanced 10.2% last quarter. The funds posted declines in the value of Treasuries and municipal debt.
Pension fund shortfalls have become a political issue, as Republicans in Congress raised concern they may force states and cities to turn to the federal government for a bailout. Lawmakers held a hearing last month on whether states should be allowed to file for bankruptcy to renegotiate the debts.
The funds' peak value was $2.93 trillion at the end of 2007. Holdings tumbled to about $2.1 trillion in the first quarter 2009.
Public officials have already been pouring more taxpayer money into ailing retirement funds, an added pressure on governments whose tax revenue has yet to fully recover from the recession.
In 2010, government pension contributions rose by $8.9 billion, or 12.2%, from a year earlier to $81.3 billion, according to the Census Bureau data.