America’s Pension Funds Fell Short in 2019

Public pension plans fell short of their projected returns this year, adding to the burden on governments struggling to fund promised benefits to retired workers.

Public plans with more than $1 billion in assets earned a median return of 6.79% for the year ended June 30, the lowest since 2016, according to Wilshire Trust Universe Comparison Service data released Tuesday. Public pension plans project a median long-term return of 7.25%, according to data collected by Wilshire Associates in 2018.

Each year, pension funds must make this estimate on how much they expect to earn on investments. The projection determines the amount the government that is affiliated with the pension fund must pay into it.

Robust returns reduce the need for government support. When returns fall short, however, the amount the government must contribute increases, potentially diverting money from other public services.

“I think a lot of plans fell a little bit short,” said Becky Sielman, principal and consulting actuary at Milliman. “Bonds generally did well, but there are other asset classes that didn’t do as well.”

Overall, a decadelong bull market in stocks has been good for pensions. Large public plans had five years of double-digit returns and a 10-year annualized return of 9.7% for the year ended June 30, according to Wilshire.

But those returns still haven’t brought pension funding levels close to what is needed to pay for future benefits. State and local pension plans have about $4.4 trillion in assets according to the Federal Reserve, $4.2 trillion less than they need to pay for promised future benefits. Contributing factors include increasing lifespans, overoptimistic return assumptions, and government decisions to skimp on pension payments. Record losses in 2009, when pension funds fell by a median 19.19% according to Wilshire, also played a role.

In hopes of reducing their unfunded liabilities, pensions have pushed further into riskier, less traditional investments over the past decade. Large public pension plans had a median 11.47% of their assets in alternative investments such as private equity for the year ended June 30 and a median 4.45% of their investments in real estate.

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Even so, some of the best-performing investments in the year ended 2019 were plain domestic stocks and bonds.

The roughly $2 billion Tampa Fire and Police Fund, which steers clear of alternatives, returned 8.7% for the year ended June 30, said Jay Bowen, president and CEO of Bowen, Hanes & Co.

“For a public defined-benefit plan, we just feel like if you can focus on high-quality stocks and bonds and take a long-term approach, you’ll be better off, especially after fees,” said Mr. Bowen, whose firm has been the pension fund’s sole manager for 45 years.

Wilshire calculated that a portfolio of 60% domestic stocks and 40% domestic bonds would have returned 9.13% for the year ended June 30.

“Global equities worked against you, alternatives or private equity probably worked against you, cash worked against you, and anything where you didn’t stay the course worked against you,” said Robert J. Waid, managing director at Wilshire Associates. For example, he said, a pension fund that sold equities or switched to lower-risk equities at the end of last year as stock prices fell missed first-quarter gains.

The nation’s two largest pension funds, which serve California public workers and California teachers, earned 6.7% and 6.8%, respectively. Both funds project long-term returns of 7%.

“It was a roller-coaster year and a very challenging environment in which to generate returns,” said Christopher Ailman, investment chief for the teacher fund, known as Calstrs.

Write to Heather Gillers at

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