Financial Facts

August 2, 2016


Long-term returns for U.S. public pensions are expected to drop to the lowest levels ever recorded, meaning deeper pain for states and localities as a $1 trillion funding gap widens. Twenty-year annualized returns for public pensions are poised to decline to 7.47 percent once fiscal 2016 results are released according to an estimate from Wilshire Trust Universe Comparison Service. This will be the lowest ever annual mark recorded by Wilshire in the 16 years it has been tracking the statistic.

Near the height of the boom, pensions’ 20-year return was 12.3 percent. The dip is intensifying debate over whether states and localities can continue to afford pension obligations. The drop in 20-year annualized returns is significant because officials who oversee these funds have long said that one or two bad years aren’t as important as the long-term average and that they would earn enough money over decades to pay for retiree obligations. Every one-percentage drop in investment returns represents an increase of 12 percent in liabilities, according to the Center for Retirement Research.

VACo Contact: Vicky Steinruck

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