Assets of major public pension funds fell 8.5% in third quarter

By MyPlanIQ:We wrote an article in January 2011 that reviewed the performance of the largest pension fund in the nation -- Calpers (California Public Employees' Retirement System). In the article, we compared its performance with that of a strategic asset allocation from California State University and Public Employees Savings Plus Plan.

News that the UK did manage to eke out a little growth will give George Osborne some respite in the build up to his Budget following last week’s decision by Moody’s credit rating agency to strip the country of its prized AAA status. In its second estimate of GDP for the final three months of last year, the Office for National Statistics revealed that it had revised its growth calculations for earlier in 2012.

Kid Dynamite submits: I've been saying for a while now that if we want to reduce the risk of future crisis, the key is to reduce the leverage in the financial system. The State of Wisconsin, however, clearly didn't get the memo.

Ravi Nagarajan submits:In the late 1990s, pension funds decided that it would be a good idea to purchase stocks near the peak of the technology bubble. Strike one. In the mid 2000s, the idea was to join the private equity and hedge fund wave sweeping over Wall Street just in time for the 2008 financial crisis. Strike two.

Public revolts by shareholders are uncommon in Canada and no major company has ever suffered the ignominy of losing a say-on-pay vote. That could change Wednesday.

It is no surprise that pension funds in the US are significantly underfunded (median 72% funded). California Public Employees’ Retirement System (CALPERS), specifically, is about 26% short of meeting its long-term commitments. Like most major pension funds, it uses smoke-and-mirrors to avoid this yawning gap by smoothing over a long enough timeframe where 'hope' for growth in assets triumphs over the reality of liabilities (through a 'rolling' 15- or 30-year window - that therefore never comes due).

It was one small step and, as a result, Canadian pension funds were slightly more solvent at the end of 2012 than they were one year earlier. The small step was a one per cent improvement in the median pension solvency funded ratio – or the ratio of the market value of plan assets to liabilities. Two factors, contributions by the company’s sponsoring the plans and a strong equity market, helped the improvement in the solvency funded ratio while continued low interest rates helped worsen the ratio.

Irfan Chaudhry submits: Most of the US pension funds can't stick to their typical asset allocations of equities and fixed income because of their inability to meet pension expenses as per assumed 8% ROA. According to a “Stateline July 2010 review” – 2010 required return on assets for most of US funds is quite high (higher than typical assumption of 8%) – which creates a large shortfall risk.