Stock Losses Hit Public Pensions: US Census

The value of investments held by U.S. public pensions fell in the third quarter for the first time in a year, battered by stock losses and a plunge in international securities, the U.S. Census said on Wednesday.

Total investments held by pension systems administered by state and local governments fell 8.5 percent from the second quarter, although investments did inch up 1.1 percent from the same period a year earlier.

The total holdings reached $2.5 trillion in what was the eighth consecutive quarter of year-on-year growth.

After being battered by the financial crisis and recession, public pensions had seen four straight quarterly increases starting in 2010.

But in the third quarter, pensions' corporate stock holdings fell 14.9 percent from the second quarter to $134.7 billion. That marked a 6.6 percent drop from the third quarter of 2010.

And international securities declined for the first time since the second quarter of 2010, falling 14.2 percent from the second quarter to $448.9 billion. It was the largest decline in international securities since the fourth quarter of 2008, in the midst of the Great Recession, according to the Census.

Public retirement systems depend on contributions from employees and employers to pay benefits, but the lion's share of their revenue comes from investment returns.

A year ago, concerns about public pensions' soundness reached a fever pitch. Conservative members of the U.S. Congress called for the systems to lower their expected rates of return — a metric that is used to determine the systems' abilities to meet their obligations — and for states to have the unprecedented option of filing for bankruptcy to escape public employee contracts.

The bankruptcy idea has largely disappeared, although earlier this month a leading Republican U.S. senator, Jim DeMint of South Carolina, hinted other legislation changing public pensions could be coming soon.

In the third quarter, corporate stocks comprised less than a third of the total cash and security holdings of major public-employee retirement systems, according to the Census. International securities made up 17.7 percent.

Corporate bonds made up about 16 percent of holdings. They too decreased, falling 8.6 percent from the previous quarter and 9.4 percent from the third quarter of 2010 to $398.4 billion.

Treasurys and direct contributions provided some shelter for the public retirement systems.

Holdings of federal government securities dropped 2.4 percent from the second quarter to $177.8 billion, but were up from a year earlier by 6 percent. It was the eighth straight quarter in which federal government securities increased over the year.

The Census said a 33.6 percent drop in employee contributions in the third quarter from the second was typical, "continuing a cyclical pattern that shows the third calendar quarter as having the lowest employee contributions each year."

Nonetheless, employee contributions were up 6 percent from the year before, reaching $7.2 billion.

Contributions made by employing governments dropped 13.4 percent from the second quarter to $18.1 billion. Still, they rose 3.4 percent from the same quarter in 2010.