Large pension plans have been struggling, in a period of very low interest rates since the financial crisis of 2008, to balance their asset allocation in such a way as to maximize returns. Assumptions have been made for many years now about what the average return on investment should be for public pension funds. The money going into these pension funds has been calculated accordingly. But, it turns out that the assumed annual rates of return (between 7% and 8%) have been quite optimistic. If the funds do not generate the anticipated annual returns, then more must be put into them if they are to meet their obligations to retirees. Over the ten year period 2002–2012, the public pension plans run by U.S. states have had an average annual rate of return of 6.4%.

Today’s market size is the value of all public pension assets in the United States in 2012.

Geographic reference: United States
Year: 2012
Market size: $2.6 trillion, approximately 16% of the total of all assets allocated for pensions, public and private, not including Social Security System funds
Sources: (1) Gretchen Morgenson, “How You Can Pay Millions and Lag Behind the Market,” The New York Times, October 20, 2013, B1. (2) Cliffwater 2013 Report on State Pension Performance and Trends, July 22, 2013, available here.
Original source: Cliffwater and data filed by each state in what is known as the Comprehensive Annual Financial Report (CAFR)
Posted on October 21, 2013