Investment Return Projections for US Municipal Pension Plans Need a Second Look

Municipal pension plan sponsors say they expect their investment portfolios to outperform the market by 146 basis points (bps) on an annual basis over the next five years, according to a new study by Greenwich Associates. Municipalities relying on this type of performance to fund pension plan liabilities should look closely at historic investment results and consider if other non-investment actions will be required to meet future obligations. On an overall basis, the average solvency ratio of public pension funds in the United States increased modestly to 87% in 2007 from 86% in 2006, according to the results of the company’s most recent US Investment Management Research Study. However, those gains are attributable entirely to advances made by state funds, which saw average solvency ratios increase to 85% from 79% year-over-year. Municipal fund solvency ratios declined to 87% from 89% over the same period. In addition, a sizable share – more than 30% – of municipal pensions have solvency ratios of 79% or less.


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