usUS state and local government public pension funds earned record returns on their investments in the first quarter of the year, according to official data that may ease fears about whether they will be able to pay retirees in future.

The 100 biggest public-employee retirement systems in the US earned $179bn in the quarter, according to the Census Bureau, the highest earnings on investments since records began in 1974. Total holdings and investments increased by 5.6 per cent from the prior quarter, to $2.8tn from $2.6tn.

The data reveal that the funds dumped corporate bonds while snapping up international and US government securities. Pension funds’ holdings of international securities reached their highest level in 12 years, rising to $550bn from $473bn in the prior quarter, while holdings of US federal government securities hit an 11-year high, increasing 25 per cent from the prior quarter to $223.5bn.

Even using the assumed 8 per cent rate of return, public pension funds are 24 per cent underfunded, according to the Center for Retirement Research at Boston College. That has led to calls for lower benefits, higher employee contributions and increased taxes.

The Governmental Accounting Standards Board approved new rules this week that will force public pension funds to mark their assets to market and give a more accurate figure when calculating their returns on investment.

 Financial Times

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