Largest Pension Plans Underperformed on Investments in 2019

Going into the fiscal year ending June 30, 2019, the average and median assumed rate of return for the largest public pension plans was around 7.25%. This is the benchmark that pension plans work to achieve each year, hoping that their long-term average evens out to around this number. Unfortunately for 2019, the actual median return was 6.79% — meaning that we can expect the unfunded liabilities reported by public plans in their next valuation reports to go up as a whole.

It is always important not to take one year of public pension plans underperforming as a reason to panic. According to Wilshire Trust Universe Comparison Service, cited in the WSJ article below, the median return for the last four years was 8.59% (2018), 12.6% (2017), 1.32% (2016), and 3.44% (2015). The 10-year average return for 2010-2019 is 9.7% for this same universe of public plans (a sharp uptick now that the years of the financial crisis have rolled out of the 10-year average). What is more important is to look at trends and the effects of those trends. And despite several years of positive returns, only two out of the last five have beat the assumed rate of return targets, meaning pension plans underperformed.