State and local public employee retirement systems in the United States manage over $4.3 trillion in public pension fund investments, with returns on these assets accounting for more than 60 cents of every dollar available to pay promised benefits.

About three-quarters of these assets are held in what are often called risky assets—stocks and alternative investments, including private equities, hedge funds, real estate, and commodities.1 These investments offer potentially higher long-term returns, but their values fluctuate with ups and downs in financial markets in the short term and the broader economy over the long run.

Financial analysts now expect public pension fund returns over the next two decades to be more than a full percentage point lower than those of the past, based on forecasts for lower-than-historical interest rates and economic growth. Research by The Pew Charitable Trusts shows that since the Great Recession—which started in late 2007 and officially ended in mid-2009—public pension plans have lowered return targets in response to changes in the long-term outlook for financial markets. Pew’s database includes the 73 largest state-sponsored pension funds, which collectively manage 95 percent of all investments for state retirement systems. The average assumed return for these funds was 7.3 percent in 2017, down from over 7.5 percent in 2016 and 8 percent in 2007 just before the downturn began.

Source: pewtrusts