Public pension funds are increasing allocations to fixed income and continuing to lower their investment assumptions, according to a study from the National Conference on Public Employees Retirement Systems.

The study, which reflects data from 201 U.S. public pension funds that collectively oversee more than $3 trillion in assets, shows those plans that reported data as of June 30 had an average investment return of 9.5%, and the trend toward lower investment return assumptions continues with an average discount rate of 6.67% as of June 30. That number has been going down steadily since NCPERS recorded an average discount rate of 7.2% as of June 30, 2020.

For the three, five and 10 years ended June 30, the average annualized return was 7.2%, 6.2% and 6.9%, respectively.

The data also showed that pension funds are allocating more to fixed income. As of June 30, the average allocation was 41.5% equities (down from 42.4% a year earlier), 29.7% alternatives (down from 34.5%), 26.1% fixed income (up from 19.7%), and 2.7% cash, cash equivalents and other (down from 3.4%).

The study also showed that the measured public pension funds had an average funding ratio of 83.1% as of June 30, well above the range of 70% to 80% seen between the end of 2020 and the end of 2023.

“Public pensions have proven to be resilient as they’ve adapted to economic shifts while continuing to strengthen their financial footing,” said Hank Kim, executive director and counsel for NCPERS, in a Feb. 24 new release covering the results of the study. “This study reaffirms that sound governance and disciplined funding strategies are key to long-term stability.”

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