U.S. public pensions suffer worst year since the financial crisis

·3-min read

An ugly start to the year for stocks and bonds has put a dent in the retirement plans of millions of state and local employees.

U.S. public pension plans saw big losses during this year’s market rout, with median losses totaling 7.9% for the year ended June 30, according to data from institutional investment consultant Wilshire Associates.

This marked worst annual performance — and first annual decline — for public retirement systems since 2009, according to Wilshire's data.

Plans worth over $1 billion were down 7.3% for the fiscal year ending June 30, 2022, and their smaller counterparts saw declines totaling 12.1% over the same period.

Although declines were seen across the board, large plans — or those with over $1 billion in assets under management — registered smaller losses than plans handling assets below that threshold, with the bulk of these declines coming in the second quarter.

Large plans saw investment portfolios tumble 7.7% percent for the three-month period ended June 30, while the plunge totaled 10.4% for smaller pensions. This marked their worst quarter since the coronavirus pandemic began in 2020.

"The second quarter of 2022 was historical, but for all the wrong reasons,” Wilshire President Jason Schwarz said. “If you look back 50 years, you’ll be hard pressed to find another quarter where global equities were down by double-digits and investment grade bonds were down five-percent.”

Large plans posted losses of -7.73 percent for the quarter and -7.25 percent for the year ending June 30, 2022. Meanwhile, small plans underperformed large for the quarter and the year, with returns of -10.40 and -12.07 percent, respectively.
Large plans posted losses of -7.73 percent for the quarter and -7.25 percent for the year ending June 30, 2022. Meanwhile, small plans underperformed large for the quarter and the year, with returns of -10.40 and -12.07 percent, respectively.

U.S. stocks logged their worst first six months to start a year since 1970, with losses most prevalent in the second quarter. The S&P 500 capped the first half of 2022 in a bear market, down 20.6% from highs reached on January 3.

The Dow Jones Industrial Average shed 15.3% for its worst first six months of a year since 1962, and the Nasdaq's 29.5% drop during the period marked its worst first half on record.

The rout in equity and fixed income markets saw institutional assets plunge 10.6% for the year ending June 30, and 9.6% for the second quarter alone, across pensions, foundations, and endowments.

Losses came as elevated inflation, central bank rate hikes and fears of a recession weighed on sentiment.

The California Public Employees' Retirement System (CalPERS), the largest public pension plan in the U.S., reported a loss of more than 6% at the end of its last fiscal year, ended June 30. The decline marked its first negative investment return since the financial crisis.

"Tumultuous global markets played a role in CalPERS’ first loss since the global financial crisis of 2009," the asset owner said in a statement last month.

Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc

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