Skip to comments.Investing in the Stock Market: Good Enough For Public Employee and Union Pension Funds
Posted on 02/10/2005 7:30:36 AM PST by JustaCowgirl
The debate over allowing younger workers to invest a portion of their Social Security payroll taxes in personal retirement accounts has become increasingly politicized, with some groups charging that the plan will amount to gambling in the stock market and giving billions in Social Security dollars to Wall Street pension fund managers.
For example a recent series of television ads sponsored by the AARP depict a middle-aged man and woman saying, "If we feel like gambling, we'll play the slots...There are places in retirement planning for risk. Social Security isn't one of them." The AFL-CIO's website features member testimonies such as, "I am opposed to private investment as an alternative to Social Security because the stock market is too unstable." A 2004 resolution by the American Federation of State, County and Municipal Employees (AFSCME) says, "AFSCME has long opposed diverting Social Security payroll contributions...to fund risky retirement investment accounts."
Despite these harsh attacks, in reality pension fund investing is anything but a political exercise. Fund managers have a fiduciary responsibility to maximize the rate of return on the funds investments by carefully balancing short-term and long-term risk in order to assure enough assets to pay future retirement benefits.
Some of the largest pension funds in America today are public employee and union pension funds. Most of these funds are managed on a contract basis by private investment houses such as Alliance Capital, Goldman Sachs, Morgan Stanley, and Solomon Smith Barney. Very few are managed in-house.
According to the Federal Reserve Board, public employee pension plans alone had nearly $2 trillion in assets as of September 2004. Overall, 54.8 percent of these assets were invested in corporate equities, 36.1 percent were invested in fixed income instruments (such as corporate and foreign bonds), with the remaining funds in cash or other investments.
Like most Americans, each fund has its own philosophy on how its assets should be balanced between corporate equities, fixed investments, and cash. The table below displays the asset balances for the 40 largest public employee and union pensions in the country, with combined assets of $1.7 trillion at the end of 2004 according to Pensions and Investments magazine (www.pionline.com).
Stock Market Investing: Good Enough for Public Employee and Union Pension Funds** Fund Asset Allocation Public Employee Pension Funds* National Rank Total Assets ($ Billions) Domestic Stock Foreign Stock Total Stock Domestic Fixed Income Cash and Other California Public Employees Retirement System 1 $ 148.8 40% 21% 61% 26% 12% New York State Common Retirement Fund 3 $ 106.9 48% 13% 60% 29% 11% California State Teachers Retirement System 4 $ 103.3 41% 21% 62% 23% 10% State Board of Administration of Florida 5 $ 92.3 54% 14% 68% 22% 10% Teacher Retirement System of Texas 7 $ 77.8 54% 14% 67% 29% 4% New York State Teachers retirement System 8 $ 73.5 58% 9% 67% 24% 9% New Jersey Division of Investment 9 $ 63.6 49% 17% 66% 30% 4% Wisconsin Investment Board 13 $ 58.0 45% 19% 64% 26% 10% North Carolina Retirement System 14 $ 56.3 46% 7% 53% 43% 4% Ohio Public Employees Retirement System 16 $ 53.7 48% 22% 70% 22% 8% New York City Retirement Systems 17 $ 51.9 54% 17% 70% 28% 1% Ohio State Teachers 18 $ 48.5 46% 22% 68% 18% 14% Michigan Retirement System 19 $ 46.9 47% 10% 57% 19% 25% Pennsylvania Public School Employees Retirement System 21 $ 43.5 45% 18% 63% 20% 18% University of California 22 $ 43.0 57% 9% 66% 27% 7% Washington State Investment Board 23 $ 42.5 32% 15% 48% 26% 26% Georgia Teachers Retirement System 24 $ 39.4 48% 5% 53% 45% 2% Oregon Public Employees Retirement Fund 25 $ 38.7 41% 19% 60% 23% 17% New York City Teachers Retirement System 27 $ 36.7 64% 14% 78% 20% 2% Minnesota State Board of Investment 29 $ 36.3 50% 15% 64% 25% 10% Virginia Retirement System 30 $ 36.2 48% 17% 66% 23% 12% Massachusetts PRIM 32 $ 29.3 42% 22% 64% 24% 13% Illinois Teachers 33 $ 28.0 47% 15% 62% 26% 12% Maryland State Retirement and Pension System 34 $ 27.4 50% 16% 66% 30% 4% Colorado Employees Retirement Association 35 $ 27.2 47% 14% 61% 18% 21% Los Angeles County Employees Retirement Association 36 $ 26.5 32% 22% 54% 29% 18% Tennessee Consolidated Retirement System 39 $ 24.7 28% 10% 38% 55% 7% Pennsylvanian State Employees Retirement System 41 $ 23.8 39% 20% 59% 18% 22% Alabama Retirement System 42 $ 23.6 39% 9% 48% 36% 16% South Carolina Retirement System 45 $ 23.0 39% 0% 39% 61% 0% Total Assets $ 1,531.0 Average Asset Mix 46% 15% 60% 28% 11%
Fund Asset Allocation Union Employee Pension Funds* National Rank Total Assets ($ Billions) Domestic Stock Foreign Stock Total Stock Domestic Fixed Income Cash and Other Teamsters (Western Conference) 38 $ 25.0 42% 0% 42% 51% 6% Teamsters (Central States) 60 $ 16.5 49% 23% 72% 25% 3% Operating Engineers 130 $ 7.0 61% 0% 61% 39% 0% Boiler-Blacksmith National Pension Fund 134 $ 6.6 n.a. n.a. 0% n.a. n.a. UMWA Health and Retirement Fund 140 $ 6.3 49% 10% 59% 23% 18% 1199 Healthcare Employees Pension Fund 150 $ 6.0 43% 9% 52% 29% 18% I.A.M National 154 $ 5.8 n.a. n.a. 0% n.a. n.a. Bakery and Confectionary Workers 180 $ 5.0 52% 5% 57% 27% 16% Total Assets 78.18 Average Asset Mix 49% 8% 57% 32% 10%
*Data through September 30, 2004 ** Source: Pensions and Investments magazine (www.pionline.com)
On average, public employee pension funds have 60 percent of their assets invested in the stock market, including roughly 15 percent in foreign stock markets. Union pension funds have a slightly smaller share of their assets in the stock market, 57 percent.
The largest pension fund in the nation (private or public) is the California Public Employees Retirement System (CALPERS), which has 61 percent of its assets in stocks, including 21 percent in foreign stocks. The funds most heavily invested in stocks are the New York City Retirement Systems (70 percent), the New York City Teachers Retirement System (78 percent) and the Teamsters Central States fund (72 percent). The fund with the smallest share of its assets in stocks is the South Carolina Retirement System, which has 39 percent of its assets in stocks.
These public employee pension funds are all defined benefit plans. The largest defined contribution plan in the Nation is the federal employee Thrift Savings Plangovernment workers version of a 401(k). TSP has roughly 3.3 million participants and more than $140 billion in assets. Federal employees can choose among five funds, three of which are stock funds, all managed by the San Francisco firm Barclays Global Investors. TSP has been mentioned as a possible model for a personal retirement account system for Social Security.
In fact the federal law governing pension fundsthe Employee Retirement Income Security Act (ERISA)actually mandates that pension fund managers diversify their investments in order to minimize the risk of large losses. (For more on ERISA and fiduciary responsibility click here.)
As most Americans are now becoming aware, the Social Security Trust Fund is not a diversified portfolio but is invested in government IOUs, rather than real assets that will grow in value to pay future benefits. Pension funds, however, cannot deliver benefits to future retirees unless they are invested in real assets that grow in value over time. That is why millions of public employees and union members owe their retirement security to the prudent investment of their pension funds in domestic and foreign stock markets. The success of these funds should put to rest the hysterical charges of critics of personal retirement accounts.
As most Americans are now becoming aware, the Social Security Trust Fund is not a diversified portfolio but is invested in government IOUs, rather than real assets that will grow in value to pay future benefits.
Yes, the SS system is present as solvent as your next year's ability to have a job and pay your taxes...yes it is ALL SMOKE AND MIRRORS WITH I.O.U.s...but we sure don't hear Washington standing up and saying that, do we? No, the liberal pinkos want to HIDE what SS is badly, since to them, it is just another source of short term revenue to votes with (the annual taxation surplus in SS) -- only the Repubs (GWB et al) care enough to get the money out of the hands of the Washington elitists, and into something that is tangible and will be UNTOUCHABLE BY WASHINGTON SPENDERS!!! Presently it is a sham of major proportions -- to call it a ponzi scheme is being polite...
'nuff said. That's all it's about. (With fist raised and voice at the top of lungs..."POWER TO THE GUBBMINT!!!)
As a member of CalPers (and a SS non-participant), I must admit some bias.
Still, what's the big deal? Just wait until the sytem turns upside down in 2018, and watch the Democrats leap into action as the retirees start to take money away from their pork. You SS folks (or your parents or grandparents) believed the Democrats would take care of you. Give 'em a chance to show you what they are capable of!
Feel free to flame my sarcasm. Personally I feel sick that I will be able to retire before my father because of how much the Fed. Gov't. has taken away from him over his lifetime.
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