NCPA - National Center for Policy Analysis


March 11, 2010

States and companies have started investing very differently when it comes to the billions of dollars they are safeguarding for workers' retirement.  Companies are quietly and gradually moving their pension funds out of stocks.  They want to reduce their investment risk and are buying more long-term bonds. But states and other bodies of government are seeking higher returns for their pension funds to make up for ground lost in the last couple of years, and to pay all the benefits promised to present and future retirees.  Higher returns come with more risk, says the New York Times. 

Though they generally say that their strategies are aimed at diversification and are not riskier, public pension funds are trying a wide range of investments: commodity futures, junk bonds, foreign stocks, deeply discounted mortgage-backed securities and margin investing.  And some states that previously shunned hedge funds are trying them now, says the Times: 

  • The Texas teachers' pension fund recently paid Chicago to receive a stream of payments from the money going into the city's parking meters in the coming years.
  • The deal gave Chicago an upfront payment that it could use to help balance its budget.
  • Alas, Chicago did not have enough money to contribute to its own pension fund, which has been stung by real estate deals that fizzled when the city lost out in the bidding for the 2016 Olympics.
  • A spokeswoman for the Texas teachers' fund said plan administrators believed that such alternative investments were the likeliest way to earn 8 percent average annual returns over time.  

Pension funds rarely trumpet their intentions, partly to keep other big investors from trading against them.  But some big corporations are unloading the stocks that have dominated pension portfolios for decades.  General Motors, Hewlett-Packard, J. C. Penney, Boeing, Federal Express and Ashland are among those that have been shifting significant amounts of pension money out of stocks, says the Times. 

Other companies say they plan to follow suit, though more slowly.  A poll of pension funds conducted by Pyramis Global Advisors last November found that more than half of corporate funds were reducing the portion they invested in U.S. equities. 

Source: Mary Williams Walsh, "Public Pension Funds Are Adding Risk to Raise Returns," New York Times, March 8, 2010. 

For text: 


Browse more articles on Tax and Spending Issues