2020 Public Plan Investment Update and COVID-19 Market Volatility

State and local pension funding is the product of two key factors: required contributions and investment returns. Achieving the actuarially assumed return is critical to limit increases in contributions (for plan sponsors, participants and, ultimately, taxpayers). Even though financial markets have recovered from the crash sparked by the COVID-19 pandemic, most public pension plans will close fiscal year (FY) 2020 – which generally ends in June – with an annual return that falls short of actuarial expectations. This brief investigates public pension investments and the implications of the market downturn. The first section documents the investment performance of public pension plans as of June 2020, a date that includes the crash in March and subsequent rebound. The second and third sections assess the concerns raised during the crash regarding public plan liquidity and vulnerability to sharp downturns. The final section concludes that even though public pension investment returns have fallen short of actuarial expectations in FY 2020, plans maintain a consistent cache of U.S. Treasuries that could be easily liquidated to pay benefits during severe market downturns.