Pensions Got a Boost From Strong Markets in 2024, But They’re Still In Trouble | Global News Avenue

A strong performance by U.S. stocks last year led to better-than-expected returns from state and local pension funds. However, this boost may not be enough to get them out of trouble.

pension The latest report from the Equiable Institute, a think tank specializing in pension research, shows that the average annual return in 2024 will be 10.3%, higher than the expected 6.87%. However, public pension returns still lag those in the broader stock market – S&P 500 Index Growth of more than 23% in 2024.

The strong but not outstanding returns can partly be attributed to the lackluster performance of fixed income in 2024. While they slightly improved the financial health of the public pension system, they did little to alleviate all of its problems.

“A second consecutive year of positive investment returns for public retirement systems is most welcome,” said Anthony Randazzo, executive director of Equable. “But it’s worth noting that even with markets at historic highs and pension fund investment returns Strong, state and local retirement systems remain financially fragile.”

Huge debt remains a problem

The public pension system faces a $1.37 trillion shortfall in 2024, an improvement from the $1.64 trillion gap in 2023. A funding gap occurs when more of a pension fund is unfunded. Liabilities— or benefits promised to retirees — than assets.

“The good news for state legislatures and local government employers is that the funding position of public programs has improved for three consecutive years, preventing additional unfunded liabilities from piling up,” the report states. “The bad news is that more than a trillion dollars remain The dollar pension debt cannot be serviced with today’s contribution levels.”

Currently, the average market value public pension ratio is 80.2%, but Equiable considers the “minimum threshold for pension schemes to be resilient” to be 90%.

Heading into 2025, the report doesn’t paint a rosy picture — pension plans are unlikely to reduce their debt if state tax revenues remain stable or decline.