2022 Was Bust for Many Pension Plan Investment Returns

by Tom Gantert


Municipal pension plan investment returns were a “wild rollercoaster ride” in 2021 and 2022 with boom or bust results over that two-year period.

Many cities reported record-setting returns in 2021 as high as 33.7% only to find negative returns in 2022. The swing meant billions of dollars to many municipalities’ pension funds.

Truth In Accounting released its annual Financial State of Cities 2023 report in February. The city of San Francisco was ranked as the second best of the 75 major cities reviewed.

That’s largely because the San Francisco Employees’ Retirement System (SFERS) investment returns were 35% in 2021 and brought in $9.4 billion in investment income.

Truth In Accounting said that influx of money turned the system’s $5.4 billion in underfunding to $2.6 billion overfunded and was a major reason the city moved from 67th to second in one year.

The city of Los Angeles went from 44th best city in 2021 to fourth best city in 2022 based on the strength of strong investment returns. The Los Angeles Fire and Pension System (LAFPP) had 32.6% returns on investments in 2021 and went from $2.6 billion underfunded to $2.7 billion overfunded.

But the more recent rates of return have been reversed, according to Truth In Accounting.

The Los Angeles Fire and Police Pension had investment returns of -7.2% in 2022.

And municipal pension systems around the country incurred similar results.

The Atlanta Firefighters’ Pension Plan (AFPP) experienced the biggest swing in two years that Truth In Accounting could uncover, reporting an unrealized gain of 33.28% in 2021 and a loss of 14.72% in 2022.

The state of Minnesota had four pension systems that saw big returns in 2021 but followed by losses in 2022.

The Minnesota Correctional Fund (+30.2%/-6.4%), the Minnesota General Employee Fund (+30.3%/-6.2%), the Minnesota Police and Fire Fund (+30.3%/-6.2%) and the Minnesota Volunteer Firefighter Fund (+20.6%/-13.1%) all had big gains in 2021 followed by losses in 2022.

Pension systems prepare for big swings in investment returns by having a smoothing effect, which means they project an average return – usually between 6% and 8% – over a certain number of years.

– – –

Tom Gantert worked at many daily newspapers including the Ann Arbor News, Lansing State Journal and USA Today. Gantert was the managing editor of Michigan Capitol Confidential for five years before joining The Center Square.
Photo “U.S. Capitol” by Thuan Vo.


Related posts