Key Takeaways
- • Public pension plans have shifted 77% of combined equity and alternative investments into riskier asset classes in 2022, up from 74% in 2019, with alternative investments expanding from 27% to 35% of total assets over the same period.
- • Pension fund returns experienced extreme volatility during the study period: achieving a historic high of 27% in 2021 before plummeting 30+ percentage points to -4.8% in 2022, directly reflecting broader market instability.
- • Equity allocations declined substantially from 47% of total assets in 2019 to 42% in 2022, displaced by aggressive expansion into private equity, private debt, and real estate investments.
- • Despite the 2021 market rally, anticipated long-term returns for pension funds have declined steadily since 2010, signaling deteriorating forward-looking expectations for plan solvency.
- • The Pew Charitable Trusts analysis of 73 major public pension plans in fiscal years 2021–2022 underscores the urgent need for prudent investment management practices to ensure sustainable retirement benefits for millions of public sector employees.
Summary
The Pew Charitable Trusts released a comprehensive chartbook on April 16, 2025, analyzing investment trends and management practices across 73 major U.S. public pension plans during fiscal years 2021 and 2022. The analysis reveals a decades-long structural shift toward riskier asset classes that has accelerated in recent years, creating both opportunity and vulnerability for pension systems managing retirement obligations for millions of public sector workers.
The most striking finding concerns asset allocation composition. Public pension plans now allocate 77% of combined equity and alternative investments to higher-risk asset classes, up from 74% in 2019. This increase was driven primarily by expansion of alternative investments—private equity, private debt, and real estate—which surged from 27% to 35% of total assets between 2019 and 2022. Simultaneously, traditional equity allocations contracted from 47% to 42% of total assets, indicating a deliberate strategic rebalancing toward nontraditional investments rather than a market-driven reduction.
Investment performance volatility during the study period highlights the risks inherent in this strategy. Pension plans achieved a historic average return of 27% in 2021, capitalizing on robust equity markets. However, returns collapsed the following year, declining more than 30 percentage points to negative 4.8% in 2022. This dramatic swing—returning to losses despite the prior year's exceptional gains—mirrored broader market turmoil and exposed pension systems to substantial concentration risk.
Critically, forward-looking return assumptions have deteriorated despite the 2021 market strength. Anticipated returns have declined steadily since 2010, suggesting that pension plan actuaries and investment managers expect more modest performance ahead. This trend raises sustainability concerns for plans relying on robust investment returns to bridge funding gaps and meet benefit obligations.
The Pew Charitable Trusts emphasizes that effective management of state pension investments remains crucial to ensuring long-term retirement security. The report calls for prudent management practices and strategic adjustments as pension plans navigate an increasingly complex and volatile investment landscape shaped by heightened macroeconomic risks.
The most striking finding concerns asset allocation composition. Public pension plans now allocate 77% of combined equity and alternative investments to higher-risk asset classes, up from 74% in 2019. This increase was driven primarily by expansion of alternative investments—private equity, private debt, and real estate—which surged from 27% to 35% of total assets between 2019 and 2022. Simultaneously, traditional equity allocations contracted from 47% to 42% of total assets, indicating a deliberate strategic rebalancing toward nontraditional investments rather than a market-driven reduction.
Investment performance volatility during the study period highlights the risks inherent in this strategy. Pension plans achieved a historic average return of 27% in 2021, capitalizing on robust equity markets. However, returns collapsed the following year, declining more than 30 percentage points to negative 4.8% in 2022. This dramatic swing—returning to losses despite the prior year's exceptional gains—mirrored broader market turmoil and exposed pension systems to substantial concentration risk.
Critically, forward-looking return assumptions have deteriorated despite the 2021 market strength. Anticipated returns have declined steadily since 2010, suggesting that pension plan actuaries and investment managers expect more modest performance ahead. This trend raises sustainability concerns for plans relying on robust investment returns to bridge funding gaps and meet benefit obligations.
The Pew Charitable Trusts emphasizes that effective management of state pension investments remains crucial to ensuring long-term retirement security. The report calls for prudent management practices and strategic adjustments as pension plans navigate an increasingly complex and volatile investment landscape shaped by heightened macroeconomic risks.
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