Industry News

On June 18, 2024, the Center for Retirement Research (CRR) at Boston College published its issue brief, How Do Public Pension Plan Returns Compare to Simple Index Investing? The brief compares the investment performance of public pensions to a simple passive indexing approach over various time periods from 2000-2023 using pension returns that are adjusted for lagged reported returns. 

According to the brief, public pension plans have been shifting a significant share of assets from traditional equities, bonds and cash into more complex investments with alternative assets and active management over the past 20 years. CRR studied whether the more complex approach results in higher returns as compared to simple 60/40 index portfolio investing over various periods from 2000-2023. Specifically, the study compares actual returns earned by state and local pension plans with returns from a simple index portfolio of 60% U.S. stocks (Russell 3000 Total Return Index) and 40% U.S. bonds (Bloomberg U.S. Aggregate Bond Index) with a 10-basis point management fee. 

Some key findings include: 

• From 2000-2023, plan returns were nearly the same as the simple index portfolio strategy; however, plans have performed worse since the Global Financial Crisis.
• The findings indicate that if the current approach does not produce higher long-term returns, maintaining a simple and transparent strategy may be appropriate.

The brief is available here.