Public Pension Funds See Big Drops in Value

(MoneyWatch)  Public pension funds are being hit hard in the financial downturn with many reporting drops of at least 20 percent with more to come after a disastrous October comes to an end. Big funds had dropped about 14.8 percent in value for the year ended Sept. 30, according to investment firm Northern Trust, and are likely to drop another 20 percent this month.

The California Public Employees Retirement System took one of the biggest hits, losing 20 percent of its value since July 1. Public pensions in Virginia and Maryland have dropped 20 percent and 17 percent respectively.

One problem is that the funds have taken big positions in stocks, which have been throttled since at least September. Another is that some of the funds have strayed into questionable deals. CalPERS, for instance,was criticized when it invested $1 billion in a nearly bankrupt project to develop 15,000 acres of land in Santa Clarita Valley in California. The pension fund, which has about 10 percent of its holdings in real estate, has also been racked by C-suite instability.

Moreover, the Government Accountability Office has found that 27 of 65 large pension funds were inadequately capitalized in 2006. With markets in turmoil, it isn't likely that any extra funding will be available.

Pension fund managers say the best they can do is hunker down and wait for better times. Roger Ferguson, CEO of the educators' fund TIAA-CREF, told National Public Radio that its members should switch off their televsion sets.

"The only thing I worry about, frankly, is when the market drops, our call volumes spike," Ferguson said. "That tells me that people are staying glued to the screens, worried about the ups and downs of a very volatile market. And frankly, for my participants, I think they should be focused on educating and teaching, and spending less time worried about the ups and downs of markets, which are going to be beyond their control -- and certainly in these troubled times, very volatile."