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[00:00]
A
This podcast is brought to you by relioQuest. Cybercriminals are constantly attacking. They want your data. They want your identity. They want your innovation. RelioQuest fortifies your business with agentic defense AI that detects, contains and eliminates cyber threats in minutes. It helps your security team move faster at the work that matters most to protect the business now and delivers insights to help them predict what's next. ReliaQuest agentic defense for the enterprise. Learn more at reliaquest.com that's R E L I A Q U E-S-T.com.
[00:36]
B
Here's your Money briefing. I'm J.R. whalen for the Wall Street Journal in New York. Coronavirus fears have sent the stock market on a roller coaster and treasury yields to record lows. And they've also shaved off significant value from pension funds.
[00:50]
C
This volatility gets in the way of the pension funds being able to project their investment returns how much their portfolios are going to grow in a big way. And it also interferes with something that's been happening for the past decade or so, which is that pension funds have been gradually climbing out of the hole that they fell into in 2009.
[01:17]
B
That's Wall Street Journal reporter Heather Gillers coming up. She'll also explain how during the bull market, some pension funds prepared for a market downturn to curb their declines. It's not just the stock market and treasury yields that have taken a beating during the coronavirus scare. America's pension funds are also seeing significant declines and Wall Street Journal reporter Heather Gillers is on the line to discuss. So Heather, what are estimates as to how much pension funds have declined as a result of market instability over the coronavirus fears?
[01:57]
C
A consultant I spoke with estimated that there's been about a between 3 and 5% drop in the total holdings of US public pension funds, which is pretty significant if you consider the fact that they're usually seeking to earn, you know, to grow by 6 or 7%. You know that that could be more than half of their entire yearly growth.
[02:21]
B
And how have falling bond yields contributed to that?
[02:24]
C
Several ways. For all pensions, bonds have long been almost a kind of meat and potatoes sort of bread and butter investment. They're safe, you know what you're going to get every year with fixed income. And so that that's why people turn to bonds for all kinds of sort of long term security investments, you know, insurance funds, people's own retirement accounts often contain municipal bonds. And it's the same thing for pensions. What's happened over the past several decades is that fixed income yields have been falling and falling and falling. And public pension funds and corporate pension funds haven't been able to get the kind of income from bonds that they once got. And they, and that they often expected to be able to get for a long time. So they were expecting to be able to earn this income, but all of a sudden, these safe fixed income investments, these stable, steady investments, are not giving them that kind of income. This has played out a little bit differently in the corporate pension world versus in the public pension world. In the public pension world, funds expect to return around 7% every year, which is a pretty aggressive return, and may have been a little bit more realistic when bond yields were much higher 20 or 30 years ago. But assuming such a high return allows these pension funds to contribute less money from the government's annual budgets. The state of Nevada or Maine or the city of New York doesn't have to put as much in its annual in its pension fund every year because it's expecting to earn this extra income from investments. Now, once upon a time, they could get that money from bonds and they really didn't have to worry. It was kind of a set it and forget it type of situation. But as bond yields have fallen, they've had to turn to other riskier investments to try and hit that 7% target. And for the past decade, that's really been stuck. So over the past 10 years, public pensions have ramped up their stock allocations. They're now at a 13 year high. And the issue with that, as we saw over the past couple weeks, is that stocks can be volatile and stocks can fall. On the private pension side, there's an additional consideration. Corporate pension funds. Pension funds run by public companies don't get to assume they're going to earn 7%. They have to be more conservative about what they assume they're going to earn. And the rules about how they estimate their liabilities require them to use a corporate bond rate when they forecast what they'll owe in the future. So as corporate bond rates drop, the number representing their liability grows. So corporate pension funds have an additional headache caused by falling bond yields. It's not just that they can't earn as much, but also that their liabilities now look bigger at a time when they're also likely experiencing equity losses.
[05:45]
B
How are people currently receiving pension payments affected by the current market instability?
[05:51]
C
Well, it's hard to draw a direct line between anything that happens in the markets and how pensioners might be affected. Pensioners have pretty strong legal protections in Most states their retiree health care benefits are a little more vulnerable, but certainly any drop in the markets and definitely the kind of thing that we've seen over the past couple weeks will set pensions back. As far as their difficult efforts to make assets match liabilities, how does this
[06:24]
B
throw off being able to figure out future obligations?
[06:27]
C
This volatility gets in the way of the pension funds being able to project their investment returns, how much their portfolios are going to grow in a big way. And it also interferes with something that's been happening for the past decade or so, which is that pension funds have been gradually climbing out of the hole that they fell into in 2009 following the financial crisis. We've basically had a bull market since then. Stocks have really been good to pension funds. That's why public pension funds have put more and more money into stocks. But suddenly stocks aren't as reliable anymore.
[07:11]
B
But some pension funds actually put in protections during the bull market in case of declines like these, right?
[07:18]
C
That's right. Especially in the last few years, there's been a lot of discussions about how pension funds can de risk or. Or protect themselves in the event of a downturn. Especially for public pension funds, which again, often take on more risk, they're particularly vulnerable to that type of problem. And they have taken different measures. I mean, I talked to the CEO of the Los Angeles County Retirement association, the pension fund that serves county workers in Los Angeles, and that fund took 10% of its portfolio out of stocks and put it into debt instruments like bank loans and emerging market debt, which are some of the areas of credit investments that, unlike Treasuries, pension funds are still hoping to get a pretty significant return on. So pension funds have taken those kinds of measures. They've rolled back their assumed rate of return. In a lot of cases, they're still banking on getting 7%, but they're no longer banking on getting 8%, which would have been an even harder target to meet in this environment.
[08:32]
B
All right, that's Wall Street Journal reporter Heather Gillers with us. Heather, thanks for coming on the show.
[08:36]
C
Sure. Anytime.
[08:37]
B
And that's your money briefing. I'm JR Whalen in New York for the Wall Street Journal.
[08:43]
A
This podcast is brought to you by reliaQuest. Cybercriminals are constantly attacking. They want your data, they want your identity. They innovation. RelioQuest fortifies your business with agentic defense AI that detects, contains and eliminates cyber threats in minutes. It helps your security team move faster at the work that matters most to protect the business. Now and delivers insights to help them predict what's next. ReliaQuest agentic defense for the enterprise learn more at reliaquest.com that's R E L I A Q U E-T dot com.

Summary4 min read

WSJ Your Money Briefing — “Coronavirus Fears Push Pension Funds Lower”

Date: March 6, 2020
Host: J.R. Whalen
Guest: Heather Gillers (Wall Street Journal Reporter)

Episode Overview

This episode of WSJ Your Money Briefing explores how the early 2020 coronavirus fears caused sharp volatility in financial markets, triggering both record-low Treasury yields and significant declines in U.S. pension fund values. Host J.R. Whalen interviews WSJ reporter Heather Gillers, who explains why pension funds are especially vulnerable to market swings and how both public and private pension plans are reacting to sudden drops in asset values and bond yields.

Key Discussion Points & Insights

1. Impact of Market Volatility on Pension Funds

The coronavirus-driven market volatility has directly reduced the value of pension fund holdings.
- Estimates of Decline:
  - “A consultant I spoke with estimated that there's been about a between 3 and 5% drop in the total holdings of US public pension funds…”
    — Heather Gillers (01:57)
  - This drop is particularly significant given funds typically aim for 6-7% annual growth. A 3-5% hit could erase much of an entire year’s progress.

2. Role of Bond Yields in Pension Fund Stability

Traditional Dependence on Bonds:
- Bonds are a “meat and potatoes” investment for pensions—safe and predictable.
- Over the decades, falling yields have made bonds much less lucrative.
Effects by Pension Type:
- Public Pensions:
  - Continue to assume relatively high annual returns (around 7%), often allowing governments to contribute less each year.
  - As bond income declined, public pensions increased their allocations to riskier assets, especially stocks.
- Corporate Pensions:
  - Must use lower, more conservative return projections; required by accounting rules to use market bond rates when estimating future liabilities.
  - As corporate bond rates fall, the present value of their liabilities rises, compounding challenges during market downturns.
- “...It’s not just that they can’t earn as much, but also that their liabilities now look bigger at a time when they’re also likely experiencing equity losses.”
  — Heather Gillers (04:53)

3. Effect on Current Pensioners

Short-Term Impact:
- Pensioners generally have “pretty strong legal protections in most states,” so payments aren’t at immediate risk (05:50).
Long-Term Risks:
- Declines in asset values and income make it harder for funds to keep assets aligned with future payment obligations, especially in extended downturns.

4. Challenges in Forecasting & Recovering from Losses

Volatility upsets the balance funds have painstakingly tried to restore since the 2009 financial crisis.
- “This volatility gets in the way of the pension funds being able to project their investment returns... and it also interferes with something that's been happening for the past decade or so, which is that pension funds have been gradually climbing out of the hole that they fell into in 2009.”
  — Heather Gillers (06:27)
The bull market had allowed many pensions to recover, but sudden downturns reveal the risks in a stock-heavy portfolio.

5. How Some Pension Funds Prepared for Downturns

Growing awareness during the bull market led some funds to actively “de-risk” their portfolios.
- Example: Los Angeles County Retirement Association
  - “...that fund took 10% of its portfolio out of stocks and put it into debt instruments like bank loans and emerging market debt...” (07:28)
Many funds have also lowered their assumed rate of return, acknowledging the difficulty in achieving historic investment targets in today’s environment.
- “They’ve rolled back their assumed rate of return... they’re still banking on getting 7%, but they’re no longer banking on getting 8%...” (08:15)

Notable Quotes & Memorable Moments

On the Scale of Losses:
- “A [3-5%] drop... could be more than half of their entire yearly growth.” — Heather Gillers (01:57)
On Changes in Bonds’ Role:
- “Once upon a time, they could get that money from bonds and they really didn’t have to worry. ... But as bond yields have fallen, they've had to turn to other riskier investments to try and hit that 7% target.” — Heather Gillers (03:54)
On Efforts to ‘De-risk’:
- “Especially in the last few years, there's been a lot of discussions about how pension funds can de-risk or protect themselves in the event of a downturn.” — Heather Gillers (07:18)

Important Timestamps

00:35: Introduction and overview of episode theme
01:57: Scope of pension fund declines due to coronavirus fears
02:24–05:30: Deep dive into the connection between bond yields, pension fund strategies, and risks
05:44: Discussion of impacts on current pensioners
06:23–07:10: Challenge of forecasting future liabilities and returning from prior financial crises
07:17: Explanation of “de-risking” strategies and specific fund actions

Summary Takeaway

Coronavirus-driven market shocks in early 2020 have delivered a major blow to both public and corporate pension funds, undercutting much of their annual growth and exposing vulnerabilities from decades of adapting to lower bond yields. While retirees’ benefits remain legally protected for now, the episode makes clear that extended turmoil and aggressive assumptions about investment returns could spell long-term challenges for America’s pension system—even as some funds have taken proactive steps to buffer against a downturn.

Loading summary

Transcript17 lines

[00:00]
A
This podcast is brought to you by relioQuest. Cybercriminals are constantly attacking. They want your data. They want your identity. They want your innovation. RelioQuest fortifies your business with agentic defense AI that detects, contains and eliminates cyber threats in minutes. It helps your security team move faster at the work that matters most to protect the business now and delivers insights to help them predict what's next. ReliaQuest agentic defense for the enterprise. Learn more at reliaquest.com that's R E L I A Q U E-S-T.com.
[00:36]
B
Here's your Money briefing. I'm J.R. whalen for the Wall Street Journal in New York. Coronavirus fears have sent the stock market on a roller coaster and treasury yields to record lows. And they've also shaved off significant value from pension funds.
[00:50]
C
This volatility gets in the way of the pension funds being able to project their investment returns how much their portfolios are going to grow in a big way. And it also interferes with something that's been happening for the past decade or so, which is that pension funds have been gradually climbing out of the hole that they fell into in 2009.
[01:17]
B
That's Wall Street Journal reporter Heather Gillers coming up. She'll also explain how during the bull market, some pension funds prepared for a market downturn to curb their declines. It's not just the stock market and treasury yields that have taken a beating during the coronavirus scare. America's pension funds are also seeing significant declines and Wall Street Journal reporter Heather Gillers is on the line to discuss. So Heather, what are estimates as to how much pension funds have declined as a result of market instability over the coronavirus fears?
[01:57]
C
A consultant I spoke with estimated that there's been about a between 3 and 5% drop in the total holdings of US public pension funds, which is pretty significant if you consider the fact that they're usually seeking to earn, you know, to grow by 6 or 7%. You know that that could be more than half of their entire yearly growth.
[02:21]
B
And how have falling bond yields contributed to that?
[02:24]
C
Several ways. For all pensions, bonds have long been almost a kind of meat and potatoes sort of bread and butter investment. They're safe, you know what you're going to get every year with fixed income. And so that that's why people turn to bonds for all kinds of sort of long term security investments, you know, insurance funds, people's own retirement accounts often contain municipal bonds. And it's the same thing for pensions. What's happened over the past several decades is that fixed income yields have been falling and falling and falling. And public pension funds and corporate pension funds haven't been able to get the kind of income from bonds that they once got. And they, and that they often expected to be able to get for a long time. So they were expecting to be able to earn this income, but all of a sudden, these safe fixed income investments, these stable, steady investments, are not giving them that kind of income. This has played out a little bit differently in the corporate pension world versus in the public pension world. In the public pension world, funds expect to return around 7% every year, which is a pretty aggressive return, and may have been a little bit more realistic when bond yields were much higher 20 or 30 years ago. But assuming such a high return allows these pension funds to contribute less money from the government's annual budgets. The state of Nevada or Maine or the city of New York doesn't have to put as much in its annual in its pension fund every year because it's expecting to earn this extra income from investments. Now, once upon a time, they could get that money from bonds and they really didn't have to worry. It was kind of a set it and forget it type of situation. But as bond yields have fallen, they've had to turn to other riskier investments to try and hit that 7% target. And for the past decade, that's really been stuck. So over the past 10 years, public pensions have ramped up their stock allocations. They're now at a 13 year high. And the issue with that, as we saw over the past couple weeks, is that stocks can be volatile and stocks can fall. On the private pension side, there's an additional consideration. Corporate pension funds. Pension funds run by public companies don't get to assume they're going to earn 7%. They have to be more conservative about what they assume they're going to earn. And the rules about how they estimate their liabilities require them to use a corporate bond rate when they forecast what they'll owe in the future. So as corporate bond rates drop, the number representing their liability grows. So corporate pension funds have an additional headache caused by falling bond yields. It's not just that they can't earn as much, but also that their liabilities now look bigger at a time when they're also likely experiencing equity losses.
[05:45]
B
How are people currently receiving pension payments affected by the current market instability?
[05:51]
C
Well, it's hard to draw a direct line between anything that happens in the markets and how pensioners might be affected. Pensioners have pretty strong legal protections in Most states their retiree health care benefits are a little more vulnerable, but certainly any drop in the markets and definitely the kind of thing that we've seen over the past couple weeks will set pensions back. As far as their difficult efforts to make assets match liabilities, how does this
[06:24]
B
throw off being able to figure out future obligations?
[06:27]
C
This volatility gets in the way of the pension funds being able to project their investment returns, how much their portfolios are going to grow in a big way. And it also interferes with something that's been happening for the past decade or so, which is that pension funds have been gradually climbing out of the hole that they fell into in 2009 following the financial crisis. We've basically had a bull market since then. Stocks have really been good to pension funds. That's why public pension funds have put more and more money into stocks. But suddenly stocks aren't as reliable anymore.
[07:11]
B
But some pension funds actually put in protections during the bull market in case of declines like these, right?
[07:18]
C
That's right. Especially in the last few years, there's been a lot of discussions about how pension funds can de risk or. Or protect themselves in the event of a downturn. Especially for public pension funds, which again, often take on more risk, they're particularly vulnerable to that type of problem. And they have taken different measures. I mean, I talked to the CEO of the Los Angeles County Retirement association, the pension fund that serves county workers in Los Angeles, and that fund took 10% of its portfolio out of stocks and put it into debt instruments like bank loans and emerging market debt, which are some of the areas of credit investments that, unlike Treasuries, pension funds are still hoping to get a pretty significant return on. So pension funds have taken those kinds of measures. They've rolled back their assumed rate of return. In a lot of cases, they're still banking on getting 7%, but they're no longer banking on getting 8%, which would have been an even harder target to meet in this environment.
[08:32]
B
All right, that's Wall Street Journal reporter Heather Gillers with us. Heather, thanks for coming on the show.
[08:36]
C
Sure. Anytime.
[08:37]
B
And that's your money briefing. I'm JR Whalen in New York for the Wall Street Journal.
[08:43]
A
This podcast is brought to you by reliaQuest. Cybercriminals are constantly attacking. They want your data, they want your identity. They innovation. RelioQuest fortifies your business with agentic defense AI that detects, contains and eliminates cyber threats in minutes. It helps your security team move faster at the work that matters most to protect the business. Now and delivers insights to help them predict what's next. ReliaQuest agentic defense for the enterprise learn more at reliaquest.com that's R E L I A Q U E-T dot com.