While investment returns account for 60 percent of pension benefits, and investment fees can greatly affect the long-term costs of providing these benefits, state retirement systems differ widely in policies on disclosure of investment returns and transparency in reporting the costs of managing assets. This is a recent finding by the Pew Charitable Trusts, based on an examination of 73 largest state-sponsored pension funds.
Pew shows that state pension funds have invested in an increasing share of alternative asset classes, such as private equity and hedge funds. These investments tend to carry higher fees due to their higher levels of risk, and those fees, especially carried interest, are treated differently across the plans studied.
The ways state pension plans report their investment returns are also varied. While most of the state plans disclose their returns net of fees, a significant minority of those plans report only gross of fees returns. Some plans report 20-year investment performance and break it down by asset class while many plans do not. The lack of consistency and transparency make it difficult to evaluate those pension funds’ performances.
To read the report’s findings and recommendations in full, go here.