Public pension plans have a unique ability to weather market declines according to an issue brief jointly published by two national public pension organizations. According to the National Association of State Retirement Administrators (NASRA) and the National Council on Teacher Retirement (NCTR), public pension plans are pre-funded over long time horizons. They use "shock absorption" and "prudent investment" to maintain long-term stability.

Shock absorption is accomplished by phasing in, or "smoothing" investment gains or losses, thereby softening the effects of short-term volatility. Sudden changes can be spread over several years, allowing governments to recognize market gains and losses more gradually. This allows plans to establish contribution rates that remain relatively level as a percentage of payroll from generation to generation of taxpayers.

Also, because they are funded over decades, public plans are able to establish long-term prudent investment strategies. They can regularly rebalance their portfolios and maintain diversified assets, thereby improving overall fund performance over time.

In fact, public pensions have survived extreme market conditions in the past. Through 2007, median public pension plan investment returns have been positive in 22 of the past 25 years. This period includes the market crash of 1987, the 1990-91 recession, the bursting of the dot-com bubble, 9/11, and Enron and WorldCom.

To view the entire issue brief from NASRA and NCTR you may click on the attached PDF.