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U.S. public pensions' investment gains slow in first quarter: Census

WASHINGTON (Reuters) - U.S. public pensions eked out modest gains on their investments in the first quarter of the year, reflecting a slowdown after their huge returns during the stock market's rally in 2013, according to U.S. Census data released on Thursday.

The slower pace of gains could curb public pensions' ability to pay benefits in the years ahead as the aging Baby Boom generation retires.

Public pensions' holdings hit a record high of $3.22 trillion in the first quarter, the Census data showed.

Earnings on their investments, though, were only $73.15 billion for the first quarter - less than half the $167.41 billion earned during the last quarter of 2013 - and down sharply from $118.29 billion earned during the year-ago period.

Investments provide most of public pensions' revenues. In 2013, the soaring U.S. stock market pushed pensions' cash and securities holdings to the highest levels on record while erasing losses from the 2008-2009 financial crisis.

Public pensions' total stock holdings slipped 3.1 percent to $1.09 trillion during the first quarter from $1.13 trillion in the fourth quarter of 2013. That was still up 8.3 percent from the first quarter of last year, according to the Census data. U.S. stock indexes had a rocky first quarter, with both the Dow Jones industrial average and the Standard & Poor's 500 Index tumbling at the end of January and the beginning of February before rising again. The Dow ended the first quarter down 0.7 percent, while the S&P 500 gained 1.3 percent.

International securities held by public pensions rose 2.1 percent from the fourth quarter of 2013 to $675.2 billion at March 31. That was up 12.9 percent from 2013's first quarter.

Corporate bonds in public pensions' portfolios rose during the first quarter to $346.9 billion, up 2.6 percent from the final quarter of 2013. Treasuries rose 3.3 percent from last year's fourth quarter to $273 billion.

Government contributions, essentially from taxpayers, fell 7.5 percent from the final quarter of 2013 to $25.7 billion at March 31. These contributions, though, were up 15.1 percent from a year earlier.

Employee contributions increased 5.4 percent from the final quarter of 2013 to $10.9 billion at March 31, the end of the first quarter; the gain was 7.8 percent over the year.

RECORD PENSION PAYMENTS

The slower pace of investment gains this year could make it harder for pensions to cover the growing demand for benefits.

The $62.95 billion that pensions paid out in the first quarter marked the largest on Census records stretching back to 1968. Payments have climbed as the aging Baby Boom generation retires.

Only five years earlier, in the first quarter of 2009, payments were $41.31 billion, the Census data showed.

Pensions' funded levels have "likely bottomed out," Standard & Poor's Ratings Services said earlier this week. S&P found that the average state pension's funded ratio, showing how much of its liabilities a system can cover, was 70.9 percent in 2012, the last year for which data is available, down from 72.9 percent in 2011.

The gap between pensions' funding ability is widening as well, S&P said. Wisconsin remained the top-funded pension with a funded ratio at 99.9 percent. Illinois stayed at the bottom at 40.4 percent.

Earlier this month, Boston College estimated that pensions had enough assets to cover 72 percent of liabilities last year.

(Reporting by Lisa Lambert; Editing by Jan Paschal)

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