Commentary on Short-Term Market Volatility and Public Pension Plans

Introduction

Short-term market volatility can raise concerns among public pension plan stakeholders and observers. Although headlines may focus on daily or weekly fluctuations, short-term declines should be viewed in the context of public pension funds’ long-term, disciplined approach to investing.  

Key Findings

  • Public pension funds are managed by long-term, professional investors focused on meeting obligations that span decades. These investors avoid reacting to short-term market swings, instead relying on strategic asset allocation and investment policies to maintain resilience.

  • Public pension fund portfolios are highly diversified, which reduces risk and mitigates the impact of market volatility.

  • Most public pension plans diminish the effects of  market fluctuations through strategies like asset smoothing, which spreads recognition of gains and losses over several years, promoting stability in funding requirements.


Date published

April 2025

Contact

Keith Brainard, Research Director
Alex Brown, Research Manager
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What's New at NASRA: Updated Cost of Living Issue Brief

Cost-of-Living Adjustments (COLAs) play a significant role in public pensions. They help retirees keep up with rising prices, but they also add costs to pension plans. Policymakers and plan sponsors are tasked with balancing three things: benefits adequacy, plan sustainability, and affordability for members and plan sponsors.
The recent increase in inflation caused many policymakers and, in some cases pension trustees, to review how benefits are designed and paid for, including the way COLAs are granted and funded. NASRA’s recently updated issue brief on the lates trends in COLAs is available in the NASRA Research Center.