State and local pension plans may emerge from the financial crisis in better shape than other retirement plans due their investment strategies, reports the National Institute on Retirement Security.

The nonprofit organization examined records from U.S. Federal Reserve and U.S. Census Bureau on public pension plans from 1993 to 2005. NIRS researchers concluded that public pension plans tend to invest conservatively in bear and bull markets, which means their portfolios may be in a better position to recoup losses from the current financial crisis.

"This analysis of public pensions' past behavior can provide a guide as to how the funds may be reacting to today's stunning market downturn," says Christian Weller, co-author of the study's report. "Our data suggest that public pensions followed well-established practices for prudent, long-term investing during the market plunge that occurred through 2001," he adds. "Going forward, this is an indicator that public plans are well-situated to recover from today's financial crisis in a manageable way."

According to NIRS, administrators of public pension funds are shrewd investors because they:

▪ Actively rebalance investments in response to price changes.

▪ Do not get caught up in a "herd mentality," but rather follow the best investment practices in the industry. State plans, in particular, systematically follow the practices of performance leaders.

▪ Hold higher risk assets when funding levels are higher and assess their financial situation before modifying the plan's asset allocation. If anything, public pensions are somewhat overly cautious following periods of lower funding, indicating they avoid chasing returns.

▪ Hold smaller amounts of stocks when employers face higher contribution rates. This trend continued even after the 2000 bear market. This indicates that public pensions avoid pressure to invest more aggressively after experiencing losses.

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