State and local government retirement systems successfully navigated the global financial crisis from 2007 to 2009 and were able to attain pre-recession asset levels within about six years, a new report says.

The research by the National Institute on Retirement Security (NIRS) also found that these pension plans adopted strategies in reaction to the Great Recession that allowed them to ensure long-term resilience.

"No investor was immune from the devastating effects of the Great Recession, including public pension plans," NIRS Executive Director Dan Doonan, one of the authors of the report, said in a prepared statement. "But despite the global turmoil, pension plans didn't miss a beat delivering promised retirement income to retirees. In fact, more than $3.8 trillion in benefits have been paid since 2007."

The report noted that public pension plans across the nation suffered significant losses as a result of the Great Recession, which lasted from 2008 to 2009. It took years for pension plans to recover and, as a result of the financial shock, many of them took on a more conservative approach, mainly by lowering their assumed rates of return, improving mortality assumptions and shortening their amortization periods.

Researchers found that the median government pension plan took until 2013 to recover its fiscal 2007 asset levels, while the majority of plans were able to achieve this type of recovery by 2014.

NIRS also reported that, as of the end of last year, pension plan assets were 88% above 2007 levels and $3.8 trillion had been paid out in benefits since the Great Recession. There were also $89 billion in plan withdrawals over that period of time.

Beyond the recovery of assets, researchers said a key development since the Great Recession has been the way pension plans carry out their business.

"The real story is a consistent trend among public plans to adopt more conservative assumptions for future investment returns and longevity," the report said.

From 2001 to 2010, the median government pension plan assumed an annual rate of return of 8%. Over time, however, as quantitative easing by the Federal Reserve drove down bond yields, the median plan return expectation dropped to 7% as of this year, the report said.

Changes in the market also led to a shift in investment priorities.

"Since the Great Recession, public plans have reduced their exposure to fixed income and to a lesser degree to fixed-income assets while increasing their holdings of real estate, hedge funds and private equity," the report said.

Researchers noted this could change again, however, as high inflation, rising interest rates and the threat of recession dominate the overall economic landscape.

"In the environment facing investors in 2022, with multi-decade high levels of inflation and rising interest rates, the future course of asset allocation decisions could look materially different from what we have seen since the [2007-2009 financial crisis]," the report said.

These were among the other conclusions of the report:

• "Generational mortality tables, possible today with more advanced financial modeling software, have been broadly adopted by nearly all large public plans, and future longevity improvements are now incorporated into standard financial projections."
• "Many public plans have shortened amortization periods, or the period of time required to pay off an unfunded actuarial accrued liability, to align with evolving actuarial best practices. Tightening amortization periods, akin to paying off a mortgage more quickly, has had the effect of increasing short-term costs. In the long run, plans and stakeholders will benefit."
• "The intense focus on public plan investment programs since the Great Recession misses the more important structural changes that generally have had a larger impact on plan finances and the resources necessary for retirement security."
• "Professionally managed public defined benefit plans rebalance investments during volatile times and avoid the behavioral drag observed in retail investment."