How the Bank Run Has Affected Pensions
by Christopher E. Mediate
The collapse of Silicon Valley Bank due to last weekend’s bank run has sent a ripple across the American banking system, and one of the notable pressure-points it’s hit have been pension funds. The closure of the 16th largest bank in the world has resulted in pension funds across the world losing millions.
However, there’s no need to overreact – at least not right now. According to analysts, there are provisions in place that are set to minimize those losses. In addition to that, while millions lost is no small chunk of change, those losses express minimal exposure to SVB in comparison to the pension portfolios overall.
Let me explain with some examples.
The California Public Employees Retirement Fund (Cal PERS) had $67 million invested into SVB and $11 million in Signature Bank. Cal PERS total portfolio value rounds out to about $53.7 billion, which means the bank run affected 6.8% of its overall portfolio.
The State Teachers Retirement System of Ohio (STRSOH) had $27.2 million in SVB, which makes up 3.3% of its total portfolio value ($88.8 billion).
But what about internationally? Well, let’s refer to Sweden’s largest pension fund, Alecta. The fund had something in the ballpark of $850 million invested in SVB, as well as $282 million in Signature. According to a statement from the fund, “the impact of this investment on future occupational pension payments is very small.” As much money as that is, the jarring fact of the matter is those two bank closures only dented 1% of Alecta’s total asset holdings ($1.2 trillion).
It is worth noting that the examples above, amongst others, are just some of the largest that have public data on file thru the SEC. Largely, there is a transparency issue among pension funds, where the full scope of impact for the individual pension plan recipient isn’t easy to come by, or might not be up to date with the SEC. Of course, that is not the case for all. The Ohio STRS, for example, makes that info easier to find on their website than it would be to utilize the SEC’s EDGAR platform, which is something you’d have to use for most other pension funds.
I would like to emphasize again that I am not downplaying its effects, that is still money coming out of someone’s pension. But just to relieve stress, it is important to look at the bigger picture and put those losses into perspective. As detrimental as this bank run has been, it is not destabilizing these pension funds. The government is still taking the proper steps the stop the bleeding. The phrase “It could be worse” seems to fit well in this scenario. The effects to the larger whole of the system going forward remains to be seen.
We are an independent firm helping individuals create retirement strategies using a variety of insurance products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic retirement income strategies and should not be construed as financial advice.
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