Breakout Session: Trends in Public Sector Funds

Paul Zorn
Director, Governmental Research
Gabriel, Roeder, Smith & Company

Leslie L. Thompson
Senior Vice President, Consulting Actuary
The Segal Company

Two pension experts reviewed the most recent research on public sector fund trends.

The most recent study by the Public Pension Coordinating Council (PPCC), according to research director Paul Zorn, shows continued movement toward full funding and continued declines in annual required contributions. Benefits levels are stable overall, with small improvements in some benefit formulas.

Not surprisingly, investment returns in 2000, the year studied most recently by the PPCC, declined. The level of decline was coincident with the overall market, Zorn said. The one-year rate of return in 1998 was 17.80%, 4.56% in 2000. The five-year rate of return was 16.92% in 1998, 12.4% in 1999.

The study also notes how increases in the retiree population will accelerate in the near future. Between 2000 and 2050 the number of people age 65 and over will increase from 35 million to 82 million, or from 13% of the population to 20%. As a result, we will see an increase in their retiree/beneficiary populations from 5 million to 11 million over the next 50 years.

Leslie Thompson unveiled a new report written for NCPERS by The Segal Company, “The Evolution of Public Sector Pension Plans.” The paper describes the characteristics of defined benefit and defined contribution plans and how they have evolved. It also examines changing plan design among six public sector pension plans.

The report also reviews the issues that have driven the discussion of defined contribution plans and the adoption of hybrid plan designs. Finally, the report discusses major economic factors that have influenced the development of public sector plans.

The Public Pension Coordinating Council consists of three national associations serving state and local retirement systems: NCPERS, the National Council on Teacher Retirement and the National Association of State Retirement Administrators. The PPCC study has been conducted biennially since 1991. To view additional details on the study visit the PPCC website (http://ppcc.grsnet.com), open to both members and nonmembers.

Copies of the NCPERS pension report are available by contacting NCPERS in Washington, DC (1-877-202-5706). Single copies are free to NCPERS members. Non-members may purchase a copy of the pension report for $5.

In addition to 18 years of consulting experience, Zorn has conducted numerous studies of employee benefits. They include surveys related to plan administration, benefit provision, actuarial valuations, funding and investments. He has a BA in English from the University of Michigan, and an MA in Public Policy Studies from the University of Chicago.

Thompson, who heads Segal’s Denver office, has 23-years experience as a consultant actuary with insurance companies and national consulting firms. She frequently consults on defined contribution pension plan design. Thompson has a BS in Mathematics from the University of Oregon.