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What Are the Benefits of Using Sustainability Valuation?
A conversation between NCPERS executive director and counsel, Hank H. Kim, and NCPERS director of research, Michael Kahn, Ph.D. about NCPERS new research, Enhancing Sustainability of Public Pensions.
What Are the Benefits of Using Sustainability Valuation?
[A conversation between NCPERS executive director and counsel, Hank H. Kim, and NCPERS director of research, Michael Kahn, Ph.D. about NCPERS new research, Enhancing Sustainability of Public Pensions].
NCPERS Executive Director, Hank H. Kim: Michael, what are the benefits of using Sustainability Valuation on top of all the other tools that plans use?
NCPERS Director of Research, Michael Kahn, Ph.D: Sustainability Valuation has three benefits. One, is that it shifts the focus to stabilizing unfunded liabilities, instead of just looking at the magnitude of unfunded liabilities and taking drastic actions. Stabilization is the key. The second benefit is that, as stabilization occurs, as the unfunded liabilities are stabilized, the funding ratios of pension plans tend to increase. For example, in our calculations, 1% of personal income needed to stabilize unfunded liabilities, funding ratio improves by about 8%. The third benefit is that as unfunded liabilities are stabilize using our new tool, Sustainability Valuation, the employer contribution rates decline. For each 1% of personal income needed to stabilize unfunded liabilities, the contributions decline by about .8%. We measure contribution in terms of percent of state and local revenue (this is a lot of savings for the states). These are the three key benefits of Sustainability Valuation.
In the coming weeks, NCPERS will release videos between Kim and Kahn discussing different aspects of Enhancing Sustainability of Public Pensions. You can view our previous videos: Why Do We Use A 30-Year Time Horizon?; What Is The Difference Between Sustainability Valuation & Actuarial Valuation?; Sustainability Valuation And Actuarial Valuation; How Can We Enhance Sustainability Of Public Pensions? What Do We Mean By Sustainability Valuation?.
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