Public Pension Investment Expenses Fall to Four-Year Low, NCPERS Study Finds
NCPERS 2024 Public Retirement Systems Study found that average investment management expenses fell to 39 basis points, down from 49 basis points the year prior, while administrative expenses remained steady year over year.
WASHINGTON, D.C. – Public pensions reported a sharp decrease in average investment management expenses as strong governance and oversight practices continue to drive performance, new data from the National Conference on Public Employee Retirement Systems (NCPERS) reveals.
NCPERS 2024 Public Retirement Systems Study: Trends in Fiscal, Operational, and Business Practices explores retirement practices of the public sector. Nearly 160 public pension funds with more than 13.8 million members and combined assets exceeding $2.3 trillion participated in the study.
“NCPERS has conducted this study annually for the past 13 years because public pensions are long-term investors who operate in complex environments, so it's crucial to regularly benchmark overall fiscal and operational performance,” said Hank Kim, NCPERS' executive director and counsel.
The study found that average investment management expenses fell to 39 basis points, down from 49 basis points the year prior, while administrative expenses remained steady year over year. Investment expenses reached a four-year low, suggesting a return to normalcy from the pandemic.
Sixty-three percent of survey respondents reported receiving their full actuarially determined contribution, up from 57 percent the year before. Notably, the funds that received the full contribution had an average funded level of 79 percent compared to 59 percent for funds that did not receive their full contribution.
In terms of sources of funding of public pensions, in the aggregate for every dollar of pension benefit paid, 63 cents are attributable to investment returns, 28 cents are from plan sponsor contributions, and nine cents are from employee contributions, the study found.
“Through strong governance and oversight practices, public pensions have cut costs while continuing to efficiently deliver retirement benefits to teachers, first responders, and other public servants across the country,” said Kim. “Investment returns make up the vast majority of public pensions' revenue, but it's crucial that state and local governments prioritize making their full actuarially determined contributions each year to support funds' long-term health and ultimately reduce the costs to taxpayers over time,” he added.
In addition to the report, an interactive dashboard is available exclusively to NCPERS members. Pension funds can use this tool to filter survey data in a number of ways to compare their performance, assumptions, and expenses to peer groups.
Among the key findings from the study:
Amortization continues to tighten. For responding funds, amortization averages 20.4 years, down from 20.8 years.
The aggregated average cost-of-living adjustments (COLAs) offered to members was 2.2 percent, which is slightly higher than 2.0 percent last year. Many responding funds did not offer a COLA in the most recent fiscal year. Funds with populations smaller than 10,000 participants had an average COLA that was 0.25 percent higher than larger funds.
The average investment-smoothing period for respondents increased from 5.2 to 5.7 years.
Surveyed funds were asked, “How satisfied are you with your readiness to address retirement trends and issues over the next two years?” Respondents provided an overall “confidence” rating of 8.0 on a 10-point scale, up from 7.8 the year prior.
The average investment assumed rate of return for responding funds increased from 6.85 percent to 6.91 percent.
Media Contact: Lizzy Lees (firstname.lastname@example.org)
The National Conference on Public Employee Retirement Systems (NCPERS) is the largest trade association for public sector pension funds, representing approximately 500 plans, plan sponsors, and other stakeholders throughout the United States and Canada. Organized as a 501(c)(3) non-profit, it is a unique network of trustees, administrators, public officials, and investment professionals who collectively oversee approximately $4 trillion in retirement funds. Founded in 1941, NCPERS is the principal trade association working to promote and protect pensions by focusing on advocacy, research and education, including online learning, for the benefit of public sector pension stakeholders.
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