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Public Pensions Have Staying Power Despite Short-Term Setbacks, Study Shows




Public Pensions Have Staying Power Despite Short-Term Setbacks, Study Shows
 
WASHINGTON—Public pensions have the economic capacity to keep paying benefits in difficult times notwithstanding short-term hitches caused by the Covid-19 health crisis, according to a research report by the National Conference on Public Employee Retirement Systems.
 


For Release:  Tuesday June 2, 2020
 
Contact:          Debra Cope
                         debra@cope-pr.com
                         (202) 468-3814 
 
                              

Public Pensions Have Staying Power Despite Short-Term Setbacks, Study Shows

 
WASHINGTON—Public pensions have the economic capacity to keep paying benefits in difficult times notwithstanding short-term hitches caused by the Covid-19 health crisis, according to a research report by the National Conference on Public Employee Retirement Systems.

“The debate over public pension sustainability tends to take an obstructed view of the balance sheet that focuses on pension plans' debt, but ignores their income capacity,” said Michael Kahn, NCPERS's research director. “This approach overlooks the fact that state and local governments have ongoing sources of income that provide the economic resources to handle their pension obligations.”

The report, “In Tranquility or Turmoil, Public Pensions Keep Calm and Carry On,” found that even if stock market indexes declined as much as 40 percent this year, it would cost a maximum of $3.86 billion per year—only 0.02 percent sliver of annual gross domestic product—to rebound.
Markets remain volatile, and it is too soon to know whether recent gains will be sustained, Kahn noted. “But we do know that the stewards of public pension funds are likely to do what they always do – diversify and rebalance their portfolios during market swings and economic ups and downs,” he said.

The NCPERS analysis shows economic growth, as measured by GDP, greatly exceeds the growth in pension liabilities when they are compared correctly, using a 30-year timeframe. Critics frequently make the mistake of comparing 30-year pension liabilities with the economic resources available in a single year, with the result that much criticism of public pensions' funding status relies on a flawed comparison.

“If critics insist on using bad arithmetic, they can show pensions in a constant state of deficit,” said Hank H. Kim, executive director and counsel of NCPERS. “It's the same thing would happen to most of us if we compared our outstanding mortgage balance to the amount we actually paid in principal and interest in any given year. But as this research demonstrates, the reality is that state and local governments have the economic capacity over the long haul to honor their pension obligations.”
 
 
About NCPERS
The National Conference on Public Employee Retirement Systems (NCPERS) is the largest trade association for public sector pension funds, representing more than 500 funds throughout the United States and Canada. It is a unique non-profit network of public trustees, administrators, public officials and investment professionals who collectively manage more than $4 trillion in pension assets. Founded in 1941, NCPERS is the principal trade association working to promote and protect pensions by focusing on advocacy, research and education including e-learning for the benefit of public sector pension stakeholders.
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