Measuring Public Pension Health: New Metrics and New Approaches
How do we truly measure the health of a public pension system?
When measuring the health of a pension system, traditional metrics like funding ratios tell only part of the story, and can sometimes mislead. Pension systems are complex organisms operating on generational timelines. Current accounting practices, while uniformly applied, are often misunderstood or misinterpreted.
Critics routinely cherry-pick one or two numbers—usually the funding ratio—while ignoring crucial context about what's driving those numbers and what's being done to address them. The result? Misleading headlines, hasty policy decisions, and sometimes harmful changes to benefits that damage more than they help.
This 2022 report from NCPERS introduces innovative metrics and a standardized framework designed to give pension managers, trustees, and policymakers a more complete picture of plan sustainability.
Three New Ways to Assess Public Health
This report introduces three innovative metrics that add crucial context to traditional measurements:
1. Scaled Liability measures pension obligations against the economic strength of the plan sponsor. Just as a mortgage should be evaluated against 30 years of income, 30-year pension liabilities should be compared to 30-year economic capacity—not a single year's revenue.
2. UAL Stabilization Payment provides an objective benchmark for cash flow, answering a critical question: How much would it cost to keep a plan in the same funding position year over year? This gives trustees a clear target for measuring whether current contribution policies will improve, maintain, or worsen funding status.
3. Risk-Weighted Assets evaluates portfolio value while accounting for downside risk and the plan's ability to weather market downturns based on cash flow position. Plans with negative cash flow face greater risk from volatile investments because they may be forced to sell during a downturn.
The Pension Funding Scorecard
Perhaps most importantly, this report proposes a standardized "scorecard" that separates three critical dimensions of plan health:
- Policy: Are sound policies in place for benefits, funding, and investments?
- Action: What decisions are actually being made? Are policies being followed?
- Condition: What is the current state of the plan, and is it trending positively or negatively?
Two plans in the same funding position are in vastly different conditions if one has strong policies to improve while the other does not. The scorecard makes these distinctions visible at a glance.
Moving the Conversation Forward
This report also tackles stress testing, offering practical guidance on when different types of modeling are appropriate, how to validate scenarios, and how to make tests comparable over time so plans can actually learn from results.
The goal throughout is practical: to give pension professionals better tools for understanding their plans, making informed decisions, and communicating effectively with stakeholders.
Download the full report to explore how these metrics work in practice, see detailed examples from real pension systems, and learn how standardized reporting can elevate the conversation about public pension sustainability.
NCPERS would like to thank and acknowledge the Pension Accounting Working Group for their insights and contributions to this report. The Working Group was convened in February 2021 by NCPERS, working with Arnold Ventures and The Policy Lab at Brown University.