National Conference on Public Employee Retirement Systems

The Voice for Public Pensions

NCPERS Study Finds Public Pensions Remain Solidly Funded, Funds Express High Confidence in Plan Sustainability

June 11, 2012

Contacts: Herb Perone
hperone@commcoreconsulting.com
301-512-7636

Nick Peters
npeters@commcoreconsulting.com
(202) 659-4177 (office)
(323) 646-2651 (mobile)

Washington, DC – The most comprehensive and up-to-date study addressing retirement issues for public pension plans finds state and local pension funds remain solidly funded, have strong confidence in their ability to address retirement trends and issues and continue to adopt organizational and operational changes to ensure their long-term sustainability.

The 2012 NCPERS Fund Membership Study, conducted by the National Conference on Public Employee Retirement Systems (NCPERS) and Cobalt Community Research, surveyed no less than 147 public pension funds in April and May. The vast majority – 84 percent – were local pension funds, while the remaining 16 percent were state pension funds. Those funds cover more than 7.5 million active and retired public employees and have assets exceeding $1.2 trillion.

“The data we collected – the most current data available – shows public pension funds are continuing their strong recovery from the historic market downturn of 2008-2009,” said Hank Kim, Esq., NCPERS’ Executive Director and Counsel. “The survey shows public pensions are managing their assets efficiently and effectively, making plan design changes to ensure sustainability, continuing to implement sound operational controls and are expressing strong and growing confidence about their readiness to address the challenges ahead.”

Among the study’s key findings:

  • Participating funds reported a solid average funded level of 74.9 percent, only slightly below the 2011 average of 76.1 percent. According to its February 2011 report Enhancing the Analysis of U.S. State and Local Government Pension Obligations, Fitch Ratings considers a funded ratio of 70 percent or above to be adequate.
  • Both one-year and 20-year returns reported by participating funds point to continuing long-term improvement in funded status. While one-year returns were slightly lower than 2011’s (12.5 percent compared to 13.5 percent), all longer-term returns were higher: three-year returns jumped from negative one percent to 4.4 percent; five-year returns grew from 3.6 percent to 4.4 percent; 10-year returns increased from 4.0 percent to 5.3 percent, and 10-year returns grew from 8 percent to 8.7 percent.
  • Pension funds are designed to pay off liabilities over an extended period of time (the amortization period), to ensure long-term stability and to make annual budgeting easier through more predictable contribution levels. This year’s survey found that amortization period averages 24.6 years – down from 25.8 years in 2011.
  • Asked about readiness to address retirement trends and issues, respondents provided an overall confidence rating of 7.7 on a 10-point scale – up from 7.4 in 2011.
  • Market returns remained the largest source of fund income – 73 percent, while employer contributions accounted for 17 percent and member contributions amounted to 10 percent.
  • Overall, funds reported domestic equity exposure at 36 percent (down from 39 percent in the 2011 study). International equity exposure remained steady at 17 percent. Over the next two years, funds plan to reduce domestic equity slightly and increase allocations to private equity/hedge funds, commodities and other investments.
  • Funds with the highest 10-year investment returns had significantly lower allocations to domestic equity, international fixed income and high-yield bonds, but they had higher allocations to international equity, domestic fixed income and other asset classes.
  • The overall average expense to administer the funds and pay investment manager fees was 73.1 basis points (100 basis points equal 1 percentage point). This is a very slight increase from the 2011 level of 69.2 basis points. According to the investment industry’s 2011 Investment Company Fact Book, the average expenses and fees of most equity/hybrid mutual funds average 95 basis points. Funds with lower expenses, like public pension plans, provide a higher level of benefit to members and produce a higher beneficial economic impact for the communities those members live in than most mutual funds.
  • Continued structural and operational changes to ensure long-term sustainability included increasing employee contributions, increasing age/service requirements, reducing wage inflation assumptions, tightening use of overtime in the calculation of benefits, tightening procedures for enhancing benefits, shortening the amortization period and closing the plan to new hires.

The full text of the 2012 NCPERS Public Fund Study is available at www.ncpers.org.

About NCPERS

The National Conference on Public Employee Retirement Systems (NCPERS) is the largest trade association for public sector pension funds, representing more than 550 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 nearly $3 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 for the benefit of public sector pension stakeholders.

About Cobalt Community Research

Cobalt Community Research is a nonprofit research coalition created to help governments, schools and other nonprofit organizations measure, benchmark and manage their efforts through high quality and affordable surveys, focus groups and facilitated meetings. Cobalt is headquartered in Lansing, MI.