Although U.S. equities delivered record-setting performance in 2017, the majority of U.S. public pension plans are underfunded, according to a survey by Spectrem Group.
The survey found that 48% of public pension plan members say they are relying on their pension for at least half of their retirement income. Ninety-two percent of members say their pension fund’s ability to generate returns at or above the fund’s target level is important or very important. Among California Public Employees Retirement System (CalPERS) members, this rises to 96%.
Ninety-three percent of members say it is important or very important that their pension generates returns at or above market level. Among CalPERS members, this is 97%.
Ninety-five percent believe the fund’s ability to effectively manage risk is important or very important.
However, only 56% of those surveyed think they are very well or moderately informed about their investment return. Likewise, only 54% think they are informed about their target return. Sixty percent think they are knowledgeable about the expenses and fees that they pay, and only slightly more, 61%, think they are up to speed on their pension plan’s benefit structure. They are less confident in their knowledge of the costs associated with shareholder activism, the composition and investing experience of the fund’s board and the amount of time spent by fund managers reviewing and voting on shareholder proposals.
Forty percent think their funds have performed in line with the market for the past few years, which Spectrem contends is not always the case. Among NYC Funds, 46% of members have this misconception, and among CalPERS members, the percentage is 42%.
Only 31% of members think their pension is underfunded when, in fact, all of their pensions are underfunded at least to some degree, according to Spectrem. Eighty percent of NYC Funds think their pension is fully funded, but it is only 68% funded.
The survey also suggests public pension fud members are also unaware of how their pension plan’s portfolio is invested. For example, while 20% of CalPERS assets are in high-risk alternative investments, only 14% of the plan’s members think that more than 10% of the fund is invested in such assets.
When asked about fund management, 75% of members think the No. 1 priority should be maximizing returns and getting the pension fully funded. Only 14% want their fund’s managers to make advancing social and political causes the priority.
Spectrem conducted the online survey in November. The full report can be downloaded here.