According to the 2012 NCPERS Public Fund Study, conducted by the National Conference on Public Employee Retirement Systems (NCPERS) and Cobalt Community Research, participating funds reported an average funded level of 74.9%, only slightly below the 2011 average of 76.1%.
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% compared to 13.5%), all longer-term returns were higher: three-year returns jumped from -1.0% to 4.4%; five-year returns grew from 3.6% to 4.4%; 10-year returns increased from 4.0% to 5.3%, and 20-year returns grew from 8.0% to 8.7%.
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%), while employer contributions accounted for 17% and member contributions amounted to 10%.
Overall, funds reported domestic equity exposure at 36% (down from 39% in the 2011 study). International equity exposure remained steady at 17%. 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.
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 study surveyed no less than 147 public pension funds in April and May. Eighty-four percent were local pension funds, and 16% 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 full text of the 2012 NCPERS Public Fund Study is available here.
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