During their most recent fiscal year, public pension systems reduced their costs to administer funds and pay investment managers to an average of 55 basis points, down from 60 basis points a year earlier, according to a study conducted by the National Conference on Public Employee Retirement Systems (NCPERS) and Cobalt Community Research.
Public pension systems are also taking steps to reduce accrued actuarial liabilities.
Pension funds are designed to fund liabilities over a period of time, which ensures long-term stability and makes annual budgeting easier through more predictable contribution levels, NCPERS explains. For responding funds, that period of time averages 22.4 years, which is the same as last year. Groups can tighten their amortization period by adjusting the period in years or using a fixed (or closed) method, which pays all liabilities in a fixed time frame.
Respondents were asked to share strategies they have put in place to reduce accrued actuarial liabilities beyond traditional amortization. Many said they shortened the years of amortization, increased employer contributions or ensured full employer contributions were made, and increased contributions and age requirements.
For example, one respondent said his plan adjusted the plan retirement provisions and increased contribution funding. Other ideas mentioned in verbatim responses included adoption of a funding policy, an asset/liability study, asset-liability management, risk mitigation, reduction of the discount rate, fraud prevention measures, and measures to ensure correct benefit calculations and payments.
Asked to share a success story regarding a best practice or innovation that other plans may like to learn about, responses most frequently mentioned improving member education, improving death audits to ensure appropriate benefit payments and provide better benefit information, and more planning and education with boards. For example, one respondent shared that his plan provided and enhanced the employee portal in which any active member can access their account and see the balance, contributions plus interest, cash out value and potential monthly benefit as of normal retirement age, and perform their own future dated projection.
Other success stories in verbatim comments included one plan that consolidated recordkeepers, decreased plan expenses, added a financial wellness plan to assist participants in achieving retirement goals and executed a beneficiary campaign that received recognition for participant education and effective communication. Another plan improved oversight by adopting board bylaws to better discern roles and by performing a review and selection process for an investment consultant.
According to the survey, there continues to be a decrease in allocation to global equities, global fixed income and international fixed income. Funds with the highest one-year returns had average allocations of 31.1% to domestic equity, 18.2% to domestic fixed income, 18% each to global equity and international equity, 12.3% to private equity/hedge funds/alternatives, 10.2% to real estate and 9.4% to “other.” (Smaller allocations to more asset classes were listed.)
When asked to specify what “other” investments were used, absolute return funds, bank loans, convertible bonds, various credit strategies, multi-asset funds, inflation-protection funds, real assets and socially responsive funds were mentioned, among others.There were 155 public retirement funds that responded to the 2019 NCPERS Public Retirement Systems Study. The majority (62%) were local pension systems while the remaining 38% were statewide systems. The full survey report is here.
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