The 2014 National Conference on Public Employee Retirement Systems (NCPERS) Public Retirement Systems Study also shows continuing financial strength for public funds, with healthy long-term investment returns.
According to the study report, respondents’ overall confidence rating measured 7.9 on a 10-point scale, up from 7.8 in 2013 and 7.4 in 2011. Funds experienced an increase in average funded level—71.5%, up from 70.5% in 2013. Two factors contributed to the change: average one-year investment returns of 15% and lower amortization periods, NCPERS said.
The study shows funds continue to experience healthy investment returns: 14.5% for one-year investments (compared to 8.8% in 2013); 10.3% for three-year investments (up from 10.0% last year); 9.8% for five-year investments (up from 2.7% last year); 7.8% for 10-year investments (up from 7.0%), and 8.1% for 20-year investments (virtually unchanged from last year’s 8.2%). Funds continue to work toward offsetting sharp losses from the recession 2008 and 2009 by strengthening investment discipline.
According to NCPERS, public funds continue to be the most cost effective mechanism for retirement saving. The total average cost of administering funds and paying investment managers was 61 basis points. According to the Investment Company Institute’s 2014 Investment Company Fact Book, the expenses of most equity funds average 74 basis points and hybrid funds average 80 basis points, NCPERS noted.
The study found public pension funds continue to tighten benefits, assumptions and governance practices. Examples include a continued trend toward increasing member contribution rates, lowering inflation assumptions, shortening amortization periods, holding actuarial assumed rates of return and lowering the number of retirees receiving health care benefits. Income used to fund public pension programs came from member contributions (8%); employer (government) contributions (19%) and investment returns (73%).
“The vast majority of public pension plans are thriving, more than adequately funded, inexpensive to operate and sustainable for the long-term,” says NCPERS Executive Director and Counsel Hank Kim, Esq. Policymakers, taxpayers and public employees can have confidence that public pension plans will be providing retirement security for covered workers – and thus making positive economic contributions to the communities they live in – well into the future.”
Partnering with Cobalt Community Research, NCPERS surveyed 187 state, local and provincial government pension funds with more than 11.8 million active and retired members and with assets exceeding $1.8 trillion. The majority (81%) were local pension funds, while 19% were state pension funds. Of the responding funds, 61% are members of NCPERS. The data was collected in September and October 2014.