Public Pensions Pass the Test

02/06/2017

Public retirement systems continue improving cost efficiency, increasing funding ratios and fine-tuning benefits to strengthen their capacity to serve retired public servants for years to come, according to a sweeping annual study by the National Conference on Public Employee Retirement Systems (NCPERS).

The study underscores the many ways in which pension trustees, managers and administrators are working to ensure funds' fiscal and operational integrity, according to Hank H. Kim, executive director and chief counsel of NCPERS.

"Public pension funds have proved themselves to be durable, reliable investments for more than a century, but they are not resting on their laurels," Kim said. "Their commitment to constant improvement is securing an even brighter future for the millions of public servants who participate in pension plans."

Among the key findings in the 2016 NCPERS Public Retirement Systems Study:

  • During 2016, pension funds reduced administration costs to 56 basis points, or 56 cents per $100 invested, versus 60 basis points in 2015. This is well below the average fee of 68 basis points for stock mutual funds and 77 basis points average for hybrid mutual funds, which include stocks and bonds.

    NYSTRS administers its plan even more efficiently. For the 2015-16 fiscal year, investment management expenses and fees for the externally managed or serviced portfolio equated to 46.5 basis points, while the internally managed portfolio operated at 5.3 basis points. Combined, the investment portfolio operated at a cost of 23.9 basis points.

  • Average funding levels – the value of the assets in the pension plan divided by an actuarial measure of the pension obligation – climbed for the third year in a row to 76.2% in 2016, up from 74.1% in 2015 and 71.5% in 2014.

    As of June 30, 2016, NYSTRS' funded ratio was 98.4% based on the market value of assets and 98.0% based on the actuarial value of assets.

  • Even as interest rates began to climb, funds continued to tighten assumptions. Almost 40% of responding funds said they have reduced their actuarial assumed rate of return, and nearly 30% more said they are considering doing so in the future.

    NYSTRS recently reduced its annual assumed rate of return from 8.0% to 7.5%.

  • Funds experienced healthy three-year, five-year and 20-year returns during 2016, close to or exceeding 8%.

    NYSTRS' three-year rate of return at June 30, 2016 was 8.4%, its five-year return was 8.3% and its 20-year return was 7.6%. The System's 25- and 30-year returns were almost 9.0%.

The 2016 NCPERS Public Retirement Systems Study draws on responses from 159 state, local and provincial government pension funds with more than 10 million active and retired memberships and assets exceeding $1.5 trillion. NCPERS conducted the sixth annual study in September, October and November 2016 in partnership with Cobalt Community Research.

NCPERS represents more than 500 public pension funds throughout the United States and Canada. Combined these systems manage more than $3.5 trillion in pension assets.

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