WASHINGTON--(BUSINESS WIRE)--Public retirement systems are squeezing down their expenses to operate more efficiently, according to an annual study by the National Conference on Public Employee Retirement Systems.
The 2019 NCPERS Public Retirement Systems Study, based on responses from 155 state and local pension systems, shows that 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.
“Pension systems are constantly looking for ways to strengthen their performance and provide a secure income for millions of public servants,” Kim said.
Survey participants had 12.6 million active and retired members and assets exceeding $1.4 trillion in actuarial and market value. The majority—62 percent—were local pension systems while the remaining 38 percent were statewide systems. NCPERS conducted the ninth annual survey from September through December 2019 in partnership with Cobalt Community Research. It covered the most recently concluded fiscal year, which for most pension systems was calendar year 2018.
An interactive version of the study is available to NCPERS members at no cost. This login-protected “dashboard” enables public pension funds to build their own comparisons and peer groups in order to analyze their performance, assumptions, and expenses.
Among the key findings:
- During their most recent fiscal year, pension systems reduced their costs to administer funds and pay investment managers to an average of 55 basis points (0.55 percent), down from 60 basis points (0.6 percent) a year earlier. (One hundred basis points equal one percentage point.)
- In all, 59 percent of all responding funds said they lowered their assumed rate of return, and 23 percent are considering this measure.
- Some 45 percent set higher benefit age and service requirements, and 6 percent are considering doing so.
- Thirty-four percent increased employee contributions, and 12 percent are considering this option.
- A majority of respondents—55 percent--excluded overtime pay from the benefit calculation in their most recent fiscal year, versus 49 percent a year earlier.
- The average cost-of-living adjustment (COLA) offered to members in the most recent fiscal year was 1.6 percent, which is slightly lower than a year earlier. Many responding funds did not offer a COLA in the most recent fiscal year.
- Funds reported one-year returns averaging 4.5 percent, five-year returns of 7.1 percent annually, 10-year returns of 7.7 percent annually and 20-year returns of 11.2 percent annually. The results underscore the long-term and patient nature of pension investing. The timing of fiscal year-ends made a significant difference in investment experience for many funds due to the stock market correction that occurred in December 2018. Despite the drag exerted by negative returns recorded by major stock indexes during 2018, pension funds returns remained in positive territory. Results of funds with a December end-date were much lower than those with non-calendar fiscal years.
- Funded levels dipped to 71.7 percent, down from 72.6 percent a year earlier, largely due to weaker than expected one-year returns.
The National Conference on Public Employee Retirement Systems (NCPERS) is the largest trade association for public sector pension funds, representing more than 500 funds throughout the United States and Canada. It is a unique non-profit network of public trustees, administrators, public officials and investment professionals who collectively manage more than $4 trillion in pension assets. Founded in 1941, NCPERS is the principal trade association working to promote and protect pensions by focusing on advocacy, research and education including e-learning for the benefit of public sector pension stakeholders.