The National Institute on Retirement Security released a study Wednesday that analyzed six state pension plans that remained well-funded through the recession. The purpose of the study was to learn what best practices exist to keep plans financially strong.
“Lessons from Well-Funded Public Pensions” analyzed six state-level pension plans that vary in size and type of employee they represent in order to achieve a wide sample. The market value of assets in the plans in 2010 was approximately $300 billion, or 10% of total public pension assets.
Plans covered in the study include:
- Delaware State Employees Pension Plan
- Idaho Public Employee Retirement Fund
- Illinois Municipal Retirement Fund
- New York State Teachers' Retirement System
- North Carolina Teachers & State Employees Retirement System
- Teacher Retirement System of Texas
Despite two downturns in the 10-year period between 2000 and 2009 when the plans were studied, and even though they experienced less-than-expected investment gains, the plans remained well-funded through the recession.
The plans shared the following features:
- Employer contributions paid the full amount of the annual required contribution and were at least equal to the normal cost.
- Employee contributions helped share the cost of the plan.
- Improvements in benefits were valued before implemented, and were properly funded upon adoption.
- Cost of living adjustments were granted responsibly.
- Anti-spiking measures ensured actuarial integrity.
- Reasonable economic actuarial assumptions that could be achieved long-term.
Diane Oakley, NIRS executive director, noted in a webinar reviewing the findings of the study that most employee’s contribution rates are fixed. Furthermore, they account for less than half of total annual contributions, forcing employers
to bear the cost of increased contributions in the event of underperformance or longevity increases. One way to restructure contribution rates to ease the burden to employers, the study found, is to implement adjustable contribution rates. If an unfunded liability increases the overall contribution rate, the increase will be split between the employee and the employer.