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Portfolio > Mutual Funds > Equity Funds

Pension Administrators Report Strong Confidence, Returns in Public Pensions

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Pension plans are in a good place, according to a survey of public pension plan administrators from the National Conference on Public Employee Retirement Systems. Administrators rated their confidence in their plans on a 10-point scale; the average rating was 7.9, up slightly from 2013 and up from 7.4 in 2011.

Part of that confidence certainly comes from better funding levels. The survey found the average funded level increased to over 71% thanks to lower amortization periods and average one-year investment returns of 15%.

NCPERS partnered with Cobalt Community Research to conduct the survey. Respondents included 187 state, local and provincial government pension funds with almost 12 million participants and assets over $1.8 trillion. Data was collected in September and October.

“There is no question that public pension funds are continuing their strong recovery from the historic market downturn of 2008-2009,” NCPERS executive director and counsel Hank Kim said in a statement. “The survey shows public pensions are strong and getting stronger, managing their assets efficiently and effectively, making plan design changes to ensure sustainability and are expressing strong and growing confidence about their readiness to address the challenges ahead.”

In addition to improvement in the one-year investment returns, three-year returns increased to 10.3%, up from 10%. The most shocking change came in five-year returns, which increased from 2.7% last year to 9.8%.

The survey found the total cost to administer the plan and pay managers was 61.1 basis points, compared with an average 74 basis points for equity funds, according to ICI’s 2014 Investment Company Fact Book.

“Because they have lower expenses, public retirement funds provide a higher level of benefits to members,” Kim said. “They also produce a higher positive economic impact for the communities those members live in than mutual funds and defined contribution plans like 401(k)s.”

The survey asked administrators to list what changes they were making in their plans to make them more sustainable. Almost a quarter said they’ve shortened the amortization period and 8% are planning to do so. Over 40% are holding their current actuarial assumed rate of return, and 35% are lowering it.

Funds are also asking more of participants. Almost a third of respondents said they have raised the age and service requirements to claim benefits. Thirty-four percent have increased employee contributions.

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