Pension Fund Members Don't Know Their Plans Are Underfunded: Study

Likewise, 42% of CalPERS members held this mistaken belief.

Only 31% of members believed their pension was underfunded, when in fact, all respondents’ pensions were underfunded to some degree, according to Spectrem. Notably, 80% of NYC Funds members thought their pension was fully funded, when it is only approximately 68% funded.

Members’ poll responses showed a lack of in-depth knowledge of their pension fund’s portfolio allocations and the riskiness of its investments.

One example: Although more than 20% of CalPERS assets are allocated to what Spectrem called “higher-risk” alternative investments, just 14% of its members thought that more than 10% of the fund was represented by alternative investments.

Similarly, only 13% of NYC Funds members believed alternative investments represented more than 10% of their portfolio, when in reality these vehicles comprised 12% of the portfolio.

The survey found that 37% of CalPERS members and 32% of NYC Funds members wanted to see their fund reduce the amount they had invested in alternative energy.

Fund Management and Voting

Asked about fund management, 75% of members said that the most important issue for pension fund managers should be to focus on maximizing returns and getting the pension fully funded. Just 14% wanted fund managers to focus first and foremost on advancing social and political causes.

Eighty-six percent of members who identified returns as the most important area of focus for managers said the fund should make decisions to maximize returns, not to advance social or political causes. Ninety percent of the members who said the advancement of social and political causes was important for management indicated that fund performance was still somewhat or very important.

Some two-thirds of members believed investment managers should focus their time and resources first and foremost on ensuring that investments meet or exceed both the fund’s target level and the overall market performance. Only 11% said managers should use fund resources to advance worthy political and/or social causes.

The survey results showed that members also wanted greater transparency from their pensions, given that significant costs are incurred by the fund as part of the shareholder proposal voting process. 

Spectrem noted that pension funds receive and vote on thousands of shareholder proposals a year, few of which have majority support. This leaves some investors concerned that the time and resources dedicated to this activity could be better spent elsewhere.

Seventy-four percent of members — and 86% of NYC Funds members and 77% of CalPERS members — said their fund should abstain from voting on a proposal if it could not explain and justify its vote.

Eighty-nine percent of CalPERS members were slightly or very concerned that extensive voting on shareholder proposals was diverting time and resources from more important priorities.

Moreover, 46% believed CalPERS may have gone too far with its challenges to companies, with members 71 and older the most concerned. Forty-three percent — and half of those between 31 and 50 — said every dollar spent on these activities was one less dollar allocated to leveraging the best investment research available.

NYC Funds members responded in roughly the same way to this issue.