U.S. public pension fund members are generally unaware that their pension is underfunded and of the risk this poses, according to a survey released Thursday by Spectrem Group.
The study also reveals a wide gap between how members want their pension funds managed and the actual approach many managers take.
The survey, conducted online in the second half of November, compared CalPERS and NYC Retirement Systems (NYC Funds) against a “national” group, comprising individuals from the New York State Common Retirement Fund, the Florida Retirement System, the Missouri State Employees’ Retirement System and The Teacher Retirement System of Texas, as well as a small group from other public pension plans.
All told, 807 CalPERS members, 771 NYC Funds members and 1,687 “national” members responded to the survey.
The survey results showed that 48% of members said they would rely on their pension for at least half of their retirement income.
Ninety-two percent of respondents considered their pension fund’s ability to generate returns at or above its target level important or very important, and 93% said the same about their fund’s ability to generate returns at or above overall market performance.
In both instances, CalPERS members were the respondents most likely to identify these things as important or very important.
Ninety-five percent of respondents believed the fund’s ability to effectively manage risk was important or very important.
“There’s a clear disconnect between pension fund managers, who are testing new investment styles and strategies, and members, who would prefer to see their pension fully funded,” Spectrem Group president George Walper said in a statement.
“Pension fund managers should refocus their efforts on the wants and needs of their investors, prioritizing investment decisions to maximize performance, while limiting votes to shareholder proposals that directly impact their fund and its members.”
A recent study found that many retirement plan participants regret not having saved more for retirement.
What They Believe vs. Reality
Fifty-six percent of members surveyed believed they are very well or moderately informed about their pension’s actual investment return, 54% about its target investment return, 60% about expenses and fees paid and 61% about the benefit structure.
They were less confident in their knowledge of the costs associated with shareholder activism, the composition and investing experience of the fund’s board and the amount of time fund managers spent reviewing and voting on shareholder proposals.
However, the survey results uncovered a clear gap in how much members really knew about their pension’s actual performance and funding level.
Forty percent of members believed their funds had performed in line with the market for the past few years — often not the case, according to Spectrem. Forty-six percent of NYC Funds members believe their pension fund has outperformed the market, when in fact their returns have been below both market performance and their target level.