On January 12, 2017, the National Conference on Public Employee Retirement Systems (NCPERS) announced the results of its 2016 NCPERS Public Retirement Systems Study.  The comprehensive survey provides information on investment experience, actuarial assumptions, plan administration and operations, trends, innovations and best practices.

The key findings include:

  • During 2016, the average funding levels (the value of the assets in the pension plan divided by an actuarial measure of the pension obligation) increased for the third consecutive year.  Funding levels reached 76.2% in 2016, up from 74.1% in 2015 and 71.5% in 2014.
  • Although interest rates began to increase, funds continued to tighten assumptions. Nearly 40% of responding funds reported that they have reduced their actuarial assumed rate of return and about 30% more are considering doing so in the future. As a result, real returns will more closely align with the assumed returns.
  • Pension funds continued to monitor benefits to help balance the money they are taking in with benefit payments.  Over 30% of respondents have increased employee contributions and raised benefit age or service requirements.
  • The funds experienced solid three-year, five-year and 20-year returns, close to or exceeding 8%. In recent years, returns were lower than in the 10- and 20-year range. Aggregated 10-year returns were 6.2%, while one-year returns averaged 1.7%. (Note: The one-year figure was 2.4% for plans with fiscal years ending in December.)
  • Pension funds reduced the cost of administering funds and paying investment managers to 56 basis points (or 56 cents per $100 invested) versus 60 basis points in 2015. This is lower than the average fee of 68 basis points for stock mutual funds and 77 basis points average for hybrid mutual funds (which include stocks and bonds).

The survey included 159 state and local government pension funds with more than 10 million active and retired members and total assets exceeding $1.5 trillion.  Of the pension funds surveyed, 77% were local government funds and 23% were state pension funds.

According to Hank Kim, NCPERS Executive Director and Chief Counsel, “The funds are improving cost-efficiency, increasing funding ratios and fine-tuning benefits to strengthen their capacity to serve retired public servants for years to come.” He added, “All signs point toward continued improvement in increasing public retirement systems’ funded status.”

The report is available here.