Industry News

On December 2, 2020, the National Association of State Retirement Administrators (NASRA) released its Public Fund Survey Summary of Findings for FY 2019. The survey presents key data from 98 public defined benefit (DB) retirement systems with 120 plans, covering 13.0 million active members, 9.8 million retirees and other annuitants, and holding $3.79 trillion in assets.  

Overall, the retirement systems surveyed represent approximately 85% of state and local DB plan membership and assets as of Fiscal Year (FY) 2019. The Summary of Findings presents information regarding plan funding, membership, benefits, contribution rates, cash flows, and actuarial assumptions.

The NASRA analysis notes that, due to the COVID-19 pandemic, there was an unusual level of economic and investment market volatility in 2020. Furthermore, the effects of the recession and market decline may occur in the future with “reduced public sector revenue resulting from the economic recession. These revenue reductions may impair the ability of some states and cities to make their full actuarially determined contribution. In addition, combined state and local government employment has declined significantly since the onset of the pandemic in February. This reduction in public sector employment will affect public pension payroll growth.”  Adding, “The COVID-19 pandemic produced a sudden stop and reversal to recent growth in employment and wages, a trend which, if enduring, could potentially return the public pension payroll experience to a declining or negative status for FY 20 and beyond.”

According to the report: 

• The average actuarial funded ratio for the surveyed plans was 72.2% in FY 2019, slightly lower than the prior year.  Between FY 2018 and FY 2019, the aggregate actuarial value of assets increased 2.3% and the actuarial value of liabilities increased 2.3%.  Many state and local plans smooth investment gains and losses into the actuarial value of assets over time (typically five years and sometimes longer). 
• Growth in pension liabilities remains at a median rate below 4.0% (the lowest historical rate), as a result of low salary growth and employment levels among states and local governments and the effects of many pension benefit reforms (mainly reductions) enacted in recent years.
• The combined allocation of plan assets to public equities and fixed income securities was 71.1% in FY 2019. In recent years, allocations to real estate has steadily increased to 7.4% (the highest level historically) and allocations to alternative investments (such as private equity and hedge funds) has continued to grow to just below 20%. In FY 2019, the allocation to fixed income securities remained about 24% and equities at about 47%. 
• For most of the Public Fund Survey’s measurement period, the median investment return assumption used by public pension plans was 8.0%. However, in FY 2019, the median actuarial assumption for investment return was 7.25%. Notably, since 2009, many plans have reduced their investment return assumptions.
• Since the inception of the survey, employer contribution rates have increased significantly mainly due to larger unfunded pension liabilities and often include lower investment return assumptions. For some plans, higher employer contribution rates are the result of a disciplined approach to contribute all or more of their actuarially determined contributions. 

The survey data is available for each individual retirement system and plan in Appendices A and B. The data includes: plan membership, plan assets and liabilities, and actuarial funding levels.  

The summary is available here.