Industry News

On December 1, 2021, the National Association of State Retirement Administrators (NASRA) released its Public Fund Survey Summary of Findings for FY 2020. The survey presents key data from 98 public defined benefit (DB) retirement systems with 119 plans, covering 12.9 million active members, 9.9 million retirees and other annuitants, and holding $3.86 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) 2020. 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. In the first quarter of 2021, annualized state and local revenue growth exceeded 9.0% which indicated that state and local governments avoided the catastrophic revenue outcomes predicted in the beginning of the pandemic. In addition, state and local government employment levels remain far below their pre-pandemic levels which will affect public pension payroll growth and may have other actuarial effects on public pension plans. Adding, “The COVID-19 pandemic produced a sudden stop and reversal to recent growth in state and local employment and wages, with employment (declining) and wage growth (improving) trending in opposite directions at the time of this publication.” 

According to the report:  

• The average actuarial funded ratio for the surveyed plans was 72.8% in FY 2020, up slightly from the prior year. Between FY 2019 and FY 2020, the aggregate actuarial value of assets increased 5.2% and the actuarial value of liabilities increased 4.3%. 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% for the third consecutive year, 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 average allocation of plan assets to public equities has declined steadily since the major decrease in global capital markets in 2008-2009. In FY 2020, the allocation to fixed income securities declined slightly to 23.4% and equities at about 45.6%. In recent years, allocations to real estate has steadily increased to 7.6 % (the highest level historically) and allocations to alternative investments (such as private equity and hedge funds) has continued to grow reaching the 20.0% threshold for the first time.
• 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 2020, 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.