Industry News

On July 26, 2022, the National Conference on Public Employee Retirement Systems (NCPERS) released its report, Measuring Public Pension Health: New Metrics and New Approaches. NCPERS helped to organize the Pension Accounting Working Group, which was comprised of U.S. public pension experts. The group discussed the existing accounting rules, and worked to develop proposed new metrics to generate insights by adding context, such as: comparing a liability to a state’s ability to levy taxes; assessing the context of contributions by their effect on the balance sheet; or considering risk when assessing the value of investment assets.

This report describes a “scorecard” as a standardized summary of pension valuation results. The three new proposed metrics intended to be incorporated in the scorecard include:

• Scaled Liability to standardize the measure of pension liability against the size of the economy that supports it;
• UAL Stabilization Payment (USP) to build on a widely used balance sheet metric to create an objective measurement of cash flow for a plan; and
• Risk-Weighted Asset Value to measure asset value against a plan’s capacity to withstand a bear market, based on its current cash flow and asset allocation.

In addition, the report discussed the use of computer simulation methods to help analyze the health of pension plans, such as stress testing and sensitivity testing and projections.

The report is available here.