On January 10, 2018, the National Conference of Public Employee Retirement Systems (NCPERS) announced the results of its 2017 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 2017, the average funding levels (the value of the assets in the pension plan divided by an actuarial measure of the pension obligation) decreased slightly for the first time in four years.  Aggregate funding levels were 71.3% in 2017. Pension plans that responded in both 2016 and 2017 have an average funding level of 72.9%, down from 74.7% in 2016.
  • In 2017, the average investment return assumption remained unchanged at 7.5% and the average inflation assumption slightly declined to 2.9% from 3.0%. Nearly 64% of responding funds reported that they have reduced their actuarial assumed rate of return and about 21% more are considering doing so in the future.  In addition, the smoothing period for investment returns continues to be shortened, dropping to 5.0 years from 5.7 years.
  • Due to more conservative assumptions, employer contribution rates rose to 22% in 2017, up from 18% in 2016. In addition, pension funds receiving full contributions from plan sponsors increased to 74%, up from 70% in 2016.
  • The funds experienced solid 1-year, 5-year and 20-year returns, close to or exceeding the assumed rate of return.  Aggregated 20-year returns were 7.4%, 5-year returns were 8.4%, and 1-year returns averaged 7.8%.
  • Pension funds reduced the cost of administering funds and paying investment managers to 55 basis points (or 55 cents per $100 invested) versus 54 basis points in 2016.  This is lower than the average fee of 63 basis points for stock mutual funds and 74 basis points average for hybrid mutual funds (which include stocks and bonds).

The survey included 164 state and local government pension funds with more than 15.5 million active and retired members and total assets exceeding $1.77 trillion in actuarial assets and $1.80 trillion in market assets.  Of the pension funds surveyed, 62% were local government funds and 38% were state pension funds.

The report is available here.