Annual survey highlights strength and reliability of traditional pension plans
WASHINGTON, February 02, 2022–(BUSINESS WIRE)–Public pension funds have continued to tightly manage spending and reduce their assumed rates of return in 2021, according to an annual study by the National Conference on Public Employees’ Retirement Systems.
Average spending to administer funds and pay investment managers fell to 54 basis points in NCPERS’ 2021 study of public pension systems, down from 60 basis points in 2020. This compares favorably to average annual spending of most hybrid funds, which amounted to 59 basis points. points, according to the 2021 Investment Company Fact Book. One hundred basis points equals one percentage point.
Pension funds cut their assumed annual rates of return to 7.07% on average in 2021, from 7.26% a year earlier.
The 2021 study is based on responses from 156 state and local pension systems with combined assets of $2.6 trillion. The findings underscore the commitment of pension plans and their trustees to act as good stewards of pension assets, said Hank H. Kim, executive director and chief counsel of NCPERS.
“Directors take their fiduciary responsibilities seriously and have sought cost savings and adopted more conservative assumptions at a time when many market segments have exceeded performance expectations,” Kim said.
Overall, Kim said, the data shows how public pensions are leveraging long investment horizons to provide financial security in retirement for millions of public servants, such as firefighters, law enforcement and civil servants. teachers. Liabilities were amortized over 21.8 years on average in the 2021 study, according to the study, compared to 22.9 years in 2020.
Survey participants were roughly evenly split between statewide pension systems – 47% – and local pension systems – 53%. NCPERS conducted the 11th annual survey from September to December 2021 in partnership with Cobalt Community Research. It covered the most recently closed fiscal year, which for most pension systems was either the calendar year 2020 or the 12 months ending June 30, 2021.
Pension plan trustees, managers and administrators use survey benchmarks to assess their activities and performance. NCPERS provides an interactive version of the study free of charge to its members. This login-protected “dashboard” allows public pension funds to establish their own comparisons and peer groups to analyze their performance, assumptions and spending.
Among the main results:
Pension systems said investment income accounted for 68% of overall pension income in their last fiscal year. Employer contributions represented 23% of income and employee contributions totaled 8%.
The Covid-19 pandemic has accelerated the efforts of public pension systems to expand their communication capabilities. A total of 78% offered live web conferencing to members in 2021, up from 54% a year earlier.
Pension funds that took part in the survey in 2020 and 2021 reported that their funding levels had increased from 71.7% to 72.3%. Overall, pension funds reported a funded status of 74.7% for 2021. While funded levels are not as important to pension sustainability as regular contributions, the trend is positive.
The inflation assumption for the funds’ last financial year remained stable at 2.7%. Those assumptions were in place amid an acceleration in the inflation rate, which hit 7% at the end of 2021, from 1.4% a year earlier, as reported by the Bureau of Labor Statistics.
Among pension systems that offered a cost-of-living adjustment (COLA) to members, the average in the most recent fiscal year was 1.7%, the same as the year before. Many responding funds did not offer COLAs in the most recent fiscal year.
The funds have reported one-year returns of 14% on average, five-year returns of 8.7% per year, 10-year returns of 8.4% per year, and 20-year returns of 6.7 % per year.
A growing proportion of respondents – 54% – excluded overtime pay from benefit calculations in their last financial year, up from 51% a year earlier.
The National Conference on Public Employees Retirement Systems (NCPERS) is the largest trade association for public sector pension funds, representing approximately 500 funds across the United States and Canada. It is a unique, not-for-profit network of public administrators, trustees, civil servants and investment professionals who collectively manage more than $5 trillion in retirement assets. Founded in 1941, NCPERS is the leading trade association working to promote and protect pensions by focusing on advocacy, research and education, including e-learning for the benefit of public sector pension stakeholders.
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