Stephen H. Cypen, Esq., Editor

2011 NCPERS STUDY FINDS IMPROVED
OUTLOOK FOR PUBLIC RETIREMENT FUNDS

National Conference on Public Employee Retirement Systems has released its 2011 NCPERS Public Fund Study conducted in conjunction with Cobalt Community Research.  NCPERS recently undertook the most comprehensive study to date, addressing retirement issues for this segment of the public sector.  The 2011 NCPERS Public Fund Study includes responses from 215 state and local government pension funds with a total number of active and retired memberships surpassing 7,590,000 and assets exceeding $900 Billion.  The vast majority, 83 percent, were local pension funds, while 17 percent were state pension funds.  The study’s primary findings are strongly positive.  Public pension funds are experiencing a robust recovery from the historic market downturn of 2008-2009 -- reporting strong investment returns, growing assets and funding levels on track to meet obligations.  In addition, funds have responded to changes in the economic, political and social landscape by adopting substantial organizational and operational changes to ensure their long-term sustainability. Here are some key findings: 

• Despite weak short-term investment experience in 2008 and 2009, the long-term investment discipline of fund managers has produced an average 1-year return of 13.5 percent based on most recently reported data.  Funds participating in the study reported a 20-year average of 8.2 percent.  The average return that respondents used to calculate assets is 7.7 percent, with an assumed rate of inflation of 3.5 percent. 
• Investment returns are the single largest source of plan funding, consisting of approximately 66 percent of fund revenue.  Members are a significant source of plan funding, and contributed 10 percent of plan revenue. Employer contributions make up only 24 percent of plan revenue. 
• Although media coverage has focused on a handful of troubled funds, most funds are managed responsibly and maintain strong funding levels.  On average, funds are 76.1 percent funded and continue to work toward full funding. (Fitch Ratings considers a funded ratio of 70 percent or above to be adequate.)  As with a home mortgage, funding levels are designed slowly to be funded over many years.  The average amortization period for respondents is 25.8 years. 
• Funds have been very active in responding to changes in the economic, political and social landscape; however there are many practices identified in the study that funds may consider for further action.  Three changes with significant activity are lowering the actuarial assumed rate of return, raising benefit age/service requirements and increasing employee contributions. 
• The average investment smoothing period 5.0 years. 
• Overall, funds reported equity exposure (both domestic and international) at 56 percent, and overall international exposure at 21 percent. 
• Plan expenses total approximately 70 basis points: 43.9 administrative expenses and 25.3 investment expenses. (Average expenses and fees of most mutual funds are well above 100 basis points.) 

NCPERS is the largest trade association for public sector pension funds, representing more than 500 funds throughout the United States and Canada.  It is a unique nonprofit network of public trustees, administrators, public officials and investment professionals who collectively manage nearly $3 Trillion in pension assets.  

We urge readers to access the complete study at http://www.ncpers.org/Files/2011_06_ncpers_public_fund_study.pdf.