The latest survey conducted by the National Conference of Public Employee Retirement Systems (NCPERS) found that the majority of the administrators of public pension funds are becoming more confident regarding the sustainability of their funds despite the current slow growth of the economy.
Pension funds capable of addressing retirement issues
The overall confidence rating of the participants in the survey was 7.8 on a 10-point scale. Their confidence rating climbed modestly from 7.7 last year. Pension plan administrators expressed confidence that their funds are capable of addressing future retirement issues.
The survey revealed that the returns of the long-term investments of public pension funds are improving and the financial situation continue to gain strength.
In a statement, NCPERS Executive Director and Counsel Hank Kim, Esq. said, “Once again, our annual survey provides convincing evidence that the vast majority of public pension plans are financially sound, well-funded and sustainable for the long term.”
“It also demonstrates that defined benefit public pension plans are the least costly way to ensure retirement security for American workers,” added Kim.
Pension funds returns
According to the survey, public pension funds generated 10% returns from three-year investments, up from 4% last year. The returns from 10-year investments increased from 5% to 7% and the returns from 20-year investments remained at 8% this year.
The survey also found that the overall average administration costs and fees to investment managers dropped from 73.1 basis point in 2012 to 57.3 basis points.
Kim explained that the average expense for most equity and hybrid mutual funds was 77 points according to the Investment Company Institute. He said, “Funds with lower expenses provide a higher level of benefits to members and, as a consequence, produce a higher economic impact for the communities they live in than most mutual funds.”
Systemic and operational reforms
Furthermore, the survey revealed that public pension funds continued to implement systemic and operational reforms to ensure sustainability. Some of the reforms implemented included actuarial assumed rate of return, raising benefit age and service requirements, and tightening retiree return-to-work rules. The public funds also shortened the amortization periods, and lowered the number of employees receiving healthcare benefits.
The survey showed that the domestic equity exposure of public pension funds slightly declined from 36% to 35% and the international equity exposure was the same at 17%. Pension funds are planning to reduce domestic equity exposures and increase investments in international equity, domestic fixed income, private equity and hedge funds.
The average funded level of NCPERS member pension funds was 71.5% while non-members have 69% average funded level.