New Study Finds Public Pension Fund Members Woefully Unaware of Under-Funding

While the stock market made records In 2017, a significant number of U. S public pension funds remain staggeringly underfunded. A new study indicates that despite this profound revelation, very few pension members are aware to the extent of their pension plans poor performance.  The survey by Spectrem Group demonstrates that most of the members whose retirement in depends in a large part t the pension fund’s performance are unaware of any substantial performance gaps or risk.  There is also a gap between what pension plan members expect regarding how their funds are managed and how these resources are managed.

The study was conducted via an online survey of members across the country. These respondents include individuals who belong to some of the largest pensions like CalPERS, THE NYC Retirement Systems (NYC Funds) and “National” group, including individuals from the New York State Common Retirement Fund, The Florida Retirement System, the Missouri State Employees’ Retirement System, The Teachers Retirement System of Texas, as well as a other public pension plans.

According to the report, 48% of the members claimed that they would rely on their pension for at least half of their retirement income. 92% of the members consider their pension fund’s ability to generate a return at target or beyond to be important. Nevertheless, there appears to be a gap in the amount of knowledge members possess. 56% of the members believe that they are very well or moderate informed on the actual returns on fund investment performance. 54% think they know the target investment return while 60% claimed to know expenses and fees paid.

The gap is observed when the member claims to knowledge regarding their fund’s performance were put to the test. 46% of members believed that their funds have performed within target for the past couple of years: this is wholly inaccurate.  Only 31% of members thought their pension is underfunded while in reality, all respondents’ pensions are underfunded.  

Members also demonstrated a lack of awareness regarding the riskiness of their funds investments. For example, while only 14% of CalPERS member think that more than 10 percent of the capital is allocated to alternative investments, the figure is more than 20%.

The survey was conducted online between the mid-and-late November 2017. In total, there are 807 CalPERS MEMBERS, 771 NYC Fund s members and 1,687 National members responded to the survey.

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2 Comments on "New Study Finds Public Pension Fund Members Woefully Unaware of Under-Funding"

  1. The whole point of being a member of a defined benefit (“DB”) plan is that it bears the risk in fulfilling its promise to pay. That way, the member doesn’t have to be a financial expert in saving for his/her retirement.

    The nature of underfunding (i.e., projected benefit obligation, accumulated benefit obligation, vested benefit obligation, etc.) is not specified here. Plans have flexibility in modifying future funding and benefits in a way that doesn’t catch members by surprise.

    The Spectrem Group, a consultant to businesses offering defined contribution (“DC”) plan-related services, is hardly disinterested in raising concerns about a plan’s ability to pay.

    …this decades-long campaign to scare people out of their DB plans and into DC plans with an aim to transfer risk to the retiree while earning management fees is just immoral…

  2. Seems this is a self inflected problem that starts w/ the inability to grasp basic middle school concepts,… for example in my home town for three decades plus, the public pension portfolio managers (i.e. politicians) have been giving away a 13th pension payment:

    Compounding the error is public employ leadership (i.e. public pension recipients) sees no problem w/ not requiring fully funding the portfolio (which is akin to only paying a “minimum credit card payment” so the overall debt grows)

    Sadly this isn’t an isolated problem,… this pattern is repeated over and over again at the various levels (all over the country).

    What too few also ponder is the knock on effects about how everything ties together, in the long run.

    In other words, what everyone might want to consider is “the bottom line” of individuals, as well as that of the local, county and state government AND how various items interact (because the global economy is tightly integrated)!

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