WASHINGTON--(BUSINESS WIRE)--Public pension funds continued to tightly manage expenses and reduce their assumed rates of return in 2021, according to an annual study by the National Conference on Public Employee Retirement Systems.
The average expense for administering funds and paying investment managers fell to 54 basis points in the 2021 NCPERS Public Retirement Systems Study, down from 60 basis points in 2020. This compares favorably with the average annual expense of most hybrid funds, which stood at 59 basis points, according to the 2021 Investment Company Fact Book. One hundred basis points equals one percentage point.
Pension funds reduced their assumed annual rates of return to an average of 7.07% in 2021, down 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 retirement assets, said Hank H. Kim, executive director and chief counsel of NCPERS.
“Trustees take their fiduciary responsibilities seriously, and have pursued 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 demonstrate how public pensions harness long investing time horizons to provide financial security in retirement for millions of public servants, such as firefighters, law enforcement, and teachers. Liabilities were amortized over 21.8 years on average in the 2021 study, the study found, down from 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 study from September through December 2021 in partnership with Cobalt Community Research. It covered the most recently concluded fiscal year, which for most pension systems was either calendar year 2020 or the 12 months ended June 30, 2021.
Pension trustees, managers, and administrators use the survey’s benchmarks to evaluate their operations and performance. NCPERS provides an interactive version of the study to its members at no cost. This login-protected “dashboard” enables public pension funds to build their own comparisons and peer groups in order to analyze their performance, assumptions, and expenses.
Among the key findings:
- Pension systems said earnings on investments accounted for 68% of overall pension revenues in their most recent fiscal year. Employer contributions made up 23% of revenues, and employee contributions totaled 8%.
- The Covid-19 pandemic accelerated efforts by public pension systems to expand their communications capabilities. In all, 78% offered live web conferences to members during 2021, up from 54% a year earlier.
- Pension funds that participated in the survey in 2020 and 2021 reported that their funded levels rose to 72.3%, from 71.7%. Overall, pension funds reported a funded level of 74.7% for 2021. While funded levels are not as important to pensions’ sustainability as steady contributions are, the trend is positive.
- The inflation assumption for the funds’ most recent fiscal year remained steady at 2.7%. These assumptions were in place in the midst of an acceleration in the rate of inflation, which reached 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 a year earlier. Many responding funds did not offer a COLA in the most recent fiscal year.
- Funds reported one-year returns averaging 14%, five-year returns of 8.7% annually, 10-year returns of 8.4% annually and 20-year returns of 6.7% annually.
- A growing proportion of respondents—54%—excluded overtime pay from the benefit calculation in their most recent fiscal year, versus 51% a year earlier.
About NCPERS
The National Conference on Public Employee Retirement Systems (NCPERS) is the largest trade association for public sector pension funds, representing approximately 500 funds throughout the United States and Canada. It is a unique non-profit network of public trustees, administrators, public officials and investment professionals who collectively manage more than $5 trillion in pension assets. Founded in 1941, NCPERS is the principal trade association working to promote and protect pensions by focusing on advocacy, research and education including online learning for the benefit of public sector pension stakeholders.
