Public Retirement Systems Increasingly Cost-Effective, Responsive, NCPERS Says

By ASPPA Net Staff • January 13, 2017 • 0 Comments
Public funds are continuing to become more cost-effective and receptive to making adaptations, according to a study of public-sector retirement systems’ results and practices in 2016. The National Conference on Public Employee Retirement Systems (NCPERS) conducted the 2016 Public Retirement Systems Study in September, October and November 2016.

Key Findings

Public funds continue to become more cost-effective. Responding funds report the total cost of administering their funds and paying investment managers is 56 basis points, a four basis point drop since 2015. This is lower than the average 68 basis points of most equity mutual funds, and the average 77 basis points of hybrid mutual funds that the 2016 Investment Company Fact Book reports.

Funds continue to tighten benefits and assumptions. Almost 40% of responding funds have lowered their actuarial assumed rate of return, and nearly 30% more may do so in the future. More than 30% of respondents have raised employee contributions, as well as benefit age or service requirements.

Funds are experiencing healthy 3-year, 5-year and 20-year returns. Their returns are close to or above 8%. Aggregated 10-year returns are 6.2%. Gross 1-year returns averaged 1.7%. NCPERS contends that “signs continue to point toward long-term improvement in responding public retirement systems’ funded status.”

Responding funds’ average funded level is consistently rising. The aggregated average funded level was 76.2, up from 74.1 in 2015 and 71.5 in 2014. The study also says that funds continue to reduce amortization periods, which, in turn, cuts the amount of time it takes to fully fund the plan.

Income that funds pension programs generally comes from three sources. Member contributions, employer contributions and investment returns comprise 7.5%, 18.7% and 73.8% of income, respectively.


Just what do the systems offer to their employees? Here’s a sampling:

  • Defined benefit plan: 94%

  • Automatic post-retirement cost-of-living adjustment (COLA): 54%

  • Deferred Compensation plan: 48%

  • Compounding post-retirement COLA: 34%

  • Defined contribution plan: 19%

  • Individual retiree health savings accounts: 16%

Readiness to Respond

When NCPERS asked the systems how satisfied they are with their readiness to respond to trends and issues over the next two years, they registered an overall confidence level of 8.1 out of a possible 10. That is slightly higher than the 8.0 of 2015 and the 7.9 of 2014. “Over the last five years, responding funds have become increasingly confident in their ability to adapt and address issues in this volatile environment surrounding public pensions,” the report says.

And the study suggests that they are indeed adapting. “Responding funds have been proactive in making changes to their plans (adjusting assumptions) and benefits (increasing contributions) to ensure their sustainability,” it says. NCPERS reports that the system are adapting their design and the assumptions on which their decisions and actions are based in response to political, economic and demographic changes in order to maintain their sustainability.

They also are changing their business practices. NCPERS reports that a majority of responding funds have asked for an updated IRS determination letter, and suggests that in the next year providing and updating online member portals may be an area of increased activity.