About the Public Fund Survey
The Public Fund Survey is an online compendium of key
characteristics of most of the nationís largest public retirement
systems. The Survey is sponsored by the National Association of
State Retirement Administrators and the National Council on
Teacher Retirement. Keith Brainard maintains the Survey.
Beginning with fiscal year 2001, the Survey contains data on public
retirement systems that provide pension and other benefits for 12.9
million active (working) members and 7.8 million annuitants (those
receiving a regular benefit, including retirees, disabilitants and
beneficiaries). At the end of FY 12, systems in the Survey held
assets of $2.63 trillion. The membership and assets of systems
included in the Survey comprise approximately 85 percent of the
entire state and local government retirement system community.
The primary source of Survey data is public retirement system annual
financial reports. Data also is culled from actuarial valuations,
benefits guides, system websites, and input from system
representatives. The Survey is updated continuously as new
information, particularly annual financial reports, becomes
available. This report focuses on fiscal year 2012. Using graphs,
this summary describes changes and trends in selected elements of
Summary of Findings
Figure A plots the aggregate actuarial funding level among plans
in the Survey since its inception in FY 2001. The funding level in
FY 12 declined to 73.5 percent, down from 75.8 percent the prior
year. The aggregate actuarial value of assets increased to $2.67
trillion, an increase of 0.9 percent. This increase was outpaced
by growth in the actuarial value of liabilities, from $3.49
trillion to $3.63 trillion, or 4.1 percent. Liabilities grow
primarily as active (working) plan participants accrue retirement
benefit service credits.
Most plans have completed, or are nearing completion, of recognition
of the sharp investment losses incurred in 2008-09. Those losses are
being offset by asset gains since the market decline.
Figure B presents the aggregate actuarial funding level since
1990, measured by Standard & Poorís from 1990 to 2000 and the
Survey since 2001. This figure illustrates the substantial effect
investment returns have on a pension planís funding level:
investment market performance was relatively strong during the
1990s, followed by two periods, from 2000-2002 and 2008-09, of
sharp market declines. Other factors also affect a planís funding
level, including contributions made relative to those that are
required; changes in benefits; and rates of employee salary
The individual funding levels of the 126 plans in the Survey are
depicted in Figure C. The size of each circle in the chart is
roughly proportionate to the size of each planís actuarial
liabilitiesólarger bubbles reflect larger plans and smaller
bubbles reflect smaller plans. The median funding level is 73.1
Figure D plots the median annual change among plans in the Survey
in the actuarial value of assets and liabilities since FY 01. As
the chart shows, liability growth has declined noticeably since
the onset of the recession in 2007, likely due to several factors,
including low salary growth in recent years. Declines in the rate
of liability growth can be offset by the effects of changes in
actuarial assumptions. The many plans that have reduced their
investment return assumption in recent years is sustaining what
otherwise would be an even lower median rate of liability growth.
Tepid asset growth reflects the phased recognition (also known as
actuarial smoothing of assets) of the sharp market declines
experienced in 2008 and 2009, exacerbated by low returns in FY 12
for most funds in the survey (see Figure M).
On a market value basis, as of FY 12, systems in the Public Fund
Survey held some $2.6 trillion in assets. Figure E, which plots
the fiscal year-end value of public pension funds in the Survey,
reflects the result on these funds of market volatility in recent
The Survey measures two types of retirement system members:
Actives and Annuitants. Actives are those who are currently
working and earning retirement service credits. Annuitants are
those who receive a regular benefit from a public retirement
system. These are predominantly retired members, but also include
those who receive a disability benefit, and survivors of retired
members or disabilitants.
As shown in Figure F, for the second consecutive year, the number of
annuitants among systems in the Survey rose by 4.2 percent.
Meanwhile, for the fourth consecutive year, the number of active
members declined. This decline is consistent with US Census Bureau
reports showing a reduction in the number of persons employed by
state and local government, a trend Census data shows began in
The difference between the continued increase in annuitants and a
declining number of active members is driving a sustained reduction
in the overall ratio of actives to annuitants. In FY 12, this ratio
dropped to 1.65.
A low or declining ratio of actives to annuitants is not, per se,
problematic for a public pension plan. This is because the typical
public pension funding model features accumulation, during plan
participantsí working years, of assets needed to fund retirement
When combined with an unfunded liability, however, a low or
declining ratio of actives to annuitants can cause fiscal distress
for pension plan sponsors. An unfunded liability represents a
shortfall in accumulated assets, and increases the required cost of
the plan. A lower ratio of actives to annuitants results in costs to
amortize a planís unfunded liability over a smaller payroll base,
which increases the cost of the plan as a percentage of employee
payroll. Thus, although a declining active-annuitant ratio does not,
by itself, indicate a problem with the pension plan, when combined
with a poorly-funded plan, a low or declining ratio of actives to
annuitants can result in relatively high required pension costs.
Recent data provided by the U.S. Bureau of Labor Statistics
suggest that the decline in state and local government employment
may be ending, as the sectorsí combined employment in October 2013
was at its highest point in more than two years.
Figure G plots the distribution of changes in payroll over a
two-year period, from FY 10 to FY 12, among 110 plans in the survey
for which this data is available. (The chart excludes plans in the
Survey that are closed to new hires: the Alaska PERS and TRS,
Michigan SERS, and three plans in Washington state.)
As the chart shows, the median change in payroll over this two-year
period was zero, although plansí experience covered a wide range
(from a decline of 9.8 percent to an increase of 14.0 percent).
Eighty-five percent of the plans had payroll growth over the
two-year period of less than five percent, and the aggregate change
was lower by 1.0 percent. The low rate of change in payroll reflects
two basic factors: stagnant or declining employment levels and
modest salary growth. Information provided by the U.S. Bureau of
Labor Statistics indicates that annual growth in wages and salaries
for employees of state and local government has remained below 2.0
percent since mid-2009 and below 1.5 percent since early 2010.
A growing number of annuitants, combined with a low or negative
rate of increase among active members will result in a reduction
in a retirement systemís external cash flow. External cash flow is
defined as the difference between a systemís revenue from
contributions, and payouts for benefits and
Figure H plots the median external cash flow as
a percentage of assets, since FY 01. By itself,
a negative cash flow is not an indication of fiscal or actuarial
distress. Nearly all systems in the survey have an external cash
flow that is negative, meaning they pay out each year more than they
collect in contributions. One effect of a lower (more negative) cash
flow is to require the systemís assets to be managed more
conservatively, with a larger allocation to more liquid assets in
order to meet current benefit payroll requirements.
This yearís increase in negative cash flow as a
percentage of assets results from the
combination of stagnant asset values and growth in benefits payments
that exceeds growth in contributions. This slow growth in
contributions is partly a result of declining public employment
levels (discussed above), and slow to stagnant rates of salary
Figures I and J reflect changes in median employee and employer
contribution rates. Figure I includes active members who also
participate in Social Security; Figure J includes those who do not
participate in Social Security. These contribution rates apply to
general employees and public school teachers; the rates do not
reflect those for public safety workers and other groups of workers
(judges, elected officials, etc.).
Roughly 30 percent of employees of state and local government do not
participate in Social Security, including approximately 40 percent
of all public school teachers, and most to substantially all state
and local government workers in Alaska, Colorado, Louisiana, Maine,
Massachusetts, Nevada, and Ohio.
Nearly every state has made changes to its pension plan in recent
years; the most common change has been an increase in required
employee contribution rates. This trend is reflected in Figure I,
which shows the median employee rate changing, for the first time
since the inception of this survey, from 5.0 percent to 5.7 percent.
Contribution rates among employers in both groups continued recent
Figure K illustrates the changes over time in two measures
pertaining to the Annual Required Contribution (ARC): the average
ARC received by all plans in the Survey; and the percentage of
plans that received at least 90 percent of their ARC (an arbitrary
benchmark denoting a ďgood faithĒ effort). The investment market
losses experienced by public pension funds in 2008-09 increased
public pensionsí unfunded liabilities, which, in turn, increases
the cost of the plan. Meanwhile, the Great Recession decimated
state and (and especially) local government revenues, an
experience from which most plan sponsors still are recovering.
Implementing higher contributions, from employees and employers,
takes time, as the effect of changes, such as investment losses,
must first be measured through an actuarial valuation; then a
legislature or other governing body must approve new contribution
rates. This cycle, from actuarial event to implementation of higher
contribution rates, can take several years.
Figure K suggests that efforts to fund public pensions, in general,
are stabilizing after a period of declining ARC effort during and
after the Great Recession. This ďdecliningĒ effort occurred despite
increasing contributions from both employees and employers (see
Figure L), as required pension costs grew faster than the
contributions that were made.
Figure L plots the combined revenue and expenditures of the
systems in the Public Fund Survey. The green line reflects
investment gains and losses, which tend to vacillate from one year
to the next. Blue bars indicate contributions, from employees and
employers, and red bars depict benefit payments. Contributions and
investment earnings accrue to pension trust funds, established for
the sole purpose of paying benefits and funding administrative
costs. The benefits paid by public retirement systems are paid
from pension trust funds, not from state and local government
operating budgets or general funds.
Of all actuarial assumptions, a public pension planís investment
return assumption has the greatest effect on the long-term cost of
the plan. This is because a majority of revenues of a typical
public pension fund come from investment earnings. Even a minor
change in a planís investment return assumption can impose a
disproportionate impact on a planís funding level and cost.
As shown in Figure M, the median investment return for plans with a
FY-end date of June 30, 2012 (which is approximately three-fourths
of the funds in the survey), barely exceeded one percent. By
contrast, the median one-year return for funds with a FY-end date of
December 31, 2012, was a robust 13.1 percent.
Returns for five-year periods ended in FY 12 remain depressed, as
they continue to reflect the result of the sharp decline in 2008-09.
For longer periods, particularly 10 years and higher, median public
pension fund returns are closer to the investment return assumptions
used by most plans.
For most of the Public Fund Surveyís measurement period, the most
common investment return assumption used by public pension plans was
8.0 percent, with some plans using rates above and below that
benchmark. Since 2009, an unprecedented number of plans have reduced
their investment return assumption. Figure N compares the
distribution of investment return assumptions since the inception of
Some features of Figure N are notable: a) the reduction of the
median assumption below 8.0 percent; b) the abandonment of rates
above 8.5 percent; and c) adoption for the first time for plans in
the Survey of a rate, for plans in Indiana and the District of
Columbia, below 7.0 percent.
Figure O plots the average asset allocation of 96 funds in the
Public Fund Survey since its inception. Key secular trends continued
in FY 12, including a) a slow but steady decline in the average
allocation to Public Equities; and b) a consistent increase in
allocations to Real Estate and Alternatives (composed primarily of
private equity and hedge funds). Reversing a long-term trend, after
reaching its lowest-ever point in FY 11, the allocation to Fixed
Income rose in FY 12 for the first time, to 25.4 percent.
Appendix A and B are accessible via the Report Selection page to registered users of the Public
Survey. Access these appendices by logging in via the
- Appendix A presents a listing of systems in the survey,
including their market value of assets and membership counts.
- Appendix B presents a listing of plans in the survey,
including their actuarial value of assets and liabilities and