About the Public Fund Survey

The Public Fund Survey is an online compendium of key characteristics of most of the nation’s 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, NASRA research director, maintains the Survey.

A key objective of the Survey is to increase the transparency of the public pension community and understanding of public pension funding concepts by providing a factual and objective basis on which to discuss many issues related to retirement benefits for public employees.

Beginning with fiscal year 2001, the Survey contains data on public retirement systems that provide pension and other benefits for 13.1 million active (working) members and 7.5 million annuitants (those receiving a regular benefit, including retirees, disabilitants and beneficiaries). At the end of FY 11, systems in the Survey held assets of $2.64 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 2011.

This summary describes changes in selected elements of the survey, including funding levels, membership, contribution rates, investment returns, and investment return assumptions.

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 11 declined to 75.8 percent, down from 77.0 percent the prior year. The aggregate actuarial value of assets grew slightly, by 2.7 percent, from $2.59 trillion to $2.65 trillion. Most plans are nearing completion of recognizing investment losses of 2008-09. Those recognized losses are partially offset by asset gains since the market decline. The aggregate value of actuarial liabilities grew modestly, at 3.6 percent, to $3.49 trillion from $3.37 trillion. Liabilities grow primarily as active plan participants accrue retirement benefit service credits.

Figure A

Figure B presents the aggregate actuarial funding level since 1990, measured by Standard & Poor’s from 1990 to 2000 and by the Survey since 2001. This figure illustrates the substantial effect of investment returns on a pension plan’s funding level: investment market performance was relatively strong during the 1990s and has been relatively weak since 2000. Other factors, however, also have an effect on a plan’s funding level, including contributions made relative to required contributions, changes in benefit levels, and rates of employee salary growth.

Figure B

The individual funding levels of the 126 plans in the Survey are depicted in Figure C. The size of each circle is roughly proportionate to the size of each plan’s actuarial liabilities. The median funding level is 75.2 percent.

Figure C

Figure D illustrates the distribution of changes in funding level among the 123 plans for which new actuarial valuation data was provided in FY 11. As the chart shows, 38, or nearly one-third, of the plans in the Survey had funding levels that were higher than in the prior fiscal year. In most cases, these higher funding levels are due to reductions in benefit levels effected by the plans’ sponsoring government.

For example, in 2011, the Oklahoma Legislature approved legislation effectively preventing, for the foreseeable future, payment by the state PERS and TRS of cost-of-living adjustments. The resulting removal of the actuarial assumption that the plans would pay a cost-of-living adjustment (COLA) each year reduced the plans’ unfunded liabilities and increased their funding level. Nearly every state has approved pension reforms in recent years; some of these reforms have affected benefit levels of existing plan participants, resulting in lower unfunded liabilities, higher funding levels, or both.

Two plans in the survey—Idaho PERS and Oregon PERS—do not phase in, or smooth, investment gains and losses, but rather, use the market value of their plan assets to calculate their funding level. The strong investment returns experienced in FY 11 by the funds supporting these plans resulted in an increase to the plans’ funding level.

Figure D

Figure E plots the median annual change among plans in the Survey in the actuarial value of assets and liabilities since FY 01. FY 11 median liability growth—although slower than in most previous years—was higher in FY 11 than in FY 10. All or most of the cause of this uptick is likely attributable to the many plans that reduced their investment return assumption in FY 11 (see Figure M, below). All else equal, a lower investment return assumption increases a plan’s liabilities.

Figure E

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, the median system increase in the number of annuitants rose in FY 11 to 4.4 percent; the aggregate increase over FY 10 was 4.0 percent. The number of active members declined in FY 11 for a second consecutive year. This decline is consistent with US Census Bureau reports showing a reduction in the number of employees of state and local government, which began in August 2008.

The FY 11 median change was -1.4 percent; the aggregate change was similar, at -1.2 percent. The contrast between the continued increase in annuitants and a declining number of actives is causing a continued reduction in the overall ratio of actives to annuitants. In FY 11, this ratio dropped to 1.74, the lowest level since the Survey’s inception. Although a low or declining ratio of actives to annuitants is not, per se, problematic for a pension plan, the cost as a percentage of payroll of amortizing a larger unfunded pension liability typically is higher when the ratio of actives to annuitants is lower.

Figure F

The annual change in payroll among 106 plans in the survey is reflected in Figure G. As the chart shows, the median change in payroll from FY 10 to FY 11 was virtually unchanged. (Figure G excludes plans that are closed to new hires.) The change in payroll reflects two basic factors: stagnant or declining employment levels and small salary changes. Information provided by the U.S. Bureau of Labor Statistics indicates that annual growth in wages and salary 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 base of annuitants combined with a low or negative rate of growth in active members is a reduction in a retirement system’s external cash flow, defined as the difference between a system’s contributions and payouts for benefits and administrative expenses, divided into the value of the system’s assets. Generally, retirement system payouts have been growing at a steady pace in recent years, while revenue from contributions has grown more slowly, if at all.

Figure G

Figure H summarizes the change in external cash flow since FY 01. A lower (more negative) cash flow typically requires the system’s assets to be managed more conservatively, with a larger allocation to more liquid assets in order to meet current benefit payroll requirements.

Figure H

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 participants who do not. Twenty-five to thirty percent of employees of state and local government do not participate in Social Security.

The investment market losses experienced by public pension funds in 2008-09 increased public pensions’ unfunded liabilities, which, in turn, increases the cost of the plan. Meanwhile, the Great Recession decimated state and local government revenues, an experience from which these plan sponsors are still recovering. On a national basis, the resulting effect of the combination of higher plan costs and reduced government revenue has been a reduction in contributions relative to the Annual Required Contribution, or ARC.

Figure I

Figure J

Figure K illustrates the changes over time in two ARC-related measures: the average ARC received by all plans in the Survey; and the percentage of plans that received at least 90 percent of their ARC (i.e., an arbitrary benchmark denoting a “good faith” effort). This reduction in ARC effort has occurred despite the increases in employer contribution rates, as illustrated in Figures I and J.

Figure K

Because of a sharp decline in equity markets that took place in the second half of 2011, investment returns in FY 11 diverged widely depending on pension funds’ fiscal year-end date. As shown in Figure L, the median investment return for plans with an FY-end date of June 30, 2011 (which is approximately three-fourths of the funds in the survey), exceeded 21 percent. By contrast, the median one-year return for funds with an FY-end date of December 31, 2011, were less than one percent.

Predictably, median returns over longer periods become more similar for funds with different FY-end dates.

Figure L

Of all actuarial assumptions, a public pension plan’s 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 plan’s investment return assumption can impose a disproportionate impact on a plan’s funding level and cost.

For most of the Public Fund Survey’s measurement period, the most common investment return assumption used by public pension plans was 8.0 percent, with rates in use above and below that benchmark. Figure M illustrates the change in investment return assumptions since the inception of the Survey in FY 01. Since 2009 especially, an unprecedented number of plans have reduced their investment return assumption.

Some features of this chart are notable: a) the change in the median assumption from 8.0 percent at the beginning of the measurement period to 7.8 percent currently; b) the abandonment of rates above 8.5 percent; and c) the adoption for the first time for the Survey of a rate by two plans (the Indiana PERF and TRF) that is below 7.0 percent.

Figure M

Public pension funds continued in FY 11 to increase the diversification of their assets. Figure N summarizes the average asset allocation of funds in the Survey since FY 2001. The average allocation to Alternatives increased, continuing a trend from prior years. Much of this growth occurred at the expense of fixed income assets, which declined again in FY 11. Alternatives consists primarily of private equity and hedge funds and also can include such asset subclasses as currency, commodities, and others.

Figure N

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 User Login page.

• 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 funding levels.