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Public Pensions Increasingly Rely on Investment Earnings

NCPERS study finds public retirement systems derive 71% of revenue from investment returns.
By Michael Katz


Public pension funds derived 71% of their revenue from their investment earnings last year, up from 69% in both 2019 and 2018, according to an annual study from the National Conference on Public Employee Retirement Systems (NCPERS).

Employer and employee contributions made up the rest of the revenue, accounting for 20% and 9%, respectively. The share of revenue from employer contributions declined from 22% in 2019, while the share of revenue from employee contributions remained unchanged.

The study was based on responses from 138 state and local pension systems that have approximately 12.8 million active and retired members, and assets of more than $1.5 trillion in actuarial and market value. Among the responses, 51% were from statewide pension systems, while 49% were from local pension systems.

The funds reported one-year and 10-year returns above their assumed rate of return, while the five-year and 20-year returns were slightly below their target. The average one-year return for the funds was 8.1%, while the average five-, 10-, and 20-year investment returns were 6.8%, 8.7%, and 6.3%, respectively. The average funded level rose to 75.1% from 72.4% in 2019.

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The average assumed rate of return for responding funds was 7.26% in 2020, up from 7.24% the previous year. Overall, 52% of responding funds said they lowered their assumed rate of return, with 17% saying they are considering doing the same.

In 2019, the funds’ average one-year return was 4.5%, while the five-, 10-, and 20-year average returns were 7.1%, 7.7%, and 11.2%, respectively.  The sharp decline in 20-year returns from 11.2% to 6.3% during the year was attributed to the strong performance of the late 1990s rolling off the average.

Among the retirement systems that offered cost-of-living adjustments (COLAs) to members, the average adjustment in the most recent fiscal year was 1.7%, up slightly from a year earlier. However, the report noted that many of the funds that responded did not offer a COLA in the most recent fiscal year.

And the overall average expense to administer the funds and to pay investment management fees for all respondents was 60 basis points (bps), or 0.6%, up from 0.55% in the 2019.

The report also found that the COVID-19 pandemic—not surprisingly—had a significant impact on the adoption of communication capabilities, as the ability of board members to participate and vote by phone or videoconference rose to 58% from 19%. Approximately 54% of funds now offer live web conferences to members, with another 19% considering it.

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Home > ESG > CalSTRS Lambasts Exxon’s Red Ink and Carbon Capture Venture

CalSTRS Lambasts Exxon’s Red Ink and Carbon Capture Venture

The oil giant shows that it needs fresh faces in its boardroom, says the pension fund.

By Larry Light


The California State Teachers’ Retirement System (CalSTRS) has slammed ExxonMobil’s lousy earnings from last year and its plans to recapture carbon, which the nation’s second largest public pension program deems inadequate.

To CalSTRS, the biggest US oil company needs to elect four outside board members—who would aim to move Exxon toward cleaner energy. Wednesday’s broadside against Exxon represents increased pressure from CalSTRS for the company to become more green-minded.

This four-person slate is primarily being pushed by Engine No. 1, an investment firm that hedge fund operator Chris James heads. CalSTRS has endorsed Engine No. 1’s campaign in the past. Exxon announced Tuesday that it had just elected a new independent director to the board and was looking for more, steps that Engine No. 1 portrayed as insufficient.

The energy giant’s $22 billion loss last year “demonstrates the continued erosion of shareholder value and that incremental changes are not enough to restore investor confidence and position the company for the global energy transition,” the pension fund charged in a statement.

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Exxon said on Monday it would invest $3 billion over the next five years in energy projects that lower emissions. The aim is to capture carbon dioxide emissions from factories and store the greenhouse gas so it doesn’t enter the atmosphere, where it increases global warming.

But CalSTRS labeled that new carbon capture endeavor “inadequate,” as “it represents a small percentage of ExxonMobil’s annual capital expenditures.” The company plans capital expenditures of $19 billion or less in this year, and $20 billion to $25 billion annually between 2022 and 2025. This represents a considerable paring of capex, as Exxon seeks to economize.

The company did not immediately respond to a request for comment. 

Exxon, along with other energy companies,  has seen its revenue and earnings slide in recent years amid petroleum price decreases, which have turned around to a degree in recent months. The pandemic also has hurt the oil business due to less travel, which lowers demand for fuel.

Over the past 12 months, Exxon (market cap: $200 billion) stock has lost 25% of its value. Thus far in 2021, it has nudged up a bit, to $47 a share from $42 amid higher oil prices and word that it is in talks to merge with rival Chevon.

In 2019, three allocators—the New York State Common Retirement Fund (NYSCRF), The Church Commissioners for England (CCE), and the Church of England’s endowment fund—withheld support for Exxon directors seeking re-election. The funds said Exxon had not generated targets for carbon emission reductions at its own operations.

In 2020’s fourth quarter, ExxonMobil reported non-GAAP EPS (or non-generally accepted accounting principles earnings per share) of 3 cents, beating the analysts’ consensus estimates by a penny. Expectations were low: The earnings were 93% down from the year-before period. Meanwhile, the company’s revenue in the fourth quarter slid 30% and reached $46.5 billion, missing Wall Street’s projection by $2.22 billion.

In December, JPMorgan analysts declared that a dividend cut is possible early this year: They weren’t impressed by Exxon’s pledge to “maintain a reliable dividend,” seeing it as falling short of the pledge to maintain the payout at the present level.

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