Asset Management, Admin Fees Dropped, per Recent Public Sector Pension Data

Asset management and administrative fees for public sector pension funds fell sharply in 2022, according to a survey conducted by the National Conference on Public Employee Retirement Systems and Cobalt Community Research.

The survey was conducted from September through December 2023 and included 157 public pension funds (82 local, 75 state) with approximately 1.38 million members and $2.3 trillion in assets. Of the plans, 91% were defined benefit plans, and 115 participated in the same survey in 2022.

Seventy-one percent of respondents responded using data from their pension fund’s 2022 annual report and 28% used data from their 2023 annual report.

According to the survey, average investment management fees fell to 0.39% in the 2023 survey from 0.49% in the 2022 edition. The new level represents a four-year low for the survey that has been conducted for the last 13 years.

Administrative expenses, including investment management, fell to 0.56% from 0.64%.

Asset Performance

The average one-year return among survey participants was -1.9% in the most recent survey, down significantly from the prior year’s 5.4%. Plans with participants eligible for Social Security did worse, with an average return of -3.3%, compared to -1.5% for plans in which participants were not eligible for Social Security. The survey did not comment on potential causes.

The worst-performing assets for respondents were global fixed income and domestic fixed income, which had returns of -7.1% and -7%, respectively. Overall, returns were buoyed by other asset classes, such as real estate at 8%; private equity at 6.7%; private debt at 6.5%; commodities at 6.3%; and other alternative investments at 8%.

In part to account for this drop, 51% of respondents said they have already lowered their expected rate of return in their actuarial assumptions, and 4% are considering doing so. Another 23% reported having already increased employee contributions, and 9% said they are considering it.

The average funding level among responding pension plans was 75.4% down from 77.8%