NCPERS Puts On Brave Face After Public Pension Study

(June 11, 2012)—The funded status of municipal and state pension funds in the United States has dropped from 76.1% in 2011 to 74.9%, a wide-ranging survey by the National Conference on Public Employee Retirement Systems (NCPERS) has determined.

Despite the drop found in its study, NCPERS lauded the findings as demonstrating that “state and local pension funds remain solidly funded, have strong confidence in their ability to address retirement trends and issues and continue to adopt organizational and operational changes to ensure their long-term sustainability.”

The group, the largest trade association for public sector pensions funds that represents more than 550 funds throughout North America, surveyed 147 public pension funds—84% of which were local pension funds, with the remainder made up of state pension funds. Among its findings, the study found that funds were slightly more confident about their readiness to address “retirement trends and issues.” It also marked a slight decrease in the amortization period for the plans.

“Public pension funds are continuing their strong recovery from the historic market downturn of 2008-2009,” NCPERS’ Executive Director and Counsel Hank Kim, said in a release. “The survey shows public pensions are managing their assets efficiently and effectively, making plan design changes to ensure sustainability, continuing to implement sound operational controls and are expressing strong and growing confidence about their readiness to address the challenges ahead.”

Most experts, however, concede that public pension accounting should generally be viewed with a jaundiced eye. The Governmental Accounting Standards Board (GASB) permits public pension funds to employ whatever anticipated rate of return they see fit. Consequently, the typical public fund uses an expected rate of return of as much as 7.5% to 8.5%, well above that allowed to their corporate pension peers. As such, a less generous metric would yield a rather different funding level for the average public plan.

The study comes on the heels of a BNY Mellon report that found that the average funded status of American corporate pension plans had reached their lowest level since 2007. Precipitated by a falling equity market and ever-lower interest rates, the report recorded that the funded status of the typical corporate plan had declined 6.5% to 69.8%.