Public pension plans continued to improve and strengthen their funded status last year. That is the takeaway from a new report by the National Conference on Public Employee Retirement Systems (NCPERS). With many plans earning double-digit investment returns, pension plans took the opportunity to fortify their funded position for the long term.
The annual survey of state and local pensions by NCPERS found that most plans met or exceeded their investment return assumptions. On average, the surveyed pension plans reported 1 year returns of 7.8%, 5 year returns of 8.4%, and 20 year returns of 7.4%. As we’ve noted before on this blog, many public pension plans earned double-digit investment returns during 2017. Just this week, Oregon PERS reported earning 15.3%, more than double their expectations.
Public pension plans took advantage of these strong investment returns to make responsible management decisions regarding their funds. The overwhelming majority of plans either already lowered their investment return assumption or plan to do so. Given the challenging economic environment of recent years, making minor, reasonable tweaks to return assumptions is a responsible decision (but lowering to a so-called “risk-free” discount rate would not be).
NCPERS also reports that more pension plans are receiving their full contributions from state and local governments. The percentage of funds receiving full contributions increased from 70% to 74%. This is encouraging because fully funding pensions each year is the most important thing a government can do to maintain the health of its pensions.
Many people are encouraged by the recent strong performance of the stock market and the continuing improvement in the economy. Certainly, many public pension plans benefited from a strong economy in 2017. Let’s hope that the economy remains strong and that public pension plans can continue to strengthen and improve their funded status in the year ahead.