It was not long ago that America endured one of the worst financial crises in its history: The Great Recession. Between 2007 and 2009, interest rates were low, credit was easy to come by, and lack of proper regulation allowed subprime mortgages to run rampant. As a result, this perfect storm of poor-lending practices collapsed the once-booming housing market. The ensuing stock market crash hit the world of finance hard. Yet, new research from the National Institute on Retirement Security (NIRS) suggests that public pension systems had sufficient long-term planning to successfully maneuver through the crisis.
The report’s key points are:
- Most public pension systems were able to reach pre-recession funding by 2013 while continuing to make uninterrupted benefit payments to retirees.
- Plans remained stable by utilizing actuarial processes and advanced financial modeling software to take actions such as: lowering discount rates, improving generational mortality tables, shortening amortization periods, and shifting asset allocations in response to market conditions.
- Professional management is critical to public pension plans’ success during market instability.
NIRS Executive Director Dan Doonan stated, “Despite the global turmoil, pension plans didn’t miss a beat delivering promised retirement income to retirees. In fact, more than $3.8 trillion in benefits have been paid since 2007. What’s more, this retrospective analysis shows that most public sector retirement systems recovered their pre-recession asset levels within six years while simultaneously paying benefits.”
What’s clear from this research is that defined-benefit pensions remain a secure retirement income vehicle for public retirees. They are durable in times of economic downturn, and reliably inject billions of dollars into the economy each year.