In the midst of all the doom and gloom surrounding pensions and retirement in general comes this ray of sunshine: public pension plan administrators are increasingly confident about their funds' sustainability and their readiness to meet future retirement issues.
Those are the indications from the latest survey from the National Conference on Public Employee Retirement Systems, which, together with Cobalt Community Research, surveyed a range of state, local and provincial government pension funds with more than 11.8 million active and retired members and with assets exceeding $1.8 trillion.
Respondents' confidence in their readiness to deal with future retirement trends and issues is up, with their overall confidence rating at 7.9 on a 10-point scale, up from 7.8 in 2013 and 7.4 in 2011.
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The 2014 NCPERS Public Retirement Systems Study also found that funds are seeing an increase in funded levels, with the average funded level now 71.5 percent, up from 70.5 percent in 2013. That bit of good news, said the study, can be attributed to average one-year investment returns of 15 percent and lower amortization periods.
Funds' investment returns have also been trending upward beyond one-year vehicles, with three-year investments bringing in 10.3 percent (up from 10 percent last year); five-year investments, 9.8 percent (up from 2.7 percent last year); 10-year investments, 7.8 percent (up from 7 percent); and 20-year investments, 8.1 percent (down just a hair from last year's 8.2 percent).
Tighter investment discipline and control of costs also played into the positive news, with the total average cost of administering funds and paying investment managers coming in at just 61 basis points.
The study cited the Investment Company Institute's 2014 Investment Company Fact Book as saying that the expenses of most equity funds average 74 basis points and hybrid funds average 80 basis points.
The study pointed out that the lower expenses translate to a higher benefit level for members, and thus produce a higher economic impact in members' communities "than most mutual funds."
"There is no question that public pension funds are continuing their strong recovery from the historic market downturn of 2008-2009," NCPERS Executive Director Hank Kim said. "The survey shows public pensions are strong and getting stronger, managing their assets efficiently and effectively, making plan design changes to ensure sustainability and are expressing strong and growing confidence about their readiness to address the challenges ahead."
NCPERS is the largest trade association for public sector pension funds, representing more than 550 funds in the United States and Canada.
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